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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-10307
IMPERIAL HOLLY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-0704500
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE IMPERIAL SQUARE
P.O. BOX 9
SUGAR LAND, TEXAS 77487
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (281) 491-9181
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, WITHOUT PAR VALUE AMERICAN STOCK EXCHANGE
RIGHTS TO PURCHASE PREFERRED STOCK AMERICAN STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $189 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on
December 10, 1998 and (solely for this purpose) treating all directors,
executive officers and 10% shareholders of the registrant as affiliates.
The number of shares outstanding of the registrant's Common Stock, as of
December 10, 1998, was 32,131,304.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement relating to
the registrant's 1999 Annual Meeting of Shareholders are incorporated by
reference in Part III hereof.
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 10
Item 3. Legal Proceedings.............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
Executive Officers of the Registrant........................... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters............................................ 13
Item 6. Selected Financial Data........................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 18
Item 8. Financial Statements and Supplementary Data.................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant............. 21
Item 11. Executive Compensation......................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................... 21
Item 13. Certain Relationships and Related Transactions................. 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K............................................................ 22
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The statements regarding future market prices, operating results and Year
2000 readiness and other statements that are not historical facts contained in
this report on Form 10-K are forward-looking statements. The words "expect",
"project", "estimate", "believe", "anticipate", "plan", "intend", "could",
"may", "predict" and similar expressions are also intended to identify
forward-looking statements. Such statements involve risks, uncertainties and
assumptions, including, without limitation, market factors, the effect of
weather and economic conditions, farm and trade policy, the ability of the
Company to realize cost savings from acquisitions, the ability of the Company
and third party vendors and customers to successfully remediate Year 2000
computer issues, the available supply of sugar, available quantity and quality
of sugar beets and other factors detailed elsewhere in this and other Company
filings with the Securities and Exchange Commission. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated.
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PART I
ITEM 1. BUSINESS
In the past 15 months, Imperial Holly Corporation ("Imperial Holly") has
made a number of strategic acquisitions. In December 1997, Imperial Holly
completed its two-step acquisition of Savannah Foods and Industries, Inc.
("Savannah Foods"), a Georgia-based producer and marketer of sugar and related
products. In September 1998, Imperial Holly acquired Wholesome Foods L.L.C
("Wholesome Foods"), a leading supplier of organic sweetners. In November
1998, Imperial Holly acquired Diamond Crystal Specialty Foods, Inc. ("Diamond
Crystal"), a leading distributor of nutritional dry mixes, sauces, seasonings,
drink mixes and desserts for the foodservice industry. As used herein, the
terms "Imperial Holly" and the "Company" refers to Imperial Holly Corporation
and its subsidiaries, including Savannah Foods, Wholesome Foods and Diamond
Crystal.
THE COMPANY
The Company is the largest, most geographically diverse and most balanced
producer and marketer of refined sugar in the United States. The Company
refines raw cane sugar at four refineries located in Texas, Georgia, Florida
and Louisiana and produces beet sugar at 11 beet sugar factories located in
California, Wyoming, Montana and Michigan. On a pro forma basis for the 12
months ended September 30, 1998, the Company sold approximately 60 million
cwt. of refined sugar.
The Company offers a broad product line and sells to a wide range of
customers directly and through wholesalers and distributors. These customers
include (i) retail grocers, (ii) foodservice companies, which include
restaurants, healthcare institutions, schools and other institutions, and
(iii) industrial customers, which are principally food manufacturers. The
Company's sugar products include granulated, powdered, liquid, liquid blends
and brown sugars sold in a variety of packaging options (one pound boxes to
100-pound bags, individual packets and in bulk) under various brands
(Imperial(R), Holly(R), Spreckels(R), Dixie Crystals(R), Pioneer(R) and
Wholesome(R)) or private labels. Complementary non-sugar products marketed by
the Company include salt, pepper and other seasonings, non-nutritive
sweeteners, non-dairy creamers, nutritional dry mixes, sauces, drink mixes,
desserts, plastic cutlery and packets of plastic cutlery with seasonings and
other items. In addition, the Company produces selected specialty sugar
products including Savannah Gold(TM) (a premium-priced, free-flowing brown
sugar), Imbrocon(TM) (a liquid flavoring), Sucanat(TM) (sugar milled from
organically grown sugarcane) and specialty sugars used in confections and
icings. For the 12 months ended September 30, 1998, the Company had pro forma
revenues of approximately $2.0 billion.
Imperial Holly was incorporated in 1924 as Imperial Sugar Company and is the
successor to a cane sugar plantation and milling operation begun in Sugar Land
in the early 1800s that began producing granulated sugar in 1843. In 1988, the
Company purchased Holly Sugar Corporation ("Holly") and changed its name to
Imperial Holly Corporation. In April 1996, the Company acquired Spreckels
Sugar Company ("Spreckels"). The Company completed its acquisition of Savannah
Foods in December 1997 and completed its acquisitions of Wholesome Foods and
Diamond Crystal in September and November 1998, respectively.
The future results of the Company depend in part on the ability of
management to consolidate operations and to integrate departments, systems and
procedures. This integration may require substantial attention of management.
Any inability of the Company to integrate its operations with those of the
acquired companies in a timely and efficient manner would adversely affect the
Company's ability to realize the planned benefits of the acquisitions,
including potential synergies and cost savings.
INDUSTRY OVERVIEW
Refined sugar can be produced by either processing sugar beets or processing
and refining sugarcane. The profitability of cane sugar and beet sugar
operations is affected by government programs designed to support the price of
domestic crops of sugar beets and sugarcane, which affect cane sugar and beet
sugar operations differently. See "-- Sugar Legislation and Other Market
Factors".
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Cane Sugar Production Process. Sugarcane is grown in tropical and semi-
tropical climates in the United States and some foreign countries. Raw
sugarcane is processed by raw cane mills promptly after harvest into raw
sugar, which is approximately 98% sucrose and may be stored for long periods
and transported over long distances without affecting its quality. Raw cane
sugar imports currently are limited by United States government programs.
Cane sugar refineries like those operated by the Company purify raw sugar to
produce refined sugar. Operating results of cane sugar refineries are driven
primarily by the spread between raw sugar and refined sugar prices. See "--
Sugar Legislation and Other Market Factors".
Beet Sugar Production Process. Sugar beets can flourish wherever a five-
month growing season is possible. In the United States, sugar beets are grown
in Minnesota, North Dakota, Idaho, California, Colorado, Nebraska, Michigan,
Washington and Oregon. Harvest periods depend on the growing area, but are
generally in the early fall, except in California, where spring and summer
harvests occur.
Sugar beets are highly perishable and must be processed into refined sugar
quickly after harvest to avoid deterioration. Beets may be stored in piles
awaiting processing where temperatures are sufficiently cool. Sugar beets are
converted to refined sugar through a single continuous process at beet
factories. Beet factories are located near the areas in which beets are grown
in order to reduce freight costs and the risk of deterioration. The Company's
staggered harvest seasons with respect to the sugar beet acreage supplying the
Company's 11 sugar beet production facilities allows it to produce beet sugar
year round even though the production campaign at any single facility
generally lasts no more than 180 days. Operating results are driven primarily
by the quantity and quality of sugar beets dedicated to the factory and the
net sales prices received for the refined beet sugar. The beet processor
shares a portion of the net sales price with growers through various
participation or recovery contracts or cooperative arrangements. See "-- Raw
Material and Processing Requirements -- Sugar Beet Purchases".
Government Regulation. Federal government programs have existed to support
the price of domestic crops of sugar beets and sugarcane almost continually
since 1934. The regulatory framework that currently affects the domestic sugar
industry includes the Federal Agricultural Improvement and Reform Act of 1996
(the "Farm Bill"), which provides for loans on sugar inventories to first
processors (i.e., raw sugar mills and beet processors) and implements a tariff
rate quota which limits the amount of raw and refined sugar that can be
imported into the United States. The North American Free Trade Agreement
("NAFTA"), which limits the amount of sugar that can be imported to and
exported from Mexico, has to date had a lesser impact on the United States
sugar market.
In the crop year ended September 1997, the USDA implemented a program of
increasing the tariff rate quota in known quantities at three known dates
based on the level of the projected ending stocks-to-use ratio. There was
previously no target for the ending stocks-to-use ratio, and the USDA could
increase or decrease the quota at will. The Company believes that this
administration of the tariff rate quota for foreign sugar has caused the
market to be less volatile. The USDA continued this management strategy for
the crop year ended September 1998. See "-- Sugar Legislation and Other Market
Factors."
Domestic Demand. The Company considers its primary competition in the sugar
industry to be other cane sugar refiners and beet sugar processors. Selling
price and the ability to supply the buyer's quality and quantity requirements
in a timely fashion are important competitive factors.
The replacement of refined sugar by high fructose corn syrup ("HFCS") and
non-nutritive sweeteners in the beverage market was substantially completed
over a decade ago. The Company does not currently consider HFCS a significant
competitive threat, as refined sugar and HFCS generally support different
markets. HFCS is primarily a liquid sweetener and generally does not compete
in the dry sugar market.
Domestic demand for refined sugar has increased each year since 1986, and
the average rate of growth over the five-year period ended September 1997 was
1.6%. The trend in the food manufacturing industry toward production of "low
fat" products has increased industrial demand for sugar, as food manufacturers
have added sugar to enhance flavor and texture as fat is removed.
2
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Domestic Supply. Reduced demand in the early 1980s was absorbed principally
by capacity reductions in the cane sugar refining sector. Approximately one-
third of domestic cane sugar refining capacity was eliminated between 1981 and
1988. Cane sugar refining capacity remained relatively flat from 1988 until
1998, when the United States Sugar Corporation ("U.S. Sugar") completed
construction of a refinery in Florida with a rated annual capacity of
approximately 10 million cwt. Growth in refined sugar demand during the last
decade has been largely satisfied through increased beet sugar production. In
recent years, there have been a number of expansions to existing beet sugar
factories to allow for increased acreage dedications. A partnership in which
the Company owns a 43% interest recently built a new beet sugar factory in
Moses Lake, Washington, which was commissioned in September 1998. The Company
believes that the rate of growth of beet sugar production has slowed as most
of the beet factory expansions that are economic under current conditions have
been completed. The Company believes that further expansion of existing beet
factories would require that beets be transported over greater distances,
which is often uneconomical. Accordingly, construction of new factory sites
would be required for further expansion. See "--Manufacturing Facilities".
Domestic Refined Sugar Prices. Given the existing domestic supply and demand
situation, the increasing role of beet production and the current status of
government regulation, the price of refined sugar in the United States in
recent years has been driven primarily by the amount of beet sugar supply.
Historically, good crop years have led to relatively soft refined sugar
prices, and weak crop years have led to relatively strong refined sugar
prices.
PRODUCTS AND SALES
Refined Sugar. The Company's principal product line is refined sugar, which
accounted for approximately 85% of the Company's pro forma consolidated net
sales for the twelve months ended September 30, 1998. The Company has a
balanced combination of cane and beet sugar sales, with cane sugar
constituting approximately 65% and beet sugar constituting 35% of the
Company's pro forma refined sugar sales for the 12 months ended September 30,
1998. With the acquisition of Wholesome Foods, the Company now also sells
sugar produced from organically grown sugarcane. The Company markets its sugar
products to retail grocery, foodservice, and industrial customers by direct
sales and through brokers or wholesalers. For the 12 months ended September
30, 1998, the Company's pro forma sales of refined sugar products to retail
grocery and foodservice customers accounted for approximately one third of
sugar sales, and pro forma sales to industrial customers accounted for the
remaining two thirds.
Grocery Sales. The Company produces and sells granulated white, brown and
powdered sugar to grocery customers in packages ranging from one-pound boxes
to 25-pound bags. Retail packages are marketed under the trade names
Imperial(R), Dixie Crystals(R), Holly(R), Spreckels(R), Pioneer(R) and
Wholesome(R), and are also sold under retailers' private labels. Private label
packaged sugar, which represents a significant percentage of the Company's
grocery sales, is generally sold at prices lower than those received for
branded sugar. The Company seeks to capitalize on its well-known brands to
seek to increase sales of higher-margin branded products as a percentage of
total grocery sales.
Foodservice Sales (Including Sales of Non-Sugar Products). The Company sells
numerous products to foodservice customers, including healthcare institutions,
ranging from 50-pound bags of sugar to individual packets of sugar, salt,
pepper, non-dairy creamer and plastic cutlery, nutritional dry mixes, sauces,
seasonings, drink mixes, desserts and diet kits(R) (packets of plastic cutlery
with seasonings and other items). The Company believes that the foodservice
sector is one of the most rapidly growing segments of the domestic food
industry. The Company believes its Savannah Foods and Diamond Crystal
acquisitions have positioned the Company to participate in this growing
sector.
Industrial Sales. The Company produces and sells refined sugar, molasses and
other ingredients to industrial customers, principally food manufacturers, in
bulk, packaged or liquid form. Food manufacturers principally purchase sugar
for use in the preparation of confections, baked products, frozen desserts,
canned goods and various other food products. Historically, the majority of
the Company's industrial sales are made to customers under fixed price
contracts with terms of one year or less. Industrial sales generally provide
lower margins than grocery or foodservice sales.
3
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Specialty Product Sales. The Company produces and sells specialty sugar
products to grocery, foodservice and industrial customers. Specialty sugar
products include Savannah Gold(TM), a premium-priced free flowing brown sugar
marketed primarily to industrial customers; Imbrocon(TM), a liquid flavoring
also marketed to industrial customers; edible molasses; syrups; Sucanat(TM),
sugar produced from organically grown sugarcane; and specialty sugars used in
confections, fondants and icings. The Company also markets artificial
sweeteners including Sweet Thing(R), a saccharin-based sweetener, and Sweet
Thing II(R), an aspartame-based sweetener.
Sales and Marketing. The Company's products are sold directly by the
Company's sales force and through independent brokers. The Company maintains
sales offices at its offices in Sugar Land, Texas and Savannah, Georgia and at
regional locations across the United States. The Company considers its
marketing and promotional activities important to its overall sales effort.
The Company advertises its brand names in both print and broadcast media and
distributes various promotional materials, including discount coupons and
compilations of recipes. No customer accounted for 10% or more of the
Company's pro forma sales for the 12 months ended September 30, 1998.
Seasonality. Sales of refined sugar are moderately seasonal, normally
increasing during the summer months because of increased demand of various
food manufacturers, including fruit and vegetable packers; shipments of
specialty products (brown and powdered sugar) increase in the fourth calendar
quarter due to holiday baking needs. Although the refining of cane sugar is
not seasonal, the production of beet sugar is a seasonal activity. Each of the
Company's beet sugar factories operates during sugar-making campaigns, which
generally total 120 days to 180 days in length each year, depending upon the
supply of sugar beets available to the factory. Because of the geographical
diversity of its manufacturing facilities, the Company is generally able to
produce beet sugar year-round. While the seasonal production of sugar beets
requires the Company to store significant refined sugar inventory at each
factory, the geographic diversity and staggered periods of production enable
the Company's total investment in inventories to be reduced. Additionally,
these factors reduce the likelihood that adverse weather conditions will
affect all the Company's productive areas simultaneously and aid in
distribution. Sales of the Company's products to the foodservices industry are
not seasonal.
By-Products. The Company sells by-products from its beet sugar processing as
livestock feeds to dairymen, livestock feeders and livestock feed processors.
Such by-products include beet pulp and molasses. The major portion of the beet
pulp and molasses produced from sugar beet operations is sold during and
shortly after the sugar-making campaigns. By-products from beet sugar
processing are marketed in the United States, Europe and Japan.
Both the domestic and export markets are highly competitive because of the
availability and pricing of by-products of other sugar beet processors and
corn wet millers, as well as other livestock feeds and grains. The market
price of the Company's by-products relative to the price of competitive feeds
and grains is the principal competitive determinant. Among other factors, the
weather and seasonal abundance of such feeds and grains may affect the market
price of by-products. The Company's by-products pro forma sales for the 12
months ended September 30, 1998 were about 3% of total pro forma sales for
such period.
Beet Seed. The Company develops, produces and markets commercial seed to
beet growers under contract to the Company as well as growers under contract
to grow for other beet sugar processors. The Company's beet seed sales program
is conducted primarily in Sheridan, Wyoming and Tracy, California.
The Company has an agreement with ADVANTA SEEDS, a partnership of D. J. van
der Have B.V. and Societe Europeenne de Semences, N.V., S.A. ("ADVANTA"),
granting ADVANTA access to the Company's proprietary beet seed breeding
material for varietal seed development in exchange for the exclusive marketing
rights to ADVANTA's beet seed in certain markets in the United States, Canada
and Mexico. ADVANTA introduced novel and improved varietal genetic material
into the beet seed industry, which the Company believes may lead to advances
in crop yield, sugar content of the beets, resistance to disease and certain
plant processing benefits.
4
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The Company is also active in sugar beet disease control. Domestic sugar
beet growing areas have varying levels of diseases that affect sugar beet
quality and quantity as well as the cost of processing. The Company has a
sugar beet plant pathology disease control research laboratory in Tracy,
California that develops and implements disease control strategies for all of
the Company's sugar beet growing areas. The Company communicates information
about agricultural practices to growers through its computerized agriculture
information systems and printed material, including its magazine Sugar Beet
Update, published semiannually. The Company believes that these activities
strengthen its relationship with its growers, which, in turn, leads to
increased acreage available to the Company and enhanced production and
profitability at its facilities.
Inulin. In 1995, the Company and Cooperatie Cosun U.A., a Netherlands sugar
processor ("Cosun"), formed Imperial-Suiker Unie, L.L.C. ("ISU"), a 50-50
joint venture to introduce and market inulin in North America. Inulin is a
natural carbohydrate with multifunctional properties with potential both as a
nutritional additive and as a functional food ingredient. Inulin is extracted
from chicory roots by a process similar to sugar extraction from sugar beets.
ISU has the exclusive right to market in Canada, Mexico and the United States
inulin and inulin-based products produced by Cosun. The Company has also
entered into various agreements to provide certain marketing and
administrative services to the joint venture.
MANUFACTURING FACILITIES
The Company owns and operates four cane sugar refineries and 11 sugar beet
factories. Each facility is served by adequate transportation and is
maintained in good operating condition. The facilities operate continuously
when in operation. The following table shows the location and capacity of each
of the Company's refineries and processing plants:
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APPROXIMATE DAILY
MELTING CAPACITY
CANE SUGAR REFINERIES (POUNDS OF RAW SUGAR)
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Port Wentworth, Georgia............................. 6,300,000
Gramercy, Louisiana................................. 4,200,000
Sugar Land, Texas................................... 4,000,000
Clewiston, Florida.................................. 1,700,000
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Total............................................. 16,200,000
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APPROXIMATE DAILY
SLICING CAPACITY
BEET SUGAR FACTORIES (TONS OF SUGAR BEETS)
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Brawley, California................................ 9,000
Mendota, California................................ 4,200
Tracy, California.................................. 5,000
Woodland, California............................... 4,000
Caro, Michigan..................................... 4,000
Carrollton, Michigan............................... 3,400
Sebewaing, Michigan................................ 6,000
Croswell, Michigan................................. 4,000
Sidney, Montana.................................... 7,000
Torrington, Wyoming................................ 5,700
Worland, Wyoming................................... 3,600
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Total............................................ 55,900
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The Company also has a 43% limited partnership interest in a partnership
that owns a beet sugar factory in Moses Lake, Washington with a 6,000-ton per
day slicing capacity. The partnership constructed the factory, which was
commissioned in September 1998 and is now operating in its first campaign. The
Company has an agreement with the partnership to manage the operations at the
factory and market its sugar production.
5
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In May 1998, the Company ceased sugar beet processing at its factory in
Hereford, Texas. The Company continues to operate an ion exclusion facility at
the factory to separate refined sugar from molasses, and also uses the
facility as a distribution center.
The following table shows the location and approximate square footage of the
Company's foodservice manufacturing facilities, each of which is owned by the
Company:
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SQUARE
FOODSERVICE MANUFACTURING FACILITIES FEET
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Savannah, Georgia................................................. 314,500
Bondurant and Mitchellville, Iowa................................. 152,513
Bremen, Georgia................................................... 132,400
Perrysburg, Ohio.................................................. 131,000
Moore, Oklahoma................................................... 106,769
Visalia, California............................................... 101,500
Wilmington, Massachusetts......................................... 76,540
Indianapolis, Indiana............................................. 63,240
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RAW MATERIALS AND PROCESSING REQUIREMENTS
Raw Cane Sugar. The Company purchases raw cane sugar from both domestic and
foreign sources of supply located in Louisiana, Florida and various foreign
countries. The availability of foreign raw cane sugar is determined by the
import quota level designated by applicable regulation. See "-- Industry
Overview" and "-- Sugar Legislation and Other Market Factors". The Company has
not experienced difficulties in the past in contracting sufficient quantities
of raw cane sugar to supply its refineries.
Raw cane sugar purchase contracts can provide for the delivery of a single
cargo or for multiple cargoes over a specified period or a specified
percentage of the seller's production over one or more crop years. Contract
terms may provide for fixed prices but generally provide for prices based on
the futures market during a specified period of time. The contracts provide
for a premium if the quality of the raw cane sugar is above a specified grade
or a discount if the quality is below a specified grade. Contracts generally
provide that the seller pays freight, insurance charges and other costs of
shipping.
The Company contracts to purchase raw cane sugar substantially in advance of
the time it delivers the refined sugar produced from that purchase.
Historically, the majority of the Company's industrial sales are under fixed
price contracts; in order to mitigate price risk in raw and refined sugar
commitments, the Company manages the volume of refined sugar sales contracted
for future delivery with the volume of raw cane sugar purchased for future
delivery. The Company uses the raw sugar futures market as a hedging and
purchasing mechanism as management deems appropriate.
U.S. Sugar, which supplies approximately 14% of the Company's supply of raw
cane sugar, has notified the Company that it intends to terminate its supply
contract with the Company effective October 31, 2001. In addition, U.S. Sugar
has completed construction of a refinery in Florida. See "Industry Overview--
Domestic Supply". The Company expects that adequate supplies of raw can sugar
from other sources will be available upon the expiration of this contract. No
assurance can be given, however, that such supplies will be available.
The Company has access to approximately 350,000 short tons of aggregate raw
sugar storage capacity, including 215,000 short tons of storage capacity at
its Port Wentworth, Georgia refinery. At Port Wentworth, the Company has the
ability to segregate its raw sugar inventory, which allows the Company to
store bonded sugar for re-export. This capability facilitates the Company's
participation in the re-export market. The Company has been active in such
market in the past and expects to be active in the future when pricing and
market conditions are favorable.
6
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Sugar Beet Purchases. The Company purchases sugar beets from over 2,400
independent growers, which supply the Company's factories with approximately
310,000 acres of beets. The sugar beets are purchased under contracts
negotiated with associations representing growers. The Company contracts for
acreage prior to the planting season based on estimated demand, marketing
strategy, processing capacity and historical crop yields. The type of contract
used in the western United States provides for payments to the grower based on
the sugar content of the sugar beets delivered by each grower and the net
selling price of refined beet sugar during the specified contract year. The
type of contract used in Michigan provides for growers to share in the
revenues generated by sales of pulp and molasses, as well as sales of refined
sugar. Most grower contracts provide for a premium to the growers for
delivering beets of superior quality. The net selling price is the gross sales
price less certain marketing costs, including packaging costs, brokerage,
freight expense and amortization costs for certain facilities used in
connection with marketing. Use of this type of participating contract reduces
the Company's exposure to inventory price risks on its sugar beet purchases.
The Company's beet sugar operations are dependent upon the quantity, quality
and proximity of sugar beets available to its factories. Sugar beet acreage
varies depending on factors such as prices anticipated by growers for sugar
beets versus alternative crops, prior crop quality, productivity, availability
of irrigation and weather conditions. In addition, the quantity and cost of
refined sugar subsequently produced from the sugar beet crop may be materially
affected by the acreage harvested, disease, insects and unfavorable weather
conditions during the growing, harvesting, processing and storage season.
Once harvested, sugar beets are purchased by the Company and, in some
locations, stored in piles until processed. Under the contracts used in
Michigan, the beet growers continue to share the risk of deterioration of the
stored sugar beets with the Company. However, the Company contractually
accepts the risk with respect to the majority of its stored sugar beets. The
Company believes that the geographic diversity of its growing areas reduces
the risk that adverse conditions will occur company-wide; however, there can
be no assurance that the Company's results of operations will not be adversely
affected by such risks.
Energy. The primary fuel used by the Company is natural gas, although
certain of the Company's factories use significant amounts of coal. The
Company generates a substantial portion of the electricity used at its
refineries and factories. Fuel oil can be used by the Company at certain
locations both as an alternative energy source when the price is more
attractive and as a backup to natural gas in the event of curtailment of gas
deliveries. Natural gas and coal supplies are typically purchased under
contracts for terms of one year or more, which do not contain minimum quantity
requirements.
Pricing of natural gas contracts is generally fixed for the term or indexed
to a spot market index. The Company has also utilized financial tools such as
swaps and caps to stabilize the price for gas purchases under indexed
contracts. Coal is available in abundant supply domestically and the Company
is able to purchase coal competitively.
The Company owns a royalty interest in a coal seam methane gas project in
the Black Warrior Basin of Alabama as an additional indirect hedge against
future natural gas price increases.
