-----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, WnrRFxPeMfMJ9V/FGu8CbztCkBzl/lQ7N1bY1Tm3zGTTvihtc8WKZNGRyZ0cJWyd 2AINUPmDZ37ONWpPdtJRhA== 0000899243-00-002746.txt : 20010101 0000899243-00-002746.hdr.sgml : 20010101 ACCESSION NUMBER: 0000899243-00-002746 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL SUGAR CO /NEW/ CENTRAL INDEX KEY: 0000831327 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 740704500 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10307 FILM NUMBER: 798715 BUSINESS ADDRESS: STREET 1: ONE IMPERIAL SQ STE 200 STREET 2: P O BOX 9 CITY: SUGAR LAND STATE: TX ZIP: 77487 BUSINESS PHONE: 2814919181 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL HOLLY CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL SUGAR CO /TX/ DATE OF NAME CHANGE: 19880606 10-K405 1 0001.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000 Commission File Number 1-10307 IMPERIAL SUGAR COMPANY (Exact name of registrant as specified in its charter) Texas 74-0704500 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (281) 491-9181 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, without par value American Stock Exchange Rights to Purchase Preferred Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $20 million, based upon the last reported sales price of the registrant's Common Stock on the American Stock Exchange on December 13, 2000 and (solely for this purpose) treating all directors, executive officers and 10% shareholders of the registrant as affiliates. The number of shares outstanding of each of the registrant's Common Stock, as of December 13, 2000, was 32,412,369. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Part I Item 1. Business...................................................... 1 Item 2. Properties.................................................... 9 Item 3. Legal Proceedings............................................. 10 Item 4. Submission of Matters to a Vote of Security Holders........... 10 Executive Officers of the Registrant.......................... 10 Part II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters.......................................... 12 Item 6. Selected Financial Data....................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 19 Item 8. Financial Statements and Supplementary Data................... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 22 Part III Item 10. Directors and Executive Officers of the Registrant............ 23 Item 11. Executive Compensation........................................ 25 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................... 30 Item 13. Certain Relationships and Related Transactions................ 31 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................................... 32
---------------- The statements regarding the future status of financing arrangements, the status and possible outcomes of restructuring discussions, the Company's liquidity and ability to finance its operations, future market prices, operating results, synergies, sugar beet acreage, operating efficiencies, cost savings, government actions regarding sugar and other statements that are not historical facts contained in this report on Form 10-K are forward-looking statements. The words "expect", "project", "estimate", "believe", "anticipate", "plan", "intend", "could", "should", "may", "predict" and similar expressions are also intended to identify forward-looking statements. Such statements involve risks, uncertainties and assumptions, including, without limitation, the negotiating positions of various constituencies, the results of negotiations, market factors, the effect of weather and economic conditions, farm and trade policy, the available supply of sugar, available quantity and quality of sugarbeets, cost and availability of energy and other resources and other factors detailed elsewhere in this and other Company filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. PART I ITEM 1. Business Imperial Sugar Company (the "Company") is the largest processor and marketer of refined sugar in the United States and is a leading distributor of sugar, nutritional products, sauces, seasonings, drink mixes and desserts to the foodservice industry. The Company, as well as most of the domestic sugar industry, experienced a very difficult operating environment during the year ended September 30, 2000, as an oversupply of refined sugar resulted in historically low selling prices. At September 30, 2000, the Company would have been in violation of certain financial covenants of its Amended and Restated Credit Agreement, dated as of December 22, 1997 (the "Senior Credit Agreement") had the lenders not waived such covenants temporarily. The Company did not make its scheduled December 15, 2000, interest payment on its 9 3/4% Senior Subordinated Notes due 2007 (the "Subordinated Debt"). The indenture for the Subordinated Debt provides for a thirty-day grace period for the payment of interest, however the Company does not expect to make such payment currently. Additionally, the Company has contracted a substantial portion of industrial sugar sales for fiscal 2001 at historically low prices, and raw sugar prices have not declined as much as refined sugar prices. As a result, margins on the sale of refined sugar have narrowed and the Company may incur significant losses and negative cash flows from operations for the year ending September 30, 2001. The Company has held discussions with representatives of its principal lenders about a financial restructuring plan which may occur under the supervision of a United States Bankruptcy Court. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". The Company operates in two domestic business segments--the sugar segment, which produces and sells refined sugar and related products, and the foodservice segment, which sells and distributes numerous products to foodservice customers. The segment information in Note 12 to the Company's Consolidated Financial Statements is incorporated herein by reference. The Company refines raw cane sugar at refineries located in Texas, Georgia and Louisiana and produces beet sugar at beet sugar factories located in California, Wyoming, Montana and Michigan. For the year ended September 30, 2000, the Company sold approximately 60 million hundredweight ("cwt") of refined sugar. The foodservice segment currently operates six facilities in California, Georgia, Indiana, Iowa and Ohio. The Company offers a broad product line and sells to a wide range of customers directly and through wholesalers and distributors. Sugar segment customers include retail grocers and industrial customers, principally food manufacturers. Foodservice segment customers include distributors, restaurants, healthcare institutions, geriatric centers, schools and other institutions. The Company's sugar products include granulated, powdered, liquid and brown sugars sold in a variety of packaging options (one pound boxes to 100-pound bags, individual packets and in bulk) under various brands (Imperial(R), Holly(R), Spreckels(R), Dixie Crystals(R), Pioneer(R) and Wholesome Sweeteners(TM)) or private labels. In addition, the Company produces selected specialty sugar products, including Savannah Gold(TM) (a premium- priced, free-flowing brown sugar), Sucanat(TM)(sugar milled from organically grown sugarcane) and specialty sugars used in confections and icings. The foodservice segment sells sugar in packages from 50-pound bags to individual packets to foodservice customers, along with complementary nonsugar products, including salt, pepper and other seasonings, non-nutritive sweeteners, non- dairy creamers, nutritional products, sauces, drink mixes, desserts, plastic cutlery and packets of plastic cutlery with seasonings and other items. Imperial was incorporated in 1924 and is the successor to a cane sugar plantation and milling operation begun in Sugar Land in the early 1800s that began producing granulated sugar in 1843. In 1988, the Company purchased Holly Sugar Corporation ("Holly") and in April 1996, acquired Spreckels Sugar Company ("Spreckels"). The Company completed its acquisition of Savannah Foods & Industries, Inc. ("Savannah Foods") in December 1997 and acquired Wholesome Sweeteners L.L.C. ("Wholesome Sweeteners") and 1 Diamond Crystal Specialty Foods, Inc. ("Diamond Crystal") in September and November 1998, respectively. As used herein "Imperial" or the "Company" refers to Imperial Sugar Company and its subsidiaries. Industry Overview Refined sugar can be produced by either processing sugar beets or processing and refining sugarcane. The profitability of cane sugar and beet sugar operations is affected by government programs designed to support the price of domestic crops of sugar beets and sugarcane, which affect cane sugar and beet sugar operations differently. See "--Sugar Legislation and Other Market Factors". Cane Sugar Production Process. Sugarcane is grown in tropical and semitropical climates in the United States and some foreign countries. Sugarcane is processed by raw cane mills promptly after harvest into raw sugar, which is approximately 98% sucrose and may be stored for long periods and transported over long distances without affecting its quality. Raw cane sugar imports currently are limited by United States government programs. Cane sugar refineries like those operated by the Company purify raw sugar to produce refined sugar. Operating results of cane sugar refineries are driven primarily by the spread between raw sugar and refined sugar prices. See "-- Sugar Legislation and Other Market Factors". Beet Sugar Production Process. Sugar beets can grow wherever a five-month growing season is possible. In the United States, sugar beets are grown in California, Colorado, Idaho, Michigan, Minnesota, Montana, Nebraska, North Dakota, Ohio, Oregon, South Dakota, Washington and Wyoming. Harvest periods depend on the growing area, but are generally in the early fall, except in California, where spring and summer harvests also occur. Sugar beets are highly perishable and must be processed into refined sugar quickly after harvest to avoid deterioration. Beets may be stored in piles awaiting processing where temperatures are sufficiently cool. Sugar beets are converted to refined sugar through a single continuous process at beet sugar factories. Beet sugar factories are located near the areas in which beets are grown in order to reduce freight costs and the risk of deterioration before processing. The Company's staggered harvest seasons with respect to the sugar beet acreage supplying the Company's sugar beet production facilities allows it to produce beet sugar year round even though the production campaign at any single facility generally lasts no more than 180 days. Operating results are driven primarily by the quantity and quality of sugar beets dedicated to the factory and the net sales prices received for the refined beet sugar. The beet processor shares a portion of the net sales price with growers through various participation or recovery contracts or cooperative arrangements. See "--Raw Materials and Processing Requirements--Sugar Beet Purchases". Government Regulation. Federal government programs have existed to support the price of domestic crops of sugar beets and sugarcane almost continually since 1934. The regulatory framework that currently affects the domestic sugar industry includes the Federal Agricultural Improvement and Reform Act of 1996 (the "Farm Bill"), which provides for loans on sugar inventories to first processors (i.e., raw cane sugar mills and beet processors) and implements a tariff rate quota which limits the amount of raw and refined sugar that can be imported into the United States. The North American Free Trade Agreement ("NAFTA"), which was adopted in 1994 and limits the amount of sugar that can be imported to and exported from Mexico, has to date had a lesser impact on the United States sugar market. See "--Sugar Legislation and Other Market Factors." Domestic Demand. Domestic demand for refined sugar has increased each year since 1986, and the annual rate of growth over the five-year period ended September 2000 has ranged from 1.5% to 2.0%. Domestic Supply. Reduced demand in the early 1980s was absorbed principally by capacity reductions in the cane sugar refining sector. Approximately one- third of domestic cane sugar refining capacity was eliminated between 1981 and 1988. Cane sugar refining capacity remained relatively flat from 1988 until 1998, when 2 construction of a refinery in Florida with a rated annual capacity of approximately 10 million cwt was completed. Growth in refined sugar demand during the last decade has been largely satisfied through increased beet sugar production. In recent years, there have been a number of expansions to existing beet sugar factories to allow for increased acreage dedications. Domestic Refined Sugar Prices. Given the existing domestic supply and demand situation, the increasing role of beet production and the current status of government regulation, the price of refined sugar in the United States in recent years has been driven primarily by the amount of beet sugar supply. Historically, good crop years have led to relatively soft refined sugar prices, and weak crop years have led to relatively strong refined sugar prices. Products and Sales Sugar Segment. The principal product line in the sugar segment is refined sugar, which accounted for approximately 78% of the Company's consolidated net sales for the year ended September 30, 2000. The Company has a relatively well-balanced combination of cane and beet sugar sales, with cane sugar constituting approximately 59% and beet sugar constituting 41% of the Company's refined sugar sales for the year ended September 30, 2000. Through Wholesome Sweeteners, the Company also sells sugar produced from organically grown sugarcane. The Company markets its sugar products to retail grocery and industrial customers by direct sales and through brokers. For the year ended September 30, 2000, the Company's sales of refined sugar products to retail grocery accounted for approximately 26% of sugar segment sales and sales to industrial customers accounted for 59%. Grocery Sales. The Company produces and sells granulated white, brown and powdered sugar to grocery customers in packages ranging from one-pound boxes to 25-pound bags. Retail packages are marketed under the trade names Imperial(R), Dixie Crystals(R), Holly(R), Spreckels(R), Pioneer(R) and Wholesome Sweeteners(TM), and are also sold under retailers' private labels. Private label packaged sugar, which represents a significant percentage of the Company's grocery sales, is generally sold at prices lower than those received for branded sugar. The Company seeks to capitalize on its well-known brands to increase sales of higher-margin branded products as a percentage of total grocery sales. Industrial Sales. The Company produces and sells refined sugar, molasses and other ingredients to industrial customers, principally food manufacturers, in bulk, packaged or liquid form. Food manufacturers principally purchase sugar for use in the preparation of confections, baked products, frozen desserts, canned goods and various other food products. Historically, the majority of the Company's industrial sales are made to customers under fixed price, forward sales contracts with terms of one year or less. Industrial sales generally provide lower margins than grocery sales. Specialty Product Sales. The Company produces and sells specialty sugar products to grocery and industrial customers. Specialty sugar products include Savannah Gold(TM), a premium-priced free flowing brown sugar marketed primarily to industrial customers; edible molasses; syrups; Sucanat(TM), sugar produced from organically grown sugarcane; and specialty sugars used in confections, fondants and icings. The Company also markets artificial sweeteners including Sweet Thing(R), a saccharin-based sweetener, and Sweet Thing II(R), an aspartame-based sweetener. Foodservice Segment. The Company's foodservice segment sells numerous products to foodservice customers, including healthcare institutions, ranging from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non- dairy creamer and plastic cutlery, nutritional dry mixes, nutritional frozen products, sauces, seasonings, drink mixes, desserts and diet kits(R) (packets of plastic cutlery with seasonings and other items). During the year ended September 30, 2000, sugar products sold in the foodservice segment accounted for 12% of consolidated net sales and 57% of foodservice segment sales. The Company believes that the foodservice sector is one of the most rapidly growing segments of the domestic food industry. 3 Sales and Marketing. The Company's products in both the sugar and foodservice segments are sold directly by the Company's sales force and through independent brokers. The Company maintains sales offices at its offices in Sugar Land, Texas and Savannah, Georgia and at regional locations across the United States. The Company considers its marketing and promotional activities important to its overall sales effort. The Company advertises its brand names in both print and broadcast media and distributes various promotional materials, including discount coupons and compilations of recipes. No customer accounted for 5% or more of the Company's sales for the year ended September 30, 2000. Seasonality. Sales of refined sugar are moderately seasonal, normally increasing during the summer months because of increased demand of various food manufacturers, including fruit and vegetable packers; shipments of specialty products (brown and powdered sugar) increase in the fourth calendar quarter due to holiday baking needs. Although the refining of cane sugar is not seasonal, the production of beet sugar is a seasonal activity. Each of the Company's beet sugar factories operates during sugar-making campaigns, which generally total 120 days to 180 days in length each year, depending upon the supply of sugar beets available to the factory. Because of the geographical diversity of its manufacturing facilities, the Company is generally able to produce beet sugar year-round. While the seasonal production of sugar beets requires the Company to store significant refined sugar inventory at each factory, the geographic diversity and staggered periods of production enable the Company's total investment in inventories to be reduced. Additionally, these factors reduce the likelihood that adverse weather conditions will affect all the Company's productive areas simultaneously and aid in distribution. Sales of the Company's foodservice products are not significantly seasonal. By-Products. The Company's sugar segment sells by-products from its beet sugar processing as livestock feeds to dairymen, livestock feeders and livestock feed processors. Such by-products include beet pulp and molasses. The major portion of the beet pulp and molasses produced from sugar beet operations is sold during and shortly after the sugar-making campaigns. By- products from beet sugar processing are marketed in the United States, Europe and Japan. Both the domestic and export markets are highly competitive because of the availability and pricing of by-products of other sugar beet processors and corn wet millers, as well as other livestock feeds and grains. The market price of the Company's by-products relative to the price of competitive feeds and grains is the principal competitive determinant. Among other factors, the weather and seasonal abundance of such feeds and grains may affect the market price of by-products. Beet Seed. The Company develops, produces and markets commercial seed to beet growers under contract to the Company as well as growers under contract to grow for other beet sugar processors. The Company does not sell, nor does it authorize its growers to utilize, genetically modified seed in their production program. The Company's beet seed operations are conducted primarily in Sheridan, Wyoming and Tracy, California. The Company is also active in sugar beet disease control, as sugar beet growing areas have varying levels of diseases that affect sugar beet quality and quantity as well as the cost of processing. The Company has a sugar beet plant pathology disease control research laboratory in Tracy, California that develops and implements disease control strategies for all of the Company's sugar beet growing areas. The Company has an agreement with ADVANTA SEEDS, a partnership of D. J. van der Have B.V. and Societe Europeenne de Semences, N.V., S.A. ("ADVANTA"), granting ADVANTA access to the Company's proprietary beet seed breeding material for varietal seed development in exchange for the exclusive marketing rights to ADVANTA's beet seed in certain markets in the United States, Canada and Mexico. 4 Manufacturing Facilities The Company owns and operates three cane sugar refineries and 11 sugar beet factories. Each facility is served by adequate transportation and is maintained in good operating condition. The facilities operate continuously when in operation. The following table shows the location and capacity of each of the Company's refineries and processing plants:
Approximate Daily Melting Capacity Cane Sugar Refineries (Pounds of Raw Sugar) --------------------- --------------------- Port Wentworth, Georgia................................ 6,300,000 Gramercy, Louisiana.................................... 4,200,000 Sugar Land, Texas...................................... 4,000,000 ---------- Total................................................ 14,500,000 ==========
Approximate Daily Slicing Capacity Beet Sugar Factories (Tons of Sugar Beets) -------------------- --------------------- Brawley, California.................................... 9,000 Mendota, California.................................... 4,200 Tracy, California*..................................... 5,000 Woodland, California*.................................. 4,000 Caro, Michigan......................................... 4,000 Carrollton, Michigan................................... 3,400 Sebewaing, Michigan.................................... 6,000 Croswell, Michigan..................................... 4,000 Sidney, Montana........................................ 7,000 Torrington, Wyoming.................................... 5,700 Worland, Wyoming....................................... 3,600 ------ Total................................................ 55,900 ======
- -------- * Sugar production ceased in December 2000 at Tracy and Woodland. See Note 14 to the Consolidated Financial Statements. The Company operates an ion exclusion facility in Hereford, Texas to separate refined sugar from molasses, and also uses the facility as a distribution center. The Company ceased sugar production at its Clewiston, Florida cane sugar refinery in October 2000, and continues to use the facility as a distribution center. The following table shows the location and approximate square footage of the Company's foodservice manufacturing facilities, each of which is owned by the Company:
Foodservice Manufacturing Facilities Square Feet ------------------------------------ ----------- Savannah, Georgia................................................ 314,500 Bondurant and Mitchellville, Iowa................................ 152,513 Bremen, Georgia.................................................. 132,400 Perrysburg, Ohio................................................. 131,000 Visalia, California.............................................. 101,500 Indianapolis, Indiana............................................ 63,240
Raw Materials and Processing Requirements Raw Cane Sugar. The Company purchases raw cane sugar from domestic sources of supply located in Louisiana and Florida, as well as from various foreign countries. The availability of foreign raw cane sugar is determined by the import quota level designated by applicable regulation. See "--Industry Overview" and "--Sugar Legislation and Other Market Factors". The Company has not experienced difficulties in the past in contracting sufficient quantities of raw cane sugar to supply its refineries. 5 Raw cane sugar purchase contracts can provide for the delivery of a single cargo or for multiple cargoes over a specified period or a specified percentage of the seller's production over one or more crop years. Contract terms may provide for fixed prices but generally provide for prices based on the futures market during a specified period of time. The contracts provide for a premium if the quality of the raw cane sugar is above a specified grade or a discount if the quality is below a specified grade. Contracts generally provide that the seller pays freight, insurance charges and other costs of shipping. The Company contracts to purchase raw cane sugar substantially in advance of the time it delivers the refined sugar produced from that purchase. Historically, the majority of the Company's industrial sales are under fixed price, forward sales contracts. In order to mitigate price risk in raw and refined sugar commitments, the Company manages the volume of refined sugar sales contracted for future delivery with the volume of raw cane sugar purchased for future delivery by entering into forward purchase contracts to buy raw cane sugar at fixed prices and by using other techniques to fix the price for a portion of sugar purchased. The Company uses the raw sugar futures market as a hedging and purchasing mechanism, as management deems appropriate. The Company has access to approximately 350,000 short tons of aggregate raw sugar storage capacity, including 215,000 short tons of storage capacity at its Port Wentworth, Georgia refinery. At Port Wentworth, the Company has the ability to segregate its raw sugar inventory, which allows the Company to store bonded sugar for re-export. This capability facilitates the Company's participation in the re-export market. The Company has been active in such market in the past and expects to be active in the future when pricing and market conditions are favorable. Sugar Beet Purchases. In fiscal 2000, the Company purchased sugar beets from over 2,400 independent growers, which supplied the Company's factories with sugar beets from approximately 320,000 acres. The sugar beets are purchased under contracts negotiated with associations representing growers. The Company contracts for acreage prior to the planting season based on estimated demand, marketing strategy, processing capacity and historical crop yields. The type of contract used in the western United States provides for payments to the grower based on the sugar content of the sugar beets delivered by each grower and the net selling price of refined beet sugar during the specified contract year. The type of contract used in Michigan provides for growers to share in the revenues generated by sales of pulp and molasses, as well as sales of refined sugar. Most grower contracts provide for a premium to the growers for delivering beets of superior quality. The net selling price is the gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization costs for certain facilities used in connection with marketing. Use of this type of participating contract reduces the Company's exposure to price risks on its refined sugar inventory by causing the price the Company pays on its sugar beet purchases to vary with the price received for refined sugar. The Company's beet sugar operations are dependent upon the quantity, quality and proximity of sugar beets available to its factories. Sugar beet acreage varies depending on factors such as prices anticipated by growers for sugar beets versus alternative crops, prior crop quality, productivity, availability of irrigation and weather conditions. In addition, the quantity and cost of refined sugar subsequently produced from the sugar beet crop may be materially affected by the acreage harvested, disease, insects and unfavorable weather conditions during the growing, harvesting, processing and storage season. Once harvested, sugar beets are purchased by the Company and, in some locations, stored in piles until processed. Under the contracts used in Michigan and the Rocky Mountains, the beet growers share the risk of deterioration of the stored sugar beets with the Company. However, the Company contractually accepts about one-half of the risk with respect to stored sugar beets in these areas and all of the risk in other areas. The Company believes that the geographic diversity of its growing areas reduces the risk that adverse conditions will occur company-wide; however, there can be no assurance that the Company's results of operations will not be adversely affected by such risks. Energy. The primary fuel used by the Company is natural gas, although certain of the Company's factories use significant amounts of coal. The Company generates a substantial portion of the electricity used at its 6 refineries and factories. The Company can use fuel oil at certain locations both as an alternative energy source when the price is more attractive and as a backup to natural gas in the event of curtailment of gas deliveries. Natural gas and coal supplies are typically purchased under contracts for terms of one year or more, which do not contain minimum quantity requirements. Pricing of natural gas contracts is generally fixed for the term or indexed to a spot market index. The Company has also utilized financial tools such as futures, swaps and caps to stabilize the price for gas purchases under indexed contracts. Coal is available in abundant supply domestically, and the Company is able to purchase coal competitively. The Company owns a royalty interest in a coal seam methane gas project in the Black Warrior Basin of Alabama as an additional indirect hedge against futures natural gas price increases. Gas royalties received during fiscal 2000 were approximately $386,000. Other Raw Materials. Foundry coke and limestone are used in the beet sugar extraction process. The Company generally purchases coke under contracts with one to three-year terms and utilizes rail transportation to deliver the coke to factories. Domestic coke supplies may become tighter due to environmental restrictions; the Company has the option of converting existing coke-fired equipment to natural gas should the availability and economics of coke so dictate. The Company owns a 50% share of a limestone quarry in Warren, Montana that supplies the Sidney, Montana and Worland, Wyoming factories with their annual limestone requirements. The Company operates a limestone quarry in Cool, California that supplied the Company's Northern California beet processing factories with limestone. These quarries do not normally supply the Company's other factories because of high freight costs. Limestone required in the other factory operations is generally purchased from independent sources under contracts with one to five-year terms. The Company is negotiating a sale of its Cool, California quarry. Research The Company operates research and development centers in Sugar Land, Texas and Savannah, Georgia where it conducts research relating to manufacturing process technology, factory operations, food science and new product development. In Savannah, the Company operates a "pilot plant" in connection with its research and development activities where it has developed sugar products co-crystallized with other flavors such as honey. The Company markets the co-crystallized specialty products produced at the pilot plant. Competition The Company's sugar segment competes with other cane sugar refiners and beet sugar processors and, in certain product applications, with producers of other nutritive and non-nutritive sweeteners. The Company's foodservice segment competes with other foodservice suppliers. Selling price and the ability to supply the buyer's quality and quantity requirements in a timely fashion are important competitive factors. Certain competing beet sugar processors have expanded their production capacity significantly in the recent past. The additional sugar marketed as a result of this expansion has acted to reduce refined sugar prices at times during this period. To a lesser extent, refined sugar also competes with non-nutritive or low-calorie sweeteners, principally aspartame and, to lesser extents, saccharin and acesulfam-k. The replacement of refined sugar by high fructose corn syrup ("HFCS") and non-nutritive sweeteners in the beverage market was substantially completed over a decade ago. The Company does not currently consider HFCS a significant competitive threat, as refined sugar and HFCS generally support different markets. HFCS is primarily a liquid sweetener and generally does not compete in the dry sugar market. Sugar Legislation and Other Market Factors The Company's business and results of operations are substantially affected by market factors, principally the domestic prices for refined sugar and raw cane sugar, and the quality and quantity of sugar beets available to 7 the Company. These market factors are influenced by a variety of forces, including the number of domestic acres contracted to grow sugar beets, prices of competing crops, weather conditions and United States farm and trade policies. See "--Industry Overview" and "--Raw Materials and Processing Requirements". The principal legislation currently supporting the price of domestic crops of sugar beets and sugarcane is the Farm Bill, which became effective July 1, 1996 and extended the sugar price support program for sugarcane and sugar beets until June 30, 2003. CCC Loans. Pursuant to the Farm Bill, the Commodity Credit Corporation ("CCC") is obligated annually to make loans available to domestic first processors of sugar on existing sugar inventories from the current crop year production. CCC loans under the Farm Bill are recourse loans unless the tariff rate quota for imported sugar is set at a level in excess of 1.5 million short tons raw value ("STRV"). If the tariff rate quota exceeds 1.5 million STRV, CCC loans will become non-recourse and processors will be obligated to pay participating growers a predetermined minimum support price. CCC loans mature September 30 of each year and in no event more than nine months after the month in which the loan was made. Under the Farm Bill, processors may forfeit sugar that secures CCC loans to the USDA in lieu of repaying the loans; if the tariff rate quota is below 1.5 million STRV and the value of the sugar forfeited as collateral for the loan is inadequate to cover the loan amount, the USDA may proceed against the processor to recover the difference between the loan amount and the proceeds from the sale of the forfeited sugar. Additionally, under the rules governing the CCC loans, a processor will be required to pay a penalty of approximately one cent per pound of sugar forfeited. From July to September 2000, a total of 598,000 short tons of refined sugar and 305,000 STRV of raw sugar were forfeited by various industry participants in full satisfaction of outstanding loans from the CCC in lieu of repaying the loans because the forfeited price exceeded the current market price. The Company forfeited 100,000 short tons of refined sugar in full satisfaction of $47.1 million of CCC loans. Tariff Rate Quota. Under the Farm Bill, the USDA utilizes the import quota and the forfeiture penalty to affect sugar price supports and prevent forfeitures under the CCC loan program. The USDA annually implements a tariff rate quota for foreign sugar, which has the effect of limiting the total available supply of sugar in the United States. The tariff rate quota controls the supply of raw sugar by setting a punitive tariff on all sugar imported for domestic consumption that exceeds the determined permitted imported quantity and is designed to make the importation of the over-quota sugar uneconomical. To the extent a processor sells refined sugar for export from the United States, it is entitled to import an equivalent quantity of non-quota eligible foreign raw sugar. The tariff rate quota for sugar to be allowed entry into the United States during the year ended September 30, 2000 was 1.50 million STRV. The USDA currently determines the quota by targeting an ending stocks- to-use ratio (the projected ratio of available sugar inventories to annual consumption). A portion of the quota is made available immediately with other allocations available over time depending on domestic production of raw cane sugar and refined beet sugar. In September 2000, the USDA announced the raw sugar tariff rate quota for the year ending September 30, 2001 at 1.50 million STRV. This quota will enable sugar producers to receive nonrecourse loans from the CCC. Other Government Actions. In an effort to reduce the oversupply of refined sugar, the government implemented a tender process and purchased a total of 132,000 short tons of refined sugar in June 2000, including 82,000 short tons sold by the Company. In the fall of 2000 the government utilized a payment-in- kind program to dispose of part of the refined sugar owned by the government, exchanging with growers 277,000 short tons of refined sugar for not harvesting 102,000 acres planted. NAFTA. NAFTA contains provisions that allow Mexico to increase its sugar exports to the United States if Mexico is projected to produce a net surplus of sugar. The terms of NAFTA have restricted Mexico's exports, which may be in the form of raw or refined sugar, to the United States to no more than 25,000 STRV annually through the year 2000. Mexico's exports to the United States will be increased in the event Mexico produces a sugar surplus for two consecutive years prior to the year 2000 or at any time thereafter. The tariff rate quota for the year ending September 30, 2001 allocates 116,611 STRV of raw sugar to Mexico pursuant to NAFTA. The Company's management believes that increased importation of raw cane sugar from Mexico could benefit the 8 Company because the proximity of its Sugar Land, Texas refinery to Mexico could allow the Company to import raw cane sugar more economically than its competition. However, if imports are in the form of refined cane sugar, the domestic refined sugar market may be adversely affected. Employees At November 1, 2000, the Company employed approximately 3,800 year-round employees. In addition, the Company employed approximately 2,200 seasonal employees over the course of the year ended September 30, 2000. While the Company's Port Wentworth, Georgia refinery employs non-union labor, the Company has entered into collective bargaining agreements with union representatives with respect to the employees at the Company's other sugar segment plants. The Company's Indianapolis, Indiana and Perrysburg, Ohio foodservice facilities operate under collective bargaining agreements, while the remainder of its foodservice facilities employ non-union labor. The Company believes its employee and union relationships are good. Environmental Regulation The Company's operations are governed by various federal, state and local environmental regulations. These regulations impose effluent and emission limitations, and requirements regarding management of water resources, air resources, toxic substances, solid waste and emergency planning. The Company has obtained or is making application for the permits required under these regulations. The Company has filed Title V applications as required in California, Wyoming, Montana, Michigan, Texas, Georgia and Florida. In the past, wastewater odor control has been addressed at the Company's facilities in Tracy and Woodland, California. The soil and ground water at the Company's Mendota, California facility have high concentrations of salts. The Company has developed a prevention plan to install a clay cap on the areas of concern and to treat the affected ground water. This plan will be accomplished over a 20 to 30-year period with an expected annual cost ranging from $40,000 to $120,000. The Company has recorded a liability for the estimated costs of this project. The Company's Torrington, Wyoming facility has made significant operational modifications in order to meet more restrictive state solid waste and groundwater regulations. As a result of the cessation of sugar production at its Clewiston, Florida, Tracy, California and Woodland, California facilities, the Company expects it will be required to incur costs to remediate certain production areas, including the removal or capping of certain former production settling ponds. The Company has provided for the estimated cost in fiscal 2000. See Note 14 to the Consolidated Financial Statements. In November 1998, the Company, through its Diamond Crystal subsidiary, received a Request for Information Pursuant to Section 104 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and Section 3007 of Resource Conservation and Recovery Act ("RCRA") relative to the Beede Waste Oil Site in Plainstow, New Hampshire. Responses to the information request were last filed in March 1999. The Company's review has not identified any connection between Diamond Crystal and the transporters identified for this site. No further requests for information have been received. Ongoing compliance with environmental statutes and regulations has not had, and the Company does not anticipate that it will in the future have, a material adverse effect on the Company's competitive position since its competitors are subject to similar regulation. Additional testing requirements and more stringent permit limitations have resulted in increasing environmental costs, and the Company expects that the cost of compliance will continue to increase. Additional capital expenditures will be required to comply with future environmental protection standards, although the amount of any further expenditures cannot be accurately estimated. Management does not believe that compliance will have a materially adverse impact on the Company's capital resources, operating results or financial condition. ITEM 2. Properties The Company owns each of its cane sugar refineries, sugar beet processing plants and foodservice manufacturing facilities. The Company owns its corporate headquarters in Sugar Land, Texas and leases other 9 office space and contracts for throughput and storage at warehouses and distribution stations. The Company owns additional acreage at its factories and refineries which is used primarily for settling ponds and as buffers from nearby communities or is leased as farm and pasture land. Substantially all of these assets are subject to liens securing the Company's bank debt. The Company is actively marketing the real estate surrounding the Tracy and Woodland, California facilities. See "Business--Manufacturing Facilities" and "Business--Other Raw Materials". ITEM 3. Legal Proceedings The Company is a party to litigation and claims which are normal in the course of its operations; while the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its results of operations or consolidated financial position. ITEM 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the quarter ended September 30, 2000. EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of Imperial are elected annually to serve for the ensuing year or until their successors have been elected. The following table sets forth certain information with respect to the executive officers of Imperial:
