-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B7c2LgH8fYvf3GcrF8mu/w5CpjJl+npsBKKF023faGa/9b5wHxgsUBrXC5MU/DkZ yD3fS4UdYqEWgytna3VWoQ== /in/edgar/work/0000950144-00-012140/0000950144-00-012140.txt : 20001012 0000950144-00-012140.hdr.sgml : 20001012 ACCESSION NUMBER: 0000950144-00-012140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000902 FILED AS OF DATE: 20001011 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIERRE FOODS INC CENTRAL INDEX KEY: 0000067494 STANDARD INDUSTRIAL CLASSIFICATION: [2050 ] IRS NUMBER: 560945643 STATE OF INCORPORATION: NC FISCAL YEAR END: 0306 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07277 FILM NUMBER: 738492 BUSINESS ADDRESS: STREET 1: 9990 PRINCETON ROAD CITY: CINCINNATI STATE: OH ZIP: 45246 BUSINESS PHONE: 5138748741 MAIL ADDRESS: STREET 1: 9990 PRINCETON ROAD CITY: CINCINNATI STATE: OH ZIP: 45246 FORMER COMPANY: FORMER CONFORMED NAME: FRESH FOODS INC DATE OF NAME CHANGE: 19980513 FORMER COMPANY: FORMER CONFORMED NAME: WSMP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN STEER MOM N POPS INC DATE OF NAME CHANGE: 19880719 10-Q 1 g64403e10-q.txt PIERRE FOODS INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from ____________ to ______________ COMMISSION FILE NUMBER: 0-7277 PIERRE FOODS, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA (State or other jurisdiction of incorporation or organization) 56-0945643 (I.R.S. Employer Identification No.) 9990 PRINCETON ROAD CINCINNATI, OHIO 45246 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (513) 874-8741 FRESH FOODS, INC. (Former name or former address, 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 (3) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 1, 2000 ----- ------------------------------ COMMON STOCK, NO PAR VALUE 5,781,480 2 PIERRE FOODS, INC. INDEX Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets - September 2, 2000 and March 4, 2000............................... 1 - 2 Consolidated Statements of Operations and Retained Earnings - Thirteen Weeks Ended September 2, 2000 and Thirteen Weeks Ended September 4, 1999........................ 3 - 4 Consolidated Statements of Operations and Retained Earnings - Twenty-Six Weeks Ended September 2, 2000 and Twenty-Six Weeks Ended September 4, 1999...................... 5 - 6 Consolidated Statements of Cash Flows - Twenty-Six Weeks Ended September 2, 2000 and Twenty-Six Weeks Ended September 4, 1999.......................... 7 - 8 Notes to Consolidated Financial Statements........................................................ 9 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 12 - 16 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K........................... 17 Signatures........................................................ 18 Index to Exhibits................................................. 19 - 23 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) ASSETS September 2, 2000 March 4, 2000 ----------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 233,065 $ 2,701,464 Accounts receivable, net (includes related party receivables of $203,880 and $292,990 at September 2, 2000 and March 4, 2000, respectively) 17,887,119 17,422,811 Notes receivable - current, net (includes related party notes receivable of $152,456 at March 4, 2000) 84,561 238,513 Inventories 32,180,158 25,025,421 Refundable income taxes 3,814,248 2,828,156 Deferred income taxes 1,527,278 2,290,361 Prepaid expenses and other current assets (includes related party prepaid expenses of $345,006 at September 2, 2000) 1,416,225 799,582 ------------ ------------ Total current assets 57,142,654 51,306,308 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, NET 34,985,331 35,784,819 ------------ ------------ OTHER ASSETS: Trade name, net 41,025,636 41,764,636 Excess of cost over fair value of net assets of businesses acquired, net 28,382,419 28,893,723 Other intangible assets, net 2,460,403 2,556,936 Notes receivable - related party 705,493 705,493 Deferred loan origination fees, net 2,881,445 3,714,748 ------------ ------------ Total other assets 75,455,396 77,635,536 ------------ ------------ Total Assets $167,583,381 $164,726,663 ============ ============
See accompanying notes to unaudited consolidated financial statements. 4 PIERRE FOODS, INC. AND SUBSIDIARIES
(Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY September 2, 2000 March 4, 2000 ----------------- ------------- CURRENT LIABILITIES: Current installments of long-term debt $ 197,452 $ 314,433 Trade accounts payable 3,655,851 5,493,168 Accrued insurance 6,131 154,947 Accrued interest 3,188,025 3,213,929 Accrued payroll and payroll taxes 2,989,447 2,427,691 Accrued promotions (includes related party payables of $32,483 and $51,450 at September 2, 2000 and March 4, 2000, respectively) 2,259,831 1,903,241 Accrued taxes (other than income and payroll) 427,178 563,879 Other accrued liabilities 624,193 831,681 ------------- ------------- Total current liabilities 13,348,108 14,902,969 ------------- ------------- LONG TERM DEBT, less current installments 124,128,139 115,164,922 ------------- ------------- OTHER LONG-TERM LIABILITIES 1,495,785 1,638,466 ------------- ------------- DEFERRED INCOME TAXES -- 1,487,134 ------------- ------------- SHAREHOLDERS' EQUITY: Preferred stock - par value $.10, authorized 2,500,000 shares; no shares issued -- -- Common stock - no par value, authorized 100,000,000 shares; issued and outstanding September 2, 2000 - 5,781,480 shares and March 4, 2000 - 5,781,000 shares 5,781,480 5,781,000 Additional paid in capital 23,317,053 23,315,881 Retained earnings 4,512,816 7,436,291 Note receivable - related party (5,000,000) (5,000,000) ------------- ------------- Total shareholders' equity 28,611,349 31,533,172 ------------- ------------- Total Liabilities and Shareholders' Equity $ 167,583,381 $ 164,726,663 ============= =============
See accompanying notes to unaudited consolidated financial statements. 2 5 PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (Unaudited)
Thirteen Weeks Ended -------------------- September 2, 2000 September 4, 1999 ----------------- ----------------- REVENUES: Food processing $ 48,734,129 $ 40,964,363 Ham curing -- 655,680 ------------ ------------ Total operating revenues 48,734,129 41,620,043 ------------ ------------ COSTS AND EXPENSES: Cost of goods sold 31,072,676 24,176,211 Selling, general and administrative expenses (includes related party transactions totaling $464,166 and $949,760 in fiscal 2001 and fiscal 2000, respectively) 14,356,617 14,060,158 Net loss on sale of Mom `n' Pop's Country Ham, LLC -- 2,826,096 Net loss of disposition of property, plant and equipment 22,505 32,740 Depreciation and amortization 1,560,934 1,561,512 ------------ ------------ Total costs and expenses 47,012,732 42,656,717 ------------ ------------ OPERATING INCOME (LOSS) 1,721,397 (1,036,674) ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (3,398,530) (4,100,077) Other income, net - (including interest) (includes related party income totaling $17,981 and $26,828 in fiscal 2001 and fiscal 2000, respectively) 73,860 39,299 ------------ ------------ Other expense, net (3,324,670) (4,060,778) ------------ ------------ LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT (1,603,273) (5,097,452) INCOME TAX BENEFIT 580,387 2,063,659 ------------ ------------ LOSS FROM CONTINUING OPERATIONS (1,022,886) (3,033,793) INCOME FROM DISCONTINUED RESTAURANT SEGMENT (NET OF INCOME TAXES OF $876,256) -- 1,287,338 ------------ ------------ LOSS BEFORE EXTRAORDINARY ITEM (1,022,886) (1,746,455) EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT (NET OF INCOME TAX BENEFIT OF $35,633) -- (52,350) ------------ ------------ NET LOSS $ (1,022,886) $ (1,798,805) ============ ============
3 6 RETAINED EARNINGS: Balance at beginning of period $ 5,535,702 $ 12,926,430 Net loss (1,022,886) (1,798,805) ----------- -------------- Balance at end of period $ 4,512,816 $ 11,127,625 =========== ============== NET LOSS PER COMMON SHARE - BASIC AND DILUTED Loss from continuing operations $ (0.18) $ (0.52) Income from discontinued restaurant segment -- 0.22 Extraordinary loss on early extinguishment of debt -- (0.01) ----------- -------------- Net loss per share $ (0.18) $ (0.31) =========== ============== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 5,781,437 5,809,837
See accompanying notes to unaudited consolidated financial statements. 4 7 PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (Unaudited)
Twenty-Six Weeks Ended ---------------------- September 2, 2000 September 4, 1999 ----------------- ----------------- REVENUES: Food processing $ 94,680,882 $ 83,978,713 Ham curing -- 2,096,052 ------------ ------------ Total operating revenues 94,680,882 86,074,765 ------------ ------------ COSTS AND EXPENSES: Cost of goods sold (includes related party transactions totaling $34,322 in fiscal 2000) 60,330,355 50,374,854 Selling, general and administrative expenses (includes related party transactions totaling $829,446 and $1,602,923 in fiscal 2001 and fiscal 2000, respectively) 28,543,519 27,574,524 Net loss on sale of Mom `n' Pop's Country Ham, LLC -- 2,826,096 Net loss of disposition of property, plant and equipment 22,505 32,740 Depreciation and amortization 3,126,505 3,072,941 ------------ ------------ Total costs and expenses 92,022,884 83,881,155 ------------ ------------ OPERATING INCOME 2,657,998 2,193,610 ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (6,719,122) (7,949,282) Other income (expense), net - (including interest) (includes related party income totaling $35,621 and $44,990 in fiscal 2001 and fiscal 2000, respectively) 192,405 (29,954) ------------ ------------ Other expense, net (6,526,717) (7,979,236) ------------ ------------ LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT (3,868,719) (5,785,626) INCOME TAX BENEFIT 1,400,482 2,343,365 ------------ ------------ LOSS FROM CONTINUING OPERATIONS (2,468,237) (3,442,261) INCOME FROM DISCONTINUED RESTAURANT SEGMENT (NET OF INCOME TAXES OF $1,721,502) -- 2,529,121 ------------ ------------ LOSS BEFORE EXTRAORDINARY ITEM (2,468,237) (913,140) EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT (NET OF INCOME TAX BENEFIT OF $258,303 AND $35,633 IN FISCAL 2001 AND 2000, RESPECTIVELY) (455,238) (52,350) ------------ ------------ NET LOSS $ (2,923,475) $ (965,490) ============ ============