Other Raw Materials. Foundry coke and limestone are used in the beet sugar
extraction process. The Company generally purchases coke under contracts with
one to three-year terms and utilizes rail transportation to deliver the coke
to factories. Domestic coke supplies may become tighter due to environmental
restrictions; the Company has the option of converting existing coke-fired
equipment to natural gas should the availability and economics of coke so
dictate. The Company owns a 50% share of a limestone quarry in Warren, Montana
that supplies the Sidney, Montana and Worland, Wyoming factories with their
annual limestone requirements. The Company operates a limestone quarry in
Cool, California that supplies the Company's Northern California beet
processing factories with limestone. These quarries do not normally supply the
Company's other factories because of high freight costs. Limestone required in
the other factory operations is generally purchased from independent sources
under contracts with one to five-year terms.
7
<PAGE>
RESEARCH
The Company operates research and development centers in Sugar Land, Texas
and Savannah, Georgia where it conducts research relating to manufacturing
process technology, factory operations, food science and new product
development. In Savannah, the Company operates a "pilot plant" in connection
with its research and development activities where it has developed sugar
products co-crystallized with other flavors such as honey. The Company has
begun to market the co-crystallized specialty products produced at the pilot
plant to certain customers.
COMPETITION
The Company competes with other cane sugar refiners and beet sugar
processors and, in certain product applications, with producers of other
nutritive and non-nutritive sweeteners. Additionally, the Company's
foodservice operations compete with other foodservice suppliers. Selling price
and the ability to supply the buyer's quality and quantity requirements in a
timely fashion are important competitive factors. Certain competing beet sugar
processors have expanded their production capacity significantly over the past
five years. The additional sugar marketed as a result of this expansion has
acted to reduce refined sugar prices at times during this period. To a lesser
extent, refined sugar also competes with non-nutritive or low-calorie
sweeteners, principally aspartame and, to lesser extents, saccharin and
acesulfam-k.
SUGAR LEGISLATION AND OTHER MARKET FACTORS
The Company's business and results of operations are substantially affected
by market factors, principally the domestic prices for refined sugar and raw
cane sugar, and the quality and quantity of sugar beets available to the
Company. These market factors are influenced by a variety of forces, including
the number of domestic acres contracted to grow sugar beets, prices of
competing crops, weather conditions and United States farm and trade policies.
See "-- Industry Overview" and "-- Raw Materials and Processing Requirements".
The principal legislation currently supporting the price of domestic crops
of sugar beets and sugarcane is the Farm Bill, which became effective July 1,
1996 and extended the sugar price support program for sugarcane and sugar
beets until June 30, 2003.
CCC Loans. Pursuant to the Farm Bill, the Commodity Credit Corporation
("CCC") is obligated annually to make loans available to domestic first
processors of sugar on existing sugar inventories from the current crop year
production. CCC loans under the Farm Bill are recourse loans unless the tariff
rate quota for imported sugar is set at a level in excess of 1.5 million short
tons raw value ("STRV"). If the tariff rate quota exceeds 1.5 million STRV,
CCC loans will become non-recourse and processors will be obligated to pay
participating growers a predetermined minimum support price. CCC loans mature
September 30 of each year and in no event more than nine months after the
month in which the loan was made. Under the Farm Bill, processors may forfeit
sugar to the USDA; if the tariff rate quota is below 1.5 million STRV and the
collateral for the loan is inadequate to cover the loan amount, the USDA may
proceed against the processor for the difference between the loan amount and
the proceeds from the sale of the forfeited sugar. Additionally, a processor
will be penalized approximately 1 cent per pound for each pound of sugar
forfeited.
Tariff Rate Quota. Under the Farm Bill, the USDA utilizes the import quota
and the forfeiture penalty to affect sugar price supports and prevent
forfeitures under the CCC loan program. The USDA annually implements a tariff
rate quota for foreign sugar, which has the effect of limiting the total
available supply of sugar in the United States. The tariff rate quota controls
the supply of raw sugar by setting a punitive tariff on all sugar imported for
domestic consumption that exceeds the determined permitted imported quantity
and is designed to make the importation of the over-quota sugar uneconomical.
To the extent a processor sells refined sugar for export from the United
States, it is entitled to import an equivalent quantity of non-quota eligible
foreign raw sugar. The tariff rate quota for sugar to be allowed entry into
the United States during the year ended September 30, 1998 was 1.7 million
STRV; for the year ending September 30, 1999 the tariff rate quota is expected
to be 1.3 million STRV. The USDA currently determines the quota by targeting
an ending stocks-to-use ratio. A portion of the quota will be made available
immediately with separate allocations made available periodically
8
<PAGE>
depending on domestic production of raw cane sugar and refined beet sugar. The
Company believes that this implementation of the tariff-rate quota for foreign
sugar under the Farm Bill has caused the market for raw cane sugar to be less
volatile, and as a result has helped to reduce fluctuations in profitability
of the Company's cane sugar operations.
NAFTA. NAFTA contains provisions that allow for Mexico to increase its sugar
exports to the United States if Mexico is projected to produce a net surplus
of sugar. The terms of NAFTA restrict Mexico's exports, which may be in the
form of raw or refined sugar, to the United States to no more than 25,000 STRV
annually until the year 2000. Mexico's exports to the United States will be
further increased in the event Mexico produces a sugar surplus for two
consecutive years prior to the year 2000 or at any time thereafter. The
Company's management believes that increased importation of raw cane sugar
from Mexico could benefit the Company because the proximity of its Sugar Land,
Texas refinery to Mexico could allow the Company to import raw cane sugar more
cheaply than its competition. However, if imports are in the form of refined
cane sugar, the domestic refined sugar market may be adversely affected.
EMPLOYEES
At November 30, 1998, the Company employed approximately 3,800 year-round
employees. In addition, the Company employed 4,200 seasonal employees over the
course of the crop year ended September 1998. While the Company's Port
Wentworth, Georgia and Clewiston, Florida refineries employ non-union labor,
the Company has entered into collective bargaining agreements with union
representatives with respect to the employees at all of the Company's other
refineries and processing plants. The Company's Wilmington, Massachusetts;
Bondurant and Mitchellville, Iowa; and Moore, Oklahoma foodservices facilities
employ non-union labor and its Indianapolis, Indiana foodservices facility
operates under a collective bargaining agreement. The Company believes its
employee and union relationships are good.
ENVIRONMENTAL REGULATION
The Company's operations are governed by various federal, state and local
environmental regulations. These regulations impose effluent and emission
limitations, and requirements regarding management of water resources, air
resources, toxic substances, solid waste and emergency planning. The Company
has obtained or is making application for the permits required under these
regulations.
Waste water odor control is being addressed at the Company's facilities in
Tracy and Woodland, California. The soil and ground water at the Company's
Mendota, California facility have high concentrations of salts. The Company
has developed a prevention plan to install a clay cap on the areas of concern
and to treat the affected ground water. This plan will be accomplished over a
20 to 30-year period with an expected annual cost ranging from $40,000 to
$120,000. The Company has recorded a liability for the estimated costs of this
project. The Company's Torrington, Wyoming facility has made significant
operational modifications in order to meet more restrictive state solid waste
and groundwater regulations.
In November 1998, the Company, through its Diamond Crystal subsidiary,
received a Request for Information Pursuant to Section 104 of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and Section 3007 of Resource Conservation and Recovery Act ("RCRA")
relative to the Beede Waste Oil Site in Plainstow, New Hampshire (the "Site").
A response to the information request is due January 4, 1999. The Company has
initiated, but has not yet completed, its preliminary review and cannot
identify a connection between Diamond Crystal and the transporters identified
for the Site.
Ongoing compliance with environmental statutes and regulations has not had,
and the Company does not anticipate that it will in the future have, a
material adverse effect on the Company's competitive position since its
competitors are subject to similar regulation. Additional testing requirements
and more stringent permit limitations have resulted in increasing
environmental costs, and the Company expects that the cost of compliance will
continue to increase. Additional capital expenditures will be required to
comply with future environmental protection standards, although the amount of
any further expenditures cannot be accurately estimated. Management does not
believe that compliance will have a materially adverse impact on the Company's
capital resources, operating results or financial condition.
9
<PAGE>
ITEM 2. PROPERTIES
The Company owns each of its cane sugar refineries, sugar beet processing
plants and foodservices manufacturing facilities. The Company owns its
corporate headquarters in Sugar Land, Texas and leases other office space and
contracts for throughput and storage at warehouses and distribution stations.
The Company owns additional acreage at its factories and refineries which is
used primarily for settling ponds and as buffers from nearby communities or is
leased as farm and pasture land. Substantially all of these assets are subject
to liens securing the Company's bank debt. See "Business -- Manufacturing
Facilities" and "Business -- Other Raw Materials".
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation and claims which are normal in the
course of its operations; while the results of such litigation and claims
cannot be predicted with certainty, the Company believes the final outcome of
such matters will not have a materially adverse effect on its results of
operations or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter
ended September 30, 1998.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of Imperial Holly are elected annually to serve for the
ensuing year or until their successors have been elected. The following table
sets forth certain information with respect to the executive officers of
Imperial Holly:
<TABLE>
<CAPTION>
NAME AGE* POSITIONS
---- ---- ---------
<S> <C> <C>
James C. Kempner........ 59 President and Chief Executive Officer
Roger W. Hill........... 59 Managing Director; President of Holly
William W. Sprague III.. 42 Managing Director; President of Savannah Foods
Mary L. Burke........... 35 Managing Director and Chief Financial Officer
Peter C. Carrothers..... 59 Managing Director
Douglas W. Ehrenkranz... 41 Managing Director
James M. Kelley......... 54 Managing Director
Benjamin A. Oxnard, Jr.. 63 Managing Director
John A. Richmond........ 52 Managing Director
David Roche............. 50 Managing Director
William F. Schwer....... 51 Managing Director, General Counsel and Assistant Secretary
Mark S. Flegenheimer.... 37 Vice President; President of Michigan Sugar Company
H. P. Mechler........... 45 Vice President -- Accounting
Karen L. Mercer......... 36 Vice President and Treasurer
Alan K. Lebsock......... 46 Controller
Roy L. Cordes, Jr....... 51 Secretary
</TABLE>
- --------
* As of December 10, 1998.
Except as set forth below, executive officers have held their present
offices for at least the past five years. Positions, unless specified
otherwise, are with the Company.
Mr. Kempner became President and Chief Executive Officer in 1993. Mr.
Kempner served as Executive Vice President from 1988 to 1993 and also served
as Chief Financial Officer from 1988 to April 1998.
Mr. Hill became a Managing Director in October 1995. He served as Executive
Vice President from 1988 to 1995. Mr. Hill also has been President of Holly
since 1988. Mr. Hill joined Holly in 1963 and served in various capacities,
including Vice President -- Agriculture and Executive Vice President.
Mr. Sprague became a Managing Director in January 1998 and has been
President of Savannah Foods since 1995. He served as President and Chief
Operating Officer of Savannah Foods from 1993 to 1995. Mr. Sprague began his
career with Savannah Foods in 1983 and has held various other positions with
Savannah Foods since then.
Ms. Burke joined the Company and was named a Managing Director and Chief
Financial Officer in April 1998. Prior to joining the Company, Ms. Burke was
Vice President, Food & Commodity Group with Harris Trust & Savings Bank from
1992 to 1998 and served in various other capacities from 1985 to 1992.
Mr. Carrothers became a Managing Director in October 1995. He served as
Senior Vice President -- Operations from March to October 1995. Mr. Carrothers
joined the Company as Senior Vice President -- Logistics in May 1994. From
1990 until joining the Company, he was Vice President -- Logistics of PepsiCo
Foods International and had served in various other capacities with Frito Lay,
Inc., a subsidiary of PepsiCo, since 1973.
Mr. Ehrenkranz became a Managing Director in April 1997. Mr. Ehrenkranz
joined the Company in April 1995 as Director of Sales, Planning & Marketing-
Development and became Vice President -- Sales and Marketing in September
1995. Prior to joining the Company, Mr. Ehrenkranz was Marketing Manager with
PepsiCo's Taco Bell subsidiary from 1993 to 1994 and served in various
positions at Procter & Gamble from 1979. His last position at Procter & Gamble
before joining PepsiCo was Category Sales Manager for Folgers Coffee.
11
<PAGE>
Mr. Kelley became a Managing Director in February 1998. Since 1995, he has
served as President of Dixie Crystals(R) Brands, Inc. Mr. Kelley joined
Savannah Foods in 1973 and has held various other position with Savannah Foods
since then.
Mr. Oxnard became a Managing Director in February 1998. Since 1996, he has
served as Senior Vice President -- Raw Sugar of Savannah Foods. Mr. Oxnard
joined Savannah Foods in 1983 as Vice President -- Raw Sugar.
Mr. Richmond became a Managing Director in April 1997 and was named Vice
President -- Operations in October 1995. Mr. Richmond has been Senior Vice
President and General Manager, Beet Sugar Operations, of Holly since 1993. Mr.
Richmond joined Holly in 1973 and has held various other positions with Holly
since then.
Mr. Roche became a Managing Director in February 1998. Since 1996, he has
served as Senior Vice President of Savannah Foods and President of Michigan
Sugar Company; in 1997 also became President of Savannah Foods Industrial Inc.
Mr. Roche has held various other positions since he joined Savannah Foods in
1976.
Mr. Schwer became a Managing Director in October 1995 and has served as
General Counsel since 1989. Mr. Schwer became Assistant Secretary in 1998. He
also served as Senior Vice President from 1993 to 1995. Mr. Schwer joined
Holly as Assistant General Counsel in 1988.
Mr. Flegenheimer became a Vice President of the Company and President of
Michigan Sugar Company in October 1998. Mr. Flegenheimer joined Michigan Sugar
in 1994 as Vice President of Administration and became Vice President and
Chief Operating Officer in 1996. Prior to joining Michigan Sugar he was
Executive Vice President and Chief Operating Officer of Amerop Sugar
Corporation, New York, New York, a commodity trading firm.
Mr. Mechler became Vice President -- Accounting in April 1997. Mr. Mechler
had been Controller since joining the Company in 1988.
Ms. Mercer became Vice President in April 1997 and has served as Treasurer
since 1994. She joined the Company in 1993. Prior to joining the Company, she
was employed by First City, Texas -- Houston, National Association and Texas
Commerce Bank, National Association. The last position she held at Texas
Commerce Bank was Vice President -- Commercial Lending.
Mr. Lebsock became controller in April 1997 and has been Controller for
Holly since October 1990. From October 1984 to September 1990, he was
Assistant Controller for Holly. Mr. Lebsock joined Holly in 1974.
Mr. Cordes joined the Company as Deputy General Counsel in September 1997.
He became Secretary of the Company in July 1998. Prior to joining the Company,
Mr. Cordes was in private law practice from 1995 to 1997 and was a judge in
Fort Bend County, Texas from 1991 to 1994.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock is traded on the American Stock Exchange. At
December 3, 1998 there were 2,264 shareholders of record of the Common Stock.
The following table sets forth the high and low sales price per share of Common
Stock, as quoted by the American Stock Exchange, and cash dividends per share
declared for the periods set forth below:
<TABLE>
<CAPTION>
SALES PRICE
------------- CASH
THREE MONTHS ENDED HIGH LOW DIVIDEND
------------------ ------ ------ --------
<S> <C> <C> <C>
June 30, 1996...................................... $12.50 $ 7.50 --
September 30, 1996................................. 16.75 11.25 --
December 31, 1996.................................. 16.00 14.50 --
March 31, 1997..................................... 15.38 10.50 --
June 30, 1997...................................... 13.38 9.88 --
September 30, 1997................................. 16.00 11.63 $0.03
December 31, 1997.................................. 14.38 9.75 0.03
March 31, 1998..................................... 12.13 8.31 0.03
June 30, 1998...................................... 10.19 8.75 0.03
September 30, 1998................................. 9.94 6.44 0.03
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the last six fiscal periods is as follows (in
thousands of dollars, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, --------------------------------------
1998(1) 1997(2)(3) 1997(3) 1996 1995 1994
------------- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
For The Period:
Net Sales............. $1,783,091 $406,682 $752,595 $616,450 $586,925 $655,498
Operating Income
(Loss)............... 38,939 20,359 28,423 (2,431) (2,091) (4,566)
Income (Loss) Before
Extraordinary Item
(4).................. (5,835) 9,951 11,518 (3,218) (5,365) (7,965)
Net Income (Loss)..... (7,834) 9,951 11,518 (2,614) (5,365) (7,965)
Per Share Data:
Basic Income (Loss)
Per Share:
Before Extraordinary
Item(4)............ $ (0.24) $ 0.70 $ 0.92 $ (0.31) $ (0.52) $ (0.78)
Net Income (Loss)... (0.32) 0.70 0.92 (0.25) (0.52) (0.78)
Diluted Income (Loss)
Per Share:
Before Extraordinary
Item............... (0.24) 0.69 0.90 (0.31) (0.52) (0.78)
Net Income (Loss)... (0.32) 0.69 0.90 (0.25) (0.52) (0.78)
Cash Dividends
Declared............. 0.12 0.03 -- 0.04 0.16 0.32
At Period End:
Total Assets.......... $1,179,800 $457,619 $449,933 $325,319 $374,124 $393,660
Long-term Debt--Net... 525,893 81,304 90,619 89,800 100,010 100,044
Total Shareholders'
Equity............... 352,907 192,959 176,956 111,043 109,977 114,737
</TABLE>
- --------
(1) Includes the results of Savannah Foods since October 17, 1997, net of
minority interest through December 22, 1997, as discussed in Note 2 to the
Consolidated Financial Statements.
(2) In October 1997, the Company changed its fiscal year end from March 31 to
September 30.
(3) Includes the results of Spreckels since April 19, 1996, as discussed in
Note 2 to the Consolidated Financial Statements.
(4) See Note 6 to the Consolidated Financial Statements for description of
extraordinary items.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the completion of the Savannah acquisition, the Company had
substantial increases in sales, costs and expenses, assets, liabilities and
its level of indebtedness. The pro forma financial information included in
Note 2 to the Consolidated Financial Statements present the combined results
of the companies as if the acquisition and related financing transactions had
occurred prior to the earliest period presented.
The Company's primary capital requirements are expected to include debt
service, capital expenditures and working capital. The primary sources of
capital are expected to be cash flow from operations and borrowings under the
Company's revolving credit facility. Long-term debt as of September 30, 1998
was $525.9 million. At September 30, 1998, the Company had $170 million
available under its $200 million revolving credit facility. In November 1998,
the Company borrowed $102 million under the revolving credit facility to
finance the acquisition of Diamond Crystal as discussed in Note 2 to the
Consolidated Financial Statements. Based upon current and anticipated future
operations and anticipated future cost savings, the Company believes that
capital resources will be adequate to meet anticipated future capital
requirements. There can be no assurance, however, that the Company will
realize sufficient cost savings or generate sufficient cash flow that,
together with the other sources of capital, will enable the Company to service
its indebtedness, or make anticipated capital expenditures. If the Company is
unable to generate sufficient cash flow from operations or to borrow
sufficient funds in the future to service its debt, it may be required to sell
assets, reduce capital expenditures, refinance all or a portion of its
existing indebtedness, or obtain additional financing.
The Company's financing agreements described in Note 6 to the Consolidated
Financial Statements impose various restrictions and covenants on the Company
which could potentially limit the Company's ability to respond to market
conditions, to provide for unanticipated capital investments, to raise
additional debt or equity capital, or to take advantage of business
opportunities. The Company's leverage also reduces the Company's ability to
take these actions.
The Company's senior credit facility incurs interest at variable rates. The
Company has entered into interest rate swap arrangements with notional amounts
aggregating $180 million, to limit its exposure to future increases in
interest rates.
Capital expenditures for fiscal 1998 were $42 million and included the
completion of major projects to expand the Sidney, Montana factory, as well as
to add bulk sugar storage and high speed packaging equipment at the Sugar Land
refinery. Fiscal 1999 capital expenditures are expected to approximate $32
million, and include additional production and packaging efficiency upgrades,
as well as continuation of the Company's computer systems initiative discussed
below.
The Company has a 43% limited partnership interest in a sugar beet
processing facility in Moses Lake, Washington that was commissioned in
September 1998. The facility has not reached full production due to
operational factors associated with the start-up. The partnership may require
additional financing in the future.
The Company has developed, and is in the process of implementing, plans to
address the possible exposures related to the impact on its computer systems
of the year 2000 ("Y2K"). The Company's efforts have been focused in four
areas: (1) technology infrastructure, including hardware and computer
operating software; (2) application software for key financial, informational
and operational systems; (3) process control technology at each of the
Company's production facilities; and (4) third party readiness. These efforts
are being coordinated with the Company's strategic initiative to replace its
major management information systems with newly acquired client-server based
software from PeopleSoft USA, Inc.
The Company estimates that its infrastructure project is 80% complete,
including remediation of the mainframe and mid-range computers in the
Company's Savannah, Georgia and Sugar Land, Texas offices, and installation of
the client-server computers for the PeopleSoft implementation. The remaining
infrastructure effort is principally to complete testing and remediation or
replacement of personal computers and local area network servers.
The Company's plan for Y2K compliance of application software includes
remediation of certain systems and replacement of others. Remediation of
application software processed in Savannah, Georgia was completed
14
<PAGE>
in fiscal 1998. The Company expects to complete remediation of systems
processed in Sugar Land, Texas by the second quarter of fiscal 1999. The
initial phase of replacement with PeopleSoft applications of non-Y2K compliant
applications was implemented in fiscal 1998 and replaced the majority of the
Company's non-compliant systems. The replacement of remaining non-compliant
systems, principally human resource applications, is expected to be completed
by June 30, 1999. If such changes are not completed on a timely basis, the
Company believes it can utilize the Y2K compliant software currently being
used by the Savannah operations.
Management at each of the Company's production facilities is reviewing and
assessing the year 2000 impacts on hardware and software, including embedded
computer chips, utilized for manufacturing process control. The Company
believes that it has substantially completed identification of, and expects to
complete remediation by June 30, 1999 of, manufacturing control technology
which may materially affect its manufacturing operations.
The Company has also initiated discussions with major vendors and customers
concerning their year 2000 readiness, and is evaluating their responses and
developing contingency plans should such third parties not complete required
system modifications. Contingency plans could include identifying alternate
vendors for required services and materials or developing manual procedures
for automated processes.
Costs to modify existing application systems are expected to be less than $1
million, approximately half of which was incurred in fiscal 1998. New hardware
and software purchases, including purchases related to the PeopleSoft
initiative, are estimated to total $8.5 million over a two year period,
including $3.5 million which was capitalized in fiscal 1998. No material costs
were incurred on these projects prior to fiscal 1998.
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the
uncertainty of the year 2000 readiness of third party supplies and customers,
the Company is unable to determine at this time whether the consequences of
year 2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The year 2000 efforts described
above are expected to significantly reduce the Company's level of uncertainty
about the Y2K problem and, in particular, about the year 2000 compliance and
readiness of such third parties. The Company believes that, with the
implementation of new business systems and completion of the projects as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Readers are cautioned that forward-looking statements contained in this year
2000 discussion should be read in conjunction with the Company's disclosures
on the inside cover page of this Form 10-K.
The Financial Accounting Standards Board has issued a number of new
accounting standards discussed in Note 1 to the Consolidated Financial
Statements. These standards, which become effective in future fiscal years,
establish additional accounting and disclosure requirements. Management is
evaluating what, if any, effects such requirements may have on the Company's
consolidated financial statements.
INDUSTRY ENVIRONMENT
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar and raw cane sugar, and
the quantity and quality of sugarbeets available to the Company. These market
factors are influenced by a variety of external forces that the Company is
unable to predict, including the number of domestic acres contracted to grow
sugarcane and sugarbeets, prices of competing crops, weather conditions and
United States farm and trade policy. The domestic sugar industry is subject to
substantial influence by legislative and regulatory actions. The current farm
bill limits the importation of raw cane sugar, affecting the supply and cost
of raw material available to the Company's cane refineries. See "Business--
Sugar Legislation and Other Market Factors" and "--Competition" and "--
Industry Overview".
Weather conditions during the growing, harvesting and processing seasons,
the availability of acreage to contract for sugarbeets, as well as the effects
of diseases and insects, may materially affect the quality and quantity of
sugarbeets available for purchase as well as the costs of raw materials and
processing. See "Business--Raw Materials and Processing Requirements".
