SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the quarterly period ended December 28, 1996
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the transition period from ___ to ___
Commission File Number: 0-24954
JP FOODSERVICE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1634568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
9830 Patuxent Woods Drive 21046
Columbia, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 312-7100
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares of the registrant's common stock, par value $.01 per
share, outstanding at February 11, 1997 was 22,235,099 shares.
<PAGE>
JP FOODSERVICE, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 29, 1996 and December 28, 1996 1
Condensed Consolidated Statements of Operations
Three and six months ended December 30, 1995
and December 28, 1996 2
Condensed Consolidated Statements of Cash Flows
Six months ended December 30, 1995
and December 28, 1996 3
Notes to Condensed Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial 6 - 7
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June December
29, 1996 28, 1996
-------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents ..................... $ 12,224 $ 6,774
Receivables, net .............................. 154,405 192,549
Inventories ................................... 84,138 101,129
Other current assets .......................... 9,556 13,306
-------- --------
Total current assets ................... 260,323 313,758
-------- --------
Property and equipment, net .......................... 104,258 131,407
Goodwill and other noncurrent assets ................. 83,698 106,684
-------- --------
Total assets ......................................... $448,279 $551,849
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current obligations under capital leases ...... $ 5,072 $ 5,884
Revolving bank line of credit ................. 5,300
Current portion of long-term debt ............. 895
Current portion of subordinated debt
with related parties ....................... 3,622
Accounts payable .............................. 110,230 87,163
Accrued expenses .............................. 14,338 20,463
-------- --------
Total current liabilities .............. 139,457 113,510
-------- --------
Noncurrent liabilities
Long-term debt ................................ 145,040 200,516
Subordinated debt with related parties ........ 5,958 4,472
Obligations under capital leases .............. 17,649 19,781
Noncurrent deferred tax liability ............. 12,026 12,278
-------- --------
Total noncurrent liabilities ........... 180,673 237,047
-------- --------
Total liabilities ...................... 320,130 350,557
-------- --------
Commitments and contingent liabilities
Stockholders' equity ................................. 128,149 201,292
-------- --------
Total liabilities and stockholders' equity ........... $448,279 $551,849
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December December December December
30, 1995 28, 1996 30, 1995 28, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .......................$ 353,525 $ 422,602 $ 709,848 $ 836,964
Cost of sales ................... 292,900 348,759 588,461 692,390
---------- ---------- ---------- ----------
Gross profit .................... 60,625 73,843 121,387 144,574
Operating expenses .............. 49,584 59,120 99,736 116,787
Amortization of intangible assets 585 785 1,150 1,382
---------- ---------- ---------- ----------
Income from operations .......... 10,456 13,938 20,501 26,405
Interest expense ................ 3,882 4,173 7,475 7,827
Nonrecurring acquisition
charges (Note 6) ............... 100 5,400
---------- ---------- ---------- ----------
Income before income taxes ...... 6,574 9,665 13,026 13,178
Provision for income taxes ...... (2,718) (4,951) (5,483) (6,410)
---------- ---------- ---------- ----------
Net income ......................$ 3,856 $ 4,714 $ 7,543 $ 6,768
========== ========== ========== ==========
Net income per common share .....$ 0.21 $ 0.21 $ 0.40 $ 0.32
========== ========== ========== ==========
Weighted average number of shares
of common stock outstanding ..18,770,025 22,212,315 18,763,422 21,425,998
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December December
30, 1995 28, 1996
--------- ---------
<S> <C> <C>
Cash Flows from operating activities
Net income ......................................... $ 4,714 $ 6,768
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization ................. 6,408 9,076
Other adjustments ............................. 2,665 (1,302)
Changes in working capital, net of effects
from acquisitions................................ (31,377) (67,675)
-------- --------
Net cash used in operating activities .................... (17,590) (53,133)
