EXHIBIT 12
HERSHEY FOODS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Years Ended December 31, 2000, 1999, 1998, 1997 and 1996,
(in thousands of dollars except for ratios)
(Unaudited)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Earnings:
Income from continuing operations before income taxes...... $ 546,639 $727,874(a) $ 557,006 $ 553,955 $479,737(b)
Add (Deduct):
Interest on indebtedness................................. 80,956 77,300 88,648 79,138 52,036
Portion of rents representative of the interest factor(c) 13,585 15,162 13,197 10,592 8,618
Amortization of debt expense............................. 489 486 462 412 234
Amortization of capitalized interest..................... 325 3,884 3,856 3,496 3,359
---------- --------- ---------- ---------- ----------
Earnings as adjusted................................... $ 641,994 $ 824,706 $ 663,169 $ 647,593 $ 543,984
========== ========= ========== ========== ==========
Fixed Charges:
Interest on indebtedness................................... $ 80,956 $ 77,300 $ 88,648 $ 79,138 $ 52,036
Portion of rents representative of the interest factor(c).. 13,585 15,162 13,197 10,592 8,618
Amortization of debt expense............................... 489 486 462 412 234
Capitalized interest....................................... 145 1,214 2,547 1,883 1,534
---------- --------- ---------- ---------- ----------
Total fixed charges.................................... $ 95,175 $ 94,162 $ 104,854 $ 92,025 $ 62,422
========== ========= ========== ========== ==========
Ratio of earnings to fixed charges.............................. 6.75 8.76 6.32 7.04 8.71
========== ========= ========== ========== ==========
- --------------------------------------------------------------------------------
NOTES:
(a) Includes a gain on the disposal of pasta business of $243.8 million.
(b) Includes a loss on the disposal of businesses of $35.4 million.
(c) Portion of rents representative of the interest factor consists of
one-third of rental expense for operating leases.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated January 26, 2001, included or incorporated by reference in
this Form 10-K for the year ended December 31, 2000, into the Corporation's
previously filed Registration Statements on Forms S-8 and S-3, (File No.
333-25853, File No. 333-33507, File No. 33-45431, File No. 33-45556, and File
No. 333-52509).
ARTHUR ANDERSEN LLP
New York, New York
March 12, 2001
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following is a listing of Subsidiaries of the Corporation, their
jurisdictions of incorporation, and the name under which they do business. Each
is wholly owned. Certain subsidiaries are not listed since, considered in the
aggregate as a single subsidiary, they would not constitute a significant
subsidiary as of December 31, 2000.
|
|
|
|
Name of Subsidiary
|
Jurisdiction of
Incorporation
|
|
Hershey Chocolate &
Confectionery Corporation |
Delaware |
|
Hershey Chocolate of
Virginia, Inc. |
Delaware |
|
Hershey Canada, Inc.
|
Canada |
[/TABLE]
Exhibit 10.1
HERSHEY FOODS CORPORATION
KEY EMPLOYEE INCENTIVE PLAN
1. ESTABLISHMENT AND PURPOSE
Hershey Foods Corporation (the "Corporation") hereby establishes the Key
Employee Incentive Plan (the "Plan"). The purpose of the Plan is to provide
to selected key employees of the Corporation and its subsidiaries (as
defined below), upon whose efforts the Corporation is dependent for the
successful conduct of its business, further incentive to continue and
increase their efforts as employees and to remain in the employ of the
Corporation and its subsidiaries.
The Plan continues the Annual Incentive Program ("AIP"), with certain
modifications, as in effect under the Corporation's Management Incentive
Plan ("MIP") established in 1975 and as amended thereafter, pursuant to
which participants are entitled to receive cash awards based on achievement
of performance goals during annual performance cycles. The Plan also
continues the Long-Term Incentive Program ("LTIP") portion of the MIP with
certain modifications. In addition to performance stock units ("Performance
Stock Units"), the LTIP portion now also includes nonqualified stock
options for the purchase of Common Stock ("Options"); stock appreciation
rights ("SARs"); and restricted stock units ("Restricted Stock Units").
As used herein, (i) the term "Subsidiary Corporation" shall mean any
present or future corporation which is or would be a "subsidiary
corporation" of the Corporation as defined in Section 424 of the Internal
Revenue Code of 1986 (the "Code"), and (ii) the term "Corporation" defined
above shall refer collectively to Hershey Foods Corporation and its
Subsidiary Corporations unless the context indicates otherwise.
2. STOCK SUBJECT TO THE PLAN
The aggregate number of shares of the Corporation's Common Stock, $1.00 Par
Value (the "Common Stock"), which may be covered by Performance Stock
Units, Options, SARs and Restricted Stock Units granted pursuant to the
LTIP portion of the Plan will be established by the Board of Directors and
will be subject to adjustment in accordance with Section 12 below. The
shares issued under this Plan may be either authorized but unissued shares,
treasury shares held by the Corporation or any direct or indirect
subsidiary thereof or shares acquired by the Corporation through open
market purchases (whether made before or after any exercise of Options(s)
or the granting of stock compensation hereunder) or otherwise. In addition
to shares of Common Stock actually issued or distributed under the Plan,
there shall be deemed to have been issued a number of shares equal to (i)
the number of shares of Common Stock in respect of which optionees utilize
the manner of exercise of, and payment for, Options as provided in
Paragraph 7II(g) of this Plan, and
1
(ii) the number of shares of Common
Stock which is equivalent in value to any cash amounts distributed upon
payment of Performance Stock Units, SARs or Restricted Stock Units. For
purposes of determining the charge to be made pursuant to subpart (ii)
against the shares of Common Stock subject to the Plan, the value of a
share of Common Stock shall be its Fair Market Value as defined in
Paragraph 4 when awards are made with respect to Performance Stock Units,
upon exercise of SARs, and upon expiration of the applicable restriction
period of Restricted Stock Units. Any shares subject under the Plan to
Performance Stock Units, Options, SARs or Restricted Stock Units which, for
any reason, expire or terminate or are forfeited or surrendered shall again
be available for issuance under the Plan.
3. ADMINISTRATION
The Plan shall be administered by the Compensation and Executive
Organization Committee (the "Committee"), or any successor committee,
appointed by and consisting solely of members of the Board of Directors
(the "Board") of the Corporation, each of whom qualifies as both a
"nonemployee director" within the meaning of Rule 16b-3 or its successor
under the Securities Exchange Act of 1934 (the "Exchange Act") and an
"outside director" within the meaning of Section 162(m) of the Code.
Committee members shall not be eligible to participate in the Plan. The
Board may from time to time remove and appoint members of the Committee in
substitution for, or in addition to, members previously appointed and may
fill vacancies, however caused, in the Committee. The Committee may adopt
such rules and regulations as it deems useful in governing its affairs. Any
action of the Committee with respect to the administration of the Plan
shall be taken by majority vote at a Committee meeting or written consent
of all Committee members.
Subject to the terms and conditions of the Plan, the Committee shall have
authority: (i) to construe and interpret Plan provisions; (ii) to define
the terms used in the Plan; (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan; (iv) to select particular employees to
participate in the Plan, (v) to determine the terms, conditions, form and
amount of grants, distributions or payments made to each participant,
including conditions upon and provisions for vesting, exercise and
acceleration of any grants, distributions or payments; (vi) upon the
request of a participant in the Plan, to approve and determine the duration
of leaves of absence which may be granted to the participant without
constituting a termination of his or her employment for purposes of the
Plan; and (vii) to make all other determinations necessary or advisable for
the administration and operation of the Plan. The Committee shall have the
right to impose varying terms and conditions with respect to each grant or
award. All determinations and interpretations made by the Committee shall
be final, binding and conclusive on all participants and on their legal
representatives and beneficiaries.
4. FAIR MARKET VALUE
As used in the Plan (unless a different method of calculation is required
by applicable law, and except as otherwise specifically provided in any
Plan provision), "Fair Market Value" on or as of any date shall mean (i)
the closing price of the Common Stock as reported in the New
2
York Stock Exchange Composite Transactions Report (or any other
consolidated transactions reporting system which subsequently may replace
such Composite Transactions Report) for the New York Stock Exchange trading
day immediately preceding such date, or if there are no sales on such date,
on the next preceding day on which there were sales, or (ii) in the event
that the Common Stock is no longer listed for trading on the New York Stock
Exchange, an amount determined in accordance with standards adopted by the
Committee.
5. ELIGIBILITY AND PARTICIPATION
Key employees of the Corporation or of any of its Subsidiary Corporations,
including officers and directors who are regular employees but not members
of the Committee, who in the opinion of the Committee are in a position to
contribute significantly to the success of the Corporation or any
Subsidiary Corporation, division or operating unit thereof, shall be
eligible for selection to participate in the Plan. In making this selection
and in determining the form and amount of grants, distributions and
payments under the Plan, the Committee shall take into account the duties
of the respective employees, their present and potential contributions to
the success of the Corporation or any Subsidiary Corporation, division or
operating unit thereof, and such other factors as the Committee may deem
relevant in connection with accomplishing the purposes of the Plan. An
employee who has been selected to participate may, if he or she is
otherwise eligible, receive more than one grant from time to time, and may
be granted any combination of contingent target grants under the AIP or
under the LTIP components of the Plan, as the Committee shall determine.
6. ANNUAL INCENTIVE PROGRAM
The Committee may from time to time, subject to the provisions of the Plan
and such other terms and conditions as the Committee may determine,
establish contingent target grants for those eligible employees it selects
to participate in the AIP. Each such contingent grant may be, but need not
be, evidenced by a written instrument, and shall be determined in relation
to the participant's level of responsibility in the Corporation and the
competitive compensation practices of other major businesses, and such
other factors as are deemed appropriate by the Committee.
(a) Awards actually earned by and paid to AIP participants ("AIP Awards")
will be based primarily upon achievement of performance goals over a
one-year performance cycle as approved by the Committee.
(b) The Committee, within the limits of the Plan, shall have full authority
and discretion to determine the time or times of establishing
contingent target grants; to select from among those eligible the
employees to receive awards; to review and certify the achievement of
performance goals; to designate levels of awards to be earned in
relation to levels of achievement of performance goals; to adopt such
financial and nonfinancial performance or other criteria for the
payment of awards as it may determine from time to time; to make
awards; and to establish such other measures as may be necessary to
achieve the objectives of the Plan. The financial or non-financial
performance goals established by the Committee may be based upon one or
more of the following: earnings per share, return on net assets, market
3
share, control of costs, net sales, cash flow, economic value-added
measures, sales growth, earnings growth, stock price, return on equity,
improvements in financial ratings, regulatory compliance, achievement
of balance sheet or income statement objectives, or any other objective
goals established by the Committee (the "Performance Factors").
(c) Aggregate annual AIP Awards shall not exceed six (6%) percent of the
excess of Before-Tax Income (defined for these purposes as Net Income
plus provision for Federal, state and local income taxes and interest
expense on long-term debt, but after consideration of the cost of the
Plan) over sixteen (16%) percent of Total Invested Capital (defined for
these purposes as Stockholders' Equity plus Long-Term Debt plus
Deferred Income Taxes) determined as the average of such Total Invested
Capital at the beginning of the year and the end of each calendar
quarter of such year. The maximum amount any participant can receive as
an AIP Award for any calendar year shall not exceed $2,100,000.
(d) AIP Awards as earned under the terms of the Plan shall be paid in cash
and may exceed or be less than the contingent target grants, provided
that payments do not exceed the maximum permitted cost of the AIP
calculated pursuant to subparagraph (c) above. Payment shall normally
be made as soon as possible following the close of the year, but
payment of all or any portion may be deferred by participants with the
approval of the Committee.
7. LONG-TERM INCENTIVE PROGRAM
The LTIP consists of the following four components:
I. PERFORMANCE STOCK UNITS
The Committee may, subject to the provisions of the Plan and such other
terms and conditions as the Committee may determine, grant Performance
Stock Units to reflect the value of contingent target grants
established for each eligible employee selected for participation. Each
grant of Performance Stock Units may be, but need not be, evidenced by
a written instrument. Such contingent target grants shall be determined
in relation to the employee's level of responsibility in the
Corporation or any Subsidiary Corporation, division or operating unit
thereof, and the competitive compensation practices of other major
businesses.
(a) Awards actually earned by and paid to holders of Performance Stock
Units ("PSU Awards") will be based upon achievement of performance
goals over performance cycles as approved by the Committee. Such
performance cycles each shall cover such period of time, not
exceeding five years, as the Committee from time to time shall
determine.
(b) The Committee, within the limits of the Plan, shall have full
authority and discretion to determine the time or times of
establishing contingent target grants and the granting of
4
Performance Stock Units; to select from among those eligible the
employees to receive PSU Awards; to review and certify the
achievement of performance goals; to designate levels of awards to
be earned in relation to levels of achievement of performance
goals; to adopt such financial and nonfinancial performance or
other criteria for the payment of PSU Awards as it may determine
from time to time; to make awards; and to establish such other
measures as may be necessary to the objectives of the Plan. The
performance goals established by the Committee may be based on one
or more of the Performance Factors.
(c) Payments of PSU Awards shall be made in shares of Common Stock or
partly in cash as the Committee in its sole discretion shall
determine and shall be charged against the shares available under
the LTIP portion of the Plan as provided in Paragraph 2; provided,
however, that no fractional shares shall be issued and any such
fraction will be eliminated by rounding downward to the nearest
whole share. In any case in which actual payment of a PSU Award is
deferred as provided below, a charge will be made against the
available shares for the number of shares equivalent to the dollar
amount of the deferred PSU Award.
(d) PSU Awards as earned under the terms of the Plan may exceed or be
less than the contingent target grants. Payment shall normally be
made as soon as possible following the close of the year, but
payment of all or any portion may be deferred by participants with
the approval of the Committee.
(e) The maximum amount a participant can receive as a PSU Award in any
calendar year is $2,430,000.
II. STOCK OPTIONS
The Committee may, from time to time, subject to the provisions of the
Plan and such other terms and conditions as it may determine, grant
nonqualified Options to purchase shares of Common Stock of the
Corporation to employees eligible to participate in the Plan. Each
grant of an Option shall be on such terms and conditions and be in such
form as the Committee may from time to time approve, subject to the
following:
(a) The exercise price per share with respect to each Option shall be
determined by the Committee in its sole discretion, but shall not
be less than 100% of the Fair Market Value of the Common Stock as
of the date of the grant of the Option.