15
<PAGE>
RESULTS OF OPERATIONS
Fiscal 1998
As a result of the Savannah acquisition, the Company had substantial
increases in sales, costs and expenses. Additionally, in October 1997, the
Company changed its fiscal year from March 31 to September 30. Accordingly the
operating results of the fiscal year ended September 30, 1998 are not directly
comparable to the results for any prior fiscal year. The following pro forma
financial information presents the Company's results of operations for the
twelve months ended September 30, 1998 and 1997 as if the acquisition of
Savannah and related financing transactions had occurred on, and as if the
Company had changed its fiscal year as of, September 30, 1996 (in thousands of
dollars):
<TABLE>
<CAPTION>
(PRO FORMA)
TWELVE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales........................................ $1,852,637 $1,957,537
Costs and expenses:
Cost of sales.................................. 1,674,619 1,717,971
Selling, general and administrative............ 67,563 97,900
Asset impairment and other charges............. 18,287 --
Depreciation and amortization.................. 50,972 44,252
---------- ----------
Operating income................................. 41,196 97,414
Interest expense................................. (51,689) (54,987)
Realized securities gains........................ 2,181 43
Other income..................................... 7,073 1,750
---------- ----------
Income (loss) before income taxes................ (1,239) 44,220
Provision for income taxes....................... 3,024 19,562
---------- ----------
Net income (loss)................................ $ (4,263) $ 24,658
========== ==========
</TABLE>
Pro forma net sales decreased $104.9 million or 5.3% for the twelve months
ended September 30, 1998, primarily due to lower market prices for refined
sugar as a result of a larger domestic beet crop in the fall of 1997. Sugar
sales volumes were approximately 1% lower on a pro forma basis. Historically,
significant portions of the Company's industrial sales were made under fixed
price, forward sales contracts, most of which commence October 1 and extend
for up to one year. As a result, changes in the Company's realized sales
prices for industrial sales tend to lag market price changes. The Company has
announced higher asking prices for refined sugar for industrial contracts
commencing October 1, 1998. Contracting activity to date has taken place at a
much slower rate than in past years and, as a result, industrial sales
commitments for fiscal 1999 are at lower volumes with much of the industrial
business being done on a spot sales basis.
Pro forma cost of sales for the twelve months ended September 30, 1998
decreased $43.4 million or 2.6%, resulting in gross margin before depreciation
of 9.6% compared to 12.1% for the prior twelve-month period. Margins on
refined sugar sales were negatively affected by lower sugar prices and higher
beet sugar costs. The Company purchases sugar beets under participatory
contracts which provide for a percentage sharing of the net selling price
realized on refined beet sugar sales and, in some cases, byproducts, between
the Company and the grower. Use of this type of contract reduces the Company's
exposure to price risk on sugarbeet purchases so long as the contract net
selling price does not fall below the regional minimum support prices
established by the USDA. Consequently, the decrease in the unit selling price
of refined beet sugar resulted in decreases in the unit cost of sugarbeets
purchased, mitigating the impact on beet sugar sales margins.
Beet sugar costs during fiscal 1998 were adversely impacted by the unusually
mild winter in the Northern Rocky Mountain Region, affecting sugarbeets in
storage, reducing production yields, and increasing processing costs. Beet
sugar cost continued to be adversely affected by low acreage at the Company's
Torrington, Wyoming and Hereford, Texas factories. Record spring rains in
California delayed factory start-ups, adversely impacting beet quality in the
late summer and fall months. The Company recorded a $3.8 million charge in the
second fiscal quarter for the expected impact on industrial sales commitments
of higher costs resulting from such
16
<PAGE>
abnormal weather. Partially offsetting these factors were efficient operations
at the Company's Michigan and Southern California beet sugar factories and
Savannah cane refineries. Raw cane sugar prices were not materially changed in
fiscal 1998 compared to the pro forma prior period resulting in decreased
margins as refined prices declined.
In February 1998, the Company announced that it would not process sugar
beets at the Hereford factory in fall 1998. Severance and other cash closure
costs related to this decision totaling $974,000 were provided for in the
quarter ended March 31, 1998. Additionally, the Company recorded an impairment
loss of $12,538,000 on Hereford's assets for the difference in their fair
value and their carrying costs.
Pro forma selling, general and administrative costs were $30.3 million lower
for the twelve months ended September 30, 1998 compared to the same periods of
the prior year due to reductions in general and administrative costs,
primarily incentive compensation, relocation and corporate overhead costs.
Following the Savannah acquisition the Company reorganized to eliminate
duplication and streamline administrative functions and recorded a charge in
its second fiscal quarter of $975,000 in connection with a 14% reduction in
staff. This and other measures produced cost savings in excess of $20 million
in fiscal 1998, the majority of which was in selling, general and
administrative expenses.
Pro forma interest expense for the twelve months ended September 30, 1998
was lower than the comparable period of the prior year as a result of both
lower short-term interest rates and reduced revolving credit borrowings.
The minority interest in the earnings of Savannah charged to fiscal 1998
results of operations is for the period from October 17, 1997 through December
22, 1997, when Savannah became a wholly owned subsidiary.
Other income increased due to higher dividends, lower costs related to farm
land lease operations and gains recognized on sale of a former beet sugar
factory site and a distribution facility.
Six Months Ended September 30, 1997
Net sales increased $12.7 million or 3.2% in the six months ended September
30, 1997 compared to the six months ended September 30, 1996, primarily as a
result of higher refined sugar prices. Price increases resulted from smaller
sugar beet crops in the fall of 1995 and 1996. Sugar sales volumes increased
modestly during the six months, principally due to higher beet sugar sales.
Cost of sales increased $7.7 million or 2.2% which, coupled with the
increase in sales, resulted in the gross margin before depreciation improving
to 14.2% of sales from 13.4%. Unit sugar gross margins improved as reductions
in raw sugar costs and improved beet sugar operations more than offset higher
sugar beet costs resulting from high selling prices and higher cane refining
costs. The increase in sales prices during the six month period resulted in an
increase in the cost of sugar beets under the participatory purchase
contracts, mitigating the improvement in gross margin. As discussed in Note 1
to the Consolidated Financial Statements, Imperial Holly utilizes LIFO
inventory for sugar inventories. During the six months ended September 30,
1997, Imperial Holly liquidated beginning inventory layers at costs below
current year levels, reducing cost of sales approximately $.7 million.
Selling, general and administrative expenses increased $1.6 million or 5.5%
during the six-month period as increases in warehousing and advertising costs
more than offset reduction in general and administrative costs, principally
resulting from closure of Spreckels Sugar Company's Pleasanton, California
office.
Interest expense declined $1.0 million during the six month period as
reduced long and short-term borrowings more than offset higher short-term
interest rates. In April 1997, Imperial Holly purchased and retired $8.3
million of its senior notes due 1999. Operating cash flow allowed the
reduction in average short-term borrowings by approximately $19.0 million
during the period.
Realized gains on marketable securities decreased $383,000; net unrealized
gains which have not been recognized in Imperial Holly's results of operations
increased $8.3 million to $28.3 million during the six months ended September
30, 1997. Imperial Holly's effective income tax rate was 37% for the six
months ended September 30, 1997, which is higher than the statutory federal
rate primarily due to state income taxes.
17
<PAGE>
Year Ended March 31, 1997
Net sales increased $136.1 million or 22.1% in fiscal 1997 as a result of
almost equal contributions from higher sugar sales prices and volumes, as well
as higher beet pulp sales prices. Sugar sales prices increased as a result of
smaller than usual sugar beet crops in the fall of 1995 and 1996. Increases in
cane sugar sales volumes and the additional volumes attributable to the
Spreckels acquisition more than offset lower sales by Imperial Holly's beet
sugar operations resulting from lower refined sugar inventories in the first
half of the fiscal year. Beet pulp prices began increasing late in fiscal 1996
as a result of higher feed grain prices and returned to more normal levels in
the latter part of fiscal 1997.
Cost of sales increased $100.9 million or 18.3% and gross margin before
depreciation improved to 13.4% of sales in fiscal 1997 from 10.6% in fiscal
1996. Unit sugar sales margins improved as reductions in cane sugar unit
manufacturing costs resulting from increased volumes and reductions in raw
cane sugar costs offset higher energy costs and higher beet sugar
manufacturing costs owing to reduced throughput at three of Imperial Holly's
beet sugar factories. Additionally, winter flooding disrupted rail service in
Northern California requiring the diversion of harvested beets in Oregon and
Washington to Imperial Holly's Sidney, Montana factory. The delays in
processing these beets, as well as the Sidney beets, affected beet quality and
impacted processing, reducing sugar recovery and increasing costs several
million dollars. The increase in sales prices for beet sugar resulted in an
increase in cost of sugar beets under the participatory purchase contracts
described above.
Selling, general and administrative expenses increased $4.5 million
resulting from increases in volume related selling and distribution costs and
incentive compensation as well as increases in administrative costs associated
with Spreckels Sugar Company's Pleasanton, California office which was closed
in Imperial Holly's second fiscal quarter.
Interest expense--net, increased primarily due to higher average short-term
borrowings. Other income--net includes losses on asset dispositions of
approximately $700,000 in 1997 and gains of $400,000 in 1996.
Realized gains on marketable securities decreased $5.0 million in fiscal
1997; net unrealized gains which have not been recognized in Imperial Holly's
results of operations increased $6.2 million and are detailed in Note 3 to
Imperial Holly's Consolidated Financial Statements. The components of income
tax expense and its relationship to statutory rates are detailed in Note 7 to
the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company uses raw sugar futures and options in its inventory purchasing
programs. Gains and losses on such transactions are matched to specific
inventory purchases and charged or credited to cost of sales as such inventory
is sold. The Company does not enter into futures or option transactions for
trading purposes.
The information below presents the Company's domestic futures positions
outstanding as of September 30, 1998. The Company's world sugar futures and
option positions are not material to its consolidated financial position,
results of operations or cash flows.
<TABLE>
<CAPTION>
EXPECTED MATURITY EXPECTED MATURITY
1999 2000
----------------- -----------------
<S> <C> <C>
Futures Contracts (short positions):
Contract Volumes (cwt.)............. 1,122,000 8,000
Weighted Average Contract Price (per
cwt.).............................. $ 22.11 $ 22.13
Contract Amount..................... $24,810,000 $173,000
Weighted Average Fair Value (per
cwt.).............................. $ 22.10 $ 22.20
Fair Value.......................... $24,799,000 $174,000
</TABLE>
The above information does not include either the Company's physical
inventory or its fixed price purchase commitments for raw sugar.
18
<PAGE>
The Company has material amounts of long-term debt with interest rates that
float with market rates, exposing the Company to interest rate risk. The
Company has attempted to reduce this risk by entering into interest rate swap
agreements for a portion of such floating rate debt.
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by expected (contractual) maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract.
Weighted average variable rates are based on implied forward rates in the
treasury yield curve at the reporting date.
AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
FISCAL YEAR ENDING SEPTEMBER 30,
---------------------------------------------------------
THERE- FAIR
1999 2000 2001 2002 2003 AFTER TOTAL VALUE
---- ----- ----- ----- ------ ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-term debt:
Fixed rate debt....... $0.8 $ 6.5 $ 0.4 -- -- $250.0 $257.7 $245.2
Average interest
rate................. 7.7% 8.3% 7.4% -- -- 9.7% 9.7%
Variable rate debt.... $6.7 $11.6 $13.6 $10.6 $109.4 $123.8 $275.7 $275.7
Average interest
rate................. 7.4% 7.3% 7.3% 7.3% 7.2% 7.2% 7.2%
INTEREST RATE
DERIVATIVES
Interest rate swaps:
Variable to fixed....... $6.7 $ 7.1 $ 8.6 $ 9.1 $ 30.5 $113.8 $175.8 $ (8.7)
Average pay rate...... 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1%
Average receive rate.. 5.4% 5.3% 5.3% 5.3% 5.2% 5.2% 5.2%
</TABLE>
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the index of financial statements and financial statement schedules
under "Exhibits, Financial Statement Schedules and Reports on Form 8-K."
Unaudited quarterly financial data for the last ten fiscal quarters is as
follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
BASIC EARNINGS
INCOME (LOSS) (LOSS) PER SHARE
--------------------- --------------------
BEFORE NET BEFORE NET CASH
NET GROSS EXTRAORDINARY INCOME EXTRAORDINARY INCOME DIVIDENDS
SALES MARGIN ITEM (LOSS) ITEM (LOSS) PER SHARE
-------- ------- ------------- ------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended March
31, 1997:
June 30, 1996......... $179,905 $22,978 $ 4,149 $ 4,149 $ 0.40 $ 0.40 --
September 30, 1996.... 214,050 18,761 2,928 2,928 0.25 0.25 --
December 31, 1996..... 189,935 16,166 1,496 1,496 0.11 0.11 --
March 31, 1997........ 168,705 19,737 2,945 2,945 0.21 0.21 --
Transition Period Ended
September 30, 1997 (1):
June 30, 1997......... $197,758 $26,952 $ 7,294 $ 7,294 $ 0.51 $ 0.51 $ --
September 30, 1997.... 208,924 16,121 2,657 2,657 0.19 0.19 0.03
Fiscal Year Ended
September 30, 1998(2):
December 31, 1997(3).. $434,867 $39,131 $ (142) $(2,141) $(0.01) $(0.14) $0.03
March 31, 1998(4)..... 414,967 31,132 (17,217) (17,217) (0.64) (0.64) 0.03
June 30, 1998......... 456,087 48,751 5,275 5,275 0.19 0.19 0.03
September 30, 1998.... 477,170 53,225 6,249 6,249 0.23 0.23 0.03
</TABLE>
- --------
(1) In October 1997, the Company changed its fiscal year end from March 31 to
September 30.
(2) Includes the results of Savannah Foods since October 17, 1997, net of
minority interest through December 22, 1997, as discussed in Note 2 to the
Consolidated Financial Statements.
(3) Net loss for the first quarter of fiscal 1998 included an extraordinary
loss of $1,999,000 from the purchase of senior notes as discussed in Note
6 to the Consolidated Financial Statements.
(4) Results of operations for the second quarter of fiscal 1998 include pre-
tax charges of $975,000 related to costs of a workforce reduction,
$3,800,000 related to expected losses on industrial sales commitments and
$13,512,000 for costs associated with the closure of the Company's
Hereford, Texas factory as discussed in Note 11 to the Consolidated
Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
<PAGE>
PART III
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Election of Directors --
Nominees", "-- Continuing Directors" and "-- Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy Statement
for its 1999 Annual Meeting of Shareholders, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Proxy Statement"), is incorporated
herein by reference. See also "Executive Officers of the Registrant" included
in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Election of Directors --
Director Remuneration", "-- Executive Compensation" and "-- Compensation
Committee Interlocks and Insider Participation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Election of Directors --
Security Ownership" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors --
Compensation Committee Interlocks and Insider Participation" and "-- Other
Information" in the Proxy Statement is incorporated herein by reference.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Independent Auditors' Report.......................................... F-1
Consolidated Balance Sheets at September 30, 1998 and 1997............ F-2
Consolidated Statements of Income for the year ended September 30,
1998, the six months ended September 30, 1997, and the years ended
March 31, 1997 and 1996.............................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the
year ended September 30, 1998, the six months ended September 30,
1997 and the years ended March 31, 1997 and 1996..................... F-4
Consolidated Statements of Cash Flows for the year ended September 30,
1998, six months ended September 30, 1997, and the years ended March
31, 1997 and 1996.................................................... F-5
Notes to Consolidated Financial Statements............................ F-6
</TABLE>
(a)(2) Financial Statement Schedules.
All schedules and other statements for which provision is made in the
applicable regulations of the Commission have been omitted because they are
not required under the relevant instructions or are inapplicable.
(a)(3) Exhibits.
Asterisk indicates exhibit previously filed with the Commission and
incorporated herein by reference as indicated.
<TABLE>
<C> <S>
*3(a) --Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Registration Statement on
Form S-4 (Registration No. 33-20959)).
*3(b) --Articles of Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 1-
10307)).
*3(c) --Statement of Resolution establishing Series of Shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form 10-
K for the year ended March 31, 1990 (File No. 1-10307) (the "1990
Form 10-K")).
*3(d) --Statement of Resolution increasing number of shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990 (File No. 1-10307)).
*3(e)(1) --Rights Agreement dated as of September 14, 1989 between the Company
and The Bank of New York, as Rights Agent (incorporated by reference
to Exhibit 1 to the Company's Current Report on Form 8-K dated
September 21, 1989 (File No. 1-10307)).
*3(e)(2) --Amendment to Rights Agreement dated as of January 27, 1995
(incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated January 27, 1995 (File No. 1-10307)).
3(e)(3) --Amendment to Rights Agreement dated December 11, 1998.
*3(f) --By-Laws of the Company (incorporated by reference to Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year ended March
31, 1989 (File No. 0-16674) (the "1989 Form 10-K")).
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
*3(g)(1) --Investor Agreement dated August 29, 1996 by and among the Company,
Greencore Group plc and Earlsfort Holdings B.V. (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K
dated September 5, 1996 (File No. 1-10307) (the "September 5, 1996
Form 8-K")).
*3(g)(2) --Registration Rights Agreement dated August 29, 1996 by and among
the Company, Greencore Group plc and Earlsfort Holdings B.V.
(incorporated by reference to Exhibit 4.2 to the September 5, 1996
Form 8-K).
3(g)(3) --Amendment to Investor Agreement and Registration Rights Agreement
dated November 19, 1998 by and among the Company, Greencore Group
plc and Earlsfort Holdings B.V.
*3(h)(1) --Agreement and Plan of Merger, dated September 12, 1997, among
Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah
Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1
to the Company's Registration Statement on Form S-4 (Registration
No. 333-40445) (the "Savannah S-4")).
*3(h)(2) --Agreement and Plan of Merger, dated September 4, 1998, as amended
by amendment dated as of October 22, 1998, among Imperial Holly
Corporation, IHK Acquisition Corp. and DSLT Inc. (incorporated by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-
K dated November 2, 1998).
*4(a)(1) --Amended and Restated Credit Agreement dated as of December 22, 1997
among Imperial Holly Corporation, as Borrower, the Several Lenders
from time to time Parties thereto, Lehman Brothers, Inc., as
Arranger, Lehman Brothers Commercial Paper, Inc., as Syndication
Agent and Harris Trust and Savings Bank, as Administrative and
Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to
the Company's Registration Statement on Form S-4 (Registration No.
333-44955)(the "Exchange Offer S-4")).
*4(a)(2) --Amended and Restated Guarantee and Collateral Agreement dated, as
of December 22, 1997, made by Imperial Holly Corporation and certain
of its Subsidiaries in favor of Harris Trust and Savings Bank, as
Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to
the Exchange Offer S-4).
*4(b)(1) --Indenture dated as of December 22, 1997 between the Company,
certain subsidiaries of the Company and The Bank of New York, as
Trustee, relating to the Company's 9-3/4% Senior Subordinated Notes
due 2007 (including form of 9-3/4% Senior Subordinated Note due 2007
and form of Subsidiary Guarantee) (incorporated by reference to
Exhibit 4(b) to the Exchange Offer S-4)).
*4(b)(2) --Indenture dated as of October 15, 1992 by and between the Company
and Texas Commerce Bank National Association, as Trustee, relating
to the Company's 8-3/8% Senior Notes due 1999 (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1992 (File 1-10307)).
The Company is a party to several debt instruments under which the
total amount of securities authorized does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to the
Commission upon request.
Exhibits 10(a) through 10(l) relate to management contracts or
compensatory plans.
*10(a) --Imperial Holly Corporation Stock Incentive Plan (as amended and
restated effective May 1, 1997) (incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1997 (File No. 1-10307) (the "1997 Form 10-
K")).
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
10(b)(1) --Specimen of the Company's Amendment to Employment Agreement for
certain of its officers.
10(b)(2) --Schedule of Employment Agreements.
10(b)(3) --Employment Agreement with W.W. Sprague III dated as of December
23, 1997.
*10(c) --Specimen of the Company's Severance Pay Agreements for certain of
its officers (incorporated by reference to Exhibit 10.2 to the
September 1990 Form 10-Q).
*10(d)(1) --Imperial Holly Corporation Salary Continuation Plan (as amended
and restated effective August 1, 1994) (incorporated by reference
to Exhibit 10(b)(1) to the September 1994 Form 10-Q).
*10(d)(2) --Specimen of the Company's Salary Continuation Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(b)(2) to the
September 1994 Form 10-Q).
*10(d)(3) --Specimen of the Company's Salary Continuation Agreement (Graduated
Vesting) (incorporated by reference to Exhibit 10(b)(3) to the
September 1994 Form 10-Q).
*10(d)(4) --Schedule of Salary Continuation Agreements (incorporated by
reference to Exhibit 10(d)(4) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1996 (File No. 1-10307) (the
"1996 Form 10-K")).
*10(e)(1) --Imperial Holly Corporation Benefit Restoration Plan (as amended
and restated effective August 1, 1994) (incorporated by reference
to Exhibit 10(c)(1) to the September 1994 Form 10-Q).
*10(e)(2) --Specimen of the Company's Benefit Restoration Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(c)(2) to the
September 1994 Form 10-Q).
*10(e)(3) --Specimen of the Company's Benefit Restoration Agreement (Graduated
Vesting) (incorporated by reference to Exhibit 10(c)(3) to the
September 1994 Form 10-Q).
*10(e)(4) --Schedule of Benefit Restoration Agreements (incorporated by
reference to Exhibit 10(e)(4) to the 1996 Form 10-K).
*10(f)(1) --Imperial Holly Corporation Executive Benefits Trust (incorporated
by reference to Exhibit 10.5 to the September 1990 Form 10-Q).
*10(f)(2) --First Amendment to the Company's Executive Benefits Trust dated
June 4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the
1994 Form 10-K).
*10(g) --Imperial Holly Corporation 1989 Nonemployee Director Stock Option
Plan (incorporated by reference to Exhibit A to the Company's Proxy
Statement dated June 16, 1989 for the 1989 Annual Meeting of
Shareholders, File No. 0-16674).
*10(h) --Imperial Holly Corporation Retirement Plan For Nonemployee
Directors (incorporated by reference to Exhibit 10(j) to the 1994
Form 10-K).
*10(i)(1) --Specimen of the Company's Change of Control Agreement
(incorporated by reference to Exhibit 10(d)(1) to the September
1994 Form 10-Q).
*10(i)(2) --Schedule of Change of Control Agreements (incorporated by
reference to Exhibit 10(i)(2) to the 1997 Form 10-K).
*10(j) --Independent Consultant Agreement between I. H. Kempner III and the
Company (incorporated by reference to Exhibit 10(k) to the 1996
Form 10-K).
*10(k) --Specimen of the Company's Restricted Stock Agreement with certain
of its officers (incorporated by reference to Exhibit 10(k) to the
1997 Form 10-K).
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
*10(l) --Schedule of Restricted Stock Agreements (incorporated by reference to
Exhibit 10(l) to the 1997 Form 10-K).
*10(m) --Agreement of Limited Partnership of ChartCo Terminal, L.P.
(incorporated by reference to Exhibit 10(j) to the 1990 Form 10-K).
21 --Subsidiaries of the Company.
23 --Independent Auditors' Consent
</TABLE>
(b)Reports on Form 8-K.
During the three months ended September 30, 1998, the Company did not
file a Current Report on Form 8-K. The Company filed a Current Report
on Form 8-K dated November 2, 1998.
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON DECEMBER 11,
1998.
Imperial Holly Corporation
/s/ James C. Kempner
By___________________________________
James C. Kempner
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON DECEMBER 11, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ James C. Kempner President, Chief Executive Officer, and
- ------------------------------------ Director (Principal Executive Officer)
James C. Kempner
/s/ Mary L. Burke Managing Director and Chief Financial
- ------------------------------------ Officer (Principal Financial Officer)
Mary L. Burke
/s/ H. P. Mechler Vice President, Accounting
- ------------------------------------ (Principal Accounting Officer)
H. P. Mechler
/s/ I. H. Kempner, III Chairman of the Board of Directors
- ------------------------------------
I. H. Kempner, III
/s/ John D. Curtin, Jr. Director
- ------------------------------------
John D. Curtin, Jr.
/s/ David J. Dilger Director
- ------------------------------------
David J. Dilger
/s/ Edward O. Gaylord Director
- ------------------------------------
Edward O. Gaylord
/s/ Gerald Grinstein Director
- ------------------------------------
Gerald Grinstein
/s/ Ann O. Hamilton Director
- ------------------------------------
Ann O. Hamilton
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Robert L. Harrison Director
- ------------------------------------
Robert L. Harrison
/s/ Harris L. Kempner, Jr. Director
- ------------------------------------
Harris L. Kempner, Jr.