-------- --------
Cash flows from investing activities
Additions to property and equipment ................ (5,116) (18,575)
Acquisitions of businesses, net of cash acquired ... (2,738) (47,132)
Other .............................................. 5,500
-------- --------
Net cash used in investing activities .................... (7,854) (60,207)
-------- --------
Cash flows from financing activities
Proceeds from public stock offering ................ 66,525
Increase in long term debt ......................... 19,096 44,206
Principal payments under capital lease obligations . (2,224) (2,837)
Distributions to stockholders of acquired businesses (1,039) (662)
Proceeds from employee stock purchases ............. 337 658
-------- --------
Net cash provided by financing activities ................ 16,170 107,890
-------- --------
Net decrease in cash and cash equivalents ................ (9,274) (5,450)
Cash and cash equivalents
Beginning of period ................................ 15,690 12,224
-------- --------
End of period ...................................... $ 6,416 $ 6,774
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
JP FOODSERVICE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements of JP Foodservice, Inc. (the
"Company") at December 28, 1996 and for the three and six months ended December
30, 1995 and December 28, 1996, included herein are unaudited, but include all
adjustments (consisting only of normal recurring entries) which the Company's
management believes to be necessary for the fair presentation of the financial
position, results of operations and cash flows of the Company at and for the
periods presented. Interim results are not necessarily indicative of results
that may be expected for the full year.
The Condensed Consolidated Financial Statements and related notes give
retroactive effect to the mergers with Valley Industries, Inc. (together with
its affiliates, "Valley") and Squeri Food Service, Inc. (together with its
affiliate, "Squeri") for all periods presented, accounted for under the pooling
of interests method. The condensed consolidated balance sheets as of June 29,
1996 and December 28, 1996 include the accounts of Valley as of January 31, 1996
and December 28, 1996, respectively, and the accounts of Squeri as of December
31, 1995 and December 28, 1996, respectively. The condensed consolidated
statements of cash flows for the six-month periods ended December 30, 1995 and
December 28, 1996 include the results of Valley for the six-month period ended
July 31, 1995 and the eleven-month period ended December 28, 1996, respectively,
and the results of Squeri for the six-month period ended June 30, 1995 and the
twelve-month period ended December 28, 1996, respectively. The condensed
consolidated statements of operations for the three and six-month periods ended
December 30, 1995 and December 28, 1996, respectively, include the results of
Valley for the three and six-month periods ended July 31, 1995 and December 28,
1996 and the results of Squeri for the three and six-month periods ended June
30, 1995 and December 28, 1996, respectively. (See Note 3 - Merger with Valley
and Note 4 - Merger with Squeri.) The "Company" as used in these Condensed
Consolidated Financial Statements refers to JP Foodservice, Inc. and its
subsidiaries, including Valley and Squeri.
NOTE 2 - NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of common
and common equivalent shares outstanding during the period.
NOTE 3 - MERGER WITH VALLEY
On August 30, 1996, the Company completed a merger with Valley, a broadline
foodservice distributor located in Las Vegas, Nevada, for a purchase price of
$40.7 million (net of indebtedness assumed or discharged). Under the terms of
the merger, which is accounted for as a pooling of interests, the Company
exchanged 1,936,494 common shares for all of Valley's common shares and
ownership interests of an affiliate.
Effective June 30, 1996, the fiscal year of Valley was conformed to the
Company's fiscal year. Accordingly, an adjustment of $2.1 million has been made
to the Company's combined retained earnings on June 30, 1996 to reflect changes
in Valley's retained earnings from February 1, 1996 to June 29, 1996. All
periods presented have been retroactively restated (see Note 1 - Basis of
Presentation).
NOTE 4 - MERGER WITH SQUERI
Effective September 30, 1996, the Company completed a merger with Squeri, a
broadline foodservice distributor located in Cincinnati, Ohio, for a purchase
price of approximately $26.1 million (net of indebtedness assumed or
discharged). Under the terms of the merger, accounted for as a pooling of
interests, the Company exchanged 1,079,875 common shares for all of Squeri's
common shares.