5 8 RETAINED EARNINGS: Balance at beginning of period $ 7,436,291 $ 12,093,115 Net loss (2,923,475) (965,490) -------------- -------------- Balance at end of period $ 4,512,816 $ 11,127,625 ============== ============== NET LOSS PER COMMON SHARE - BASIC AND DILUTED Loss from continuing operations $ (0.43) $ (0.59) Income from discontinued restaurant segment -- 0.43 Extraordinary loss on early extinguishment of debt (0.08) (0.01) -------------- -------------- Net loss per share $ (0.51) $ (0.17) ============== ============== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 5,781,309 5,809,205
See accompanying notes to unaudited consolidated financial statements. 6 9 PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Twenty-Six Weeks Ended -------------------------------------- September 2, 2000 September 4, 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,923,475) $ (965,490) ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss on early extinguishment of debt before income tax benefit 713,541 87,983 Depreciation and amortization 3,126,505 4,946,238 Depreciation on properties leased to others -- 68,125 Deferred income taxes (724,051) 32,350 Net loss on sale of Mom `n' Pop's Country Ham, LLC -- 2,826,096 Net loss on disposition of property, plant and equipment 22,505 32,740 Decrease in other long-term liabilities (142,681) -- Other non-cash adjustments to earnings 206,406 212,059 Changes in operating assets and liabilities: Receivables (464,308) (413,567) Inventories (7,154,737) (10,952,317) Refundable income taxes, prepaid expenses and other current assets (1,602,735) (3,638,315) Trade accounts payable and other accrued liabilities (1,437,880) (6,024,775) ------------ ------------ Total adjustments (7,457,435) (12,823,383) ------------ ------------ Net cash used in operating activities (10,380,910) (13,788,873) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment -- 2,085,657 Decrease in related party notes receivables 152,456 111,189 Decrease in other notes receivable 1,496 134,824 Capital expenditures to related parties -- (316,233) Capital expenditures - other (1,002,685) (2,169,102) Payments for non-compete and consulting agreements -- (490,178) Other investing activities, net -- 9,158 ------------ ------------ Net cash used in investing activities (848,733) (634,685) ------------ ------------
7 10 CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under revolving credit agreement 9,007,674 16,907,910 Principal payments on long-term debt (161,438) (2,262,428) Loan origination fees (84,992) (77,425) Proceeds from issuance of common stock -- 6,500 ----------- ------------ Net cash provided by financing activities 8,761,244 14,574,557 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,468,399) 150,999 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,701,464 1,664,398 ----------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 233,065 $ 1,815,397 =========== ============
See accompanying notes to unaudited consolidated financial statements. 8 11 PIERRE FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of September 2, 2000 and March 4, 2000, the results of operations for the thirteen weeks and twenty-six weeks ended September 2, 2000 and September 4, 1999, and the cash flows for the twenty-six weeks ended September 2, 2000 and September 4, 1999. Financial statements for the period ended September 4, 1999 ("fiscal 2000") have been reclassified, where applicable, to conform to financial statement presentation used for the period ended September 2, 2000 ("fiscal 2001"). The Company reports the results of its operations using a 52-53 week basis. In line with this, each quarter of the fiscal year will contain 13 weeks except for the infrequent fiscal years with 53 weeks. The results of operations for the thirteen weeks and twenty-six weeks ended September 2, 2000 are not necessarily indicative of the results to be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the Company's March 4, 2000 audited consolidated financial statements and notes thereto. 2. INVENTORY A summary of inventories, by major classifications, follows: September 2, 2000 March 4, 2000 --------------------- ----------------------- Manufacturing supplies $ 2,813,470 $ 1,149,107 Raw materials 2,868,074 3,857,801 Work in process 2,808 - Finished goods 26,495,806 20,018,513 --------------------- ----------------------- Total $ 32,180,158 $ 25,025,421 ===================== ======================= 3. SUPPLEMENTAL CASH FLOW DISCLOSURES - CASH PAID DURING THE PERIOD Twenty-six Twenty-six Weeks Ended Weeks Ended September 2, 2000 September 4, 1999 ------------------- ----------------------- Interest $ 5,911,723 $ 7,655,265 =================== ======================= Income taxes net of refunds received $ 51,358 $ 2,614,677 =================== ======================= 9 12 4. COMPREHENSIVE INCOME Total comprehensive loss was comprised solely of the net loss in fiscal 2001 and fiscal 2000. Comprehensive loss was $1,022,886 and $1,798,805 for the quarters ended September 2, 2000 and September 4, 1999, respectively; and $2,923,475 and $965,490 for the year to date periods ended September 2, 2000 and September 4, 1999, respectively. 5. LONG-TERM DEBT Effective May 30, 2000, the Company terminated its $75 million credit facility, resulting in an extraordinary loss on early extinguishment of debt of $455,238, net of income taxes of $258,303. Effective May 24, 2000, the Company obtained a three-year variable rate $25 million revolving credit facility. As of September 2, 2000, outstanding borrowings under the revolving credit facility were approximately $9.0 million, and additional borrowing availability was approximately $13.1 million. In addition, at September 2, 2000, the Company was in compliance with the financial covenants under this facility. 6. SHAREHOLDERS' EQUITY The increases in common stock and additional paid in capital are due to the issuance of 480 shares of the Company's common stock to employees for longevity awards. 7. EMPLOYEE BENEFIT PLANS Effective June 16, 2000, the Company terminated its Employee Stock Purchase Plan. The Plan assets, comprised of the Company's common stock and cash, totaling approximately $230,000, were distributed to Plan participants based on their respective account balances. Effective July 3, 2000, the Company increased the Company's matching contribution in its 401(k) Retirement Plan from a 50% match up to the participant's first 4% contribution to a 50% match up to the participant's first 5% contribution. Effective August 1, 2000, the Company adopted the Pierre Foods, Inc. Compensation Exchange Plan. The Plan is a non-qualified deferred compensation plan in which eligible participants consist of certain highly compensated employees and the Company's Board of Directors. As of September 2, 2000, there were no plan assets. 8. RECENTLY ISSUED ACCOUNTING GUIDANCE In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts (collectively referred to as embedded derivatives) and for hedging activities. The new standard requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 was amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which delays the Company's effective date until the first quarter of the fiscal year ending March 2, 2002. Management is currently evaluating the effects of SFAS No. 133 on the Company's financial statements and current disclosures. 10 13 In June 2000, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company must implement any applicable provisions of SAB 101 no later than the fourth quarter of the fiscal year ending March 3, 2001. Management is currently evaluating the effects of SAB 101 on the Company's financial statements and current disclosures. 11 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company's operations historically have been classified into three business segments: food processing operations, restaurant operations and ham curing operations. As discussed in the Company's Annual Report on Form 10-K for the fiscal year ended March 4, 2000, the Company sold its ham curing business effective July 3, 1999, and sold its restaurant operations effective October 8, 1999. Accordingly, the results of the restaurant operations are presented as a discontinued operation in fiscal 2000, and are excluded from the information below. The ham curing operations did not qualify for discontinued operations presentation. Subsequent to the sales of the restaurant operations and ham curing operations, the Company's operations consist solely of food processing. Fiscal Quarter Ended September 2, 2000 Compared to Fiscal Quarter Ended September 4, 1999 Revenues. Revenues from continuing operations increased by $7.1 million, or 17.1%, comprised of a $7.8 million (19.0%) increase in the food processing segment offset by a $.7 million decrease in the ham curing segment. The increase in food processing revenues was due to increases in demand in all core customer channels. The decrease in ham curing revenues was due to the Company's strategic decision to exit the ham curing business, which was effective July 3, 1999. Cost of goods sold. Cost of goods sold increased by $6.9 million, or 28.5%, comprised of a $7.5 million (31.7%) increase in the food processing segment offset by a $.6 million decrease in the ham curing segment. As a percentage of food processing revenues, food processing cost of goods sold increased from 58.1% to 63.8%. This increase primarily is due to increased demand for product categories with lower margins, and costs incurred due to change in product mix. The decrease in ham curing cost of goods sold was due to the Company's strategic decision to exit the ham curing business, effective July 3, 1999. Selling, general and administrative. Selling, general and administrative expenses increased by $.3 million (2.1%), comprised of a $.6 million (4.1%) increase in the food processing segment offset by a $.3 million decrease in the ham curing segment. The increase is primarily due to increased selling expenses due to increased sales and the introduction of new products, offset by a decrease in overhead costs following the divestitures of the restaurant operations and ham curing business and subsequent corporate restructuring in fiscal 2000. As a percentage of operating revenues, selling, general and administrative expenses decreased from 33.8% to 29.5%. Depreciation and amortization. Depreciation and amortization expense remained constant at $1.6 million, comprised of a $26,000 increase in the food processing segment offset by a $26,000 decrease in the ham curing segment. The increase in the food processing segment is due to routine capital expenditures. The decrease in ham curing depreciation and amortization was due to the Company's strategic decision to exit the ham curing business. As a percentage of operating revenues, depreciation and amortization decreased from 3.8% to 3.2%. Other expense, net. Other expense, net decreased by $.7 million, or 18.1%. This decrease primarily was due to a decrease in interest expense due to decreased borrowings under the Company's revolving credit facility (see --- "Liquidity and Capital Resources" below). Income tax benefit. The effective tax rate for the fiscal quarter ended September 2, 2000 was 36.2%, compared to 40.5% for the fiscal quarter ended September 4, 1999. The lower rate in the fiscal quarter ended September 2, 2000 is due to 1) state tax liabilities incurred in fiscal 2000 related to income from discontinued operations; and 2) the effects of permanent timing differences. 