/s/ Henry E. Lentz Director
- ------------------------------------
Henry E. Lentz
/s/ Kevin C. O'Sullivan Director
- ------------------------------------
Kevin C. O'Sullivan
/s/ Fayez Sarofim Director
- ------------------------------------
Fayez Sarofim
/s/ William W. Sprague, III Director
- ------------------------------------
William W. Sprague, III
/s/ Daniel K. Thorne Director
- ------------------------------------
Daniel K. Thorne
</TABLE>
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Imperial Holly Corporation:
We have audited the accompanying consolidated financial statements of
Imperial Holly Corporation and subsidiaries (the "Company"), listed in Item
14(a)(1). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Imperial Holly Corporation
and subsidiaries at September 30, 1998 and 1997 and the results of their
operations and their cash flows for the year ended September 30, 1998, the
six-month transition period ended September 30, 1997 and for each of the two
years in the period ended March 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
December 9, 1998
F-1
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
---------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and temporary investments........................... $ 2,877 $ 9,354
Marketable securities.................................... 59,478 55,883
Accounts receivable--trade............................... 139,870 62,158
Inventories:
Finished products...................................... 142,886 92,815
Raw and in-process materials........................... 25,869 17,623
Supplies............................................... 36,174 16,937
Deferred costs and prepaid expenses...................... 39,135 27,805
---------- --------
Total current assets................................. 446,289 282,575
NOTES RECEIVABLE........................................... -- 1,285
OTHER INVESTMENTS.......................................... 20,872 14,646
PROPERTY, PLANT AND EQUIPMENT--Net......................... 398,193 154,751
GOODWILL AND OTHER INTANGIBLES--Net of accumulated
amortization of $7,327,000 in 1998 and $402,000 in 1997... 279,410 1,310
OTHER ASSETS............................................... 35,036 3,052
---------- --------
TOTAL................................................ $1,179,800 $457,619
========== ========
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable--trade................................. $ 106,041 $ 53,923
Short-term borrowings................................... 1,161 43,091
Current maturities of long-term debt.................... 7,555 1,173
Deferred income taxes--net.............................. 27,586 24,327
Other current liabilities............................... 43,717 29,659
---------- --------
Total current liabilities........................... 186,060 152,173
---------- --------
LONG-TERM DEBT--Net of current maturities................. 525,893 81,304
DEFERRED INCOME TAXES--Net................................ 33,781 21,236
DEFERRED EMPLOYEE BENEFITS AND OTHER CREDITS.............. 81,159 9,947
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, issuable in series;
5,000,000 shares authorized, none issued............... -- --
Common stock, without par value; 50,000,000 shares
authorized............................................. 268,804 83,707
Stock held by benefit trust............................. (14,367) --
Treasury stock.......................................... (1,452) --
Retained earnings....................................... 80,150 90,870
Unrealized securities gains--net of income taxes........ 19,772 18,382
---------- --------
Total shareholders' equity.......................... 352,907 192,959
---------- --------
TOTAL............................................... $1,179,800 $457,619
========== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------
1998 1997 1997 1996
------------- ---------------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET SALES............... $1,783,091 $ 406,682 $ 752,595 $ 616,450
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales......... 1,610,852 348,869 651,677 550,782
Selling, general and
administrative....... 65,358 30,668 57,722 53,193
Asset impairment and
other charges
(Note 11)............ 18,287 -- -- 2,225
Depreciation and
amortization......... 49,655 6,786 14,773 12,681
---------- ---------- ---------- ----------
Total............... 1,744,152 386,323 724,172 618,881
---------- ---------- ---------- ----------
OPERATING INCOME
(LOSS)................. 38,939 20,359 28,423 (2,431)
INTEREST EXPENSE--Net... (48,718) (5,301) (12,430) (11,207)
REALIZED SECURITIES
GAINS--Net............. 2,181 11 426 5,389
OTHER INCOME--Net....... 6,386 724 1,269 3,173
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST...... (1,212) 15,793 17,688 (5,076)
PROVISION (CREDIT) FOR
INCOME TAXES........... 2,857 5,842 6,170 (1,858)
MINORITY INTEREST IN
EARNINGS OF SAVANNAH... 1,766 -- -- --
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... (5,835) 9,951 11,518 (3,218)
EXTRAORDINARY ITEM--Net
of tax (Note 6)........ (1,999) -- -- 604
---------- ---------- ---------- ----------
NET INCOME (LOSS)....... $ (7,834) $ 9,951 $ 11,518 $ (2,614)
========== ========== ========== ==========
BASIC EARNINGS (LOSS)
PER SHARE OF COMMON
STOCK:
Income (loss) before
extraordinary item... $ (0.24) $ 0.70 $ 0.92 $ (0.31)
Net income (loss)..... $ (0.32) $ 0.70 $ 0.92 $ (0.25)
DILUTED EARNINGS (LOSS)
PER SHARE OF COMMON
STOCK:
Income (loss) before
extraordinary item... $ (0.24) $ 0.69 $ 0.90 $ (0.31)
Net income (loss)..... $ (0.32) $ 0.69 $ 0.90 $ (0.25)
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 24,177,762 14,247,193 12,576,489 10,300,487
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK COMMON STOCK
--------------------------------- ------------------------------- UNREALIZED PENSION
HELD BY TREASURY HELD BY TREASURY RETAINED SECURITIES LIABILITY
ISSUED BENEFIT TRUST STOCK AMOUNT BENEFIT TRUST STOCK EARNINGS GAINS ADJUSTMENT TOTAL
---------- ------------- -------- -------- ------------- -------- -------- ---------- ---------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1,
1995............. 10,283,445 -- -- $ 32,046 -- -- $72,854 $ 5,635 $(558) $109,977
Net income
(loss).......... -- -- -- -- -- -- (2,614) -- -- (2,614)
Cash dividends
($0.04 per
share).......... -- -- -- -- -- -- (411) -- -- (411)
Employee stock
plans........... 29,062 -- -- 230 -- -- -- -- -- 230
Change in
unrealized
securities
gains--net...... -- -- -- -- -- -- -- 3,303 -- 3,303
Pension
liability
adjustment...... -- -- -- -- -- -- -- -- 558 558
---------- ---------- -------- -------- -------- ------- ------- ------- ----- --------
BALANCE MARCH 31,
1996............. 10,312,507 -- -- 32,276 -- -- 69,829 8,938 -- 111,043
Net income...... -- -- -- -- -- -- 11,518 -- -- 11,518
Employee stock
plans........... 23,928 -- -- 262 -- -- -- -- -- 262
Nonemployee
director
compensation
plan............ 21,760 -- -- 301 -- -- -- -- -- 301
Sale of common
stock........... 3,800,000 -- -- 49,781 -- -- -- -- -- 49,781
Change in
unrealized
securities
gains--net...... -- -- -- -- -- -- -- 4,051 -- 4,051
---------- ---------- -------- -------- -------- ------- ------- ------- ----- --------
BALANCE MARCH 31,
1997............. 14,158,195 -- -- 82,620 -- -- 81,347 12,989 -- 176,956
Net income...... -- -- -- -- -- -- 9,951 -- -- 9,951
Cash dividends
($0.03 per
share).......... -- -- -- -- -- -- (428) -- -- (428)
Employee stock
plans........... 100,920 -- -- 786 -- -- -- -- -- 786
Nonemployee
director
compensation
plan............ 24,660 -- -- 301 -- -- -- -- -- 301
Change in
unrealized
securities gains
-- net.......... -- -- -- -- -- -- -- 5,393 -- 5,393
---------- ---------- -------- -------- -------- ------- ------- ------- ----- --------
BALANCE SEPTEMBER
30, 1997......... 14,283,775 -- -- 83,707 -- -- 90,870 18,382 -- 192,959
Net income
(loss).......... -- -- -- -- -- -- (7,834) -- -- (7,834)
Cash dividends
($0.12 per
share).......... -- -- -- -- -- -- (2,886) -- -- (2,886)
Stock issued in
merger.......... 13,176,193 (814,810) -- 174,584 ($10,796) -- -- -- -- 163,788
Sale of common
stock........... 377,358 -- -- 5,000 -- -- -- -- -- 5,000
Stock sold to
benefit trust... 505,440 (505,440) -- 5,023 (5,023) -- -- -- -- --
Stock
transferred from
benefit trust... -- 121,197 (121,197) -- 1,452 (1,452) -- -- -- --
Employee stock
plans........... 25,938 -- -- 325 -- -- -- -- -- 325
Nonemployee
director
compensation
plan............ 17,287 -- -- 165 -- -- -- -- -- 165
Change in
unrealized
securities
gains--net...... -- -- -- -- -- -- -- 1,390 - 1,390
---------- ---------- -------- -------- -------- ------- ------- ------- ----- --------
BALANCE September
30, 1998......... 28,385,991 (1,199,053) (121,197) $268,804 ($14,367) ($1,452) $80,150 $19,772 -- $352,907
========== ========== ======== ======== ======== ======= ======= ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------
1998 1997 1997 1996
------------- ---------------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....... $ (7,834) $ 9,951 $ 11,518 $ (2,614)
Adjustments for noncash
and nonoperating items:
Extraordinary item--
net................... 1,999 -- -- (604)
Minority interest in
earnings of Savannah.. 1,766 -- -- --
Impairment loss........ 12,538 -- -- --
Depreciation &
amortization.......... 49,655 6,786 14,773 12,681
Deferred income tax
provision............. (2,579) 5,155 5,760 (1,737)
Other.................. 470 369 1,164 (5,203)
Working capital changes
(excluding working
capital acquired in the
purchase acquisitions):
Receivables............ (9,077) (6,601) (10,172) (502)
Inventory.............. 21,278 20,651 (22,564) 45,408
Deferred and prepaid
costs................. 4,914 (2,923) (1,105) 627
Accounts payable....... (3,638) 11,431 (6,997) (6,819)
Other liabilities...... (23,501) 1,011 (1,285) (3,361)
-------- ------- --------- ----------
Operating cash flow..... 45,991 45,830 (8,908) 37,876
-------- ------- --------- ----------
INVESTING ACTIVITIES:
Acquisition of Savannah,
net of cash acquired... (361,218) -- -- --
Acquisition of
Spreckels, net of cash
acquired............... -- -- (36,287) --
Capital expenditures.... (42,419) (15,214) (12,322) (8,890)
Investment in marketable
securities............. (10,837) (5,395) (7,044) (6,537)
Proceeds from sale or
maturity of marketable
securities............. 11,526 6,798 2,139 14,974
Proceeds from sale of
fixed assets........... 4,989 205 109 1,478
Other................... (6,108) (2,657) 1,335 123
-------- ------- --------- ----------
Investing cash flow..... (404,067) (16,263) (52,070) 1,148
-------- ------- --------- ----------
FINANCING ACTIVITIES:
Sale of common stock.... 5,000 -- 49,781 --
Short-term borrowings:
Bank borrowings--net... (41,930) 34,391 4,180 (5,431)
CCC borrowings--
advances.............. 37,037 -- 93,014 153,143
CCC borrowings--
repayments............ (37,037) (53,770) (79,125) (176,965)
Long-term debt:
Proceeds............... 523,274 -- -- --
Repayment.............. (132,229) (9,159) (1,595) (9,324)
Dividends paid.......... (2,886) (428) -- (411)
Stock option proceeds
and other.............. 370 1,034 512 208
-------- ------- --------- ----------
Financing cash flow..... 351,599 (27,932) 66,767 (38,780)
-------- ------- --------- ----------
INCREASE (DECREASE) IN
CASH AND TEMPORARY
INVESTMENTS............. (6,477) 1,635 5,789 244
CASH AND TEMPORARY
INVESTMENTS, BEGINNING
OF YEAR................. 9,354 7,719 1,930 1,686
-------- ------- --------- ----------
CASH AND TEMPORARY
INVESTMENTS, END OF
YEAR.................... $ 2,877 $ 9,354 $ 7,719 $ 1,930
======== ======= ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
1. ACCOUNTING POLICIES
The Company
The consolidated financial statements include the accounts of Imperial Holly
Corporation and its majority owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated. The
Company operates in one domestic business segment--the production and sale of
refined sugar and related products. The Company is significantly affected by
market factors, including domestic prices for refined sugar and raw cane
sugar. These market factors are influenced by a variety of external forces,
including the number of domestic acres contracted to grow sugar cane and
sugarbeets, prices of competing crops, weather conditions and United States
farm and trade policy. Federal legislation and regulations provide for
mechanisms designed to support the price of domestic sugar crops, principally
through the limitations on importation of raw cane sugar for domestic
consumption. In addition, agricultural conditions in the Company's growing
areas may materially affect the quality and quantity of sugar beets available
for purchase as well as the unit costs of raw materials and processing.
A significant portion of the Company's industrial sales are made under fixed
price, forward sales contracts, which extend for up to one year. The Company
contracts to purchase raw cane sugar substantially in advance of the time it
delivers the refined sugar produced from the purchase. To mitigate its
exposure to future price changes, the Company attempts to manage the volume of
refined sugar sales contracted for future delivery and the volume of raw cane
sugar contracted for future delivery, when feasible. Additionally, the Company
utilizes a participatory sugar beet purchase contract, described below, which
relates the cost of sugarbeets to the net selling price realized on refined
beet sugar sales.
Change in Fiscal Year
In October 1997, the Company changed its fiscal year end from March 31 to
September 30. As used herein, the terms fiscal 1998 refers to the twelve
months ended September 30, 1998; fiscal 1997 and fiscal 1996 refer to the
twelve months ended March 31, 1997 and 1996, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that affect
the reported amounts as well as certain disclosures. The Company's financial
statements include amounts that are based on management's best estimates and
judgments. Actual results could differ from those estimates.
Cash and Temporary Investments
Temporary investments consist of short-term, highly liquid investments with
maturities of 90 days or less at the time of purchase.
Marketable Securities
All of the Company's marketable securities are classified as "available for
sale", and accordingly are reflected in the Consolidated Balance Sheet at fair
market value, with the aggregate unrealized gain, net of related deferred tax
liability, included as a component of shareholders' equity. Cost for
determining gains and losses on sales of marketable securities is determined
on the FIFO method.
F-6
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
Inventories
Inventories are stated at the lower of cost or market. Cost of sugar is
determined under the last-in first-out ("LIFO") method. All other costs are
determined under the first-in first-out ("FIFO") method.
If only the FIFO cost method had been used, inventories would have been
higher by $16.7 million at September 30, 1998 and $18.9 million at September
30, 1997. Reductions in inventory quantities in the six month period ended
September 30, 1997 and fiscal 1996 resulted in liquidations of LIFO inventory
layers carried at costs prevailing in prior years. The effect of these
liquidations was to increase net income by about $468,000 ($0.03 per share) in
the six month period ended September 30, 1997, and $1,385,000 ($0.13 per
share) in fiscal 1996.
Sugarbeets Purchased
Payments to growers for sugarbeets are based in part upon the Company's
average net return for sugar sold (as defined in the participating contracts
with the growers) during the grower contract years, some of which extend
beyond the fiscal year end. The contracts provide for the sharing of the net
selling price (gross sales price less certain marketing costs, including
packaging costs, brokerage, freight expense and amortization of costs for
certain facilities used in connection with marketing) with growers. Cost of
sales includes an accrual for estimated additional amounts to be paid to
growers based on the average net return realized to date for sugar sold in
each of the contract years through the end of the fiscal year. The final cost
of sugarbeets cannot be determined until the end of the contract year for each
growing area.
Manufacturing Costs Prior to Production
Certain manufacturing costs incurred between processing periods which are
necessary to prepare each factory for the next processing campaign are
deferred and allocated to the cost of sugar produced in the subsequent
campaign. Such amounts are included in deferred costs and prepaid expenses.
Property and Depreciation
Property is stated at cost and includes expenditures for renewals and
improvements and capitalized interest. Maintenance and repairs are charged to
current operations. When property is retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the respective
accounts, and any gain or loss on disposition is included in income.
Depreciation is provided principally on the straight-line or sum-of-the-
years' digits methods over the estimated service lives of the assets.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized over the life of the
agreements as an increase or decrease in interest expense. The Company does
not use these instruments for trading purposes, rather it uses them to hedge
the impact of interest rate fluctuations on floating rate debt.
Fair Value of Financial Instruments
The fair value of financial instruments is estimated based upon market
trading information, where available. Absent published market values for an
instrument, management estimates fair values based upon quotations from
F-7
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
broker/dealers or interest rate information for similar instruments. The
carrying amount of cash and temporary investments, accounts receivable,
accounts payable, short-term borrowings and other current liabilities
approximates fair value because of the short maturity and/or frequent
repricing of those instruments.
Federal Income Taxes
Federal income tax expense includes the current tax obligation and the
change in deferred income tax liability for the period. Deferred income taxes
result from temporary differences between financial and tax bases of certain
assets and liabilities.
Earnings Per Share
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128") which requires dual
presentation of basic and diluted earnings per share ("EPS") on the face of
the earnings statement and requires a reconciliation of the numerators and
denominators of basic and diluted EPS calculations. Prior period EPS amounts
have been restated to conform to SFAS No. 128.
Pending Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" and Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure About Pensions and Other Post
Retirement Benefits". These statements, which are effective for the Company's
fiscal year ending September 30, 1999, establish additional disclosure
requirements but do not affect the measurement of results of operation.
Additionally, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," has been issued and will
be effective for fiscal year ending September 30, 2000. Management is
evaluating what effect, if any, such statements will have on the Company's
results of operation and/or required disclosures.
2. ACQUISITIONS
Savannah Foods
During fiscal 1998, the Company acquired Savannah Foods and Industries, Inc.
a Georgia based producer and marketer of sugar and related products ("Savannah
Foods"), in a two step transaction. The Company completed the first step on
October 17, 1997, when it accepted for payment pursuant to a tender offer
shares representing 50.1% of Savannah Foods outstanding common stock for
aggregate consideration of $261 million cash (the "Equity Tender"). The second
step was completed December 22, 1997, when Savannah Foods was merged with a
subsidiary of the Company (the "Merger"); Savannah Foods survived the Merger
as a wholly-owned subsidiary of the Company. As a result of the two step
acquisition, the consolidated financial statements include a minority interest
in the earnings of Savannah Foods through December 22, 1997. In consideration
for the Merger, Savannah Foods' stockholders received $106 million cash and
12.4 million shares of the Company's common stock.
F-8
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The purchase method was used to account for the acquisition and Savannah
Foods' results of operations are included in the Company's consolidated
financial statements commencing October 17, 1997, net of minority interest
through December 22, 1997. Purchased intangibles, which include brand related
intangibles and the excess of purchase price over the book value of net assets
acquired ("goodwill"), totaled $283 million and are being amortized over 40
years. Unaudited, summarized pro forma operating results as if the acquisition
and related financing transactions described in Note 6 had occurred on April
1, 1996, are as follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1998 1997 1997
------------- ---------------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.......................... $ 1,852,637 $ 1,018,911 $1,923,324
----------- ----------- ----------
Cost of sales...................... 1,674,619 894,440 1,706,032
Selling, General and
Administrative.................... 67,563 47,399 90,153
Depreciation and amortization...... 50,972 22,883 47,156
Nonrecurring charges............... 18,287 -- 11,003
----------- ----------- ----------
Operating income................... 41,196 54,189 68,980
Interest expense................... (51,689) (26,066) (56,916)
Other income....................... 9,254 1,029 1,410
----------- ----------- ----------
Income before income taxes......... (1,239) 29,152 13,474
Provision for income taxes......... 3,024 12,342 7,434
----------- ----------- ----------
Income before extraordinary item... $ (4,263) $ 16,810 $ 6,040
=========== =========== ==========
Basic earnings per share........... $ (0.16) $ 0.63 $ 0.24
=========== =========== ==========
</TABLE>
Diamond Crystal
On November 2, 1998 the Company acquired all the outstanding common stock of
DSLT Inc. in a merger of a wholly owned subsidiary of the Company with and
into DSLT. Consideration for the acquisition consisted of $79.6 million cash
and 4,972,060 shares of Company Common Stock. The Company retained an option
to repurchase all or part of the Company Common Stock at a price of $7.00 per
share, plus interest. The Company sold a portion of the option covering
2,147,978 shares to certain shareholders who exercised the option in November
1998. The Merger consideration is subject to final adjustments based on an
acquisition date balance sheet of DSLT and other factors.
The cash portion of the Merger consideration was funded by borrowing under
the Company's existing revolving credit agreement.
DSLT conducts its business principally through Diamond Crystal Specialty
Foods, Inc., its subsidiary, which produces nutritional dry mixes, sauces,
seasonings, drink mixes and desserts for distribution to the healthcare and
food service industries. The Company intends to operate Diamond Crystal
together with Dixie Crystals Brands, Inc., the Company's subsidiary which
supplies sugar and non-sugar products to the food service industry.
F-9
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The acquisition will be accounted for by the purchase method and DSLT's
results of operations will be included in the Company's consolidated financial
statements commencing November 2, 1998. Unaudited, summarized pro forma
operating results as if the acquisition of both DSLT and Savannah Foods and
the related financing transactions had occurred on April 1, 1996, are as
follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1998 1997 1997
------------- ---------------- ----------
<S> <C> <C> <C>
Net sales............................ $1,982,351 $1,080,705 $2,026,099
Operating income..................... 48,033 57,997 72,020
Income before extraordinary item..... (5,388) 15,792 1,499
Basic earnings per share............. $ (0.17) $ 0.50 $ 0.05
</TABLE>
Wholesome Foods
In September 1998, the Company acquired all of the equity interest in
Wholesome Foods, LLC for cash of $5.1 million, the majority of which is
payable during fiscal 1999. Wholesome is a leading supplier of organic
sweeteners to the U.S. consumer and industrial markets.
Spreckels
On April 19, 1996, the Company acquired all of the outstanding capital stock
of Spreckels Sugar Company, Inc. and Limestone Products Company, Inc.
(collectively "Spreckels"), a California based beet sugar processor, for $35.3
million. The acquisition was accounted for as a purchase and Spreckels'
results of operations are included in these consolidated financial statements
commencing April 19, 1996.
3. INVESTMENTS
Marketable securities consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------
GROSS UNREALIZED
FAIR HOLDING
AMORTIZED MARKET -----------------
COST VALUE GAINS LOSSES
--------- ------- -------- --------
<S> <C> <C> <C> <C>
US Government securities................... $ 5,906 $ 5,942 $ 36 $ --
Common stocks.............................. 23,155 53,536 30,832 (451)
------- ------- -------- -------
Total.................................... $29,061 $59,478 $ 30,868 $ (451)
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
GROSS UNREALIZED
FAIR HOLDING
AMORTIZED MARKET ------------------
COST VALUE GAINS LOSSES
--------- ------- --------- --------
<S> <C> <C> <C> <C>
US Government securities.................. $ 7,646 $ 7,643 $ 8 $ (11)
Common stocks............................. 19,957 48,240 28,283 --
------- ------- --------- ------
Total................................... $27,603 $55,883 $ 28,291 $ (11)
======= ======= ========= ======
</TABLE>
F-10
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
Realized securities gains are reported net of realized losses of $28,000,
and $2,000 in fiscal years 1997 and 1996, respectively. There were no realized
securities losses during fiscal 1998 or the six months ended September 30,
1997.
Other investments include the Company's royalty interest in a coal seam
methane gas project, which is accounted for at amortized cost, and its
investment in a limited partnership which owns a beet sugar factory in
Washington state, which is accounted for on the equity method.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1998 1997
-------- --------
<S> <C> <C>
Land................................................... $ 52,355 $ 20,167
Buildings, machinery and equipment..................... 509,412 273,536
Construction in progress............................... 20,345 14,572
-------- --------
Total................................................ 582,112 308,275
Less accumulated depreciation.......................... 183,919 153,524
-------- --------
Property, Plant and Equipment--Net..................... $398,193 $154,751
======== ========
</TABLE>
5. SHORT-TERM BORROWINGS
In the past the Company has borrowed short-term from banks under various
unsecured lines of credit and from the Commodity Credit Corporation ("CCC")
under the USDA's price support loan program. CCC borrowings are secured by
refined beet sugar inventory and are recourse or nonrecourse to the Company
depending upon certain regulatory conditions. CCC borrowings, which mature
September 30 each year, reduce the availability of borrowings under the senior
secured revolving credit facility (Note 6).
Outstanding short-term borrowings were as follow (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1998 1997
------ -------
<S> <C> <C>
Commodity Credit Corporation............................. $ -- $ --
Bank working capital financing........................... -- 41,450
Other.................................................... 1,161 1,641
------ -------
Total.................................................. $1,161 $43,091
------ -------
Weighted Average Interest Rate........................... 6.98% 6.89%
====== =======
</TABLE>
F-11
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
6. LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
-------- -------
<S> <C> <C>
Senior secured facilities:
Revolving credit facility.............................. $ 2,400 $ --
Term loans............................................. 250,800 --
9 3/4% Senior Subordinated Notes due 2007............... 250,000 --
Industrial revenue bonds................................ 22,500 --
8 3/8% Senior Notes due 1999............................ 5,801 81,172
Other................................................... 1,947 1,305
-------- -------
Total long-term debt.................................. 533,448 82,477
Less current maturities................................. 7,555 1,173
-------- -------
Long-term debt, net..................................... $525,893 $81,304
======== =======
</TABLE>
To finance the Savannah Foods acquisition, finance a tender offer for the
Company's 8 3/8% Senior Notes due 1999 (the "Debt Tender") and replace the
Company's existing credit facilities, during fiscal 1998 the Company entered
into new financing agreements consisting of senior secured term loans
aggregating $255 million and a $200 million senior secured revolving credit
facility and issued $250 million of 9 3/4% Senior Subordinated Notes due 2007.
The senior secured facilities are secured by substantially all of the
Company's assets. The senior secured facilities and the indenture for the 9
3/4% Senior Subordinated Notes due 2007 contain restrictive covenants which
may limit, among other things, the Company's ability to incur additional
indebtedness, make capital expenditures and investments or pay dividends. The
Company had the ability under the most restrictive of such covenants to pay
$22 million of dividends as of September 30, 1998.
Interest on the senior secured facilities is at floating rates, however the
Company has entered into interest rate swap agreements with major financial
institutions to effectively fix the interest rate on all but $75 million of
the senior secured term loans at a weighted average annual rate of 8.05%. In
October and November 1998, the Company entered into additional interest rate
swap agreements with notional amounts aggregating $40 million at an average
annual rate of 7.55%. If the Company had been required to settle the interest
rate swap agreements as of September 30, 1998, the Company would have been
required to pay $8.7 million. The Company is exposed to credit risk in the
event of nonperformance by counterparties to its interest rate swap
agreements. The Company anticipates that its counterparties will fully perform
their obligations under the agreements.