4
<PAGE>
Effective June 30, 1996, the fiscal year of Squeri was conformed to the
Company's fiscal year. Accordingly, an adjustment has been made to the Company's
combined retained earnings on June 30, 1996 to reflect changes in Squeri's
retained earnings from January 1, 1996 to June 29, 1996. All periods presented
have been retroactively restated (see Note 1 - Basis of Presentation).
NOTE 5 - ARROW ACQUISITION
Effective August 31, 1996, the Company completed the acquisition of Arrow Paper
and Supply Co., Inc. (together with its affiliate, "Arrow"), a broadline
foodservice distributor located in Norwich, Connecticut. Under the terms of the
acquisition, which is accounted for as a purchase, the Company purchased certain
assets, assumed or discharged certain liabilities and paid consideration of
$28.9 million. Approximately $1.7 million of the consideration was paid in the
form of common stock and the remainder was paid in cash. The excess of purchase
price over the fair value of net assets is approximately $28.2 million and is
being amortized using the straight-line method over 40 years. Unaudited pro
forma information for the six-month periods ended December 30, 1995 and December
28, 1996, as if the acquisition had occurred on the first day of those periods,
is shown below.
<TABLE>
<CAPTION>
Six Months Ended
(In thousands, -----------------------------------------
except per share data) December 30, 1995 December 28, 1996
------------------- -------------------
Actual Pro forma Actual Pro forma
<S> <C> <C> <C> <C>
Revenue ..................... $709,848 $749,550 $836,964 $854,651
Income from operations ...... 20,501 21,619 26,405 27,167
Net income .................. 7,543 8,146 6,768 7,147
Net income per common share $ 0.40 $ 0.43 $ 0.32 $ 0.33
</TABLE>
NOTE 6 - NONRECURRING COSTS
During the three months ended December 28, 1996, the Company recorded a
nonrecurring charge of approximately $2 million with respect to the estimated
legal and other professional fees required to complete the acquisition of
Squeri. In addition, the Company revised the estimated transaction costs of the
Valley acquisition from $5.3 million (recorded in the three months ended
September 28, 1996) to $3.4 million.
During the three months ended December 28, 1996, the Company adjusted its
effective tax rate to reflect the tax treatment of certain transaction costs
incurred in the Valley and Squeri acquisitions. The Company's effective tax
rates for the three and six-month periods ended December 28, 1996 were 51.2% and
48.6%, respectively. The Company's effective tax rate before the effect of such
nonrecurring transaction costs was 39.4%.
The net impact of the nonrecurring transaction costs to the Company's earnings
per share for the three-month and six-month periods ended December 28, 1996 was
$.06 and $.21, respectively. Excluding these nonrecurring transaction costs, the
Company's earnings per share for the three-month and six-month periods ended
December 28, 1996 would have been $.27 and $.53, respectively.
NOTE 7 - CONTINGENCIES
From time to time, the Company is involved in litigation and proceedings arising
out of the ordinary course of business. There are no pending material legal
proceedings or environmental investigations to which the Company is a party or
to which the property of the Company is subject as of the date of this report.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Three and Six Months Ended December 28, 1996 Compared to Three and Six Months
Ended December 30, 1995.
OVERVIEW
The condensed consolidated statements of operations for the three and six-month
periods ended December 30, 1995 and December 28, 1996, respectively, include the
results of Valley for the three and six-month periods ended July 31, 1995 and
December 28, 1996 and the results of Squeri for the three and six-month periods
ended June 30, 1995 and December 28, 1996, respectively.
NET SALES
The Company's net sales of $423 million for the three months ended December 28,
1996 (the "1997 fiscal quarter") represented a 19.5% increase from the $354
million net sales level achieved for the three months ended December 30, 1995
(the "1996 fiscal quarter"). For the six months ended December 28, 1996 (the
"1997 fiscal six-month period"), net sales increased 17.9% to $837 million from
$710 million for the six months ended December 30, 1995 (the "1996 fiscal
six-month period").