(b) Options granted under the Plan shall be exercisable, in such
installments and for such periods, as shall be provided by the
Committee at the time of granting, but in no event shall any
Option granted extend for a period in excess of ten years from the
date of grant.
(c) The maximum number of shares of Common Stock covered by Options
granted to a participant for any calendar year shall not exceed
250,000.
5
(d) Among other conditions that may be imposed by the Committee, if
deemed appropriate, are those relating to (i) the period or
periods and the conditions of exercisability of any Option; (ii)
the minimum periods during which grantees of Options must be
employed, or must hold Options before they may be exercised; (iii)
the minimum periods during which shares acquired upon exercise
must be held before sale or transfer shall be permitted; (iv)
conditions under which such Options or shares may be subject to
forfeiture; and (v) the frequency of exercise or the minimum or
maximum number of shares that may be acquired at any one time.
(e) Exercise of an Option shall be by written notice stating the
election to exercise in the form and manner determined by the
Committee.
(f) The purchase price upon exercise of any Option shall be paid in
full by making payment (i) in cash; (ii) in whole or in part by
the delivery of a certificate or certificates of shares of Common
Stock of the Corporation, valued at its then Fair Market Value; or
(iii) by a combination of (i) and (ii).
(g) Notwithstanding subparagraph (e) above, any optionee may make
payment of the Option price through a simultaneous exercise of his
or her Option and sale of the shares thereby acquired pursuant to
a brokerage arrangement approved in advance by the Committee to
assure its conformity with the terms and conditions of the Plan.
(h) The Committee may require the surrender of outstanding Options as
a condition to the grant of new Options.
(i) Notwithstanding any other provision of the Plan or of any Option
agreement between the Corporation and an employee, upon the
occurrence of a Change in Control, each outstanding Option held by
a participant who is an employee of the Corporation or any
Subsidiary Corporation or who retired while employed by the
Corporation or any Subsidiary Corporation shall become fully
vested and exercisable notwithstanding any vesting schedule or
installment schedule relating to the exercisability of such Option
contained in the applicable Option agreement or otherwise
established at the time of grant of the Option.
(j) For purposes of this Plan, a "Change in Control" means:
(1) Individuals who, on June 8, 1999, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person
becoming a director subsequent to June 8, 1999, whose election
or nomination for election was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board
(either by specific vote or by approval of the proxy statement
of the Corporation in which such person is named as nominee
for director, without written objection to such nomination)
shall be an Incumbent Director; PROVIDED, HOWEVER, that no
individual initially elected or nominated as a director of the
Corporation as a result of an actual or threatened election
contest (as described in Rule 14a-11 under the Exchange Act)
6
("Election Contest") or other actual or threatened
solicitation of proxies or consents by or on behalf of any
person (as such term is defined in Section 3(a)(9) of the
Exchange Act and as used in Section 13(d)(3) and 14(d)(2) of
the Exchange Act) ("Person") other than the Board ("Proxy
Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest, shall
be deemed an Incumbent Director; and PROVIDED FURTHER,
HOWEVER, that a director who has been approved by the Hershey
Trust while it beneficially owns more than 50% of the combined
voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting Power") shall
be deemed to be an Incumbent Director; or
(2) The acquisition or holding by any Person of beneficial
ownership (within the meaning of Section 13(d) under the
Exchange Act and the rules and regulations promulgated
thereunder) of shares of the Common Stock and/or the Class B
Common Stock of the Corporation representing 25% or more of
either (i) the total number of then outstanding shares of both
Common Stock and Class B Common Stock of the Corporation (the
"Outstanding Corporation Stock") or (ii) the Outstanding
Corporation Voting Power; provided that, at the time of such
acquisition or holding of beneficial ownership of any such
shares, the Hershey Trust does not beneficially own more than
50% of the Outstanding Corporation Voting Power; and provided,
further, that any such acquisition or holding of beneficial
ownership of shares of either Common Stock or Class B Common
Stock of the Corporation by any of the following entities
shall not by itself constitute such a Change in Control
hereunder: (i) the Hershey Trust; (ii) any trust established
by the Corporation or by any Subsidiary Corporation for the
benefit of the Corporation and/or its employees or those of a
Subsidiary Corporation or by any Subsidiary Corporation for
the benefit of the Corporation and/or its employees or those
of a Subsidiary Corporation; (iii) any employee benefit plan
(or related trust) sponsored or maintained by the Corporation
or any Subsidiary Corporation; (iv) the Corporation or any
Subsidiary Corporation or (v) any underwriter temporarily
holding securities pursuant to an offering of such securities;
or
7
(3) The approval by the stockholders of the Corporation of any
merger, reorganization, recapitalization, consolidation or
other form of business combination (a "Business Combination")
if, following consummation of such Business Combination, the
Hershey Trust does not beneficially own more than 50% of the
total voting power of all outstanding voting securities of (x)
the surviving entity or entities (the "Surviving Corporation")
or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of more than
50% of the combined voting power of the then outstanding
voting securities eligible to elect directors of the Surviving
Corporation; or
(4) The approval by the stockholders of the Corporation of (i) any
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation (the
"Acquiring Corporation") if, following consummation of such
sale or other disposition, the Hershey Trust beneficially owns
more than 50% of the total voting power of all outstanding
voting securities eligible to elect directors (x) of the
Acquiring Corporation or (y) if applicable, the ultimate
parent corporation that directly or indirectly has beneficial
ownership of more than 50% of the combined voting power of the
then outstanding voting securities eligible to elect directors
of the Acquiring Corporation, or (ii) a liquidation or
dissolution of the Company.
For purposes of this Plan, "Hershey Trust" means either or both of
(a) the Hershey Trust Company, a Pennsylvania corporation, as
Trustee for the Milton Hershey School, or any successor to the
Hershey Trust Company as such trustee, and (b) the Milton Hershey
School, a Pennsylvania not-for-profit corporation
(k) For purposes of this Plan, a "Potential Change in Control" means:
(1) The Hershey Trust by action of any of the Board of Directors
of Hershey Trust Company; the Board of Managers of Milton
Hershey School; the Investment Committee of the Hershey Trust;
and/or any of the officers of Hershey Trust Company or Milton
Hershey School (acting with authority) undertakes
consideration of any action the taking of which would lead to
a Change in Control as defined herein, including, but not
limited to consideration of (i) an offer made to the Hershey
Trust to purchase any number of its shares in the Corporation
such that if the Hershey Trust accepted such offer and sold
such number of shares in the Corporation the Hershey Trust
would no longer have more than 50% of the Outstanding
Corporation Voting Power, (ii) an offering by the Hershey
Trust of any number of its shares in the Corporation for sale
such that if such sale were consummated the Hershey Trust
would no longer have more than 50% of the Outstanding
Corporation Voting Power or (iii) entering into any agreement
or understanding with a person or entity that would lead to a
Change in Control; or
(2) The Board approves a transaction described in subsection (2),
(3) or (4) of the definition of a Change in Control contained
in subparagraph (j) of Paragraph 7II hereof.
(l) In the event that a transaction which would constitute a Change in
Control if approved by the stockholders of the Corporation is to
be submitted to such stockholders for their approval, each
participant who is an employee and who holds an Option granted
under the Plan at the time scheduled for the taking of such vote,
whether or not then exercisable, shall have the right to receive a
notice at least ten (10) business days prior to the date on which
such vote is to be taken. Such notice shall set forth the date on
which such vote of stockholders is to be taken, a description of
the transaction being proposed to stockholders for such approval,
a description of the provisions of subparagraph (i) of Paragraph
8
7II of the Plan and a description of the impact thereof on such
participant in the event that such stockholder approval is
obtained. Such notice shall also set forth the manner in which and
price at which all Options then held by each such participant
could be exercised upon the obtaining of such stockholder
approval.
III.STOCK APPRECIATION RIGHTS
The Committee may, from time to time, subject to the provisions of the
Plan and such other terms and conditions as the Committee may
determine, grant SARs to employees eligible to participate in the Plan.
SARs may, but need not be evidenced by an agreement executed by the
Corporation and the holder, and shall be subject to such terms and
conditions consistent with the Plan as the Committee shall impose from
time to time, including the following:
(a) SARs may, but need not, relate to Options granted under the Plan,
as the Committee shall determine from time to time. In no event
shall any SARs granted extend for a period in excess of ten years
from the date of grant.
(b) A holder shall exercise his or her SARs by giving written notice
of such exercise in the form and manner determined by the
Committee, and the date upon which such written notice is received
by the Corporation shall be the exercise date for the SARs.
(c) A holder of SARs shall be entitled to receive upon exercise the
excess of the Fair Market Value of a share of Common Stock at the
time of exercise over the Fair Market Value of a share at the time
the SARs were granted, multiplied by the number of shares with
respect to which the SARs relate.
(d) In the sole discretion of the Committee, the amount payable to the
holder upon exercise of SARs may be paid either in Common Stock or
in cash or in a combination thereof. To the extent paid in Common
Stock, the value of the Common Stock that shall be distributed
shall be the Fair Market Value of a share of Common Stock upon
exercise of the SARs as provided in Paragraph 2; provided,
however, that no fractional shares shall be issued and any such
fraction will be eliminated by rounding downward to the nearest
whole share.
(e) In the sole discretion of the Committee, SARs related to specific
Options may be exercisable only upon surrender of all or a portion
of the related Option, or may be exercisable, in whole or in part,
only at such times and to the extent that the related Option is
exercisable, and the number of shares purchasable pursuant to the
related Option may be reduced to the extent of the number of
shares with respect to which the SARs are exercised.
(f) In lieu of receiving payment at the time of exercise of SARs,
payment of all or any portion may be deferred by the participant
with the approval of the Committee.
9
(g) The maximum number of SARs granted to a participant during any
calendar year shall not exceed 250,000.
IV. RESTRICTED STOCK UNITS
The Committee may, from time to time, subject to the provisions of the
Plan and such other terms and conditions as it may determine, grant
Restricted Stock Units to employees eligible to participate in the
Plan. Each grant of Restricted Stock Units may be, but need not be
evidenced by a written instrument. The grant of Restricted Stock Units
shall state the number of Restricted Stock Units covered by the grant,
and shall contain such terms and conditions and be in such form as the
Committee may from time to time approve, subject to the following:
(a) Each Restricted Stock Unit shall be equivalent in value to a share
of Common Stock.
(b) Vesting of each grant of Restricted Stock Units shall require the
holder to remain in the employment of the Corporation or a
Subsidiary Corporation for a prescribed period (a "Restriction
Period"). The Committee shall determine the Restriction Period or
Periods which shall apply to the shares of Common Stock covered by
each grant of Restricted Stock Units. Except as otherwise
determined by the Committee and provided in the written instrument
granting the Restricted Stock Units, and except as otherwise
provided in Paragraph 8, all Restricted Stock Units granted to a
participant under the Plan shall terminate upon termination of the
participant's employment with the Corporation or any Subsidiary
Corporation before the end of the Restriction Period or Periods
applicable to such Restricted Stock Units, and in such event the
holder shall not be entitled to receive any payment with respect
to those Restricted Stock Units. The Committee may also, in its
sole discretion, establish other terms and conditions for the
vesting of Restricted Stock Units, including conditioning vesting
on the achievement of one or more of the Performance Factors.
Notwithstanding any other provisions of the Plan or of any written
instrument granting Restricted Stock Units, upon the occurrence of
a Change in Control as defined in subparagraph (j) of Paragraph
7II hereof, all restrictions on Restricted Stock Units held by a
participant who is an employee of the Corporation or any
Subsidiary Corporation shall lapse.
(c) Upon expiration of the Restriction Period or Periods applicable to
each grant of Restricted Stock Units, the holder shall, without
payment on his part, be entitled to receive payment in an amount
equal to the aggregate Fair Market Value of the shares of Common
Stock covered by such grant upon such expiration. Such payment may
be made in cash, in shares of Common Stock equal to the number of
Restricted Stock Units with respect to which such payment is made,
or in any combination thereof, as the Committee in its sole
discretion shall determine. Any payment in cash shall reduce the
number of shares of Common Stock available under the Plan as
provided in Paragraph 2, to the extent of the number of Restricted
Stock Units to which such payment relates. Further upon such
expiration, the holder shall be entitled to receive a cash payment
in an amount equal to each cash dividend the Corporation would
10
have paid to such holder during the term of those Restricted Stock
Units as if the holder had been the owner of record of the shares
of Common Stock covered by such Restricted Stock Units on the
record date for the payment of such dividend.
(d) In lieu of receiving payment at the time of expiration of the
Restriction Period or Periods, payment of all or any portion may
be deferred by the participant with the approval of the Committee.
(e) The maximum number of shares of Common Stock as to which
Restricted Stock Units may be granted to a participant for any
calendar year shall not exceed 50,000.
8. TERMINATION OF EMPLOYMENT
Upon termination of employment with the Corporation of any participant,
such participant's rights with respect to any contingent target grants
under the AIP, or any Performance Stock Units, Options, SARs or Restricted
Stock Units granted under the LTIP, shall be as follows:
(a) In the event that the participant is terminated or discharged by the
Corporation for any reason, except as and to the extent provided
otherwise by the Committee in writing, the participant's rights and
interests under the Plan shall immediately terminate upon notice of
termination of employment. Upon the occurrence of a Potential Change in
Control (as defined in subparagraph (k) of Paragraph 7II hereof) and
for a period of one year thereafter, and upon the occurrence of a
Change in Control (as defined in subparagraph (j) of Paragraph 7II
hereof), the following special provisions and notice requirements shall
be applicable in the event of the termination of the employment of any
participant holding an Option under the Plan: (i) in no event may a
notice of termination of employment be issued to such a participant
unless at least ten (10) business days prior to the effective date of
such termination the participant is provided with a written notice of
intent to terminate the participant's employment which sets forth in
reasonable detail the reason for such intent to terminate, the date on
which such termination is to be effective, and a description of the
participant's rights under this Plan and under the agreements granting
such Option or Options, including the fact that no such Option may be
exercised after such termination has become effective and the manner,
extent and price at which all Options then held by such participant may
be exercised; and (ii) such notice of intent to terminate a
participant's employment shall not be considered a "notice of
termination of employment" for purposes of the first sentence of this
Paragraph 8 (a). This Paragraph 8 (a) is intended only to provide for a
requirement of notice to terminate upon the occurrence of the events
set forth herein and shall not be construed to create an obligation of
continued employment or a contract of employment in any manner or to
otherwise affect or limit the Corporation's ability to terminate the
employment of any participant holding an Option under the Plan.