Aggregate maturities of long-term debt at September 30, 1998 is as follows
(in thousands of dollars):
<TABLE>
<S> <C>
Year Ending September 30:
1999.......................................................... $ 7,555
2000.......................................................... 18,083
2001.......................................................... 14,035
2002.......................................................... 10,600
2003.......................................................... 109,375
Thereafter.................................................... 373,800
</TABLE>
In connection with the Debt Tender, 8 3/8% Senior Notes due 1999 with a
principal amount of $75,371,000 were purchased in October 1997, and the
indenture relating to the Senior Notes was amended to, among other things,
remove restrictions on the Company's ability to create liens on certain
properties. The Company reported
F-12
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
as an extraordinary item a loss of $1,999,000 on such purchase, net of tax of
$1,075,000. In fiscal 1996, the Company purchased and retired a portion of the
8 3/8% Senior Notes due 1999 for amounts less than book value, and the Company
reported such difference, net of tax, as an extraordinary item.
Cash paid for interest on short and long-term debt was $45,155,000 for the
year ended September 30, 1998, $6,987,787 for the six months ended September
30, 1997, $11,949,000, and $12,228,000, for the fiscal years ended March 31,
1997 and 1996, respectively. Interest capitalized as part of the cost of
constructing assets was $1,229,000 for fiscal 1998, $272,000 for the six
months ended September 30, 1997. Such amount was not significant in 1997 or
1996.
7. INCOME TAXES
The components of the consolidated income tax provision (credit), including
amounts reported as an extraordinary item, were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------
1998 1997 1997 1996
------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Federal:
Current............... $2,419 $ -- $ 20 $ 109
Tax benefit of
operating loss
carryforward......... 3,332 1,551 (1,762) (1,452)
Deferred.............. (4,663) 3,604 7,522 (285)
State................... 694 687 390 95
------ ------ ---------- ----------
Total................. $1,782 $5,842 $ 6,170 $ (1,533)
====== ====== ========== ==========
</TABLE>
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------
1998 1997
---------------------------- ---------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Current:
Marketable securities
valuation
differences.......... $ -- $ (10,676) $(10,676) $ -- $ (9,899) $ (9,899)
Inventory valuation
differences,
principally purchase
accounting........... -- (15,367) (15,367) -- (12,230) (12,230)
Manufacturing costs
prior to production
deducted currently... -- (11,361) (11,361) -- (10,168) (10,168)
Accruals not currently
deductible........... 6,802 -- 6,802 2,272 -- 2,272
Alternate minimum tax
differences.......... 902 -- 902 903 -- 903
Operating loss
carryforward......... -- -- -- 3,332 -- 3,332
Other................. 2,114 -- 2,114 1,463 -- 1,463
------- --------- -------- ------ -------- --------
Total current....... 9,818 (37,404) (27,586) 7,970 (32,297) (24,327)
------- --------- -------- ------ -------- --------
Noncurrent:
Depreciation
differences,
including purchase
accounting........... -- (65,678) (65,678) -- (22,329) (22,329)
Accruals not currently
deductible........... 29,332 -- 29,322 1,052 -- 1,052
Other................. 2,565 -- 2,565 1,174 (1,133) 41
------- --------- -------- ------ -------- --------
Total noncurrent.... 31,897 (65,678) (33,781) 2,226 (23,462) (21,236)
------- --------- -------- ------ -------- --------
Total................... $41,715 $(103,082) $(61,367) $9,932 $(55,759) $(45,563)
======= ========= ======== ====== ======== ========
</TABLE>
F-13
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate of 35% to
the Company's income before taxes (including extraordinary item). The reasons
for the differences from the statutory rate are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------
1998 1997 1997 1996
------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Income taxes computed at
the statutory federal
rate................... $(1,501) $5,527 $ 6,191 $ (1,451)
Non deductible
goodwill
amortization......... 2,424 -- -- --
Non taxable interest
and dividends........ (316) (121) (217) (251)
State income taxes.... 451 447 253 62
Other................. 724 (11) (57) 107
------- ------ ---------- ----------
Total............... $ 1,782 $5,842 $ 6,170 $ (1,533)
======= ====== ========== ==========
</TABLE>
Income taxes paid were $4,000,000 in fiscal 1998, $1,937,000 in the six
months ended September 30, 1997 and $2,300,000 in fiscal 1997 and $213,000 in
fiscal 1996.
8. EMPLOYEE BENEFITS
Retirement Plans
Substantially all of the Company's nonseasonal employees are covered by
retirement plans. Certain unionized employees are covered by an industry-wide
plan, and other employees are covered by Company-sponsored defined benefit
plans. Under the Company-sponsored defined benefit plans, retirement benefits
are primarily a function of years of service and the employee's compensation
for a defined period of employment. The Company funds pension costs at an
actuarially determined amount based on normal cost and the amortization of
prior service costs, gains, and losses over the remaining service periods.
Additionally, the Company provides a supplemental non-qualified, unfunded
pension plan for certain officers whose benefits under the qualified plan are
limited by federal tax law. The Company provides a non-qualified retirement
plan for non-employee directors, which provides benefits based upon years of
service as a director and the retainer in effect at the date of a director's
retirement.
The aggregate net periodic pension cost for these plans included the
following components (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------
1998 1997 1997 1996
------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Company-sponsored plans:
Service cost for
benefits earned
during the period.... $ 4,897 $ 1,359 $ 2,756 $ 2,089
Interest cost on
projected benefit
obligation........... 14,304 2,927 5,883 2,653
Actual return on plan
assets............... (33,564) (20,145) (15,675) (10,141)
Net amortization and
deferral............. 14,606 16,839 10,355 8,377
------- ------- ---------- ----------
Net periodic pension
cost--
Company-sponsored
plans.............. 243 980 3,319 2,978
Industry-wide plan for
certain unionized
employees.............. 479 212 432 438
------- ------- ---------- ----------
Total pension cost... $ 722 $ 1,192 $ 3,751 $ 3,416
======= ======= ========== ==========
</TABLE>
F-14
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The funded status of the Company-sponsored plans was as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------- -------------------------------
PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value
of projected benefit
obligations:
Accumulated benefit
obligations:
Vested............... $ 28,502 $ 159,765 $ 1,666 $65,352
Nonvested............ 1,334 6,737 19 5,071
--------- --------- ------- -------
Total accumulated
benefit obligations.. 29,836 166,502 1,685 70,423
Effect of projected
future salary
increases............ 3,375 20,998 341 10,430
--------- --------- ------- -------
Projected benefit
obligations.......... 33,211 187,500 2,026 80,853
Plan assets at fair
value (primarily listed
stocks and bonds)...... 14,277 215,723 -- 104,153
--------- --------- ------- -------
Projected benefit
obligations over
(under) plan assets.... 18,934 (28,223) 2,026 (23,300)
Prior service cost of
plan amendments........ (1,586) (3,388) (893) (3,136)
Unrecognized net gains
(losses):
Arising at transition
date................. (229) 99 (518) 176
Arising subsequent to
transition date...... (4,561) 33,597 154 30,165
Adjustment for
additional liability... 1,455 -- 916 --
--------- --------- ------- -------
Accrued pension cost.... $ 14,013 $ 2,085 $ 1,685 $ 3,905
========= ========= ======= =======
Assumptions used:
Current discount rate
for plan
liabilities.......... 6.75% 6.75% 7.5% 7.5%
Projected annual rate
of increase in
compensation levels.. 4.5%--5.0% 4.5%--5.0% 5.0% 5.0%
Assumed long-term
return on plan
assets............... 9.0% 9.0% 8.0% 8.0%
</TABLE>
Other Postemployment Benefits
The Company's Savannah Foods subsidiary sponsors benefit plans that provide
postretirement health care and life insurance benefits to certain employees
who meet the applicable eligibility requirements. The cost of postretirement
health care and life insurance benefits is summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1998
------------------
(IN THOUSANDS)
<S> <C>
Costs related to services provided by employees
during the year.................................... $ 149
Interest cost on accumulated benefit obligation..... 2,127
------
Total postretirement benefit expense.............. $2,276
======
</TABLE>
F-15
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The actuarial and recorded liabilities for these postretirement benefits,
none of which have been funded, and the pertinent assumptions used to compute
this information are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $31,049
Active participants................................. 5,980
-------
Accumulated benefit obligation........................ 37,029
Unrecognized net loss................................. (7,365)
-------
Accrued postretirement benefit obligation............. $29,664
=======
Actuarial assumptions:
Discount rate....................................... 6.75%
Health care cost trend rate
Fiscal 1997--1999................................. 7.5%
Fiscal 2000--2004................................. 6.0%
Thereafter........................................ 5.0%
</TABLE>
Increasing the health care cost trend rate assumption by one percentage
point would have increased the accumulated postretirement benefit obligation
as of September 30, 1998 by approximately $2,235,000 and would have increased
postretirement benefit expense by approximately $142,000 in fiscal 1998.
401(k) Plans
Substantially all of the employees may elect to defer up to 15% of their
annual compensation in the Company sponsored 401(k) tax deferred savings
plans. The Company makes matching contributions in some of these plans. The
amounts charged to expense for each of the periods presented for these plans
were not significant.
Employee Stock Purchase Plan
In July 1993, the shareholders approved an amended and restated employee
stock purchase plan and reserved 1,000,000 shares of common stock. The plan
provides substantially all year-round employees the option to purchase shares
of common stock either through open market purchases at market value or
directly from the Company at 85% of market value. The amounts charged to
compensation expense for each of the periods presented for the discount on
shares purchased under the latter alternative were not significant.
F-16
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
9. SHAREHOLDERS' EQUITY
Earnings per Share--
The following table presents information necessary to calculate basic and
diluted earnings per share. Amounts for the six months ended September 30,
1997 and fiscal 1997 and 1996, have been restated to conform with the
requirements of SFAS No. 128 which was adopted effective December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------
1998 1997 1997 1996
------------- ---------------- ----------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Earnings for basic and
diluted computation:
Income (loss) before
extraordinary item.... $ (5,835) $ 9,951 $ 11,518 $ (3,218)
Adjustments--None..... -- -- -- --
---------- ---------- ----------- ----------
Adjusted income (loss)
before extraordinary
item.................. $ (5,835) $ 9,951 $ 11,518 $ (3,218)
========== ========== =========== ==========
Net income (loss)...... $ (7,834) $ 9,951 $ 11,518 $ (2,614)
Adjustments--None..... -- -- -- --
---------- ---------- ----------- ----------
Adjusted net income
(loss)................ $ (7,834) $ 9,951 $ 11,518 $ (2,614)
========== ========== =========== ==========
Basic earnings per
share:
Weighted average shares
outstanding........... 24,177,762 14,247,193 12,576,489, 10,300,487
========== ========== =========== ==========
Income (loss) per share
before extraordinary
item.................. $ (0.24) $ 0.70 $ 0.92 $ (0.31)
========== ========== =========== ==========
Net income (loss) per
share................. $ (0.32) $ 0.70 $ 0.92 $ (0.25)
========== ========== =========== ==========
Diluted earnings per
share:
Weighted average shares
outstanding........... 24,177,762 14,247,193 12,576,489 10,300,487
Incremental shares
issuable from assumed
exercise of stock
options under the
treasury stock
method................ -- 137,896 151,013 --
---------- ---------- ----------- ----------
Weighed average shares
outstanding--as
adjusted.............. 24,177,762 14,385,089 12,727,502 10,300,487
========== ========== =========== ==========
Income (loss) per share
before extraordinary
item.................. $ (0.24) $ 0.69 $ 0.90 $ (0.31)
========== ========== =========== ==========
Net income (loss) per
share................. $ (0.32) $ 0.69 $ 0.90 $ (0.25)
========== ========== =========== ==========
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") in fiscal 1997. As
permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (SFAS No. 123), the Company measures
compensation cost using the intrinsic value method prescribed in by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
F-17
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The Company's reported net income and earnings per share would have been
reduced had compensation cost for the Company's stock-based compensation plans
been determined using the fair value method of accounting as set forth in SFAS
No. 123. For purposes of estimating the fair value disclosures below, the fair
value of each stock option has been estimated on the grant date with a Black-
Scholes option-pricing model using the following weighted-average assumptions:
expected volatility of 38% to 42%; risk-free interest rate of 5.49% to 7.06%;
and expected lives of 7 to 10 years. The effects of using the fair value
method of accounting on net income and earnings per share are indicated in the
pro forma amounts below (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------
1998 1997 1997 1996
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before
extraordinary item
As reported.............. $(5,835) $9,951 $ 11,518 $ (3,218)
Pro forma................ (6,725) 9,839 11,351 (3,260)
Net income (loss)
As reported.............. $(7,834) $9,951 $ 11,518 $ (2,614)
Pro forma................ (8,724) 9,839 11,351 (2,656)
Basic earnings per share:
Income (loss) before
extraordinary item
As reported.............. $ (0.24) $ 0.70 $ 0.92 $ (0.31)
Pro forma................ (0.28) 0.69 0.90 (0.32)
Net Income (loss)
As reported.............. $ (0.32) $ 0.70 $ 0.92 $ (0.25)
Pro forma................ (0.36) 0.69 0.90 (0.26)
</TABLE>
Shareholder Rights Plan--
In 1989, the Board of Directors declared a dividend of one Right for each
outstanding share of the Company's common stock. Certain terms of the rights
were amended in January 1995. Each of the Rights, which are currently attached
to the common stock, entitle the holder to purchase two three-hundredths of a
share of a new series of Junior Participating Preferred Stock (189,240 in
total as of September 30, 1998) at a price of $60 (subject to adjustment). The
Rights are not exercisable until the earlier of ten days after the public
announcement that a person or group has acquired 15% or more (25% or more for
persons who were 10% shareholders on January 27, 1995) of the Company's
outstanding common stock (an "Acquiring Person") or ten business days after
the commencement of a tender offer to acquire such an interest. Under certain
circumstances, the Rights, other than the Rights held by the Acquiring Person,
will become exercisable for common stock of the Company (or an acquirer) with
a market value equal to two times the exercise price of the Right. The Rights
are redeemable, at 2/3 cents per Right, at any time prior to a person becoming
an Acquiring Person. The Rights will expire on October 31, 2007.
In connection with the sale of common stock to Greencore Group plc
("Greencore") in 1996, the Board of Directors took action under the
Shareholder Rights Plan to increase the ownership percentage that would
trigger the plan with respect to Greencore to 30% during the term of the
Investor Agreement between Greencore and the Company (not more than 5 years).
Thereafter, the trigger level would be increased to 35%, until such time as
Greencore's investment falls below 15%, at which time the trigger level
becomes 15%. Greencore had the right to designate two nominees for election as
directors of the Company. During the term of the Investor Agreement, Greencore
will be required to vote for the director nominees recommended by the Board of
Directors. During
F-18
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
the term of the Investor Agreement, Greencore is also subject to restrictions
relative to certain actions regarding the Company.
Stock Incentive Plan--
The shareholders have approved the Imperial Holly Corporation Stock
Incentive Plan, and have reserved for issuance 3,562,500 shares of common
stock. The plan provides for the granting of incentive awards in the form of
stock options, stock appreciation rights (SARs), restricted stock, performance
units and performance shares at the discretion of the Executive Compensation
Committee of the Board of Directors. Stock options have an exercise price
equal to the fair market value of the shares of common stock at date of grant,
become exercisable in annual increments for up to five years commencing one
year after date of grant, and expire not more than ten years from date of
grant.
Stock option activity in the plan was as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
--------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Beginning Balance........... 582,895 $10.33 614,327 $10.39
Granted..................... 1,492,829 9.40 9,000 11.33
Expired..................... (80,049) 11.25 (30,800) 12.84
Exercised................... (15,169) 7.60 (9,632) 6.99
--------- -------
Balance, September 30....... 1,980,504 9.63 582,895 10.33
========= =======
Exercisable as of September
30......................... 435,726 10.09 367,020 10.31
========= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
-----------------------------------------------
1997 1996
----------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Beginning Balance.............. 528,589 $10.03 510,733 $10.67
Granted........................ 141,700 12.90 94,000 7.84
Expired........................ (41,551) 15.22 (66,199) 12.33
Exercised...................... (14,411) 7.97 (9,945) 6.67
------- -------
Balance, March 31.............. 614,327 10.39 528,589 10.03
======= =======
Exercisable as of March 31..... 364,964 10.23 330,964 11.05
======= =======
</TABLE>
Options outstanding at September 30, 1998 consisted of the following:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
------------------------
WEIGHTED- WEIGHTED-
RANGE OF AVERAGE WEIGHTED-AVERAGE AVERAGE
EXERCISE PRICES NUMBER OF EXERCISE PRICE REMAINING NUMBER OF EXERCISE PRICE
PER SHARE OPTIONS PER SHARE CONTRACTUAL LIFE OPTIONS PER SHARE
- --------------- --------- -------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.44- $ 8.87 339,850 $ 7.88 4.4 years 292,913 $ 7.89
$ 9.12- $12.25 1,465,429 9.43 9.3 years 12,025 10.28
$13.19- $16.83 175,225 14.55 4.1 years 130,788 15.00
</TABLE>
F-19
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
Certain stock options listed above were granted with SARs. The SARs provide
that, in lieu of the exercise of options, the optionee may receive cash or
shares of stock with a fair market value equal to the amount by which the fair
market value on exercise date of the stock subject to the option exceeds the
option price. No SARs have been exercised and, at September 30, 1998, options
outstanding with SARs attached totaled 45,450 shares, all of which were
exercisable.
Nonemployee Director Stock Option Plan--
The shareholders have approved the Nonemployee Director Stock Option Plan
and have reserved 30,000 shares of common stock for issuance. The plan
provides for the automatic granting to each nonemployee director of options to
purchase 1,500 shares of common stock at a price equal to 50% of the fair
market value at date of grant. The options become exercisable upon the
completion of three years of service as a director, and expire over a two-year
period from the date first exercisable. Stock option activity in the plan was
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------------
1998 1997 1997 1996
----------------- ----------------- ----------------- ------------------
PRICE PRICE PRICE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance....... 2,250 $7.56 4,500 $6.53 3,000 $5.88 5,250 $6.93
Granted................. 1,500 5.38 -- -- 1,500 7.84 --
Expired................. (750) 7.00 -- -- -- (750) 8.84
Exercised............... -- 2,250 5.50 -- (1,500) 8.09
----- ----- ----- ------
Ending Balance.......... 3,000 6.61 2,250 7.56 4,500 6.53 3,000 5.88
Exercisable at Period
End.................... -- 750 7.00 3,000 5.88 --
===== ===== ===== ======
</TABLE>
Options outstanding at September 30, 1998 have a range of exercise prices of
$5.38 to $7.84, and weighted-average remaining contractual life of 3.2 years.
Nonemployee Director Compensation Plan--
In fiscal 1997, the shareholders approved the Nonemployee Director
Compensation Plan which provides for the annual award of common stock to
directors in lieu of their cash retainer. Shares of common stock awarded
pursuant to this plan totaled 17,287 in fiscal 1998 and 21,760 in both the six
months ended September 30, 1997 and in fiscal 1997.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations; while the results of such litigation and claims cannot be
predicted with certainty, the Company believes the final outcome of such
matters will not have a materially adverse effect on its results of operations
or consolidated financial position.
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $7,835,000 in fiscal 1998, $3,571,000 for the six month period
ended September 30, 1997, $5,788,000, and $4,343,000 in fiscal 1997 and 1996
respectively.
F-20
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
The aggregate future minimum lease commitments under noncancelable operating
leases at September 30, 1998 are summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR ENDING SEPTEMBER 30, LEASES
-------------------------------- ---------
<S> <C>
1999.......................................................... $3,618
2000.......................................................... 2,783
2001.......................................................... 2,425
2002.......................................................... 1,861
2003.......................................................... 1,566
After 2003.................................................... 4,110
</TABLE>
The aggregate future minimum amount to be received under sub-leases was
$2,791,000 at September 30, 1998.
11. SUPPLEMENTARY INCOME STATEMENT INFORMATION
In fiscal 1998, the Company incurred a $975,000 charge for severance and
related costs in connection with the reorganization of administrative
functions after the acquisition of Savannah Foods. Additionally, a charge of
$3,800,000 was recorded for the loss the Company expected to incur in
fulfilling its industrial sales commitments in California at higher costs as a
result of the abnormal weather experienced there during the spring months.
In fiscal 1998, the Company ceased sugarbeet processing at its Hereford,
Texas factory, and provided $974,000 for the estimated cash closure costs,
principally severance costs in connection with the layoff of approximately 60
employees. The Company also recorded a $12,538,000 asset impairment loss to
reduce the carrying value of the Hereford assets to estimated fair value.
In fiscal 1996 the Company recorded a charge of $1,750,000 related to the
announced closure of its Hamilton City, California beet processing facility in
early fiscal 1997, including $650,000 related to the layoff of approximately
68 employees. Additionally, in fiscal 1996, the Company recorded a charge of
$475,000 related to costs in connection with a work force reduction.
Other income--net includes interest and dividends totaling $2,718,000 for
fiscal 1998, $1,184,000 for the six months ended September 30, 1997, and
$1,792,000, and $1,820,000 for fiscal 1997 and 1996, respectively.
F-21
<PAGE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998 AND 1997, MARCH 31, 1997 AND 1996
Substantially all of the Company's consolidated subsidiaries are guarantors
of the Company's 9 3/4% senior subordinated notes due 2007. The Company does
not publish separate financial statements for such guarantor subsidiaries.
Condensed, combined financial information for such guarantor subsidiaries was
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED SIX MONTHS ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, -----------------
1998 1997 1997 1996
------------- ---------------- -------- --------
<S> <C> <C> <C> <C>
Income Statement Data
- ---------------------
Net sales................... $1,498,842 $253,543 $443,699 $365,172
Operating income............ 50,414 16,993 16,606 6,278
Net income (loss)........... 24,875 8,324 3,726 (698)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Balance Sheet Data
- ------------------
Current assets.................................................. $360,315
Plant, property and equipment--net.............................. 345,399
Goodwill--net................................................... 279,410
Current liabilities............................................. 174,057
Long-term debt.................................................. 22,500
</TABLE>
F-22
<PAGE>
AMENDMENT TO RIGHTS AGREEMENT
This Amendment, dated as of December 11, 1998 (the "Amendment"),
between Imperial Holly Corporation, a Texas corporation (the "Company"), and The
Bank of New York (the "Rights Agent"),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Rights Agent are parties to a Rights
Agreement dated as of September 14, 1989, as amended by an Amendment to Rights
Agreement dated as of January 27, 1995 (as amended, the "Rights Agreement"); and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company
and the Rights Agent desire to amend the Rights Agreement as set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Definition of Final Expiration Date.
(a) The definition of "Final Expiration Date" in Section 1 of the
Rights Agreement is amended to read in its entirety as follows:
"Final Expiration Date" shall mean the close of business on
October 31, 2007.
(b) Any other provisions of the Rights Agreement (including those
in the form of Rights Certificate) referring to September 25, 1999 are amended
to refer to the date of the Final Expiration Date.
Section 2. Severability. If any term, provision, covenant or
restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 3. Governing Law. This Amendment shall be deemed to be a
contract made under the laws of the State of Texas and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and to be performed entirely within such State.
Section 4. Counterparts. This Amendment may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
<PAGE>
Section 5. Descriptive Headings. Descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 6. Confirmation of Rights Agreement. Except to the extent
specifically amended hereby, the provisions of the Rights Agreement shall remain
unmodified, and the Rights Agreement as amended hereby is confirmed as being in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed all as of the day and year first above written.
IMPERIAL HOLLY CORPORATION
By /s/ William F. Schwer
-----------------------------------------------
Name: William F. Schwer
Title: Managing Director and General Counsel
THE BANK OF NEW YORK,
as Rights Agent
By /s/ Steven Myers
------------------------------------------------
Name: Steven Myers
Title: Assistant Treasurer
2
<PAGE>
AMENDMENT TO
INVESTOR AGREEMENT
and
REGISTRATION RIGHTS AGREEMENT
This Amendment to Investor Agreement and Registration Rights Agreement
(this "Amendment") is entered into effective as of November 19, 1998 by and
among Imperial Holly Corporation, a Texas corporation (the "Company"), and
Greencore Group plc and Earlsfort Holdings B.V.(collectively, the "Investor").
RECITALS
WHEREAS, the Company and Investor are parties to (i) that certain
Investor Agreement dated as of August 29, 1996 (the "Investor Agreement") and
(ii) that certain Registration Rights Agreement, dated as of August 29, 1996
(the "Registration Rights Agreement"), each setting forth certain rights and
obligations of such parties relating to the Investor's ownership of shares of
the Company's Common Stock, without par value ("Company Common stock");
WHEREAS, the Company recently consummated the acquisition (the "DC
Acquisition") of DSLT Inc. ("DC");
WHEREAS, in connection with the DC Acquisition, the Company issued
approximately 4,972,060 shares (the "DC Shares") of Company Common Stock to the
former stockholders of DC;
WHEREAS, under the terms of the merger agreement relating to the DC
Acquisition, the Company retained a transferable option to acquire the DC Shares
for the forty-five day period following the completion of the DC Acquisition;
WHEREAS, the Company is selling to Investor an option (the "Option")
to purchase 1,100,000 of the DC Shares, and the Investor is simultaneously
exercising such Option pursuant to the terms thereof;
WHEREAS, in connection with the transactions the parties desire to
amend and restate certain provisions of the Investor Agreement and the
Registration Rights Agreement.
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Status of Investor Agreement. Except as expressly set forth herein, all
terms, conditions and provisions of the Investor Agreement and the Registration
Rights Agreement shall remain in full force and effect in accordance therewith.