12 15 Fiscal Year to Date Ended September 2, 2000 Compared to Fiscal Year to Date Ended September 4, 1999 Revenues. Revenues from continuing operations increased by $8.6 million, or 10.0%, comprised of a $10.7 million (12.7%) increase in the food processing segment offset by a $2.1 million decrease in the ham curing segment. The increase in food processing revenues was due to increases in demand in all core customer channels. The decrease in ham curing revenues was due to the Company's strategic decision to exit the ham curing business, which was effective July 3, 1999. Cost of goods sold. Cost of goods sold increased by $10.0 million, or 19.8%, comprised of a $11.9 million (24.5%) increase in the food processing segment offset by a $1.9 million decrease in the ham curing segment. As a percentage of food processing revenues, food processing cost of goods sold increased from 57.7% to 63.7%. This increase primarily is due to 1) increased demand for product categories with lower margins; 2) costs incurred due to change in product mix; and 3) training costs incurred to create additional required capacity for future expected growth. The decrease in ham curing cost of goods sold was due to the Company's strategic decision to exit the ham curing business, effective July 3, 1999. Selling, general and administrative. Selling, general and administrative expenses increased by $1.0 million, or 3.5%, comprised of a $1.3 million (4.8%) increase in the food processing segment offset by a $.3 million decrease in the ham curing segment. The increase in the food processing segment was primarily due to 1) increased selling expenses due to increased sales and the introduction of new products; and 2) increased distribution costs due to fuel surcharges; offset by 3) a decrease in overhead costs following the divestitures of the restaurant operations and ham curing business and subsequent corporate restructuring in fiscal 2000. The decrease in ham curing selling, general and administrative expenses was due to the Company's strategic decision to exit the ham curing business, effective July 3, 1999. As a percentage of operating revenues, selling, general and administrative expenses decreased from 32.0% to 30.1%. Depreciation and amortization. Depreciation and amortization expense increased by $.1 million, or 1.7%, comprised of a $.2 million (5.0%) increase in the food processing segment offset by a $.1 million decrease in the ham curing segment. The increase in the food processing segment is due to routine capital expenditures. The decrease in ham curing depreciation and amortization was due to the Company's strategic decision to exit the ham curing business. As a percentage of operating revenues, depreciation and amortization decreased from 3.6% to 3.3%. Other expense, net. Other expense, net decreased by $1.5 million, or 18.2%. This decrease primarily was due to a decrease in interest expense due to decreased borrowings under the Company's revolving credit facility (see --- "Liquidity and Capital Resources" below). Income tax benefit. The effective tax rate for the fiscal year to date ended September 2, 2000 was 36.2%, compared to 40.5% for the fiscal year to date ended September 4, 1999. The lower rate in the fiscal year to date ended September 2, 2000 is due to 1) state tax liabilities incurred in fiscal 2000 related to income from discontinued operations; and 2) the effects of permanent timing differences. 13 16 LIQUIDITY AND CAPITAL RESOURCES Net cash used by operating activities was $10.4 million for the fiscal year to date ended September 2, 2000, as compared to $13.8 million for the fiscal year to date ended September 4, 1999. The primary components of net cash used in operating activities for the fiscal year to date ended September 2, 2000 were: 1) an increase in inventory of $7.2 million due to the seasonal building of inventories which normally occurs during late spring and early summer to service certain market channels that require heavy shipments in late summer and early fall; 2) an increase in refundable income taxes of $1.0 million, combined with a decrease in deferred income tax assets of $.8 million and a decrease in deferred income tax liabilities of $1.5 million; and 3) an increase in prepaid and other current assets of $.6 million combined with a decrease in trade accounts payable and other accrued liabilities of $1.4 million due to timing of certain payments. The decrease in net cash used by operating activities primarily was due to a more significant inventory build in the fiscal year to date ended September 4, 1999 compared to the fiscal year to date ended September 2, 2000. Net cash used by investing activities was $.8 million for the fiscal year to date ended September 2, 2000, compared to $.6 million for the fiscal year to date ended September 4, 1999. The primary components of net cash used in investing activities for the fiscal year to date ended September 2, 2000 were capital expenditures of $1.0 million, offset by the payment in full of a related party note receivable of $.2 million. Net cash provided by financing activities was $8.8 million for the fiscal year to date ended September 2, 2000, compared to $14.6 million for the fiscal year to date ended September 4, 1999. The decrease in cash provided by financing activities was due to borrowings under the revolving credit facility in fiscal 2000 which did not recur in fiscal 2001 at the same level. Effective May 24, 2000, the Company secured a three-year $25 million revolving credit facility, under which the Company may borrow up to an amount (including standby letters of credit up to $.5 million) equal to the lesser of $25 million less required minimum availability or a borrowing base (comprised of eligible accounts receivable and inventory). Funds available under the facility are available for working capital requirements, permitted investments and general corporate purposes. Borrowings under the facility bear interest at floating rates based upon the interest rate option selected from time to time by the Company, and are secured by a first priority security interest in substantially all of the accounts receivable and inventory of the Company. In addition, the Company is required to meet certain financial covenants regarding net worth, cash flow and restricted payments, including limited dividend payments. At September 2, 2000, the Company had outstanding borrowings of $9.0 million under the revolving credit facility, and approximately $13.1 million of additional borrowing availability. At September 2, 2000, the Company was in compliance with the financial covenants under the facility, but continued compliance will depend upon future cash flows and net income. The Company has budgeted approximately $2.0 million for capital expenditures for the remainder of the current fiscal year. These expenditures are devoted to routine capital improvement projects and other miscellaneous expenditures and should be sufficient to maintain current operating capacity. The Company believes that funds from operations, borrowings under the $25 million revolving credit facility, as well as the Company's ability to enter into capital or operating leases, will be adequate to finance these capital expenditures. If the Company continues its historical revenue growth trend as expected, then the Company will be required to raise and invest additional capital for various plant expansion projects to provide operating capacity to satisfy increased demand. The Company believes that future cash requirements for these plant expansion projects would need to be met through other long-term financing sources, such as an increase in borrowing availability under the $25 million credit facility, the issuance of industrial revenue bonds or equity investment. The incurrence of additional long-term debt is governed and restricted by the Company's existing debt instruments. Furthermore, there can be no assurance that additional long-term financing will be available on advantageous terms (or any terms) when needed by the Company. The Company anticipates continued sales growth in key market areas. As noted above, however, this growth will require capital expansion projects to increase existing plant capacity to satisfy increased demand. Sales growth, 14 17 improved operating performance and expanded plant capacity - none of which is assured - will be necessary for the Company to continue to service existing debt. MARKET RISK As discussed in its annual report for the fiscal year ended March 4, 2000, the Company is exposed to market risks stemming from changes in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in the Company's financial condition, results of operations and cash flows. The Company owned no derivative financial instruments or nonderivative financial instruments held for trading purposes at September 2, 2000 or March 4, 2000. Certain of the Company's outstanding nonderivative financial instruments