The acquisition of Arrow accounted for sales growth of 6.9% and 4.4% for the
1997 fiscal quarter and 1997 fiscal six-month period, respectively. Growth in
both chain account and street sales contributed to the increase in sales. Chain
account sales increased 18.8% for the 1997 fiscal quarter and 18.0% for the 1997
fiscal six-month period, reflecting the continued growth in sales to the
Company's larger customers. An increase of 20.1% in street sales for the 1997
fiscal quarter and 17.9% for the 1997 fiscal six-month period resulted
principally from the growth of the street sales force and the Arrow acquisition.
As a percentage of net sales, street sales increased to 57.3% for the 1997
fiscal quarter from 57.0% for the 1996 fiscal quarter and remained constant at
57.5% for the fiscal six-month periods.
GROSS PROFIT
The Company's gross profit increased to 17.5% in the 1997 fiscal quarter and
17.3% in the 1997 fiscal six-month period from 17.1% in the prior corresponding
periods. The increase was primarily attributable to the increase in street sales
as a percentage of net sales in the 1997 fiscal quarter and the growth of the
Company's private and signature brand product sales in both current periods.
Sales of these products, which generally have higher gross margins than national
brand products of comparable quality, increased by 40.0% for the 1997 fiscal
quarter and 44.4% for the 1997 fiscal six-month period over the corresponding
periods in the prior fiscal year.
OPERATING EXPENSES
The increased sales volume in the 1997 fiscal quarter and the 1997 fiscal
six-month period contributed to a 19.2% ($9.5 million) and a 17.1% ($17.1
million) increase in operating expenses, respectively, over the corresponding
periods in the prior fiscal year. As a percentage of net sales, operating
expenses remained constant at 14.0% for the two fiscal quarters and the two
fiscal six-month periods.
INCOME FROM OPERATIONS
Income from operations (after amortization charges of $0.8 million in the 1997
fiscal quarter and $0.6 million in the 1996 fiscal quarter), increased 33.3%
($3.5 million) in the 1997 fiscal quarter over the 1996 fiscal quarter. For the
1997 fiscal six-month period, income from operations increased 28.8% ($5.9
million) over the corresponding prior period. The increase in the 1997 periods
was attributable to the increased sales volume and to the increased gross profit
margin.
NONRECURRING CHARGE
During the 1997 fiscal quarter, the Company recorded a nonrecurring charge of
approximately $2 million with respect to the estimated legal and other
professional fees required to complete the acquisition of Squeri. In addition,
the Company revised the estimated transaction costs of the Valley acquisition
from $5.3 million (recorded in the three months ended September 28, 1996) to
$3.4 million.
6
<PAGE>
INCOME TAXES
During the 1997 fiscal quarter, the Company adjusted its effective tax rate to
reflect the tax treatment of certain of the transaction costs incurred in the
Valley and Squeri acquisitions. The Company's effective tax rates for the three
and six-month periods ended December 28, 1996 were 51.2% and 48.6%,
respectively. The Company's effective tax rate before the effect of such
nonrecurring transaction costs was 39.4%.
LIQUIDITY AND CAPITAL RESOURCES
As of December 28, 1996, the Company's total long-term indebtedness, including
current portion, was $230.7 million, with an overall weighted average interest
rate of 7.0% (excluding deferred financing costs).
The Company's working capital balance (excluding current portion of long-term
debt) of $206.1 million at December 28, 1996 increased by $70.4 million from the
balance at June 29, 1996. This increase was primarily attributable to increased
net sales, seasonal increases in inventory and receivables, the acquisition of
the working capital of Arrow and a reduction in accounts payable. The recorded
$18.6 million of capital expenditures for the 1997 six-month period includes
$10.1 million related to the facility expansion and delivery fleet purchases of
Valley between January 31, 1996 and September 28, 1996. The remaining $8.5
million of capital expenditures resulted mainly from the Company's facility
expansion projects at its Allentown, Pennsylvania and Fort Wayne, Indiana
branches. The Company also expended $47.1 million for the acquisition of
businesses. These expenditures were funded with the proceeds of the stock
offering consummated in August 1996 and increases in long-term debt.