All capitalized
<PAGE>
terms not otherwise defined in this Amendment shall have the meanings specified
for such terms in the Investor Agreement.
2. Company Waiver. The Company hereby waives compliance by the Investor with
the provisions of Section 2.3 of the Investor Agreement with respect to the
acquisition by the Investor of shares of Company Common Stock pursuant to the
exercise of the Option by the Investor.
3. Amendment to Restrictions on Transfer in Investor Agreement. Section 3.1
(iv) of the Investor Agreement is hereby amended and restated to reach in its
entirety as follows:
"(iv) to a transferee where the amount of Voting Securities transferred to
such transferee and its Affiliates (together with all other Voting Securities
transferred by the Investor to such transferee and its Affiliates during the 12
months preceding such transfer) does not exceed 10% of the Voting Power,"
4. Amendments to Sections 4 and 5 of Investor Agreement. Each reference to "90
days," "90-day period" or "90th day" contained in Section 4 and 5 of the
Investor Agreement shall be deleted therefrom and shall be replaced by "45
days," "45-day period" or "45th day," as applicable.
5. Amendment to Registration Rights Agreement. The definition of the term
"Registrable Securities" in the Registration Rights Agreement shall be amended
and restated to reach in its entirety as follows:
" "Registrable Securities" shall mean (i) the Common Stock issued to
Investor pursuant to the Purchase Agreement, (ii) the 1,100,000 shares of Common
Stock purchased by the Investor pursuant to the exercise of that certain
Repurchase Option sold and assigned by the Company to the Investor under the
terms of that certain letter agreement, dated August 29, 1998, among the
Company, the Investor and certain other parties, and (iii) any securities issued
in exchange for, as a dividend on, or in replacement of, or otherwise issued or
distributed in respect of (including securities issued in a stock dividend,
split or recombination or pursuant to the exercise of preemptive rights, if
any), any shares of Common Stock referred to in clause (i) or (ii) above;
provided, however, that any securities described in clause (i), (ii) or (iii)
above shall cease to be Registrable Securities when and to the extent that such
securities have been (A) distributed to the public pursuant to a registration
statement covering such securities that has been declared effective under the
Securities Act, (B) distributed in accordance with the provisions of Rule 144
(or any similar provision then in force) under the Securities Act, (C)
transferred to any Person in a manner such that such securities are deemed to
cease being Registrable Securities pursuant to the provisions of Sections 11(i)
and (k) of this Agreement, or (D) repurchased by the Company."
6. Representation Regarding Rights Plan. The Company represents and warrants
to the Investor that the resolution referred to in Section 2.7 of that certain
Stock Purchase Agreement, entered into effective as of July 25, 1996, among the
Company and the
2
<PAGE>
investor, is in full force and effect, and has not been amended, altered,
changed, repealed or terminated.
7. Governing Law. This Amendment shall be governed and construed in all
respects in accordance with the laws of the State of Texas as applied to
agreements made and performed in Texas by residents of the State of Texas.
8. Titles and Subtitles. The titles and subtitles used in this Amendment are
used for convenience only and are not to be considered in construing or
interpreting this Amendment.
9. Facsimile Signatures. Any signature page delivered by a fax machine or
telecopy machine shall be binding to the same extent as an original signature
page, with regard to any agreement subject to the terms hereof or any amendment
thereto. Any party who delivers such a signature page agrees to later deliver
an original counterpart to any party which requests it.
10. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3
<PAGE>
The foregoing Amendment is hereby executed as of the date first above written.
IMPERIAL HOLLY CORPORATION
a Texas corporation
By: /s/ W.F. SCHWER
---------------------------------
Title:
Managing Director
---------------------------------
GREENCORE GROUP PLC
By: /s/ K. O'SULLIVAN
---------------------------------
Title:
CFO & Director
---------------------------------
EARLSFORT HOLDINGS B.V.
By: /s/ H. Samuel By: /s/ J.M.C. RASING
--------------------------------- ---------------------------------
Title: Title:
Managing Director Managing Director
--------------------------------- ---------------------------------
AMENDMENT TO INVESTOR/REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
4
<PAGE>
EXHIBIT 10(b)(1)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the 1st day of
February, 1998 (the "EFFECTIVE DATE"), by and between Imperial Holly
Corporation, a Texas corporation (hereafter "COMPANY") and [NAME] (hereafter
"EXECUTIVE"), an individual;
W I T N E S S E T H:
WHEREAS, Company wishes to continue to secure the services of the Executive
subject to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon the
terms and conditions hereafter set forth,
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in Section 4
hereof), the Company shall employ Executive, and Executive shall serve, as
[TITLE]. Executive's principal place of employment shall be <city/state>.
2. COMPENSATION. The Company shall pay or cause to be paid to Executive
during the Employment Period an annual base salary for his services under this
Agreement of not less than $<salary>, payable in equal monthly or semi-monthly
installments in accordance with the Company's normal payroll procedures. The
Executive's base salary shall be subject to annual review and may be increased,
depending upon the performance of the Company and Executive, upon the
recommendation of the Company's President and approved by the Executive
Compensation Committee of the Board of Directors of the Company (hereafter
"Committee"). Nothing contained herein shall preclude the payment of a bonus or
bonuses to Executive provided that the Committee authorizes any such bonus
payment.
3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the Employment
Period, Executive shall devote his services full time to the business of the
Company and perform the duties and responsibilities assigned to him by the
Company's President or the Company's Board of Directors ("BOARD OF DIRECTORS")
to the best of his ability and with reasonable diligence. In determining
Executive's duties and responsibilities, the Company's President and Board of
Directors shall act in good faith and shall not assign duties and
responsibilities to Executive that
1
<PAGE>
are not appropriate or customary with respect to the position of Executive
hereunder. This Section 3 shall not be construed as preventing Executive from
engaging in reasonable volunteer services for charitable, educational or civic
organizations, or from investing his assets in such form or manner as will not
require a material amount of his services in the operations of the companies or
businesses in which such investments are made.
4. TERM OF EMPLOYMENT. Executive's initial term of employment with the
Company under this Agreement shall be for the period from the Effective Date
through January 31, 1999. Thereafter, the term of employment hereunder shall be
automatically extended repetitively for additional one (1) year periods on each
annual anniversary of February 1, 1999, unless Notice of Termination pursuant to
Section 7 is given by either the Company or Executive to the other party at
least sixty (60) days prior to the end of the initial term of employment or any
one-year extension thereof, as applicable. The Company and Executive shall each
have the right to give Notice of Termination at will, with or without cause, at
any time, subject, however, to the terms of this Agreement regarding rights and
duties of the parties upon termination of employment. The initial period through
January 31, 1999, or any one-year extension of employment hereunder, shall be
referred to herein as the "TERM OF EMPLOYMENT." The period from the Effective
Date through the date of Executive's termination of employment for whatever
reason shall be referred to herein as the "EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this Agreement,
during the Employment Period, Executive shall be entitled to the following:
(a) REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse
Executive for all reasonable travel, entertainment (including club
dues appropriate in the performance of Executive's service
hereunder) and other reasonable expenses paid or incurred by
Executive in performing his obligations hereunder. The Company
shall also provide Executive with suitable office space and
secretarial help.
(b) OTHER BENEFITS. Executive shall be entitled to participate and
shall be included in any pension, profit-sharing, stock option,
deferred compensation, or similar plan or program of the Company
established by the Company, to the extent that he is eligible
under the provisions thereof. Executive shall also be entitled to
participate in any group insurance, hospitalization, medical,
health and accident, disability or similar plan or program
established by the Company, to the extent that he is eligible
under the provisions thereof.
(c) PAID VACATION. Executive shall be entitled to the number of days
of paid vacation each year that is accorded under the Company's
vacation policy
2
<PAGE>
for senior officers in the Office of the President of the Company.
The number of days of paid vacation may be increased by the
Company's President or Board of Directors at any time during the
Employment Period.
(d) ANNUAL PHYSICAL. Each year the Company shall pay for a complete
physical examination of Executive at the Sid Richardson Institute
in Houston, Texas or any comparable facility designated by the
Company's President.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to
compensation and benefits for periods after the date on which his employment
with the Company terminates for whatever reason (the "TERMINATION DATE") shall
be determined in accordance with this Section 6:
(a) Minimum Payments. Executive shall be entitled to the following
payments, in addition to any payments or benefits to which the
Executive is entitled under the terms of any employee benefit plan
or the following provisions of this Section 6:
(i) his unpaid salary for the full month in which his
Termination Date occurred; provided, however, if Executive
is terminated for Cause pursuant to Section 6(c) below, he
shall only be entitled to receive his accrued but unpaid
salary through his Termination Date; and
(ii) his accrued but unpaid vacation pay for the period
ending on his Termination Date.
(b) CHANGE IN CONTROL PAYMENT. Executive and Savannah Foods &
Industries, Inc., its subsidiaries or affiliates are parties to
prior Change of Control Agreement(s) dated [DATE] (the "CHANGE
OF CONTROL AGREEMENT"), and they hereby agree that the Change of
Control Agreement shall be terminated and superseded in all
respects by this Agreement on and after the effective date hereof.
Notwithstanding any other provision of this Agreement to the
contrary, in the event that Executive's employment is terminated
within two (2) years following a Change in Control (as defined
below) (i) by the Company for any reason except for (A) Cause (as
defined in Section 6(c) hereof) or (B) Executive's death or
Disability (as defined below) or (ii) by the Executive for Good
Reason (as defined in Section 6(c) hereof), then Executive shall
be entitled to receive, and the Company shall be obligated to pay,
a lump sum payment equal to three hundred percent (300%) of
Executive's base
3
<PAGE>
annual salary pursuant to Section 2 or the annual salary then
being paid to him, whichever is greater. Such payment shall be
made within 30 days from the later of (i) the Change in Control
date or (ii) the termination date. Also, such payment shall be in
addition to, and shall not reduce or offset, any other payments
that are due to Executive from the Company (or from any other
source) under any other agreements except the Change of Control
Agreement which has been terminated by this Agreement. For
purposes of illustration and not limitation, if the Company should
provide Notice of Termination to Executive pursuant to Section 4
hereof and the resultant termination of his employment occurs
within two (2) years from the date of the Change in Control,
Executive shall be entitled to the lump sum payment described in
this paragraph. The provisions of this Section 6(b) shall
supersede any conflicting provisions of this Agreement but shall
not be construed to curtail, offset or limit Executive's rights to
any other payments, whether contingent upon a Change in Control or
otherwise, under the Agreement or any other agreement, contract,
plan or other source of payment except as provided herein. In
addition, Executive shall be entitled to receive the bonus payment
described in Section 9 hereof, if applicable.
A "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred if any of the following shall have taken place: (a) a
change in control is reported by the Company in response to either
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") or Item 1 of
Form 8-K promulgated under the Exchange Act, or any successor
provisions thereto; (b) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), or any successor provisions thereto, directly or indirectly,
of securities of the Company representing forty percent (40%) or
more of the combined voting power of the Company's then-
outstanding securities; or (c) following the election or removal
of directors, a majority of the Board of Directors consists of
individuals who were not members of the Board of Directors two (2)
years before such election or removal, unless the election of each
director who is not a director at the beginning of such two-year
period has been approved in advance by directors representing at
least a majority of the directors then in office who were
directors at the beginning of the two-year period.
For purposes of this Section 6(b), "DISABILITY" shall mean a
"permanent and total disability" as defined in Section 22(e)(3) of
the Internal Revenue
4
<PAGE>
Code of 1986, as amended (the "CODE") and Treasury regulations
thereunder. Evidence of such Disability shall be certified by a
physician acceptable to both the Company and Executive. In the
event that the parties are not able to agree on the choice of a
physician, each shall select a physician who, in turn, shall
select a third physician to render such certification. All costs
relating to the determination of whether Executive has incurred a
Disability shall be paid by the Company.
References in this Agreement to any Section of the Code shall
include any "Successor Provisions" (as defined in Section 9(e)
hereof).
(c) OTHER TERMINATION PAYMENTS. In addition to any other payments due
to Executive under this Agreement or otherwise, in the event that
during the Term of Employment (1) Executive's employment is
terminated by the Company for any reason other than a "Non-Salary
Event" (as defined below), or (2) Executive terminates his own
employment hereunder for "Good Reason" (as defined below), then,
in either event, Executive shall be entitled to receive as damages
hereunder, and the Company shall be obligated to pay, a lump sum
payment equal to the present value of Executive's base salary
pursuant to Section 2 or the salary then being paid to him,
whichever is greater, for the greater of (A) the remaining Term of
Employment as if there had been no termination or (B) twelve (12)
months. For purposes of the preceding sentence, the "present
value" of such amount shall be determined in accordance with the
procedures under Section 280G of the Code and the Treasury
regulations thereunder.
Notwithstanding any provision of this Section 6(c) to the
contrary, the Executive must first execute an appropriate release
agreement whereby he agrees to release and waive, in return for
the other termination payments described in this Section 6(c)
only, any claims that he may have against the Company for (1)
unlawful discrimination (including, without limitation, age
discrimination) or (2) termination pay under any severance pay
plan, program or arrangement maintained by the Company, its
affiliates or subsidiaries, that covers Executive; provided,
however, such release shall not release any claims by Executive
for payments due under this Agreement, including, without
limitation, any Change in Control payment described in Section
6(b), without Executive's express written consent. Any lump sum
payment required under this Section 6(c) shall be paid within 10
days after Executive executes such release. Executive shall not be
required to mitigate any damages under this Section 6(c) or any
other provision of this Agreement.
The Company shall make any lump sum payment due to Executive under
this Section 6(c) within ten (10) days following the Termination
Date.
5
<PAGE>
(1) For purposes of this Section 6(c), a "NON-SALARY EVENT"
means termination for "Cause" (as defined below), death, or
Disability (as defined below).
(2) For purposes of this Section 6(c), "CAUSE" means a
termination directly resulting from (a) an act of dishonesty
on the part of the Executive constituting a felony which
adversely affects the Company, (b) a breach by the Executive
during the Employment Period of the provisions of Sections
11, 12, 13 or 14 below, if such breach results in a material
injury to the Company which is not cured to the reasonable
satisfaction of the Board of Directors within 30 days after
notice of such failure is provided to Executive, or (c) the
continuing and material failure of Executive to fulfill his
obligations under this Agreement. The termination of
Executive's employment by the Company shall not be deemed to
be for Cause unless the Board of Directors first provides
written notice to Executive of the conduct on which the
termination is based.
(3) For purposes of this Section 6(c), "DISABILITY" means a
"Disability" as defined in Section 6(b) hereof.
(4) For purposes of this Section 6(c), "GOOD REASON" means the
occurrence of any of the following events without
Executive's express written consent:
(i) A reduction in Executive's base salary;
(ii) Any material breach by the Company or its
successors of any provision of this Agreement; or
(iii) Following a Change in Control (as defined
in Section 6(b) hereof):
6
<PAGE>
(A) the failure by the Company or its successor to
expressly assume and agree to continue and perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform if such Change
in Control had not occurred;
(B) a relocation of more than twenty-five (25)
miles of Executive's principal office from the location
of such office immediately prior to the Change in Control
date;
(C) A substantial increase in the business travel
required of Executive by the Company or its successor;
(D) The Company or its successor fails to continue
in effect any pension plan, life insurance plan, health-
and-accident plan, 401(k) plan, employee stock ownership
plan, disability plan, deferred compensation SERP plan or
executive incentive compensation plan in which Executive
was participating at the time of the Change in Control
(or plans providing Executive with substantially equal
and similar benefits), or the taking of any action by the
Company or its successor which would adversely affect
Executive's participation in or materially reduce his
benefits under any such plan, or deprive him of any
material fringe benefit enjoyed by him immediately prior
to the Change in Control; or
(E) A substantial and adverse change in the
Executive's duties, control, authority, status or
position, or the assignment to the Executive of any
duties or responsibilities which are materially
inconsistent with such status or position, or a material
reduction in the duties and responsibilities previously
exercised by the Executive, or a loss of title, loss of
office, loss of significant authority, power or control,
or any removal of Executive from, or any failure to
reappoint or reelect him to, such positions, except in
connection with the termination of his employment for
Cause, Disability or death;
7. NOTICE OF TERMINATION. Any termination by the Company or the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, the term "Notice of Termination" means a written
notice which indicates the specific termination provision of this Agreement
relied upon and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to mitigate
the amount of any payment provided for under this Agreement by seeking other
employment or in any other manner.
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9. CHANGE IN CONTROL: REQUIREMENT OF BONUS PAYMENT IN CERTAIN
CIRCUMSTANCES.
(a) In the event that Executive is deemed to have received an "excess
parachute payment" (as such term is defined in Section 280G(b) of the Code)
which is subject to the excise taxes (the "EXCISE TAXES") imposed by
Section 4999 of the Code in respect of any payment pursuant to this
Agreement, or any other agreement, plan, instrument or obligation, in
whatever form, the Company shall make the Bonus Payment (defined below) to
Executive promptly after the date on which Executive received or is deemed
to have received any excess parachute payment notwithstanding any contrary
provision herein.
(b) The term "BONUS PAYMENT" means a cash payment in an amount equal
to the sum of (i) all Excise Taxes payable by Executive, plus (ii) all
additional Excise Taxes and federal or state income taxes to the extent
such taxes are imposed in respect of the Bonus Payment, such that Executive
shall be in the same after-tax position and shall have received the same
benefits that he would have received if the Excise Taxes had not been
imposed. For purposes of calculating any income taxes attributable to the
Bonus Payment, Executive shall be deemed for all purposes to be paying
income taxes at the highest marginal federal income tax rate, taking into
account any applicable surtaxes and other generally applicable taxes which
have the effect of increasing the marginal federal income tax rate and, if
applicable, at the highest marginal state income tax rate, to which the
Bonus Payment and Executive are subject. An example of the calculation of
the Bonus Payment is set forth below: Assume that the Excise Tax rate is
20%, that the highest federal marginal income tax rate is 40% and that
Executive is not subject to state income taxes. Further assume that
Executive has received an excess parachute payment in the amount of
$200,000, on which $40,000 in Excise Taxes are payable. The amount of the
required Bonus Payment is thus $100,000. The Bonus Payment of $100,000,
less additional Excise Taxes on the Bonus Payment of $20,000 (i.e., 20% x
$100,000) and income taxes of $40,000 (i.e., 40% x $100,000), yields
$40,000, the amount of the Excise Taxes payable in respect of the original
excess parachute payment.
(c) Executive agrees to reasonably cooperate with the Company to
minimize the amount of the excess parachute payments, including, without
limitation, assisting the Company in establishing that some or all of the
payments received by Executive that are "contingent on a change", as
described in Section 280G(b)(2)(A)(i) of the Code, are reasonable
compensation for personal services actually rendered by Executive before
the date of such change or to be rendered by Executive on or after the date
of such change. In the event that the Company is able to establish that the
amount of the excess parachute payments is less than originally anticipated
by Executive, Executive shall refund to the
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Company any excess Bonus Payment to the extent not required to pay Excise
Taxes or income taxes (including those incurred in respect of receipt of
the Bonus Payment). Notwithstanding the foregoing, Executive shall not be
required to take any action which his attorney or tax advisor advises him
in writing (i) is improper or (ii) exposes Executive to material personal
liability. Executive may require the Company to deliver to Executive an
indemnification agreement in form and substance satisfactory to Executive
as a condition to taking any action required by this subsection (c).
(d) The Company shall make any payment required to be made under this
Section 9 in cash and on demand. Any payment required to be paid by the
Company under this Section 9 which is not paid within 30 days of receipt by
the Company of Executive's written demand therefor shall thereafter be
deemed delinquent, and the Company shall pay to Executive immediately upon
demand interest at the highest nonusurious rate per annum allowed by
applicable law from the date such payment becomes delinquent to the date of
payment of such delinquent sum with interest.
(e) In the event that there is any change to the Code which results in
the recodification of Section 280G or Section 4999 of the Code, or in the
event that either such section of the Code is amended, replaced or
supplemented by other provisions of the Code of similar import ("SUCCESSOR
PROVISIONS"), then this Agreement shall be applied and enforced with
respect to such new Code provisions in a manner consistent with the intent
of the parties as expressed herein, which is to assure that Employee is in
the same after-tax position and has received the same benefits that he
would have been in and received if any taxes imposed by Section 4999 or any
Successor Provisions had not been imposed.
10. POST-EMPLOYMENT MEDICAL BENEFITS.
If Executive's employment with the Company is terminated for any reason
except Cause (as defined in Section 6(c)) after Executive has completed at least
five (5) complete years of service with the Company (including, for this
purpose, prior service with any corporation acquired by or merged into the
Company), then the Company shall provide post-employment medical coverage in
accordance with the terms and conditions of this Section 10. The Company shall
continue to cover Executive and his spouse (hereinafter referred to as "SPOUSE")
and his eligible dependent children, if any, from the date of Executive's
termination of employment with the Company, under the group health care plan
maintained by the Company to provide major medical insurance coverage for
employees and their dependents (such group medical plan or its successor(s)
shall be hereinafter referred to as the "HEALTH CARE PLAN"). The coverage of
Executive and his Spouse under the Health Care Plan shall continue for each of
their lives without interruption, but such coverage of his eligible dependent
children shall continue only for such time period that they otherwise qualify
for dependent coverage under the terms of the
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Health Care Plan. In the event of any change to the Health Care Plan following
the date of Executive's termination from employment with the Company, then
Executive, his Spouse and dependents shall be treated consistently with the
then-current senior officers of the Company (or its successor) with respect to
the terms and conditions of coverage and other substantive provisions of the
Health Care Plan. The provisions of this Section 10 shall be effective
regardless of the reason for Executive's termination of employment with the
Company except for Cause.
The continuation coverage under the Health Care Plan provided to Executive
and his Spouse pursuant to this Agreement shall continue and remain in full
force and effect until the later of (a) Executive's date of death or (b) his
Spouse's date of death. Executive and his Spouse hereby agree and consent to
acquire and maintain any and all coverage that either or both of them are
entitled to at any time during their lives under the Medicare program or any
similar or succeeding plan or program that is sponsored or maintained by the
United States Government or any agency thereof (hereinafter referred to as
"MEDICARE"). The coverage described in the immediately preceding sentence
includes, without limitation, parts A and B of Medicare and any additional or
successor parts of Medicare. Executive and his Spouse further agree and consent
to pay all required premiums and other costs for Medicare coverage from their
personal funds.
If Executive or Spouse are covered under Medicare, the "retiree" coverage
provided under the Health Care Plan to such person shall be secondary payor to
Medicare to the full extent permitted by law. In addition, if Executive, or his
Spouse or other dependents should become covered under another major medical
plan maintained by another employer or other entity, such coverage shall be
primary payor to the coverage provided pursuant to this Section 10 to the full
extent permitted by law.
Executive, on behalf of himself and his Spouse and other dependents, if
any, shall be required to pay premiums for their coverage under the Health Care
Plan at the rates, if any, charged by the Company to active employees who are
senior officers of the Company at the time the premium is charged. The Company
shall not be responsible for the payment of any income or other taxes which may
be imposed on Executive, or on his Spouse or dependents, as the result of
receiving coverage under the Health Care Plan pursuant to this Section 10.
11. CONFLICTS OF INTEREST. In keeping with his fiduciary duties to
Company, Executive hereby agrees that he shall not become involved in a conflict
of interest, or upon discovery thereof, allow such a conflict to continue at any
time during the Employment Period. Moreover, Executive agrees that he shall
immediately disclose to the Board of Directors any facts which might involve a
conflict of interest that has not been approved by the Board of Directors.
Executive and Company recognize and acknowledge that it is not possible to
provide an exhaustive list of actions or interests which may constitute a
"conflict of interest." Moreover,
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Company and Executive recognize there are many borderline situations. In some
instances, full disclosure of facts by the Executive to the Board of Directors
may be all that is necessary to enable Company to protect its interests. In
others, if no improper motivation appears to exist and Company's interests have
not demonstrably suffered, prompt elimination of the outside interest may
suffice. In other egregious instances, it may be necessary for Company to
terminate Executive's employment for Cause pursuant to Section 6(c) hereof. The
Board of Directors reserves the right to take such action as, in its good faith
judgment, will resolve the conflict of interest.
Executive hereby agrees that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might adversely affect the Company or any of its
affiliated entities, involves a possible conflict of interest. Circumstances in
which a conflict of interest on the part of Executive would or might arise, and
which should be reported immediately to the Board of Directors, include, but are
not limited to, any of the following:
(a) Ownership of more than a de minimis interest in any lender,
supplier, contractor, customer or other entity with which Company
or any of its affiliated entities does business;
(b) Misuse of information, property or facilities to which Executive
has access in a manner which is demonstrably injurious to the
interests of Company or any of its affiliated entities, including
its business, reputation or goodwill; or
(c) Materially trading in products or services connected with products
or services designed or marketed by or for the Company or any of
its affiliated entities.
For purposes of this Agreement, "AFFILIATED ENTITY" means any entity which
owns or controls, is owned or controlled by, or is under common ownership or
control with, the Company.