(b) If a participant terminates employment with the Corporation as the
result, in the sole judgment of the Committee, of his or her becoming
totally disabled (in which event termination will be deemed to occur on
the date the Committee makes such determination), or if a participant
should die or (except as to Restricted Stock Units) retire while
11
employed by the Corporation or any of its Subsidiary Corporations, then
the participant or, as the case may be, the person or persons to whom
the participant's interest under the Plan shall pass by will or by the
laws of descent and distribution (the "Estate"), shall have the
following rights:
(i) the grantee of a contingent AIP grant or the Estate shall be
entitled to receive payment of an AIP award as, and to the extent,
determined by the Committee;
(ii) if the holder of Performance Stock Units shall have been employed
for at least two-thirds of the related performance cycle prior to
the date of termination or death, then, except as otherwise
provided in the written instrument (if any) evidencing the
Performance Stock Units, and subject to any further adjustments
the Committee may make in its absolute discretion, the participant
or the Estate shall be entitled to receive payment of a PSU Award
upon the expiration of the related performance cycle, provided
that such award shall be adjusted by multiplying the amount
thereof by a fraction, the numerator of which shall be the number
of full and partial calendar months between the date of the
beginning of each such performance cycle and the date of
termination or death, and the denominator of which shall be the
number of full and partial calendar months from the date of the
beginning of the performance cycle to the end of the said
performance cycle;
(iii)except as otherwise provided in the terms and conditions of the
stock option or SAR grant, the holder or the Estate shall be
entitled to exercise (provided any vesting requirement has been
satisfied as of the date of exercise) any Option or SAR for a
period of five years (three years in the case of options or SARs
granted prior to 1997) from such date of death, total disability
or retirement, or for such longer period as the Committee may
determine in the case of financial hardship or other unusual
circumstances (subject to the maximum exercise period for Options
and SARs specified in Paragraph 7II(b) and 7III(a) hereof,
respectively);
(iv) except as otherwise provided in the written instrument evidencing
the Restricted Stock Units, upon death or termination due to total
disability the holder or the Estate shall be entitled to receive
payment in respect of the Restricted Stock Units, provided that
such Units shall be adjusted by multiplying the amount thereof by
a fraction, the numerator of which shall be the number of full and
partial calendar months between the date of grant of such Units
and the date of death or termination, and the denominator of which
shall be the number of full and partial calendar months from the
date of the grant to the end of the Restriction Period. Upon
retirement, the participant's rights with respect to Restricted
Stock Units shall immediately terminate.
(c) In the event of resignation by the participant, the participant's
rights and interests under the Plan shall immediately terminate upon
such resignation; provided, however, that the Committee shall have the
absolute discretion to review the reasons and circumstances of the
resignation and to determine whether, alternatively, and to what
extent, if any, the participant may continue to hold any rights or
interests under the Plan.
12
(d) A transfer of a participant's employment without an intervening period
from the Corporation to a Subsidiary Corporation or vice versa, or from
one Subsidiary Corporation to another, shall not be deemed a
termination of employment.
(e) The Committee shall be authorized to make all determinations and
calculations required by this Paragraph 8, including any determinations
necessary to establish the reason for terminations of employment for
purposes of the Plan, which determinations and calculations shall be
conclusive and binding on any affected participants and Estates.
9. ADDITIONAL REQUIREMENTS
No Performance Stock Units, Options, SARs or Restricted Stock Units
(hereinafter collectively an "Interest") granted pursuant to the Plan shall
be exercisable or realized in whole or in part, and the Corporation shall
not be obligated to sell, distribute or issue any shares subject to any
such Interest, if such exercise and sale would, in the opinion of counsel
for the Corporation, violate the Securities Act of 1933, as amended (or
other Federal or state statutes having similar requirements). Each Interest
shall be subject to the further requirement that, if at any time the Board
of Directors shall determine in its discretion that the listing or
qualification of the shares relating or subject to such Interest under any
securities exchange requirements or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such
Interest or the distribution or issue of shares thereunder, such Interest
may not be exercised in whole or in part unless such listing,
qualification, consent or approval shall have been effected or obtained
free of any condition not acceptable to the Board of Directors.
Interests may be subject to restrictions as to resale or other disposition
and to such other provisions as may be appropriate to comply with Federal
and state securities laws and stock exchange requirements, and the exercise
of any Interest or entitlement to payment thereunder may be contingent upon
receipt from the holder (or any other person permitted by this Plan to
exercise any Interest or receive any distribution hereunder) of a
representation that at the time of such exercise it is his or her then
present intention to acquire the shares being distributed for investment
and not for resale.
10. NONTRANSFERABILITY
Unless otherwise approved by the Committee, contingent AIP grants,
Performance Stock Units, Options, SARs and Restricted Stock Units granted
under the Plan to an employee shall be nonassignable and shall not be
transferable by him or her otherwise than by will or the laws of descent
and distribution, and shall be exercisable, during the employee's lifetime,
only by the employee or the employee's guardian or legal representative.
13
11. DISCLAIMER OF RIGHTS
No provision in the Plan or any contingent target AIP grants, Performance
Stock Units, Options, SARs or Restricted Stock Units granted pursuant to
the Plan shall be construed to confer upon the participant any right to be
employed by the Corporation or by any Subsidiary Corporation, or to
interfere in any way with the right and authority of the Corporation or any
Subsidiary Corporation either to increase or decrease the compensation of
the participant at any time, or to terminate any relationship of employment
between the participant and the Corporation or any of its Subsidiary
Corporations.
Participants under the Plan shall have none of the rights of a stockholder
of the Corporation with respect to shares subject to Performance Stock
Units, Options, SARs or Restricted Stock Units unless and until such shares
have been issued to him or her.
12. STOCK ADJUSTMENTS
In the event that the shares of Common Stock, as presently constituted,
shall be changed into or exchanged for a different number or kind of shares
of stock or other securities of the Corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization,
reclassification, stock split, combination of shares or otherwise), or if
the number of such shares of Common Stock shall be increased through the
payment of a stock dividend, or a dividend on the shares of Common Stock of
rights or warrants to purchase securities of the Corporation shall be made,
then there shall be substituted for or added to each share available under
and subject to the Plan as provided in Paragraph 2 hereof, and to the
limitations set forth in Paragraphs 7II (c); 7III (g) and 7IV (e), and each
share theretofore appropriated or thereafter subject or which may become
subject to Performance Stock Units, Options, SARs or Restricted Stock Units
under the Plan, the number and kind of shares of stock or other securities
into which each outstanding share of Common Stock shall be so changed or
for which each such share shall be exchanged or to which each such share
shall be entitled, as the case may be. Outstanding Options and SARs also
shall be appropriately amended as to price and other terms as may be
necessary to reflect the foregoing events. In the event there shall be any
other change in the number or kind of the outstanding shares of Common
Stock, or of any stock or other securities into which the Common Stock
shall have been changed or for which it shall have been exchanged, then if
the Board of Directors shall, in its sole discretion, determine that such
change equitably requires an adjustment in the shares available under and
subject to the Plan, or in any Performance Stock Units, Options, SARs or
Restricted Stock Units theretofore granted or which may be granted under
the Plan, such adjustments shall be made in accordance with such
determination.
No fractional shares of Common Stock or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from
any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share or unit.
14
13. TAXES
The Corporation shall be entitled to withhold the amount of any tax
attributable to any amounts payable or shares of Common Stock deliverable
under the Plan. The person entitled to any such delivery, whether due to
the settlement of PSUs, the exercise of an Option or SAR, or the vesting of
Restricted Stock Units, or any other taxable event may, by notice to the
Corporation, elect to have such withholding satisfied by a reduction of the
number of shares otherwise so deliverable (a "Stock Withholding Election"),
or by delivery of shares of Stock already owned by the Participant, with
the amount of shares subject to such reduction or delivery to be calculated
based on the Fair Market Value on the date of such taxable event. Reporting
Persons may make a Stock Withholding Election only in accordance with the
methods then permitted under applicable Securities and Exchange Commission
interpretations.
14. EFFECTIVE DATE AND TERMINATION OF PLAN
The Plan shall become effective upon adoption by the Board of Directors of
the Corporation, provided such adoption is approved by the stockholders,
within twelve months of adoption by the Board of Directors. Contingent
target AIP grants, Performance Stock Units, Options, SARs and Restricted
Stock Units under this Plan, granted before approval of the Plan by the
stockholders, shall be granted subject to such approval and shall not be
exercisable or payable before such approval.
The Board of Directors at any time may terminate the Plan, but such
termination shall not alter or impair any of the rights or obligations
under any contingent target AIP grants, Performance Stock Units, Options,
SARs or Restricted Stock Units theretofore granted under the Plan unless
the affected participant shall so consent.
15. PRIOR PLAN
Effective upon the adoption of this Plan by the Board of Directors, no
additional grants of contingent target grants under the AIP or of
Performance Stock Units shall be made under the MIP; provided, that any
payments of AIP awards or deferrals thereof made with respect to prior
grants of contingent AIP awards, any prior grants of any LTIP Units, and
any payments of LTIP awards or deferrals thereto made with respect to such
prior grants, shall not be affected. Notwithstanding the foregoing, to the
extent the remaining shares reserved for use under the LTIP portion of the
MIP are insufficient for any LTIP awards under performance cycles that
began prior to January 1, 1987, shares available under this Plan may be
used for such purpose.
16. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of capital stock
pursuant to Options will be used for general corporate purposes.
15
17. NO OBLIGATION TO EXERCISE OPTION OR SAR
The granting of an Option or SAR shall impose no obligation upon the
optionee to exercise such Option or SAR.
18. AMENDMENT
The Board of Directors by majority vote, at any time and from time to time,
may amend the Plan in such respects as it shall deem advisable, to conform
to any change in any applicable law or in any other respect.
Notwithstanding the foregoing, the Plan may not be terminated or amended in
a manner adverse to the interests of any participant (without the consent
of the participant) either: (a) after a Potential Change in Control occurs
and for one (1) year following the cessation of a Potential Change in
Control, or (b) for a two-year period beginning as of the date of a Change
in Control (the "Coverage Period"). Upon the expiration of the Coverage
Period, subparagraph (l) of Paragraph 7II of the Plan and Paragraph 8 (a)
of the Plan may not be amended in any manner that would adversely affect
any participant without the consent of the participant.
16
Exhibit 10.2
HERSHEY FOODS CORPORATION
AMENDED AND RESTATED (1999)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. PURPOSE OF PLAN. The purpose of the Amended and Restated (1999)
Supplemental Executive Retirement Plan (hereinafter called the "Plan") is to
obtain for Hershey Foods Corporation (hereinafter called the "Corporation") all
of the benefits which flow from maintaining a strong management team by
providing to executive and upper level management employees the means to
continue their attained standard of living during retirement and by offering
benefits that will assist in attracting executive and upper level management
employees of outstanding ability. The Plan is an amendment to and restatement
(as amended) of the Hershey Foods Corporation Amended and Restated Supplemental
Executive Retirement Plan, as amended from time to time which was in effect from
November 1, 1994 to June 8, 1999.
2. DEFINITIONS. The following words and phrases as used in the
Plan shall have the following meanings, unless a different meaning is plainly
required by the context:
a. "Cause" means the willful engaging by an employee of
the Corporation in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Corporation.
For purposes of this definition, no act or failure to act, on the part
of an employee of the Corporation, shall be considered "willful" unless it is
done, or omitted to be done, by the employee in bad faith and without reasonable
belief that the employee's action or omission was in the best interest of the
Corporation. Any act or failure to act, based upon prior approval given by the
Board or upon the instruction or with the approval of the Chief Executive
Officer or the employee's superior or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the employee in good faith and in the best interest of the Corporation.
b. "Committee" means the Compensation and Executive
Organization Committee of the Board of Directors of the Corporation (the
"Board").
c. "Deferred Retirement Date" means the first day of the
month following an employee's termination of employment with the Corporation
provided such termination occurs after his Normal Retirement Date.
d. "Disability" or "Disabled", for purposes of this Plan,
shall have the same meaning as provided in Section 1.16 of the Retirement Plan,
as such section may be amended from time to time.
e. "Early Retirement Date" means the first day of any month
following an employee's termination of employment with the Corporation which is
coincident with or following his fifty-fifth (55th) birthday and prior to his
Normal Retirement Date.
f. "Final Average Compensation" means the sum of (1) the
highest annual average of a Vested Participant's basic salary paid or accrued
over any thirty-six (36) consecutive month period during his last ten (10) years
of employment with the Corporation and (2) the highest annual average of his
annual awards under the Annual Incentive Program (hereinafter called the "AIP")
of the Corporation's Key Employee Incentive Plan ("KEIP") paid or accrued over
any five (5) consecutive calendar years during his last ten (10) years of
employment with the Corporation. If a Vested Participant dies, retires, or
suffers a Disability or if a Participant suffers a Disability during a calendar
year and only a partial AIP award is made for that year, for purposes of the
Plan, his AIP award for such year will be considered to equal the award actually
made divided by the fraction of such year that he was employed by the
Corporation prior to his death, retirement or Disability. If a Vested
Participant otherwise terminates employment with the Corporation during a
calendar year, his AIP award for that year for purposes of the Plan will be
considered to be zero (0), regardless of whether any AIP award is actually made
for that year.
g. "GATT Interest Rate" means, for purposes of this Plan, for
any specific month, the annual interest rate on 30-year Treasury securities as
specified by the Commissioner of the Internal Revenue Service in revenue
rulings, notices or other guidance, published in the Internal Revenue Service
Bulletin, decreased by the percentage applicable to such month as set forth on
Schedule I attached hereto.
h. "Lump Sum Interest Rate" means, as of any specific date:
(x) after January 1, 1998 and prior to January 1,
2000 the sum of one twelfth (1/12th) of each PBGC Interest Rate for the
twelve months preceding such date;
(y) after December 31, 1999 and prior to January 1,
2001, the sum of one-twelfth (1/12th) of each GATT Interest Rate for
November 1999 and each month thereafter to and including the second
month preceding the month during which such date occurs plus, if the
number of months for which a GATT Interest Rate is determined as
described is less than twelve, the sum of one-twelfth (1/12th) of each
PBGC Interest Rate for December 1999 and each preceding month in
reverse chronological order until the total number of months for which
a GATT Interest Rate and/or a PBGC Interest Rate has been determined
equals twelve; and
(z) after December 31, 2000, the sum of one twelfth
(1/12th) of each GATT Interest Rate for the twelve consecutive months
beginning with the thirteenth (13th) month preceding the month during
which such date occurs.