From time to time, the Company considers the acquisition of other foodservice
businesses. Any such business may be acquired for cash, common stock of the
Company, or a combination of cash and common stock.
As of December 28, 1996, $65.5 million of borrowings and $11.8 million of
letters of credit were outstanding under the Company's $110 million revolving
credit facility and an additional $32.7 million remained available to finance
the Company's working capital needs. The Company believes that the combination
of the cash flow generated by its operations, additional capital leasing
activity and borrowings under the facility will be sufficient to enable it to
finance its growth and meet its currently projected capital expenditures and
other liquidity requirements.
7
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on November 15,
1996 (the "1996 Annual Meeting"). At the 1996 Annual Meeting, the
stockholders voted upon the election of directors and the following
proposals:
(a) Approval to amend the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of
the Company's Common Stock from 45,000,000 shares to 75,000,000
shares.
(b) Approval to amend the Company's Stock Option Plan for Outside
Directors to increase the number of shares of the Company's
Common Stock issuable under the Plan from 40,000 shares to
100,000 shares.
The results of such votes were as follows:
<TABLE>
<CAPTION>
Number of Votes Cast
--------------------
Withheld or Broker
Matter Voted Upon For Against Abstained Non-votes
----------------- --- ------- --------- ---------
<S> <C> <C> <C> <C>
(a) Approval to increase the number
of authorized shares of the
Company's Common Stock ...... 16,419,400 606,046 6,314 64,150
(b) Approval to increase the number
of shares of the Company's
Common Stock issuable under
the Stock Option Plan for
Outside Directors .......... 16,775,043 235,640 11,077 74,150
(c) Election of directors:
Lewis Hay, III .............. 17,061,330 -- 34,580 --
Mark P. Kaiser .............. 17,060,888 -- 35,022 --
Jeffrey D. Serkes ........... 17,059,530 -- 36,380 --
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) Stock Option Plan for Outside Directors, as amended as of
November 15, 1996.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed Current Reports on Form 8-K for reportable
events dated during the three months ended December 28, 1996,
pursuant to the Items and with respect to the subjects
indicated:
Date Item(s) Subject
---- ------- -------
October 22, 1996 5 Earnings release
November 13, 1996 5 Post-merger financial results
November 26, 1996 5 Restated first quarter fiscal
1997 historical financial
information to reflect
business combinations
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JP FOODSERVICE, INC.
(Registrant)
DATE: February 11, 1997 /s/ Lewis Hay, III
----------------- -------------------------------------
Lewis Hay, III, Senior Vice President
and Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
9
<PAGE>
JP FOODSERVICE, INC.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
(As amended and restated on November 15, 1996)
1. Purpose. The purpose of the JP Foodservice, Inc. Stock Option Plan for
Outside Directors is to promote the long-term growth of JP Foodservice, Inc.
(the "Corporation") by rewarding directors of the Corporation for outstanding
long-term performance and to attract, motivate and retain highly qualified and
capable outside directors (the "Directors"). All stock options ("Options")
granted under the Plan are non-statutory options that do not qualify as
incentive stock options intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986 or any successor provisions. The Plan conforms to
the provisions of Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of
1934 (the "'Exchange Act"), as presently in effect.
2. Eligibility and Grant of Options. Subject to approval of the Plan by
the shareholders of the Corporation:
(a) No director of the Corporation who is an employee of the
Corporation or who is a nominee or officer of Sara Lee Corporation or
any affiliate of Sara Lee Corporation is eligible to participate in
this Plan. Each other director of the Corporation is eligible to
participate in the Plan.
(b) Each eligible Director shall receive an Option to purchase
5,000 shares of the voting common stock, $0.01 par value, of the
Corporation ("Common Stock"), on the date and at the time of the
initial closing of the Corporation's initial public offering of
Common Stock or, if later, on the date and at the time of such
person's initial appointment or election to the position of Director.