Name Age(1) Positions - ---- ------ --------- James C. Kempner........ 61 President and Chief Executive Officer Douglas W. Ehrenkranz... 43 Executive Vice President William F. Schwer....... 53 Executive Vice President and General Counsel Roger W. Hill........... 61 Managing Director; President and CEO of Holly Sugar Benjamin A. Oxnard, Jr. ................... 65 Managing Director; President and CEO of Savannah Foods Peter C. Carrothers..... 61 Managing Director Mark Q. Huggins......... 51 Managing Director and Chief Financial Officer John A. Richmond........ 54 Managing Director David Roche(2).......... 53 Managing Director W.J. "Duffy" Smith...... 45 Managing Director Mark S. Flegenheimer.... 39 Vice President; President of Michigan Sugar Company H. P. Mechler........... 47 Vice President--Accounting Karen L. Mercer......... 38 Vice President and Treasurer Alan K. Lebsock......... 48 Controller Roy L. Cordes, Jr....... 53 Secretary
- -------- (1) As of December 27, 2000. (2) The Company has given timely notice to Mr. Roche that his employment agreement will not be renewed on February 1, 2001. Except as set forth below, executive officers have held their present offices for at least the past five years. Positions, unless specified otherwise, are with the Company. Mr. Kempner became President and Chief Executive Officer in 1993. Mr. Kempner served as Executive Vice President from 1988 to 1993 and also served as Chief Financial Officer from 1988 to April 1998. Mr. Ehrenkranz became Executive Vice President in July 1999. Mr. Ehrenkranz joined the Company in April 1995 as Director of Sales, Planning & Market Development and became Vice President--Sales and 10 Marketing in September 1995 and Managing Director in April 1997. Prior to joining the Company, Mr. Ehrenkranz was Marketing Manager with PepsiCo's Taco Bell subsidiary from 1993 to 1994 and held various senior sales management positions with Procter and Gamble from 1979-1993. Mr. Schwer became Executive Vice President in July 1999 and served as Managing Director from October 1995 to July 1999, and General Counsel since 1989. He also served as Senior Vice President from 1993 to 1995. Mr. Schwer joined Holly as Assistant General Counsel in 1988. Mr. Hill became a Managing Director in October 1995. He served as Executive Vice President from 1988 to 1995. Mr. Hill also has been President of Holly since 1988. Mr. Hill joined Holly in 1963 and served in various capacities, including Vice President--Agriculture and Executive Vice President. Mr. Oxnard became a Managing Director in February 1998 and President of Savannah Foods in October 1999. Since 1996, he had served as Senior Vice President--Raw Sugar of Savannah Foods. Mr. Oxnard joined Savannah Foods in 1983 as Vice President--Raw Sugar. Mr. Carrothers became a Managing Director in October 1995. He served as Senior Vice President--Operations from March to October 1995. Mr. Carrothers joined the Company as Senior Vice President--Logistics in May 1994. Mr. Huggins joined the Company as Managing Director and Chief Financial Officer in September 1999. Prior to joining the Company, Mr. Huggins was Senior Vice President--Administration, Chief Financial Officer and Treasurer of Cellstar Corporation from January 1997 to January 1999 and Chief Financial Officer--Brazil Region until June 1999. Mr. Huggins was Chief Financial Officer of Van Camp Seafood Company, Inc. ("Van Camp") from 1992 to 1997. In April 1997 Van Camp filed for protection under the federal bankruptcy laws. Mr. Richmond became a Managing Director in April 1997 and was named Vice President--Operations in October 1995. Mr. Richmond has been Senior Vice President and General Manager, Beet Sugar Operations, of Holly since 1993. Mr. Richmond joined Holly in 1973 and has held various other positions with Holly since then. Mr. Smith joined the Company as a Managing Director in September 1999. Prior to joining the Company, Mr. Smith was Senior Vice President--Worldwide Product Supply at Gerber Products Company from 1995 to 1999 and was Vice President-- Operations at Hostess Frito-Lay from 1993 to 1995 and was Vice President and General Manager at Campbell Soup Company Ltd from 1992 to 1993. Mr. Flegenheimer became a Vice President of the Company and President of Michigan Sugar Company in October 1998. Mr. Flegenheimer joined Michigan Sugar in 1994 as Vice President of Administration and became Vice President and Chief Operating Officer in 1996. Mr. Mechler became Vice President--Accounting in April 1997. Mr. Mechler had been Controller since joining the Company in 1988. Ms. Mercer became Vice President in April 1997 and has served as Treasurer since 1994. She joined the Company in 1993. Mr. Lebsock became Controller in April 1997 and has been Controller for Holly since October 1990. From October 1984 to September 1990, he was Assistant Controller for Holly. Mr. Lebsock joined Holly in 1974. Mr. Cordes joined the Company as Deputy General Counsel in September 1997. He became Secretary of the Company in July 1998. Prior to joining the Company, Mr. Cordes was in private law practice from 1995 to 1997 and was a judge in Fort Bend County, Texas from 1991 to 1994. 11 PART II ITEM 5. Market for the Registrant's Common Equity and Related Shareholder Matters. The Company's Common Stock is listed on the American Stock Exchange ("Amex"). On December 14, 2000, Amex notified the Company that trading in the Company's Common Stock was being halted until further notice from Amex. At November 30, 2000 there were approximately 2,200 shareholders of record of the Common Stock. The following table sets forth the high and low sales price per share of Common Stock, as quoted by Amex, and cash dividends per share declared in the periods set forth below:
Sales Price --------- Cash Three Months Ended High Low Dividend ------------------ ---- ---- -------- December 31, 1998......................................... 8.75 6.13 0.03 March 31, 1999............................................ 9.75 6.06 0.03 June 33, 1999............................................. 7.38 5.62 0.03 September 30, 1999........................................ 7.00 5.63 0.03 December 31, 1999......................................... 6.31 2.94 -- March 31, 2000............................................ 4.00 1.50 -- June 30, 2000............................................. 1.94 0.94 -- September 30, 2000........................................ 2.13 1.00 --
ITEM 6. Selected Financial Data. Selected financial data for the last six fiscal periods is as follows (in thousands of dollars, except per share data):
Six Months Year Ended March Year Ended September 30, Ended 31, ---------------------------------- September 30, ----------------- 2000 1999(1) 1998(2) 1997(3) 1997(4) 1996 ---------- ---------- ---------- ------------- -------- -------- For The Period: Net Sales............. $1,821,231 $1,888,630 $1,783,091 $406,682 $752,595 $616,450 Operating Income (Loss)............... (27,822) 47,904 38,939 20,359 28,423 (2,431) Income(Loss) Before Extraordinary Item... (34,677) (18,124) (5,835) 9,951 11,518 (3,218) Net Income (Loss)..... (34,677) (18,124) (7,834) 9,951 11,518 (2,614) Per Share Data: Basic Income (Loss) Per Share: Before Extraordinary Item............... $ (1.07) $ (0.57) $ (0.24) $ 0.70 $ 0.92 $ (0.31) Net Income (Loss)... (1.07) (0.57) (0.32) 0.70 0.92 (0.25) Diluted Income (Loss) Per Share: Before Extraordinary Item............... (1.07) (0.57) (0.24) 0.69 0.90 (0.31) Net Income (Loss)... (1.07) (0.57) (0.32) 0.69 0.90 (0.25) Cash Dividends Declared per share... -- 0.12 0.12 0.03 -- 0.04 At Period End: Total Assets.......... $1,093,690 $1,280,783 $1,179,800 $457,619 $449,933 $325,319 Long-term Debt-- Net(5)............... 20,000 553,577 525,893 81,304 90,619 89,800 Total Shareholders' Equity............... 318,601 373,424 352,907 192,959 176,956 111,043
- -------- (1) Includes the results of Diamond Crystal since November 2, 1998, as dis- cussed in Note 3 to the Consolidated Financial Statements. (2) Includes the results of Savannah Foods since October 17, 1997, net of minority interest through December 22, 1997, as discussed in Note 3 to the Consolidated Financial Statements. 12 (3) In October 1997, the Company changed its fiscal year end from March 31 to September 30. (4) Includes the results of Spreckels since April 19, 1996. (5) At September 30, 2000, substantially all of the Company's long-term debt was reclassified to current, as discussed in Note 8 to the Consolidated Financial Statements. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources The Company is dependent on borrowings under its revolving credit facility, sales of receivables under its revolving receivable purchase facility and access to customary trade credit to finance seasonal working capital requirements and supplement operating cash flow. At September 30, 2000, the Company would have been in violation of certain financial covenants of the Senior Credit Agreement had the lenders not waived such covenants temporarily. The Company did not make its scheduled December 15, 2000, interest payment on the Subordinated Debt. The indenture for the Subordinated Debt provides for a thirty-day grace period for the payment of interest, however the Company does not expect to make such payment currently. Additionally, the Company has contracted a substantial portion of industrial sugar sales for fiscal 2001 at historically low prices, and raw sugar prices have not declined as much as refined sugar prices. As a result, margins on the sale of refined sugar have narrowed and the Company may incur significant losses and negative cash flows from operations for the year ending September 30, 2001. The Company and the Senior Credit Agreement lenders entered into an interim waiver agreement effective through January 8, 2001, waiving temporarily the non-compliance with certain financial covenants as of September 30, 2000 described above, and the effect on the Senior Credit Agreement of not paying the scheduled interest payment on the Subordinated Debt. The Company's $110 million revolving receivables purchase facility with an independent issuer of receivables-backed commercial paper (the "Securitization Facility") is backed by a liquidity line of credit issued in favor of the receivable purchaser, which has been extended until January 8, 2001. The Company is not a party to the liquidity line of credit. Should such line of credit not be renewed, the Securitization Facility would terminate, placing substantial additional liquidity requirements on the Company. The indenture governing the Subordinated Debt, the Senior Credit Agreement and the Securitization Facility agreement each contain cross default provisions such that a default under one agreement constitutes a default under each of the others. The Company has held discussions with an informal committee of holders of the Subordinated Debt, representatives of the Senior Credit Agreement lenders and the issuer of the liquidity line of credit backing the Securitization Facility about a financial restructuring plan. Under the provisions of the proposed plan, the Subordinated Debt would be converted to equity and the Senior Credit Agreement would concurrently be amended or replaced with a new agreement. The terms of the proposed debt to equity conversion, including the level of continuing equity ownership of existing shareholders, remain under discussion. Negotiations and discussions with the Senior Credit Agreement lenders continue in respect of the restructured agreement described above and interim debtor-in possession financing, should a bankruptcy filing be required. The proposed restructuring may occur under the supervision of a United States Bankruptcy Court. The Company has had discussions with the receivable purchaser concerning extension of the Securitization Facility until the restructuring is completed. The Company believes that, should the Securitization Facility not be extended up to or beyond the completion of the proposed financial restructuring, replacement accounts receivable financing could be found. While the Company believes that these discussions to-date have been productive, there can be no assurances that an agreement on the proposed restructuring can be completed timely. The interim waiver and the liquidity line of credit discussed above expire January 8, 2001, and the grace period for the payment of interest on the Subordinated Debt expires January 14, 2001. Additionally, certain trade 13 creditors have requested enhancements to their credit terms. Unless the Company is able to obtain an extension or forbearance with respect to these deadlines, the lenders could, after such dates, declare the related debt in default and demand repayment, and the receivable purchaser could declare the Securitization Facility terminated, all of which would place liquidity demands on the Company which it could not meet. The Company's ability to meet its ongoing liquidity and capital requirements is dependent upon the successful completion of the financial restructuring described above, the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis and its ability to obtain other financing as may be required. Current domestic sugar market conditions are continuing to have significant negative impact on the Company's operating results and liquidity. While the Company believes it will be able to complete a consensual restructuring during fiscal 2001, there can be no assurances that it will be successful in doing so. The Company is reviewing with its financial and legal advisors the financial alternatives available to the Company, including without limitation the debt restructuring proposal described above and/or the filing of a petition under Chapter 11 of the United States Bankruptcy Code. The Company's sugar production operations require substantial seasonal working capital. This seasonal requirement generally peaks during the Company's second fiscal quarter when inventory levels are high, and a substantial portion of the payments to raw material suppliers have been made. At times during year ended September 30, 2000, the Company utilized substantially all of its available borrowing capacity primarily due to higher inventory levels from record sugarbeet crops. At September 30, 2000, unused available borrowing capacity was $97.5 million; at December 28, 2000 such unused capacity was $14.5 million. The Company is precluded from incurring additional indebtedness (other than available borrowings under the Senior Credit Agreement and CCC borrowings allowed thereunder) based on restrictions in the indenture governing the Subordinated Debt. Assuming the sources of liquidity described above remain available, the adequacy of such liquidity to finance the Company's operations through the peak requirements in the first two quarters of fiscal 2001 is a function of a number of factors, which the Company is unable to predict. Such factors include the market price for raw sugar, the market price of and demand for refined sugar and cash flow provided from operations. Debt at September 30, 2000 was $456.4 million, consisting principally of $250 million of Subordinated Debt and borrowings under the Senior Credit Agreement. The Senior Credit Agreement includes a $157.3 million revolving credit facility (expiring December 2002) and term loans aggregating $150.8 million. Interest on borrowings under the Senior Credit Agreement is at floating rates (either a base rate plus a margin ranging from 0.75% to 3% or a Eurodollar rate plus a margin ranging from 1.75% to 4%). The Company has entered into interest rate swap agreements with major financial institutions to effectively fix the interest rate on $214.5 million of the amounts outstanding under the Senior Credit Agreement at a weighted average annual rate of 9.3% as of September 30, 2000. The Company is required to make prepayments, with certain exceptions, equal to 100% of the net proceeds from certain new indebtedness, the sale of equity securities and the disposition of assets, including proceeds from the sale of stock of any subsidiaries, plus 75% of excess cash flow (as defined). The Senior Credit Agreement is secured by substantially all of the assets of the Company and its subsidiaries. Borrowings from the CCC are secured by beet sugar inventories. Under terms of the Senior Credit Agreement, CCC borrowings are generally limited to $50 million and reduce dollar for dollar the availability of borrowings under the revolving line of credit. Additional seasonal CCC borrowings of up to $25 million may be made from November 15 to March 15 each year without reduction of the amounts available under the revolving credit facility. The Securitization Facility which expires on June 30, 2004, allows the Company to sell certain accounts receivables on a non-recourse basis. Receivables are sold under the agreement at discount rates based on a commercial paper rate plus a margin of 0.7%. At September 30, 2000, the Company had sold $82.5 million of accounts receivable under the facility. 14 The Company liquidated approximately $64.2 million of its marketable securities portfolio in fiscal 2000 and utilized $36.6 million of the net proceeds to pay down long-term debt. The Company's debt agreements impose various restrictions that could limit the Company's ability to respond to market conditions, to provide for unanticipated capital requirements, to raise additional debt or equity capital, or to take advantage of business opportunities. The Company and each of its subsidiaries is subject to negative covenants contained in the Senior Credit Agreement that restrict, subject to specified exceptions: . the incurrence of additional indebtedness and other obligations and the granting of additional liens; . mergers, acquisitions and dispositions; . investments, loans and advances; . dividends, stock repurchases and redemptions; . prepayment or repurchase of other indebtedness and amendments to certain agreements governing indebtedness; . transactions with affiliates; . capital expenditures; . sales and leasebacks; . changes in fiscal periods; . changes of lines of business; and . entering into agreements that prohibit the creation of liens or limit the subsidiaries' ability to pay dividends. In addition, the Senior Credit Agreement requires the Company to maintain compliance with certain specified financial covenants, including a maximum ratio of total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") and senior debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge coverage ratio as well as a minimum adjusted current ratio and a minimum level of net worth. The indenture governing the Subordinated Debt contains covenants that limit, with certain exceptions, the ability of the Company and most of its subsidiaries to: . incur additional indebtedness or issue preferred stock; . pay dividends or make certain other restricted payments by the Company or its subsidiaries; . enter into transactions with affiliates; . make certain asset dispositions; . in the case of the Company, merge or consolidate with, or transfer substantially all of its assets to another person; . encumber assets; . issue capital stock of wholly owned subsidiaries; or . engage in certain business activities. In addition, under certain circumstances, the Company will be required to offer to repurchase the notes at par, plus accrued and unpaid interest, with the proceeds of certain asset sales. The Company's capital expenditures for fiscal 2000 were $16.3 million and included environmental, safety and obsolescence projects. Fiscal 2001 capital expenditures are expected to approximate $15 million. New Accounting Standards The Financial Accounting Standards Board has issued a number of new accounting standards discussed in Note 1 to the Consolidated Financial Statements. These standards, which become effective in fiscal 2001, establish additional accounting and disclosure requirements. Management has evaluated, as described in Note 1 15 to the Consolidated Financial Statements, what effects such requirements will have on the Company's consolidated financial statements. Industry Environment The Company's results of operations are substantially dependent on market factors, including domestic prices for refined sugar and raw cane sugar, the quantity and quality of sugarbeets available to the Company and the availability and price of energy and other resources. These market factors are influenced by a variety of external forces that the Company is unable to predict, including the number of domestic acres contracted to grow sugarcane and sugar beets, prices of competing crops, weather conditions and United States farm and trade policy. The domestic sugar industry is subject to substantial influence by legislative and regulatory actions. The current farm bill limits the importation of raw cane sugar, affecting the supply and cost of raw material available to the Company's cane refineries. See "Business-- Sugar Legislation and Other Market Factors" and "--Competition" and "-- Industry Overview". Weather conditions during the growing, harvesting and processing seasons, the availability of acreage to contract for sugarbeets, as well as the effects of diseases and insects, may materially affect the quality and quantity of sugarbeets available for purchase as well as the costs of raw materials and processing. See "Business--Raw Materials and Processing Requirements". Results of Operations As more fully discussed in Note 12 to the Consolidated Financial Statements, the Company's operations are identified into two reportable segments, sugar and foodservice. Fiscal 2000 compared to fiscal 1999 Net sales decreased $67.4 million, or 3.6%, in fiscal 2000 primarily due to lower sales prices for refined sugar, which was partially offset by an increase in refined sugar volumes. The primary reason refined sugar volumes increased for the sugar segment was the Company's selling refined sugar totaling $31.2 million to the government under a U.S. Department of Agriculture tender program in the third quarter of fiscal 2000. The foodservice segment's net sales decreased 1.4% in fiscal 2000 primarily as a result of lower sales prices received for refined sugar sold in foodservice markets, which more than offset higher nonsugar prices. Cost of sales for fiscal 2000 decreased $21.8 million or 1.3%, resulting in a decrease in gross margin as a percent of sales from 9.8% for fiscal 1999 to 7.6% in fiscal 2000. By segment, sugar gross margin as a percent of sales decreased to 6.8% in fiscal 2000 from 8.9% in fiscal 1999 and foodservice gross margin as a percent of sales decreased to 10.5% in fiscal 2000 from 13.1% in fiscal 1999. The decrease in gross margin is primarily due to significantly lower sales prices for refined sugar in both the sugar and foodservice segments and higher energy costs particularly in California, which more than offset the benefits from lower raw sugar costs, improved refinery operations and higher nonsugar sales prices. In addition, the tender of refined sugar to the government negatively impacted gross margin by $2.4 million. The Company, as well as most of the domestic sugar industry, experienced a very difficult operating environment during fiscal 2000. Following a period of expansion in acreage planted in sugarbeets, the rate of which has exceeded growth in domestic demand for refined sugar, the largest domestic sugarbeet crop in history produced a significant oversupply of refined sugar. The market reacted accordingly, and prices for refined bulk sugar fell to fifteen-year lows, with published industry prices declining over 20%. The largest cane sugar crop in history, again due to acreage expansion as well as the development of higher yielding cane varieties, caused the market price for domestic and quota-eligible foreign raw cane sugar to fall over 15%, also to fifteen-year lows. The decline in refined sugar prices reduced margins both in the Company's sugarbeet processing operations, where the Company shares in the net revenues from refined sugar with the growers, as well as in its cane sugar refinery operations. The Company contracted a portion of industrial sugar sales for fiscal 2000 prior to the 16 majority of the decline in prices, so it did not feel the entire impact of the price decline in fiscal 2000. Similarly, the Company did not realize the entire benefit of the lower raw sugar prices in fiscal 2000 because it contracted for its raw sugar supplies as it contracted for refined cane sugar industrial sales, pricing some of its raw sugar needs at higher levels. Overall, refined sugar prices declined more than raw sugar prices; so despite the reduced raw material costs, margins were significantly adversely impacted. In an effort to reduce the oversupply of refined sugar, the government bought through a tender process 132,000 short tons of refined sugar in June 2000, of which the Company sold 82,000 short tons. The government initiated a Payment in Kind program ("PIK") in the fall of 2000, in which growers received 277,000 short tons of refined sugar from the government in exchange for not harvesting 102,000 acres already planted in sugarbeets. Additionally, the industry participated in permitted forfeitures totaling 598,000 short tons of refined sugar and 305,000 STRV of raw sugar in full satisfaction of outstanding loans with the CCC from July through September 2000, in lieu of repaying the loans, because the forfeiture price exceeded the current market price. The Company forfeited 100,000 tons of refined sugar in full satisfaction of $47.1 million of CCC loans. The government tender, the PIK program and the CCC forfeitures helped reduce the anticipated supply of sugar in fiscal 2001, which resulted in some increase in industrial market prices beginning in mid-October 2000. Raw sugar prices also increased in the fall of 2000, rising faster than refined sugar prices. A significant portion of the Company's industrial sales are made under fixed price, forward sales contracts, most of which commence October 1 or January 1, and extend for up to one year. Additionally, the Company prices a portion of its raw sugar purchases in advance of the time of delivery either through pricing provisions of its raw sugar contracts or through hedging transactions in the raw sugar futures market. As a result, the Company's realized sales prices as well as its realized raw sugar costs tend to lag market price changes. The Company contracted a significant portion of industrial sugar sales for fiscal 2001 prior to the increase in prices, consequently the Company expects it will not realize the entire impact of the price increase in fiscal 2001 and that its margins will be lower than in fiscal 2000, which may cause the Company to incur significant losses and negative cash flows from operations. Selling, general and administrative costs increased $1.9 million or 2.2% for fiscal 2000 due to increased discounts and fees incurred under the Company's accounts receivable securitization program. The Company entered into the agreement on June 30, 1999, and 3 months of discount and fees recorded during fiscal 1999 totaled $1.4 million; discount and fees totaled $6.4 million for the full fiscal year 2000, an increase of $5.0 million. The increase was offset by decreases in administrative, sales-related and promotional costs in the sugar segment, lower fixed and other overhead costs in the foodservice segment resulting from previously announced plant closures and from other expense reductions experienced across the Company's operations. The Company has incurred and expects to continue to incur significantly increased energy, packaging and benefit costs. The Company has undertaken an initiative to reduce other costs; approximately half of the savings are from reducing operating costs in the sugar refining operations, with the remaining cost savings from more efficient purchasing and savings in manufacturing costs in the foodservice segment, as well as a reduction in selling, general & administrative costs. Additionally, the Company is instituting new procurement procedures using third-party procurement groups, which have the potential of reducing costs. The Company ceased processing sugarbeets at the Tracy and Woodland, California facilities in December 2000 following the completion of the fall production campaign. These factories will continue to package and distribute refined sugar products with sugar supplied from the remaining two California beet factories and other Company processing facilities. In October 2000, the Company ceased cane sugar refining at its Clewiston, Florida refinery. The Company expects to realize cost efficiencies by concentrating production in the southeastern United States in its large Savannah, Georgia refinery. As a result of discontinuing the refining operation in Clewiston, Florida, as well as ceasing to process sugarbeets at Tracy and Woodland, California, the Company recorded charges during the fourth quarter of fiscal 2000 totaling $27.5 million. See Note 14 to the Consolidated Financial Statements. 17 Interest expense decreased $2.4 million, or 4.1%, for fiscal 2000 primarily due to lower overall borrowing levels resulting from the securitization of accounts receivable and sale of marketable securities, which was partially offset by higher market interest rates and higher margins. During fiscal 2000, the Company recognized a gain of $35.9 million from the sale of the majority of the Company's marketable securities portfolio. Other income decreased $0.6 million for fiscal 2000 primarily as a result of a decrease in dividend income due to the sale of the majority of the Company's marketable securities portfolio. Fiscal 1999 compared to fiscal 1998 As a result of the Diamond Crystal acquisition on November 2, 1998, the Company had substantial increases in sales, costs and expenses. Additionally, the Company completed the acquisition of Savannah Foods in the first quarter of fiscal 1998. Accordingly the operating results of the fiscal year ended September 30, 1999 are not directly comparable to the results for fiscal 1998. The following unaudited pro forma financial information presents the Company's results of operations for fiscal 1999 and 1998 as if the acquisition of both Diamond Crystal and Savannah Foods and the related financing transactions had occurred on October 1, 1997 (in thousands of dollars).
Pro Forma Twelve Months Ended September 30, ---------------------- 1999 1998 ---------- ---------- Net sales........................................... $1,899,714 $1,982,351 Costs and expenses: Cost of sales..................................... 1,713,107 1,774,862 Selling, general and administrative............... 86,467 90,000 Asset impairment and other charges................ -- 18,287 Depreciation and amortization..................... 51,705 51,169 ---------- ---------- Operating income.................................... 48,435 48,033 Interest expense.................................... (59,774) (58,648) Realized securities gains........................... 4,697 2,181 Loss on investment in partnership................... (16,706) -- Other income........................................ 1,598 7,680 ---------- ---------- Income (loss) before income taxes................... (21,750) (754) Provision (benefit) for income taxes................ (3,276) 4,635 ---------- ---------- Net income (loss)................................... $ (18,474) $ (5,389) ========== ==========
Pro forma net sales decreased $82.6 million or 4.2% for fiscal 1999 primarily due to lower industrial sugar sales volumes and lower consumer private label prices, partially offset by higher industrial sugar prices and increased foodservice segment sales. The sugar segment's net sales decreased 6.6% for fiscal 1999 compared to fiscal 1998 due primarily to lower industrial volumes as the Company announced higher sales prices for refined sugar for industrial contracts commencing October 1, 1998. The foodservice increase was primarily due to higher volumes (principally of sugar sold to foodservice customers), as well as increased sales of nutritional products including thickened beverages and frozen shakes. Additionally, the Company realized higher selling prices on certain nonsugar products. Pro forma cost of sales for fiscal 1999 decreased $61.8 million or 3.5%, resulting in pro forma gross margin as a percent of sales of 9.8% compared to 10.5% for fiscal 1998. By segment, sugar pro forma gross margin as a percent of sales decreased to 7.5% in fiscal 1999 from 8.9% in fiscal 1998 and pro forma foodservice gross margin as a percent of sales decreased to 13.0% in fiscal 1999 from 14.1% in fiscal 1998. The foodservice 18 segment's gross margin declined principally due to product mix and competitive pricing pressures. The Company decided to delay, until fiscal 2000, the realization of certain synergies related to its acquisition of Diamond Crystal, primarily in respect to closing certain plants, and to incur temporarily higher expense levels in order to maintain adequate levels of customer service and support current sales levels. The sugar segment's gross margin declined principally due to lower sugarbeet quality, higher cane processing costs, and a decline in byproduct sales prices due to competitive feed grain prices, all of which more than offset higher industrial sugar prices. Beet sugar costs increased during fiscal 1999 at the Company's Montana and Michigan factories as a result of lower sugar content in sugarbeets harvested and warmer temperatures during sugarbeet storage, which adversely affected sugar recovery. Beet sugar costs were also negatively affected in Southern California by a large beet crop which extended the harvest period, adversely impacting beet quality in the late summer and fall months. The reduced beet quality negatively affected raw material and variable manufacturing costs which was partially offset by lower unit production costs from increased production volumes. The cane operations of the sugar segment had lower industrial volumes and poor refinery performance in fiscal 1999, resulting in lower yields, and higher processing costs. The refinery performance was affected in part by difficulty in processing low quality raw materials received from an offshore supplier. In addition, the sugar segment's gross margin was impacted by the effects of Hurricane Floyd, which shut down the Company's largest cane refinery in Savannah, Georgia for a week, and delayed product deliveries to certain of the Company's customers. Partially offsetting these factors was a slight decrease in raw sugar costs. Pro forma selling, general and administrative costs decreased $3.5 million or 3.9% for fiscal 1999 compared to fiscal 1998 primarily due to reductions in volume related selling costs, as well as cost savings in general and administrative expenses. Following the Savannah Foods and Diamond Crystal acquisitions the Company undertook significant cost savings initiatives and reorganized its administrative functions to remove duplication and streamline such functions. Selling, general and administrative costs include $1.8 million of discount and fees associated with the sales of receivables during the last three months of fiscal 1999. Pro forma interest expense for fiscal 1999 increased $1.1 million or 1.9% primarily as a result of higher revolving credit borrowings. The loss on investment in partnership resulted from the write-off of the Company's investment in Pacific Northwest Sugar Company, a partnership in which a subsidiary of the Company was a 43% limited partner. See Note 14 to the Consolidated Financial Statements. Realized gains on marketable securities increased $2.5 million during fiscal 1999; net unrealized gains, which have not been recognized in the Company's results of operations, but are shown as a component of comprehensive income within shareholders' equity, increased $2.2 million during fiscal 1999. Pro forma other income decreased $6.1 million for fiscal 1999 compared to fiscal 1998 primarily due to gains recognized on the sale of a former beet sugar factory site and a distribution facility in fiscal 1998. ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk. The Company uses raw sugar futures and options in its raw sugar purchasing programs and natural gas futures to hedge natural gas purchases used in its manufacturing operations. Gains and losses on raw sugar futures and options are matched to specific inventory purchases and charged or credited to cost of sales as such inventory is sold. Gains and losses on natural gas futures are matched to the natural gas purchases and charged to cost of sales in the period of the purchase. The Company does not enter into futures or option transactions for trading purposes. 19 The information in the table below presents the Company's domestic raw sugar futures positions outstanding as of September 30, 2000. The Company's world sugar positions are not material to its consolidated financial position, results of operations or cash flows.
Expected Expected Maturity Maturity Fiscal 2001 Fiscal 2002 ----------- ----------- Futures Contracts (net long positions): Contract Volumes (cwt.).............................. 1,318,240 24,640 Weighted Average Contract Price (per cwt.)........... $18.42 $18.98 Contract Amount...................................... $24,282,000 $468,000 Weighted Average Fair Value (per cwt.)............... $20.22 $20.15 Fair Value........................................... $26,653,000 $497,000
The above information does not include either the Company's physical inventory or its fixed price purchase commitments for raw sugar. At September 30, 1999, the Company's domestic futures position was a net long position of 2.1 million cwt. at an average contract price of $21.95 and an average fair value price of $21.18. The information in the table below presents the Company's natural gas futures positions outstanding as of September 30, 2000.
Expected Expected Expected Maturity Maturity Maturity Fiscal Fiscal 2001 Fiscal 2002 2003 ----------- ----------- ---------- Futures Contracts (long positions): Contract Volumes (mmbtu)................ 6,330,000 2,650,000 600,000 Weighted Average Contract Price (per mmbtu)................................. $4.06 $3.63 $3.34 Contract Amount......................... $25,711,000 $9,615,000 $2,003,000 Weighted Average Fair Value (per mmbtu)................................. $4.88 $4.26 $3.77 Fair Value.............................. $30,862,000 $11,284,000 $2,264,000
The Company has material amounts of debt with interest rates that float with market rates, exposing the Company to interest rate risk. The Company has attempted to reduce this risk by entering into interest rate swap agreements for a portion of such floating rate debt. 20 The tables below provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations at September 30, 2000 and 1999, respectively. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. At September 30, 2000, the majority of the Company's long-term debt was reclassified to current, as discussed in Note 8 to the Consolidated Financial Statements. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the treasury yield curve at the reporting date.