at September 2, 2000 are subject to interest rate risk, but not subject to foreign currency or commodity price risk. The Company's major market risk exposure is potential loss arising from changing interest rates and its impact on long-term debt. The Company's policy is to manage interest rate risk by maintaining a combination of fixed and variable rate financial instruments in amounts and with maturities that management considers appropriate. The risks associated with long-term debt at September 2, 2000 have not changed materially since March 4, 2000. At September 2, 2000, the $115 million of Senior Notes and $.1 million in capital lease obligations were accruing interest at fixed rates, and the $9.0 million borrowings under the revolving credit facility were accruing interest at variable rates. In the future, should the Company continue to borrow funds under its existing credit facility or enter into other long-term financing arrangements, a rise in prevailing interest rates could have adverse effects on the Company's financial condition and results of operations. SEASONALITY Except for sales to school districts, which decline during the early spring and summer and early January, there is no significant seasonal variation in sales. INFLATION The Company believes that inflation has not had a material impact on its results of operations for any of the periods reported herein. STOCK TRANSFER TO NASDAQ SMALLCAP MARKET Subsequent to notification from the Nasdaq Stock Market ("Nasdaq") that Nasdaq was reviewing the Company's eligibility for continued listing on the Nasdaq National Market, the Company applied for listing on the Nasdaq SmallCap Market tier of Nasdaq. The Company's stock was successfully transferred to the Nasdaq SmallCap Market on August 25, 2000, and continues to trade under the symbol "FOOD." CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION Statements contained in this report as to the Company's outlook for sales, operations, capital expenditures and other amounts, including budgeted amounts and projections of future financial or economic performance of the Company, and statements of the Company's plans and objectives for future operations, are "forward looking" statements provided in reliance upon the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Important factors that could cause actual results or events to differ materially from those projected, estimated, assumed or anticipated in any such forward looking statements include, among others, the substantial leverage and 15 18 insufficient cash flows from operations of the Company, restrictions imposed on the Company by the terms of its debt instruments, competitive considerations, government regulation and general risks of the food industry, the possibility of adverse changes in materials costs, the availability of supplies, the Company's dependence on key personnel and potential labor disruptions. See Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 4, 2000. 16 19 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index provided elsewhere in this report. (b) Reports on Form 8-K None. 17 20 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. PIERRE FOODS, INC. Date October 11, 2000 By: /s/ Norbert E. Woodhams ---------------- ---------------------------------------- Norbert E. Woodhams President and Chief Executive Officer (Principal Executive Officer) Date October 11, 2000 By: /s/ Pamela M. Witters ---------------- ---------------------------------------- Pamela M. Witters Chief Financial Officer (Principal Financial Officer) 18 21 INDEX TO EXHIBITS For inclusion in Quarterly Report on Form 10-Q Quarter Ended September 2, 2000 Exhibit No. Description - ----------- ----------- 2.1 Purchase Agreement dated as of August 6, 1999, among Mom `n' Pop's Country Ham, LLC, Pierre Foods, LLC, the Company and Hoggs, LLC (schedules and exhibits omitted) (incorporated by reference to Exhibit 2.3 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 2.2 Purchase Agreement dated as of September 10, 1999 among Claremont Restaurant Group, LLC, Fresh Foods Sales, LLC, the Company and CRG Holdings Corp. (incorporated by reference to Exhibit 2.4 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 2.3 Plan of Merger dated as of December 27, 1999 among Pierre Foods, LLC, Pierre Leasing, LLC and the Company (incorporated by reference to Exhibit 2.5 to the Company's Quarterly Report on From 10-Q for its fiscal quarter ended December 4, 1999) 3.1 Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (No. 333-58711)) 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for its fiscal year ended February 27, 1998) 4.1 Note Purchase Agreement, dated June 4, 1998, among the Company, the Guarantors and the Initial Purchasers (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 4.2 Indenture, dated as of June 9, 1998, among the Company, certain Guarantors and State Street Bank and Trust Company, Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 4.3 Registration Rights Agreement, dated June 9, 1998, among the Company, certain Guarantors and certain Initial Purchasers (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998 and incorporated herein by reference) 4.4 Form of Initial Global Note (included as Exhibit A to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998 and incorporated herein by reference) 4.5 Form of Initial Certificated Note (included as Exhibit B to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998 and incorporated herein by reference) 4.6 Form of Exchange Global Note (included as Exhibit C to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998 and incorporated herein by reference) 4.7 Form of Exchange Certificated Note (included as Exhibit D to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998 and incorporated herein by reference) 19 22 4.8 First Supplemental Indenture, dated as of September 5, 1998, among the Company, State Street Bank and Trust Company, Trustee, and Pierre Leasing, LLC (incorporated by reference to Exhibit 4.8 to Pre-Effective amendment No. 1 to the Company's Registration Statement on Form S-4 (No. 333-58711)) 4.9 Second Supplemental Indenture dated as of February 26, 1999 among the Company, State Street Bank and Trust Company, Trustee, and Fresh Foods Restaurant Group, LLC (incorporated by reference to Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 4.10 Third Supplemental Indenture dated as of October 8, 1999 between the Company and State Street Bank and Trust Company, Trustee, (incorporated by reference to Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.1 1987 Incentive Stock Option Plan (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (No. 33-15017)) 10.2 First Amendment to 1987 Incentive Stock Option Plan (incorporated by reference to Exhibit 4(b) to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8 (No. 33-15017)) 10.3 1987 Special Stock Option Plan (restated as of May 15, 1997) (incorporated by reference to Exhibit 99 to the Company's Registration Statement on Form S-8 (No. 333-29111)) 10.4 1997 Incentive Stock Option Plan (as amended and restated February 23, 1998) (incorporated by reference to Post-Effective Amendment No. 1 to Exhibit 99(a) to the Company's Registration Statement on Form S-8 (No. 333-32455)) 10.5 First Amendment to 1997 Incentive Stock Option Plan, dated February 23, 1998 (incorporated by reference to Exhibit 99(b) to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8 (No. 333-32455)) 10.6 1997 Special Stock Option Plan (as amended and restated February 23, 1998) (incorporated by reference to Exhibit 99.1 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8 (No. 333-33439)) 10.7 First Amendment to 1997 Special Stock Option Plan, dated February 23, 1998 (incorporated by reference to Exhibit 99.2 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8 (No. 333-33439)) 10.8 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4(c) to the Company's Registration Statement on Form S-8 (No. 33-79014)) 10.9 Amendment to 1994 Employee Stock Purchase Plan, dated as of May 10, 1995 (incorporated by reference to Exhibit 4(b) to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-8 (No. 33-79014) 10.10 Second Amendment to 1994 Employee Stock Purchase Plan, dated as of August 30, 1995 (incorporated by reference to Exhibit 4(c) to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-8 (No. 33-79014) 10.11 Third Amendment to 1994 Employee Stock Purchase Plan, dated as of February 12, 1997 (incorporated by reference to Exhibit 4(d) to Post-Effective Amendment No. 4 to the Company's Registration Statement on Form S-8 (No. 33-79014)) 20 23 10.12 Employment Contract, dated as of June 30, 1996, between the Company and David R. Clark, together with Amendment to Employment Contract, dated as of February 23, 1998 (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-4 (No. 333-58711)) 10.13 Consulting and Non-Competition Agreement, dated as of January 29, 1998, between the Company and Charles F. Connor, Jr. (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-4 (No. 333-58711)) 10.14 Rights Agreement, dated as of September 2, 1997, between the Company and American Stock Transfer & Trust Company, Rights Agent (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the SEC on September 5, 1997) 10.15 Credit Agreement, dated as of June 9, 1998, among the Company, certain Guarantors, First Union Commercial Corporation ("First Union"), as Agent and a Lender, and NationsBank N.A., American National Bank and Trust Company of Chicago and National City Commercial Finance, Inc., as Lenders (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 10.16 Security Agreement, dated as of June 9, 1998, among the Company, certain Guarantors and First Union, as Agent (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 10.17 Pledge Agreement, dated as of June 9, 1998, among the Company, certain Guarantors and First Union, as Agent (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 10.18 Amendment to Credit Agreement and Consent, dated as of September 5, 1998, among the Company, certain subsidiaries of the Company, First Union, as Agent and a Lender, and certain other Lenders (incorporated by reference to Exhibit 10.32 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 (No. 333-58711) 10.19 Borrower Joinder