(c) Each eligible Director who has received an initial grant
shall receive an annual grant of an Option to purchase 1,000 shares
of Common Stock on each anniversary of the initial grant of an Option
to such Director.
The option price for each Option shall be determined as of the date of grant,
pursuant to Section 4. The Corporation shall effect the grant of Options under
the Plan by the execution and delivery of written option agreements between the
Corporation and the Directors receiving the Options ("Optionees"). No Option,
nor anything contained in this Plan, shall confer upon any Optionee any right to
continue as a Director of the Corporation nor limit in any way the ability of
the Board of Directors or the shareholders of the Corporation to terminate such
Optionee's service as a Director at any time.
- 1 -
<PAGE>
3. Stock. The Corporation has reserved an aggregate of 100,000 shares of
Common Stock for issuance pursuant to the exercise of Options granted under the
Plan. The aggregate number of shares of Common Stock reserved (i) is subject to
future adjustments as provided in Section 8 and (ii) shall be reduced by the
issuance of shares upon the exercise of Options, but shall not be reduced if
Options, for any reason, expire or terminate unexercised. The Corporation shall
not be required to issue or deliver any certificate for shares of its Common
Stock purchased upon the exercise of any part of an Option before (i) the
admission of such shares to listing on any stock exchange on which the Common
Stock may then be listed or the approval of such shares for quotation on any
automated quotation system on which the Common Stock may then be quoted, (ii)
receipt of any required representations by the Optionee or completion of any
required registration or other qualification of such shares under any state or
federal law or regulation that the Corporation's counsel shall determine is
necessary or advisable, and (iii) receipt of advice by the Corporation's counsel
that all applicable legal requirements have been satisfied.
4. Price. Except as provided below, the purchase price of each share of
Common Stock covered by an Option (the "Option Price") shall be equal to the
fair market value, as hereinafter defined, of one share of Common Stock on the
date the Option is granted (the "Option Grant Date"). If the Option is granted
in connection with the Corporation's initial public offering, the fair market
value shall be the initial offering price to the public. If the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), its fair market value shall be the closing price reported by
NASDAQ on the Option Grant Date, provided that if there should be no closing
price reported on such date, the fair market value shall be deemed equal to the
closing price as reported by NASDAQ for the last preceding date on which sales
of Common Stock were reported. In the event the Common Stock is listed upon an
established stock exchange or exchanges, the fair market value shall be the
closing price of the Common Stock on the exchange that trades the largest volume
of Common Stock on the Option Grant Date. In no event shall the Option Price be
less than the par value of the Common Stock.
Payment of the Option Price may be made (i) in cash, (ii) by the
surrender of shares of Common Stock owned by the Director exercising the Option
and having a fair market value on the date of exercise equal to the aggregate
Option Price, or (iii) any combination thereof. Shares of Common Stock
surrendered in payment of the Option Price shall be valued at the fair market
value thereof, as defined above, on the date of exercise.
5. Term and Limitations on Exercise. Options may be exercised, in whole
or in part, but only with respect to whole shares of Common Stock, as set forth
below, by giving timely written notice to the Corporation.
- 2 -
<PAGE>
(a) The term of any Option shall be ten years from the Option
Grant Date. No Option may be exercised after the expiration of its term
or after the date set forth in subsection (c), (d), or (e) below, if
earlier.
(b) Options are exercisable only to the extent they are vested.
One-fourth of each Option granted shall vest on the Option Grant Date
and an additional one-fourth of such Option shall vest on each of the
first, second, and third anniversary of the Option Grant Date provided
that the Optionee is a Director on such date. No Options shall be
exercisable unless and until the shareholders of the Corporation
approve the Plan. No Option may be exercised during the first six
months after the Option Grant Date, unless the Optionee dies or becomes
disabled (as determined under Title II of the Social Security Act, 42
U.S.C. ss.ss. 301 et seq.) before the expiration of the six-month
period.