Expected Maturity Date at September 30, 2000 Fiscal Year Ending September 30, ---------------------------------------------------------- There- Fair 2001 2002 2003 2004 2005 after Total Value ------ ----- ----- ----- ----- ------ ------ ------ (In millions of dollars) Liabilities Long-term debt: Fixed rate debt....... $250.5 -- -- -- -- $20.0 $270.5 $ 58.0 Average interest rate................. 9.7% -- -- -- -- 6.4% 9.5% Variable rate debt.... $185.9 -- -- -- -- -- $185.9 $185.9 Average interest rate................. 9.9% -- -- -- -- -- 9.9% Interest Rate Derivatives Interest rate swaps: Variable to fixed..... $ 16.8 $17.2 $83.0 $48.2 $49.3 -- $214.5 $ 3.6 Average pay rate...... 6.0% 6.0% 6.0% 5.7% 6.0% -- 6.0% Average receive rate.. 6.7% 6.6% 6.5% 6.5% 6.5% -- 6.5%
Expected Maturity Date at September 30, 1999 Fiscal Year Ending September 30, ---------------------------------------------------------- There- Fair 2000 2001 2002 2003 2004 after Total Value ----- ----- ----- ------ ----- ------ ------ ------ (In millions of dollars) Liabilities Long-term debt: Fixed rate debt....... $ 6.4 $ 0.5 -- -- -- $270.0 $276.9 $246.9 Average interest rate................. 8.3% 7.4% -- -- -- 9.5% 9.5% Variable rate debt.... $ 5.7 $ 7.4 $ 7.8 $175.2 $38.9 $ 53.8 $288.8 $288.8 Average interest rate................. 9.3% 9.4% 9.5% 10.0% 10.7% 10.9% 10.2% Interest Rate Derivatives Interest rate swaps: Variable to fixed..... $15.6 $16.8 $17.2 $ 83.0 $48.2 $ 49.3 $230.1 $ 2.9 Average pay rate...... 6.0% 6.0% 6.0% 6.0% 5.7% 6.0% 6.0% Average receive rate.. 6.4% 6.8% 7.0% 7.0% 7.0% 7.2% 7.0%
21 ITEM 8. Financial Statements and Supplementary Data. See the index of financial statements and financial statement schedules under "Exhibits, Financial Statement Schedules and Reports on Form 8-K". Unaudited quarterly financial data for the last eight fiscal quarters is as follows (in thousands of dollars, except per share amounts):
Basic and Diluted Net Earnings Cash Net Gross Income (Loss) Dividends Sales Margin (Loss) Per Share Per Share -------- ------- -------- --------- --------- Fiscal Year Ended September 30, 1999(1): December 31, 1998............ $471,761 $47,779 $ 2,365 $ 0.08 $0.03 March 31, 1999(2)............ 428,997 33,362 (18,559) (0.58) 0.03 June 30, 1999................ 499,977 56,102 6,654 0.21 0.03 September 30, 1999........... 487,895 37,367 (8,584) (0.27) 0.03 Fiscal Year Ended September 30, 2000: December 31, 1999(3)......... $468,599 $44,266 $ 13,919 $ 0.43 -- March 31, 2000(3)............ 429,165 36,550 (5,028) (0.16) -- June 30, 2000................ 466,313 38,493 (6,465) (0.20) -- September 30, 2000(4)........ 457,154 19,393 (37,103) (1.15) --
- -------- (1) Includes the results of Diamond Crystal since November 2, 1998 as discussed in Note 3 to the Consolidated Financial Statements. (2) Net loss for the second quarter of fiscal 1999 includes a $16.7 million charge to write-off the Company's investment in a partnership as discussed in Note 14 to the Consolidated Financial Statements. (3) The Company recognized gains of $29.2 million and $6.7 million during the first and second quarters of fiscal 2000, respectively, from the sale of substantially all of the marketable securities portfolio. (4) Net loss for the fourth quarter of fiscal 2000 includes a $27.5 million charge associated with the closure of the Tracy and Woodland, California facilities and the Clewiston, Florida refinery as discussed in Note 14 to the Consolidated Financial Statements. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 22 PART III ITEM 10. Directors and Executive Officers of the Registrant The Company's Board of Directors is divided into three classes designated Class I, Class II and Class III, with staggered terms of office. The number of directors in each of the three classes is to be as nearly equal as possible. Set forth below is certain information concerning the Company's directors, including the business experience of each during the last five years and the age of each director on November 30, 2000. Directors in Class I (Terms Expiring at the 2001 Annual Meeting of Shareholders) John D. Curtin, Jr. has been a director of the Company since 1993. Mr. Curtin is a private investor. He was Chairman and Chief Executive Officer of Aearo Corporation, a worldwide manufacturer and supplier of personal safety protection equipment, from May 1994 to March 1998. Mr. Curtin, age 67, is a director of Aearo Corporation. I. H. Kempner, III, age 68, has been Chairman of the Board of Directors of the Company since 1971 and was first elected a director of the Company in 1967. He became Chairman of the Executive Committee in 1978. Mr. Kempner joined the Company in 1964 and served in various executive capacities prior to his election as Chairman of the Board. James C. Kempner has been a director since 1988 and has been President and Chief Executive Officer of the Company since 1993. Mr. Kempner was also the Chief Financial Officer of the Company from 1988 until April 1998. From 1988 to 1993, Mr. Kempner was an Executive Vice President of the Company. Mr. Kempner, age 61, is a Director of Bouygues Offshore S.A. and the King Ranch. Daniel K. Thorne has been a director of the Company since 1988. For more than the past five years, Mr. Thorne has been the President of Star Lake Cattle Company and Star Lake Properties, Inc., which are engaged in cattle and timber operations, and Eagle Island Citrus Corporation, a citrus production operation. Mr. Thorne, age 49, is also President of Star Lake Capital, a venture capital firm. Directors in Class II (Terms Expiring at the 2002 Annual Meeting of Shareholders) David J. Dilger has been a director of the Company since October 1996. Mr. Dilger, age 44, has been Chief Executive of Greencore Group plc ("Greencore") since 1995 and was Chief Operating Officer of Greencore from 1991 to 1995. He has been a director of Greencore since January 1992. Edward O. Gaylord, who has been a director of the Company since 1978, has been the Chairman and a director of Jacintoport Terminal Company, a fuel oil storage facility, since 1989. Since January 1993, he has been Chairman of EOTT Energy Corporation, an oil trading and transportation company. Mr. Gaylord, age 68, is also a director of Seneca Foods Corporation, Kinder Morgan Energy Partners, L.P. and The Federal Reserve Bank of Dallas, Houston Branch. Gerald Grinstein has been a director of the Company since October 1996. He was elected non-executive Chairman of Agilent Technologies in August 1999 and served as non-executive Chairman of Delta Air Lines from August 1997 until October 1999. He is also a principal of Madrona Investment Group, L.L.C., a Seattle based investment company. He served as Chairman and Chief Executive Officer of Burlington Northern Inc., a diversified transportation and railroad company from 1990 until September 1995 and served as Chairman until his retirement in December 1995. Mr. Grinstein, age 68, is a Director of Delta Air lines, Inc., PACCAR Inc., The Pittston Company, Vans, Inc., and Expedia, Inc. Robert L. Harrison has been a director of the Company since December 1997. Mr. Harrison, age 60, has been President of Stevens Shipping & Terminal Co. in Savannah, Georgia for more than nineteen years. Mr. Harrison served as a Director of Savannah Foods from 1990 to 1997. 23 Directors in Class III (Terms expiring at the 2003 Annual Meeting of Shareholders) Ann O. Hamilton, a director of the Company since 1974, has recently received her J.D. degree and become a member of the Maryland bar. She was employed by the World Bank in Washington, D.C. from 1970 until her retirement in December 1995. Mrs. Hamilton, age 64, was Senior Adviser to the Vice President, South Asia Region, in 1995. She was Director of the Bangladesh, Bhutan & Nepal Department from 1993 to 1994, and Director of the Population & Human Resources Department from 1987 to 1992. Harris L. Kempner, Jr., a director of the Company since 1966, has been President of Kempner Capital Management, Inc., an investment advisory firm, since 1982 and a trustee of the H. Kempner Trust Association since 1967. He served as Chairman of the Board of United States National Bank from 1988 to 1993 when he became Chairman Emeritus. Mr. Kempner, age 60, is a director of TNP Enterprises, Inc. and American Indemnity Financial Corporation and an advisory director of Cullen/Frost Bankers, Inc. Mr. I. H. Kempner, III and Mr. James C. Kempner are brothers and are first cousins of Mr. Harris L. Kempner, Jr. In addition, Mrs. Hamilton, Mr. Harris L. Kempner, Jr., Mr. I. H. Kempner, III, Mr. James C. Kempner and Mr. Thorne are each descendants of H. Kempner, a Galveston entrepreneur who died in 1894. See "Executive Officers of the Registrant" included in Part I hereof. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and beneficial owners of more than 10% of the Common Stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the American Stock Exchange. Officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Section 16(a) forms they file. Based on a review of Forms 3 and 4 and amendments thereto filed during the year ended September 30, 2000 and Forms 5 and amendments thereto, or written representations that no Form 5s were required, the Company believes that during the year ended September 30, 2000, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with. 24 ITEM 11. Executive Compensation The following table and narrative sets forth the compensation of the chief executive officer and the other four most highly compensated executive officers during the year ended September 30, 2000 (collectively, the "named officers") for services rendered in all capacities. Summary Compensation Table
Long-term Compensation Annual Compensation Awards ------------------------------ ------------ Shares Underlying Name and Fiscal Other Annual Options All Other Principal Positions Year Salary Bonus(1) Compensation (number)(3) Compensation ------------------- ------ -------- -------- ------------ ------------ ------------ James C. Kempner....... 2000 $530,000 $39,750 (5) 0 $ 0 President, Chief 1999 527,962 0 (5) 0 0 Executive Officer 1998 497,502 0 (5) 200,000 0 Douglas W. Ehrenkranz.. 2000 $323,391 $23,625 (5) 0 $ 0 Executive Vice President 1999 249,508 0 (5) 0 0 1998 229,746 0 (5) 65,000 0 Roger W. Hill.......... 2000 $300,000 $ 0 (5) 0 $255,784(4) Managing Director, 1999 298,846 0 (5) 0 0 and President-- Holly 1998 291,612 0 (5) 65,000 0 Sugar Corporation William F. Schwer...... 2000 $305,000 $22,875 (5) 0 $ 0 Executive Vice President 1999 261,984 0 (5) 0 0 and General Counsel 1998 241,253 20,000 (5) 65,000 0 William J. Smith....... 2000 $300,000 $22,500 $46,002(2) 0 $ 0 Managing Director 1999 16,154 0 0 65,000 0
- -------- (1) In fiscal 2000, bonuses paid were pursuant to the Company's Employee Retension Program; in 1998, Mr. Schwer received a bonus under the Company's Performance Incentive Plan. (2) Includes $29,079 of moving expenses paid on behalf of Mr. Smith and a related tax gross-up payment of $13,185. (3) No options granted include SARs. (4) Represents a distribution from the Company's Salary Continuation Plan. (5) Amount is less than $50,000 or 10% of the sum of salary and bonus. 25 Stock Options No stock options were granted to or exercised by the named officers during fiscal 2000. The following table sets forth certain information with respect to unexercised options held at September 30, 2000. Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/SARs Options/SARs at at September 30, 2000 September 30, 2000(1) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- James C. Kempner............ -- -- -- -- Douglas W. Ehrenkranz....... 11,250 11,250 -- -- Roger W. Hill............... 42,500 32,500 -- -- William F. Schwer........... -- -- -- -- William J. Smith............ -- -- -- --
- -------- (1) Calculated based on the September 30, 2000 average of the high and low market price per share of $1.06 (as reported by the American Stock Exchange) less the exercise price per share, times the number of shares. Retirement Plan The Imperial Sugar Company Retirement Plan (the "Retirement Plan") is a tax qualified benefit plan covering non-union employees of the Company and its subsidiaries, including Mr. Kempner, Mr. Ehrenkranz, Mr. Hill and Mr. Schwer, but excluding non-union employees of Savannah Foods and its subsidiaries. Mr. Smith will not become a participant in the Retirement Plan until January 1, 2001. The Company has also adopted a Benefit Restoration Plan for certain participants (including Mr. Kempner, Mr. Hill and Mr. Schwer) to supplement the benefits payable under the Retirement Plan to the extent that the limitations on qualified plan benefits mandated by the Internal Revenue Code of 1986, as amended (the "Code"), reduce retirement benefits that would otherwise be payable under the Retirement Plan. Effective for periods after January 1, 1997, compensation under the Retirement Plan is defined as salary, bonus, overtime and commissions as reported in the Summary Compensation Table above. For periods prior to January 1, 1997 compensation under the Retirement Plan was defined as taxable earnings, including salary, bonus and other annual compensation reported in the Summary Compensation Table above, as well as the taxable income realized on exercise of stock options and the value for federal income tax purposes of certain employee benefits and other perquisites. Compensation under the Benefit Restoration Plan for periods after August 1, 1994 is defined as authorized base pay plus bonus as reported in the Summary Compensation Table. Prior to August 1, 1994, compensation was defined in the same manner as the Retirement Plan. Benefits payable under the Retirement Plan are limited by various provisions of the Code that restrict the amount of compensation that may be taken into account to calculate benefits under qualified plans and other limits on the maximum benefit payable from qualified plans. To the extent the pension calculated pursuant to the Retirement Plan would exceed the maximum amount permitted by the Code, the difference would be payable from the Benefit Restoration Plan as a discounted lump sum upon the participant's retirement. Annual benefits under the Retirement Plan are based on five-year average compensation. Benefits equal 1% of average compensation plus 0.5% of such compensation in excess of social security covered compensation per each of the first 35 years of service. Longer serviced individuals, including certain named officers, are subject to certain grandfathered provisions under prior plans. Benefits are defined in terms of a five-year certain and life annuity, with several other payment options available to employees. 26 The projected total annual benefits from the Retirement Plan and the Benefit Restoration Plan, exclusive of benefits provided by previously allowed employee contributions, payable as a five-year certain and life annuity and commencing at age 65 are as follows: Mr. Hill: $230,500; Mr. Ehrenkranz: $60,600; Mr. James C. Kempner: $167,100 and Mr. Schwer: $131,500. Salary Continuation Plan The Company has agreed to provide lump-sum supplemental retirement and death benefits to participants (including Messrs. James C. Kempner, Hill and Schwer) in the Salary Continuation Plan. The plan also provides for monthly salary continuation payments in the event of disability (as defined). If a participant's employment is terminated prior to retirement for any reason other than death, disability or cause (as defined), the participant will be entitled to receive, upon his attainment of age 55 if his termination is prior thereto, the actuarial equivalent (as defined) of the payment he would have received had he retired at age 62 (in certain cases, reduced according to a vesting schedule specified in the applicable agreement). The Salary Continuation Plan allows participants who are 100% vested and who have attained the age of 55 to receive their benefits without termination of employment if approved by the Executive Compensation Committee. No amounts will be due under the plan to a participant who is terminated for cause. Mr. Hill received payments of $255,784 in fiscal 2000 and $405,784 in October 2000 under the Plan. The estimated amounts payable upon retirement at or after age 62 for each of the named officers are as follows: $1,562,818 for Mr. James C. Kempner, $107,900 for Mr. Hill and $598,349 for Mr. Schwer. Employment Agreements and Related Arrangements On March 1, 2000, the Company entered into employment agreements with the following officers, which as currently in effect provide for the following annual salaries: Mr. James C. Kempner--$630,000; Mr. Ehrenkranz--$315,000; Mr. Schwer--$ 305,000; and Mr. Smith--$300,000. The employment agreements provide for an initial term of employment through February 28, 2001. On February 1, 1998, the Company entered into an employment agreement with Mr. Hill, which as amended provides for an annual salary of $150,000. The initial term of this agreement was one year through January 31, 1999. Thereafter, the terms of employment under each agreement automatically extends for additional one-year periods, unless the Company or the respective executive notifies the other party of its intention not to extend the term at least 60 days prior to the end of the then current term. If the executive's employment is terminated (except for Mr. Hill), by the Company without Cause (as defined) or by the executive for Good Reason (as defined), the executive will be entitled to receive as a severance payment a lump sum equal to the present value of two times annual base salary. In addition, the Company will be required to pay a lump sum equal to three times the executive's annual salary if his employment is terminated by the Company without Cause or by the executive for Good Reason within the two-year period following a Change in Control (as defined). If it is determined that any payment made under the employment agreement, or another plan or agreement of the Company, in the event of a Change of Control would be considered an "excess parachute payment", as defined in Section 280G of the Internal Revenue Code and subject to excise tax under Section 4999 of the Code, then the executive would be entitled to an additional "gross-up payment" that will place him in the same after-tax economic position as if such payment had not been considered an excess parachute payment. If the named executive officer had been terminated without Cause or had resigned with Good Reason as of September 30, 2000 and within two years of a change in control, payments under the employment agreements would have been $1,890,000 for Mr. James C. Kempner, $945,000 for Mr. Ehrenkranz, $450,000 for Mr. Hill, $915,000 for Mr. Schwer, and $900,000 for Mr. Smith. The Company has a Severance Pay Agreement with Mr. Hill. This Severance Pay Agreement provides that in the event of Mr. Hill's death or involuntary termination of employment (as defined) prior to his attaining age 65 but after a change in control of the Company (as defined), Mr. Hill or his beneficiary shall be entitled to receive a payment equal to the greater of (i) the product of one-fourth of his average monthly salary over the preceding twelve months multiplied by the number of full years of service with the Company and its affiliates, or (ii) the total of the annual bonuses received during the 36 months preceding his death or involuntary 27 termination of employment. If a change of control had occurred and if Mr. Hill's service had been terminated as of September 30, 2000 under the conditions described above, the amount due under the Severance Pay Agreement would have been at the new pay rate for Mr. Hill. The Company has established an Executive Benefits Trust which may be used to fund its obligations under certain otherwise unfunded benefit, retirement and deferred compensation plans providing benefits to executive officers of the Company in the event of a change in control. Compensation of Directors Pursuant to the Nonemployee Director Compensation Plan, directors who are not employees of the Company receive their annual retainer, currently $18,000, in the form of shares of Common Stock, rather than cash. The number of shares awarded on the annual election of directors is equal to 167% of the otherwise applicable cash annual retainer, divided by the fair market value per share of Common Stock on the date of such annual election. These shares are subject to restrictions on sale or other transfer, and cannot be sold or transferred until the earliest of a director's death, disability, cessation of status as a director or the occurrence of a change in control of the Company. At the July 28, 2000 Board Meeting the directors voted to suspend this payment effective on January 1, 2001. Additionally, for fiscal 2000 each director of the Company who is not an officer of the Company received $1,000 for each Board meeting attended. Each such director who served on a committee currently received $1,000 for each committee meeting attended if the meeting is not held on the same day as a Board meeting. At the October 31, 2000 Board Meeting the directors voted to suspend the payment of $1,000 for each meeting attended. Each director is also reimbursed by the Company for travel expenses incurred in connection with attendance at Board or committee meetings or other business of the Company. Under the Company's 1989 Nonemployee Director Stock Option Plan, each director of the Company who is not an employee of the Company is automatically granted an option on the date the director becomes a director of the Company (or July 27, 1989, if later). Each option permits the optionee to purchase 1,500 shares of Common Stock at an exercise price per share equal to 50% of the fair market value of a share of Common Stock on the date the option is granted. Options granted under the Nonemployee Director Stock Option Plan are not exercisable until the optionee has completed three years of service as a director of the Company. In the event of a "change in control" of the Company (as defined in the Nonemployee Director Stock Option Plan), any unvested portion of the options will immediately become exercisable in full. No director options were granted nor exercised during the year ended September 30, 2000. The Imperial Sugar Company Retirement Plan for Nonemployee Directors is a non-qualified retirement plan providing monthly retirement benefits to retired directors of the Company who never served as employees of the Company. The plan provides for payments, commencing at the later of age 65 or retirement, equal to the retainer received by the director (or the cash equivalent thereof) at the date of the director's retirement for up to ten years after retirement (based on years of service) to a director who retires after completion of three years of service. Death benefits equal to 50% of the retirement benefit are paid to a surviving spouse. The Company has understandings with Mr. I. H. Kempner, III providing that Mr. Kempner will provide consulting services to the Company concerning sugar industry related matters and that for such services the Company will pay Mr. Kempner a monthly retainer of $3,500 and a per diem amount for each day of travel on Company business. These arrangements are currently scheduled to expire on December 31, 2000 but are expected to be renewed. Mr. Dilger has declined to receive any remuneration for his services as a director. 28 Compensation Committee Interlocks and Insider Participation Mr. Gaylord is a member of the Executive Compensation Committee. In 1989, the Company became one of the limited partners of ChartCo Terminal, L.P. ("ChartCo") upon the formation thereof and made a capital contribution of $1,000,000 to ChartCo. A company owned by Mr. Gaylord is the general partner of ChartCo, which owns an interest in a fuel oil terminal in Houston, Texas. The percentage interests of the partners in ChartCo are in proportion to their respective capital contributions. 29 ITEM 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to the ownership of Common Stock as of November 30, 2000 of each director of the Company, each of the named officers who is currently employed by the Company, each person known to the Company to be the beneficial owner of 5% or more of Common Stock and all directors and executive officers of the Company as a group. Unless otherwise indicated, the beneficial owners have sole voting and investment power over the shares of Common Stock listed below.
Beneficial Ownership of Common Stock -------------------- Number of Percentage Name Shares of Class ---- --------- ---------- John D. Curtin, Jr................................... 20,856 * David J. Dilger(2)................................... 4,900,000 15.1% Edward O. Gaylord.................................... 33,464 * Greencore Group plc.................................. 4,900,000 15.1% St. Stephen's Green House Earlsfort Terrace Dublin 2, Ireland Gerald Grinstein(1).................................. 24,680 * Ann O. Hamilton(3)................................... 251,260 * Robert L. Harrison(1)(11)............................ 29,874 * Roger W. Hill(1)..................................... 63,339 * Harris L. Kempner, Jr.(4)(5)......................... 1,546,418 4.8% I. H. Kempner, III(1)(4)(6).......................... 1,653,036 5.1% P. O. Box 25 Sugar Land, Texas 77487-0025 James C. Kempner(4)(7)............................... 1,600,864 4.9% Dimensional Fund Advisors, Inc....................... 2,607,010 8.1% 1299 Ocean Avenue, 11th Floor Santa Monica, California 90401 William F. Schwer.................................... 19,320 * Douglas W. Ehrenkranz(1)............................. 22,098 * Daniel K. Thorne(8).................................. 588,165 1.8% United States National Bank(9)....................... 1,934,971 6.0% P. O. Box 179 Galveston, Texas 77553 Harris K. Weston(4)(10).............................. 2,423,573 7.5% Dinsmore & Shohl 1900 Chemed Center 255 East 5th Street Cincinnati, Ohio 45202 All directors and executive officers as a group (24 persons)(1)......................................... 8,140,150 25.1%
- -------- * Percentage of shares of Common Stock beneficially owned does not exceed 1% of the class. (1) Includes shares subject to stock options exercisable within 60 days as follows: Mr. I. H. Kempner, III, 50,000 shares; Mr. Hill, 42,500 shares; Mr. Grinstein, 750 shares; Mr. Harrison, 1,500 shares; Mr. Ehrenkranz, 11,250 shares and all directors and executive officers as a group, 223,637 shares. (2) Includes the shares held by Greencore, of which Mr. Dilger is the Chief Executive and a director. Mr. Dilger disclaims beneficial ownership of such shares. 30 (3) Includes 49,072 shares of Common Stock owned by a testamentary trust as to which Mrs. Hamilton is successor trustee and has voting and investment power. (4) Includes 1,408,373 shares of Common Stock owned by the H. Kempner Trust Association, over which Mr. I. H. Kempner, III, Mr. James C. Kempner, Mr. Harris L. Kempner, Jr. and Mr. Harris K. Weston share voting power and investment power as co-trustees with one other co-trustee. (5) Includes 6,420 shares of Common Stock held by Mr. Kempner's wife, as to which he shares voting and investment power. Mr. Kempner disclaims beneficial ownership as to such shares. (6) Includes 4,443 shares of Common Stock held by Mr. Kempner's wife, as to which Mr. Kempner disclaims beneficial ownership. (7) Includes 6,750 shares of Common Stock owned by a trust of which Mr. Kempner is a beneficiary. (8) Includes 327,142 shares of Common Stock owned by a testamentary trust as to which Mr. Thorne is the sole beneficiary and a co-trustee. Also includes 166,947 shares owned by the Alan Pryce-Jones Trust, of which Mr. Thorne is a co-trustee, and 18,722 shares owned by the Daniel K. Thorne Foundation, of which Mr. Thorne is President. Also includes 875 shares owned by his wife of which Mr. Thorne disclaims beneficial ownership. (9) Consists of 1,934,971 shares of Common Stock which United States National Bank holds as trustee of various trusts for descendants of H. Kempner, but not including any shares that are held in nominee form for others. United States National Bank has sole voting power over 1,934,971 shares. The information given is based on information furnished by the stockholder. (10) Includes 2,700 shares of Common Stock held by Mr. Weston's wife and 46,800 shares of Common Stock held by Mr. Weston's daughters. Mr. Weston disclaims beneficial ownership as to such shares. Also includes 106,200 shares of Common Stock owned by Mr. Weston as trustee for two trusts for the benefit of Mr. Weston's daughters and 396,000 shares of Common Stock owned by Mr. Weston as trustee of three charitable annuity lead trusts, as to all of which shares Mr. Weston disclaims beneficial ownership. (11) Includes 4,580 shares of Common Stock held by Mr. Harrison's wife as to which Mr. Harrison disclaims beneficial ownership. ITEM 13. Certain Relationships and Related Transactions Fayez Sarofim & Co. acts as an investment advisor to the Company, the Retirement Plan and other employee benefit plans maintained by the Company. During the year ended September 30, 2000, Fayez Sarofim & Co. received approximately $597,000 for such services. Fayez Sarofim retired from the Board of Directors effective January 28, 2000. The information under the caption "Compensation Committee Interlocks and Insider Participation" in Item 11 is incorporated by reference. 31 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1) Financial Statements.
Item Page ---- ---- Independent Auditors' Report.......................................... F-1 Consolidated Balance Sheets at September 30, 2000 and 1999............ F-2 Consolidated Statements of Operations for the years ended September 30, 2000, 1999 and 1998.............................................. F-3 Consolidated Statements of Changes in Shareholders' Equity for the years ended September 30, 2000, 1999 and 1998........................ F-4 Consolidated Statements of Cash Flow for the years ended September 30, 2000, 1999 and 1998.................................................. F-5 Notes to Consolidated Financial Statements............................ F-6
(a)(2) Financial Statement Schedules. All schedules and other statements for which provision is made in the applicable regulations of the Commission have been omitted because they are not required under the relevant instructions or are inapplicable. (a)(3) Exhibits. Asterisk indicates exhibit previously filed with the Commission and incorporated herein by reference as indicated. *3(a) Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(b) to the Company's Registration Statement on Form S-4 (Registration No. 33-20959)). *3(b) Articles of Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998 (File No. 1-10307)). *3(c) Statement of Resolution establishing Series of Shares designated Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10- K for the year ended March 31, 1990 (File No. 1-10307) (the "1990 Form 10-K")). *3(d) Statement of Resolution increasing number of shares designated Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 1-10307)). *3(e)(1) Rights Agreement dated as of September 14, 1989 between the Company and The Bank of New York, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated September 21, 1989 (File No. 1-10307)). *3(e)(2) Amendment to Rights Agreement dated as of January 27, 1995 (incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated January 27, 1995 (File No. 1-10307)). *3(e)(3) Amendment to Rights Agreement dated December 11, 1998 (incorporated by reference to Exhibit 3(e)(3) to the Company's Annual Report on Form 10-K for the year ended September 30, 1998 (the "1998 Form 10- K")). *3(f) By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1989 (File No. 0-16674) (the "1989 Form 10-K")). *3(g)(1) Investor Agreement dated August 29, 1996 by and among the Company, Greencore Group plc and Earlsfort Holdings B.V. (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated September 5, 1996 (File No. 1-10307) (the "September 5, 1996 Form 8-K")).
32 *3(g)(2) Registration Rights Agreement dated August 29, 1996 by and among the Company, Greencore Group plc and Earlsfort Holdings B.V. (incorporated by reference to Exhibit 4.2 to the September 5, 1996 Form 8-K). *3(g)(3) Amendment to Investor Agreement and Registration Rights Agreement dated November 19, 1998 by and among the Company, Greencore Group plc and Earlsfort Holdings B.V. (incorporated by reference to Exhibit 3(g)(3) to the 1998 Form 10-K). *3(h)(1) Agreement and Plan of Merger, dated September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-40445) (the "Savannah S-4")). *3(h)(2) Agreement and Plan of Merger, dated September 4, 1998, as amended by amendment dated as of October 22, 1998, among Imperial Holly Corporation, IHK Acquisition Corp. and DSLT Inc. (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8- K dated November 2, 1998). *4(a)(1) Amended and Restated Credit Agreement dated as of December 22, 1997 among Imperial Holly Corporation, as Borrower, the Several Lenders from time to time Parties thereto, Lehman Brothers, Inc., as Arranger, Lehman Brothers Commercial Paper, Inc., as Syndication Agent and Harris Trust and Savings Bank, as Administrative and Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to the Company's Registration Statement on Form S-4 (Registration No. 333-44955)(the "Exchange Offer S-4")). *4(a)(2) First Amendment to the Company's Amended and Restated Credit Agreement dated March 31, 1998 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999 (the "June 1999 Form 10-Q")). *4(a)(3) Second Amendment to the Company's Amended and Restated Credit Agreement dated September 28, 1998 (incorporated by reference to Exhibit 4.2 to the June 1999 Form 10-Q). *4(a)(4) Third Amendment to the Company's Amended and Restated Credit Agreement dated June 30, 1999 (incorporated by reference to the Company's Current Report on Form 8-K dated June 30, 1999 (the "June 1999 Form 8-K"). *4(a)(5) Fourth Amendment to the Company's Amended and Restated Credit Agreement dated November 18, 1999 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1999 (File No. 1-10307)). *4(a)(6) Amended and Restated Guarantee and Collateral Agreement dated, as of December 22, 1997, made by Imperial Holly Corporation and certain of its Subsidiaries in favor of Harris Trust and Savings Bank, as Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to the Exchange Offer S-4). *4(a)(7) Interim Waiver Agreement between the Company and the lenders pursuant to the Amended and Restated Credit Agreement (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 13, 2000 (File No. 1-10307)). *4(b)(1) Indenture dated as of December 22, 1997 between the Company, certain subsidiaries of the Company and The Bank of New York, as Trustee, relating to the Company's 9 3/4% Senior Subordinated Notes due 2007 (including form of 9 3/4% Senior Subordinated Note due 2007 and form of Subsidiary Guarantee) (incorporated by reference to Exhibit 4(b) to the Exchange Offer S-4)). 4(b)(2) Supplemental Indenture dated as of September 30, 1998 between the Company, certain subsidiaries of the Company and the Bank of New York, as Trustee relating to the Company's 9 3/4% Senior Subordinated Notes due 2007. 4(b)(3) Resignation, Appointment and Acceptance Agreement dated November 2, 2000 between the Company, the Bank of New York, as resigning trustee to the Indenture relating to the Company's 9 3/4% Senior Subordinated Notes, and the United States Trust Company of New York, the successor trustee.
33 * 4(c)(1) Receivable Purchase Agreement dated as of June 30, 1999 between the Company, Imperial Securitization Corporation, Imperial Distributing, Inc., Fairway Finance Corporation and Nesbitt Burns Securities, Inc. (incorporated by reference to Exhibit 10.1 to the June 1999 Form 8-K). * 4(c)(2) Purchase and Contribution Agreement dated as of June 30, 1999 between the Originators named therein, Imperial Securitization Corporation and Imperial Distributing, Inc. (incorporated by reference to Exhibit 10.2 to the June 1999 Form 8-K). 4(c)(3) Amendment No. 1 to the Company's Receivable Purchase Agreement dated December 13, 1999. 4(c)(4) Amendment No. 2 to the Company's Receivable Purchase Agreement dated March 27, 2000. The Company is a party to several debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to the Commission upon request. Exhibits 10(a) through 10(l) relate to management contracts or compensatory plans. *10(a) Imperial Holly Corporation Stock Incentive Plan (as amended and restated effective May 1, 1997) (incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1997 (File No. 1-10307) (the "1997 Form 10- K")). 10(b)(1) Specimen of Employment Agreement (Form A) for certain of the Company's officers. 10(b)(2) Specimen of Employment Agreement (Form B) for certain of the Company's officers. 10(b)(3) Schedule of Employment Agreements. *10(b)(4) Specimen of Employment Agreements with Roger W. Hill and John A. Richmond dated February 1, 1998 (incorporated by reference to Exhibit 10(b)(1) to the 1998 Form 10-K). *10(b)(5) Employment Agreement with W. W. Sprague III dated as of December 23, 1997 (incorporated by reference to Exhibit 10(b)(3) to the 1998 Form 10-K. *10(c) Specimen of the Company's Severance Pay Agreements for certain of its officers (incorporated by reference to Exhibit 10.2 to the September 1990 Form 10-Q). *10(d)(1) Imperial Holly Corporation Salary Continuation Plan (as amended and restated effective August 1, 1994) (incorporated by reference to Exhibit 10(b)(1) to the September 1994 Form 10-Q). *10(d)(2) Specimen of the Company's Salary Continuation Agreement (Fully Vested) (incorporated by reference to Exhibit 10(b)(2) to the September 1994 Form 10-Q). *10(d)(3) Specimen of the Company's Salary Continuation Agreement (Graduated Vesting) (incorporated by reference to Exhibit 10(b)(3) to the September 1994 Form 10-Q). *10(d)(4) Schedule of Salary Continuation Agreements (incorporated by reference to Exhibit 10(d)(4) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 1-10307) (the "1996 Form 10-K")). *10(e)(1) Imperial Holly Corporation Benefit Restoration Plan (as amended and restated effective August 1, 1994) (incorporated by reference to Exhibit 10(c)(1) to the September 1994 Form 10-Q). *10(e)(2) Specimen of the Company's Benefit Restoration Agreement (Fully Vested) (incorporated by reference to Exhibit 10(c)(2) to the September 1994 Form 10-Q). *10(e)(3) Specimen of the Company's Benefit Restoration Agreement (Graduated Vesting) (incorporated by reference to Exhibit 10(c)(3) to the September 1994 Form 10-Q). *10(e)(4) Schedule of Benefit Restoration Agreements (incorporated by reference to Exhibit 10(e)(4) to the 1996 Form 10-K). *10(f)(1) Imperial Holly Corporation Executive Benefits Trust (incorporated by reference to Exhibit 10.5 to the September 1990 Form 10-Q). *10(f)(2) First Amendment to the Company's Executive Benefits Trust dated June 4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the 1994 Form 10-K). *10(g) Imperial Holly Corporation 1989 Nonemployee Director Stock Option Plan (incorporated by reference to Exhibit A to the Company's Proxy Statement dated June 16, 1989 for the 1989 Annual Meeting of Shareholders, File No. 0-16674).
34 *10(h) Imperial Holly Corporation Retirement Plan For Nonemployee Directors (incorporated by reference to Exhibit 10(j) to the 1994 Form 10-K). *10(i)(1) Specimen of the Company's Change of Control Agreement (incorporated by reference to Exhibit 10(d)(1) to the September 1994 Form 10-Q). *10(i)(2) Schedule of Change of Control Agreements (incorporated by reference to Exhibit 10(i)(2) to the 1997 Form 10-K). *10(j) Independent Consultant Agreement between I. H. Kempner III and the Company (incorporated by reference to Exhibit 10(k) to the 1996 Form 10-K). *10(k) Specimen of the Company's Restricted Stock Agreement with certain of its officers (incorporated by reference to Exhibit 10(k) to the 1997 Form 10-K). *10(l) Schedule of Restricted Stock Agreements (incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K). *10(m) Agreement of Limited Partnership of ChartCo Terminal, L.P. (incorporated by reference to Exhibit 10(j) to the 1990 Form 10-K). 21 Subsidiaries of the Company. 23 Independent Auditors' Consent 27 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K dated December 13, 2000. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 28, 2000. Imperial Sugar Company /s/ James C. Kempner By:__________________________________ James C. Kempner President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 28, 2000.