2
i. "Normal Retirement Date" means, for the purposes of this
Plan, the first day of the month nearest an employee's sixty-fifth (65th)
birthday, except that if his birthday is equally near the first of two calendar
months, the first day of the month prior to his sixty-fifth (65th) birthday
shall be his Normal Retirement Date.
j. "PBGC Interest Rate" means, for any specific month, the
interest rate used by the Pension Benefit Guaranty Corporation for such month
for purposes of valuing immediate annuities for terminating single employer
plans with insufficient assets to pay guaranteed benefits.
k. "Participant" means, as of any specific date, an employee
of the Corporation who, as of such date, is a participant in the performance
share unit portion of the KEIP or who, as of such date, is not then but had been
a participant in the performance share unit portion of the KEIP for at least
five (5) of his last ten (10) years of employment with the Corporation.
l. "Retirement Plan" means the Corporation's Retirement Plan,
amended and restated effective January 1, 1989, as in effect from time to time
and any successor plan thereto.
m. "Vested Participant" means, as of any specific date, a
Participant who, as of such date, satisfies each eligibility requirement set
forth in the first sentence of Section 3 of the Plan.
n. "Years of Service", for purposes of this Plan, shall have
the same meaning as provided in Section 1.56 of the Retirement Plan, as such
section may be amended from time to time.
3. ELIGIBILITY. An employee of the Corporation will be eligible to
receive a benefit pursuant to Section 4 of the Plan if, at the time of his
termination of employment with the Corporation, such employee (i) is at least 55
years of age, (ii) has ten (10) Years of Service, and (iii) has participated in
the performance share unit portion of the KEIP for at least five (5) of his last
ten (10) years of employment with the Corporation. No employee of the
Corporation, regardless of whether he satisfies all the eligibility requirements
to be a Vested Participant, shall be entitled to receive any benefits under the
Plan if his employment with the Corporation is terminated for Cause.
Notwithstanding the above, an employee whose employment is terminated with the
Corporation prior to his Normal Retirement Date for reason of Disability will be
treated as provided for in Section 4.c.
4. RETIREMENT BENEFITS.
a. Normal Retirement Benefit. An employee who qualifies as a
Vested Participant on the date of his termination of employment with the
Corporation, and who retires (or whose employment is otherwise terminated, other
than for Cause) on or after his Normal Retirement Date shall be entitled under
the Plan to receive a normal retirement benefit which shall be an annual
benefit, payable in monthly installments, equal to:
3
(1) the product of three and two-thirds
percent (3 2/3%) of his Final Average Compensation and his Years of Service not
in excess of fifteen (15) Years of Service;
reduced by:
(2) one hundred percent (100%) of the Vested
Participant's retirement benefit under the Retirement Plan and any
other tax-qualified defined benefit pension plan maintained by the
Corporation or any affiliate thereof or any defined benefit pension
plan maintained by any other entity, payable as a life annuity
commencing at his Normal Retirement Date or his Deferred Retirement
Date if he retires after his Normal Retirement Date, regardless of
whether such benefit payment is in that form or begins at that time;
and
(3) one hundred percent (100%) of the primary social
security benefit to which the Vested Participant would be entitled on
his Normal Retirement Date or his Deferred Retirement Date if he
retires after his Normal Retirement Date regardless of whether he
receives any portion of such primary Social Security benefit on such
date.
Payment of such benefit shall commence on his Normal Retirement Date if
he retires (or otherwise has his employment terminated, other than for Cause) on
such date and on his Deferred Retirement Date if he retires (or otherwise has
his employment terminated, other than for Cause) after his Normal Retirement
Date.
b. Early Retirement Benefit. An employee who qualifies as a
Vested Participant on the date of his termination of employment with the
Corporation, and who retires (or whose employment is otherwise terminated, other
than for Cause) on or after his Early Retirement Date and prior to his Normal
Retirement Date shall be entitled under the Plan to receive an early retirement
benefit which shall be an annual benefit payable in monthly installments, equal
to:
(1) the product of three and two-thirds percent (3 2/3%) of his Final Average
Compensation and his Years of Service not in excess of fifteen (15) Years of
Service;
reduced by:
(2) one hundred percent (100%) of his retirement
benefit under the Retirement Plan and any other tax-qualified defined
benefit pension plan maintained by the Corporation or any affiliate
thereof or any defined benefit pension plan maintained by any other
entity, payable as a life annuity commencing at his Early Retirement
Date or the first date thereafter on which such benefits would be
payable if they are not payable on his Early Retirement Date regardless
of whether such benefit payment is in that form or begins at that time;
and
4
(3) one hundred percent (100%) of the primary Social
Security benefit to which the Vested Participant would be entitled on
his Early Retirement Date or the first date thereafter on which such
benefits would be payable if they are not payable on his Early
Retirement Date regardless of whether he receives any portion of such
primary Social Security benefit on such date; and
(4) the product of (a) the difference between (1) and
the sum of (2) and (3), (b) five-twelfths of a percent (5/12%), and (c)
the number of complete calendar months by which the Vested
Participant's date of termination of employment precedes his sixtieth
(60th) birthday.
Payment of such benefit shall commence on the first day of the month
coincident with the Vested Participant's retirement or other termination of
employment, other than for Cause.
c. Disability Retirement Benefit. If an employee who is an
active participant in the performance share unit portion of the KEIP suffers a
Disability prior to his Normal Retirement Date and while employed by the
Corporation, the period of his Disability will be recognized as Years of Service
and as years of participation in the performance share unit portion of the KEIP
under the Plan. If such Disability continues to his Normal Retirement Date, for
purposes of the Plan, he will retire on that date and will be entitled to a
normal retirement benefit calculated in accordance with Section 4.a. commencing
on that date. In calculating the benefit under Section 4.a., the Participant's
Final Average Compensation shall be equal to his annual base compensation
immediately prior to his Disability plus the average of his AIP earned during
the three (3) years immediately prior to the commencement of his Disability.
d. Pre-Retirement Death Benefit. If a Participant dies before
his employment by the Corporation terminates and qualifies as a Vested
Participant on his date of death, his designated beneficiary(ies), or his estate
if he has not designated any beneficiary or beneficiaries in accordance with
procedures established by the Committee, shall receive within ten (10) days of
the Vested Participant's death a death benefit equal to the lump sum present
value of one hundred percent (100%) of the retirement benefit that would have
been payable to the Vested Participant under Sections 4.a. or 4.b. (including
the spousal survivor benefit payable pursuant to Section 4.e. with respect to
any Vested Participant survived by a spouse) if he had retired on the date of
his death. The lump sum present value of the retirement benefit shall be
calculated using: (x) for each Vested Participant who was a Vested Participant
on January 1, 1998, (i) the 83 GAM mortality tables; and (ii) an interest rate
equal to the sum of one-twelfth (1/12th) of each PBGC Interest Rate for the
twelve (12) months immediately preceding the date of the Vested Participant's
death; and (y) for each Vested Participant who first became a Vested Participant
after January 1, 1998, (i) the prevailing commissioner's standard mortality
table (described in Section 807(d)(5)(A) of the Internal Revenue Code of 1986,
as amended from time to time) used to determine reserves for group annuity
contracts issued on the date of the Vested Participant's death (without regard
to any other subparagraph for such Section 807(d)(5)) that is prescribed by the
Commissioner of the Internal Revenue Service in revenue rulings, notices, or
other guidance published in the Internal Revenue
5
Bulletin; and (ii) an interest rate equal to the Lump Sum Interest Rate as of
the date of the Vested Participant's death.
e. Post-Retirement Death Benefit. If a Vested Participant who
is receiving monthly retirement benefits under this Plan following his
termination of employment by the Corporation dies, his surviving spouse, if he
is survived by a spouse, shall be entitled to receive a death benefit which
shall be a monthly payment for the spouse's life, beginning on the first day of
the month following the Vested Participant's death, equal to:
(1) fifty percent (50%) of the monthly
retirement benefit to which the Vested Participant was entitled under the Plan
prior to his death;
reduced by:
(2) the monthly annuity value of any life insurance
provided by the Corporation or any affiliate thereof for retired
employees that is in excess of post-retirement group term life
insurance regularly provided by the Corporation or any affiliate
thereof.
5. ADMINISTRATION OF THE PLAN. The Committee is charged with the
administration of the Plan. It shall have full power and authority to construe
and interpret the Plan. Its decisions shall be final, conclusive and binding on
all parties. Subject to Section 10 of this Plan, the Committee shall also have
the power, in its sole discretion, at any time (i) to waive, in whole or in
part, application of any of the eligibility requirements of Section 3 or of the
benefit reduction factors in Sections 4.a. and 4.b. and (ii) to determine the
timing and form of payment of any benefit under the Plan, in the case of any
individual Participant, Vested Participant or other employee of the Corporation
who has participated in the performance share unit portion of the KEIP.
6. OPTIONAL FORMS OF PAYMENT. In lieu of the monthly retirement benefit
(including the spousal survivor benefit payable pursuant to Section 4.e. hereof)
payable pursuant to Section 4.a. or 4.b. hereof to a Vested Participant (and his
surviving spouse) who retires (or whose employment is terminated other than for
Cause) after August 2, 1994 (such benefit payable to a Vested Participant and/or
his surviving spouse is herein referred to for purposes of this Section 6 as the
"Applicable Retirement Benefit"), such Vested Participant may elect to receive
the following form of benefit payment:
A lump sum cash payment, payable to the Vested Participant within ten
(10) days after the Vested Participant's date of retirement (or the Vested
Participant's date of termination of employment other than for Cause), equal to
the actuarial present value of the Applicable Retirement Benefit, calculated
using: (x) for each Vested Participant who was a Vested Participant on January
1, 1998, (i) the 83 GAM mortality tables; and (ii) an interest rate equal to one
twelfth (1/12th) of each PBGC Interest Rate for the twelve months immediately
preceding the date of the Vested Participant's retirement (or the Vested
Participant's date of termination of employment other than for Cause),
calculated in accordance with the Corporation's practices for determining
retirement benefits; and (y) for each Vested Participant
6
who first became a Vested Participant after January 1, 1998 (i) the prevailing
commissioner's standard mortality table (described in Section 807(d)(5)(A) of
the Internal Revenue Code of 1986, as amended from time to time) used to
determine reserves for group annuity contracts issued on the date of the Vested
Participant's retirement (or the Vested Participant's date of termination of
employment other than for Cause) (without regard to any other subparagraph for
such Section 807(d)(5)) that is prescribed by the Commissioner of the Internal
Revenue Service in revenue rulings, notices, or other guidance published in the
Internal Revenue Bulletin; and (ii) an interest rate equal to the Lump Sum
Interest Rate as of the date of the Vested Participant's retirement.
Prior to March 1, 1998, any such election must be made at least one hundred
(180) days prior to the date that the Applicable Retirement Benefit payments
would otherwise become payable. After February 28, 1998, any such election must
be made by those Participants designated by the Committee from time to time at
least two (2) years and by all other Participants at least one (1) year prior to
the date that the Applicable Retirement Benefit payments would otherwise become
payable.
7. PAYMENT UPON CHANGE IN CONTROL
a. Any former employee or the surviving spouse of an employee
or former employee who is receiving a benefit under Sections 4.a., 4.b., 4.d. or
4.e. hereof (or pursuant to the terms of any version of this Plan) at the time
of a Change in Control (collectively or individually, "SERP Recipient") shall
receive, in lieu of the future monthly retirement benefit (including the spousal
survivor benefit in the case of a benefit under Section 4.a. or 4.b.) to which
he is entitled (such future benefit payable to the SERP Recipient is herein
referred to for purposes of this Section 7.a as the "Future Retirement
Benefit"), a lump sum cash payment, payable to the SERP Recipient, as
applicable, within ten (10) days after a Change in Control (or such later date
that is forty-five (45) days after the notice required by the following
provisions of this Section 7.a. is provided to the applicable SERP Recipient),
equal to the actuarial present value of his Future Retirement Benefit,
calculated using: (i) the 83 GAM mortality tables; and (ii) an interest rate
equal to the PBGC Interest Rate as of the date of the Change of Control.
Notwithstanding the foregoing, the provisions of this Section
7.a. shall not apply with respect to a SERP Recipient unless such SERP Recipient
consents to the application of this Section 7.a. within thirty (30) days after
the date the SERP Recipient receives written notice of the terms of this Section
7.a., as provided for by the following sentence. The Corporation shall provide
each SERP Recipient, a written notice of the terms of this Section 7.a. and the
consent requirement contained herein not later than five (5) days after the
earliest of (x) the occurrence of a Potential Change in Control, (y) the date
that the Corporation provides notice to its stockholders that a vote on a
transaction which, if consummated, would constitute a Change in Control will be
submitted to the Corporation's stockholders for approval, or (z) the occurrence
of a Change of Control.