(c) If an Optionee ceases to be a Director after the Optionee
attains age sixty-five or on account of the Optionee's death or
disability, all outstanding Options granted to such Optionee shall vest
and the Optionee (or the Optionee's legatees or distributees or the
personal representative of the Optionee's estate, in the event of the
Optionee's death) may exercise the Optionee's outstanding Options at
any time until the first to occur of (x) the date that is two years
after the date on which the Optionee ceases to be a Director or (y) the
date on which such outstanding Options expire according to their terms.
(d) If an Optionee ceases to be a Director for any reason other
than described in subsection (c) above, the Optionee may exercise the
Optionee's outstanding Options to the extent vested at any time
(subject to the limitations of subsection (b) above) until the first to
occur of (x) the date that is three months after the date on which the
Optionee ceases to be a Director or (y) the date on which such
outstanding Options expire according to their terms.
(e) If an Optionee dies after the Optionee ceases to be a
Director, but within the time period during which the Optionee's
outstanding Options are still exercisable, the Director's outstanding
Options may be exercised by the Optionee's legatees or distributees or
the personal representative of the Optionee's estate. Such outstanding
Options may be exercised at any time (subject to the limitations of
subsection (b) above) until the first to occur of (x) the date that is
two years after the date on which the Optionee ceases to be a Director
or (y) the date on which such outstanding Options expire according to
their terms.
(f) Notwithstanding the foregoing, in the event of a Change in
Control (as defined below) of the Corporation, each Option that has
been outstanding for at least six months after the Option Grant Date
shall vest and the Option shall be fully exercisable.
- 3 -
<PAGE>
(g) Definition of Change of Control. A "Change of Control"
shall occur when:
(i) a "person" or "group" (which terms, when used in
this Section 5, shall have the meaning they have when used in
Section 13(d) of the Exchange Act) (other than any Sara Lee
Entity (as defined below) prior to the closing of the initial
public offering of Common Stock, the Corporation, any trustee or
other fiduciary holding securities under an employee benefit plan
of the Corporation, or any corporation, owned, directly or
indirectly, by the shareholders of the Corporation in
substantially the same proportions as their ownership of Voting
Stock (as defined below) of the Corporation) is or becomes (other
than solely by reason of a repurchase of Voting Stock by the
Corporation), the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% or more
of the total outstanding Voting Stock of the Corporation; or
(ii)the Corporation consolidates with or merges with
or into another corporation or partnership or conveys, transfers
or leases, in any transaction or series of transactions, all or
substantially all of its assets to any corporation or
partnership, or any corporation or partnership consolidates with
or merges with or into the Corporation, in any event pursuant to
a transaction in which the outstanding Voting Stock of the
Corporation is reclassified or changed into or exchanged for
cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the
Corporation is changed into or exchanged for voting stock of the
surviving corporation and (B) no "person" or "group" who did not
beneficially own 50% or more of the total outstanding Voting
Stock of the Corporation immediately prior to such transaction
beneficially owns, immediately after such transaction 50% or more
of the total outstanding voting stock of the surviving
corporation, or the Corporation is liquidated or dissolved or
adopts a plan of liquidation or dissolution; or
(iii)during any consecutive two-year period,
individuals who at the beginning of such period constituted the
Board (together with any new directors whose election by the
Board or whose nomination for election by the stockholders of the
Corporation was approved by a vote of 66-2/3% of the directors
then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the Board then in office.
The term "Sara Lee Entity" means (i) Sara Lee
Corporation, a Maryland corporation ("Sara Lee"), (ii)
PYA/Monarch, Inc., a Delaware corporation, (iii) the Sara Lee
Foundation, and (iv) any domestic or foreign corporation or
entity of which Sara Lee owns, directly or indirectly, at least
50%
- 4 -
<PAGE>
of the total combined voting power of such corporation or other
entity. The term "Voting Stock" means all capital stock of the
Corporation which by its terms is entitled under ordinary
circumstances to vote in the election of directors.
(h) Notwithstanding anything herein to the contrary, Options
shall be granted and exercised in such a manner as to conform to the
provisions of Rule 16b-3, or any replacement rule adopted pursuant to
the provisions of the Exchange Act, as the same now exists or may, from
time to time, be amended.