Signature Capacity --------- -------- /s/ James C. Kempner President, Chief Executive ____________________________________ Officer, and Director James C. Kempner (Principal Executive Officer) /s/ Mark Q. Huggins Managing Director and Chief ____________________________________ Financial Officer Mark Q. Huggins (Principal Financial Officer) /s/ H. P. Mechler Vice President, Accounting ____________________________________ (Principal Accounting H. P. Mechler Officer) /s/ I. H. Kempner, III Chairman of the Board of ____________________________________ Directors I. H. Kempner, III /s/ John D. Curtin, Jr. Director ____________________________________ John D. Curtin, Jr. Director ____________________________________ David J. Dilger /s/ Edward O. Gaylord Director ____________________________________ Edward O. Gaylord /s/ Gerald Grinstein Director ____________________________________ Gerald Grinstein /s/ Ann O. Hamilton Director ____________________________________ Ann O. Hamilton /s/ Robert L. Harrison Director ____________________________________ Robert L. Harrison
36
Signature Capacity --------- -------- /s/ Harris L. Kempner, Jr. Director ____________________________________ Harris L. Kempner, Jr. /s/ Daniel K. Thorne Director ____________________________________ Daniel K. Thorne
37 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Imperial Sugar Company Sugar Land, Texas We have audited the accompanying consolidated balance sheets of Imperial Sugar Company and subsidiaries (the "Company") as of September 30, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flow for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2000 and 1999, and the results of its operations and its cash flow for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, at September 30, 2000, the Company would have been in violation of certain covenants of a long-term debt agreement had the lenders not temporarily waived the covenants. The Company's failure to meet these covenants and its recurring losses from operations raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Deloitte & Touche LLP Houston, Texas December 28, 2000 F-1 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, ---------------------- 2000 1999 ---------- ---------- (In Thousands of Dollars) ASSETS ------ CURRENT ASSETS: Cash and temporary investments......................... $ 6,533 $ 7,925 Marketable securities.................................. 4,612 65,496 Accounts receivable--trade, net........................ 63,378 64,458 Inventories: Finished products.................................... 97,625 157,869 Raw and in-process materials......................... 50,261 61,299 Supplies............................................. 39,585 39,896 Deferred costs & prepaid expenses...................... 48,251 43,461 ---------- ---------- Total current assets............................... 310,245 440,404 OTHER INVESTMENTS...................................... 5,179 5,009 PROPERTY, PLANT AND EQUIPMENT--Net..................... 357,681 402,364 GOODWILL AND OTHER INTANGIBLES--Net of accumulated amortization of $30,420,000 in 2000 and $18,319,000 in 1999.................................................. 395,818 406,627 OTHER ASSETS........................................... 24,767 26,379 ---------- ---------- TOTAL.............................................. $1,093,690 $1,280,783 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable--trade................................ $ 105,457 $ 141,428 Short-term borrowings.................................. 1,671 1,611 Current and deemed current maturities of long-term debt (Notes 2 and 8)....................................... 436,350 12,114 Deferred income taxes--net............................. 16,285 10,719 Other current liabilities.............................. 114,646 72,443 ---------- ---------- Total current liabilities.......................... 674,409 238,315 ---------- ---------- LONG-TERM DEBT--Net of current maturities (Notes 2 and 8).................................................... 20,000 553,577 DEFERRED INCOME TAXES--Net............................. 1,117 32,481 DEFERRED EMPLOYEE BENEFITS............................. 79,563 82,986 COMMITMENTS AND CONTINGENCIES (Notes 2 and 13) SHAREHOLDERS' EQUITY: Preferred stock, without par value, issuable in series; 5,000,000 shares authorized, none issued.............. -- -- Common stock, without par value; 50,000,000 shares authorized............................................ 310,452 309,847 Stock held by benefit trust............................ -- (8,208) Treasury stock......................................... (15,859) (7,611) Retained earnings...................................... 23,514 58,191 Unrealized securities gains--net of income taxes....... 494 21,205 ---------- ---------- Total shareholders' equity......................... 318,601 373,424 ---------- ---------- TOTAL.............................................. $1,093,690 $1,280,783 ========== ==========
See notes to consolidated financial statements. F-2 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (In Thousands of Dollars, Except Share and Per Share Amounts) NET SALES................................. $1,821,231 $1,888,630 $1,783,091 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales........................... 1,682,529 1,704,339 1,614,752 Selling, general and administrative..... 87,004 85,115 65,358 Asset impairment and other charges (Note 14).................................... 27,541 -- 18,287 Depreciation and amortization........... 51,979 51,272 45,755 ---------- ---------- ---------- Total................................. 1,849,053 1,840,726 1,744,152 ---------- ---------- ---------- OPERATING INCOME (LOSS)................... (27,822) 47,904 38,939 INTEREST EXPENSE--Net..................... (56,656) (59,071) (48,718) REALIZED SECURITIES GAINS--Net............ 35,874 4,697 2,181 LOSS ON EQUITY INVESTMENT IN PARTNERSHIP (Note 14)................................ -- (16,706) -- OTHER INCOME--Net......................... 954 1,598 6,386 ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST........................ (47,650) (21,578) (1,212) PROVISION (CREDIT) FOR INCOME TAXES....... (12,973) (3,454) 2,857 MINORITY INTEREST......................... -- -- 1,766 ---------- ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (34,677) (18,124) (5,835) EXTRAORDINARY ITEM--Net of tax............ -- -- (1,999) ---------- ---------- ---------- NET INCOME (LOSS)......................... $ (34,677) $ (18,124) $ (7,834) ========== ========== ========== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) before extraordinary item................................... $ (1.07) $ (0.57) $ (0.24) Net income (loss)....................... $ (1.07) $ (0.57) $ (0.32) WEIGHTED AVERAGE SHARES OUTSTANDING....... 32,293,759 31,712,602 24,177,762 ========== ========== ==========
See notes to consolidated financial statements. F-3 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Shares of Common Stock Common Stock --------------------------------- --------------------------- Accumulated Held by Held by Other Benefit Treasury Benefit Treasury Retained Comprehensive Issued Trust Stock Amount Trust Stock Earnings Income Total ---------- ---------- ---------- -------- -------- -------- -------- ------------- -------- (In Thousands of Dollars) BALANCE SEPTEMBER 30, 1997.................. 14,283,775 -- -- $ 83,707 -- -- $ 90,870 $ 18,382 $192,959 Comprehensive income: Net loss.............. -- -- -- -- -- -- (7,834) -- (7,834) Change in unrealized securities gains-- net of $748,000 tax.................. -- -- -- -- -- -- -- 1,390 1,390 -------- Total comprehensive income............. (6,444) -------- Cash dividends ($0.12 per share)............ -- -- -- -- -- -- (2,886) -- (2,886) Stock issued in acquisition........... 13,176,193 (814,810) -- 174,584 (10,796) -- -- -- 163,788 Sale of common stock... 377,358 -- -- 5,000 -- -- -- -- 5,000 Stock sold to benefit trust................. 505,440 (505,440) -- 5,023 (5,023) -- -- -- -- Stock transferred from benefit trust......... -- 121,197 (121,197) -- 1,452 $ (1,452) -- -- -- Employee stock plans... 25,938 -- -- 325 -- -- -- -- 325 Nonemployee director compensation plan..... 17,287 -- -- 165 -- -- -- -- 165 ---------- ---------- ---------- -------- -------- -------- -------- -------- -------- BALANCE September 30, 1998.................. 28,385,991 (1,199,053) (121,197) 268,804 (14,367) (1,452) 80,150 19,772 352,907 Comprehensive income: Net loss.............. -- -- -- -- -- -- (18,124) -- (18,124) Change in unrealized securities gains-- net of $769,000 tax.................. -- -- -- -- -- -- -- 1,433 1,433 -------- Total comprehensive income............. (16,691) -------- Cash dividends ($0.12 per share)............ -- -- -- -- -- -- (3,835) -- (3,835) Stock issued in acquisition........... 5,006,770 -- -- 40,054 -- -- -- -- 40,054 Stock transferred from benefit trust......... -- 514,082 (514,082) -- 6,159 (6,159) -- -- -- Employee stock plans... 91,629 -- -- 658 -- -- -- -- 658 Nonemployee director compensation plan..... 39,776 -- -- 331 -- -- -- 331 ---------- ---------- ---------- -------- -------- -------- -------- -------- -------- BALANCE September 30, 1999.................. 33,524,166 (684,971) (635,279) 309,847 (8,208) (7,611) 58,191 21,205 373,424 Comprehensive income: Net loss.............. -- -- -- -- -- -- (34,677) -- (34,677) Change in unrealized securities gains-- net of $11,152,000 tax.................. -- -- -- -- -- -- -- (20,711) (20,711) -------- Total comprehensive income............. (55,388) -------- Stock transferred from benefit trust......... -- 684,971 (684,971) -- 8,208 (8,208) -- -- -- Restricted shares withheld.............. -- -- (25,569) -- -- (40) -- -- (40) Employee stock plans... 109,906 -- -- 214 -- -- -- -- 214 Nonemployee director compensation plan..... 91,212 -- -- 391 -- -- -- 391 ---------- ---------- ---------- -------- -------- -------- -------- -------- -------- BALANCE September 30, 2000.................. 33,725,284 -- (1,345,819) $310,452 $ -- $(15,859) $ 23,514 $ 494 $318,601 ========== ========== ========== ======== ======== ======== ======== ======== ========
See notes to consolidated financial statements. F-4 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended September 30, ------------------------------ 2000 1999 1998 -------- --------- --------- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss)............................ $(34,677) $ (18,124) $ (7,834) Adjustments for noncash and nonoperating items: Impairment loss............................ 16,066 -- 12,538 Loss on equity investment in partnership... -- 16,706 -- Extraordinary item--net.................... -- -- 1,999 Minority interest.......................... -- -- 1,766 Depreciation & amortization................ 51,979 51,272 45,755 Gain on sale of securities................. (35,874) (4,697) (2,181) Deferred income taxes...................... (12,623) (11,355) (2,579) Other...................................... 3,951 1,991 2,651 Changes in operating assets and liabilities (excluding operating assets and liabilities acquired in the purchase acquisitions): Accounts receivables--trade................ 1,080 84,619 (9,077) Inventories................................ 26,871 (40,245) 21,278 Deferred costs and prepaid expenses........ (6,541) (3,255) 8,814 Accounts payable--trade.................... (35,971) 28,387 (3,638) Other liabilities.......................... 35,383 892 (23,501) -------- --------- --------- Operating cash flow...................... 9,644 106,191 45,991 -------- --------- --------- INVESTING ACTIVITIES: Acquisitions, net of cash acquired........... -- (112,455) (361,218) Capital expenditures......................... (16,303) (26,805) (42,419) Investment in marketable securities.......... (3,273) (14,141) (10,837) Proceeds from sale of marketable securities.. 64,221 15,300 4,337 Proceeds from maturity of marketable securities.................................. 3,996 5,881 7,189 Proceeds from sale of fixed assets........... 4,157 2,589 4,989 Other........................................ (2,085) 1,617 (6,108) -------- --------- --------- Investing cash flow...................... 50,713 (128,014) (404,067) -------- --------- --------- FINANCING ACTIVITIES: Sale of common stock......................... -- -- 5,000 Short-term borrowings: CCC borrowings--advances................. 105,072 60,112 37,037 CCC borrowings--repayments............... (57,975) (60,112) (37,037) Other short-term borrowings--net......... 60 450 (44,330) Revolving credit borrowings--net............. (61,500) 89,100 2,400 Long-term debt: Proceeds................................... -- -- 523,274 Repayment.................................. (47,841) (59,681) (132,229) Dividends paid............................... -- (3,835) (2,886) Stock option proceeds and other.............. 435 837 370 -------- --------- --------- Financing cash flow...................... (61,749) 26,871 351,599 -------- --------- --------- INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS................................... (1,392) 5,048 (6,477) CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR.......................................... 7,925 2,877 9,354 -------- --------- --------- CASH AND TEMPORARY INVESTMENTS, END OF YEAR.... $ 6,533 $ 7,925 $ 2,877 ======== ========= =========
See notes to consolidated financial statements. F-5 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000, 1999, and 1998 1. ACCOUNTING POLICIES The Company The consolidated financial statements include the accounts of Imperial Sugar Company and its majority owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The Company operates in two domestic business segments--the production and sale of refined sugar and the sale and distribution of products for the foodservice industry. Revenues are recognized when title passes, generally when products ship. The Company is significantly affected by market factors, including domestic prices for refined sugar and raw cane sugar. These market factors are influenced by a variety of external forces, including the number of domestic acres contracted to grow sugar cane and sugarbeets, prices of competing crops, weather conditions and United States farm and trade policy. Federal legislation and regulations provide for mechanisms designed to support the price of domestic sugar crops, principally through the limitations on importation of raw cane sugar for domestic consumption. In addition, agricultural conditions in the Company's growing areas may materially affect the quality and quantity of sugar beets available for purchase as well as the unit costs of raw materials and processing. A significant portion of the Company's industrial sales are made under fixed price, forward sales contracts, which extend for up to one year. The Company also contracts to purchase raw cane sugar substantially in advance of the time it delivers the refined sugar produced from the purchase. To mitigate its exposure to future price changes, the Company attempts to manage the volume of refined sugar sales contracted for future delivery and the volume of raw cane sugar contracted for future delivery, when feasible. Additionally, the Company utilizes a participatory sugarbeet purchase contract, described below, which relates the cost of sugarbeets to the net selling price realized on refined beet sugar sales. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts as well as certain disclosures. The Company's financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates. Cash and Temporary Investments Temporary investments consist of short-term, highly liquid investments with maturities of 90 days or less at the time of purchase. Marketable Securities All of the Company's marketable securities are classified as "available for sale", and accordingly are reflected in the Consolidated Balance Sheet at fair market value, with the aggregate unrealized gain, net of related deferred tax liability, included as a separate component of comprehensive income within shareholders' equity. Cost for determining gains and losses on sales of marketable securities is determined on the FIFO method. Inventories Inventories are stated at the lower of cost or market. Cost of sugar is determined under the last-in, first-out ("LIFO") method. All other costs are determined under the first-in, first-out ("FIFO") method. If only the FIFO cost method had been used, inventories would have been higher by $3.0 million at September 30, 2000, $15.7 million at September 30, 1999, and $16.7 million at September 30, 1998. Reductions F-6 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 in inventory quantities in the year ended September 30, 2000 resulted in liquidations of LIFO inventory layers carried at costs prevailing in prior years. The effect of this liquidation was to increase the net loss by about $0.3 million ($0.01 per share) in fiscal 2000. Sugarbeets Purchased Payments to growers for sugarbeets are based in part upon the Company's average net return for sugar sold (as defined in the participating contracts with the growers) during the grower contract years, some of which extend beyond the fiscal year end. The contracts provide for the sharing of the net selling price (gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization of costs for certain facilities used in connection with marketing) with growers. Cost of sales includes an accrual for estimated additional amounts to be paid to growers based on the average net return realized to date for sugar sold in each of the contract years through the end of the fiscal year. The final cost of sugarbeets cannot be determined until the end of the contract year for each growing area. Hedge Accounting The Company uses raw sugar futures and options in its raw sugar purchasing programs and uses natural gas futures to hedge natural gas purchases used in its manufacturing operations. Gains and losses on raw sugar futures and options are matched to specific inventory purchases and charged or credited to cost of sales as such inventory is sold. Gains and losses on natural gas futures are matched to the natural gas purchases and charged to cost of sales in the period of the purchase. The Company does not enter into futures or option transactions for trading purposes. Manufacturing Costs Prior to Production Certain manufacturing costs incurred between processing periods which are necessary to prepare each factory for the next processing campaign are deferred and allocated to the cost of sugar produced in the subsequent campaign. Such amounts are included in deferred costs and prepaid expenses. Property and Depreciation Property is stated at cost and includes expenditures for renewals and improvements and capitalized interest. Maintenance and repairs are charged to current operations. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is included in income. Depreciation is provided principally on the straight-line or sum-of-the- years' digits methods over the estimated service lives of the assets. In general, buildings are depreciated over 20 years, machinery and equipment over 3 to 15 years and leasehold improvements over 10 years. Capitalization of Computer Software The Company capitalizes certain costs in connection with the development of internal-use computer software. Impairment of Long-Lived Assets Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting F-7 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 from the use of the asset or its disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use are based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or net realizable value. Interest Rate Swap Agreements The differential to be paid or received on interest rate swap agreements is accrued as interest rates change and is recognized over the life of the agreements as an increase or decrease in interest expense. The Company does not use these instruments for trading purposes, rather it uses them to hedge the impact of interest rate fluctuations on floating rate debt. Fair Value of Financial Instruments The fair value of financial instruments is estimated based upon market trading information, where available. Absent published market values for an instrument, management estimates fair values based upon quotations from broker/dealers or interest rate information for similar instruments. The carrying amount of cash and temporary investments, accounts receivable, accounts payable, short-term borrowings and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments. Federal Income Taxes Federal income tax expense includes the current tax obligation or benefit and the change in deferred income tax liability for the period. Deferred income taxes result from temporary differences between financial and tax bases of certain assets and liabilities. Environmental Matters The Company provides for environmental remediation costs based on estimates of known environmental remediation exposure when such amounts are probable and estimable. Ongoing environmental compliance costs, including maintenance and monitoring costs, are expensed as incurred. Capital costs incurred to prevent future environmental contamination are capitalized. Accounting Pronouncements Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended, is effective for the Company as of October 1, 2000. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. The effective portion of the change in the fair value of derivatives used as hedges are reported as other comprehensive income, with all other changes reported in net income. Adoption of these new accounting standards will result in an after tax credit for the cumulative effect of an accounting change to net income of approximately $2.4 million and an after tax credit to other comprehensive income of approximately $7.7 million in the first quarter of fiscal 2001. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), as amended, which summarizes certain of the SEC's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. Management does not expect the adoption of SAB 101 to have a material effect on the Company's results of operation or financial position. The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001. F-8 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 Reclassifications Certain amounts in prior years have been reclassified to be consistent with the 2000 presentation. 2. BASIS OF PRESENTATION AND RESTRUCTURING PLANS The accompanying consolidated financial statements have been prepared on the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The conditions described below raise substantial doubt about the Company's ability to continue as a going concern. The Company has experienced net losses each of the three years in the period ended September 30, 2000. At September 30, 2000, the Company would have been in violation of certain financial covenants of its Amended and Restated Credit Agreement, dated as of December 22, 1997 (the "Senior Credit Agreement") had the lenders not waived such covenants temporarily. The Company did not make its scheduled December 15, 2000, interest payment on its 9 3/4% Senior Subordinated Notes due 2007 (the "Subordinated Debt"). The indenture for the Subordinated Debt provides for a thirty-day grace period for the payment of interest, however the Company does not expect to make such payment currently. Additionally, the Company has contracted a substantial portion of industrial sugar sales for fiscal 2001 at historically low prices, and raw sugar prices have not declined as much as refined sugar prices. As a result, margins on the sale of refined sugar have narrowed and the Company may incur significant losses and negative cash flows from operations for the year ending September 30, 2001. The consolidated financial statements do not include any adjustments that may result from the resolution of these uncertainties. As discussed in Note 8 to the consolidated financial statements, the Company's Senior Credit Agreement consists of a $157.3 million revolving credit facility which expires in December 2002 and $150.8 million in term loans with a final maturity in December 2005. The Company and the Senior Credit Agreement lenders entered into an interim waiver agreement effective through January 8, 2001, waiving temporarily the non-compliance with certain financial covenants as of September 30, 2000 described above, and the effect on the Senior Credit Agreement of not paying the scheduled interest payment on the Subordinated Debt. As discussed in Note 5 to the consolidated financial statements, the Company has a $110 million revolving receivables purchase facility with an independent issuer of receivables-backed commercial paper (the "Securitization Facility") which allows the Company to sell certain accounts receivable on a non-recourse basis. The Securitization Facility agreement is backed by a liquidity line of credit issued in favor of the receivable purchaser, which has been extended until January 8, 2001. The Company is not a party to the liquidity line of credit. Should such line of credit not be renewed, the Securitization Facility would terminate, placing substantial additional liquidity requirements on the Company. The indenture governing the Subordinated Debt, the Senior Credit Agreement and the Securitization Facility agreement each contain cross default provisions such that a default under one agreement constitutes a default under each of the others. The Company has held discussions with an informal committee of holders of the Subordinated Debt, representatives of the Senior Credit Agreement lenders and the issuer of the liquidity line of credit backing the Securitization Facility about a financial restructuring plan. Under the provisions of the proposed plan, the Subordinated Debt would be converted to equity and the Senior Credit Agreement would concurrently be amended or replaced with a new agreement. The terms of the proposed debt to equity conversion, including the level of continuing equity ownership of existing shareholders, remain under discussion. Negotiations and discussions with the Senior Credit Agreement lenders continue in respect of the restructured agreement described above and interim debtor-in possession financing, should a bankruptcy filing be required. The proposed F-9 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 restructuring may occur under the supervision of a United States Bankruptcy Court. The Company has had discussions with the receivable purchaser concerning extension of the Securitization Facility until the restructuring is completed. The Company believes that, should the Securitization Facility not be extended up to or beyond the completion of the proposed financial restructuring, replacement accounts receivable financing could be found. While the Company believes that these discussions to-date have been productive, there can be no assurances that an agreement on the proposed restructuring can be completed timely. The interim waiver and the liquidity line of credit discussed above expire January 8, 2001, and the grace period for the payment of interest on the Subordinated Debt expires January 14, 2001. Additionally, certain trade creditors have requested enhancements to their credit terms. Unless the Company is able to obtain an extension or forbearance with respect to these deadlines, the lenders could, after such dates, declare the related debt in default and demand repayment, and the receivable purchaser could declare the Securitization Facility terminated, all of which would place liquidity demands on the Company which it could not meet. The Company's continuation as a going concern is dependent upon the successful completion of the financial restructuring described above, the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis and its ability to obtain financing as may be required. Current domestic sugar market conditions are continuing to have significant negative impact on the Company's operating results and liquidity. While the Company believes it will be able to complete a consensual restructuring during fiscal 2001, there can be no assurances that it will be successful in doing so. The Company is reviewing with its financial and legal advisors the financial alternatives available to the Company, including without limitation the debt restructuring proposal described above and/or the filing of a petition under Chapter 11 of the United States Bankruptcy Code. 3. ACQUISITIONS Diamond Crystal On November 2, 1998 the Company acquired all the outstanding common stock of DSLT Inc. ("Diamond Crystal") in a merger of a wholly owned subsidiary of the Company, with and into Diamond Crystal. Consideration for the acquisition paid at closing consisted of $79.6 million cash, 5.0 million shares of common stock and the repayment of $28.3 million of Diamond Crystal debt. The merger consideration was subject to adjustments based on an acquisition date balance sheet of Diamond Crystal and other factors. In April 1999, additional consideration of $.6 million cash and 34,710 shares of the Company's common stock was paid based on the resolution of certain factors. The cash portion of the merger consideration was funded by borrowing under the Company's existing revolving credit agreement. Diamond Crystal produces nutritional dry mixes, sauces, seasonings, drink mixes and desserts for distribution to the healthcare and foodservice industries. The purchase method was used to account for the acquisition and Diamond Crystal's results of operations are included in the Company's consolidated financial statements commencing November 2, 1998. The excess of purchase price over the book value of net assets acquired ("goodwill") is being amortized over 40 years. An allocation of the aggregate purchase price of $184.6 million, including $31.9 million of liabilities assumed, has been made to current assets ($33.3 million), plant, property and equipment ($18.8 million) and goodwill ($132.0 million). Liabilities assumed include $2.7 million for the estimated costs to close two Diamond Crystal production facilities, as well as cost related to the involuntary termination of certain administrative employees, both of which were completed in fiscal 2000. F-10 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 Savannah Foods During fiscal 1998, the Company acquired Savannah Foods and Industries, Inc. a Georgia based producer and marketer of sugar and related products ("Savannah Foods"), in a two step transaction. The Company completed the first step on October 17, 1997, when it accepted for payment pursuant to a tender offer shares representing 50.1% of Savannah Foods outstanding common stock for aggregate consideration of $261 million cash. The second step was completed December 22, 1997, when Savannah Foods was merged with a subsidiary of the Company. As a result of the two step acquisition, the consolidated financial statements include a minority interest in the earnings of Savannah Foods through December 22, 1997. In consideration for the Merger, Savannah Foods' stockholders received $106 million cash and 12.4 million shares of the Company's common stock. The purchase method was used to account for the acquisition and Savannah Foods' results of operations are included in the Company's consolidated financial statements commencing October 17, 1997, net of minority interest through December 22, 1997. Purchased intangibles, which include brand related intangibles and the excess of purchase price over the book value of net assets acquired ("goodwill") are being amortized over 40 years. An allocation of the aggregate purchase price of $749.9 million, including $215.8 million of liabilities assumed, has been made to current assets ($201.8 million), plant, property and equipment ($253.0 million), other assets ($11.1 million) and purchased intangible assets ($284.1 million). Liabilities assumed include $4.5 million for the estimated cost related to the involuntary termination of certain administrative employees. The following table presents unaudited, summarized pro forma operating results as if the acquisition of both Diamond Crystal and Savannah Foods and the related financing transactions had occurred on October 1, 1997, assuming effective income tax rates of 35% to 38%.
Year Ended September 30, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (Actual) (Pro forma) (Pro forma) (In Thousands of Dollars, Except Per Share Amounts) Net sales.................................. $1,821,231 $1,899,714 $1,982,351 ---------- ---------- ---------- Cost of sales.............................. 1,682,529 1,713,107 1,774,862 Selling, general and administrative........ 87,004 86,467 90,000 Depreciation and amortization.............. 51,979 51,705 51,169 Asset impairment and other charges......... 27,541 -- 18,287 ---------- ---------- ---------- Operating income (loss).................... (27,822) 48,435 48,033 Interest expense........................... (56,656) (59,774) (58,648) Securities gains (losses).................. 35,874 4,697 2,181 Loss on investment in partnership.......... -- (16,706) -- Other income............................... 954 1,598 7,680 ---------- ---------- ---------- Income (loss) before income taxes.......... (47,650) (21,750) (754) Provision (benefit) for income taxes....... (12,973) (3,276) 4,635 ---------- ---------- ---------- Income (loss) before extraordinary item.... $ (34,677) $ (18,474) $ (5,389) ========== ========== ========== Basic earnings (loss) per share............ $ (1.07) $ (0.57) $ (0.17) ========== ========== ==========
F-11 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 Wholesome Sweeteners In September 1998, the Company acquired Wholesome Sweeteners for cash of $5.1 million. Wholesome is a leading supplier of organic sweeteners to the U.S. consumer and industrial markets. The purchase method was used to account for the acquisition. Pro forma effects of the acquisition are not material to the Company's consolidated results of operations. Amortization of goodwill and other intangibles totaled $10.8 million, $11.0 million and $8.9 million in fiscal 2000, 1999 and 1998, respectively. 4. MARKETABLE SECURITIES Marketable securities consisted of the following (in thousands of dollars):
September 30, 2000 ----------------------------- Gross Unrealized Fair Holding Amortized Market ------------ Cost Value Gains Losses --------- ------ ----- ------ US Government securities maturing in 2001.... $3,548 $3,602 $ -- $(54) Common stocks................................ 254 1,010 756 -- ------ ------ ---- ---- Total........................................ $3,802 $4,612 $756 $(54) ====== ====== ==== ====
September 30, 1999 -------------------------------- Gross Unrealized Fair Holding Amortized Market -------------- Cost Value Gains Losses --------- ------- ------- ------ US Government securities................... $ 4,273 $ 4,253 -- $ (20) Common stocks.............................. 28,601 61,243 $33,164 (522) ------- ------- ------- ----- Total...................................... $32,874 $65,496 $33,164 $(542) ======= ======= ======= =====
The Company liquidated substantially all of its marketable securities portfolio in fiscal 2000, and utilized $36.6 million of the net proceeds to pay down senior term loans. Realized securities gains are reported net of realized losses of $0.5 million in fiscal 2000. There were no realized securities losses during fiscal 1999 or 1998. Marketable securities at September 30, 2000 were pledged to secure certain insurance obligations. Other investments include the Company's royalty interest in a coal seam methane gas project, which is accounted for at amortized cost. The Company has a limited partnership interest in a company which owns an interest in a fuel oil terminal in Houston, Texas; a director of the Company is the general partner. 5. SALE OF ACCOUNTS RECEIVABLE On June 30, 1999, the Company entered into a five-year receivables purchase agreement with an independent issuer of receivables-backed commercial paper. Through a wholly owned special purpose subsidiary, Imperial Securitization Corporation ("Imperial Securitization"), the Company agreed to sell on an ongoing basis and without recourse, an undivided percentage ownership interest in designated pools of accounts receivable. To maintain the balance in the designated pools of accounts receivable sold, the Company is obligated to sell undivided percentage interests in new receivables as existing receivables are collected. The agreement permits the sale of up to $110.0 million of undivided interests in accounts receivable through June 2004. The Company records such transfers as sales of the related accounts receivable. F-12 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 The Company's Securitization Facility requires compliance with certain financial covenants, principally a maximum receivables delinquency rate and a maximum receivables dilution rate, and is backed by a liquidity line of credit issued in favor of the receivable purchaser, which expired October 31, 2000 and was extended to January 8, 2001. Such back-up line of credit is required under the agreement, although the Company is not a party to the line of credit. The Company had sold an undivided interest in its accounts receivable to the purchaser at September 30, 2000 and 1999 of $82.5 million and $105.0 million, respectively. The proceeds from the initial sale of accounts receivable were used to pay down debt under its senior secured credit facilities. At September 30, 2000 and 1999, the Company's retained interest was $42.1 million and $43.0 million, respectively; the fair value of the retained interest approximated its book value. The discount under this agreement is variable based on the general level of interest rates on commercial paper plus administrative fees typical in such transactions. These costs were approximately $6.4 million in fiscal 2000 and $1.4 million for fiscal 1999 and were included in selling, general and administrative in the accompanying Consolidated Statement of Operations. The Company receives compensation for servicing the accounts receivables that approximates its cost to provide such services. Accordingly, no servicing assets or liability is recorded. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands of dollars):
September 30, ----------------- 2000 1999 -------- -------- Land...................................................... $ 42,927 $ 44,698 Buildings, machinery and equipment........................ 540,774 545,531 Construction in progress.................................. 13,073 29,577 -------- -------- Total................................................... 596,774 619,806 Less accumulated depreciation............................. 239,093 217,442 -------- -------- Property, Plant and Equipment--Net........................ $357,681 $402,364 ======== ========
7. SHORT-TERM BORROWINGS The Company borrows short-term from banks under various unsecured lines of credit and from the Commodity Credit Corporation ("CCC") under the USDA's price support loan program. CCC borrowings, which mature September 30 each year, are secured by refined beet sugar inventory and are recourse or nonrecourse to the Company depending upon certain regulatory conditions. During fiscal 2000, the Company participated in permitted forfeitures of refined sugar in full satisfaction of $47.1 million of outstanding loans with the CCC in lieu of repaying the loans because the forfeiture price exceeded the current market price. The Company accounted for this transaction as a debt repayment. The net book value of inventory forfeited approximated the debt discharged, including interest. Outstanding short-term borrowings at September 30, 2000 and 1999 were $1.7 million and $1.6 million, respectively. The weighted-average interest rate for the outstanding short-term borrowings were 8.45% and 6.35% for fiscal 2000 and 1999, respectively. F-13 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 8. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars):
September 30, ---------------- 2000 1999 ------- -------- Senior Credit Agreement: Revolving credit facility................................... $30,000 $ 91,500 Term loans.................................................. 150,769 192,068 9 3/4% Senior Subordinated Notes due 2007..................... 250,000 250,000 Industrial revenue bonds...................................... 25,100 25,204 8 3/8% Senior Notes due 1999.................................. -- 5,801 Other......................................................... 481 1,118 ------- -------- Total long-term debt...................................... 456,350 565,691 Less current and deemed current maturities.................... 436,350 12,114 ------- -------- Long-term debt, net........................................... $20,000 $553,577 ======= ========
Debt consists principally of $250.0 million of Subordinated Debt and borrowings under the Senior Credit Agreement. The Senior Credit Agreement includes a $157.3 million revolving credit facility (available through December 2002) and term loans aggregating $150.8 million. CCC borrowings of up to $50 million reduce the amounts available under the revolving credit facility. Additionally, CCC borrowings of up to $25 million seasonally may be made without reducing the availability of borrowings under the revolving credit facility. The industrial revenue bonds consist of various issues at fixed and variable interest rates, ranging from 4.72% to 6.55%. $5.1 million mature in fiscal 2001 and the remaining $20 million have maturity dates ranging from 2015 to 2025. Except for the Subordinated Debt, the carrying amount of the Company's debt approximates fair value. The fair value of the Subordinated Debt at September 30, 2000 was approximately $37.5 million. The Senior Credit Agreement is secured by substantially all of the Company's assets. The Senior Credit Agreement and the indenture for the Subordinated Debt contain restrictive covenants which may limit, among other things, the Company's ability to incur additional indebtedness, make capital expenditures and investments or pay dividends. The Senior Credit Agreement requires quarterly compliance with certain financial covenants including a total and senior leverage ratio, working capital ratio, minimum leverage of net worth, and, commencing December 31, 2000, an interest coverage ratio, and fixed charge coverage ratio. The Company was not in compliance with certain of these covenants at September 30, 2000. The Company did not make its scheduled $12.1 million interest payment due December 15, 2000 on the Subordinated Debt; the Indenture for the Subordinated Debt provides a thirty-day grace period for the payment of interest. As a result of these conditions, substantially all of the Company's long-term debt has been deemed to be current. See Note 2. Interest on borrowings under the Senior Credit Agreement is at floating rates (either a base rate plus a margin from 0.75% to 3% or a Eurodollar rate plus a margin from 1.75% to 4%). The Company has entered into interest rate swap agreements with major financial institutions to effectively fix the interest rate on $214.5 million F-14 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 under the Senior Credit Agreement at a weighted average annual rate of 9.3% as of September 30, 2000. If the Company had been required to settle the interest rate swap agreements as of September 30, 2000, the Company would receive $3.6 million. The Company is exposed to credit risk in the event of nonperformance by counterparties to its interest rate swap agreements. The Company anticipates that its counterparties will fully perform their obligations under the agreements. Cash paid for interest on short and long-term debt was $54.5 million for fiscal 2000, $57.2 million for fiscal 1999, and $45.2 million for fiscal 1998. Interest capitalized as part of the cost of constructing assets was $.5 million for fiscal 2000, $.4 million for fiscal 1999, and $1.2 million for fiscal 1998. In fiscal 1998, the Company incurred an extraordinary item of $1,999,000, net of tax of $1,075,000, in connection with the repurchase of its 8 3/8% Senior Notes due 1999. 9. INCOME TAXES The components of the consolidated income tax provision (credit), including amounts reported as an extraordinary item, were as follows (in thousands of dollars):
Year Ended September 30, ------------------------- 2000 1999 1998 -------- ------- ------ Federal: Current....................................... $ -- $ 7,512 $2,419 Tax benefit of operating loss carryforward utilized (generated)......................... (920) (19,327) 3,332 Deferred...................................... (11,703) 7,972 (4,663) State........................................... (350) 389 694 -------- ------- ------ Total....................................... $(12,973) $(3,454) $1,782 ======== ======= ======
F-15 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 The tax effects of temporary differences which give rise to the Company's deferred tax assets and liabilities were as follows (in thousands of dollars):
September 30, ---------------------------------------------------------- 2000 1999 ---------------------------- ---------------------------- Assets Liabilities Total Assets Liabilities Total ------- ----------- -------- ------- ----------- -------- Current: Marketable securities valuation differences.......... -- $ (265) $ (265) -- $ (11,418) $(11,418) Inventory valuation differences, principally purchase accounting........... -- (14,818) (14,818) -- (13,973) (13,973) Manufacturing costs prior to production deducted currently... -- (13,746) (13,746) -- (12,004) (12,004) Accruals not currently deductible........... $ 9,868 -- 9,868 $ 5,437 -- 5,437 Alternate minimum tax differences.......... 1,499 -- 1,499 902 -- 902 Operating loss carryforward......... -- -- -- 19,327 -- 19,327 Other................. 1,177 -- 1,177 1,010 -- 1,010 ------- -------- -------- ------- --------- -------- Total current....... 12,544 (28,829) (16,285) 26,676 (37,395) (10,719) ------- -------- -------- ------- --------- -------- Noncurrent: Depreciation differences, including purchase accounting........... -- (54,542) (54,542) -- (63,268) (63,268) Accruals not currently deductible........... 24,738 -- 24,738 24,022 -- 24,022 Operating loss carryforward......... 20,247 -- 20,247 -- -- -- Other................. 8,440 -- 8,440 6,765 -- 6,765 ------- -------- -------- ------- --------- -------- Total noncurrent.... 53,425 (54,542) (1,117) 30,787 (63,268) (32,481) ------- -------- -------- ------- --------- -------- Total................... $65,969 $(83,371) $(17,402) $57,463 $(100,663) $(43,200) ======= ======== ======== ======= ========= ========
The consolidated income tax provision is different from the amount which would be provided by applying the statutory federal income tax rate of 35% to the Company's income before taxes (including extraordinary item). The reasons for the differences from the statutory rate are as follows (in thousands of dollars):
Year Ended September 30, -------------------------- 2000 1999 1998 -------- ------- ------- Income taxes computed at the statutory federal rate............................................. $(16,678) $(7,552) $(1,501) Non deductible goodwill amortization............ 3,787 3,847 2,424 Non taxable interest and dividends.............. (162) (291) (316) State income taxes.............................. (350) 253 451 Other........................................... 430 289 724 -------- ------- ------- Total......................................... $(12,973) $(3,454) $ 1,782 ======== ======= =======
Income taxes paid were $1.7 million in fiscal 2000, $1.0 million in fiscal 1999, and $4.0 million in fiscal 1998. Net operating loss carryforwards expire for tax purposes from 2011 to 2015. F-16 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 10. EMPLOYEE BENEFITS Defined Benefit Pension Plans and Postretirement Benefits Other Than Pensions Substantially all of the Company's nonseasonal employees are covered by retirement plans. Certain unionized employees are covered by an industry-wide plan, and other employees are covered by Company-sponsored defined benefit plans. Under the Company-sponsored defined benefit plans, retirement benefits are primarily a function of years of service and the employee's compensation for a defined period of employment. The Company funds pension costs at an actuarially determined amount based on normal cost and the amortization of prior service costs, gains, and losses over the remaining service periods. Additionally, the Company provides a supplemental non-qualified, unfunded pension plan for certain officers whose benefits under the qualified plan are limited by federal tax law. The Company provides a non-qualified retirement plan for non-employee directors, which provides benefits based upon years of service as a director and the retainer in effect at the date of a director's retirement. Certain of the Company's subsidiaries sponsor benefit plans that provide postretirement health care and life insurance benefits to certain employees who meet the applicable eligibility requirements. The following table presents the benefit obligation, changes in plan assets, the funded status of the pension plans and the assumptions used (in thousands of dollars):
Postretirement Benefits Pension Benefits Other Than Pensions ------------------ ------------------------ Year Ended Year Ended September 30, September 30, ------------------ ------------------------ 2000 1999 2000 1999 -------- -------- ----------- ----------- Change in benefit obligation: Benefit obligation at beginning of year....................... $221,540 $220,998 $ 36,126 $ 35,029 Acquisition.................... -- 8,342 -- 3,712 Service cost................... 5,418 5,956 567 370 Interest cost.................. 16,176 15,034 2,644 2,642 Amendments..................... 990 3,382 419 -- Actuarial (gain)/loss.......... (2,677) (16,463) 967 (3,679) Curtailment loss............... (174) -- -- -- Expenses paid.................. (1,304) (1,527) -- -- Benefits paid.................. (14,466) (14,182) (2,688) (1,948) -------- -------- ----------- ----------- Benefits obligation at end of year.......................... 225,503 221,540 38,035 36,126 ======== ======== =========== =========== Change in plan assets: Fair value of plan assets at beginning of year............. 248,383 230,000 -- -- Acquisition.................... -- 7,443 -- -- Actual return on plan assets... 18,821 24,297 -- -- Employer contribution.......... 2,118 2,405 2,688 1,948 Expenses paid.................. (1,304) (1,580) -- -- Benefits paid.................. (14,466) (14,182) (2,688) (1,948) -------- -------- ----------- ----------- Fair value of plan assets at end of year................... 253,552 248,383 -- -- ======== ======== =========== =========== Funded status.................... 28,049 26,843 (38,035) (36,126) Unrecognized actuarial (gain)/loss..................... (45,252) (47,739) 4,430 4,687 Unrecognized prior service cost.. 7,576 7,280 419 -- Unrecognized net transition obligation (asset).............. -- (1,113) -- -- Adjustment for fourth quarter contributions................... 290 518 706 571 -------- -------- ----------- ----------- Net amount recognized............ $ (9,337) $(14,211) $ (32,480) $ (30,868) ======== ======== =========== ===========
F-17 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998
Postretirement Benefits Pension Benefits Other Than Pensions ------------------ ------------------------ September 30, September 30, ------------------ ------------------------ 2000 1999 2000 1999 -------- -------- ----------- ----------- Amounts recognized in the statement of financial position consist of: Accrued benefit liability..... $(11,637) $(16,074) $ (32,480) $ (30,868) Intangible asset.............. 2,300 1,863 -- -- -------- -------- ----------- ----------- Net amount recognized........... $ (9,337) $(14,211) $ (32,480) $ (30,868) ======== ======== =========== ===========
The assumptions used and the annual cost related to these plans consist of the following:
Year Ended September 30, ---------------- Pension Benefits 2000 1999 - ---------------- ------- ------- Weighted-average assumptions: Discount rate............................................. 7.75% 7.5% Expected return on plan assets............................ 9.0% 9.0% Rate of compensation increase............................. 4.5-5.0% 4.5-5.0% Components of net periodic benefit cost of Company-sponsored plans: Service cost.............................................. $ 5,418 $ 5,956 Interest cost............................................. 16,176 15,034 Expected return on plan assets............................ (21,833) (20,827) Amortization of prior service cost........................ 799 580 Amortization of transition (asset)/obligation............. (22) 103 Recognized actuarial (gain)/loss.......................... (3,582) (1,972) ------- ------- Net periodic benefit cost................................... (3,044) (1,126) Curtailment effect recognized............................... (316) 96 ------- ------- Total net periodic benefit cost--Company-sponsored plans.... (3,360) (1,030) Industry-wide plan for certain unionized employees.......... 512 467 ------- ------- Total pension cost........................................ $(2,848) $ (563) ======= =======
Year Ended September 30, -------------- Postretirement Benefits Other Than Pensions 2000 1999 - ------------------------------------------- ------ ------ Discount rate assumptions....................................... 7.75% 7.5% Components of net periodic benefit cost: Service cost.................................................. $ 567 $ 370 Interest cost................................................. 2,644 2,642 Recognized actuarial (gain)/loss.............................. 66 229 Amortization of net transition obligation (asset)............. -- 65 ------ ------ Net periodic benefit cost....................................... $3,277 $3,306 ====== ======
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $22.0 million, $20.3 million, and $0.5 million, respectively, as of September 30, 2000 and $21.4 million, $19.1 million, and $0.6 million, respectively, as of September 30, 1999. F-18 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 The assumed health care cost trend rate used in measuring the accumulated benefit obligation for postretirement benefits other than pensions as of September 30, 2000 was 9.0% for 2001. The rate was assumed to decrease gradually to 5.5% for 2008 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-Percentage 1-Percentage Point Point Increase Decrease ------------ ------------ (In Thousands of Dollars) Effect on total service and interest cost components......................................... $ 434 $ (356) Effective on postretirement benefit obligation...... 3,525 (2,966)
401(k) Plans Substantially all of the employees may elect to defer up to 15% of their annual compensation in the Company sponsored 401(k) tax deferred savings plans. The Company makes matching contributions in some of these plans. The amounts charged to expense for each of the periods presented for these plans were not significant. Employee Stock Purchase Plan The Company has an employee stock purchase plan and originally reserved 1.0 million shares of common stock. The plan provides substantially all year-round employees the option to purchase shares of common stock either through open market purchases at market value or directly from the Company at 85% of market value. The amounts charged to compensation expense for each of the periods presented for the discount on shares purchased under the latter alternative were not significant. F-19 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 11. SHAREHOLDERS' EQUITY Earnings per Share The following table presents information necessary to calculate basic and diluted earnings per share.