7
b. For purposes of Sections 7 and 10, a "Change in
Control" means:
(1) Individuals who, on June 8, 1999, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a
director subsequent to June 8, 1999, whose election or nomination for
election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by specific vote or by approval of
the proxy statement of the Corporation in which such person is named as
nominee for director, without written objection to such nomination)
shall be an Incumbent Director; PROVIDED, HOWEVER, that no individual
initially elected or nominated as a director of the Corporation as a
result of an actual or threatened election contest (as described in
Rule 14a-11 under the Exchange Act) ("Election Contest") or other
actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board ("Proxy Contest"), including
by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest, shall be deemed an Incumbent Director; and
PROVIDED FURTHER, HOWEVER, that a director who has been approved by the
Hershey Trust while it beneficially owns more than 50% of the combined
voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors
(the "Outstanding Company Voting Power") shall be deemed to be an
Incumbent Director;
(2) The acquisition or holding by any Person of
beneficial ownership (within the meaning of Section 13(d) under the
Exchange Act and the rules and regulations promulgated thereunder) of
shares of the Common Stock and/or the Class B Common Stock of the
Corporation representing 25% or more of either (i) the total number of
then outstanding shares of both Common Stock and Class B Common Stock
of the Corporation (the "Outstanding Company Stock") or (ii) the
Outstanding Company Voting Power; provided that, at the time of such
acquisition or holding of beneficial ownership of any such shares, the
Hershey Trust does not beneficially own more than 50% of the
Outstanding Company Voting Power; and provided, further, that any such
acquisition or holding of beneficial ownership of shares of either
Common Stock or Class B Common Stock of the Corporation by any of the
following entities shall not by itself constitute such a Change in
Control hereunder: (i) the Hershey Trust; (ii) any trust established by
the Corporation or by any Subsidiary for the benefit of the Corporation
and/or its employees or those of a Subsidiary; (iii) any employee
benefit plan (or related trust) sponsored or maintained by the
Corporation or any Subsidiary; (iv) the Corporation or any Subsidiary
or (v) any underwriter temporarily holding securities pursuant to an
offering of such securities;
(3) The approval by the stockholders of the
Corporation of any merger, reorganization, recapitalization,
consolidation or other form of business combination (a "Business
Combination") if, following consummation of such Business Combination,
the Hershey Trust does not beneficially own more than 50%
8
of the total voting power of all outstanding voting securities
eligible to elect directors of (x) the surviving entity or entities
(the "Surviving Corporation") or (y) if applicable, the ultimate
parent corporation that directly or indirectly has beneficial
ownership of more than 50% of the combined voting power of the then
outstanding voting securities eligible to elect directors of the
Surviving Corporation; or
(4) The approval by the stockholders of the
Corporation of (i) any sale or other disposition of all or
substantially all of the assets of the Corporation, other than to a
corporation (the "Acquiring Corporation") if, following consummation of
such sale or other disposition, the Hershey Trust beneficially owns
more than 50% of the total voting power of all outstanding voting
securities eligible to elect directors (x) of the Acquiring Corporation
or (y) if applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of more than 50% of the combined
voting power of the then outstanding voting securities eligible to
elect directors of the Acquiring Corporation, or (ii) a liquidation or
dissolution of the Corporation.
c. For purposes of Sections 7 and 10, a "Potential
Change in Control" means:
(1) The Hershey Trust by action of any of the Board
of Directors of Hershey Trust Company; the Board of Managers of Milton
Hershey School; the Investment Committee of the Hershey Trust; and/or
any of the officers of Hershey Trust Company or Milton Hershey School
(acting with authority) undertakes consideration of any action the
taking of which would lead to a Change in Control as defined herein,
including, but not limited to consideration of (i) an offer made to the
Hershey Trust to purchase any number of its shares in the Corporation
such that if the Hershey Trust accepted such offer and sold such number
of shares in the Corporation the Hershey Trust might no longer have
more than 50% of the Outstanding Company Voting Power, (ii) an offering
by the Hershey Trust of any number of its shares in the Corporation for
sale such that if such sale were consummated the Hershey Trust might no
longer have more than 50% of the Outstanding Company Voting Power or
(iii) entering into any agreement or understanding with a person or
entity that would lead to a Change in Control; or
(2) the Board approves a transaction described in
subsection (2), (3) or (4) of the definition of a Change in Control
contained in Section 7.b.
d. For purposes of this Section 7: (i) "Hershey Trust" means
either or both of (a) the Hershey Trust Company, a Pennsylvania corporation, as
Trustee for the Milton Hershey School, or any successor to the Hershey Trust
Company as such trustee, and (b) the Milton Hershey School, a Pennsylvania
not-for-profit corporation; (ii) "Exchange Act" shall mean the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder; (iii)
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d)(3) and 14(d) thereof; and (iv) "Subsidiary"
shall mean any corporation controlled by the Corporation, directly or
indirectly.
8. PAYMENT OF BENEFITS. Nothing contained in the Plan and no action
taken pursuant to the provisions of the Plan shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Corporation
and any Participant, Vested Participant, spouse of a Participant or Vested
Participant, or any other person. No person other than the
9
Corporation shall by virtue of the provisions of the Plan have any interest in
such assets. To the extent that any person acquires a right to receive payments
from the Corporation under the Plan, such right shall be no greater than the
right of any unsecured general creditor of the Corporation. The right of any
Vested Participant or any other person to the payment of benefits under the Plan
shall not be assigned, transferred, pledged or encumbered; such payments and the
right thereto are expressly declared to be non-assignable and nontransferable.
No payments hereunder shall be subject to the claim of the creditors of any
Vested Participant or of any other person entitled to payments hereunder. Any
payments required to be made pursuant to the Plan to a person who is under a
legal disability may be made by the Corporation to or for the benefit of such
person in such of the following ways as the Committee shall determine:
a. directly to such person.
b. to the legal representative of such person.
c. to a near relative of such person to be used for such
person's benefit.
d. directly in payment of expenses of support,
maintenance or education of such person.
The Corporation shall not be required to see to the
application by any third party of any payments made pursuant to the Plan.
9. EFFECTIVE DATE OF PLAN. This Amended and Restated (1999)
Supplemental Executive Retirement Plan shall be effective June 9, 1999 and
Vested Participants who become eligible to retire under the Plan on or after
that date shall be entitled to the benefits provided hereunder.
10. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board of
Directors of the Corporation may, at any time, suspend or terminate the Plan.
The Board may also from time to time, amend the Plan in such respects as it may
deem advisable in order that benefits provided hereunder may conform to any
change in law or in other respects which the Board deems to be in the best
interest of the Corporation. No such suspension, termination or amendment of the
Plan shall adversely affect any right of any person who is a Vested Participant
at the time of such suspension, termination or amendment or his
beneficiary(ies), estate or surviving spouse, as applicable, to receive benefits
under the Plan in accordance with its provisions in effect immediately prior to
such suspension, termination or amendment without the consent of such Vested
Participant, beneficiary(ies), estate or surviving spouse. Any benefits payable
under the terms of the Plan at the time of any suspension, termination or
amendment of the Plan shall remain in effect according to their original terms,
or such alternate terms as may be in the best interests of both parties and
agreed to by the Vested Participant or his beneficiaries, estate or surviving
spouse, as applicable. Notwithstanding the foregoing, (a) the Plan may not be
terminated or amended in any manner that is adverse to the interests of
10
a Participant or the surviving spouse of a Participant without the consent of
the Participant or surviving spouse, as applicable, either: (i) after a
Potential Change in Control occurs and for one (1) year following the cessation
of the Potential Change in Control, or (ii) for a two year period beginning on
the date of a Change in Control (the "Coverage Period"); and (b) no termination
of this Plan or amendment hereof in a manner adverse to the interests of any
Participant (without the consent of the Participant or surviving spouse) shall
be effective if such termination or amendment occurs (i) at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control, or (ii) in connection with or in anticipation of a Change of Control.
After the Coverage Period, the Plan may not be amended or terminated in any
manner that would adversely affect the entitlement of a Participant or his
surviving spouse (without the consent of the Participant or surviving spouse) to
benefits that have accrued hereunder. For purposes of the immediately preceding
two sentences of this Section 10, whether an employee of the Corporation
qualifies as a Participant shall be determined at the time (a) the Coverage
Period commences and any time thereafter or (b) his employment is terminated or
the Plan is amended (i) at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control, or (ii) in connection with
or in anticipation of a Change of Control.
IN WITNESS WHEREOF, Hershey Foods Corporation has caused this Hershey
Foods Corporation Amended and Restated (1999) Supplemental Executive Retirement
Plan to be executed as of this 9th day of June, 1999.
HERSHEY FOODS CORPORATION
By:________________________________
Robert M. Reese
Senior Vice President,
General Counsel
and Secretary
11
SCHEDULE I
TO
AMENDED AND RESTATED (1999)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
November 1999 1.850%
December 1999 1.811%
January 2000 1.773%
February 2000 1.734%
March 2000 1.696%
April 2000 1.657%
May 2000 1.619%
June 2000 1.580%
July 2000 1.542%
August 2000 1.503%
September 2000 1.465%
October 2000 1.426%
November 2000 1.388%
December 2000 1.349%
January 2001 1.310%
February 2001 1.272%
March 2001 1.233%
April 2001 1.195%
May 2001 1.156%
June 2001 1.118%
July 2001 1.079%
August 2001 1.041%
September 2001 1.002%
October 2001 0.964%
November 2001 0.925%
December 2001 0.887%
January 2002 0.848%
February 2002 0.809%
March 2002 0.771%
April 2002 0.732%
May 2002 0.694%
June 2002 0.655%
July 2002 0.617%
August 2002 0.578%
September 2002 0.540%
October 2002 0.501%
November 2002 0.463%
December 2002 0.424%
January 2003 0.385%
February 2003 0.347%
March 2003 0.308%
April 2003 0.270%
May 2003 0.231%
June 2003 0.193%
July 2003 0.154%
August 2003 0.116%
September 2003 0.077%
October 2003 0.039%
November 2003 and each
succeeding month 0.000%
Exhibit 10.3
HERSHEY FOODS CORPORATION
EXECUTIVE BENEFITS PROTECTION PLAN
(GROUP 3A)
The Hershey Foods Corporation Executive Benefits Protection Plan (Group
3A), as set forth herein, is intended to help attract and retain qualified
management employees and maintain a stable work environment by making provision
for the protection of covered employees in connection with a Change in Control
as set forth herein.
ARTICLE 1
DEFINITIONS
As hereinafter used, the following words shall have the meanings set
forth below.
1.1 AIP means the Annual Incentive Program under the KEIP.
1.2 ANNUAL BASE SALARY means with respect to an Executive the
higher of:
1.2.1 his highest annual base salary in effect during the
one (1) year period preceding a Change in Control; or
1.2.2 his highest annual base salary in effect during the one
year period preceding his Date of Termination.
For purposes of the foregoing, salary reduction elections pursuant to
Sections 125 and 401(k) of the Code shall not be taken into account.
1.3 ANNUAL BONUS means with respect to an Executive the highest of:
1.3.1 the average of the three highest bonuses paid or
payable, including any bonus or portion thereof which has been earned but
deferred, to him by the Company in respect of the five fiscal years (or such
shorter period during which he has been employed by the Company or eligible to
receive any bonus payment) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which he has been
employed by the Company or eligible to receive a bonus for less than twelve full
months);
1.3.2 the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned but
deferred, to him by the Company in respect of the most recently completed fiscal
year prior to the Change in Control;
1.3.3 the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding his Date of
Termination; and
1
1.3.4 his 100% target bonus award amount for the year
including his Date of Termination.
For purposes herein, only payments under the AIP, as well as payments
under any successor or replacement substitute plan, shall be treated as bonus
payments.
1.4 BASE AMOUNT shall have the meaning ascribed to such term in
Section 280G(b)(3) of the Code.
1.5 BOARD means the Board of Directors of the Company.
1.6 CAUSE means with respect to an Executive:
1.6.1 his willful and continued failure to substantially
perform his duties with the Company (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to him by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed his duties; or
1.6.2 his willfully engaging in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.6, no act or failure to act, on the part
of an Executive, shall be considered willful unless it is done, or omitted to be
done, by him in bad faith and without reasonable belief that his action or
omission was in the best interests of the Company. Any act, or failure to act,
based upon prior approval given by the Board or upon the instruction or with the
approval of the Chief Executive Officer or an Executive's superior or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of an Executive shall not be deemed
to be for Cause unless and until there shall have been delivered to him a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to him and
he is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, he is guilty of
the conduct described in Subsection 1.6.1 or 1.6.2 above, and specifying the
particulars thereof in detail.
1.7 CLRP means the Hershey Foods Corporation Compensation Limit
Replacement Plan and any successor or replacement plan thereof.
1.8 CHANGE IN CONTROL means:
1.8.1 individuals who, on June 8, 1999, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any
2
person becoming a director subsequent to June 8, 1999, whose election or
nomination for election was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by specific vote or by approval of
the proxy statement of the Company in which such person is named as nominee for
director, without written objection to such nomination) shall be an Incumbent
Director; PROVIDED, HOWEVER, that no individual initially elected or nominated
as a director of the Company as a result of an actual or threatened election
contest (as described in Rule 14a-11 under the Securities Exchange Act of 1934
(the "Exchange Act")) ("Election Contest") or other actual or threatened
solicitation of proxies or consents by or on behalf of any person (as such term
is defined in Section 3(a)(9) of the Exchange Act and as used in Section
13(d)(3) and 14(d)(2) of the Exchange Act) ("Person") other than the Board
("Proxy Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest, shall be deemed an Incumbent
Director; and PROVIDED FURTHER, HOWEVER, that a director who has been approved
by the Hershey Trust while it beneficially owns more than 50% of 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
Power") shall be deemed to be an Incumbent Director;
1.8.2 the acquisition or holding by any Person of beneficial
ownership (within the meaning of Section 13(d) under the Exchange Act and the
rules and regulations promulgated thereunder) of shares of the Common Stock
and/or the Class B Common Stock of the Company representing 25% or more of
either (i) the total number of then outstanding shares of both Common Stock and
Class B Common Stock of the Company (the "Outstanding Company Stock") or (ii)
the Outstanding Company Voting Power; provided that, at the time of such
acquisition or holding of beneficial ownership of any such shares, the Hershey
Trust does not beneficially own more than 50% of the Outstanding Company Voting
Power; and provided, further, that any such acquisition or holding of beneficial
ownership of shares of either Common Stock or Class B Common Stock of the
Company by any of the following entities shall not by itself constitute such a
Change in Control hereunder: (i) the Hershey Trust; (ii) any trust established
by the Company or by any Subsidiary for the benefit of the Company and/or its
employees or those of a Subsidiary; (iii) any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Subsidiary; (iv) the
Company or any Subsidiary or (v) any underwriter temporarily holding securities
pursuant to an offering of such securities;
1.8.3 the approval by the stockholders of the Company of any
merger, reorganization, recapitalization, consolidation or other form of
business combination (a "Business Combination") if, following consummation of
such Business Combination, the Hershey Trust does not beneficially own more than
50% of the total voting power of all outstanding voting securities eligible to
elect directors of (x) the surviving entity or entities (the "Surviving
Corporation") or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of more than 50% of the combined
voting power of the then outstanding voting securities eligible to elect
directors of the Surviving Corporation; or
1.8.4 the approval by the stockholders of the Company of (i)
any sale or other disposition of all or substantially all of the assets of the
Company, other than to a corporation (the "Acquiring Corporation") if, following
consummation of such sale or other disposition, the Hershey Trust beneficially
owns more than 50% of the total voting power of all outstanding
3
voting securities eligible to elect directors (x) of the Acquiring Corporation
or (y) if applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of more than 50% of the combined voting
power of the then outstanding voting securities eligible to elect directors of
the Acquiring Corporation, or (ii) a liquidation or dissolution of the Company.