(i) The exercise of any Option and delivery of the Option shares
shall be contingent upon the receipt by the Corporation of the Option
Price in cash or shares of Common Stock as provided in Section 4.
6. Non-transferability of Options. Options, by their terms, shall not be
transferable by the Optionee during the Optionee's lifetime and may not be
assigned, exchanged, pledged, transferred, or otherwise encumbered or disposed
of except pursuant to a qualified domestic relations order, by will or by the
applicable laws of descent and distribution. Options shall be exercisable during
the Optionee's lifetime only by the Optionee or the Optionee's guardian or legal
representative.
7. Tax Withholding. To the extent required by applicable federal, state,
local, or foreign law, an Optionee shall make arrangements acceptable to the
Corporation for the satisfaction of any withholding tax obligations that arise
by reason of the exercise of an Option or any sale of the shares of Common Stock
acquired upon exercise of an Option. The Corporation shall not be required to
issue shares until such obligations are satisfied. The Corporation may permit
such obligations to be satisfied by having the Corporation withhold a portion of
the shares of Common Stock that otherwise would be issued to the Optionee upon
exercise of the Option.
8. Effect of Stock Dividends and Other Changes. Appropriate adjustments
shall be made to the Option Price and the number of shares subject to Options if
there are any changes in the Common Stock by reason of stock dividends, stock
splits, reverse stock splits, recapitalizations, mergers, or consolidations.
9. Administration of the Plan. The Board of Directors shall be responsible
for the proper implementation of the Plan, but the Board of Directors shall not
exercise any discretion with respect to the administration of the Plan. As
required by Rule 16b-3, a person who does not meet the requirements of a
"disinterested person" under Rule 16b-3 may not be given discretion concerning
the administration of the Plan.
10. Expiration and Termination of the Plan. Options may be granted under
the Plan at any time until the Plan is terminated by the Board of Directors or
until such earlier date on which termination of the Plan shall be required by
applicable law. If not sooner terminated, the Plan shall terminate automatically
on November 4, 2004, which is ten years from the date on which the Plan was
originally approved by the Board of Directors.
- 5 -
<PAGE>
Options granted under the Plan prior to its termination shall remain outstanding
following the Plan's termination and shall be exercisable in accordance with
their terms.
11. Amendments. The Board of Directors may from time to time make such
changes in and additions to the Plan as it may deem proper; provided that, if
and to the extent required by Rule 16b-3, no change shall be made that increases
the total number of shares reserved for issuance pursuant to Options granted
under the Plan (except pursuant to Section 8), expands the class of persons
eligible to receive Options, or materially increases the benefits accruing to
Optionees under the Plan, unless such change is authorized by the shareholders.
In addition, if and to the extent required by Rule 16b-3, the provisions of the
Plan may not be amended more frequently than once every six months unless
otherwise required by law and permitted by Rule 16b-3. The termination of the
Plan or any change or addition to the Plan shall not, without the consent of any
Optionee who is adversely affected thereby, alter any Options previously granted
to the Optionee pursuant to the Plan.
12. Governing Law. The Plan and each Option granted under the Plan shall
be governed by, and construed in accordance with, the laws of the State of
Delaware.
13. Effective Date. The Plan shall be effective on the date and at the time
of the initial closing of the Corporation's initial public offering of Common
Stock, subject to the approval of the Plan on or before such date by a majority
of the voting shares represented and entitled to vote. The amendment to the Plan
to increase the number of shares available for issuance under the Plan from
40,000 to 100,000 shares shall be effective on the date and at the time such
amendment is approved by a majority of the voting shares represented and
entitled to vote.
- 6 -
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-28-1996
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<SECURITIES> 0
<RECEIVABLES> 192,549
<ALLOWANCES> 0
<INVENTORY> 101,129
<CURRENT-ASSETS> 313,758
<PP&E> 131,407
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<BONDS> 0
0
0
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<SALES> 836,964
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