Year Ended September 30, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (In Thousands of Dollars, Except per Share Amounts) Earnings for basic and diluted computation: Income (loss) before extraordinary item.. $ (34,677) $ (18,124) $ (5,835) ========== ========== ========== Net income (loss)........................ $ (34,677) (18,124) $ (7,834) ========== ========== ========== Basic earnings per share: Weighted average shares outstanding...... 32,293,759 31,712,602 24,177,762 ========== ========== ========== Income (loss) per share before extraordinary item...................... $ (1.07) $ (0.57) $ (0.24) ========== ========== ========== Net income (loss) per share.............. $ (1.07) $ (0.57) $ (0.32) ========== ========== ========== Diluted earnings per share: Weighted average shares outstanding...... 32,293,759 31,712,602 24,177,762 Incremental shares issuable from assumed exercise of stock options under the treasury stock method (1)............... -- -- -- ---------- ---------- ---------- Weighed average shares outstanding--as adjusted................................ 32,293,759 31,712,602 24,177,762 ========== ========== ========== Income (loss) per share before extraordinary item...................... $ (1.07) $ (0.57) $ (0.24) ========== ========== ========== Net income (loss) per share.............. $ (1.07) $ (0.57) $ (0.32) ========== ========== ==========
- -------- (1) Securities excluded from the computation of diluted EPS for the years ended September 30, 2000, 1999 and 1998, that could potentially dilute basic EPS in the future were options to purchase 1,028,000, 1,854,000 and 1,981,000 shares, respectively, to be issued under the Company's employee stock incentive plan and 3,000 shares for each fiscal year, to be issued under the nonemployee director stock option plan for fiscal years. The Company measures compensation cost of stock-based compensation using the intrinsic value method. The Company's reported net income and earnings per share would have been reduced had compensation cost for the Company's stock- based compensation plans been determined using the fair value method of accounting. For purposes of estimating the fair value disclosures below, the fair value of each stock option has been estimated on the grant date with a Black-Scholes option-pricing model using the following weighted-average assumptions: expected volatility of 38% to 42%; risk-free interest rate of 5.49% to 7.06%; and expected lives of 7 to 10 years. The effects of using the fair value method of accounting on net income and earnings per share are indicated in the unaudited pro forma amounts below (in thousands of dollars, except per share amounts): F-20 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998
Year Ended September 30, --------------------------- 2000 1999 1998 -------- -------- ------- Income (loss) before extraordinary item As reported..................................... $(34,677) $(18,124) $(5,835) Pro forma....................................... (34,694) (19,265) (6,725) Net income (loss) As reported..................................... (34,677) (18,124) (7,834) Pro forma....................................... (34,694) (19,265) (8,724) Basic earnings per share: Income (loss) before extraordinary item As reported..................................... $ (1.07) $ (0.57) $ (0.24) Pro forma....................................... (1.07) (0.61) (0.28) Net Income (loss) As reported..................................... $ (1.07) $ (0.57) $ (0.32) Pro forma....................................... (1.07) (0.61) (0.36)
Shareholder Rights Plan The Company has a shareholder rights plan. Rights under the plan, which are currently attached to the common stock, entitle the holder to purchase two three-hundredths of a share of a new series of Junior Participating Preferred Stock (204,833 in total as of September 30, 2000) at a price of $60 (subject to adjustment). The Rights are not exercisable until the earlier of ten days after the public announcement that a person or group has acquired 15% or more (25% or more for persons who were 10% shareholders on January 27, 1995) of the Company's outstanding common stock (an "Acquiring Person") or ten business days after the commencement of a tender offer to acquire such an interest. Under certain circumstances, the Rights, other than the Rights held by the Acquiring Person, will become exercisable for common stock of the Company (or an acquirer) with a market value equal to two times the exercise price of the Right. The Rights are redeemable, at 2/3 cents per Right, at any time prior to a person becoming an Acquiring Person. The Rights will expire on October 31, 2007. In connection with the sale of common stock to Greencore Group plc ("Greencore") in 1996, the Board of Directors took action under the Shareholder Rights Plan to increase the ownership percentage that would trigger the plan with respect to Greencore to 30% during the term of the Investor Agreement between Greencore and the Company (not more than 5 years). Thereafter, the trigger level would be increased to 35%, until such time as Greencore's investment falls below 15%, at which time the trigger level becomes 15%. Greencore had the right to designate two nominees for election as directors of the Company. During the term of the Investor Agreement, Greencore will be required to vote for the director nominees recommended by the Board of Directors. During the term of the Investor Agreement, Greencore is also subject to restrictions relative to certain actions regarding the Company. Stock Incentive Plan The Company has a stock incentive plan, and has reserved 2.2 million shares of common stock which are available for grant at September 30, 2000. The plan provides for the granting of incentive awards in the form of stock options, stock appreciation rights (SARs), restricted stock, performance units and performance shares at the discretion of the Executive Compensation Committee of the Board of Directors. Stock options have an exercise price equal to the fair market value of the shares of common stock at date of grant, become exercisable in annual increments for up to five years commencing one year after date of grant, and expire not more than ten years from date of grant. F-21 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 Stock option activity in the plan was as follows:
Year Ended September 30, ----------------------------------------------------------------------------- 2000 1999 1998 ------------------------- ------------------------- ------------------------- Weighted Weighted Weighted Average Average Average Exercise Price Exercise Price Exercise Price Options per Share Options per Share Options per Share --------- -------------- --------- -------------- --------- -------------- Beginning Balance....... 1,854,135 $9.04 1,980,504 $9.63 582,895 $10.33 Granted................. 85,000 2.91 256,500 6.49 1,492,827 9.40 Expired or cancelled.... (911,448) 8.60 (293,644) 11.47 (80,049) 11.25 Exercised............... -- -- (89,225) 6.44 (15,169) 7.60 --------- --------- --------- Balance, September 30... 1,027,687 8.92 1,854,135 9.04 1,980,504 9.63 ========= ========= ========= Exercisable as of September 30........... 564,981 9.65 613,034 9.44 435,726 10.09 ========= ========= =========
Options outstanding at September 30, 2000 consisted of the following:
Exercisable Options Weighted- ------------------------ Weighted- Average Weighted- Range of Average Remaining Average Exercise Prices Number of Exercise Price Contractual Number of Exercise Price per Share Options per Share Life Options per Share - --------------- --------- -------------- ----------- --------- -------------- $2.81-$2.94 85,000 $2.91 9.3 years -- -- $6.00-$8.87 175,875 8.06 5.1 years 138,500 $8.33 $9.12-$12.25 695,187 9.43 7.3 years 355,106 9.45 $13.19-$15.50 71,625 13.22 5.9 years 71,375 13.21
Nonemployee Director Stock Option Plan The Company has a director stock option plan and has reserved 30,000 shares of common stock for issuance. The plan provides for the automatic granting to each nonemployee director of options to purchase 1,500 shares of common stock at a price equal to 50% of the fair market value at date of grant. The options become exercisable upon the completion of three years of service as a director, and expire over a two-year period from the date first exercisable. Stock option activity in the plan was as follows:
Year Ended September 30, ----------------------------------------------------- 2000 1999 1998 ----------------- ----------------- ----------------- Price Price Price Options per Share Options per Share Options per Share ------- --------- ------- --------- ------- --------- Beginning Balance....... 3,000 $6.61 3,000 $6.61 2,250 $7.56 Granted................. -- -- 1,500 5.38 Expired................. -- -- (750) 7.00 Exercised............... -- -- -- ----- ----- ----- Ending Balance.......... 3,000 6.61 3,000 6.61 3,000 6.61 ===== ===== ===== Exercisable at Period End.................... 1,500 7.84 -- -- ===== ===== =====
Options outstanding at September 30, 2000 have a range of exercise prices of $5.38 to $7.84, and a weighted-average remaining contractual life of 1.6 years. F-22 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 Nonemployee Director Compensation Plan The Company has a nonemployee director compensation plan which provides for the annual award of common stock to directors in lieu of their cash retainer. Shares of common stock awarded pursuant to this plan totaled 91,212 in fiscal 2000, 39,776 in fiscal 1999, and 17,287 in fiscal 1998. 12. REPORTABLE SEGMENTS The Company has identified two reportable segments: sugar and foodservice. The segments are strategic business units that offer different products to different customers. The segments are managed separately because each business requires different production technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices. The Company evaluates performance based on operating income of the respective business units. The sugar segment produces and sells refined sugar and related products. The segment's products include granulated, powdered, liquid, liquid blends and brown sugars, which are primarily sold to grocery and industrial customers and by-products from the production of refined sugar. The foodservice segment sells numerous products to foodservice customers, including healthcare institutions, ranging from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-dairy creamer and plastic cutlery, nutritional dry mixes, frozen nutritional products, sauces, seasonings, drink mixes, desserts and diet kits. Summarized financial information concerning the Company's reportable segments for the years ended September 30, 2000, 1999 and 1998 is shown in the following table. The "Corporate and Other" column includes corporate-related items and Imperial Securitization.
Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ (In Thousands of Dollars) As of and for the Year Ended September 30, 2000 - ------------------ Revenues from external customers.............. $1,429,242 $391,989 $1,821,231 Intersegment revenues... 98,026 7,298 $(105,324) -- Gross margin............ 97,378 41,324 138,702 Depreciation and amortization........... 37,473 10,297 $4,209 51,979 Operating income........ (23,785) 2,421 (6,458) (27,822) Total assets............ 747,337 250,802 95,551 1,093,690 Capital expenditures.... 13,486 1,345 1,472 16,303
Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ (In Thousands of Dollars) As of and for the Year Ended September 30, 1999 - ------------------ Revenues from external customers.............. $1,490,981 $397,649 -- -- $1,888,630 Intersegment revenues... 92,493 7,234 -- $(99,727) -- Gross margin............ 132,007 52,284 -- -- 184,291 Depreciation and amortization........... 38,849 9,782 $ 2,641 -- 51,272 Operating income........ 35,661 14,037 (1,794) -- 47,904 Total assets............ 870,894 247,834 162,055 -- 1,280,783 Capital expenditures.... 17,569 3,723 5,513 -- 26,805
F-23 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998
Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------ ------------ (In Thousands of Dollars) As of and for the Year Ended September 30, 1998 - ------------------ Revenues from external customers.............. $1,529,189 $253,902 -- -- $1,783,091 Intersegment revenues... 37,532 7,252 -- $(44,784) -- Gross margin............ 146,931 21,408 -- -- 168,339 Depreciation and amortization........... 37,532 6,268 $1,955 -- 45,755 Operating income........ 33,533 5,406 -- -- 38,939 Total assets............ 968,312 116,642 94,846 -- 1,179,800 Capital expenditures.... 35,489 872 6,058 -- 42,419
Reconciliation of operating income to net loss before income taxes, minority interest and extraordinary item (in thousands):
Year Ended September 30, --------------------------- 2000 1999 1998 -------- -------- ------- Operating income................................. $(27,822) $ 47,904 $38,939 Interest expense--net............................ (56,656) (59,071) (48,718) Realized securities gains--net................... 35,874 4,697 2,181 Loss on partnership investment................... -- (16,706) -- Other income--net................................ 954 1,598 6,386 -------- -------- ------- Loss before income taxes, minority interest and extraordinary item.............................. $(47,650) $(21,578) $(1,212) ======== ======== =======
13. COMMITMENTS AND CONTINGENCIES The Company is party to litigation and claims which are normal in the course of its operations; while the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its results of operations or consolidated financial position. The Company was obligated under $29.9 million in outstanding letters of credit at September 30, 2000. The Company leases certain facilities and equipment under cancelable and noncancelable operating leases. Total rental expenses for all operating leases amounted to $6.2 million in fiscal 2000, $6.5 million in fiscal 1999, and $7.8 million in fiscal 1998. The aggregate future minimum lease commitments under noncancelable operating leases at September 30, 2000 are summarized as follows (in thousands of dollars):
Operating Fiscal Year Ending September 30, Leases -------------------------------- --------- 2001............................................................. 2,971 2002............................................................. 1,899 2003............................................................. 1,539 2004............................................................. 1,135 2005............................................................. 766 Thereafter....................................................... 2,857
The aggregate future minimum amount to be received under sub-leases was $1.9 million at September 30, 2000. F-24 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 14. OTHER INCOME STATEMENT INFORMATION The Company ceased processing sugarbeets at the Tracy and Woodland, California facilities near the end of calendar 2000 following the completion of the fall production campaigns. These factories will continue to package and distribute refined sugar products with sugar supplied from the remaining two California beet factories and other Company processing facilities. In October 2000, the Company ceased cane sugar refining at its Clewiston, Florida refinery and concentrated production in the southeastern United States in its large Savannah, Georgia refinery. As a result, the Company recorded charges during the fourth quarter of fiscal 2000 totaling $27.5 million as summarized below (in thousands of dollars):
Accrued Amounts Balance at Paid in September 30, Total Fiscal 2000 2000 ------- ----------- ------------- Accrual for cash charges: Severance for approximately 280 employees.. $ 3,203 -- $ 3,203 Environmental costs........................ 6,245 -- 6,245 Abandoned lease commitments and other cash costs..................................... 2,026 -- 2,026 ------- ------- Subtotal cash charges.................... 11,474 $11,474 ------- ======= Noncash charges--asset impairment of: Property and equipment..................... 15,142 Beet seed inventory........................ 924 ------- Subtotal noncash charges................. 16,066 ------- Total impairment and other charges........... $27,540 =======
Severance costs for employees at the affected production facilities was estimated based upon the positions eliminated and the Company's severance policy or collective bargaining agreements and does not include any portion of the employees' salary through their severance dates. No severance was paid through September 30, 2000; the Company estimates that all of the accrued severance will be paid during fiscal 2001 when the facilities cease production operations. The Company accrued $6.2 million related to expected environmental exit costs associated with the California and Florida facilities. The Company expects it will be required to incur costs to remediate certain production areas, including the removal or capping of certain former production settling ponds. The Company expects to spend approximately $1.0 million during fiscal 2001, with the remaining amounts estimated to be expended over a 3-year period. The Company recorded an asset impairment charge of $15.1 million to write down the book value of buildings and equipment which will no longer be used in the Company's sugar operations to the estimated value to be realized upon disposal. Additionally, the Company provided an allowance for the impairment of the book value of beet seed inventory varieties which were developed specifically for the Northern California growing region. The Company recorded $6.8 million of cost of sales resulting from balances between subsidiaries during the fourth quarter of 2000. In fiscal 1999, the Company recorded charges totaling $16.7 million to write-off its investment in Pacific Northwest Sugar Company, a partnership in which a subsidiary of the Company was a 43% limited partner. In connection with the restructuring of the partnership's debt, the Company transferred its limited partnership F-25 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 2000, 1999, and 1998 interest to an affiliate of the general partner. An agreement dated April 26, 1999 terminated the Company's involvement with the project and includes mutual releases among the parties. As a result of the agreement, the general partner became the sole owner of the partnership, which constructed, owns and operates a beet sugar processing facility in Moses Lake, Washington. The facility experienced substantial operating losses in its first year of operation; the Company's share of such losses on the equity accounting method totaled approximately $10.5 million and is included in the above-mentioned charge. In fiscal 1998, the Company incurred a $1.0 million charge for severance and related costs in connection with the reorganization of administrative functions after the acquisition of Savannah Foods. Substantially all such amounts were paid by September 30, 1999. Additionally, a charge of $3.8 million was recorded for the loss the Company expected to incur in fulfilling its industrial sales commitments in California at higher costs as a result of the abnormal weather experienced there during the spring months. In fiscal 1998, the Company ceased sugarbeet processing at its Hereford, Texas factory, and provided $1.0 million for the estimated cash closure costs, principally severance costs in connection with the layoff of approximately 60 employees. Substantially all such amounts were paid by September 30, 1999. The Company continues to operate a molasses desugarization plant at the Hereford facility by processing molasses from other beet sugar factories. The Company recorded a $12.5 million asset impairment loss to reduce the carrying value of the sugarbeet processing plant to its estimated fair value and to reduce the carrying value of the molasses desugarization plant to its fair value, which was based on the present value of the projected future cash flows. Interest income and dividends totaled $1.2 million for fiscal 2000, $1.7 million for fiscal 1999, and $2.7 million for fiscal 1998. The Company conducts all its operations through its consolidated subsidiaries, substantially all of whom fully and unconditionally guarantee the Company's Subordinated Debt. The Company does not publish separate financial statements for such guarantor subsidiaries because management has determined that such information is not material to investors. However, substantially all of its consolidated revenues and income are earned by and substantially all of its consolidated assets are owned by such guarantor subsidiaries. F-26 EX-4.(B)(2) 2 0002.txt SUPPLEMENTAL INDENTURE Exhibit 4(b)(2) SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of September 30, 1998 among Imperial Holly Corporation, a Texas corporation (the "Company"), the subsidiaries of the Company listed on the signature pages thereof (collectively, the "Guarantors"), Imperial Sugar LP, a Delaware limited partnership, Savannah Sugar LP, a Delaware limited partnership, Savannah Molasses & Specialties Company, a Delaware corporation, Ragus Holdings, Inc., a Delaware corporation, and Imperial Distributing, Inc., a Delaware corporation (each, a "New Guarantor"), each an affiliate of the Company, and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). Capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Indenture (as defined below). WITNESSETH WHEREAS, the Company and the Guarantors have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of December 22, 1997, providing for the issuance of an aggregate principal amount of $250,000,000 of 9-3/4% Senior Subordinated Notes due 2007 (the "Notes"); WHEREAS, Section 4.18 and Article 11 of the Indenture provide that under certain circumstances the Company may or must cause certain of its subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such subsidiaries shall unconditionally guarantee all of the Company's Obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the New Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. Each New Guarantor hereby agrees, jointly and severally with all other Guarantors and New Guarantors, to guarantee the Company's Obligations under the Notes and the Indenture on the terms and subject to the conditions set forth in Article 11 of the Indenture and to be bound by all other applicable provisions of the Indenture. 3. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, partner, member, shareholder or agent of any Guarantor or New Guarantor, 1 as such, shall have the liability for any obligations of the Company or any Guarantor or New Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. 4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE. 5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the correctness of the recitals of fact contained herein, all of which recitals are made solely by the Company and the New Guarantors. 2 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. IMPERIAL HOLLY CORPORATION By: /s/ Hal P. Mechler ----------------------------- Name: Hal P. Mechler Title: Vice President-Accounting IMPERIAL SUGAR LP By: Savannah Molasses & Specialties Company, general partner By: /s/ J. Eric Story ----------------------------- Name: J. Eric Story Title: Treasurer SAVANNAH SUGAR LP By: Savannah Molasses & Specialties Company, general partner By: /s/ J. Eric Story ----------------------------- Name: J. Eric Story Title: Treasurer SAVANNAH MOLASSES & SPECIALTIES COMPANY By: /s/ J. Eric Story ----------------------------- Name: J. Eric Story Title: Treasurer 3 RAGUS HOLDINGS, INC. By: /s/ Barbara A. Steen ----------------------------- Name: Barbara A. Steen Title: Vice President IMPERIAL DISTRIBUTING, INC. By: /s/ Mary L. Burke ----------------------------- Name: Mary L. Burke Title: Sr. Vice President BANK OF NEW YORK, as Trustee By: /s/ Remo J. Reale ----------------------------- Name: Remo J. Reale Title: Assistant Vice President 4 EX-4.(B)(3) 3 0003.txt RESIGNATION, APPOINTMENT, AND ACCEPTANCE AGREEMENT Exhibit 4(b)(3) AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of November 2, 2000 by and among Imperial Sugar Company, formerly known as Imperial Holly Corporation, a corporation duly organized and existing under the laws of the State of Texas and having its principal office at One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487 (the "Company"), The Bank of New York, a banking corporation duly organized and existing under the laws of the State of New York and having its principal corporate trust office at 101 Barclay Street 21 W, New York, New York 10286, (the "Resigning Trustee") and United States Trust Company of New York, a banking corporation and trust company duly organized and existing under the laws of the State of New York and having its principal corporate trust office at 114 West 47/th/ Street, New York, NY 10036 (the "Successor Trustee"). RECITALS: WHEREAS, there was originally authorized and issued $250,000,000 aggregate principal amount of the Company's 9 3/4% Senior Subordinated Notes due 2007 under an indenture dated as of December 22, 1997 as amended by the Supplemental Indenture dated as of September 30, 1998 by and between the Company and the Resigning Trustee (said Notes are hereinafter referred to as "Securities" and said indenture is hereinafter referred to as the "Indenture"); WHEREAS, Section 7.08 of the Indenture provides that the Trustee may at any time resign by giving written notice of such resignation to the Company, effective upon the acceptance by a successor Trustee of its appointment as a successor Trustee; WHEREAS, Section 7.08 of the Indenture provides that any successor Trustee appointed in accordance with the Indenture shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment under the Indenture, and thereupon the resignation of the predecessor Trustee shall become effective and such successor 1 Trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of the predecessor Trustee; WHEREAS, the Resigning Trustee was appointed Registrar, Paying Agent and Note Custodian by the Company; WHEREAS, the Company desires to appoint Successor Trustee as Trustee, Registrar, Paying Agent and Note Custodian; WHEREAS, Successor Trustee is willing to accept such appointment as successor Trustee, Registrar, Paying Agent and Note Custodian under the Indenture; NOW, THEREFORE, the Company, Resigning Trustee and Successor Trustee, for and in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby consent and agree as follows: ARTICLE ONE THE RESIGNING TRUSTEE --------------------- SECTION I. Pursuant to Section 7.08 of the Indenture, Resigning Trustee hereby notifies the Company that Resigning Trustee is hereby resigning as Trustee, Registrar, Paying Agent and Note Custodian under the Indenture. SECTION II. Resigning Trustee hereby represents and warrants to Successor Trustee that: (a) No covenant or condition contained in the Indenture has been waived by Resigning Trustee or, to the best of the knowledge of the Responsible Officers of Resigning Trustee's Corporate Trust Group, by the Holders of the percentage in aggregate principal amount of the Securities required by the Indenture to effect any such waiver. 2 (b) There is no action, suit or proceeding pending or, to the best of the knowledge of the Responsible Officers of Resigning Trustee's Corporate Trust Group, threatened against Resigning Trustee before any court or any governmental authority arising out of any action or omission by Resigning Trustee as Trustee under the Indenture. (c) As of the effective date of this Agreement, Resigning Trustee will hold no property or money under the Indenture. (d) Pursuant to Section 2.02 of the Indenture, Resigning Trustee duly authenticated and delivered, on December 22, 1997 $250,000,000 aggregate principal amount of Securities of which $250,000,000 is outstanding. (e) Each person who so authenticated the Securities was duly elected, qualified and acting as an officer of Resigning Trustee and empowered to authenticate the Securities at the respective times of such authentication and the signature of such person or persons appearing on such Securities is each such person's genuine signature. (f) This Agreement has been duly authorized, executed and delivered on behalf of Resigning Trustee and constitutes its legal, valid, binding and enforceable obligation. (g) To the best of the knowledge of the responsible Officers of Resigning Trustee's Corporate Trust Group, no event has occurred and is continuing which is, or after notice or lapse of time, or both, would become, an Event of Default under Section 6.01 of the Indenture. SECTION III. Resigning Trustee hereby assigns, transfers, delivers and confirms to Successor Trustee all right, title and interest of Resigning Trustee in and to the trust under the 3 Indenture and all the rights, powers and trusts of the Trustee under the Indenture. Resigning Trustee shall execute and deliver such further instruments and shall do such other things as Successor Trustee may reasonably require so as to more fully and certainly vest and confirm in Successor Trustee all the rights, trusts and powers hereby assigned, transferred, delivered and confirmed to Successor Trustee as Trustee, Registrar and Paying Agent. SECTION IV. Resigning Trustee hereby acknowledges payment or provision for payment in full by the Company of compensation for all services rendered by Resigning Trustee under Section 7.07 of the Indenture and reimbursement in full by the Company of the expenses, disbursements and advances incurred or made by Resigning Trustee in accordance with the provisions of the Indenture. Resigning Trustee transfers all property held by it pursuant to Section 7.08 of the Indenture and acknowledges that it relinquishes any lien it may have upon all property or funds held or collected by it to secure any amounts due it pursuant to the provisions of Section 7.07 of the Indenture. SECTION V. Resigning Trustee shall deliver to Successor Trustee, as of or immediately after the effective date hereof, all of the documents listed on Exhibit A hereto. ARTICLE TWO THE COMPANY ----------- SECTION I. The Company hereby accepts the resignation of Resigning Trustee as Trustee, Registrar and Paying Agent under the Indenture. SECTION II. The Company hereby appoints Successor Trustee as Trustee, Registrar, and Paying Agent and Note Custodian under the Indenture to succeed to, and hereby vests Successor Trustee with, all the rights, powers, duties and obligations of Resigning Trustee under the Indenture with like effect as if originally named as Trustee, Registrar, Paying Agent and Note Custodian in the Indenture. 4 SECTION III. The Company hereby represents and warrants to Resigning Trustee and Successor Trustee that: (a) The Company is a corporation duly and validly organized and existing pursuant to the laws of the State of Texas. (b) The Indenture was validly and lawfully executed and delivered by the Company and the Securities were validly issued by the Company. (c) The Company has performed or fulfilled prior to the date hereof, and will continue to perform and fulfill after the date hereof, in all material respects each covenant, agreement, condition, obligation and responsibility under the Indenture. (d) No event has occurred and is continuing which is, or after notice or lapse of time, or both, would become, an Event of Default under Section 6.01 of the Indenture. (e) No covenant or condition contained in the Indenture has been waived by Company or, to the best of Company's knowledge, by Holders of the percentage in aggregate principal amount of the Securities required to effect any such waiver. (f) There is no action, suit or proceeding pending or, to the best of Company's knowledge, threatened against the Company before any court or any governmental authority arising out of any action or omission by the Company under the Indenture. (g) This Agreement has been duly authorized, executed and delivered on behalf of Company and constitutes its legal, valid, binding and enforceable obligation. 5 (h) All conditions precedent relating to the appointment of United States Trust Company of New York as Successor Trustee under the Indenture have been complied with by the Company. ARTICLE THREE THE SUCCESSOR TRUSTEE --------------------- SECTION I. Successor Trustee hereby represents and warrants to Resigning Trustee and to the Company that: (a) Successor Trustee is not disqualified under the provisions of Article Seven of the Indenture and is eligible under the provisions of Section 7.10 of the Indenture to act as Trustee under the Indenture. (b) This Agreement has been duly authorized, executed and delivered on behalf of Successor Trustee and constitutes its legal, valid, binding and enforceable obligation. SECTION II. Successor Trustee hereby accepts its appointment as successor Trustee, Registrar and Paying Agent under the Indenture and accepts the rights, powers, duties and obligations of Resigning Trustee as Trustee under the Indenture, upon the terms and conditions set forth therein, with like effect as if originally named as Trustee under the Indenture. SECTION III. Promptly after the effective date of this Agreement, the Successor Trustee shall cause a notice, substantially in the form of Exhibit B annexed hereto, to be sent to each Holder of the Securities in accordance with the provisions of Section 7.08 of the Indenture. SECTION IV. References in the Indenture to "Corporate Trust Office" or other similar terms shall be deemed to refer to the Corporate Trust Office of Successor Trustee 114 West 47/th/ Street, New York, NY 10036 or any other office of Successor Trustee at which, at any particular time, its corporate trust business shall be principally administered. 6 ARTICLE FOUR MISCELLANEOUS ------------- SECTION I. Except as otherwise expressly provided herein or unless the context otherwise requires, all terms used herein which are defined in the Indenture shall have the meaning assigned to them in the Indenture. SECTION II. This Agreement and the resignation, appointment and acceptance effected hereby shall be effective as of the opening of business on November 2,2000. SECTION III The Company acknowledges its obligation set forth in Section 7.07 of the Indenture to indemnify Resigning Trustee for, and to hold Resigning Trustee harmless against, any loss, liability and expense incurred without negligence or bad faith on the part of the Resigning Trustee and arising out of or in connection with the acceptance or administration of the trust evidenced by the Indenture (which obligation shall survive the execution hereof). The Company acknowledges and reaffirms its obligations to the Successor Trustee under the Indenture as set forth in Section 7.07 of the Indenture, which obligations shall survive the execution hereof. SECTION IV. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION V. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION VI. The Company, Resigning Trustee and Successor Trustee hereby acknowledge receipt of an executed and acknowledged counterpart of this Agreement and the effectiveness thereof. 7 IN WITNESS WHEREOF, the parties hereby have caused this Agreement of Resignation, Appointment and Acceptance to be duly executed and acknowledged and their respective seals to be affixed thereunto and duly attested all as of the day and year first above written. Imperial Sugar Company By: /s/ Karen L. Mercer ---------------------- Name: Karen L. Mercer Title: VP and Treasurer The Bank of New York, as Resigning Trustee By: /s/ Irene Siegel ---------------------- Name: Irene Siegel Title: Vice President United States Trust Company of New York, as Successor Trustee By: /s/ Bill Barber ---------------------- Name: Bill Barber Title: Authorized Signatory 8 EX-4.(C)(3) 4 0004.txt AM. 1 TO RECEIVABLES PURCHASE AGREEMENT Exhibit 4(c)(3) AMENDMENT NO. 1 Dated as of December 13, 1999 to RECEIVABLES PURCHASE AGREEMENT Dated as of June 30, 1999 This AMENDMENT NO. 1 (this "Amendment") dated as of December 13, 1999 is entered into among IMPERIAL SECURITIZATION CORPORATION (the "Seller"), IMPERIAL DISTRIBUTING, INC. ("Imperial"), as Servicer, IMPERIAL SUGAR COMPANY (the "Performance Guarantor"), FAIRWAY FINANCE CORPORATION (the "Purchaser"), and NESBITT BURNS SECURITIES INC. ("Nesbitt Burns"), as agent for Purchaser (in such capacity, together with its successors and assigns, the "Agent"). RECITALS WHEREAS, the parties hereto have entered into a certain Receivables Purchase Agreement dated as of June 30, 1999 (the "Agreement"); WHEREAS, the parties hereto wish to make certain changes to the Agreement as herein provided; NOW, THEREFORE, in consideration of the promises and the mutual agreements contained herein and in the Agreement, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein are used as defined in the Agreement. SECTION 2. Amendments to Agreement. The Agreement is hereby amended as follows: 2.1 The first sentence of Section 3.1(a) of the Agreement is herby amended by inserting the phrase ", each Program Support Provider" after the term "Agent." 2.2 Section 4.3(d) of the Agreement is hereby amended in its entirety to read as follows: "(d) Permitted Investments. Any amounts in the Liquidation Account or the Collection Account, as the case may be, may be invested by the Liquidation Account Bank or Collection Account Bank, respectively, at Servicer's direction, in Permitted Investments, so long as Purchaser's interest in such Permitted Investments is perfected and such Permitted Investments are subject to no Adverse Claims other than those of the Purchaser provided hereunder; provided, however, that such investments shall mature not later than one Business Day next preceding the last day of any Settlement Period for any Portion of Investment next succeeding the date of such investment." Amendment #1 2.3 Section 5.3(b) of the Agreement is hereby amended by adding the following after the word "Participation" in the first sentence: "with the prior written consent of the Seller; provided, however, that such consent shall not be unreasonably withheld; provided, further, that no such consent shall be required if the participating interests or security interests in the Participation are granted to the Bank of Montreal, a Canadian chartered bank acting through its Chicago Branch, any Affiliate of the Purchaser or any existing Liquidity Bank as of the date of this Amendment." 2.4 Section 5.4(a) of the Agreement is hereby amended in its entirety to read as follows: "Section 5.4 Costs, Expenses and Taxes. (1) In addition to the rights of indemnification granted under Section 3.1 hereof, the Seller agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing of Pool Receivables) of this Agreement, the Liquidity Agreement, and the other documents and agreements to be delivered hereunder, including all reasonable costs and expenses relating to the amending, amending and restating, modifying or supplementing of this Agreement, the Liquidity Agreement and the other documents and agreements to be delivered hereunder and the waiving of any provisions thereof, and including in all cases, without limitation, Attorney Costs for the Agent, the Purchaser, each Program Support Provider and their respective Affiliates and agents with respect thereto and with respect to advising the Agent, the Purchaser, each Program Support Provider and their respective Affiliates and agents as to their rights and remedies under this Agreement and the other Transaction Documents, and all reasonable costs and expenses, if any (including Attorney Costs), of the Agent, the Purchaser, each Program Support Provider and their respective Affiliates and agents, in connection with the enforcement of this Agreement and the other Transaction Documents." 2.5 Section 5.6 of the Agreement is hereby amended in its entirety to read as follows: "Section 5.6 Confidentiality. Unless otherwise required by applicable law (including the disclosure requirement of applicable securities laws), the Seller agrees to maintain the confidentiality of this Agreement and the other Transaction Documents (and all drafts thereof) in communications with third parties and otherwise; provided that this Agreement may be disclosed to (a) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Agent, (b) any Program Support Provider and (c) the Seller's legal counsel and auditors if they agree to hold it confidential, provided that only the terms and conditions of this agreement may be revealed to such parties and not the details of any fees, pricing or interest rates." 2.6 The definition of "Attorney Costs" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: Amendment #1 2 "'Attorney Costs' means and includes all fees and disbursements of any law firm or other external counsel, the allocated costs of internal legal services and all disbursements of internal counsel, to be paid as set forth in the Fee Letter or otherwise in the case of any Program Support Provider, as provided in Section 5.4." 2.7 The definition of "Defaulted Receivable" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: "Defaulted Receivable" means a Receivable: (i) as to which any payments, or part thereof, remains unpaid for more than 60 days from the due date for such Receivable or such other number of days from the due date for such Receivable approval by the Agent subject to the satisfaction of the Rating Agency Condition; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof becomes the subject of any Insolvency Proceeding; or (iii) which, consistent with the Credit and Collection Policy, would be written off the Seller's books as uncollectible." 2.8 Clause (i) of the definition of "Delinquent Receivable" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: "(i) as to which any payment, or part thereof, remains unpaid for more than 30 days from the due date for such Receivable or such other number of days from the due date for such Receivable approved by the Agent subject to the satisfaction of the Rating Agency Condition; or". 2.9 Clause (i) of the definition of "Eligible Receivables" as set forth in Exhibit I of the Agreement is hereby amended in its entirety as follows: "(i) the Obligor of which is (i) a United States resident or OECD resident; provided, however, if the Obligor of such Receivable is a resident of a jurisdiction other than the United States or OECD, such Obligor's obligations with respect to such Receivables are supported by a letter of credit or guaranty from an entity with a rating of at least (a) A by Standard & Poor's and (b) A2 by Moody's, (ii) not a government or a governmental subdivision, affiliate or agency; provided, however, if the Obligor of such Receivable is a government or a governmental subdivision, affiliate or agency, the aggregate Outstanding Balance of all Pool Receivables of such Obligor that are Eligible Receivables when added to the aggregate Outstanding Balance of all other Eligible Receivables or Obligors that are governments or governmental subdivisions, affiliates or agencies shall not exceed 3% of the Net Receivables Pool Balance, (iii) not an Affiliate of Imperial or any Amendment #1 3 Affiliate of Imperial, (iv) not subject to an exchange agreement with any Originator, and (v) not deemed unacceptable by the Agent, and;" 2.10 The definition of "Investment Grade" as set forth in the Exhibit I of the Agreement is hereby amended by deleting the word "or" immediately following the reference to "Standard & Poor's" in the second line thereof, and substituting therefor the word "and". 2.11 The definition of "Normal Concentration Percentage" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: "'Normal Concentration Percentage' for any Obligor means at any time 2.5% if such Obligor is not a Special Obligor, or if such Obligor is a Special Obligor, 8% if such Special Obligor is rated A or better by S&P and A2 or better by Moody's, 6% if such Special Obligor is rated BBB+ or better by S&P and Baa1 or better by Moody's and 4% if such Special Obligor is not so rated but is rated at least BBB- by S&P and Baa3 by Moody's." 2.12 The definition of "Total Reserves" as set forth in Exhibit I of the Agreement is amended in its entirety as follows: "'Total Reserves' means the sum of the Discount Reserve, the Loss Reserve and the Servicing Fee Reserve." 2.13 Exhibit IV of the Agreement is hereby amended to add the following at the end thereof: "(s) Credit Agreement. Imperial will provide to the Agent (in multiple copies, if requested by the Agent) the following: (i) as soon as possible and in any event within 5 Business Days after a Responsible Officer of Imperial obtains knowledge thereof, notice of any amendment, modification or waiver in any of the financial covenants set forth in Section 7 of the Credit Agreement. (ii) as soon as possible and in any event within 50 days after the end of each of the first three quarters of each fiscal year of Imperial and 100 days after the last fiscal quarter of each fiscal year of Imperial, a copy of the certificate provided to the lenders under the Credit Agreement with respect to the financial covenants contained in Section 7 of the Credit Agreement." 