Agreement dated as of February 26, 1999 between Fresh Foods Restaurant Group, LLC and First Union, as Agent (schedules omitted) (incorporated by reference to Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.20 Amendment No. 2 to Credit Agreement and Waiver dated as of April 14, 1999 among the Company, certain subsidiaries of the Company, First Union, as Agent and a Lender, and certain other Lenders (incorporated by reference to Exhibit 10.34 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.21 Amendment No. 3 to Credit Agreement dated as of May 14, 1999 among the Company, certain subsidiaries of the Company, First Union, as Agent and a Lender, and certain other Lenders (incorporated by reference to Exhibit 10.35 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.22 Consent dated as of July 29, 1999 among the Company, certain subsidiaries of the Company, First Union, as Agent and a Lender, and certain other Lenders (incorporated by reference to Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.23 Amended and Restated Change in Control Agreement dated as of July 6, 1999 between the Company and David R. Clark (incorporated by reference to Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 21 24 10.24 Amended and Restated Change in Control Agreement dated as of July 6, 1999 between the Company and James C. Richardson, Jr. (incorporated by reference to Exhibit 10.38 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.25 Severance, Consulting and Noncompete Agreement dated as of July 12, 1999 among Claremont Restaurant Group, LLC, the Company and L. Dent Miller (incorporated by reference to Exhibit 10.39 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.26 Severance, Consulting and Noncompete Agreement dated as of July 12, 1999 among Claremont Restaurant Group, LLC, the Company, HERTH Management, Inc. and Richard F. Howard (incorporated by reference to Exhibit 10.40 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.27 Incentive Agreement dated as of August 18, 1999 among the Company, Pierre Foods, LLC and Norbert E. Woodhams, together with First Amendment to Incentive Agreement dated as of January 1, 2000 (incorporated by reference to Exhibit 10.41 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.28 Severance, Consulting and Noncompete Agreement dated as of September 13, 1999 among Claremont Restaurant Group, LLC, the Company, HERTH Management, Inc. and James M. Templeton (incorporated by reference to Exhibit 10.42 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.29 Amendment No. 4 to Credit Agreement dated as of September 23, 1999 among the Company, certain subsidiaries of the Company, First Union, as Agent and Lender, and certain other Lenders (incorporated by reference to Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.30 Asset Purchase Agreement dated as of September 30, 1999 among Fairgrove Restaurants, LLC, the Company and Fresh Foods Sales, LLC (schedules and exhibits omitted) (incorporated by reference to Exhibit 10.44 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.31 Amended and Restated Management Services Agreement dated as of December 17, 1999 between HERTH Management, Inc. and the Company (incorporated by reference to Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.32 Agreement dated December 21, 1999 between the Company and Gungor Solmaz, together with form of Agreement dated January 2000 between the Company and Gungor Solmaz (incorporated by reference to Exhibit 10.46 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.33 Fifth Amendment to Credit Agreement and Consent dated as of December 30, 1999 by and among the Company, certain subsidiaries of the Company, First Union, as Agent and Lender, and certain other Lenders (schedules and exhibits omitted) (incorporated by reference to Exhibit 10.47 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.34 Consulting and Noncompete Agreement dated as of January 6, 2000 between the Company and L. Dent Miller (incorporated by reference to Exhibit 10.48 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 10.35 Consulting and Noncompete Agreement dated as of January 14, 2000 between the Company and Charles F. Connor, Jr. (incorporated by reference to Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 1999) 22 25 10.36 Bonus Agreement dated as of June 30, 1999 between the Company and James E. Harris (incorporated by reference to Exhibit 10.50 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.37 Loan and Security Agreement, dated as of May 24, 2000, between the Company and Fleet Capital Corporation, as Lender (schedules omitted) (incorporated by reference to Exhibit 10.51 to the Company's Annual Report on Form 10-K for its fiscal year ended March 6, 2000) 10.38 Pierre Foods, Inc. Compensation Exchange Plan dated August 1, 2000 27 Financial Data Schedule The Company hereby agrees to provide to the Commission, upon request, copies of long-term debt instruments omitted from this report pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act. 23 EX-10.38 2 g64403ex10-38.txt COMPENSATION EXCHANGE PLAN 1 EXHIBIT 10.38 - -------------------------------------------------------------------------------- PIERRE FOODS, INC. COMPENSATION EXCHANGE PLAN - -------------------------------------------------------------------------------- ---------------------------------------- Effective Date of Plan: August 1, 2000 ---------------------------------------- 2 PIERRE FOODS, INC. COMPENSATION EXCHANGE PLAN TABLE OF CONTENTS ARTICLE PAGE ARTICLE I PURPOSE.........................................................1 ARTICLE II DEFINITIONS.....................................................1 ARTICLE III OPTION GRANT....................................................4 ARTICLE IV OPTION EXERCISE.................................................7 ARTICLE V AMENDMENT OR TERMINATION........................................9 ARTICLE VI ADMINISTRATION.................................................10 ARTICLE VII TRUST PROVISIONS...............................................12 ARTICLE VIII MISCELLANEOUS PROVISIONS.......................................13 3 - -------------------------------------------------------------------------------- PIERRE FOODS, INC. COMPENSATION EXCHANGE PLAN - -------------------------------------------------------------------------------- ARTICLE I PURPOSE 1.1 PURPOSE. The purpose of the Plan is to provide the benefits of an option plan to eligible Employees of the Employer and eligible members of the Board of Directors in a form that will encourage the recipients to continue to provide services to the Employer, and allow the recipients to diversify their investment portfolios. 1.2 INTENT. The Plan is intended to be a nonqualified option plan within the meaning of Section 83 of the Code and not an employee benefit plan as defined under ERISA. ARTICLE II DEFINITIONS As used herein, the following capitalized words and phrases will have the respective meanings set forth below unless a different meaning is plainly required by the context: 2.1 "ADMINISTRATIVE COMMITTEE" means the committee responsible for the general administration of the Plan as described herein. The members of the Administrative Committee shall be designated by the Executive Compensation Committee, in its discretion, in accordance with Section 6.3 of this Plan. 2.2 "BENEFICIARY" means the person or persons designated by a Participant, pursuant to Section 3.6, to exercise an Option after the Participant's death. If there is no effective designation at the date of the Participant's death, then the Beneficiary will be the spouse of the Participant, if then living. If there is no effective designation at the date of the Participant's death and the spouse of the Participant is not then living, then the Beneficiary will be the Participant's estate. 2.3 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of Pierre Foods, Inc. 2.4 "CHANGE OF CONTROL" means any of the following: (a) any "person" (excluding David R. Clark or James C. Richardson, Jr. or any entity in which they have, directly or indirectly, jointly or severally, more than a 50% controlling interest), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing more than 50% of the combined voting power of the Employer's then-outstanding securities; or (b) during any period of two consecutive years (not including any period prior to the execution of this Plan), 4 individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Employer to effect a transaction described in clause (c) of this definition) whose election by the Board or nomination for election by the Employer's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the shareholders of the Employer approve a merger or consolidation of the Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Employer or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Employer approve a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets. 2.5 "CODE" means the Internal Revenue Code of 1986, as amended, and any regulations or rulings issued thereunder 2.6 "DISABILITY" means a period of disability during which a Participant qualifies for disability benefits under the Participant's Employer's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Administrative Committee. If the Participant's Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability will be determined by the Administrative Committee in its sole discretion. 2.7 "EFFECTIVE DATE" means August 1, 2000. 2.8 "EMPLOYEE" means any common law employee of the Employer, as determined in Section 3.1(a) of this Plan, and approved by the Executive Compensation Committee, in its sole discretion. 2.9 "EMPLOYER" means Pierre Foods, Inc., its current or future subsidiaries, and any successor(s) thereto. 2.10 "ERISA" means the Employee Retirement Income Security Act of 1974, any amendments thereto, and any regulations or rulings issued thereunder. 2.11 "EXECUTIVE COMPENSATION COMMITTEE" means the Executive Compensation Committee of the Board of Directors. 2.12 "EXERCISE DATE" means the date upon which the Administrative Committee approves the Option exercise form that is completed and submitted by a Participant to the Administrative Committee with respect to the Option being exercised. 