1.9 CODE means the Internal Revenue Code of 1986, as amended from
time to time.
1.10 COMPANY means Hershey Foods Corporation, a Delaware
corporation.
1.11 COVERAGE PERIOD means the period commencing on the date on
which a Change in Control occurs and ending on the date which is the second
anniversary thereof.
1.12 DATE OF TERMINATION has the meaning assigned to such term in
Section 4.2 hereof.
1.13 DEFERRAL ELECTION means with respect to an Executive each o
his elections to defer all or any part of any of his AIP or PSU awards as
permitted under the Deferred Compensation Plan or any deferral arrangements in
effect prior to the effective date thereof.
1.14 DEFERRED COMPENSATION PLAN means the Hershey Foods Corporation
Deferred Compensation Plan and any successor or replacement plan thereof.
1.15 DISABILITY means with respect to an Executive his absence from his
duties with the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or his legal representative (such agreement as
to acceptability not to be withheld unreasonably), provided that such absence
shall constitute Disability only if the Executive is entitled to long-term
disability benefits for the period of his disability after such 180 day period
at lest equal to 70% of the greater of his base salary as of the first day of
such 180 day period or his Annual Base Salary.
1.16 EFFECTIVE DATE means June 8, 1999.
1.17 EXECUTIVE means each person who is listed on Schedule I hereto, as
it may be amended from time to time pursuant to Article 7 hereof.
1.18 EXCISE TAX means any excise tax imposed under Section 4999 of
the Code.
1.19 GOOD REASON means with respect to an Executive:
1.19.1 the assignment to him of any duties inconsistent in any
respect with his position (including status, offices, titles and reporting
relationships), authority, duties or responsibilities immediately prior to
either the Potential Change in Control which precedes the Change in Control or
the Change in Control or any other action by the Company which results in a
diminution in any respect in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
4
1.19.2 a reduction by the Company in his annual base salary as
in effect, as applicable, on the Effective Date or as the same may be increased
from time to time, or on the date he first becomes an Executive if he was not an
Executive on the Effective Date or as the same may be increased from time to
time;
1.19.3 the Company's requiring him to be based at any office
or location that is more than 35 miles from his office or location immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control;
1.19.4 the Company's requiring him to travel on Company
business to a substantially greater extent than required immediately prior to
either the Potential Change in Control which precedes the Change in Control or
the Change in Control;
1.19.5 the failure by the Company, without his consent, to pay
to him any portion of his current compensation, or to pay to him any portion of
an installment of deferred compensation under any deferred compensation program
of the Company within seven (7) days of the date such compensation is due;
1.19.6 the failure by the Company to continue in effect any
compensation plan in which he participates immediately prior to either the
Potential Change in Control preceding the Change in Control or the Change in
Control which is material to his total compensation, including but not limited
to the KEIP, the CLRP, and the SERP, as applicable, or any substitute or
alternative plans adopted prior to either such Potential Change in Control or
Change in Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of his
participation relative to other participants, as existed at the time of such
Potential Change in Control or Change in Control;
1.19.7 the failure by the Company to continue to provide him
with benefits substantially similar to those enjoyed by him under any of the
Company's pension, life insurance, medical, health and accident, disability or
other welfare plans in which he was participating at the time of either the
Potential Change in Control preceding the Change in Control or the Change in
Control, the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him at the time of such Potential Change in Control or
Change in Control, or the failure by the Company to provide him with the number
of paid vacation days to which he is entitled on the basis of years of service
with the Company in accordance with the Company's normal vacation policy in
effect at the time of such Potential Change in Control or Change in Control;
1.19.8 any purported termination by the Company of his
employment after a Change in Control otherwise than in accordance with the
termination procedures of Sections 4.1 through 4.4 hereof;
5
1.19.9 any material failure by the Company to comply with and
satisfy any of its obligations under this Plan after a Potential Change in
Control that is followed within one (1) year by a Change in Control; or
1.19.10 any material failure by the Company to comply with and
satisfy any of its obligations under any grantor trust established by the
Company to provide itself with a source of funds to assist itself in satisfying
its liabilities under this Plan after (i) a Change in Control described in
Subsection 1.8.1, clause (ii) of Subsection 1.8.4, or clause (i) of Subsection
1.8.4 other than a sale or other disposition to a corporation; (ii) a Change in
Control described in Subsection 1.8.2 if during the Coverage Period, Incumbent
Directors, as described in Subsection 1.8.1, cease for any reason to constitute
at least a majority of the Board; (iii) a Change in Control described in
Subsection 1.8.3 if, at any time during the Coverage Period, Incumbent
Directors, as described in Subsection 1.8.1, do not constitute at least a
majority of the board of directors of the Surviving Corporation; or (iv) a
Change in Control described in clause (i) of Subsection 1.8.4 involving a sale
or other disposition to a corporation if, at any time during the Coverage
Period, Incumbent Directors, as described in Subsection 1.8.1, do not constitute
at least a majority of the board of directors of such corporation.
For purposes of this Plan, any good faith determination of Good Reason
made by the Executive shall be conclusive.
1.20 HERSHEY PENSION PLAN means the Hershey Foods Corporation
Retirement Plan and any successor or replacement plan thereof.
1.21 HERSHEY TRUST means either or both of (a) the Hershey
Trust Company, a Pennsylvania corporation, as Trustee for the Milton Hershey
School, or any successor to the Hershey Trust Company as such trustee, and (b)
the Milton Hershey School, a Pennsylvania not-for-profit corporation.
1.22 HIGHEST PSU AMOUNT means with respect to an Executive the
highest of:
1.22.1 the average of the cash values of the three highest PSU
awards paid or payable, including any PSU award or portion thereof which has
been earned but deferred, to him by the Company in respect of the five fiscal
years (or such shorter period during which he has been employed by the Company
or eligible to receive a PSU award) immediately preceding the fiscal year in
which the Change in Control occurs;
1.22.2 the cash value of the PSU award paid or payable,
including any PSU award or portion thereof which has been earned but deferred,
to him by the Company in respect of the most recently completed fiscal year
prior to the Change in Control;
1.22.3 the cash value of the PSU award paid or payable,
including any PSU award or portion thereof which has been earned but deferred,
to him by the Company for the most recently completed fiscal year preceding his
Date of Termination; and
6
1.22.4 the cash value of his 100% target PSU award for the
year including his Date of Termination (each such PSU award being valued at the
higher of (i) the highest closing price of the Company's Common Stock on the New
York Stock Exchange during the period running from sixty (60) days prior to the
Change in Control until the Executive's Date of Termination, and (ii) if the
Change in Control involves a transaction in which an offer is made to purchase
shares of Common Stock from the Company's stockholders, the price at which such
offer is made).
1.23 KEIP means the Hershey Foods Corporation Key Employee
Incentive Plan and any successor or replacement plan thereof.
1.24 NOTICE OF INTENT TO TERMINATE shall have the meaning assigned
to such term in Section 4.1 hereof.
1.25 MANDATORY RETIREMENT AGE means age sixty-five (65) in the
case of an Executive who has served for a minimum of two (2) years at a high
level executive or high policy-making position and who is entitled to a
nonforfeitable, immediate, annual employer-provided retirement benefit from any
source, which is at least equal to a benefit, computed as a life annuity, of at
least $44,000 per year (or such other amount as may be provided by future
legislation). In the case of all other Executives, there shall be no Mandatory
Retirement Age.
1.26 PLAN means the Hershey Foods Corporation Executive
Benefits Protection Plan (Group 3A), as set forth herein, as amended from time
to time.
1.27 PLAN ADMINISTRATOR means the person appointed by the
Company's Chief Executive Officer from time to time to administer the Plan.
1.28 POTENTIAL CHANGE IN CONTROL means the occurrence of any of
the following:
1.28.1 the Hershey Trust by action of any of the Board of
Directors of Hershey Trust Company; the Board of Managers of Milton Hershey
School; the Investment Committee of the Hershey Trust; and/or any of the
officers of Hershey Trust Company or Milton Hershey School (acting with
authority) undertakes consideration of any action the taking of which would lead
to a Change in Control as defined herein, including, but not limited to
consideration of (1) an offer made to the Hershey Trust to purchase any number
of its shares in the Company such that if the Hershey Trust accepted such offer
and sold such number of shares in the Company the Hershey Trust might no longer
have more than 50% of the Outstanding Company Voting Power, (2) an offering by
the Hershey Trust of any number of its shares in the Company for sale such that
if such sale were consummated the Hershey Trust might no longer have more than
50% of the Outstanding Company Voting Power or (3) entering into any agreement
or understanding with a person or entity that would lead to a Change in Control;
or
1.28.2 the Board approves a transaction described in
Subsection 1.8.2, 1.8.3 or 1.8.4 of the definition of a Change in Control
contained herein.
7
1.29 SERP means the Hershey Foods Corporation Supplemental
Executive Retirement Plan and any successor or replacement plan thereof.
1.30 SEVERANCE BENEFITS has the meaning assigned to such term in
Section 3.2 hereof.
1.31 SUBSIDIARY means any corporation controlled by the Company,
directly or indirectly.
1.32 VESTED CURRENT BONUS AMOUNT shall have the meaning assigned
to such term in Section 2.1 hereof.
1.33 VESTED CURRENT PSU AMOUNT shall have the meaning assigned to
such term in Section 2.2 hereof.
1.34 VESTED DEFERRED BONUS AMOUNT shall have the meaning assigned
to such term in Section 2.1 hereof.
1.35 VESTED DEFERRED PSU AMOUNT shall have the meaning assigned to
such term in Section 2.2 hereof.
1.36 VESTED PENSION BENEFIT shall have the meaning assigned to
such term in Section 2.3 hereof.
1.37 VESTED PENSION AMOUNT shall have the meaning assigned to such
term in Section 2.3 hereof.
1.38 WELFARE BENEFITS shall have the meaning assigned to such term
in Subsection 3.2.2 hereof.
1.39 SECTION 1.39 TERMINATION OF EMPLOYMENT means:
1.39.1 with respect to an Executive who is the Chief Executive
Officer of the Company on the date on which a Change in Control occurs, the
termination of his employment with the Company by him in his sole and complete
discretion for any reason other than his death or Disability or by the Company
for any reason (a) on or after the later of (i) the first day of the ninth (9th)
calendar month following the date on which the Potential Change in Control (if
any) preceding the Change in Control occurs and (ii) the first day of the sixth
(6th) calendar month of the Coverage Period; and (b) on or before the earlier of
(x) the date the Executive attains his Mandatory Retirement Age, if applicable,
and (y) the last day of the thirteenth (13th) calendar month of the Coverage
Period; and
1.39.2 with respect to an Executive who is not the Chief
Executive Officer of the Company on the date on which a Change in Control
occurs, the termination of his employment with the Company by him in his sole
and complete discretion for any reason other than his death or Disability or by
the Company for any reason at any time during the thirteenth (13th) calendar
8
month of the Coverage Period and prior to the date he attains his Mandatory
Retirement Age, if applicable.
For purposes of this Section 1.39, a partial month shall be treated as
a "calendar month."
ARTICLE 2
VESTING OR PAYMENT OF CERTAIN BENEFITS
IN THE EVENT OF A CHANGE IN CONTROL
2.1 VESTING OF AIP BENEFITS; PAYMENT OF BENEFITS. Upon the
occurrence of a Change in Control:
2.1.1 each Executive shall have a vested and nonforfeitable
right hereunder to receive in cash an amount equal to the sum of:
2.1.1.1 the greater of (x) the 100% target award
amount of all then outstanding contingent target AIP grants made to him under
the KEIP, and (y) the amount that would have been payable to him under such
contingent target AIP grants as of the end of the applicable award period
calculated using as the applicable performance factors, his and the Company's
actual performance on an annualized basis as of the date of the Change in
Control (the greater of (x) and (y) is herein referred to as the "Vested Current
Bonus Amount"); and
2.1.1.2 the value of all AIP Awards, as defined
in the KEIP ("AIP Awards") previously earned by him for which payment has been
deferred ("Deferred AIP Awards") (this value, calculated as of the date of
payment to the Executive and taking into account his selection of Investment
Options as defined in the Deferred Compensation Plan and his Deferral Elections
applicable thereto is herein referred to as the "Vested Deferred Bonus Amount");
2.1.2 the Company shall, within five (5) business days
following the Change in Control, pay to each Executive a lump sum cash payment
equal to his Vested Current Bonus Amount; and
2.1.3 the Company shall, on the later of (i) the first day of
January of the year first following the year during which the Change in Control
occurs and (ii) the one hundred twentieth (120th) day following the Change in
Control, pay to each Executive a lump sum cash payment equal to his Vested
Deferred Bonus Amount attributable to his Deferred AIP Awards not previously
paid to him in accordance with any of his applicable Deferral Elections if prior
to the Change in Control, he elects, in his sole discretion, to receive such
lump sum cash payment at such time.
2.2 VESTING OF PSU BENEFITS; PAYMENT OF BENEFITS. Upon the
occurrence of a Change in Control:
2.2.1 each Executive shall have a vested and nonforfeitable
right hereunder to receive in cash an amount equal to the sum of:
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2.2.1.1 the 100% target award amount of the
contingent target Performance Stock Unit ("PSU") grants, if any, made to him
under the KEIP for the cycle ending in the year of the Change in Control valued
at the higher of (i) the highest closing price of the Company's Common Stock on
the New York Stock Exchange during the sixty (60) day period preceding and
including the date of the Change in Control, and (ii) if the Change in Control
involves a transaction in which an offer is made to purchase shares of Common
Stock from the Company's stockholders, the price at which such offer is made
("Vested Current PSU Amount"); and
2.2.1.2 the value of all PSU Awards, as defined
in the KEIP ("PSU Awards"), previously earned by the Executive for which payment
has been deferred ("Deferred PSU Awards"), where, for purposes of calculating
the value of the Executive's Deferred PSU Awards ("Vested Deferred PSU Amount")
as of the date of payment to him (whether in accordance with his election as
described in Subsection 2.2.3, his election as described in Subsection 3.4.3, or
in the absence of any such election in accordance with his applicable Deferral
Elections), all components of his Deferred PSU Awards that are denominated in
shares of the Company's Common Stock shall be valued at the higher of (i) the
highest closing price of the Company's Common Stock on the New York Stock
Exchange during the sixty (60) day period preceding and including the date of
the Change in Control, and (ii) if the Change in Control involves a transaction
in which an offer is made to purchase shares of Common Stock from the Company's
stockholders, the price at which such offer is made and investment credits shall
be applied thereto and to all components of such Deferred PSU Awards that are
not denominated in shares of the Company's Common Stock in accordance with the
provisions of the Deferred Compensation Plan from the date of the Change in
Control to the date of payment to the Executive in accordance with his selection
of Investment Options as defined in the Deferred Compensation Plan.;
2.2.2 the Company shall, within five (5) business days
following the Change in Control, pay to each Executive a lump sum cash payment
equal to his Vested Current PSU Amount; and
2.2.3 the Company shall, on the later of (i) the first day of
January of the year first following the year during which the Change in Control
occurs and (ii) the one hundred twentieth (120th) day following the Change in
Control, pay to each Executive a lump sum cash payment equal to his Vested
Deferred PSU Amount attributable to his Deferred PSU Awards not previously paid
to him in accordance with any of his applicable Deferral Elections if prior to
the Change in Control, he elects, in his sole discretion, to receive such lump
sum cash payment at such time.