2.14 Paragraph (h) of Exhibit V of the Agreement is hereby amended in its entirety as follows: "; or (h) As of the last day of any Fiscal Month (i) the arithmetic average for the most recent three Fiscal Months of (A) the Default Ratios from November 30, 1999 until May 31, Amendment #1 4 2000 shall exceed 7% and thereafter shall exceed 6%, or (B) the Delinquency Ratios from November 30, 1999 until May 31, 2000 shall exceed 12.5% and thereafter shall exceed 10%, or (C) the Dilution Ratio shall exceed 2.5% or (ii) the arithmetic average of the Loss-to-Liquidation Ratios for the most recent twelve Fiscal Months shall exceed 1%; or" 2.15 Paragraph (m) of Exhibit V of the Agreement is hereby amended in its entirety as follows: "; or (m) Imperial shall fail to perform and comply with each of the financial covenants set forth in Section 7 of the Credit Agreement as in effect on the date hereof, (but without giving effect to any other amendment, modification or waiver to such financial covenants from time to time under the Credit Agreement, except as set forth below), each of which covenants and agreements, together with all related definitions, exhibits and ancillary provisions, are hereby incorporated in this Agreement by reference as though specifically set forth in this paragraph (m) and shall survive the termination and/or expiration of the Credit Agreement; provided, however, that if at least 50% of the Lenders (as such term is defined in the Credit Agreement) including Harris, and the Bank of Montreal, a Canadian chartered bank acting through its Chicago Branch (but not any Person to whom the Bank of Montreal may grant, sell or assign all or any part of its rights under this Agreement, the Participation or any liquidity agreement related to this Agreement) approves any amendment, modification or waiver of any financial covenant set forth in Section 7 of the Credit Agreement, then a Termination Event shall occur with respect to a failure to comply with such financial covenant only if Imperial shall fail to comply with the financial covenant set forth in Section 7, of the Credit Agreement as so amended, modified or waived; or" 2.16 Exhibit V of the Agreement is hereby amended to add the following at the end thereof: "; or (n) the occurrence of any event of default set forth in Section 8 of the Credit Agreement as in effect on the date hereof, (regardless of whether such event of default may be amended, modified or waived from time to time in accordance with the Credit Agreement), each of which events of default and agreements, together with all related definitions, exhibits and ancillary provisions, are hereby incorporated in this Agreement by reference as though specifically set forth in this paragraph (n) and shall survive the termination and/or expiration of the Credit Agreement; provided, however, that if at least 50% of the Lenders (as such term is defined in the Credit Agreement) including Harris approves any amendment, modification or waiver of any event of default set forth in Section 8 of the Credit Agreement, then a Termination Event shall occur with respect to a failure to comply with such event of default only if Imperial shall fail to comply with the event of default set forth in Section 8, of the Credit Agreement as so amended, modified or waived." Amendment #1 5 SECTION 3. Miscellaneous. 3.1 Effectiveness. This Amendment shall become effective on the date when the Agent shall have received an original counterpart (or counterparts) of this Amendment, executed and delivered by each of the parties hereto, or other evidence satisfactory to the Agent of the execution and delivery of this Amendment by such parties. 3.2 References to Agreement. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import shall mean and be a reference to the Agreement as amended hereby, and each reference to the Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Agreement shall mean and be a reference to the Agreement as amended hereby. 3.3 Effect on the Agreement. Except as specifically amended above, the Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. 3.4 No Waiver. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any party under the Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. 3.5 Governing Law. This Amendment, including the rights and duties of the parties hereto, shall be governed by, and construed in accordance with, the laws of the State of Texas (without giving effect to the conflict of laws principles thereof). 3.6 Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 3.7 Headings. The Section headings in this Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. 3.8 Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Amendment #1 6 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. IMPERIAL SECURITIZATION CORPORATION By: /s/ W. F. Schwer ------------------------------------ Name: W. F. Schwer Title: President IMPERIAL DISTRIBUTING, INC., as Servicer By: /s/ W. F. Schwer ------------------------------------ Name: W. F. Schwer Title: Sr. Vice President IMPERIAL SUGAR COMPANY, as Performance Guarantor By: /s/ Mark Q. Huggins ------------------------------------ Name: Mark Q. Huggins Title: Managing Director and Chief Financial Officer Amendment #1 S-1 FAIRWAY FINANCE CORPORATION, as Purchaser By: /s/ Dwight Jenkins ------------------------------------ Name: Dwight Jenkins Title: Vice President NESBITT BURNS SECURITIES INC., as Agent By: /s/ David J. Kucera ------------------------------------ Name: David J. Kucera Title: Managing Director By: /s/ James P. Walsh ------------------------------------ Name: James P. Walsh Title: Managing Director Amendment #1 S-2 EX-4.(C)(4) 5 0005.txt AM. 2 TO RECEIVABLES PURCHASE AGREEMENT Exhibit 4(c)(4) AMENDMENT NO.2 Dated as of March 27, 2000 to RECEIVABLES PURCHASE AGREEMENT Dated as of June 30, 1999 This AMENDMENT NO. 2 (this "Amendment") dated as of March 27, 2000 is entered into among IMPERIAL SECURITIZATION CORPORATION (the "Seller"), IMPERIAL DISTRIBUTING, INC. ("Imperial"), as Servicer, IMPERIAL SUGAR COMPANY (the "Performance Guarantor"), FAIRWAY FINANCE CORPORATION (the "Purchaser"), and BMO NESBITT BURNS CORP. ("Nesbitt Burns") (formerly known as NESBITT BURNS SECURITIES INC.), as agent for Purchaser (in such capacity, together with its successors and assigns, the "Agent"). RECITALS WHEREAS, the parties hereto have entered into a certain Receivables Purchase Agreement dated as of June 30, 1999, as amended by Amendment No. 1, dated as of December 13, 1999 (the "Agreement"); WHEREAS, the parties hereto wish to make certain changes to the Agreement as herein provided; NOW, THEREFORE, in consideration of the promises and the mutual agreements contained herein and in the Agreement, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein are used as defined in the Agreement. SECTION 2. Amendments to Agreement. The Agreement is herby amended as follows: 2.1 Exhibit I of the Agreement is hereby amended by adding the following definitions, as alphabetically appropriate: "'Aged Ratio' means the ratio (expressed as a percentage and rounded upward to the nearest 1/100 of 1%) computed as of the last day of each Fiscal Month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables that are Aged Receivables or that would have been Aged Receivables had they not been written off the books of the Seller by (ii) the aggregate credit sales made by all the Originators during the month that is three Fiscal Months before such month." Amendment #2 "'Aged Receivable' means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for more than 90 days from the invoice date for such Receivable or such other number of days from the invoice date for such Receivable approved by the Agent subject to the satisfaction of the Rating Agency Condition; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect becomes the subject of any Insolvency Proceeding; or (iii) which, consistent with the Credit and Collection Policy, would be written off the Seller's books as uncollectible." "'Cut-Off Date' means February 29, 2000." "'GAAP' means the general accepted United States accounting principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors and successors from time to time." "'Shortpay Amount' means with respect to any Shortpay Receivable at any time an amount equal to the difference between the original invoiced amount for such Shortpay Receivable and the amount actually received by the Seller or the Servicer from or on behalf of the Obligor of such Shortpay Receivable." "'Shortpay Receivable' means a Receivable as to which the Obligor has paid to the Seller on account of such Receivable less than the original invoiced amount for such Receivable because such Obligor believes it is entitled to a promotional discount or allowance with respect thereto." 2.2 The definition of "Defaulted Receivable" as set forth in the Exhibit I of the Agreement is hereby amended by adding the following proviso to clause (i) of such definition. "provided, however, that on and prior to the Cut-Off Date any portion of such payment that remains so unpaid equal to the Shortpay Amount with respect to such Receivable shall not be considered to be past due for purposes of this clause (i) and after the Cut-Off date any portion of such payment that remains so unpaid equal to the Shortpay Amount with respect to such Receivable shall be considered to be past due for purposes of this clause (i), unless and until the date the Servicer determines that the Obligor is entitled to the promotional discount or allowance that gave rise to such Shortpay Amount." 2.3 The definition of "Delinquent Receivable" as set forth in the Exhibit I of the Agreement is hereby amended by adding the following proviso to clause (i) of such definition: Amendment #2 2 "provided, however, that on and prior to the Cut-Off Date any portion of such payment that remains so unpaid equal to the Shortpay Amount with respect to such Receivable shall not be considered to be past due for purposes of this clause (i) and after the Cut-Off date any portion of such payment that remains so unpaid equal to the Shortpay Amount with respect to such Receivable shall be considered to be past due for purposes of this clause (i), unless and until the date the Servicer determines that the Obligor is entitled to the promotional discount or allowance that gave rise to such Shortpay Amount." 2.4 The definition of "Dilution Ratio" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: "'Dilution Ratio' means for any Fiscal Month, the ratio (expressed as a percentage and rounded upwards to the nearest 1/100th of 1%) of (a) the extent to which the aggregate Outstanding Balance of all Pool Receivables during such period that have been reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed goods or services, or any discount or adjustment made by Seller or Servicer or any dispute between the Seller or the Servicer and an Obligor, to (b) the aggregate credit sales made by all the Originators during the Fiscal Month that is two months prior to such Fiscal Month; provided, however, that (i) on and prior to the Cut-Off Date, any Shortpay Amounts shall be included in the amount calculated pursuant to clause (a) in the month that such Shortpay Amount occurred and (ii) after the Cut-Off Date, any Shortpay Amount with respect to any Pool Receivable shall be included in the amount calculated pursuant to clause (a) on the date the Servicer determines that the Obligor is entitled to the promotional discount or allowance that gave rise to the Shortpay Amount." 2.5 Clause (ii) of the definition of "Loss Percentage" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: "(ii)(A) on and prior to July 15, 2000, 4 times the sum of the (x) highest average of Aged Ratios for any three consecutive Fiscal Months during the twelve most recent Fiscal Months, plus (y) the highest average of Dilution Ratios for any three consecutive Fiscal Months during the twelve most recent Fiscal Months, and (B) after July 15, 2000 (unless otherwise agreed to by the Agent in a writing signed by the Agent), 4 times the sum of the (x) highest average of Default Ratios for any three consecutive Fiscal Months during the twelve most recent Fiscal Months, plus (y) the highest average of Dilution Ratios for any three consecutive Fiscal Months during the twelve most recent Fiscal Months,," 2.6 The definition of "Normal Concentration Percentage" as set forth in the Exhibit I of the Agreement is hereby amended in its entirety as follows: "'Normal Concentration Percentage' for any Obligor means at any time 2.5% if such Obligor is not a Special Obligor, 4.5% if such Obligor is Alliant Food Service, Inc., or Mars, Inc., or if such Obligor is a Special Obligor, 8% if such Special Obligor is rated A or better by S&P and A2 or better by Moody's, 6% if such Special Obligor is rated BBB+ or better by S&P and Baa1 or Amendment #2 3 better by Moody's and 4% if such Special Obligor is not so rated but is rated at least BBB- by S&P and Baa3 by Moody's." 2.7 The definition of "Outstanding Balance" as set forth in Exhibit I of the Agreement is hereby amended in its entirety as follows: "'Outstanding Balance' means with respect to any Receivable at any time, the then outstanding principal balance thereof; provided, however, that (i) on and prior to the Cut-Off Date such principal balance shall be calculated net of any Shortpay Amount on the day that such Shortpay Amount occurred with respect to any Receivable and (ii) after the Cut-Off Date if such Receivable is a Shortpay Receivable the related Shortpay Amount (other than a Shortpay Amount referred to in clause (i) above) shall be deducted from the calculation of the outstanding principal balance of such Receivable on the date the Servicer determines that the Obligor is entitled to the promotional discount or allowance that gave rise to the Shortpay Amount." 2.8 The definition of "Participation Report Date" as set forth in Exhibit I of the Agreement is hereby amended in its entirety as follows: "'Participation Report Date' means the last Business Day of each week or more frequently as requested by the Agent." 2.9 Section 1.4(e) of the Agreement is hereby amended in its entirety as follows: "(i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed goods or services, or any discount, rebate or other adjustment made by the Seller, any Originator or Servicer, or any setoff or dispute between the Seller, any Originator or the Servicer (if the Servicer is IDI or an Affiliate thereof) and an Obligor, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; provided, however, that (i) on and prior to the Cut-Off Date, any Shortpay Amounts shall be included in the amount of such reduction or adjustment and (ii) after the Cut-Off Date, any Shortpay Amount with respect to any Pool Receivable shall be included in the amount of such reduction or adjustment on the date the Servicer determines that the Obligor is entitled to the promotional discount or allowance that gave rise to the Shortpay Amount;" 2.10 Paragraph (d) of Exhibit V is amendment in its entirety as follows: "The Seller, any Originator or the Servicer shall fail to perform or observe any other term, covenant or agreement contained in the Agreement or any other Transaction Document on its part to be performed or observed and any such failure shall remain unremedied for 30 days (or, with respect to a failure to deliver a Servicer Report or Participation Report one Business Day) after a Amendment #2 4 Responsible Officer of the Seller, any Originator or Servicer, as applicable, has notice or knowledge thereof;" 2.11 Paragraph (i) of Exhibit V is amended by deleting the word "five" and inserting in its place the word "three." 2.12 Schedule II is hereby amended to add the following: "Lock-Box Bank" "Lock-Box Account" - --------------- ------------------ Mellon Bank, N.A. 0584860 SECTION 3. Miscellaneous. 3.1 Effectiveness. This Amendment shall become effective on the date when the following conditions shall have been satisfied: (a) the Agent shall have received (i) an original counterpart (or counterparts) of this Amendment, executed and delivered by each of the parties hereto, or other evidence satisfactory to the Agent of the execution and delivery of this Amendment by such parties, (ii) a written statement by S&P and Moody's that this Amendment will not result in a downgrade or withdrawal of the rating of the Notes, (iii) a confirmation from each Originator to the effect that the Servicer and each Originator have placed on the most recent, and have taken all steps reasonably necessary to ensure that there shall be placed on subsequent, summary master control data processing reports the legend referred to in Section 4.1(i) of the Purchase and Sale Agreement, and (iv) such other documents and instruments as the Agent may reasonably request, and (b) Evidence of payment by the Seller of all accrued and unpaid fees (including those contemplated by the Fee Letter), costs and expenses to the extent then due and payable on the date hereof, together with Attorney Costs of the Agent to the extent invoiced prior to or on such date, plus such additional amounts of Attorney Costs as shall constitute the Agent's reasonable estimate of Attorney Costs incurred or to be incurred by it through the effective date of this Amendment; including any such costs, fees and expenses arising under or referenced in Section 5.4 of the Agreement. 3.2 References to Agreement. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import shall mean and be a reference to the Agreement as amended hereby, and each reference to the Agreement Amendment #2 5 in any other document, instrument or agreement executed and/or delivered in connection with the Agreement shall mean and be a reference to the Agreement as amended hereby. 3.3 Effect on the Agreement. Except as specifically amended above, the Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. 3.4 No Waiver. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any party under the Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. 3.5 Governing Law. This Amendment, including the rights and duties of the parties hereto, shall be governed by, and construed in accordance with, the laws of the State of Texas (without giving effect to the conflict of laws principles thereof). 3.6 Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 3.7 Headings. The Section headings in this Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. 3.8 Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Amendment #2 6 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. IMPERIAL SECURITIZATION CORPORATION By: /s/ Karen L. Mercer --------------------------------- Name: Karen L. Mercer Title: Vice President & Treasurer IMPERIAL DISTRIBUTING, INC. as Servicer By: /s/ Karen L. Mercer --------------------------------- Name: Karen L. Mercer Title: Vice President & Treasurer IMPERIAL SUGAR COMPANY as Perfomance Guarantor By: /s/ Mark Q. Huggins --------------------------------- Name: Mark Q. Huggins Title: Chief Financial Officer FAIRWAY FINANCE CORPORATION, as Purchaser By: /s/ Dwight Jenkins --------------------------------- Name: Dwight Jenkins Title: Vice President Amendment #2 S-1 BMO NESBITT BURNS CORP., as Agent By: /s/ David J. Kucera ------------------------------------ Name: David J. Kucera Title: Managing Director By: /s/ Jeffrey J. Phillips ------------------------------------ Name: Jeffrey J. Phillips Title: Managing Director Amendment #2 S-2 EX-10.(B)(1) 6 0006.txt SPECIMEN OF EMPLOYMENT AGREEMENT (FORM A) EXHIBIT 10(b)(1) SPECIMEN EMPLOYMENT AGREEMENT -------------------- (FORM A) THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), is made and entered into as of the first day of March, 2000 (the "EFFECTIVE DATE"), by and between Imperial Sugar Company, a Texas corporation (hereafter "COMPANY") and _________________ hereafter "EXECUTIVE"), an individual; W I T N E S S E T H: ------------------- WHEREAS, Company wishes to continue to secure the services of the Executive subject to the terms and conditions hereafter set forth; and WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth, NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. During the Employment Period (as defined in Section 4 hereof), the Company shall employ Executive, and Executive shall serve as ____________________________________________. Executive's principal place of employment shall be at the corporate offices of the Company in Sugar Land, Texas. Executive's principal place of employment shall not be moved more than 25 miles without his consent, although Executive understands and agrees that he may be required to travel from time to time for business purposes. 2. COMPENSATION. The Company shall pay or cause to be paid to Executive during the Employment Period an annual base salary for his services under this Agreement of not less than $_______, payable in installments in accordance with the Company's normal payroll procedures for its executives. The Executive's base salary shall be subject to at least annual review and may be increased (but not decreased without his consent), depending upon the performance of the Company and Executive, upon the recommendation of the Company's President and approved by the Executive Compensation Committee of the Board of Directors of the Company (hereafter "COMMITTEE"). Nothing contained herein shall preclude the payment of any bonus or other compensation to Executive. 3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the Employment Period, Executive shall devote his services full time to the business of the Company and perform the duties and responsibilities assigned to him by the Company's President or the Company's Board of Directors ("BOARD OF DIRECTORS" or "BOARD") to the best of his ability and with reasonable diligence. In determining Executive's duties and responsibilities, the Company's President and Board of Directors shall act in good faith and shall not assign duties and responsibilities to Executive that are not appropriate or customary with respect to the position of Executive hereunder. This Section 3 shall not be construed as preventing Executive from engaging in reasonable volunteer services for charitable, educational or civic organizations, or from investing his assets in such form or manner as will not require a material amount of his services in the operations of the companies or businesses in which such investments are made. 4. TERM OF EMPLOYMENT. Executive's initial term of employment with the Company under this Agreement shall be for the period from the Effective Date through February 28, 2001 (the "INITIAL TERM OF EMPLOYMENT"). Thereafter, the term of employment hereunder shall be automatically extended repetitively for an additional one (1) year period on March 1, 2001 and each anniversary thereof, unless Notice of Termination pursuant to Section 7 is given by either the Company or Executive to the other party at least ninety (90) days prior to the end of the Initial Term of Employment, or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period. The Company and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a "TERM OF EMPLOYMENT." The period from the Effective Date through the date of Executive's termination of employment for whatever reason shall be referred to herein as the "EMPLOYMENT PERIOD." 5. BENEFITS. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to the following: (a) REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse Executive for all reasonable travel, entertainment (including club dues appropriate in the performance of Executive's service hereunder) and other reasonable expenses paid or incurred by Executive in performing his duties hereunder. The Company shall also provide Executive with suitable office space, including secretarial and staff support. (b) OTHER BENEFITS. Executive shall be entitled to participate and shall be included in any pension, profit-sharing, stock option, deferred compensation, or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. 2 (c) PAID VACATION. Executive shall be entitled to the number of days of paid vacation each year that is accorded under the Company's vacation policy for senior officers in the Office of the President of the Company, but not less than four weeks of paid vacation. The number of days of paid vacation may be increased by the Company's President or Board of Directors at any time during the Employment Period. (d) ANNUAL PHYSICAL. Each year the Company shall pay for a complete physical examination of Executive at the Sid Richardson Institute in Houston, Texas, or any comparable facility designated by the Company's President. 6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to compensation and benefits for periods after the date on which his employment with the Company terminates for whatever reason (the "TERMINATION DATE") shall be determined in accordance with this Section 6: (a) MINIMUM PAYMENTS. Executive shall be entitled to the following payments, in addition to any payments or benefits to which the Executive is entitled under the terms of any employee benefit plan or the following provisions of this Section 6: (i) his unpaid salary for the full month in which his Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(f)), he shall only be entitled to receive his accrued but unpaid salary through his Termination Date; and (ii) his accrued but unpaid vacation pay for the period ending on his Termination Date. Such salary and accrued vacation shall be paid to Executive within five (5) business days following the Termination Date. (b) PAYMENTS UNDER THE SALARY CONTINUATION AGREEMENT. Executive is a party to a Salary Continuation Agreement, made as of August 1, 1994 by and between Executive and the Company, as said agreement may be amended from time to time or terminated as provided therein (hereafter "SALARY CONTINUATION AGREEMENT"). In accordance with the terms of the Salary Continuation Agreement as in effect on the Termination Date, Executive may be entitled to the following payments: (1) TERMINATION AFTER NORMAL RETIREMENT. If the employment of Executive with the Company is terminated on or after the date that 3 Executive attains the age of 65 ("NORMAL RETIREMENT") for any reason other than due to his death, Disability (as defined in the Salary Continuation Agreement) or for Cause (as defined in the Salary Continuation Agreement), then Company shall pay to Executive a supplemental retirement benefit pursuant to the terms of the Salary Continuation Agreement. (2) EARLY RETIREMENT. If the employment of Executive with the Company is terminated prior to his Normal Retirement, but after the date that (i) he attains the age of 62 and completes 10 Years of Service (as defined in the Salary Continuation Agreement) or (ii) attains the age of 55 but before the age of 62 and completes 10 Years of Service, for any reason other than due to his death, Disability (as defined in the Salary Continuation Agreement) or for Cause (as defined in the Salary Continuation Agreement), then Company shall pay to Executive a supplemental retirement benefit pursuant to the terms of the Salary Continuation Agreement. (3) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. If the employment of Executive with the Company is terminated prior to his Normal Retirement due to his Disability (as defined in the Salary Continuation Agreement), Executive shall be entitled to a supplemental disability benefit pursuant to the terms of the Salary Continuation Agreement. (4) TERMINATION OF EMPLOYMENT DUE TO DEATH WHILE IN EMPLOYMENT OR DURING DISABILITY. If Executive dies during the Term of Employment or during Disability (as defined in the Salary Continuation Agreement), Executive's Beneficiary (as defined in the Salary Continuation Agreement) shall be entitled to a supplemental death benefit pursuant to the terms of the Salary Continuation Agreement. (5) TERMINATION FOR CAUSE. If Executive's employment with the Company is terminated by the Company for Cause (as defined in the Salary Continuation Agreement), Executive shall have no right to payments under the Salary Continuation Agreement pursuant to the terms of the Salary Continuation Agreement. (6) TERMINATION WITHOUT CAUSE. If Executive's employment with the Company is terminated prior to the Executive's Early Retirement (as 4 defined in the Salary Continuation Agreement) for any reason other than death, Disability (as defined in the Salary Continuation Agreement), or termination for Cause (as defined in the Salary Continuation Agreement), Executive shall be entitled to a supplemental termination benefit pursuant to the terms of the Salary Continuation Agreement. (7) CHANGE IN CONTROL. In the event of a Change in Control (as defined in the Salary Continuation Agreement), Executive shall be entitled to supplemental benefits pursuant to the terms of the Salary Continuation Agreement. (8) SALARY CONTINUATION AGREEMENT CONTROLS. In the event of any discrepancy between the terms of this Section 6(b) and the terms of the Salary Continuation Agreement, the Salary Continuation Agreement shall control and govern. This Agreement does not affect the rights of the parties to the Salary Continuation Agreement to amend or terminate the Salary Continuation Agreement in accordance with its terms. (c) SEVERANCE PAY AGREEMENT. Executive is a party to a Severance Pay Agreement, made as of July 26, 1990, by and between Executive and the Company as said agreement may be amended from time to time as provided therein (hereafter "SEVERANCE PAY AGREEMENT"). Executive agrees to the cancellation of this Severance Pay Agreement and will hereafter be entitled to the severance pay described in Section 6(e)(1). (d) CHANGE IN CONTROL PAYMENT. (1) Notwithstanding any other provision of this Agreement, the Salary Continuation Agreement [or the Severance Pay Agreement] to the contrary, in the event that Executive's employment is terminated within three (3) years following a Change in Control (as defined in Section 6(f)) either (A) by the Company other than for a "Non-Severance Event" (as defined in Section 6(f)), (B) by the Company due to non- renewal pursuant to Section 4 for any one-year renewal period at any time, or (C) by the Executive for Good Reason (as defined in Section 6(f)), then Executive shall be entitled to receive, and the Company shall be obligated to pay to Executive as additional pay (the "CHANGE IN CONTROL PAYMENT"), the product that is equal to three (3) multiplied by the sum of (x) which is Executive's annual 5 base salary in effect immediately prior to his Termination Date and (y) which is the larger of either (i) or (ii), where (i) is Executive's targeted annual bonus in the year containing his Termination Date, such bonus amount to be calculated on the basis that any performance factors have been achieved, which shall be deemed to be one hundred percent (100%) unless the performance actually achieved is greater than 100% in which case the actual performance level shall be utilized, and (ii) which is the highest amount of bonus(es) that Executive earned for any of the three (3) separate calendar years that immediately preceded the calendar year containing his Termination Date. Bonuses for purposes of these computations shall include any non-cash bonus such as shares of restricted stock. The Company shall pay the Change in Control Payment to Executive in a cash lump sum not later than ten (10) business days following the Termination Date. Moreover, such payment shall be in addition to, and shall not reduce or offset, any other payments that are due to Executive from the Company or from any other source. (2) The provisions of this Section 6(d) shall supersede any conflicting provisions of this Agreement but shall not be construed to curtail, offset or limit Executive's rights to any other payments, whether contingent upon a Change in Control or otherwise, under the Agreement or any other agreement, contract, plan or other source of payment. In any event, Executive shall also be entitled to receive the Bonus Payment described in Section 9, if applicable, notwithstanding any contrary provision in the Salary Continuation Agreement, or any other agreement. (e) OTHER TERMINATION PAYMENTS. (1) This Section 6(e) shall apply to the extent that Executive is not entitled to receive the Change in Control Payment pursuant to Section 6(d) (above) for whatever reason. In the event that (A) Executive's employment is terminated by the Company for any reason other than a "Non-Severance Event" (as defined in Section 6(f)), (B) the Company does not renew the Agreement pursuant to Section 4 for any one- year renewal period at any time, or (C) Executive terminates his own employment hereunder for "Good Reason" (as defined below), then in any such event, the Company shall pay to Executive as additional pay ("ADDITIONAL PAY"), the product equal to two (2) multiplied by Executive's annual base salary in effect immediately 6 prior to his Termination Date. The Company shall pay the Additional Pay to Executive in a cash lump sum not later than thirty (30) calendar days following the Termination Date. (2) Notwithstanding any provision of this Section 6(e) to the contrary, the Executive must first execute an appropriate release agreement whereby he agrees to release and waive, in return for the Additional Pay described in Section 6(e)(1) only, any claims that he may have against the Company for (A) unlawful discrimination (including, without limitation, age discrimination) and (B) termination pay under any severance pay plan or program maintained by the Company that covers Executive; provided, however, such release shall not release any claims by Executive for payments due under this Agreement, including, without limitation, any Change in Control payment described in Section 6(d), without Executive's express written consent. Executive shall not be required to mitigate any payments due under this Section 6(e) or any other provision of this Agreement. (f) DEFINITIONS. (1) "NON-SEVERANCE EVENT" means termination of Executive for "Cause" (as defined below), or due to his death or Disability (as defined below). (2) "CAUSE" means a termination of Executive's employment directly resulting from (a) an act of dishonesty on the part of Executive constituting a felony which has a direct and adverse effect on the Company, (b) a breach by the Executive of any of the provisions of Sections 11, 12, 13 or 14, if such breach has a material adverse effect on the Company, or (c) the willful, material and repeated nonperformance of Executive's duties to the Company (other than by reason of Executive's illness, incapacity or Disability) after written notice from the Board of such nonperformance (which notice specifically identifies the manner and sets forth specific facts, circumstances and examples in which the Board believes that Executive has not substantially performed his duties) and his continued willful, material and repeated nonperformance of such duties for at least thirty (30) days after his receipt of such notice; and, for purposes of this clause (c), no act or failure to act on Executive's part shall be deemed "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that his 7 action or omission was in the best interest of the Company (assuming the disclosure of the pertinent facts, any action or omission by Executive after consultation with, and in accordance with the advice of, legal counsel reasonably acceptable to the Company shall be deemed to have been taken in good faith and to not be willful under this Agreement). Notwithstanding the foregoing, in any event before or after a Change in Control, Executive shall not be deemed to have been terminated for Cause unless and until there has been delivered to him a copy of a resolution duly adopted by the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above and specifying the particulars thereof in reasonable detail. (3) A "CHANGE IN CONTROL" of the Company means the occurrence of any one or more of the following events: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or more of either (i) the then outstanding shares of common stock of the Company (the "OUTSTANDING COMPANY STOCK") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES"); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company or any Subsidiary (as defined in Section 424(f) of the Code), (ii) any acquisition by the Company or any Subsidiary or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (iii) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar business combination involving the Company (a "MERGER"), if, following such Merger, the conditions described in clauses (i) and (ii) of paragraph (c) (below) are satisfied; 8 (b) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (c) Approval by the shareholders of the Company of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to Merger beneficially own, directly or indirectly, more than 50% of the common stock of the corporation resulting from such Merger in substantially the same proportions as their ownership of Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Merger were members of the Incumbent Board at the time of the execution of the initial agreement providing for such Merger; (d) The sale or other disposition of all or substantially all of the assets of the Company, unless immediately following such sale or other disposition, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to the consummation of such sale or other disposition beneficially own, directly or indirectly, more than 50% of the common stock of the corporation acquiring such assets in substantially the same proportions as their ownership of Outstanding Company Voting Securities immediately prior to the consummation of such sale or disposition, and (ii) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; or 9 (e) Any other event that a majority of the Board, in its sole discretion, determines to constitute a Change in Control hereunder. (4) "CODE" means the Internal Revenue Code of 1986, as amended, or its successor. References herein to any Section of the Code shall include any "Successor Provisions" as defined in Section 9(e). (5) "DISABILITY" shall mean a "permanent and total disability" as defined in Section 22(e)(3) of the Code and Treasury regulations thereunder. Evidence of such Disability shall be certified by a physician acceptable to both the Company and Executive. In the event that the parties are not able to agree on the choice of a physician, each shall select a physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Company. Executive agrees to submit to any examination that is reasonably required by the physician. (6) "GOOD REASON" means the occurrence of any of the following events without Executive's express written consent: (A) A reduction in Executive's base salary; (B) Any material breach by the Company or its successor of any provision of this Agreement; or (C) After a Change in Control (as defined above), any of the following additional events: (i) the failure by the Company or its successor to expressly assume and agree to continue and perform this Agreement in the same manner and to the same extent that the Company would be required to perform if such Change in Control had not occurred; (ii) a relocation of more than twenty-five (25) miles of Executive's principal office from the location of such office immediately prior to the Change in Control date; 10 (iii) a substantial increase in the business travel required of Executive by the Company or its successor; (iv) the Company or its successor fails to continue in effect any pension plan, life insurance plan, health-and-accident plan, 401(k) plan, employee stock ownership plan, disability plan or executive incentive compensation plan in which Executive was participating at the time of the Change in Control (or plans providing Executive with substantially equal and similar benefits), or the taking of any action by the Company or its successor which would adversely affect Executive's participation in or materially reduce his benefits under any such plan, or deprive him of any material fringe benefit enjoyed by him immediately prior to the Change in Control; or (v) a substantial and adverse change in the Executive's duties, control, authority, status or position, or the assignment to the Executive of any duties or responsibilities which are materially inconsistent with such status or position, or a material reduction in the duties and responsibilities previously exercised by the Executive, or a loss of title, loss of office, loss of significant authority, power or control, or any removal of Executive from, or any failure to reappoint or reelect him to, such positions, except in connection with the termination of his employment for Cause, Disability or death. 7. NOTICE OF TERMINATION. Any termination by the Company or the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 8. NO MITIGATION REQUIRED. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. 