5 2.13 "EXERCISE PERIOD" means the period during which a Participant may exercise an Option, as determined under Section 4.1. 2.14 "EXERCISE PRICE" means the price to be paid by a Participant to exercise an Option, as determined under Section 3.3. 2.15 "FAIR MARKET VALUE" means the closing price of a share of Stock (as defined in Section 2.22) reflected in the consolidated trading tables of The Wall Street Journal, or other recognized market source, as determined by the Administrative Committee, on the applicable date of reference hereunder or, if there is no sale of the Stock on such date, then the closing price on the last previous day on which a sale is reported. 2.16 "GRANT DATE" means, with respect to any Option, the date on which the Option is awarded or granted by the Administrative Committee to a Participant pursuant to Section 3.2. 2.17 "NORMAL RETIREMENT AGE" means normal retirement age as defined under the Pierre Foods, Inc. 401(k) Retirement Plan. 2.18 "OPTION" means the right of a Participant, granted by the Employer in accordance with Section 3.2, to purchase Stock from the Employer at the Option's Exercise Price. 2.19 "OPTION AGREEMENT" means an agreement executed by the Employer and by a Participant to whom Options have been awarded, acknowledging the issuance of the Options and setting forth terms of the Options. 2.20 "PARTICIPANT" means any individual who meets the eligibility requirements of Section 3.1, who has received an award of Options in accordance with Section 3.2, and whose Options have not been completely exercised or lapsed. For purposes of Section 4.3: (a) After a Participant's death, his Beneficiary is to be treated as a Participant under this Plan with respect to any Options that are outstanding at the time of the Participant's death; (b) In the event of a Participant's legal incapacity, the Participant's legal representative is to be treated as a Participant under this Plan with respect to any Options that are outstanding at the time the Participant incurred the legal incapacity; and (c) If a Participant has assigned Options under Section 3.8, then the assignee of such Options is to be treated as a Participant under this Plan with respect to the assigned Options. 2.21 "PLAN" means the Pierre Foods, Inc. Compensation Exchange Plan as adopted by the Employer and set forth herein and from time to time amended. 2.22 "PLAN YEAR" means the year beginning on January 1 and ending on December 31 of each calendar year. 6 2.23 "STOCK" means shares of a registered investment company regulated by the Investment Company Act of 1940, as amended, which shares are designated by the Administrative Committee as subject to purchase through the exercise of an Option. 2.24 "TERMINATION OF EMPLOYMENT" means an Employee's separation from the service of the Employer by reason of resignation, discharge, death, Disability or other termination. The Administrative Committee may determine, in its sole discretion, whether any leave or other absence from service constitutes a Termination of Employment for purposes of the Plan. 2.25 "TRUST" means the trust, if any, which may be established pursuant to Article VII to hold the Stock that is subject to purchase through the exercise of an Option. 2.26 "TRUST AGREEMENT" means an agreement, if any, setting forth the terms of the Trust. 2.27 "TRUST FUND" means the Stock that is held in the Trust, if any. 2.28 "TRUSTEE" means the persons or institution acting as trustee of the Trust. ARTICLE III OPTION GRANT 3.1 ELIGIBILITY AND PARTICIPATION. (a) PARTICIPANT DESIGNATION. Options may be granted to any Employee whose base salary, excluding any bonus or other compensation, has exceeded, or is reasonably expected to exceed, "compensation" as determined for highly compensated employees under Section 414(q)(1) of the Code for the applicable Plan year, or to any member of the Board of Directors of the Employer. Such designations of eligible individuals will be made pursuant to Employer's internal guidelines, and shall be approved by the Executive Compensation Committee, in its sole discretion. (b) PARTICIPANT TERMINATION. At any time during the Plan Year, a Participant may cease participation under this Plan. A Participant's termination of participation is effective as soon as administratively feasible after the Participant provides the Administrative Committee written notice of his or her intent to cease participation in this Plan. A Participant may resume participation under this Plan on the first day of the subsequent Plan Year in accordance with paragraph (a) above. 3.2 GRANT OF OPTIONS. (a) IN GENERAL. Options may be granted by the Administrative Committee on or after the Effective Date and prior to the termination of the Plan. Options will become effective upon the applicable Grant Date(s) set forth in the Option Agreement. The Option Agreement will specify the Stock, the number of shares subject to the Option, the Exercise Price as of the Grant Date, and such other terms and in such form as the Administrative Committee may from time to time determine in accordance with the Plan. 7 The minimum grant of Options to be made under the Plan will be a grant for that number of Options having an aggregate intrinsic value (Fair Market Value of the underlying Stock minus Exercise Price) equal to $2,500. Any terms not specified in the Plan will be specified in the Option Agreement. No Administrative Committee member may take part in any way in determining the amount of any award of Options to himself. (b) EFFECT OF DIVIDENDS AND DISTRIBUTIONS WITH RESPECT TO STOCK. (1) CASH DIVIDENDS AND DISTRIBUTIONS. The Employer agrees to reinvest all cash dividends and distributions received in cash with respect to Stock in additional property of the same kind (or as nearly the same kind as feasible, if property of the same kind is not available). Any Stock acquired through reinvestment will become subject to an Option in favor of the Participant. (2) NONCASH DISTRIBUTIONS OR SIMILAR TRANSACTION. In the event of a Stock dividend, Stock split, reverse Stock split, rights offering, recapitalization or similar transaction that materially affects the Fair Market Value of the Stock, the Administrative Committee will adjust the Exercise Price so that it retains the same ratio to the Fair Market Value of the Stock as existed immediately before such transaction. 3.3 EXERCISE PRICE. The Exercise Price of an Option initially will be determined by the Executive Compensation Committee, and will be noted by the Administrative Committee in the Option Agreement pertaining to the Option. The Executive Compensation Committee has determined that the initial Exercise Price on the Grant Date for all Options will equal twenty-five percent (25%) of the Fair Market Value of the Stock on the Grant Date. Upon a request to exercise any Option, the Exercise Price required to be paid by the Participant shall be the greater of the Exercise Price on the Grant Date or twenty-five percent (25%) of the Fair Market Value of the Stock on the Exercise Date. 3.4 SUBSTITUTION OF OPTION PROPERTY. The Administrative Committee, in its sole discretion, after consultation with the Participant, may amend an Option in order to change the Stock that is subject to purchase by the Participant upon exercise of the Option, provided that the substituted Stock is of equal aggregate Fair Market Value as of the date of substitution. Notwithstanding the foregoing, the Administrative Committee will amend an Option in order to change the Stock that is subject to the purchase by the Participant upon exercise of the Option if Stock to which the Option relates loses its publicly traded status, provided that the substituted Stock is of equal aggregate Fair Market Value as of the date of the substitution. Notwithstanding anything to the contrary in this Plan, a change in Stock pursuant to this paragraph may be made no more than four times during any calendar year, or at additional times upon special circumstances as determined by the Administrative Committee, in its sole discretion. 3.5 PURCHASE OF OPTION PROPERTY. Upon the grant of an Option, the Employer shall acquire an amount of Stock that represents the excess of (a) the Fair Market Value of the Stock (taken as of the Grant Date) subject to purchase under the Option, over (b) the Exercise Price of the Option (taken as of the Grant Date). The Employer shall contribute such amount of 8 Stock to the Trust established in accordance with Article VII. The Employer will not give any person a security interest in the Stock it acquires or enter into any contract (other than the Plan) under which any person may acquire an interest in the Stock. Upon a change in Option property pursuant to Section 3.4 above, the Employer shall acquire, and shall contribute to any Trust, the new Stock that represents the difference between (a) the Fair Market Value (taken as of the Grant Date of the amended Option) of the new Stock subject to purchase under the amended Option, and (b) the Exercise Price of the new Option (taken as of the Grant Date of the amended Option), and the Employer, in its sole discretion, may release any Stock it or any Trust holds that no longer represents Stock subject to the Option. 3.6 DESIGNATION OF BENEFICIARY. As soon as practicable after the grant of an Option, the Participant will designate one or more Beneficiaries and successor Beneficiaries, and may change a Beneficiary designation at any time, by filing the prescribed form with the Administrative Committee. The consent of the Participant's current Beneficiary will not be required for a change of Beneficiary. No Beneficiary will have any rights under the Plan or an Option Agreement during the lifetime of the Participant, except as may otherwise be provided herein. A Participant who dies without having designated a Beneficiary in accordance with this Section 3.6 will be deemed to have named the Participant's legal spouse as primary Beneficiary and the Participant's estate as contingent Beneficiary. 3.7 GENERAL NON-TRANSFERABILITY. No Option granted under this Plan may be transferred, assigned, or alienated (whether by operation of law or otherwise), except as provided herein, and no Option will be subject to execution, attachment or similar process. Except as otherwise provided in Section 3.8, an Option may be exercised only by a Participant. 