2.3 VESTED PENSION AMOUNT. Upon the occurrence of a Change in
Control:
2.3.1 each Executive who either is a participant in the SERP
on the date of the Change in Control or was a participant in the SERP on the
date of the Potential Change in Control preceding the Change in Control shall
have a vested and nonforfeitable right hereunder to receive in cash an amount
equal to the actuarial present value (as determined in accordance with
Subsection 2.3.1.3 hereof) of the monthly retirement benefit (including the
spousal survivor
10
benefit) to which he and his spouse would be entitled under Section 4 of the
SERP if he retired as of the date of the Change in Control, taking into account
Subsections 2.3.1.1 and 2.3.1.2 hereof (the amount of such monthly retirement
benefits for him and his spouse being herein referred to as such Executive's
"SERP Benefit", the actuarial present value of such SERP Benefit being herein
referred to as such Executive's "Vested Pension Benefit" and the Vested Pension
Benefit plus all investment credits applied thereto in accordance with the
provisions of Section 2.5 hereof being herein referred to as "Vested Pension
Amount"), where:
2.3.1.1 for purposes of determining such
Executive's SERP Benefit as of the date of a Change in Control, he shall: (i) be
credited for all purposes under the SERP with additional Years of Service (as
defined in the SERP) equal to the lesser of three (3) or the number of years
(including fractions thereof) from the date of the Change in Control until he
would attain Mandatory Retirement Age if applicable to him; (ii) be credited for
purposes of only Section 3 of the SERP (and not for the purposes of any other
provision of the SERP, including but not limited to Section 4(a)(1) and Section
4(b)(1)) with additional Years of Service (as defined in the SERP) equal to the
excess, if any, of ten (10) over his actual number of Years of Service
(including fractions thereof) completed as of the date of the Change in Control;
(iii) be deemed for the purposes of Section 3 of the SERP (and not for the
purposes of any other provision of the SERP) to have five (5) years of
participation in the performance share unit portion of the KEIP during his last
ten (10) years of employment with the Company regardless of his actual years of
participation in the performance share unit portion of the KEIP at the time of
the Change in Control; (iv) be deemed for all purposes under the SERP (including
but not limited to clause (4) of Section 4.b of the SERP) to have his age
increased by three (3) years (or such lesser number of years (including
fractions) until he would attain Mandatory Retirement Age if applicable to him);
and (v) be deemed to have been paid his Annual Base Salary and Annual Bonus for
three (3) additional years (or such lesser number of years (including fractions)
until he would attain Mandatory Retirement Age if applicable to him) for
purposes of calculating "Final Average Compensation" in Section 2.f. of the
SERP;
2.3.1.2 if such Executive has not yet attained
age fifty-five (55) (after increasing his age by three (3) years as provided in
the preceding Subsection 2.3.1.1), he shall upon the occurrence of the Change in
Control be deemed nevertheless to have attained age fifty-five (55), with the
adjustments provided for in Subsection 2.3.1.1 hereof being made on this basis;
2.3.1.3 the actuarial present value of such
Executive's SERP Benefit, as determined in accordance with the foregoing
provisions of this Section 2.3 shall be determined using: (i) the 83 GAM
mortality tables; and (ii) an interest rate equal to 100% of the interest rate
that would be used (as of the date of the Change in Control) by the Pension
Benefit Guaranty Corporation for purposes of determining the present value of a
lump sum distribution on plan termination; and (iii) the date of the Change in
Control as the date on which payment of the Executive's SERP Benefit is to
commence and as the date as of which the actuarial present value of such SERP
Benefit is calculated; and
11
2.3.2 each Executive who neither is a participant in the SERP
on the date of the Change in Control nor was a participant in the SERP on the
date of the Potential Change in Control preceding the Change in Control shall
have a vested and nonforfeitable right hereunder to receive in cash an amount
equal to the sum of:
2.3.2.1 a lump sum cash amount equal to the
actuarial equivalent of the excess of (x) the retirement pension (determined as
a straight life annuity commencing at Normal Retirement Age, as defined in the
Hershey Pension Plan) which he would have accrued under the terms of the Hershey
Pension Plan (as in effect immediately prior to the Change in Control),
determined as if he were fully vested thereunder and had accumulated thirty-six
(36) additional months of service credit thereunder during each of which he will
be deemed to have been paid one-twelfth (1/12th) of the sum of his highest
annual rate of compensation as an employee of the Company and his Annual Bonus
(but in no event shall he be deemed to have accumulated additional months of
service credit after he would have attained Mandatory Retirement Age, if
applicable) over (y) the retirement pension (determined as a straight life
annuity commencing at Normal Retirement Age) which he has accrued pursuant to
the terms of the Hershey Pension Plan as of the date of the Change in Control;
and
2.3.2.2 if he is a participant in the CLRP, a lump
sum cash amount ("CLRP Benefit") equal to his Excess Account, as defined in the
CLRP (as in effect immediately prior to the Change in Control) determined as if
he were fully vested thereunder and had accumulated thirty-six (36) additional
months of service credit thereunder during each of which he will be deemed to
have been paid one-twelfth (1/12th) of the sum of his highest annual rate of
compensation as an employee of the Company and his Annual Bonus, but in no event
shall he be deemed to have accumulated additional months of service credit after
he would have attained Mandatory Retirement Age, if applicable (the sum of the
amounts described in Subsections 2.3.2.1 and 2.3.2.2 is herein referred to as
such Executive's "Vested Pension Benefit" and the Vested Pension Benefit plus
all, if any, investment credit applied thereto in accordance with the provisions
of Section 2.5 hereof is herein referred to as such Executive's "Vested Pension
Amount").
For purposes of this Subsection 2.3.2, "actuarial equivalent" amounts
shall be determined using the same methods and assumptions prescribed under the
Hershey Pension Plan immediately prior to the Change in Control.
2.4 PAYMENT OF VESTED PENSION AMOUNT UPON TIMELY ELECTION. The
Company shall, on the later of (i) the first day of January of the year first
following the year during which the Change in Control occurs and (ii) the
one-hundred twentieth (120th) day following the Change in Control, pay to each
Executive a lump sum cash payment equal to his Vested Pension Amount plus
interest thereon at the rate provided in Section 1274(b)(2)(B) of the Code from
the date of the Change in Control to the date of payment if, prior to the Change
in Control, he elects, in his sole discretion, to receive such lump sum cash
payment at such time.
2.5 CONVERSION OF VESTED PENSION BENEFIT TO DEFERRED
COMPENSATION PLAN ACCOUNT IN ABSENCE OF SECTION 2.4 ELECTION. In the event the
Executive makes no election under Section 2.4 hereof, an amount equal to his
Vested Pension Benefit shall be credited to him under
12
the Deferred Compensation Plan and subject to the provisions of this Subsection
2.5, the provisions of the Deferred Compensation Plan shall apply thereto as if
such amount were a Deferred AIP Award. Within ten (10) days of the Change in
Control the Executive shall select one or more Investment Options as defined in
the Deferred Compensation Plan to be effective with respect to such amount and
thereafter may change his selection of such Investment Options in accordance
with the provisions of the Deferred Compensation Plan. Investment credits shall
be applied to the amount of his Vested Pension Benefit in accordance with the
provisions of the Deferred Compensation Plan from the date of the Change in
Control to the date of payment to the Executive in accordance with his selection
of such Investment Options. If the Executive makes no election under Section 2.4
hereof and does not select one or more Investment Options as defined in the
Deferred Compensation Plan within ten (10) days of the Change in Control in
accordance with the provisions of the second sentence of this Section 2.5,
investment credits shall be applied to the amount of his Vested Pension Benefit
from the date of the Change in Control to the earlier of the date he makes a
selection of Investment Options with respect thereto in accordance with the
provisions of the Deferred Compensation Plan and the date of payment in
accordance with the latest of his pre-Change in Control selections of Investment
Options relating to his Deferred AIP Awards or Deferred PSU Awards, if any. If
there are no such pre-Change in Control selections of Investment Options, then
investment credits shall be applied in accordance with the provisions of the
immediately preceding sentence by treating the Hershey Fixed Income Fund
Investment Option under the Deferred Compensation Plan as his latest pre-Change
in Control selection of Investment Options. Within ten (10) days of the Change
in Control the Executive shall make a Deferral Election with respect to his
Vested Pension Amount. If the Executive makes no election under Section 2.4
hereof and makes no Deferral Election within ten (10) days of the Change in
Control in accordance with the immediately preceding sentence, then for purposes
hereof he will be considered to have made a Deferral Election under the Deferred
Compensation Plan to have his Vested Pension Amount paid to him, his designated
beneficiaries or his estate, as applicable, in accordance with the latest of his
pre-Change in Control Deferral Elections relating to his Deferred AIP Awards or
Deferred PSU Awards, if any. If there are no such pre-Change in Control Deferral
Elections, then for purposes hereof he will be considered to have made a
Deferral Election under the Deferred Compensation Plan to have his Vested
Pension Amount paid to him, his designated beneficiaries or his estate, as
applicable, on the first day of the month following his termination of
employment by the Company. His Vested Pension Amount shall be paid to him in
accordance with the Deferral Election described in the preceding three
sentences, as applicable, or any subsequent Deferral Election with respect
thereto permitted in accordance with the provisions of the Deferred Compensation
Plan.
2.6 SERP OR CLRP AMENDMENTS. Notwithstanding any provision of
the SERP, CLRP, or Deferred Compensation Plan, none of the SERP, CLRP, or
Deferred Compensation Plan may be terminated or amended in any manner that is
adverse to the interests of any Executive without his consent either: (i) after
a Potential Change in Control occurs and for one (1) year following the
cessation of the Potential Change in Control, or (ii) after a Change in Control.
Any termination or amendment of the SERP, CLRP, or Deferred Compensation Plan in
a manner adverse to the interests of an Executive within one (1) year prior to a
Potential Change in Control shall not be given effect for purposes of Section
2.3 or Section 2.5 hereof.
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ARTICLE 3
EXECUTIVE BENEFITS AND RIGHTS
UPON TERMINATION OF EMPLOYMENT
3.1 GENERAL TERMINATION RIGHTS AND BENEFITS. If an Executive's
employment by the Company is terminated at any time after a Change in Control
for any reason (whether by him or the Company), the Company shall pay to him the
payments described in Subsections 3.1.1 through 3.1.7 below.
3.1.1 PREVIOUSLY EARNED SALARY. The Company shall pay his full
salary to him through his Date of Termination at the highest rate in effect
during the period between the Potential Change in Control preceding the Change
in Control and the date the Notice of Intent to Terminate is given, together
with all compensation and benefits payable to him through the Date of
Termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period.
3.1.2 PREVIOUSLY EARNED BENEFITS. The Company shall pay his
normal post-termination compensation and benefits to him as such payments become
due. Such post-termination compensation and benefits shall be determined under,
and paid in accordance with the Company's retirement, insurance, pension,
welfare and other compensation or benefit plans, programs and arrangements.
3.1.3 PAYMENT OF VESTED CURRENT BONUS AMOUNT. Except to the
extent that the Company has previously paid or concurrently pays to him all or a
portion of his Vested Current Bonus Amount pursuant to Section 2.1, Subsection
3.1.1 or Subsection 3.1.2 hereof, the Company shall pay to him a lump sum cash
payment equal to his Vested Current Bonus Amount.
3.1.4 PAYMENT OF VESTED DEFERRED BONUS AMOUNT. Except to the
extent that the Company has previously paid or concurrently pays to him all or a
portion of his Vested Deferred Bonus Amount pursuant to Section 2.1, Subsection
3.1.1 or Subsection 3.1.2 hereof, the Company shall pay to him a lump sum cash
payment equal to his Vested Deferred Bonus Amount.
3.1.5 PAYMENT OF VESTED CURRENT PSU AMOUNTS. Except to the
extent that the Company has previously paid or concurrently pays to him all or a
portion of his Vested Current PSU Amount pursuant to Section 2.2, Subsection
3.1.1 or Subsection 3.1.2 hereof, the Company shall pay to him a lump sum cash
payment equal to his Vested Current PSU Amount.
3.1.6 PAYMENT OF VESTED DEFERRED PSU AMOUNTS. Except to the
extent that the Company has previously paid or concurrently pays to him all or a
portion of his Vested Deferred PSU Amount pursuant to Section 2.2, Subsection
3.1.1 or Subsection 3.1.2 hereof, the Company shall pay to him a lump sum cash
payment equal to his Vested Deferred PSU Amount.
3.1.7 PAYMENT OF VESTED PENSION AMOUNT. Except to the extent
that the Company has previously paid or concurrently pays to him his Vested
Pension Amount, the Company shall pay to him a lump-sum cash payment equal to
his Vested Pension Amount.
14
3.2 SEVERANCE BENEFITS. In addition to the payments provided
for by Section 3.1 hereof, the Company shall pay to an Executive the payments
described in Subsections 3.2.1 through 3.2.4 below (the "Severance Benefits") in
accordance with such Subsections upon termination of his employment with the
Company during the Coverage Period, if his termination of employment either (i)
is a Section 1.39 Termination of Employment, or (ii) is (a) not by the Company
for Cause, (b) not by reason of his death or Disability or after his Mandatory
Retirement Age, if applicable, and (c) not by him without Good Reason.