12. CONFIDENTIAL INFORMATION.
(A) CONFIDENTIAL INFORMATION DEFINED. Executive hereby acknowledges
that in his senior management position, he will create, acquire and have
access to confidential information and trade secrets pertaining to the
business of Company (hereafter "Confidential Information" as defined
below). Executive hereby acknowledges that such Confidential Information is
unique and valuable to Company's business and that Company would suffer
irreparable injury if Confidential Information was divulged to the public
or to persons or entities in competition with Company. Therefore, Executive
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hereby covenants and agrees to keep in strict secrecy and confidence, both
during and after the Employment Period, any Confidential Information.
Executive specifically agrees that he will not at any time disclose to
others, use, copy or permit to be copied, except in pursuance of his duties
on behalf of Company or with the prior consent of Company, Confidential
Information relating to the Company or any of its affiliated entities. For
purposes of this Agreement, "CONFIDENTIAL INFORMATION" shall mean and
include, without limitation, information related to the business affairs,
property, methods of operation, future plans, financial information,
customer or client information, or other data which relates to the business
or operations of Company or any of its affiliated entities, and all other
information obtained by Executive from and during the Employment Period
which concerns the affairs of Company or any of its affiliated entities and
which Company has requested be held in confidence or could reasonably be
expected to desire be held in confidence, or the disclosure of which would
likely be embarrassing, detrimental or disadvantageous to the Company or
any of its affiliated entities, or its and their directors, officers,
employees or shareholders. Confidential Information, however, shall not
include:
(i) Information that is at the time of receipt by Executive in
the public domain or is otherwise generally known in the industry or
subsequently enters the public domain or becomes generally known in
the industry through no fault of Executive; or
(ii) Information that at any time is received in good faith by
Executive from a third party who was lawfully in possession of the
same and had the right to disclose the same.
(b) REQUIRED DISCLOSURE. In the event that Executive is required by
law which cannot be waived to disclose any Confidential Information,
Executive agrees that he will provide prompt notice of such potential
disclosure to Company so that an appropriate protective order may be sought
and/or a waiver of compliance with the provisions of this Agreement may be
granted. In the event that (i) such protection or other remedy is not
obtained or (ii) Company waives in writing the compliance by Executive with
this provision, Executive agrees that he may furnish only that portion of
the Confidential Information which Executive is advised by written opinion
of counsel is legally required to be disclosed, and Executive shall
exercise his best efforts to obtain assurances that confidential treatment
will be accorded such Confidential Information.
(c) DELIVERY OF DOCUMENTS. Executive further agrees to deliver to
Company at the termination of his employment, all correspondence,
memoranda, notes, records, drawings, plans, customer lists or other
documents, and all copies thereof made, composed or received by Executive,
solely or jointly with others, and which are in
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Executive's possession, custody or control at such date and which relate in
any manner to the past, present or anticipated business of Company or any
of its affiliated entities.
(d) REMEDIES. In the event of a breach or threatened breach of any of
the provisions of this Section 12, Company shall be entitled to an
injunction ordering the return of all such documents, and any and all
copies thereof, and restraining Executive from using or disclosing, for his
benefit or the benefit of others, in whole or in part, any Confidential
Information, including, but not limited to, the Confidential Information
which such documents contain, constitute or embody. Executive further
agrees that any breach or threatened breach of any of the provisions of
this Section 12 would cause irreparable injury to Company, for which it
would have no adequate remedy at law. Nothing herein shall be construed as
prohibiting Company from pursuing any other remedies available to it for
any such breach or threatened breach, including the recovery of damages.
13. PROPERTY RIGHTS. In keeping with his fiduciary duties to Company,
Executive hereby covenants and agrees that during his Employment Period, and for
a period of six (6) months following his Termination Date, Executive shall
promptly disclose in writing to Company any and all information, ideas,
concepts, improvements, discoveries, inventions and other intellectual
properties, whether patentable or not, and whether or not reduced to practice,
which are conceived, developed, made or acquired by Executive, either
individually or jointly with others, and which relate to the business, products
or services of Company or any of its affiliated entities. In consideration for
his employment hereunder, Executive hereby specifically sells, assigns and
transfers to Company all of his worldwide right, title and interest in and to
all such information, ideas, concepts, improvements, discoveries, inventions and
other intellectual properties.
If during the Employment Period, Executive creates any original work of
authorship or other property fixed in any tangible medium of expression which
(a) is the subject matter of copyright (including computer programs) and (b)
relates to Company's present or planned business, products, or services, whether
such property is created solely by Executive or jointly with others, such
property shall be deemed a work for hire, with the copyright automatically
vesting in Company. To the extent that any such writing or other property is
determined not to be a work for hire for whatever reason, Executive hereby
consents and agrees to the unconditional waiver of "moral rights" in such
writing or other property, and to assign to Company all of his right, title and
interest, including copyright, in such writing or other property.
Executive hereby agrees to (a) assist Company or its nominee at all times
in the protection of any and all property subject to this Section 13, (b) not to
disclose any such property to others without the written consent of Company or
its nominee, except as required by his employment hereunder, and (c) at the
request of Company, to execute such assignments,
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certificates or other interests as Company or its nominee may from time to time
deem desirable to evidence, establish, maintain, perfect, protect or enforce its
rights, title or interests in or to any such property.
14. AGREEMENT NOT TO COMPETE. Executive hereby recognizes and acknowledges
that: (a) in his executive capacity with Company he will be given knowledge of,
and access to, the Confidential Information (as described in Section 12); (b) in
the event that Executive was to enter into competition with Company, Executive's
knowledge of such Confidential Information would be of invaluable benefit to a
competitor of Company, and could cause irreparable harm to Company's business
interests; and (c) Executive's consent and agreement to enter into the
noncompetition provisions and covenants set forth herein is an integral
condition of this Agreement, without which Company would not have agreed to
provide Confidential Information to Executive nor to his compensation, benefits,
and other terms of this Agreement. Accordingly, in consideration for his
employment, compensation, benefits, access to and entrustment of Confidential
Information, and the goodwill, training and experience provided to Executive
during his Employment Period, Executive hereby covenants, consents and agrees
(regardless of whether or not there has been a Change of Control) that during
the Employment Period, and for a period of one (1) year after his employment is
terminated for any reason except (i) termination by the Company without Cause
(as defined in Section 6(c)) or termination by Executive for Good Reason (as
defined in Section 6(c)) or (ii) termination of employment upon expiration of
the Term of Employment (as defined in Section 4), Executive shall not, directly
or indirectly, acting alone or in conjunction with others, for his own account
or for the account of others, including, without limitation, as an officer,
director, stockholder, owner, partner, joint venturer, employee, promoter,
consultant, agent, representative, or otherwise:
(a) Solicit, canvass, or accept any fees or business from any customer
of Company for himself or any other person or entity engaged in a
"Similar Business to Company" (as defined below);
(b) Engage or participate in any Similar Business to Company within
the entire continental United States (referred to herein as the
"RESTRICTED AREA");
(c) Request or advise any service provider, supplier, or customer to
reduce or cancel any business that it may transact with Company or
any of its affiliated entities;
(d) Solicit, induce, or otherwise attempt to influence any employee of
the Company or any of its affiliated entities, to terminate his or
her relationship with the Company or any of its affiliated
entities; or
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(e) Make any statement or perform any act intended to advance an
interest of an existing or prospective competitor of the Company
or any of its affiliated entities in any way that demonstrably
injures the reputation, goodwill or any other business interest of
Company or any of its affiliated entities.
For purposes of this Agreement, "SIMILAR BUSINESS TO COMPANY" means any
business or other enterprise that is competitive with the current or planned
businesses, products, services or operations of the Company or any of its
affiliated entities at the time of termination of Executive's employment. For
purposes of clarity, the non-compete and other provisions of this Section 14
shall not apply to Executive if Executive's employment hereunder is terminated
(i) by the Company without Cause (as defined in Section 6(c)), (ii) by the
Executive for Good Reason (as defined in Section 6(c)), or (iii) after the Term
of Employment (as defined in Section 4) has expired.
Executive hereby agrees that the limitations set forth above on his rights
to compete with Company after his termination of employment are reasonable and
necessary for the protection of Company. In this regard, Executive specifically
agrees that such limitations as to the period of time, geographic area and types
and scopes of restriction on his activities, as specified above, are reasonable
and necessary to protect the goodwill and other business interests of Company.
However, should the time period, the geographic area or any other non-
competition provision set forth herein be deemed invalid or unenforceable in any
respect, then Executive acknowledges and agrees that, as set forth in Section 15
hereof, reformation may be made with respect to such time period, geographic
area or other non-competition provision in order to protect Company's reasonable
business interests to the maximum permissible extent.
15. REMEDIES. In the event of any pending, threatened or actual breach of
any of the covenants or provisions of Section 11, 12, 13 or 14, it is understood
and agreed by Executive that the remedy at law for a breach of any of the
covenants or provisions of these Sections may be inadequate and, therefore,
Company shall be entitled to a restraining order or injunctive relief from any
court of competent jurisdiction, in addition to any other remedies at law and in
equity. In the event that Company seeks to obtain a restraining order or
injunctive relief, Executive hereby agrees that Company shall not be required to
post any bond in connection therewith. Should a court of competent jurisdiction
or an arbitrator (pursuant to Section 24) declare any provision of Section 11,
12, 13 or 14 to be unenforceable due to an unreasonable restriction of duration
or geographical area, or for any other reason, such court or arbitrator is
hereby granted the consent of each of the Executive and Company to reform such
provision and/or to grant the Company any relief, at law or in equity,
reasonably necessary to protect the reasonable business interests of Company or
any of its affiliated entities. Executive hereby acknowledges and agrees that
all of the covenants and other provisions of Sections 11, 12, 13 and 14 are
reasonable and necessary for the protection of the Company's business interests.
Executive hereby agrees that if the Company prevails in any action, suit or
proceeding with respect to any matter arising out of
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or in connection with Section 11, 12, 13 or 14, Company shall be entitled to all
equitable and legal remedies, including, but not limited to, injunctive relief
and compensatory damages.
16. DEFENSE OF CLAIMS. Executive agrees that, during the Employment Period
and for a period of two (2) years after his Termination Date, upon reasonable
request from the Company, he will cooperate with the Company and its affiliated
entities in the defense of any claims or actions that may be made by or against
the Company or any of its affiliated entities that affect his prior areas of
responsibility, except if Executive's reasonable interests are adverse to the
Company (or affiliated entity) in such claim or action. To the extent travel is
required to comply with the requirements of this Section 16, the Company shall,
to the extent possible, provide Executive with notice at least 10 days prior to
the date on which such travel would be required. The Company agrees to promptly
pay or reimburse Executive upon demand for all of his reasonable travel and
other direct expenses incurred, or to be reasonably incurred, to comply with his
obligations under this Section 16.
17. DETERMINATIONS BY THE BOARD OF DIRECTORS.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in Control (as
defined in Section 6(b) hereof), any question as to whether and when there
has been a termination of Executive's employment, and the cause of such
termination, shall be determined by the Board of Directors in its
discretion.
(b) COMPENSATION. Prior to a Change in Control (as defined in Section
6(b) hereof), any question regarding salary, bonus and other compensation
payable to Executive pursuant to this Agreement shall be determined by the
Committee in its discretion.
18. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct from
any benefits and payments made or to be made pursuant to this Agreement (a) all
federal, state, local and other taxes as may be required pursuant to any law or
governmental regulation or ruling, (b) all other normal employee deductions made
with respect to Company's employees generally, and (c) any advances made to
Executive and any other amounts owed by Executive to Company.
19. NONALIENATION. The right to receive payments under this Agreement shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge or encumbrance by Executive, his dependents or beneficiaries,
or to any other person who is or may become entitled to receive such payments
hereunder. The right to receive payments hereunder shall not be subject to or
liable for the debts, contracts, liabilities, engagements or torts of any person
who is or may become entitled to receive such payments, nor may the same be
subject to attachment or seizure by any creditor of such person under any
circumstances, and any such attempted attachment or seizure shall be void and of
no force and effect.
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20. INCOMPETENT OR MINOR PAYEES. Should the Board of Directors determine
that any person to whom any payment is payable under this Agreement has been
determined to be legally incompetent or is a minor, any payment due hereunder
may, notwithstanding any other provision of this Agreement to the contrary, be
made in any one or more of the following ways: (a) directly to such minor or
person; (b) to the legal guardian or other duly appointed personal
representative of the person or estate of such minor or person; or (c) to such
adult or adults as have, in the good faith knowledge of the Board of Directors,
assumed custody and support of such minor or person; and any payment so made
shall constitute full and complete discharge of any liability under this
Agreement in respect to the amount so paid.
21. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 24), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.
22. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to Sections
hereof are for the purpose of reference only and shall in no way limit, define
or otherwise affect the provisions hereof. Any and all Exhibits referred to in
this Agreement are, by such reference, incorporated herein and made a part
hereof for all purposes. The words "herein", "hereof", "hereunder" and other
compounds of the word "here" shall refer to the entire Agreement and not to any
particular provision hereof.
23. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
24. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy arises between
Executive and the Company as to their respective rights or obligations
under this Agreement, then either party may submit the dispute or
controversy to arbitration under the then-current National Employment
Dispute Resolution Rules of the American Arbitration Association (AAA) (the
"Rules"); provided, however, the Company shall retain its rights to seek a
restraining order or injunctive relief pursuant to Section 15. Any
arbitration hereunder shall be conducted before a single arbitrator unless
the parties mutually agree to a panel of three arbitrators. The site for
any arbitration hereunder shall be in Houston, Harris County, Texas unless
otherwise mutually agreed by the parties.
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(b) SUBMISSION TO ARBITRATION. The party submitting any matter to
arbitration shall do so in accordance with the Rules. Notice to the other
party shall state the question or questions to be submitted for decision or
award by arbitration. Notwithstanding any provision in this Section 24,
Executive shall be entitled to seek specific performance of the Executive's
right to be paid during the pendency of any dispute or controversy arising
under this Agreement. In order to prevent irreparable harm, the arbitrator
may grant temporary or permanent injunctive or other equitable relief for
the protection of property rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the date, time
and place for each hearing, and shall give the parties advance written
notice in accordance with the Rules. Any party may be represented by
counsel or other authorized representative at any hearing. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1 et.
seq. (or its successor). The arbitrator shall apply the substantive law
(and the law of remedies, if applicable) of the State of Texas to the
claims asserted to the extent that the arbitrator determines that federal
law is not controlling.
(d) COMPLIANCE WITH AWARD.
(i) Any award of an arbitrator shall be final and binding upon
the parties to such arbitration, and each party shall immediately make
such changes in its conduct or provide such monetary payment or other
relief as such award requires. The parties agree that the award of the
arbitrator shall be final and binding and shall be subject only to the
judicial review permitted by the Federal Arbitration Act.
(ii) The parties hereto agree that the arbitration award may be
entered with any court having jurisdiction and the award may then be
enforced as between the parties, without further evidentiary
proceedings, the same as if entered by the court at the conclusion of
a judicial proceeding in which no appeal was taken. The Company and
the Executive hereby agree that a judgment upon any award rendered by
an arbitrator may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any monetary amount
required by the arbitrator's award, and the fees, costs and expenses for
its own counsel, witnesses and exhibits, unless otherwise determined by the
arbitrator in the award. The compensation and costs and expenses assessed
by the arbitrator and AAA shall be paid by the losing party unless
otherwise determined by the arbitrator in the award. If court proceedings
to stay litigation or compel arbitration are necessary, the party who
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unsuccessfully opposes such proceedings shall pay all associated costs,
expenses, and attorney's fees which are reasonably incurred by the other
party as determined by the arbitrator.
25. BINDING EFFECT: THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and to their
respective heirs, executors, personal representatives, successors and permitted
assigns hereunder, but otherwise this Agreement shall not be for the benefit of
any third parties.
26. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire
agreement of the parties with respect to Executive's employment and the other
matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto.
27. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the intention
of the parties hereto, the respective rights and obligations of said parties,
including, but not limited to, the rights and obligations set forth in Sections
6 through 16 and 24 hereof, shall survive any termination or expiration of this
Agreement.
28. WAIVER OF BREACH. No waiver by either party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provision or condition at the same or any
subsequent time. The failure of either party hereto to take any action by reason
of any breach will not deprive such party of the right to take action at any
time while such breach continues.
29. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of Company and its affiliated entities, and its and their
successors, and upon any person or entity acquiring, whether by merger,
consolidation, purchase of assets or otherwise, all or substantially all of the
assets and business of Company. This Agreement is personal to Executive, and
Executive may not assign, delegate or otherwise transfer all or any of his
rights, duties or obligations hereunder without the consent of the Board of
Directors. Any attempt by the Executive to assign, delegate or otherwise
transfer this Agreement, any portion hereof, or his rights, duties or
obligations hereunder without the prior written consent of the Board of
Directors shall be deemed void and of no force and effect.
30. NOTICES. Notices provided for in this Agreement shall be in writing
and shall be deemed to have been duly received (a) when delivered in person or
sent by facsimile
19
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transmission, (b) on the first business day after it is sent by air express
overnight courier service, or (c) on the third business day following deposit in
the United States mail, registered or certified mail, return receipt requested,
postage prepaid and addressed, to the following address, as applicable:
(i) If to Company, addressed to:
Imperial Holly Corporation
P.O. Box 9
Sugar Land, Texas 77487-0009
Attention: President
(ii) If to Executive, addressed to the address set forth below
his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 30.
31. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party hereto, but together signed by both of the
parties hereto.
32. EXECUTIVE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION. The Executive
represents to Company that he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, that he has read the
Agreement and that he understands its terms and conditions. The parties hereto
agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Executive also
represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement.
33. TERMINATION OF CHANGE OF CONTROL AGREEMENT. Only after this Agreement
is effective and enforceable upon the proper execution of this Agreement by the
parties hereto, that certain Change of Control Agreement between the Company and
[NAME], dated [DATE] shall terminate and be superseded in all respects by this
Agreement. All other agreements or arrangements between the Executive and
Company in effect on the date hereof shall remain fully effective in accordance
with their terms.
[Signature page follows.]
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IN WITNESS WHEREOF, the Executive has hereunto set his hand, and Company
has caused these presents to be executed in its name and on its behalf, to be
effective as of the Effective Date first above written.
WITNESS: EXECUTIVE:
Signature: Signature:
-------------------------- ------------------------
Printed Name: Printed Name:
----------------------- ---------------------
Date: Date:
------------------------------- -----------------------------
Address for Notices:
--------------
-----------------------------
-----------------------------
-----------------------------
ATTEST: IMPERIAL HOLLY CORPORATION:
By: By:
--------------------------------- -------------------------------
Title: Its:
------------------------------ ------------------------------
Printed Name: Printed Name:
----------------------- ---------------------
Date: Date:
------------------------------- -----------------------------
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EXHIBIT 10(b)(2)
SCHEDULE OF EMPLOYMENT AGREEMENTS:
J.C. Kempner
R.W. Hill
P.C. Carrothers
W.F. Schwer
M.L. Burke
D.H. Roche
J.M. Kelley
B.A. Oxnard, Jr.
M. S. Flegenheimer
<PAGE>
EXHIBIT 10(b)(3)
[IMPERIAL HOLLY CORPORATION LETTERHEAD APPEARS HERE]
December 19, 1997
Mr. William W. Sprague III
56 East 54th Street
Savannah, Georgia 31405
Employment Agreement
--------------------
Dear Mr. Sprague:
The following sets forth our agreement regarding the terms and
conditions of your employment with Imperial Holly Corporation ("IHK") during the
Term. Capitalized words which are not otherwise defined herein shall have the
meanings assigned to such words in Section 8 of this Agreement.
1. Term of Employment Under the Agreement. The period of your
employment under this Agreement (the "Term") shall commence on the Closing Date,
as defined in the Agreement and Plan of Merger, dated as of the date hereof,
among IHK, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc.
(the "Company") (the "Effective Date"), and shall continue until the fifth
anniversary of the Effective Date. The Term will automatically be extended on
the third anniversary of the Effective Date (and on each anniversary
thereafter) for an additional one-year period unless either party to this
Agreement gives the other party hereto written notice of this intention not to
extend the Term at least ninety days prior to the applicable anniversary date.
2. Employment During the Term. During the Term, you shall be employed
as the President of the Company and shall report directly and exclusively to the
President and Chief Executive Officer of IHK. During the Term, you shall be
initially elected as a member of the Board for a term ending January 29, 1999,
and thereafter IHK shall cause you to be nominated for re-election to the Board.
It is understood and agreed that you shall devote substantially all your
business time and efforts during the Term to your duties hereunder but may
devote reasonable amounts of time to the management of your and your family's
personal finances or to charitable or community service. Your principal place of
employment shall be the executive offices of the Company in Savannah, Georgia,
(which shall not be moved from the Savannah, Georgia area without your consent),
although you understand and agree that you may be required to travel from time
to time for business purposes.
<PAGE>
3. Compensation During the Term.
(a) Base Salary. As compensation to you for all services rendered to
the Company, IHK will cause the Company to pay you a base salary (the "Salary")
at the rate of $430,000 per annum. Your salary will be paid to you in
accordance with the Company's regular payroll practices applicable to its
executive officers, as established from time to time. Your rate of salary will
be reviewed at least annually by the Board and may be increased, but not
decreased, on the basis of such review.
(b) Annual Bonus.
(i) For each Fiscal Year during the Term, you shall be eligible to
earn an annual bonus (the "Annual Bonus") based upon IHK and/or the Company
achieving one or more performance goals and targets set in good faith by the
Compensation Committee of the Board (the "Compensation Committee") for such
Fiscal year after reasonable consultation with you. The Annual Bonus for a given
Fiscal year will be paid not later than one hundred eight days following the end
of the Fiscal Year to which such Annual Bonus relates, or such earlier date as
you and the Company may agree.
(ii) The target amount for the Annual Bonus fore each Fiscal Year (the
"Target Amount") shall be 50% of your annual rate of Salary as of the start of
such year subject to the achievement of the performance goals and targets for
such year. The Annual Bonus payable to you for a Fiscal Year may equal up to
150% of the Target Amount based upon performance in excess of the target or
targets set by the Compensation Committee for that year, and may equal 50% of
the Target Amount based upon performance that is at least equal to 50% of the
target or targets for that year. The adjustment to the Annual Bonus between 50%
and 150% of the Target Amount shall be determined in accordance with criteria
set by the Compensation Committee after reasonable consultation with you. If the
bonus payable under the criteria set forth in IHK's Performance Incentive Plan
would be greater than the Annual Bonus, such larger amount shall be deemed the
Annual Bonus.
(iii) Beginning with the Annual Bonus for the Fiscal Year ending
September 30, 1999 and each Fiscal Year thereafter during the Term, IHK will
establish an annual bonus plan (which may be the IHK Performance Incentive Plan)
in which you will participate that will meet the requirements applicable to
"performance-based" compensation under Section 162(m) of the Internal Revenue
Code ("Annual Plan") and that will provide you with the same bonus opportunity
described in this Section 3(b). Annual bonuses under the Agreement for each
Fiscal Year will thereafter be paid pursuant to the terms of the Annual Plan
based upon IHK's attainment of performance targets related to one or more
performance goals, which will include, without limitations (A) predicted
economic value per share of Common Stock, (B) earnings per share, (C) return on
average common equity, (D) pre-tax income, (E) pre-tax operating income, (F) net
revenue, (G) net income, (H) profits before taxes, (I) book value per share, (J)
stock price and (K) earnings available to common stockholders and (L) such other
goals as IHK may include in the
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<PAGE>
Annual Plan. Subject to the terms of the Annual Plan, the Compensation Committee
shall select and establish relative weights for the performance goals for each
fiscal year after reasonable consultation with you.
(iv) The amount of the Annual Bonus for any partial Fiscal Year during
the Term shall be prorated by multiplying the amount of the Annual bonus that
would be paid to you for the full Fiscal Year by a fraction, the numerator of
which shall be the number of days in such Fiscal Year occurring during the Term,
and the denominator of which shall be 365; provided, however, that no proration
shall apply to the Annual Bonus payable to you for the Fiscal Year ending
September 30, 1998.
(c) Long-Term Incentive Compensation.
(i) On January 31, 1998, IHK will grant you an option (the "Option")
to purchase 135,000 shares of Common Stock, and will enter into a stock option
agreement related to the Option. The Option will have an exercise price equal to
the fair market value of a share of Common Stock on the date of grant. The
Option will vest and become exercisable in five equal annual installments on
each of the first through fifth anniversaries of the date of grant and will
become fully vested and exercisable in full if your employment ends for any
reason other than your termination for Cause or your resignation without Good
Reason. The Option will have a ten-year term and will remain exercisable in full
for the shorter of (A) the remaining term thereof or (B) one year (three years
if after the fifth anniversary of the Effective Date), if your employment ends
for any reason other than your termination for Cause or your resignation without
Good Reason.
(ii) During the Term, you will be eligible to receive additional stock
option grants each year and to participate in each other long-term incentive
program established by IHK for its senior executives in a manner consistent with
your position as the senior most executive officer of the Company.
(d) SERP and Deferred Compensation Agreement.
(i) During the Term, you shall continue to participate in the
Supplemental Executive Retirement Plan of the Company and Subsidiaries, as
amended to date (the "SERP"), and to accrue service thereunder, notwithstanding
the amendment of the SERP by the Board of Directors of the Company, effective
June 30, 1996, to terminate future service accruals. At all times during the
Term, the terms and provisions of the SERP shall be no less favorable to you
than the terms and provisions of the SERP in effect immediately prior to the
Effective Date. As of the Effective Date and at all times thereafter, your
accrued benefit under the SERP shall be fully vested and nonforfeitable. If your
employment ends in an Involuntary Termination or by reason of death or
Disability, the accrual fraction used to calculate your SERP benefit shall be no
less than twenty-nine thirty-ninths (29/39).