3.8 PERMITTED TRANSFERS. Notwithstanding the provisions of Section 3.7, and subject to approval by the Administrative Committee, a Participant may at any time prior to death, assign an Option to: (a) the Participant's spouse; (b) the Participant's lineal descendants; (c) a trust established by the Participant; or (d) a family partnership in which the Participant is a partner, subject to approval by the Administrative Committee, in its sole discretion. Any such assignment will be permitted only if an assignment is expressly permitted in the Option Agreement, or approved in writing by the Administrative Committee, and the Participant receives no consideration for the assignment. Any such assignment will be evidenced by an appropriate written document executed by the Participant, and delivered to the Administrative Committee on or before the effective date of the assignment. In the event of such assignment, the spouse, lineal descendant, trustee of the trust, partner of the partnership, or tax-exempt organization will be entitled to all of the rights of the Participant under Section 4.3 with respect to the assigned Option, and such Option will continue to be subject to all of the terms, conditions and restrictions applicable to the Option, as set forth in the Plan and the Option Agreement. 9 ARTICLE IV OPTION EXERCISE 4.1 EXERCISE PERIOD. (a) A Participant may exercise an Option pursuant to Section 4.3 at any time during the period beginning ninety (90) calendar days after the Grant Date and ending on the earliest of: (i) ninety (90) calendar days after the Participant's Termination of Employment (or such later date as designated by the Administrative Committee in its sole discretion), if the Termination of Employment is on account of any reason other than the Participant's attainment of Normal Retirement Age; or (ii) ten (10) years after the Grant Date (or at such later date as designated by the Administrative Committee in its sole discretion). If a Participant fails to exercise an Option within the Exercise Period, then the Option expires and the Participant or his or her Beneficiary or assignee loses any rights he or she had with respect to the Option. Notwithstanding the foregoing, at no time will the Exercise Period be less than ninety (90) calendar days from the Grant Date and, in the event of the Participant's death, no less than one (1) year after the date of the Participant's death. (b) Notwithstanding Section 4.1(a), if a Participant's Termination of Employment is on account of the Participant's retirement following the attainment of Normal Retirement Age, he or she may exercise an Option at any time for the period beginning ninety (90) calendar days following the Grant Date and ending ten (10) years after the Grant Date (or at such later date as designated by the Administrative Committee in its sole discretion). (c) Notwithstanding Section 4.1(a), in the event of a Change in Control, all Options become immediately exercisable whether or not ninety (90) calendar days have elapsed since their Grant Date. 4.2 NOTICE. The Administrative Committee will provide to the Participant notice that the ten year term for his or her Option is set to expire (unless the Option has been exercised or the Option's term has expired under Section 4.1(a) above). Such notice will be given approximately six months prior to the expiration of the Exercise Period described in Section 4.1(b) above. If the Options are not exercised ninety (90) calendar days prior to the expiration of the Option Exercise Period, notice will be provided again. The required notice must be a written notice and such notice must list the Option property and the date on which the Option Exercise Period would expire. Failure to give or receive notice with respect to an Option will not extend in any way the Exercise Period of the Option or increase a Participant's rights with respect to the Option. 10 4.3 OPTION EXERCISE. A Participant may exercise an Option by giving written notice to the Administrative Committee and tendering full payment of the Exercise Price by cash or other means acceptable to the Administrative Committee on the Exercise Date. Notwithstanding the foregoing, a Participant will vest in an Option, and therefore may exercise such Option, only to the extent provided under the Option Agreement pertaining to that Option. The minimum amount of Options that can be exercised by a Participant at any one time is the number of Options for which the aggregate intrinsic value (Fair Market Value of the underlying Stock minus Exercise Price) totals $5,000, provided, however, that the Administrative Committee, in its sole discretion, may permit the exercise of fewer Options. For these purposes, the term "underlying Stock" means the Stock that will be acquired by the Participant upon the exercise of the Option. A Participant will not have any of the rights and privileges of a shareholder with respect to any Stock purchasable or issuable upon the exercise of an Option prior to the date of exercise of such Option in accordance with this Section 4.3. In the event that the listing, registration or qualification of the Option or the Stock on any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the exercise of the Option, then the Option will not be exercised in whole or in part until such listing, registration, qualification, consent or approval has been effected or obtained. 4.4 DELIVERY OF STOCK. As soon as administratively feasible following the date that a Participant satisfies the conditions for exercising an Option in accordance with Section 4.3, the Employer will deliver or cause to be delivered the Stock subject to such Option to the Participant. 4.5 TAX WITHHOLDING. Whenever Stock is to be delivered upon exercise of an Option under the Plan, the Employer will require as a condition of such delivery payment by the Participant of an amount sufficient to satisfy all federal, state and local tax withholding requirements related thereto. Such payment will take the form of whichever of the following is acceptable to the Administrative Committee, at the election of the Administrative Committee: (a) cash; (b) the withholding of such amount from any Stock to be delivered to the Participant; or (c) the withholding of such amount from compensation otherwise due to the Participant. Such election will be made before the date on which the amount of tax to be withheld is determined by the Employer, and such election will be irrevocable. With the consent of the Administrative Committee, the Participant may elect a greater amount of withholding, not to exceed the estimated amount of the Participant's total tax liability with respect to the exercise of Options under the Plan. Such election will be made at the same time and in the same manner as provided above. 4.6 FAILURE TO EXERCISE. No Option will be exercised, in whole or in part, after the end of the Option's Exercise Period as stated in Section 4.1. The Employer will have no obligation to deliver or cause to be delivered to the Participant the Stock subject to such Option after the end of the Option's Exercise Period. 11 ARTICLE V AMENDMENT OR TERMINATION 5.1 PLAN AMENDMENT. The Executive Compensation Committee, from time to time in its sole discretion, may amend any provision of the Plan, in whole or in part, with respect to any Participant or group of Participants. Such amendment will be effective as of the date specified therein and will be binding upon the Administrative Committee, all Participants and Beneficiaries, and all other persons claiming an interest under the Plan. Such amendment will not affect any Options that are outstanding as of the amendment date without the Participant's consent. Notwithstanding anything herein to the contrary, any amendments that modify the Plan must be approved by the Executive Compensation Committee, in accordance with Section 6.3 of this Plan. 5.2 PLAN TERMINATION. The Plan will terminate as provided by the Executive Compensation Committee, in its sole discretion, provided that (a) the Plan will continue to operate until the exercise or expiration of all outstanding Options, or (b) the Employer will cancel all outstanding Options and pay to each optionee in cash the difference between the Fair Market Value of the Underlying Stock of the Options he or she held and the Exercise Price of such Options, both determined as of the date the Options are cancelled. Such termination will be effective as of the date determined by the Executive Compensation Committee and will be binding upon the Administrative Committee, all Participants and Beneficiaries, and all other persons claiming an interest under the Plan. 5.3 AMENDMENT OF OPTIONS. Notwithstanding Section 5.1, an Option may be amended by the Administrative Committee at any time after the Grant Date if the Administrative Committee determines that an amendment is necessary as a result of: (a) any addition to or change in the Code or ERISA, a federal or state securities law or any other law or regulation, which occurs after the Grant Date and by its terms applies to the Option; (b) substitution of Stock; (c) any Plan amendment pursuant to Section 5.1, or Plan termination pursuant to Section 5.2, provided that the amendment does not materially affect the terms, conditions and restrictions applicable to the Option; or (d) any circumstances not specified in paragraphs (a), (b) or (c) with the consent of the Participant. 12 ARTICLE VI ADMINISTRATION 6.1 THE ADMINISTRATIVE COMMITTEE. The Plan will be administered by the Administrative Committee. 6.2 POWERS OF THE ADMINISTRATIVE COMMITTEE. In carrying out its duties with respect to the general administration of the Plan, the Administrative Committee will have, in addition to any other powers conferred by the Plan or by law, the following powers: (a) to grant Options and to determine the form, amount and timing of such Options as well as the type of property subject to an Option; (b) to determine the terms and provisions of the Option Agreements and to modify such Option Agreements as provided in Section 5.3; (c) to maintain all records necessary for the administration of the Plan; (d) to prescribe, amend, and rescind rules for the administration of the Plan to the extent not inconsistent with the terms thereof; (f) to employ counsel, accountants and other consultants to aid in exercising its powers and carrying out its duties under the Plan; and (g) to perform any other acts necessary and proper for the conduct of its affairs and the administration of the Plan, except those specifically reserved by the Board or the Executive Compensation Committee. 