11 9. CHANGE IN CONTROL: REQUIREMENT OF BONUS PAYMENT IN CERTAIN CIRCUMSTANCES. (a) In the event that Executive is deemed to have received an "excess parachute payment" (as defined in Section 280G(b) of the Code) which is subject to the excise taxes (the "EXCISE TAXES") imposed by Section 4999 of the Code in respect of any payment pursuant to this Agreement, the Salary Continuation Agreement, or any other agreement, plan, instrument or obligation, in whatever form, the Company shall make the Bonus Payment (defined below) to Executive notwithstanding any contrary provision in this Agreement, the Salary Continuation Agreement, or any other agreement, plan, instrument or obligation. (b) The term "BONUS PAYMENT" means a cash payment in an amount equal to the sum of (i) all Excise Taxes payable by Executive, plus (ii) all additional Excise Taxes and federal or state income taxes to the extent such taxes are imposed in respect of the Bonus Payment, such that Executive shall be in the same after-tax position and shall have received the same benefits that he would have received if the Excise Taxes had not been imposed. For purposes of calculating any income taxes attributable to the Bonus Payment, Executive shall be deemed for all purposes to be paying income taxes at the highest marginal federal income tax rate, taking into account any applicable surtaxes and other generally applicable taxes which have the effect of increasing the marginal federal income tax rate and, if applicable, at the highest marginal state income tax rate, to which the Bonus Payment and Executive are subject. An example of the calculation of the Bonus Payment is set forth below. Assume that the Excise Tax rate is 20%, the highest federal marginal income tax rate is 40% and Executive is not subject to state income taxes. Further assume that Executive has received an excess parachute payment in the amount of $200,000, on which $40,000 ($200,000 x 20%) in Excise Taxes are payable. The amount of the required Bonus Payment is thus computed to be $100,000, i.e., the Bonus Payment of $100,000, less additional Excise Taxes on the Bonus Payment of $20,000 (i.e., 20% x $100,000) and income taxes of $40,000 (i.e., 40% x $100,000), yields $40,000, the amount of the Excise Taxes payable in respect of the original excess parachute payment. (c) Executive agrees to reasonably cooperate with the Company to minimize the amount of the excess parachute payments, including, without limitation, assisting the Company in establishing that some or all of the payments received by Executive that are "contingent on a change", as described in Section 280G(b)(2)(A)(i) of the Code, are reasonable compensation for personal services actually rendered by Executive before the date of such change or to be rendered by Executive on or after the date of such change. In the event that the Company is able to establish that the amount of the excess parachute payments is less than originally anticipated by Executive, Executive shall refund to the Company any excess Bonus Payment to the extent not required to pay Excise Taxes or income taxes 12 (including those incurred in respect of receipt of the Bonus Payment). Notwithstanding the foregoing, Executive shall not be required to take any action which his attorney or tax advisor advises him in writing (i) is improper or (ii) exposes Executive to personal liability. Executive may require the Company to deliver to Executive an indemnification agreement in form and substance reasonably satisfactory to Executive as a condition to taking any action required by this subsection (c). (d) The Company shall make any payment required to be made under this Section 9 in a cash lump sum after the date on which Executive received or is deemed to have received any such excess parachute payment. Any payment required to be paid by the Company under this Section 9 which is not paid within 30 days of receipt by the Company of Executive's written demand therefor shall thereafter be deemed delinquent, and the Company shall pay to Executive immediately upon demand interest at the highest nonusurious rate per annum allowed by applicable law from the date such payment becomes delinquent to the date of payment of such delinquent sum with interest. (e) In the event that there is any change to the Code which results in the recodification of Section 280G or Section 4999 of the Code, or in the event that either such section of the Code is amended, replaced or supplemented by other provisions of the Code of similar import ("SUCCESSOR PROVISIONS"), then this Agreement shall be applied and enforced with respect to such new Code provisions in a manner consistent with the intent of the parties as expressed herein, which is to assure that Employee is in the same after-tax position and has received the same benefits that he would have been in and received if any taxes imposed by Section 4999 (or any Successor Provisions) had not been imposed. (f) All determinations required to be made under this Section 9 including, without limitation, whether and when a Bonus Payment is required, and the amount of such Bonus Payment and the assumptions to be utilized in arriving at such determinations, unless otherwise expressly set forth in this Agreement, shall be made within 30 days from the Change in Control Date by the independent tax consultant(s) selected by the Company and reasonably acceptable to Executive ("TAX CONSULTANT"). The Tax Consultant must be a qualified tax attorney or certified public accountant. All fees and expenses of the Tax Consultant shall be paid in full by the Company. Any Excise Taxes as determined pursuant to this Section 9 shall be paid by the Company to the Internal Revenue Service or any other appropriate taxing authority on Executive's behalf within five (5) business days after receipt of the Tax Consultant's final determination to Company and Executive. (g) If the Tax Consultant determines that there is substantial authority (within the meaning of Section 6662 of the Code) that no Excise Taxes are payable by Executive, the Tax Consultant shall furnish Executive with a written opinion that failure to disclose or report the Excise Taxes on Executive's federal income tax return will not constitute a 13 substantial understatement of tax or be reasonably likely to result in the imposition of a negligence or any other penalty. (h) The Company shall indemnify and hold harmless the Executive, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities ("LOSSES") incurred by Executive with respect to the exercise by the Company of any of its rights under this Section 9, including, without limitation, any Losses related to the Company's decision to contest a claim of any imputed income to Executive. The Company shall pay all fees and expenses incurred under this Section 9, and shall promptly reimburse Executive for the reasonable expenses incurred by Executive in connection with any actions taken by the Company or required to be taken by Executive hereunder. Any payments owing to Executive and not made within 30 days of delivery to the Company of evidence of Executive's entitlement thereto shall be paid to Executive together with interest at the maximum nonusurious rate permitted by law. 10. POST-EMPLOYMENT MEDICAL BENEFITS. If Executive's employment with the Company is terminated for any reason except Cause (as defined in Section 6(f)) after Executive has completed at least five (5) complete years of service with the Company or its predecessors (including, for this purpose, prior service with any corporation acquired by or merged into the Company), then the Company shall provide post-employment medical coverage in accordance with the terms and conditions of this Section 10. The Company shall continue to cover Executive and his spouse (hereinafter referred to as "SPOUSE") and his eligible dependent children, if any, from the date of Executive's termination of employment with the Company, under the group health care plan maintained by the Company to provide major medical insurance coverage for employees and their dependents (such group medical plan or its successor(s) shall be hereinafter referred to as the "HEALTH CARE PLAN"). The coverage of Executive and his Spouse under the Health Care Plan shall continue for each of their lives without interruption, but such coverage of his eligible dependent children shall continue only for such time period that they otherwise qualify for dependent coverage under the terms of the Health Care Plan. In the event of any change to the Health Care Plan following the Termination Date, Executive, his Spouse and dependents shall be treated consistently with the then-current senior officers of the Company (or its successor) with respect to the terms and conditions of coverage and other substantive provisions of the Health Care Plan. The provisions of this Section 10 shall be effective regardless of the reason for Executive's termination of employment with the Company except for Cause. The continuation coverage under the Health Care Plan provided to Executive and his Spouse pursuant to this Agreement shall continue and remain in full force and effect until the later of (a) Executive's date of death or (b) his Spouse's date of death. Executive and his Spouse hereby agree and consent to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar or succeeding plan or program that is maintained by the United States Government or any agency thereof (hereinafter 14 referred to as "MEDICARE"). The coverage described in the immediately preceding sentence includes, without limitation, parts A and B of Medicare and any additional or successor parts of Medicare. Executive and his Spouse further agree and consent to pay all required premiums and other costs for Medicare coverage from their personal funds. If Executive or Spouse are covered under Medicare, the "retiree" coverage provided under the Health Care Plan to such person shall be secondary payor to Medicare to the full extent permitted by law. In addition, if Executive or his Spouse or other dependents should become covered under another major medical plan maintained by another employer or other entity, such coverage shall be primary payor to the coverage provided pursuant to this Section 10 to the full extent permitted by law. Executive, on behalf of himself and his Spouse and other dependents, if any, shall be required to pay premiums for their coverage under the Health Care Plan at the rates, if any, charged by the Company to active employees who are senior officers of the Company (or its successor) at the time the premium is charged. The Company shall not be responsible for the payment of any income or other taxes which may be imposed on Executive, or on his Spouse or dependents, as the result of receiving continuation coverage under the Health Care Plan pursuant to this Section 10. 11. CONFLICTS OF INTEREST. In keeping with his fiduciary duties to Company, Executive hereby agrees that he shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. Moreover, Executive agrees that he shall immediately disclose to the Board of Directors any known facts which might involve a conflict of interest of which the Board is not aware. Executive and Company recognize and acknowledge that it is not possible to provide an exhaustive list of actions or interests which may constitute a "conflict of interest." Moreover, Company and Executive recognize there are many borderline situations. In some instances, full disclosure of facts by the Executive to the Board of Directors may be all that is necessary to enable Company to protect its interests. In others, if no improper motivation appears to exist and Company's interests have not demonstrably suffered, prompt elimination of the outside interest may suffice. In egregious and material instances it may be necessary for Company to terminate Executive's employment for Cause (as defined in Section 6(f)). The Board of Directors reserves the right to take such action as, in its good faith judgment, will resolve the conflict of interest. Executive hereby agrees that any interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might adversely affect the Company or any of its affiliated entities, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive would or might arise, and which should be reported immediately to the Board of Directors, include, but are not limited to, any of the following: 15 (a) Ownership of more than a de minimis interest in any lender, supplier, contractor, customer or other entity with which Company or any of its affiliated entities does business; (b) Intentional misuse of information, property or facilities to which Executive has access in a manner which is demonstrably injurious to the interests of Company or any of its affiliated entities, including its business, reputation or goodwill; or (c) Materially trading in products or services connected with products or services designed or marketed by or for the Company or any of its affiliated entities. For purposes of this Agreement, "AFFILIATED ENTITY" means any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, the Company. 12. CONFIDENTIAL INFORMATION. (a) CONFIDENTIAL INFORMATION DEFINED. Executive hereby acknowledges that in his senior management position, he will create, acquire and have access to confidential information and trade secrets pertaining to the business of Company (hereafter "Confidential Information" as defined below). Executive hereby acknowledges that such Confidential Information is unique and valuable to Company's business and that Company could suffer irreparable injury if Confidential Information was divulged to the public or to persons or entities in competition with Company. Therefore, Executive hereby covenants and agrees to keep in strict secrecy and confidence, both during and after the Employment Period, any Confidential Information. Executive specifically agrees that he will not at any time disclose to others, use, copy or permit to be copied, except in pursuance of his duties on behalf of Company or with the prior consent of Company, Confidential Information relating to the Company or any of its affiliated entities. For purposes of this Agreement, "CONFIDENTIAL INFORMATION" shall mean and include, without limitation, information related to the business affairs, property, methods of operation, future plans, financial information, customer or client information, or other data which relates to the business or operations of Company or any of its affiliated entities, and other information obtained by Executive during the Employment Period which concerns the affairs of Company or any of its affiliated entities and which Company has requested be held in confidence or could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be materially embarrassing, detrimental or disadvantageous to the Company or any of its affiliated entities, or its and their directors, officers, employees or shareholders. Confidential Information, however, shall not include: 16 (i) Information that is at the time of receipt by Executive in the public domain or is otherwise generally known in the industry or subsequently enters the public domain or becomes generally known in the industry through no fault of Executive; or (ii) Information that at any time is received in good faith by Executive from a third party who was lawfully in possession of the same and had the right to disclose the same. (b) REQUIRED DISCLOSURE. In the event that Executive is required by law which cannot be waived to disclose any Confidential Information, Executive agrees that he will provide prompt notice of such potential disclosure to Company so that an appropriate protective order may be sought and/or a waiver of compliance with the provisions of this Agreement may be granted. In the event that (i) such protection or other remedy is not obtained or (ii) Company waives in writing the compliance by Executive with this provision, Executive agrees that he may furnish only that portion of the Confidential Information which Executive is advised by written opinion of counsel is legally required to be disclosed, and Executive shall exercise reasonable effort to obtain assurances that confidential treatment will be accorded such Confidential Information. (c) DELIVERY OF DOCUMENTS. Executive further agrees to deliver to Company at the termination of his employment, all correspondence, memoranda, notes, records, drawings, plans, customer lists or other documents, and all copies thereof made, composed or received by Executive, solely or jointly with others, and which are in Executive's possession, custody or control at such date and which relate in any manner to the past, present or anticipated business of Company or any of its affiliated entities. (d) REMEDIES. In the event of a breach or threatened breach of any of the provisions of this Section 12, Company shall be entitled to an injunction ordering the return of all such documents, and any and all copies thereof, and restraining Executive from using or disclosing, for his benefit or the benefit of others, in whole or in part, any Confidential Information, including, but not limited to, the Confidential Information which such documents contain, constitute or embody. Executive further agrees that any breach or threatened breach of any of the provisions of this Section 12 could cause irreparable injury to Company, for which it would have no adequate remedy at law. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies available to it for any such breach or threatened breach, including the recovery of damages. 13. PROPERTY RIGHTS. In keeping with his fiduciary duties to Company, Executive hereby covenants and agrees that during his Employment Period, and for a period of six (6) months following his Termination Date, Executive shall promptly disclose in writing to Company any and all information, ideas, concepts, improvements, discoveries, inventions and other intellectual 17 properties, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Executive, either individually or jointly with others, and which relate to the business, products or services of Company or any of its affiliated entities. In consideration for his employment hereunder, Executive hereby specifically sells, assigns and transfers to Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries, inventions and other intellectual properties. If during the Employment Period, Executive creates any original work of authorship or other property fixed in any tangible medium of expression which (a) is the subject matter of copyright (including computer programs) and (b) relates to Company's present or planned business, products, or services, whether such property is created solely by Executive or jointly with others, such property shall be deemed a work for hire, with the copyright automatically vesting in Company. To the extent that any such writing or other property is determined not to be a work for hire for whatever reason, Executive hereby consents and agrees to the unconditional waiver of "moral rights" in such writing or other property, and to assign to Company all of his right, title and interest, including copyright, in such writing or other property. Executive hereby agrees to (a) exercise reasonable effort to assist Company or its nominee in the protection of any and all property subject to this Section 13, (b) not to disclose any such property to others without the written consent of Company or its nominee, except as required by his employment hereunder, and (c) at the request of Company, to execute such assignments, certificates or other interests as Company or its nominee may from time to time deem desirable to evidence, establish, maintain, perfect, protect or enforce its rights, title or interests in or to any such property. 14 AGREEMENT NOT TO COMPETE. Executive hereby recognizes and acknowledges that: (a) in his executive capacity with Company he will be given knowledge of, and access to, the Confidential Information (as described in Section 12); (b) in the event that Executive was to enter into competition with Company, Executive's knowledge of such Confidential Information would be of invaluable benefit to a competitor of Company, and could cause irreparable harm to Company's business interests; and (c) Executive's consent and agreement to enter into the noncompetition provisions and covenants set forth herein is an integral condition of this Agreement, without which Company would not have agreed to provide Confidential Information to Executive nor to his compensation, benefits, and other terms of this Agreement. Accordingly, in consideration for his employment, compensation, benefits, access to and entrustment of Confidential Information, and the goodwill, training and experience provided to Executive during his Employment Period, Executive hereby covenants, consents and agrees (regardless of whether or not there has been a Change in Control as defined in Section 6(f)) that during the Employment Period, and for a period of one (1) year after his employment is terminated for any reason except (i) termination by the Company without Cause (as defined in Section 6(f)) or termination by Executive for Good Reason (as defined in Section 6(f)) or (ii) termination of employment after expiration of the Term of Employment due to non- renewal of this Agreement by the Company pursuant to Section 4, Executive shall not, 18 directly or indirectly, acting alone or in conjunction with others, for his own account or for the account of others, including, without limitation, as an officer, director, stockholder, owner, partner, joint venturer, employee, promoter, consultant, agent, representative, or otherwise: (a) Solicit, canvass, or accept any fees or business from any customer of Company for himself or any other person or entity engaged in a "Similar Business to Company" (as defined below); (b) Engage or participate in any Similar Business to Company within the entire continental United States (referred to herein as the "RESTRICTED AREA"); (c) Request or advise any service provider, supplier, or customer to reduce or cancel any business that it may transact with Company or any of its affiliated entities; (d) Solicit, induce, or otherwise attempt to influence any employee of the Company or any of its affiliated entities, to terminate his or her relationship with the Company or any of its affiliated entities; or (e) Make any statement or perform any act intended to advance an interest of an existing or prospective competitor of the Company or any of its affiliated entities in any way that demonstrably injures the reputation, goodwill or any other business interest of Company or any of its affiliated entities. For purposes of this Agreement, "SIMILAR BUSINESS TO COMPANY" means any business or other enterprise that is competitive with the current or planned businesses, products, services or operations of the Company or any of its affiliated entities at the time of termination of Executive's employment. For purposes of clarity and not limitation, the non-compete and other provisions of this Section 14 shall not apply to Executive if Executive's employment hereunder is terminated (a) by the Company without Cause (as defined in Section 6(f)), (b) by the Executive for Good Reason (as defined in Section 6(f)), or (c) after the Term of Employment (as defined in Section 4) has expired due to non-renewal by the Company. Executive hereby agrees that the limitations set forth in this Section 14 on his rights to compete with Company after his termination of employment are reasonable and necessary for the protection of Company. In this regard, Executive specifically agrees that such limitations as to the period of time, geographic area and types and scopes of restriction on his activities, as specified above, are reasonable and necessary to protect the goodwill and other business interests of Company. However, should the time period, the geographic area or any other non-competition provision set forth herein be deemed invalid or unenforceable in any respect, then Executive acknowledges and agrees that, as set forth in Section 15 hereof, reformation may be made with respect to such time 19 period, geographic area or other non-competition provision in order to protect Company's reasonable business interests to the maximum permissible extent. 15 REMEDIES. In the event of any pending, threatened or actual breach of any of the covenants or provisions of Section 11, 12, 13 or 14, it is understood and agreed by Executive that the remedy at law for a breach of any of the covenants or provisions of these Sections may be inadequate and, therefore, Company shall be entitled to a restraining order or injunctive relief from any court of competent jurisdiction, in addition to any other remedies at law and in equity. In the event that Company seeks to obtain a restraining order or injunctive relief, Executive hereby agrees that Company shall not be required to post any bond in connection therewith. Should a court of competent jurisdiction or an arbitrator (pursuant to Section 25) declare any provision of Section 11, 12, 13 or 14 to be unenforceable due to an unreasonable restriction of duration or geographical area, or for any other reason, such court or arbitrator is hereby granted the consent of each of the Executive and Company to reform such provision and/or to grant the Company any relief, at law or in equity, reasonably necessary to protect the reasonable business interests of Company or any of its affiliated entities. Executive hereby acknowledges and agrees that all of the covenants and other provisions of Sections 11, 12, 13 and 14 are reasonable and necessary for the protection of the Company's reasonable business interests. Executive hereby agrees that if the Company prevails in any action, suit or proceeding with respect to any matter arising out of or in connection with Section 11, 12, 13 or 14, Company shall be entitled to all equitable and legal remedies, including, but not limited to, injunctive relief and compensatory damages. 16 DEFENSE OF CLAIMS. Executive agrees that during the Employment Period and for a period of two (2) years after his Termination Date, upon reasonable request from the Company, he will cooperate with the Company and its affiliated entities in the defense of any claims or actions that may be made by or against the Company or any of its affiliated entities that affect his prior areas of responsibility, except if Executive's reasonable interests are adverse to the Company (or affiliated entity) in such claim or action as determined by Executive or his counsel. To the extent travel is required to comply with the requirements of this Section 16, the Company shall, to the extent possible, provide Executive with notice at least 10 days prior to the date on which such travel would be required. The Company agrees to promptly pay or reimburse Executive upon demand for all of his reasonable travel and other direct expenses incurred, or to be reasonably incurred, to comply with his obligations under this Section 16. 17 DETERMINATIONS BY THE COMMITTEE. (a) TERMINATION OF EMPLOYMENT. Prior to a Change in Control (as defined in Section 6(f)), any question as to whether and when there has been a termination of Executive's employment, and the cause of such termination, shall be determined in good faith by the Committee. 20 (b) COMPENSATION. Prior to a Change in Control (as defined in Section 6(f)), any question regarding salary, bonus and other compensation payable to Executive pursuant to this Agreement shall be determined in good faith by the Committee. 18 WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Company's employees generally, and (c) any advances made to Executive and owed to Company. 19 NONALIENATION. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, his dependents or beneficiaries, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect. 20 INCOMPETENT OR MINOR PAYEES. Should the Board of Directors determine that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder may, notwithstanding any other provision of this Agreement to the contrary, be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Board of Directors, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid. 21 INDEMNIFICATION. The Company shall, to the fullest extent permitted by law, indemnify and hold harmless the Executive from and against any and all liability arising from his service as an employee, officer or director of the Company and its affiliates. To the fullest extent permitted by law, the Company shall retain counsel to defend Executive or shall advance legal fees and expenses to Executive for counsel selected by Executive in connection with any litigation or proceeding related to service as an employee, officer and director of the Company or any of its affiliates. This Section 21 shall not limit in any way the rights of Executive to any other indemnification from the Company, as a matter of law, contract or otherwise. 22 SEVERABILITY. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 25), the parties 21 hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. 23 TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated herein and made a part hereof for all purposes. The words "herein", "hereof", "hereunder" and other compounds of the word "here" shall refer to the entire Agreement and not to any particular provision hereof. 24 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. 25 ARBITRATION. (a) ARBITRABLE MATTERS. If any dispute or controversy arises between Executive and the Company as to their respective rights or obligations under this Agreement, then either party may submit the dispute or controversy to arbitration under the then-current National Employment Dispute Resolution Rules of the American Arbitration Association (AAA) (the "RULES"); provided, however, the Company shall retain its rights to seek a restraining order or injunctive relief pursuant to Section 15. Any arbitration hereunder shall be conducted before a panel of three arbitrators unless the parties mutually agree to a single arbitrator. The site for any arbitration hereunder shall be either Harris County or Fort Bend County, Texas, unless otherwise mutually agreed by the parties. (b) SUBMISSION TO ARBITRATION. The party submitting any matter to arbitration shall do so in accordance with the Rules. Notice to the other party shall state the question or questions to be submitted for decision or award by arbitration. Notwithstanding any provision in this Section 25, Executive shall be entitled to seek specific performance of the Executive's right to be paid during the pendency of any dispute or controversy arising under this Agreement. In order to prevent irreparable harm, the arbitrator may grant temporary or permanent injunctive or other equitable relief for the protection of property rights. (c) ARBITRATION PROCEDURES. The arbitrator shall set the date, time and place for each hearing, and shall give the parties advance written notice in accordance with the Rules. Any party may be represented by counsel or other authorized representative at any hearing. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1 et. seq. (or its successor). The arbitrator shall apply the substantive law (and the law of remedies, if 22 applicable) of the State of Texas to the claims asserted to the extent that the arbitrator determines that federal law is not controlling. (d) COMPLIANCE WITH AWARD. (i) Any award of an arbitrator shall be final and binding upon the parties to such arbitration, and each party shall immediately make such changes in its conduct or provide such monetary payment or other relief as such award requires. The parties agree that the award of the arbitrator shall be final and binding and shall be subject only to the judicial review permitted by the Federal Arbitration Act. (ii) The parties hereto agree that the arbitration award may be entered with any court having jurisdiction and the award may then be enforced as between the parties, without further evidentiary proceedings, the same as if entered by the court at the conclusion of a judicial proceeding in which no appeal was taken. The Company and the Executive hereby agree that a judgment upon any award rendered by an arbitrator may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (e) COSTS AND EXPENSES. Each party shall pay any monetary amount required by the arbitrator's award, and the fees, costs and expenses for its own counsel, witnesses and exhibits, unless otherwise determined by the arbitrator in the award. The compensation and costs and expenses assessed by the arbitrator and the AAA shall be paid by the Company, unless otherwise determined by the arbitrator in the award such as, for example, if the arbitrator determines that Executive's claim was frivolous or not brought in good faith. If court proceedings to stay litigation or compel arbitration are necessary, the party who unsuccessfully opposes such proceedings shall pay all associated costs, expenses, and attorney's fees which are reasonably incurred by the other party as determined by the arbitrator. 26 BINDING EFFECT: THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder, but otherwise this Agreement shall not be for the benefit of any third parties. 27 ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire agreement of the parties with respect to Executive's employment and the other matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the parties hereto concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument executed by both parties hereto. 23 28 SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the intention of the parties hereto, the respective rights and obligations of said parties, including, but not limited to, the rights and obligations set forth in Sections 6 through 17 and 25 hereof, shall survive any termination or expiration of this Agreement. 29 WAIVER OF BREACH. No waiver by either party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time while such breach continues. 30 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company and its affiliated entities, and its and their successors, and upon any person or entity acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the business and/or assets of Company in a Change in Control (as defined in Section 6(f)) or otherwise. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, no such assumption shall relieve the Company of its obligations hereunder. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees or other Beneficiary. In the event of the death of Executive while any amount would still be payable hereunder if such death had not occurred, all such amounts, unless otherwise specifically provided herein, shall be paid in accordance with the terms of this Agreement to Executive's Beneficiary. "Beneficiary", for this purpose, shall mean the person or persons designated by Executive in writing to receive any benefits payable to Executive hereunder in the event of his death or, if no such person is so designated, Executive's surviving spouse if any, or, if not, then Executive's estate. No Beneficiary designation shall be effective unless it is in writing and received by the Company prior to the date of Executive's death. 31 NOTICES. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person or sent by facsimile transmission, (b) on the first business day after it is sent by air express overnight courier service, or (c) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed, to the following address, as applicable: 24 (i) If to Company, addressed to: Imperial Sugar Company P.O. Box 9 Sugar Land, Texas 77487-0009 Attention: President (ii) If to Executive, addressed to the address set forth below his name on the execution page hereof; or to such other address as either party may have furnished to the other party in writing in accordance with this Section 31. 32 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both parties. 33 EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges that (a) he is knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) he has read the Agreement, and (c) he understands its terms and conditions. Executive represents that he is free to enter into this Agreement including, without limitation, that he is not subject to any other contract of employment or covenant not to compete that would conflict with his duties under this Agreement. 34 TERMINATION OF PRIOR EMPLOYMENT AGREEMENT/SURVIVAL OF OTHER AGREEMENTS. After this Agreement is effective and enforceable upon execution of this Agreement by the parties hereto, that certain Employment Agreement between the Company and ___________ dated February 1, 1998 shall terminate and be superseded in all respects by this Agreement. All other agreements or arrangements between the Executive and Company in effect on the date hereof shall remain fully effective, including, but not limited to, the obligations of the Company under (a) the Salary Continuation Agreement which is referenced herein and (b) any benefit restoration agreement to provide supplemental retirement and death benefits. [Signature page follows.] 25 IN WITNESS WHEREOF, Executive has hereunto set his hand and Company has caused this Agreement to be executed in its name and on its behalf by its duly authorized officer, to be effective as of the Effective Date. WITNESS: EXECUTIVE: Signature: Signature: -------------------------- ------------------------ Name: Name: ------------------------------- ----------------------------- Date: Date: ------------------------------- ----------------------------- Address for Notices: -------------- --------------------- --------------------- --------------------- ATTEST: IMPERIAL SUGAR COMPANY: By: By: --------------------------------- ------------------------------- Title: Its: ------------------------------ ----------------------------- Name: Name: ------------------------------- ---------------------------- Date: Date: ------------------------------- ---------------------------- 26 EX-10.(B)(2) 7 0007.txt SPECIMEN OF EMPLOYEE AGREEMENT (FORM B) EXHIBIT 10(b)(2) SPECIMEN EMPLOYMENT AGREEMENT -------------------- (FORM B) THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), is made and entered into as of the first day of March, 2000 (the "EFFECTIVE DATE"), by and between Imperial Sugar Company, a Texas corporation (hereafter "COMPANY") and ___________________ (hereafter "EXECUTIVE"), an individual; W I T N E S S E T H: - - - - - - - - - - WHEREAS, Company wishes to continue to secure the services of the Executive subject to the terms and conditions hereafter set forth; and WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth, NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. During the Employment Period (as defined in Section 4 hereof), the Company shall employ Executive, and Executive shall serve as _____________________________________________. Executive's principal place of employment shall be at the corporate offices of the Company in Sugar Land, Texas. Executive's principal place of employment shall not be moved more than 25 miles without his consent, although Executive understands and agrees that he may be required to travel from time to time for business purposes. 2. COMPENSATION. The Company shall pay or cause to be paid to Executive during the Employment Period an annual base salary for his services under this Agreement of not less than $_______, payable in installments in accordance with the Company's normal payroll procedures for its executives. The Executive's base salary shall be subject to at least annual review and may be increased (but not decreased without his consent), depending upon the performance of the Company and Executive, upon the recommendation of the Company's President and approved by the Executive Compensation Committee of the Board of Directors of the Company (hereafter "COMMITTEE"). Nothing contained herein shall preclude the payment of any bonus or other compensation to Executive. 3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the Employment Period, Executive shall devote his services full time to the business of the Company and perform the duties and responsibilities assigned to him by the Company's President or the Company's Board of Directors ("BOARD OF DIRECTORS" or "BOARD") to the best of his ability and with reasonable diligence. In determining Executive's duties and responsibilities, the Company's President and Board of Directors shall act in good faith and shall not assign duties and responsibilities to Executive that are not appropriate or customary with respect to the position of Executive hereunder. This Section 3 shall not be construed as preventing Executive from engaging in reasonable volunteer services for charitable, educational or civic organizations, or from investing his assets in such form or manner as will not require a material amount of his services in the operations of the companies or businesses in which such investments are made. 4. TERM OF EMPLOYMENT. Executive's initial term of employment with the Company under this Agreement shall be for the period from the Effective Date through February 28, 2001 (the "INITIAL TERM OF EMPLOYMENT"). Thereafter, the term of employment hereunder shall be automatically extended repetitively for an additional one (1) year period on March 1, 2001 and each anniversary thereof, unless Notice of Termination pursuant to Section 7 is given by either the Company or Executive to the other party at least ninety (90) days prior to the end of the Initial Term of Employment, or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period. The Company and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a "TERM OF EMPLOYMENT." The period from the Effective Date through the date of Executive's termination of employment for whatever reason shall be referred to herein as the "EMPLOYMENT PERIOD." 5. BENEFITS. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to the following: (a) REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse Executive for all reasonable travel, entertainment (including club dues appropriate in the performance of Executive's service hereunder) and other reasonable expenses paid or incurred by Executive in performing his duties hereunder. The Company shall also provide Executive with suitable office space, including secretarial and staff support. (b) OTHER BENEFITS. Executive shall be entitled to participate and shall be included in any pension, profit-sharing, stock option, deferred compensation, or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Company to the extent that he is eligible under the provisions thereof. 2 (c) PAID VACATION. Executive shall be entitled to the number of days of paid vacation each year that is accorded under the Company's vacation policy for senior officers in the Office of the President of the Company, but not less than four weeks of paid vacation. The number of days of paid vacation may be increased by the Company's President or Board of Directors at any time during the Employment Period. (d) ANNUAL PHYSICAL. Each year the Company shall pay for a complete physical examination of Executive at the Sid Richardson Institute in Houston, Texas, or any comparable facility designated by the Company's President. 6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to compensation and benefits for periods after the date on which his employment with the Company terminates for whatever reason (the "TERMINATION DATE") shall be determined in accordance with this Section 6: (a) MINIMUM PAYMENTS. Executive shall be entitled to the following payments, in addition to any payments or benefits to which the Executive is entitled under the terms of any employee benefit plan or the following provisions of this Section 6: (i) his unpaid salary for the full month in which his Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(b)), he shall only be entitled to receive his accrued but unpaid salary through his Termination Date; and (ii) his accrued but unpaid vacation pay for the period ending on his Termination Date. Such salary and accrued vacation shall be paid to Executive within five (5) business days following the Termination Date. (b) CHANGE IN CONTROL PAYMENT. (1) Notwithstanding any other provision of this Agreement to the contrary, in the event that Executive's employment is terminated within three (3) years following a Change in Control (as defined in Section 6(d)) either (A) by the Company other than for a "Non-Severance Event" (as defined in Section 6(d)), (B) by the Company due to non-renewal pursuant to Section 4 for any one-year renewal period at any time, or (C) by the Executive for Good Reason (as 3 defined in Section 6(d)), then Executive shall be entitled to receive, and the Company shall be obligated to pay to Executive as additional pay (the "CHANGE IN CONTROL PAYMENT"), the product that is equal to three (3) multiplied by the sum of (x) which is Executive's annual base salary in effect immediately prior to his Termination Date and (y) which is the larger of either (i) or (ii), where (i) is Executive's targeted annual bonus in the year containing his Termination Date, such bonus amount to be calculated on the basis that any performance factors have been achieved, which shall be deemed to be one hundred percent (100%) unless the performance actually achieved is greater than 100% in which case the actual performance level shall be utilized, and (ii) which is the highest amount of bonus(es) that Executive earned for any of the three (3) separate calendar years that immediately preceded the calendar year containing his Termination Date. Bonuses for purposes of these computations shall include any non-cash bonus such as shares of restricted stock. The Company shall pay the Change in Control Payment to Executive in a cash lump sum not later than ten (10) business days following the Termination Date. Moreover, such payment shall be in addition to, and shall not reduce or offset, any other payments that are due to Executive from the Company or from any other source. (2) The provisions of this Section 6(b) shall supersede any conflicting provisions of this Agreement but shall not be construed to curtail, offset or limit Executive's rights to any other payments, whether contingent upon a Change in Control or otherwise, under the Agreement or any other agreement, contract, plan or other source of payment. (c) OTHER TERMINATION PAYMENTS. (1) This Section 6(c) shall apply to the extent that Executive is not entitled to receive the Change in Control Payment pursuant to Section 6(d) (above) for whatever reason. In the event that (A) Executive's employment is terminated by the Company for any reason other than a "Non-Severance Event" (as defined in Section 6(b)), (B) the Company does not renew the Agreement pursuant to Section 4 for any one- year renewal period at any time, or (C) Executive terminates his own employment hereunder for "Good Reason" (as defined below), then in any such event, the Company shall pay to Executive as additional pay ("ADDITIONAL PAY"), the product equal to two (2) 4 multiplied by Executive's annual base salary in effect immediately prior to his Termination Date. The Company shall pay the Additional Pay to Executive in a cash lump sum not later than thirty (30) calendar days following the Termination Date. (2) Notwithstanding any provision of this Section 6(c) to the contrary, the Executive must first execute an appropriate release agreement whereby he agrees to release and waive, in return for the Additional Pay described in Section 6(c)(1) only, any claims that he may have against the Company for (A) unlawful discrimination (including, without limitation, age discrimination) and (B) termination pay under any severance pay plan or program maintained by the Company that covers Executive; provided, however, such release shall not release any claims by Executive for payments due under this Agreement, including, without limitation, any Change in Control payment described in Section 6(d), without Executive's express written consent. Executive shall not be required to mitigate any payments due under this Section 6(c) or any other provision of this Agreement. (d) DEFINITIONS. (1) "NON-SEVERANCE EVENT" means termination of Executive for "Cause" (as defined below), or due to his death or Disability (as defined below). (2) "CAUSE" means a termination of Executive's employment directly resulting from (a) an act of dishonesty on the part of Executive constituting a felony which has a direct and adverse effect on the Company, (b) a breach by the Executive of any of the provisions of Sections 11, 12, 13 or 14, if such breach has a material adverse effect on the Company, or (c) the willful, material and repeated nonperformance of Executive's duties to the Company (other than by reason of Executive's illness, incapacity or Disability) after written notice from the Board of such nonperformance (which notice specifically identifies the manner and sets forth specific facts, circumstances and examples in which the Board believes that Executive has not substantially performed his duties) and his continued willful, material and repeated nonperformance of such duties for at least thirty (30) days after his receipt of such notice; and, for purposes of this clause (c), no act or failure to act on Executive's part shall be deemed "willful" unless done, or omitted to be done, by 5 Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company (assuming the disclosure of the pertinent facts, any action or omission by Executive after consultation with, and in accordance with the advice of, legal counsel reasonably acceptable to the Company shall be deemed to have been taken in good faith and to not be willful under this Agreement). Notwithstanding the foregoing, in any event before or after a Change in Control, Executive shall not be deemed to have been terminated for Cause unless and until there has been delivered to him a copy of a resolution duly adopted by the Board at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above and specifying the particulars thereof in reasonable detail. (3) A "CHANGE IN CONTROL" of the Company means the occurrence of any one or more of the following events: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or more of either (i) the then outstanding shares of common stock of the Company (the "OUTSTANDING COMPANY STOCK") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES"); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company or any Subsidiary (as defined in Section 424(f) of the Code), (ii) any acquisition by the Company or any Subsidiary or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (iii) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar business combination involving the Company (a "MERGER"), if, following such Merger, the conditions described in clauses (i) and (ii) of paragraph (c) (below) are satisfied; 6 (b) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (c) Approval by the shareholders of the Company of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to Merger beneficially own, directly or indirectly, more than 50% of the common stock of the corporation resulting from such Merger in substantially the same proportions as their ownership of Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Merger were members of the Incumbent Board at the time of the execution of the initial agreement providing for such Merger; (d) The sale or other disposition of all or substantially all of the assets of the Company, unless immediately following such sale or other disposition, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to the consummation of such sale or other disposition beneficially own, directly or indirectly, more than 50% of the common stock of the corporation acquiring such assets in substantially the same proportions as their ownership of Outstanding Company Voting Securities immediately prior to the consummation of such sale or disposition, and (ii) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; or 7 (e) Any other event that a majority of the Board, in its sole discretion, determines to constitute a Change in Control hereunder. (4) "CODE" means the Internal Revenue Code of 1986, as amended, or its successor. References herein to any Section of the Code shall include any "Successor Provisions" as defined in Section 9(e). (5) "DISABILITY" shall mean a "permanent and total disability" as defined in Section 22(e)(3) of the Code and Treasury regulations thereunder. Evidence of such Disability shall be certified by a physician acceptable to both the Company and Executive. In the event that the parties are not able to agree on the choice of a physician, each shall select a physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Company. Executive agrees to submit to any examination that is reasonably required by the physician. (6) "GOOD REASON" means the occurrence of any of the following events without Executive's express written consent: (A) A reduction in Executive's base salary; (B) Any material breach by the Company or its successor of any provision of this Agreement; or (C) After a Change in Control (as defined above), any of the following additional events: (i) the failure by the Company or its successor to expressly assume and agree to continue and perform this Agreement in the same manner and to the same extent that the Company would be required to perform if such Change in Control had not occurred; (ii) a relocation of more than twenty-five (25) miles of Executive's principal office from the location of such office immediately prior to the Change in Control date; 8 (iii)a substantial increase in the business travel required of Executive by the Company or its successor; (iv) the Company or its successor fails to continue in effect any pension plan, life insurance plan, health-and-accident plan, 401(k) plan, employee stock ownership plan, disability plan or executive incentive compensation plan in which Executive was participating at the time of the Change in Control (or plans providing Executive with substantially equal and similar benefits), or the taking of any action by the Company or its successor which would adversely affect Executive's participation in or materially reduce his benefits under any such plan, or deprive him of any material fringe benefit enjoyed by him immediately prior to the Change in Control; or (v) a substantial and adverse change in the Executive's duties, control, authority, status or position, or the assignment to the Executive of any duties or responsibilities which are materially inconsistent with such status or position, or a material reduction in the duties and responsibilities previously exercised by the Executive, or a loss of title, loss of office, loss of significant authority, power or control, or any removal of Executive from, or any failure to reappoint or reelect him to, such positions, except in connection with the termination of his employment for Cause, Disability or death. 