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<PAGE>
(ii) During the Term, the Deferred Compensation Agreement between you
and the Company (the "Deferred Compensation Agreement") shall remain in full
force and effect, and you shall continue to have the option to elect to defer
compensation thereunder in accordance with the terms and conditions thereof. If
your employment ends in an Involuntary Termination or by reason of death or
Disability, you shall be entitled to elect to receive payment from the Company
of your benefit under the Deferred Compensation Agreement as soon as practicable
following such termination, provided that such benefit shall be actuarially
reduced in accordance with the factors used to calculate such benefit set forth
in the Deferred Compensation Agreement.
(e) Benefit Plans and Perquisites.
(i) During the Term, you and, where applicable, your eligible
dependents shall be eligible to participate in each pension, welfare, insurance,
perquisite and fringe benefit program made available generally to executives of
IHK. Without limiting the foregoing, you and your eligible dependents also will
continue to participate in any executive medical program currently in effect
during the Term and following your retirement. During the Term, in addition to
any other professional services to be provided under this Agreement, you also
will be entitled to reimbursement of up to $5,000 for financial planning,
accounting and legal advice each year.
(ii) IHK will reimburse you for the cost and expenses (including
initiation fees and annual dues) of two social clubs, and such other business
clubs as you and IHK deem appropriate, it being understood and agreed that
additional club membership in varying geographic locations may be approved if
such memberships would benefit the business of IHK's enterprise situated near
such locations.
(iii) During the Term, you shall be provided with office space,
secretarial and other staff support, and communications equipment no less
favorable than those currently made to you.
(iii) You shall be entitled to not less than four weeks of paid vacation
per year of employment.
(v) IHK will cause the Company to promptly reimburse you for all
business expenses incurred by you in connection with the performance of your
duties IHK, the Company and any subsidiaries thereof.
(iii) In the event that you shall relocate or be required to relocate
your principal or secondary residences for IHK's benefit, you shall be
reimbursed for all out-of-pocket expenses involved in such move, including
packing and transport of personal, family, and household goods and vehicles by
suitable service providers, reimbursement for the relocation expenses of any
personal staff (including personal goods), reimbursement for
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<PAGE>
any brokerage fees for the sale or purchase of any residences, of any loss of
economic value occasioned by the timing of the sale or by your inability to
recover monies invested in any personal residence sold, temporary housing costs
in suitable alternative housing, all utility severance and hook-up costs, and
any other typical expenses, all such sums to be grossed-up for the impact of any
federal, state or local taxes levied against you for such portions of such
reimbursement as shall be taxable and non-deductible to you.
4. Indemnification. IHK will, to the fullest extent permitted by law,
indemnify and hold you harmless from any and all liability arising from your
service as an employee, officer or director of IHK or the Company and its
affiliates. To the fullest extent permitted by law, the Company will retain
counsel to defend you or will advance legal fees and expenses to you for
counsel selected by you in connection with any litigation or proceeding related
to your service as an employee, officer and director of IHK or the Company.
5. Effect of Termination of Employment. Subject to the provisions of
this Section 5, IHK may terminate your employment and you may resign your
employment for any lawful reason or for no stated reason.
(a) Termination or Resignation in General. In the event of your
termination or resignation of employment, IHK shall cause the Company to pay you
the full amount of the accrued but unpaid Salary and Annual Bonus for any
completed Fiscal Year you may have earned through the Date of Termination (as
defined in Section 5(c)), plus a cash payment (calculated on the basis of your
rate of Salary then in effect) for all unused vacation time which you may have
accrued as of the Date of Termination. In addition, IHK shall cause the Company
to pay you a pro rata portion of your Annual Bonus for the Fiscal Year of IHK in
which such termination or resignation occurs. Such Salary and accrued vacation
shall be paid to you within five days following the Date of Termination. Such
Annual Bonuses, if any, shall be paid at the time contemplated by Section 3(b).
(b) Involuntary Termination.
(i) In addition to any amount payable to you under Section 5(a), in the
event of your Involuntary Termination, IHK will cause the Company to pay you
within five days of the Date of Termination a cash lump sum amount equal to the
product of "X" multiplied by "Y", where "X" equals the sum of the highest
annual rate of Salary during the Term and the highest Annual Bonus paid to you
during the Term (provided, however, that the bonus amount for this calculation
shall be not less than $215,000, regardless of whether an Annual Bonus has been
paid), and "Y" equals three. In addition, your benefit under the SERP shall be
calculated in the manner contemplated by Section 3(d) and your Option shall vest
fully and remain exercisable in the manner contemplated by Section 3(c). In
addition, all other options and long-term incentive awards granted to you during
the Term shall immediately vest and become nonforfeitable as of the Date of
Termination, and the amount of any performance-based awards shall be determined
assuming the greater of 100% achievement of all performance measures, or the
actual achievement.
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<PAGE>
(ii) In the event of your Involuntary Termination, you and your
eligible dependents shall continue to be eligible to participate during
the Benefit Continuation Period in the medical, dental, health, life and
other fringe benefit plans and arrangements applicable to you
immediately prior to your Involuntary Termination on the same terms and
conditions in effect for you and your dependents immediately prior to
such Involuntary Termination or such more generous benefits as may
thereafter be in effect at IHK for other peer executives, provided,
however, that your coverage under such plans and arrangements shall end
on the date that you and your dependents are eligible and elect coverage
under the plans of a subsequent employer which provide substantially
equivalent or greater benefits to you and your dependents. Furthermore,
to the extent not heretofore paid or provided, IHK shall cause the
Company to timely pay or provide to you any other amounts or benefits
required to be paid or provided or which you or anyone claiming under
you is eligible to receive under any other plan, program, policy or
practice, contract or agreement of the Company ("Other Benefits").
(c) Termination for Cause; Resignation Without Good Reason. In the event
you resign without Good Reason or you are terminated by IHK for Cause, IHK shall
cause the Company to pay you the amounts contemplated by Section 5(a) and the
Other Benefits. In the event of such a termination or resignation, you will
immediately forfeit as of the Date of Termination the Option and all other
long-term incentive compensation that is not then vested. You shall remain
entitled to your SERP benefit, but you shall not accrue any additional service
for purposes of the SERP after the Date of Termination. Except as noted in this
Section 5(c), you shall be entitled to no additional compensation from IHK or
the Company under this Agreement.
(d) Death or Disability. If your employment with IHK ends as a result of
your death or Disability during the Term, IHK shall cause the Company to pay you
(or, in the event of your death, your Beneficiary) the full amount contemplated
by Section 5(a). In addition, your benefit under the SERP and your benefit under
the Deferred Compensation Agreement shall be calculated and payable to you (or,
in the event of your death, to your Beneficiary) in the manner contemplated by
Section 3(d) and your Option shall vest fully and remain exercisable in the
manner contemplated by Section 3(d). In addition, all other options and
long-term incentive awards granted to you during the Term shall immediately vest
and become nonforfeitable as of the Date of Termination and the amount of any
performance-based awards shall be determined assuming the greater of 100%
achievement of all performance measures, or the actual achievement.
(e) Date and Note of Termination. Any termination of your employment by
IHK or by you during the Term shall be communicated by a notice of termination
to the other party hereto (the "Notice of Termination"). The Notice of
Termination shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated. The date of your termination of employment with the
Company (the "Date of Termination") shall be determined as follows: (i) if your
employment is terminated for
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<PAGE>
Disability, thirty days after a Notice of Termination is given (provided that
you shall not have returned to the full-time performance of your duties during
such thirty-day period), (ii) if your employment is terminated by IHK in an
Involuntary Termination, five days after the date the Notice of Termination is
received by you, and (iii) if your employment is terminated by IHK for Cause,
the later of the date specified in the Notice of Termination or ten days
following the date such notice is received by you. If the basis for your
Involuntary Termination is your resignation for Good Reason, the Date of
Termination shall be ten days after the date your Notice of Termination is
received by IHK. The Date of Termination for a resignation of employment other
than for Good Reason shall be the date set forth in the applicable notice, which
shall be no earlier than ten days after the date such notice is received by IHK.
The Date of Termination in the event of your death shall be the date of your
death. The date of your termination of employment is a result of the expiration
of the Term in accordance with Section 1 (including an expiration of the Term
that constitutes an Involuntary Termination) shall be the last day of the Term.
No failure to include in the Notice of Termination any fact or circumstance
which could support the basis of your termination shall waive your rights to
present such reasons at a later date or to preclude you from relying upon such
factors in support of any claim under this Agreement.
6. Additional Payment.
(a) Gross-Up Payment. Notwithstanding anything herein to the contrary,
if it is determined that any Payment would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "Excise Tax"), then you shall be
entitled to an additional payment (a "Gross-Up Payment") in an amount that,
after taking into account all excise, income and other taxes on such additional
payment will place you in the same after-tax economic position that you would
have enjoyed if the Excise Tax had not applied to the Payment. The amount of the
Gross-Up Payment shall be determined by the Accounting Firm in accordance with
such formula as the Accounting Firm deems appropriate.
(b) Determination of Gross-Up Payment. Subject to the provisions of
Section 6(c), all determinations required under this Section 6, including
whether a Gross-Up Payment is required, the amount of the Payments constituting
excess parachute payments, and the amount of the Gross-Up Payment, shall be made
by the Accounting Firm, which shall provide detailed supporting calculations
both to you and to IHK and the Company within fifteen days of any date
reasonable requested by you or IHK on which a determination under this Section 6
is necessary or advisable, IHK shall cause the Company to pay to you the initial
Gross-Up Payment with five days of the receipt by you and IHK of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by you, IHK shall cause the Accounting Firm to provide you with an
opinion that the Accounting Firm has substantial authority under the Internal
Revenue Code and Regulations for you not to report as Excise Tax on your federal
income tax return. Any determination by the Accounting Firm shall be binding
upon you, the Company and IHK. If the initial Gross-Up Payment is insufficient
to cover the amount of the Excise Tax that is ultimately determined to be owing
by you with respect to any Payment (hereinafter an "Underpayment"), IHK shall
cause the Company after exhausting IHK's
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remedies under Section 6(c) below, to promptly pay to you an additional Gross-Up
Payment in respect of the Underpayment.
(c) Procedure. You shall notify IHK in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notice shall be given as soon as practicable
after you know of such claim and shall advise IHK of the nature of the claim and
the date on which the claim is requested to be paid. You agree not to pay the
claim until the expiration of the thirty-day period following the date on which
you notify IHK, or such shorter period ending on the date the Taxes with respect
to such claim are due (the "Notice Period"). If IHK notifies you in writing
prior to the expiration of the Notice Period that it desires to contest the
claim, you shall: (i) give IHK any information reasonably requested by IHK
relating to the claim; (ii) take such action in connection with the claim as IHK
may reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
you and reasonably acceptable to IHK; (iii) cooperate with IHK in good faith in
contesting the claim; and (iv) permit IHK to participate in any proceedings
relating to the claim. You shall permit IHK to control all proceedings related
to the claim and, at its option, permit IHK to pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim. If requested by IHK, you agree either to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner and to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts as IHK shall determine; provided, however, that if IHK directs
you to pay such claim and pursue a refund, IHK shall, or shall cause the Company
to, advance the amount of such payment to you on an after-tax and interest-free
basis (the "Advance"). IHK's control of the contest related to the claim shall
be limited to the issues related to the Gross-Up Payment and you shall be
entitled to settle or contest, as the case may be, any other issues raised by
the Internal Revenue Service or other taxing authority. If IHK does not notify
you in writing prior to the end of the Notice Period of its desire to contest
the claim, IHK shall cause the Company to pay to you an additional Gross-Up
Payment in respect of the excess parachute payments that are the subject of the
claim, and you agree to pay the amount of the Excise Tax that is the subject of
the claim to the applicable taxing authority in accordance with applicable law.
(d) Repayments. If, after receipt by you of an Advance, you become
entitled to a refund with respect to the claim to which such Advance relates,
you shall pay, at IHK's option, IHK or the Company the amount of the refund
(together with any interest paid or credited thereon after Taxes applicable
thereto). If, after receipt by you of an Advance, a determination is made that
you shall not be entitled to any refund with respect to the claim and IHK does
not promptly notify you of its intent to contest the denial or refund, then the
amount of the Advance shall not be required to be repaid by you and the amount
thereof shall offset the amount of the additional Gross-Up Payment then owing to
you.
(e) Further Assurances. IHK shall indemnify you and hold you harmless,
on an after-tax basis, from any costs, expenses, penalties, fines, interest or
other liabilities ("Losses") incurred by you with respect to the exercise by IHK
of any of its rights under this Section 6,
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<PAGE>
including, without limitation, any Losses related to IHK's decision to contest
a claim or any imputed income to you resulting from any Advance or action taken
on your behalf by IHK hereunder. IHK shall pay all legal fees and expenses
incurred under this Section 6, and shall promptly reimburse you for the
reasonable expenses incurred by you in connection with any actions taken by IHK
or required to be taken by you hereunder. IHK shall also pay (or cause the
Company to pay) all of the fees and expenses of the Accounting Firm, including,
without limitation, the fees and expenses related to the opinion referred to in
Section 6(b). Any payments owing to you and not made to you within 30 days of
delivery to IHK of evidence of your entitlement shall be paid to you together
with interest at the maximum rate permitted by law.
(f) Other Taxes. In the event that federal or state legislation is
enacted imposing additional excise or supplementary income taxes on compensation
payable to you (other than a mere change in marginal income tax rates), IHK
agrees to review the Agreement with you and to consider in good faith any
changes hereto that may be required to preserve the economic purposes of the
Agreement;
7. Successors; Binding Agreement.
(a) Assumption by Successor. IHK will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of IHK expressly to assume and to
agree to perform this Agreement in the same manner and to the same extent that
IHK would be required to perform it if no such succession had taken place;
provided, however, that no such assumption shall relieve IHK of its obligations
hereunder.
(b) Enforcement; Beneficiaries. This Agreement shall be binding upon and
inure to the benefit of you (and your personal representatives and heirs), the
Company and IHK and any organization which succeeds to substantially all of the
business or assets of IHK, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of IHK or otherwise. This
Agreement shall inure to the benefit of and be enforceable by your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees or other Beneficiary. If you should die
while any amount would still be payable to you hereunder if you had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your Beneficiary.
8. Definitions.
For purposes of this Agreement, the following capitalized words shall
have the meanings set forth below:
"Accounting Firm" shall mean a national accounting firm as shall be
designated by agreement between you and the Company.
"Annual Bonus" shall have the meaning set forth in Section 3(b).
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"Beneficiary" shall mean the person or persons designated by you in
writing to receive any benefits payable to you hereunder in the event of your
death or, if no such persons are so designated, your estate. No Beneficiary
designation shall be effective unless it is in writing and received by IHK prior
to the date of your death.
"Benefit Continuation Period" shall mean the period beginning on the
Date of Termination and ending on the later to occur of (i) the third
anniversary of the Date of Termination and (ii) the expiration of the Term as in
effect immediately prior to the Date of Termination.
"Board" shall mean the Board of Directors of IHK.
"Cause" shall mean your willful, material and repeated nonperformance of
your duties to the "Company (other than by reason of your illness, incapacity or
Disability) after written notice from the Board of such nonperformance (which
notice specifically identifies the manner and sets forth specific facts,
circumstances and examples in which the Board believes that you have not
substantially performed your duties) and your continued willful, material and
repeated nonperformance of such duties after your receipt of such notice. For
purposes of the previous sentence, no act or failure to act on your part shall
be deemed "willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of IHK. (Assuming the disclosure of all pertinent facts any action
taken by you after consultation with, and in accordance with the advice of,
nationally recognized counsel reasonably acceptable to IHK shall be deemed to be
taken in good faith and to not be willful under this Agreement). Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of the resolution duly
adopted by the Board at a meeting of the Board called and held for such purpose
(after reasonable notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board you were guilty of conduct set forth above and specifying the
particulars thereof in reasonable detail.
"Common Stock" shall mean the Common Stock, par value $.25 per share, of
IHK.
"Compensation Committee" shall have the meaning set forth in Section
3(b).
"Deferred Compensation Agreement" shall have the meaning set forth in
Section 3(d)(ii).
"Disability" shall mean your incapacity due to physical or mental
illness which causes you to be absent from the performance of your duties with
the Company or IHK for six consecutive months, followed by your failure to
return to performance of your duties with the Company or IHK within thirty days
after written Notice of Termination due to disability is given to you. Any
question as to the existence of your Disability upon which you and IHK cannot
agree
-10-
<PAGE>
shall be determined by a qualified independent physician selected by you (or, if
you are unable to make such selection, such selection shall be made by any adult
member of your immediate family), and approved by IHK, which approval shall not
be unreasonably withheld. The determination of such physician made in writing to
IHK and to you shall be final and conclusive for all purposes of this Agreement.
"Fiscal Year" of IHK shall mean the twelve-month period ending on
September, 30.
"Good Reason" shall mean (i) an adverse and material change to your
duties, titles, or reporting responsibilities (including, without limitation,
your good faith determination that, as a consequence of either (a) a Change of
Control or (b) the adoption by the Board, over your objection, of a business
plan or strategy that you believe either cannot be achieved or is sufficiently
outside the scope of IHK's traditional business lines or plans as to not be in
the best interest of IHK, your role in managing and directing the business and
affairs of the Company or IHK has been adversely and materially affected), (ii)
a material breach by IHK of any term of this Agreement, (iii) a reduction in
your Salary or Annual Bonus opportunity or the failure of IHK or the Company to
pay you any material amount of compensation when due or (iv) the relocation of
your principal place of employment from the Savannah, Georgia area without your
prior written consent, or in the event that you consent to such a relocation,
the failure of the Company or IHK to provide you with the benefits set forth in
Section 3(c)(ix). For purposes of this definition, "Change of Control" shall be
deemed to have occurred if any of the following shall have taken place: (a) a
change in control is reported by IHK in response to either Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") or Item 1 of Form 8-K promulgated under the Exchange Act; (b)
any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing forty percent (40%) or more of the combined voting power of IHK's
then outstanding securities; or (c) following the election or removal of
directors, a majority of the Board of Directors consists of individuals who were
not members of the Board two (2) years before such election or removal, unless
the election of each director who was not a director at the beginning of such
two-year period has been approved in advance by directors representing at least
a majority of the directors then in office who were directors at the beginning
of the two-year period.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor provisions thereto.
"Involuntary Termination" shall mean (i) your termination of employment
by IHK during the Term other than for Cause or Disability, or (ii) your
resignation of employment with IHK during the Term for Good Reason, or (iii) the
expiration of the Term in accordance with Section 1 as a result of IHK's
election not to extend the Term.
"Option" shall have the meaning set forth in Section 3(c).
-11-
<PAGE>
"Other Benefits" shall have the meaning set forth in Section 5(b)(ii).
"Payment" means (i) any amount that is due or paid to you under this
Agreement, (ii) any amount that is due or paid to you under any plan, program or
arrangement of the Company or IHK, and (iii) any amount or benefit that is due
or payable to you under this Agreement or under any plan, program or arrangement
of the Company or IHK not otherwise covered under clause (i) or (ii) hereof
which must reasonably be taken into account under Section 280G of the Internal
Revenue Code and the Regulations in determining the amount of the "parachute
payments" received by you, including, without limitation, any amounts which must
be taken into account under the Internal Revenue Code and Regulations as a
result of (A) the acceleration of the vesting of any option, restricted stock or
other equity award granted hereunder or under any equity plan of IHK, (B) the
acceleration of the time at which any payment or benefit is receivable by you or
(C) any contingent severance or other amounts that are payable by you.
"Regulations" shall mean the proposed, temporary and final regulations
under Section 280G of the Internal Revenue Code or any successor provision
thereto.
"Salary" shall have the meaning set forth in Section 3(a).
"SERP" shall have the meaning set forth in Section 3(d)(i).
"Target Amount" shall have the meaning set forth in Section 3(b).
"Taxes" shall mean the federal, state and local income or payroll taxes
to which you are subject at the time of determination, calculated on the basis
of the highest marginal rates then in effect, plus any additional payroll or
withholding taxes to which you are then subject.
9. Notice.
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid addressed to the President and Chief
Executive Officer of IHK, at One Imperial Square, P. O. Box 9, Sugar Land, Texas
77847, with a copy to the General Counsel of the Company at such address, or to
you at the address set forth on the first page of this Agreement or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
10. Miscellaneous.
(a) Amendments, Waivers, Etc. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing. No waiver by either party hereto at any time of any breach
by the other party hereto of,
-12-
<PAGE>
or of compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement and this Agreement shall supersede all
prior agreements, negotiations, correspondence, undertakings and communications
of the parties, oral or written, with respect to the subject matter hereof. In
addition, upon the Effective Date, your change of control letter agreement with
the Company, dated as of January 7, 1991, shall be of no further force or
effect.
(b) No Mitigation, Reduction or Offset. You shall not be required to
mitigate the amount of any severance or termination payment provided for in this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Agreement be reduced by any compensation
earned by you as the result of employment by another employer or by any
compensation or benefits paid by IHK or any other employer. No payments to you
under this Agreement may be subject to any manner of offset or set off or shall
be reduced by any amounts you may owe to IHK or by any claims that IHK may have
against you.
(c) Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(d) Attorney's Fees. IHK will cause the Company to pay or reimburse you
for the reasonable attorney's fees and expenses incurred by you in enforcing
your rights under this Agreement, whether or not incurred in connection with
litigation activities. IHK will cause the Company promptly to pay (or reimburse
you) for all monies due under this paragraph. In the event that the Company does
not so pay such sums within 30 days of receipt, IHK will or will cause the
Company to pay to you interest at the maximum rate permissible under the law of
the State of Georgia.
(e) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(f) Withholding. Amounts paid to you hereunder shall be subject to all
applicable federal, state and local wage withholding.
(g) Source of Payments. All payments provided under this Agreement shall
be paid in cash from the general funds of IHK or the Company, and no special or
separate fund shall be established, and no other segregation of assets made, to
assure payment. You will have no right, title or interest whatsoever in or to
any investments which IHK or the Company may make to aid it in meeting its
obligations hereunder. To the extent that any person acquires a right to
-13-
<PAGE>
receive payments from IHK or the Company hereunder, such right shall be no
greater than the right of an unsecured creditor of IHK or the Company.
(h) Headings. The headings contained in this Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Agreement.
(i) Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Georgia, without regard to principles of conflicts of law.
Any dispute under this Agreement shall be litigated or, at either
party's option, arbitrated. Any litigation or arbitration by either party with
respect to this Agreement must be filed in the county of your principal
residence, and, if a litigation, must be proceeded by a 20-day notice, provided
confidentially to the other party, during which period, such other party, at its
option, may notify the party filing such litigation that any such claim(s) must
be arbitrated pursuant to the rules of the American Arbitration Association with
a panel to be composed of business executives or professionals of a peer group
to you, including compensation levels. At either party's option, upon written
notice, any such arbitration shall be confidential, including a prohibition
against disclosures of any pertinent facts, save the amount of an award, in any
litigation (whether brought to enforce the arbitration award, or otherwise).
If you concur with the terms of this employment agreement, please so
indicate by signing in the space provided below, whereupon this letter shall
become a binding agreement between you and IHK.
Very truly yours,
IMPERIAL HOLLY CORPORATION
[signature appears here]
By: _______________________________
Name:
Title:
AGREED TO AND ACCEPTED
this 23 day of December, 1997
/s/ William W. Sprague III
By: __________________________
William W. Sprague III
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<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------- -------------
Holly Sugar Corporation......................... New York
Savannah Foods & Industries, Inc................ Delaware
Savannah Foods Industrial, Inc.................. Delaware
Dixie Crystals Brands, Inc...................... Delaware
Michigan Sugar Company.......................... Michigan
Imperial Sugar LP............................... Delaware
Savannah Sugar LP............................... Delaware
Imperial Distributing, Inc...................... Delaware
Diamond Crystal Specialty Foods, Inc.(1)........ Michigan
(1) Acquired November 2, 1998
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-30328, 33-41769 and 33-68896 of Imperial Holly Corporation, each on Form S-
8, of our report dated December 9, 1998, appearing in this Form 10-K of
Imperial Holly Corporation for the year ended September 30, 1998.
/s/ Deloitte & Touche LLP
Houston, Texas
December 11, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Imperial Holly Corporation Annual Report on Form 10-K and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 2,877
<SECURITIES> 59,478
<RECEIVABLES> 139,870
<ALLOWANCES> 0
<INVENTORY> 204,929
<CURRENT-ASSETS> 446,289
<PP&E> 582,112
<DEPRECIATION> 183,919
<TOTAL-ASSETS> 1,179,800
<CURRENT-LIABILITIES> 186,060
<BONDS> 525,893
<COMMON> 268,804
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,179,800
<SALES> 1,783,091
<TOTAL-REVENUES> 1,783,091
<CGS> 1,610,852
<TOTAL-COSTS> 1,610,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,718
<INCOME-PRETAX> (1,212)
<INCOME-TAX> 2,857
<INCOME-CONTINUING> (5,835)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,999)
<CHANGES> 0
<NET-INCOME> (7,834)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