6.3. POWERS OF THE EXECUTIVE COMPENSATION COMMITTEE. In carrying out its duties with respect to the Plan, the Executive Compensation Committee will have, in addition to any other powers conferred by the Plan or by law, the following powers: (a) to determine the members of the Administrative Committee, in accordance with Section 2.1; (b) to establish, maintain, and terminate a trust to hold all Stock contributed by the Employer, pursuant to Article VII of this Plan; (c) to amend any provision of the Plan, in whole or in part, with respect to any Participant or group of Participants, pursuant to Section 5.1 of this Plan; (d) to terminate the Plan, in whole or in part, in accordance with Section 5.2 of this Plan; (e) to appoint such individuals and subcommittees as it deems desirable for the conduct of its affairs and the administration of the Plan; and 13 (f) to perform any other acts necessary and proper for the conduct of its affairs. All decisions of the Executive Compensation Committee shall be subject to the approval of the Board of Directors. 6.4 DETERMINATIONS BY THE ADMINISTRATIVE COMMITTEE. The Administrative Committee will interpret and construe the Plan and the Option Agreements, and its interpretations and determinations will be conclusive and binding on all Participants, Beneficiaries and any other persons claiming an interest under the Plan or any Option Agreement. The Administrative Committee's interpretations and determinations under the Plan and the Option Agreements need not be uniform and may be made by it selectively among Participants, Beneficiaries and any other persons whether or not they are similarly situated. 6.5 INDEMNIFICATION OF THE ADMINISTRATIVE COMMITTEE. The Employer will indemnify and hold harmless each member of the Administrative Committee against any and all expenses and liabilities arising out of such member's action or failure to act in such capacity, excepting only expenses and liabilities arising out of such member's own willful misconduct or failure to act in good faith. Expenses and liabilities against which a member of the Administrative Committee is indemnified hereunder will include, without limitation, the amount of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against him or the settlement thereof. This right of indemnification will be in addition to any other rights to which any member of the Administrative Committee may be entitled. The Employer, at its own expense, may settle any claim asserted or proceeding brought against any member of the Administrative Committee when such settlement appears to be in the best interest of the Employer. 6.6 INDEMNIFICATION OF THE EXECUTIVE COMPENSATION COMMITTEE. The Employer will indemnify and hold harmless each member of the Executive Compensation Committee against any and all expenses and liabilities arising out of such member's action or failure to act in such capacity, excepting only expenses and liabilities arising out of such member's own willful misconduct or failure to act in good faith. Expenses and liabilities against which a member of the Executive Compensation Committee is indemnified hereunder will include, without limitation, the amount of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against him or the settlement thereof. This right of indemnification will be in addition to any other rights to which any member of the Executive Compensation may be entitled. The Employer, at its own expense, may settle any claim asserted or proceeding brought against any member of the Executive Compensation when such settlement appears to be in the best interest of the Employer. 14 6.7 EXPENSES OF THE ADMINISTRATIVE COMMITTEE. The members of the Administrative Committee will serve without compensation for their services. All reasonable expenses of the Administrative Committee will be paid by the Employer. 6.8 EXPENSES OF THE EXECUTIVE COMPENSATION COMMITTEE. The members of the Executive Compensation Committee will serve without compensation for their services. All reasonable expenses of the Executive Compensation Committee will be paid by the Employer. 6.9 EXPENSES OF THE PLAN. The expenses of administering the Plan shall be the obligation of the Employer. Provided, at the discretion of the Executive Compensation Committee, all reasonable expenses of the Plan shall be paid by the Plan Participants, in the manner directed by the Executive Compensation Committee. ARTICLE VII TRUST PROVISIONS 7.1 ESTABLISHMENT OF THE TRUST. The Executive Compensation Committee may establish a trust to hold all Stock contributed by the Employer pursuant to Section 3.5. Except as otherwise provided in Section 7.2 of the Plan and the terms of the Trust Agreement, the Trust, if any, will be irrevocable and no portion of the Trust Fund, if any, will be used for any purpose other than the delivery of Stock pursuant to the exercise of an Option under the Plan, and the payment of expenses of the Plan and Trust. 7.2 TRUST STATUS. Any Trust which may be established pursuant to Section 7.1 will be designed as a grantor trust, within the meaning of section 671 of the Code, of which the Employer is the grantor, and this Plan is to be construed in accordance with that intention. Notwithstanding any other provision of this Plan, the Trust Fund, if any, will remain the property of the Employer and will be subject to the claims of its creditors in the event of its bankruptcy or insolvency. No Participant will have any priority claim on the Trust Fund, if any, or any security interest or other right superior to the rights of a general creditor of the Employer. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 HEADINGS. The headings of Articles, Sections and Paragraphs are solely for convenience of reference. If there is any conflict between such headings and the text of this Plan, the text will control. 8.2 GENDER. Unless the context clearly requires a different meaning, all pronouns will refer indifferently to persons of any gender. 15 8.3 SINGULAR AND PLURAL. Unless the context clearly requires a different meaning, singular terms will also include the plural and vice versa. 8.4 GOVERNING LAW. Except to the extent preempted by federal law, the construction and operation of the Plan will be governed by the laws of the State of North Carolina without regard to the choice of law principles of such state. 8.5 SEVERABILITY. If any provision of this Plan is held illegal or invalid by any court or governmental authority for any reason, the remaining provisions will remain in full force and effect and will be construed and enforced in accordance with the purposes of the Plan as if the illegal or invalid provision did not exist. 8.6 NO OBLIGATION TO EXERCISE. The granting of an Option will impose no obligation upon a Participant to exercise such Option. 8.7 NO RIGHTS OF SHAREHOLDER. Neither the Participant, a Beneficiary nor any assignee will be, or will have any of the rights and privileges of, a stockholder with respect to any Stock subject to purchase or issuance or upon the exercise of an Option, prior to the date of exercise of such Option in accordance with Section 4.3 of the Plan. 8.8 NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in the Plan will be deemed to give any person the right to be retained in the employ of the Employer, or to interfere with the right of the Employer to discharge any person at any time without regard to the effect that such discharge will have upon such person's rights or potential rights, if any, under the Plan. 8.9 NOTICES. Unless otherwise specified in an Option Agreement, any notice to be provided under the Plan to the Administrative Committee will be mailed (by certified mail, postage prepaid) or delivered to the Administrative Committee in care of the Employer at its executive offices, and any notice to the Participant will be mailed (by certified mail, postage prepaid) or delivered to the Participant at the current address shown on the payroll records of the Employer, or at such address as a Participant will provide to the Administrative Committee in accordance with this Section 8.9. No notice will be binding on the Administrative Committee until received by the Administrative Committee, and no notice will be binding on the Participant until received by the Participant. 8.10 CONFLICT BETWEEN PLAN AND OPTION AGREEMENT. Should there be a conflict or other contradiction between the language of the Plan and that contained in any Option Agreement, the terms and conditions of the Plan will control. 8.11 TAX LIABILITY. In the event that the Employer cancels an Option in connection with a termination of the Plan pursuant to Section 5.2, the Participant will bear all tax consequences associated with the cash payment made in connection with the cancellation of the Option. Notwithstanding the above, the Participant will be responsible for all taxes in conjunction with the exercise of an Option as stated in Section 4.5. 16 8.12 UNAUTHORIZED REPRESENTATION. The Employer will not be bound by the representations of any person, other than the Administrative Committee, regarding eligibility for participation under the Plan or any other matter relating to the Plan. IN WITNESS WHEREOF, Pierre Foods, Inc. has caused this Plan to be executed by its duly authorized officers and its corporate seal to be hereunto affixed this __________ day of ________________, _____________. APPROVED: By: _______________________________ Title: ____________________________ ATTESTED By: _______________________________ EX-27 3 g64403ex27.txt FINANCIAL DATA SCHEDULE
5 6-MOS MAR-03-2001 MAR-05-2000 SEP-02-2000 233,065 0 17,675,743 114,898 32,180,158 57,142,654 50,962,736 15,977,405 167,583,381 13,348,108 124,128,139 0 0 5,781,480 22,829,869 167,583,381 48,734,129 48,734,129 31,072,676 45,451,798 1,560,934 33,515 3,398,530 (1,603,273) (580,387) (1,022,886) 0 0 0 (1,022,886) (0.18) (0.18)
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