7. NOTICE OF TERMINATION. Any termination by the Company or the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 8. NO MITIGATION REQUIRED. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. 9 9. CHANGE IN CONTROL: REQUIREMENT OF BONUS PAYMENT IN CERTAIN CIRCUMSTANCES. (a) In the event that Executive is deemed to have received an "excess parachute payment" (as defined in Section 280G(b) of the Code) which is subject to the excise taxes (the "EXCISE TAXES") imposed by Section 4999 of the Code in respect of any payment pursuant to this Agreement, the Salary Continuation Agreement, the Severance Pay Agreement, or any other agreement, plan, instrument or obligation, in whatever form, the Company shall make the Bonus Payment (defined below) to Executive notwithstanding any contrary provision in this Agreement, the Salary Continuation Agreement, Severance Pay Agreement, or any other agreement, plan, instrument or obligation. (b) The term "BONUS PAYMENT" means a cash payment in an amount equal to the sum of (i) all Excise Taxes payable by Executive, plus (ii) all additional Excise Taxes and federal or state income taxes to the extent such taxes are imposed in respect of the Bonus Payment, such that Executive shall be in the same after-tax position and shall have received the same benefits that he would have received if the Excise Taxes had not been imposed. For purposes of calculating any income taxes attributable to the Bonus Payment, Executive shall be deemed for all purposes to be paying income taxes at the highest marginal federal income tax rate, taking into account any applicable surtaxes and other generally applicable taxes which have the effect of increasing the marginal federal income tax rate and, if applicable, at the highest marginal state income tax rate, to which the Bonus Payment and Executive are subject. An example of the calculation of the Bonus Payment is set forth below. Assume that the Excise Tax rate is 20%, the highest federal marginal income tax rate is 40% and Executive is not subject to state income taxes. Further assume that Executive has received an excess parachute payment in the amount of $200,000, on which $40,000 ($200,000 x 20%) in Excise Taxes are payable. The amount of the required Bonus Payment is thus computed to be $100,000, i.e., the Bonus Payment of $100,000, less additional Excise Taxes on the Bonus Payment of $20,000 (i.e., 20% x $100,000) and income taxes of $40,000 (i.e., 40% x $100,000), yields $40,000, the amount of the Excise Taxes payable in respect of the original excess parachute payment. (c) Executive agrees to reasonably cooperate with the Company to minimize the amount of the excess parachute payments, including, without limitation, assisting the Company in establishing that some or all of the payments received by Executive that are "contingent on a change", as described in Section 280G(b)(2)(A)(i) of the Code, are reasonable compensation for personal services actually rendered by Executive before the date of such change or to be rendered by Executive on or after the date of such change. In the event that the Company is able to establish that the amount of the excess parachute payments is less than originally anticipated by Executive, Executive shall refund to the Company any excess Bonus Payment to the extent not required to pay Excise Taxes or income taxes 10 (including those incurred in respect of receipt of the Bonus Payment). Notwithstanding the foregoing, Executive shall not be required to take any action which his attorney or tax advisor advises him in writing (i) is improper or (ii) exposes Executive to personal liability. Executive may require the Company to deliver to Executive an indemnification agreement in form and substance reasonably satisfactory to Executive as a condition to taking any action required by this subsection (c). (d) The Company shall make any payment required to be made under this Section 9 in a cash lump sum after the date on which Executive received or is deemed to have received any such excess parachute payment. Any payment required to be paid by the Company under this Section 9 which is not paid within 30 days of receipt by the Company of Executive's written demand therefor shall thereafter be deemed delinquent, and the Company shall pay to Executive immediately upon demand interest at the highest nonusurious rate per annum allowed by applicable law from the date such payment becomes delinquent to the date of payment of such delinquent sum with interest. (e) In the event that there is any change to the Code which results in the recodification of Section 280G or Section 4999 of the Code, or in the event that either such section of the Code is amended, replaced or supplemented by other provisions of the Code of similar import ("SUCCESSOR PROVISIONS"), then this Agreement shall be applied and enforced with respect to such new Code provisions in a manner consistent with the intent of the parties as expressed herein, which is to assure that Employee is in the same after-tax position and has received the same benefits that he would have been in and received if any taxes imposed by Section 4999 (or any Successor Provisions) had not been imposed. (f) All determinations required to be made under this Section 9 including, without limitation, whether and when a Bonus Payment is required, and the amount of such Bonus Payment and the assumptions to be utilized in arriving at such determinations, unless otherwise expressly set forth in this Agreement, shall be made within 30 days from the Change in Control Date by the independent tax consultant(s) selected by the Company and reasonably acceptable to Executive ("TAX CONSULTANT"). The Tax Consultant must be a qualified tax attorney or certified public accountant. All fees and expenses of the Tax Consultant shall be paid in full by the Company. Any Excise Taxes as determined pursuant to this Section 9 shall be paid by the Company to the Internal Revenue Service or any other appropriate taxing authority on Executive's behalf within five (5) business days after receipt of the Tax Consultant's final determination to Company and Executive. (g) If the Tax Consultant determines that there is substantial authority (within the meaning of Section 6662 of the Code) that no Excise Taxes are payable by Executive, the Tax Consultant shall furnish Executive with a written opinion that failure to disclose or report the Excise Taxes on Executive's federal income tax return will not constitute a 11 substantial understatement of tax or be reasonably likely to result in the imposition of a negligence or any other penalty. (h) The Company shall indemnify and hold harmless the Executive, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities ("LOSSES") incurred by Executive with respect to the exercise by the Company of any of its rights under this Section 9, including, without limitation, any Losses related to the Company's decision to contest a claim of any imputed income to Executive. The Company shall pay all fees and expenses incurred under this Section 9, and shall promptly reimburse Executive for the reasonable expenses incurred by Executive in connection with any actions taken by the Company or required to be taken by Executive hereunder. Any payments owing to Executive and not made within 30 days of delivery to the Company of evidence of Executive's entitlement thereto shall be paid to Executive together with interest at the maximum nonusurious rate permitted by law. 10. POST-EMPLOYMENT MEDICAL BENEFITS. If Executive's employment with the Company is terminated for any reason except Cause (as defined in Section 6(b)) after Executive has completed at least five (5) complete years of service with the Company or its predecessors (including, for this purpose, prior service with any corporation acquired by or merged into the Company), then the Company shall provide post-employment medical coverage in accordance with the terms and conditions of this Section 10 for a period of two years. The Company shall continue to cover Executive and his spouse (hereinafter referred to as "SPOUSE") and his eligible dependent children, if any, from the date of Executive's termination of employment with the Company, under the group health care plan maintained by the Company to provide major medical insurance coverage for employees and their dependents (such group medical plan or its successor(s) shall be hereinafter referred to as the "HEALTH CARE PLAN"). The coverage of Executive and his Spouse under the Health Care Plan shall continue for each of their lives without interruption, but such coverage of his eligible dependent children shall continue only for such time period that they otherwise qualify for dependent coverage under the terms of the Health Care Plan. In the event of any change to the Health Care Plan following the Termination Date, Executive, his Spouse and dependents shall be treated consistently with the then-current senior officers of the Company (or its successor) with respect to the terms and conditions of coverage and other substantive provisions of the Health Care Plan. The provisions of this Section 10 shall be effective regardless of the reason for Executive's termination of employment with the Company except for Cause. The continuation coverage under the Health Care Plan provided to Executive and his Spouse pursuant to this Agreement shall continue and remain in full force and effect until the later of (a) Executive's date of death or (b) his Spouse's date of death. Executive and his Spouse hereby agree and consent to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar or succeeding plan or program that is maintained by the United States Government or any agency thereof (hereinafter 12 referred to as "MEDICARE"). The coverage described in the immediately preceding sentence includes, without limitation, parts A and B of Medicare and any additional or successor parts of Medicare. Executive and his Spouse further agree and consent to pay all required premiums and other costs for Medicare coverage from their personal funds. If Executive or Spouse are covered under Medicare, the "retiree" coverage provided under the Health Care Plan to such person shall be secondary payor to Medicare to the full extent permitted by law. In addition, if Executive or his Spouse or other dependents should become covered under another major medical plan maintained by another employer or other entity, such coverage shall be primary payor to the coverage provided pursuant to this Section 10 to the full extent permitted by law. Executive, on behalf of himself and his Spouse and other dependents, if any, shall be required to pay premiums for their coverage under the Health Care Plan at the rates, if any, charged by the Company to active employees who are senior officers of the Company (or its successor) at the time the premium is charged. The Company shall not be responsible for the payment of any income or other taxes which may be imposed on Executive, or on his Spouse or dependents, as the result of receiving continuation coverage under the Health Care Plan pursuant to this Section 10. 11. CONFLICTS OF INTEREST. In keeping with his fiduciary duties to Company, Executive hereby agrees that he shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. Moreover, Executive agrees that he shall immediately disclose to the Board of Directors any known facts which might involve a conflict of interest of which the Board is not aware. Executive and Company recognize and acknowledge that it is not possible to provide an exhaustive list of actions or interests which may constitute a "conflict of interest." Moreover, Company and Executive recognize there are many borderline situations. In some instances, full disclosure of facts by the Executive to the Board of Directors may be all that is necessary to enable Company to protect its interests. In others, if no improper motivation appears to exist and Company's interests have not demonstrably suffered, prompt elimination of the outside interest may suffice. In egregious and material instances it may be necessary for Company to terminate Executive's employment for Cause (as defined in Section 6(b)). The Board of Directors reserves the right to take such action as, in its good faith judgment, will resolve the conflict of interest. Executive hereby agrees that any interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might adversely affect the Company or any of its affiliated entities, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Executive would or might arise, and which should be reported immediately to the Board of Directors, include, but are not limited to, any of the following: 13 (a) Ownership of more than a de minimis interest in any lender, supplier, contractor, customer or other entity with which Company or any of its affiliated entities does business; (b) Intentional misuse of information, property or facilities to which Executive has access in a manner which is demonstrably injurious to the interests of Company or any of its affiliated entities, including its business, reputation or goodwill; or (c) Materially trading in products or services connected with products or services designed or marketed by or for the Company or any of its affiliated entities. For purposes of this Agreement, "AFFILIATED ENTITY" means any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, the Company. 12. CONFIDENTIAL INFORMATION. (a) CONFIDENTIAL INFORMATION DEFINED. Executive hereby acknowledges that in his senior management position, he will create, acquire and have access to confidential information and trade secrets pertaining to the business of Company (hereafter "Confidential Information" as defined below). Executive hereby acknowledges that such Confidential Information is unique and valuable to Company's business and that Company could suffer irreparable injury if Confidential Information was divulged to the public or to persons or entities in competition with Company. Therefore, Executive hereby covenants and agrees to keep in strict secrecy and confidence, both during and after the Employment Period, any Confidential Information. Executive specifically agrees that he will not at any time disclose to others, use, copy or permit to be copied, except in pursuance of his duties on behalf of Company or with the prior consent of Company, Confidential Information relating to the Company or any of its affiliated entities. For purposes of this Agreement, "CONFIDENTIAL INFORMATION" shall mean and include, without limitation, information related to the business affairs, property, methods of operation, future plans, financial information, customer or client information, or other data which relates to the business or operations of Company or any of its affiliated entities, and other information obtained by Executive during the Employment Period which concerns the affairs of Company or any of its affiliated entities and which Company has requested be held in confidence or could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be materially embarrassing, detrimental or disadvantageous to the Company or any of its affiliated entities, or its and their directors, officers, employees or shareholders. Confidential Information, however, shall not include: 14 (i) Information that is at the time of receipt by Executive in the public domain or is otherwise generally known in the industry or subsequently enters the public domain or becomes generally known in the industry through no fault of Executive; or (ii) Information that at any time is received in good faith by Executive from a third party who was lawfully in possession of the same and had the right to disclose the same. (b) REQUIRED DISCLOSURE. In the event that Executive is required by law which cannot be waived to disclose any Confidential Information, Executive agrees that he will provide prompt notice of such potential disclosure to Company so that an appropriate protective order may be sought and/or a waiver of compliance with the provisions of this Agreement may be granted. In the event that (i) such protection or other remedy is not obtained or (ii) Company waives in writing the compliance by Executive with this provision, Executive agrees that he may furnish only that portion of the Confidential Information which Executive is advised by written opinion of counsel is legally required to be disclosed, and Executive shall exercise reasonable effort to obtain assurances that confidential treatment will be accorded such Confidential Information. (c) DELIVERY OF DOCUMENTS. Executive further agrees to deliver to Company at the termination of his employment, all correspondence, memoranda, notes, records, drawings, plans, customer lists or other documents, and all copies thereof made, composed or received by Executive, solely or jointly with others, and which are in Executive's possession, custody or control at such date and which relate in any manner to the past, present or anticipated business of Company or any of its affiliated entities. (d) REMEDIES. In the event of a breach or threatened breach of any of the provisions of this Section 12, Company shall be entitled to an injunction ordering the return of all such documents, and any and all copies thereof, and restraining Executive from using or disclosing, for his benefit or the benefit of others, in whole or in part, any Confidential Information, including, but not limited to, the Confidential Information which such documents contain, constitute or embody. Executive further agrees that any breach or threatened breach of any of the provisions of this Section 12 could cause irreparable injury to Company, for which it would have no adequate remedy at law. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies available to it for any such breach or threatened breach, including the recovery of damages. 13. PROPERTY RIGHTS. In keeping with his fiduciary duties to Company, Executive hereby covenants and agrees that during his Employment Period, and for a period of six (6) months following his Termination Date, Executive shall promptly disclose in writing to Company any and all information, ideas, concepts, improvements, discoveries, inventions and other intellectual 15 properties, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Executive, either individually or jointly with others, and which relate to the business, products or services of Company or any of its affiliated entities. In consideration for his employment hereunder, Executive hereby specifically sells, assigns and transfers to Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries, inventions and other intellectual properties. If during the Employment Period, Executive creates any original work of authorship or other property fixed in any tangible medium of expression which (a) is the subject matter of copyright (including computer programs) and (b) relates to Company's present or planned business, products, or services, whether such property is created solely by Executive or jointly with others, such property shall be deemed a work for hire, with the copyright automatically vesting in Company. To the extent that any such writing or other property is determined not to be a work for hire for whatever reason, Executive hereby consents and agrees to the unconditional waiver of "moral rights" in such writing or other property, and to assign to Company all of his right, title and interest, including copyright, in such writing or other property. Executive hereby agrees to (a) exercise reasonable effort to assist Company or its nominee in the protection of any and all property subject to this Section 13, (b) not to disclose any such property to others without the written consent of Company or its nominee, except as required by his employment hereunder, and (c) at the request of Company, to execute such assignments, certificates or other interests as Company or its nominee may from time to time deem desirable to evidence, establish, maintain, perfect, protect or enforce its rights, title or interests in or to any such property. 14. AGREEMENT NOT TO COMPETE. Executive hereby recognizes and acknowledges that: (a) in his executive capacity with Company he will be given knowledge of, and access to, the Confidential Information (as described in Section 12); (b) in the event that Executive was to enter into competition with Company, Executive's knowledge of such Confidential Information would be of invaluable benefit to a competitor of Company, and could cause irreparable harm to Company's business interests; and (c) Executive's consent and agreement to enter into the noncompetition provisions and covenants set forth herein is an integral condition of this Agreement, without which Company would not have agreed to provide Confidential Information to Executive nor to his compensation, benefits, and other terms of this Agreement. Accordingly, in consideration for his employment, compensation, benefits, access to and entrustment of Confidential Information, and the goodwill, training and experience provided to Executive during his Employment Period, Executive hereby covenants, consents and agrees (regardless of whether or not there has been a Change in Control as defined in Section 6(b)) that during the Employment Period, and for a period of one (1) year after his employment is terminated for any reason except (i) termination by the Company without Cause (as defined in Section 6(b)) or termination by Executive for Good Reason (as defined in Section 6(b)) or (ii) termination of employment after expiration of the Term of Employment due to non- renewal of this Agreement by the Company pursuant to Section 4, 16 Executive shall not, directly or indirectly, acting alone or in conjunction with others, for his own account or for the account of others, including, without limitation, as an officer, director, stockholder, owner, partner, joint venturer, employee, promoter, consultant, agent, representative, or otherwise: (a) Solicit, canvass, or accept any fees or business from any customer of Company for himself or any other person or entity engaged in a "Similar Business to Company" (as defined below); (b) Engage or participate in any Similar Business to Company within the entire continental United States (referred to herein as the "RESTRICTED AREA"); (c) Request or advise any service provider, supplier, or customer to reduce or cancel any business that it may transact with Company or any of its affiliated entities; (d) Solicit, induce, or otherwise attempt to influence any employee of the Company or any of its affiliated entities, to terminate his or her relationship with the Company or any of its affiliated entities; or (e) Make any statement or perform any act intended to advance an interest of an existing or prospective competitor of the Company or any of its affiliated entities in any way that demonstrably injures the reputation, goodwill or any other business interest of Company or any of its affiliated entities. For purposes of this Agreement, "SIMILAR BUSINESS TO COMPANY" means any business or other enterprise that is competitive with the current or planned businesses, products, services or operations of the Company or any of its affiliated entities at the time of termination of Executive's employment. For purposes of clarity and not limitation, the non-compete and other provisions of this Section 14 shall not apply to Executive if Executive's employment hereunder is terminated (a) by the Company without Cause (as defined in Section 6(b)), (b) by the Executive for Good Reason (as defined in Section 6(b)), or (c) after the Term of Employment (as defined in Section 4) has expired due to non-renewal by the Company. Executive hereby agrees that the limitations set forth in this Section 14 on his rights to compete with Company after his termination of employment are reasonable and necessary for the protection of Company. In this regard, Executive specifically agrees that such limitations as to the period of time, geographic area and types and scopes of restriction on his activities, as specified above, are reasonable and necessary to protect the goodwill and other business interests of Company. However, should the time period, the geographic area or any other non-competition provision set forth herein be deemed invalid or unenforceable in any respect, then Executive acknowledges and agrees that, as set forth in Section 15 hereof, reformation may be made with respect to such time 17 period, geographic area or other non-competition provision in order to protect Company's reasonable business interests to the maximum permissible extent. 15. REMEDIES. In the event of any pending, threatened or actual breach of any of the covenants or provisions of Section 11, 12, 13 or 14, it is understood and agreed by Executive that the remedy at law for a breach of any of the covenants or provisions of these Sections may be inadequate and, therefore, Company shall be entitled to a restraining order or injunctive relief from any court of competent jurisdiction, in addition to any other remedies at law and in equity. In the event that Company seeks to obtain a restraining order or injunctive relief, Executive hereby agrees that Company shall not be required to post any bond in connection therewith. Should a court of competent jurisdiction or an arbitrator (pursuant to Section 25) declare any provision of Section 11, 12, 13 or 14 to be unenforceable due to an unreasonable restriction of duration or geographical area, or for any other reason, such court or arbitrator is hereby granted the consent of each of the Executive and Company to reform such provision and/or to grant the Company any relief, at law or in equity, reasonably necessary to protect the reasonable business interests of Company or any of its affiliated entities. Executive hereby acknowledges and agrees that all of the covenants and other provisions of Sections 11, 12, 13 and 14 are reasonable and necessary for the protection of the Company's reasonable business interests. Executive hereby agrees that if the Company prevails in any action, suit or proceeding with respect to any matter arising out of or in connection with Section 11, 12, 13 or 14, Company shall be entitled to all equitable and legal remedies, including, but not limited to, injunctive relief and compensatory damages. 16. DEFENSE OF CLAIMS. Executive agrees that during the Employment Period and for a period of two (2) years after his Termination Date, upon reasonable request from the Company, he will cooperate with the Company and its affiliated entities in the defense of any claims or actions that may be made by or against the Company or any of its affiliated entities that affect his prior areas of responsibility, except if Executive's reasonable interests are adverse to the Company (or affiliated entity) in such claim or action as determined by Executive or his counsel. To the extent travel is required to comply with the requirements of this Section 16, the Company shall, to the extent possible, provide Executive with notice at least 10 days prior to the date on which such travel would be required. The Company agrees to promptly pay or reimburse Executive upon demand for all of his reasonable travel and other direct expenses incurred, or to be reasonably incurred, to comply with his obligations under this Section 16. 17. DETERMINATIONS BY THE COMMITTEE. (a) TERMINATION OF EMPLOYMENT. Prior to a Change in Control (as defined in Section 6(b)), any question as to whether and when there has been a termination of Executive's employment, and the cause of such termination, shall be determined in good faith by the Committee. 18 (b) COMPENSATION. Prior to a Change in Control (as defined in Section 6(b)), any question regarding salary, bonus and other compensation payable to Executive pursuant to this Agreement shall be determined in good faith by the Committee. 18. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Company's employees generally, and (c) any advances made to Executive and owed to Company. 19. NONALIENATION. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, his dependents or beneficiaries, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect. 20. INCOMPETENT OR MINOR PAYEES. Should the Board of Directors determine that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder may, notwithstanding any other provision of this Agreement to the contrary, be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Board of Directors, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid. 21. INDEMNIFICATION. The Company shall, to the fullest extent permitted by law, indemnify and hold harmless the Executive from and against any and all liability arising from his service as an employee, officer or director of the Company and its affiliates. To the fullest extent permitted by law, the Company shall retain counsel to defend Executive or shall advance legal fees and expenses to Executive for counsel selected by Executive in connection with any litigation or proceeding related to service as an employee, officer and director of the Company or any of its affiliates. This Section 21 shall not limit in any way the rights of Executive to any other indemnification from the Company, as a matter of law, contract or otherwise. 22. SEVERABILITY. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 25), the parties 19 hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. 23. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated herein and made a part hereof for all purposes. The words "herein", "hereof", "hereunder" and other compounds of the word "here" shall refer to the entire Agreement and not to any particular provision hereof. 24. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. 25. ARBITRATION. (a) ARBITRABLE MATTERS. If any dispute or controversy arises between Executive and the Company as to their respective rights or obligations under this Agreement, then either party may submit the dispute or controversy to arbitration under the then-current National Employment Dispute Resolution Rules of the American Arbitration Association (AAA) (the "RULES"); provided, however, the Company shall retain its rights to seek a restraining order or injunctive relief pursuant to Section 15. Any arbitration hereunder shall be conducted before a panel of three arbitrators unless the parties mutually agree to a single arbitrator. The site for any arbitration hereunder shall be either Harris County or Fort Bend County, Texas, unless otherwise mutually agreed by the parties. (b) SUBMISSION TO ARBITRATION. The party submitting any matter to arbitration shall do so in accordance with the Rules. Notice to the other party shall state the question or questions to be submitted for decision or award by arbitration. Notwithstanding any provision in this Section 25, Executive shall be entitled to seek specific performance of the Executive's right to be paid during the pendency of any dispute or controversy arising under this Agreement. In order to prevent irreparable harm, the arbitrator may grant temporary or permanent injunctive or other equitable relief for the protection of property rights. (c) ARBITRATION PROCEDURES. The arbitrator shall set the date, time and place for each hearing, and shall give the parties advance written notice in accordance with the Rules. Any party may be represented by counsel or other authorized representative at any hearing. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S) 1 et. seq. (or its successor). The arbitrator shall apply the substantive law (and the law of remedies, if 20 applicable) of the State of Texas to the claims asserted to the extent that the arbitrator determines that federal law is not controlling. (d) COMPLIANCE WITH AWARD. (i) Any award of an arbitrator shall be final and binding upon the parties to such arbitration, and each party shall immediately make such changes in its conduct or provide such monetary payment or other relief as such award requires. The parties agree that the award of the arbitrator shall be final and binding and shall be subject only to the judicial review permitted by the Federal Arbitration Act. (ii) The parties hereto agree that the arbitration award may be entered with any court having jurisdiction and the award may then be enforced as between the parties, without further evidentiary proceedings, the same as if entered by the court at the conclusion of a judicial proceeding in which no appeal was taken. The Company and the Executive hereby agree that a judgment upon any award rendered by an arbitrator may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (e) COSTS AND EXPENSES. Each party shall pay any monetary amount required by the arbitrator's award, and the fees, costs and expenses for its own counsel, witnesses and exhibits, unless otherwise determined by the arbitrator in the award. The compensation and costs and expenses assessed by the arbitrator and the AAA shall be paid by the Company, unless otherwise determined by the arbitrator in the award such as, for example, if the arbitrator determines that Executive's claim was frivolous or not brought in good faith. If court proceedings to stay litigation or compel arbitration are necessary, the party who unsuccessfully opposes such proceedings shall pay all associated costs, expenses, and attorney's fees which are reasonably incurred by the other party as determined by the arbitrator. 26. BINDING EFFECT: THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder, but otherwise this Agreement shall not be for the benefit of any third parties. 27. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire agreement of the parties with respect to Executive's employment and the other matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the parties hereto concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument executed by both parties hereto. 21 28. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the intention of the parties hereto, the respective rights and obligations of said parties, including, but not limited to, the rights and obligations set forth in Sections 6 through 17 and 25 hereof, shall survive any termination or expiration of this Agreement. 29. WAIVER OF BREACH. No waiver by either party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time while such breach continues. 30. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company and its affiliated entities, and its and their successors, and upon any person or entity acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the business and/or assets of Company in a Change in Control (as defined in Section 6(b)) or otherwise. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, no such assumption shall relieve the Company of its obligations hereunder. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees or other Beneficiary. In the event of the death of Executive while any amount would still be payable hereunder if such death had not occurred, all such amounts, unless otherwise specifically provided herein, shall be paid in accordance with the terms of this Agreement to Executive's Beneficiary. "Beneficiary", for this purpose, shall mean the person or persons designated by Executive in writing to receive any benefits payable to Executive hereunder in the event of his death or, if no such person is so designated, Executive's surviving spouse if any, or, if not, then Executive's estate. No Beneficiary designation shall be effective unless it is in writing and received by the Company prior to the date of Executive's death. 31. NOTICES. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person or sent by facsimile transmission, (b) on the first business day after it is sent by air express overnight courier service, or (c) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed, to the following address, as applicable: 22 (i) If to Company, addressed to: Imperial Sugar Company P.O. Box 9 Sugar Land, Texas 77487-0009 Attention: President (ii) If to Executive, addressed to the address set forth below his name on the execution page hereof; or to such other address as either party may have furnished to the other party in writing in accordance with this Section 31. 32. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both parties. 33. EXECUTIVE ACKNOWLEDGMENT. Executive acknowledges that (a) he is knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) he has read the Agreement, and (c) he understands its terms and conditions. Executive represents that he is free to enter into this Agreement including, without limitation, that he is not subject to any other contract of employment or covenant not to compete that would conflict with his duties under this Agreement. 34. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT/SURVIVAL OF OTHER AGREEMENTS. After this Agreement is effective and enforceable upon execution of this Agreement by the parties hereto, that certain Employment Agreement between the Company and _______________ dated _________________ shall terminate and be superseded in all respects by this Agreement. All other agreements or arrangements between the Executive and Company in effect on the date hereof shall remain fully effective. [Signature page follows.] 23 IN WITNESS WHEREOF, Executive has hereunto set his hand and Company has caused this Agreement to be executed in its name and on its behalf by its duly authorized officer, to be effective as of the Effective Date. WITNESS: EXECUTIVE: Signature: ------------------------ Signature: --------------------------- Name: ----------------------------- Name: -------------------------------- Date: ----------------------------- Date: -------------------------------- Address for Notices: ----------------- -------------------------- -------------------------- -------------------------- ATTEST: IMPERIAL SUGAR COMPANY: By: ------------------------------- By: --------------------------------- Title: ---------------------------- Its: -------------------------------- Name: ----------------------------- Name: ------------------------------- Date: ----------------------------- Date: ------------------------------- 24 EX-10.(B)(3) 8 0008.txt SCHEDULE OF EMPLOYMENT AGREEMENTS EXHIBIT 10(b)(3) SCHEDULE OF EMPLOYMENT AGREEMENTS FORM OF AGREEMENT James C. Kempner A D. W. Ehrenkranz B Mark Q. Huggins B Peter C. Carrothers A William F. Schwer A W. J. Smith B Ben A. Oxnard, Jr. B EX-21 9 0009.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction of Subsidiary Incorporation - ---------- --------------- Holly Sugar Corporation.................................... New York Diamond Crystal Brands, Inc................................ Delaware Michigan Sugar Company..................................... Michigan Imperial Savannah LP....................................... Delaware Diamond Crystal Specialty Foods, Inc. ..................... Michigan Imperial Securitization Corporation........................ Delaware EX-23 10 0010.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-30328, 33-41769 and 33-68896, each on Form S-8, and in Registration Statement No. 333-69059 on Form S-3 of Imperial Sugar Company of our report dated December 28, 2000, appearing in this Form 10-K of Imperial Sugar Company for the year ended September 30, 2000. Deloitte & Touche LLP Houston, Texas December 28, 2000 EX-27 11 0011.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Imperial Sugar company's Annual Report on Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS SEP-30-2000 OCT-01-1999 SEP-30-2000 6,533 4,612 63,378 0 187,471 310,245 596,774 239,093 1,093,690 674,409 20,000 0 0 310,452 8,149 1,093,690 1,821,231 1,821,231 1,682,529 1,682,529 0 0 56,656 (47,650) (12,973) (34,677) 0 0 0 (34,677) (1.07) (1.07)
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