3.2.1 LUMP-SUM SEVERANCE PAYMENT. In lieu of any further
salary payments to him for periods subsequent to the Date of Termination, the
Company shall pay to him a lump sum severance payment, in cash, equal to three
(3) (or, if less, the number of years, including fractions, from the Date of
Termination until he would have reached Mandatory Retirement Age, if applicable)
times the sum of (a), (b) and (c) where (a) equals his Annual Base Salary, (b)
equals his Annual Bonus and (c) equals his Highest PSU Amount.
3.2.2 CONTINUED BENEFITS. For a thirty-six (36) month period
(or, if less, the number of months from the Date of Termination until he would
have reached Mandatory Retirement Age, if applicable) after the Date of
Termination, the Company shall provide him with life insurance, health,
disability and other welfare benefits ("Welfare Benefits") substantially similar
in all respects to those which he was receiving immediately prior to the Notice
of Termination on substantially the same terms and conditions, including
contributions required from him for such benefits (without giving effect to any
reduction in such benefits subsequent to the Potential Change in Control
preceding the Change in Control or the Change in Control, which reduction
constitutes or may constitute Good Reason); provided that if he cannot continue
to participate in the Company plans providing Welfare Benefits, the Company
shall otherwise provide such benefits on the same after-tax basis as if
continued participation had been permitted. The Executive shall be entitled to
elect to change his level of coverage and/or his choice of coverage options
(such as Executive only or family medical coverage) with respect to the Welfare
Benefits to be provided by the Company to him to the same extent that actively
employed executives of the Company are permitted to make such changes; provided,
however, that in the event of any such changes he shall pay the amount of any
cost increase that would actually be paid by an actively employed executive of
the Company by reason of such actively employed executive making the same change
in level of coverage or coverage options. Notwithstanding the foregoing, in the
event that the Executive becomes reemployed with another employer and becomes
eligible to receive welfare benefits form such employer, the Welfare Benefits
described herein shall be secondary to such benefits, but only to the extent
that the Company reimburses him for any increased cost and provides any
additional benefits necessary to give him the Welfare Benefits provided
hereunder.
3.2.3 OUTSTANDING AWARDS. If an Executive's Date of
Termination occurs within the Coverage Period and during any calendar year
following the calendar year during which a Change in Control occurs, he shall be
entitled to a lump sum cash payment with respect to each outstanding contingent
target AIP and PSU grant under the KEIP or any similar types of grants under any
replacement plans or programs equal to the sum of :
15
3.2.3.1 the sum of the product of (x) and (y)for
each then outstanding contingent target PSU grant under the KEIP (or similar
types of grants under any replacement plan or program) for the applicable award
period that includes his Date of Termination, where (x) is an amount equal to
the 100% target award amount of such outstanding contingent target PSU grant and
(y) is a fraction the numerator of which is the number of days from and
including the first day of the award period applicable to such outstanding
contingent target PSU grant that includes the Executive's Date of Termination
until (and including) his Date of Termination and the denominator of which is
the number of days in the award period applicable to such outstanding contingent
target PSU grant; and
3.2.3.2 the sum of the product of (x) and (y) for
each then outstanding contingent target AIP grant made to him under the KEIP (or
similar types of grants under any replacement plans or programs) for the
applicable award period that includes his Date of Termination, where (x) is an
amount equal to the greater of (A) the 100% target award amount of such
outstanding contingent target AIP grant, and (B) the amount that would have been
payable to him under such contingent target AIP grant as of the end of the
applicable award period, calculated utilizing as the applicable performance
factors his and the Company's actual performance on an annualized basis as of
his Date of Termination, and (y) is a fraction the numerator of which is the
number of days from and including the first day of the award period applicable
to such outstanding contingent AIP grant that includes his Date of Termination
until (and including) his Date of Termination and the denominator of which is
the number of days in such applicable award period.
Contingent target PSU grants under the KEIP or a similar type of grant under a
replacement plan or program shall be valued at the highest closing price of the
Company's Common Stock on the New York Stock Exchange during the period running
from sixty (60) days prior to the Change in Control until the Executive's Date
of Termination.
3.2.4 RELOCATION ALLOWANCE. In the event that an Executive
relocates following his Date of Termination and during the Coverage Period at
the request of a successor employer, the Company shall pay to him a relocation
allowance of $75,000; provided, however, that any such payment shall be reduced
by any payments received by him from such successor employer for the purpose of
reimbursing him for costs of relocation. The Company shall pay him such
relocation allowance within five (5) business days after delivery of his written
request and may condition the payment of the relocation allowance upon his
agreeing in writing to report to the Company any such payments from any
successor employer and agreeing in writing to reimburse to the Company any
amounts received from the Company pursuant to this Subsection 3.2.4 that should
have been so reduced.
3.3 GROSS-UP PAYMENT. In the event that an Executive becomes
entitled to the Severance Benefits or any other benefits or payments under this
Plan (other than pursuant to this Section 3.3), or the KEIP by reason of the
accelerated vesting of stock options thereunder (together, the "Total
Benefits"), and in the event that any of the Total Benefits will be subject to
the Excise Tax, the Company shall pay to him an additional amount (the "Gross-Up
Payment") such that the net amount retained by him, after deduction of any
Excise Tax on the Total Benefits
16
and any federal, state and local income tax, Excise Tax and FICA and Medicare
withholding taxes upon the payment provided for by this Section 3.3, shall be
equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by an Executive in connection
with a Change in Control or his termination of employment (whether pursuant to
the terms of this Plan or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be treated as parachute
payments within the meaning of Section 280G(b)(2) of the Code, and all excess
parachute payments within the meaning of Section 280G(b)(1) shall be treated as
subject to the Excise Tax, unless in the opinion of tax counsel ("Tax Counsel")
selected by the Company's independent auditors and acceptable to the Executive,
such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the Base Amount, or are
otherwise not subject to the Excise Tax, (ii) the amount of the Total Benefits
which shall be treated as subject to the Excise Tax shall be equal to the lesser
of (A) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of Tax Counsel are not parachute payments, or
(B) the amount of excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (i), above), and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of his residence on
the Date of Termination, net of the reduction in federal income taxes which
could be obtained from deduction of such state and local taxes (calculated by
assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to him applies first to reduce the amount of such
state and local income taxes that would otherwise be deductible by him).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of an
Executive's employment, he shall repay to the Company, at the time that the
amount of such reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax, federal, state and local income
taxes and FICA and Medicare withholding taxes imposed on the portion of the
Gross-Up Payment being repaid by him to the extent that such repayment results
in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or
federal, state or local income taxes) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. The Company
may require an Executive to agree in writing to the repayment obligation imposed
by the preceding sentence as a condition to receiving the Gross-Up Payment. In
the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of an Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall
17
make an additional Gross-Up Payment, determined as previously described, to him
in respect of such excess (plus any interest, penalties or additions payable by
him with respect to such excess) at the time that the amount of such excess is
finally determined.
3.4 TIMING OF PAYMENTS. The payments provided for:
3.4.1 in Subsections 3.1.1, 3.1.3, 3.1.5, 3.2.1 and 3.2.3, and
in Section 3.3 hereof shall be made to an Executive not later than the fifth
(5th) day following his Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day the
Company shall pay to the Executive on such day an estimate, as determined in
good faith by the Company, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code from the fifth (5th) day following the Date of
Termination to the payment of such remainder) as soon as the amount thereof can
be determined but in no event later than the thirtieth (30th) day after the Date
of Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day following
the Date of Termination to the payment of such remainder);
3.4.2 in Subsection 3.1.4 hereof shall be made to an Executive
on the later of (i) the first day of January of the year first following the
year during which his Date of Termination occurs and (ii) the one hundred
twentieth (120th) day following his Date of Termination if prior to his Date of
Termination he elects, in his sole discretion, to receive his previously unpaid
Deferred AIP Awards at such time. In the event the Executive makes such election
and the amount of the payment described in Subsection 3.1.4 cannot be finally
determined on or before the later of such one hundred twentieth (120th) day or
January 1, as applicable, the Company shall pay to the Executive on such one
hundred twentieth (120th) day or January 1, as applicable, an estimate, as
determined in good faith by the Company, of the minimum amount of such payment
and shall pay the remainder of such payment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code from such one hundred twentieth
(120th) day or January 1, as applicable, to the payment of such remainder) as
soon as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after such one hundred twentieth (120th) day or January 1,
as applicable. In the event that the amount of the estimated payment exceeds the
amount subsequently determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code from the one hundred twentieth (120th) day
following the Date of Termination or January 1, as applicable, to the payment of
such remainder). In the event the Executive makes no such election, his
previously unpaid Deferred AIP Awards shall be paid in accordance with each of
his applicable Deferral Elections;
3.4.3 in Subsection 3.1.6 shall be made to an Executive on the
later of (i) the first day of January of the year first following the year
during which his Date of Termination occurs and (ii) the one hundred twentieth
(120th) day following his Date of Termination if prior
18
to his Date of Termination he elects, in his sole discretion, to receive his
previously unpaid Deferred PSU Awards at such time. In the event the Executive
makes such election and the amount of the payment provided for in Subsection
3.1.6 cannot be finally determined on or before the later of such one hundred
twentieth (120th) day or January 1, as applicable, the Company shall pay to the
Executive on such one hundred twentieth (120th) day or January 1, as applicable,
an estimate, as determined in good faith by the Company, of the minimum amount
of such payment and shall pay the remainder of such payment (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code from such one
hundred twentieth (120th) day or January 1, as applicable, to the payment of
such remainder) as soon as the amount thereof can be determined but in no event
later than the thirtieth (30th) day after such one hundred twentieth (120th day
or January 1, as applicable. In the event that the amount of the estimated
payment exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the fifth
(5th) business day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code from the one hundred
twentieth (120th) day following the Date of Termination or January 1, as
applicable, to the payment of such remainder). In the event the Executive makes
no such election, his previously unpaid Deferred PSU Awards shall be paid in
accordance with each of his applicable Deferral Elections; and
3.4.4 in Subsection 3.1.7 shall be made to him on the later of
(i) the first day of January following his Date of Termination and (ii) the one
hundred twentieth (120th) day following his Date of Termination if, prior to his
Date of Termination, he elects, in his sole discretion, to receive such payment
at such time. In the event the Executive makes no such election, then his Vested
Pension Amount shall be paid in accordance with the provisions of Section 2.5.
3.5 REIMBURSEMENT OF LEGAL COSTS. The Company shall pay to an
Executive all legal fees and expenses incurred by him as a result of a
termination of his employment which entitles him to any payments under this Plan
(including all such fees and expenses, if any, incurred in contesting or
disputing any Notice of Intent to Terminate under Section 4.3 hereof or in
seeking to obtain or enforce any right or benefit provided by this Plan or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder). Such payments shall be made within five (5) business days after
delivery of his respective written requests for payment accompanied by such
evidence of fees and expenses incurred as the Company reasonably may require.
3.6 EXECUTIVES' COVENANT. The Company may condition the payment
of the amounts and provision of the benefits described in Article 3 of the Plan
to an Executive upon his providing to the Company a written agreement that,
subject to the terms and conditions of this Plan, in the event of a Potential
Change in Control, he will remain in the employ of the Company until the
earliest of (a) a date which is nine months after the date of such Potential
Change in Control, (b) the date of a Change in Control, (c) the date of his
termination of his employment for Good Reason (determined by treating the
Potential Change in Control for this purpose as a Change in Control in applying
the definition of Good Reason) or by reason of death or Disability, (d) the
termination by the Company of his employment for any reason or (e) his attaining
age sixty-five (65).
19
ARTICLE 4
TERMINATION PROCEDURES AND
COMPENSATION DURING DISPUTE
4.1 NOTICE OF INTENT TO TERMINATE. After a Change in Control,
any purported termination of an Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from him to
the Company or the Company to him, as applicable, in accordance with Section
8.17 hereof. For purposes of this Plan, a Notice of Intent to Terminate shall
mean a notice which shall indicate the notifying party's opinion regarding the
specific provisions of this Plan that will apply upon such termination and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the application of the provisions so indicated. Further, a Notice of
Intent to Terminate for Cause is required to include a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board which was called and
held for the purpose of considering such termination (after reasonable notice to
the Executive and an opportunity for him, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board, he was
guilty of conduct set forth in Subsection 1.6.1 or 1.6.2 herein, and specifying
the particulars thereof in detail.
4.2 DATE OF TERMINATION. Date of Termination, with respect to
any purported termination of an Executive's employment after a Change in
Control, shall mean (except as provided in Section 4.3 hereof) (a) if his
employment is terminated by reason of his death, his date of death (b) if his
employment is terminated for Disability, thirty (30) days after Notice of Intent
to Terminate is given (provided that he shall not have returned to the full-time
performance of his duties during such thirty (30) day period), and (c) if his
employment is terminated for any other reason, the date specified in the Notice
of Intent to Terminate (which (i) in the case of a termination by the Company,
shall not be less than thirty (30) days, except in the case of a termination for
Cause in which case it shall not be less than ten (10) days, provided that the
Company may require him to not report to work during such ten (10) day period
and (ii) in the case of a termination by an Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
4.3 DISPUTE CONCERNING TERMINATION. If within fifteen (15) days
after any Notice of Intent to Terminate is given (within eight (8) days in the
case of a termination for Cause by the Company), or, if later, prior to the Date
of Termination (as determined without regard to this Section 4.3), the person
receiving such Notice of Intent to Terminate notifies the person giving such
notice that a dispute exists concerning the termination or the provisions of
this Plan that apply to such termination, the Date of Termination shall be the
date on which the dispute is finally resolved, either by mutual written
agreement of the parties to such dispute or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided, however, that the Date of Termination shall be extended by
a notice of dispute only if such notice is given in good faith and the person
giving such notice pursues the resolution of such dispute with reasonable
diligence.
20
4.4 COMPENSATION DURING DISPUTE. If a purported termination of
an Executive's employment occurs following a Change in Control and such
termination or the provisions of this Plan that apply upon such termination is
disputed in accordance with Section 4.3 hereof (including a dispute as to the
existence of good faith and/or reasonable diligence thereunder), the Company
shall continue to pay the Executive the full compensation (including, but not
limited to, salary) at his Annual Base Salary and continue his participation in
all compensation plans required to be maintained hereunder and continue to
provide to him the Welfare Benefits provided for in Subsection 3.2.2 hereof
until the dispute is finally resolved in accordance with Section 4.3 hereof.
Amounts paid under this Section 4.4 are in addition to all other amounts due
under this Plan (other than those due under Subsection 3.1.1 hereof) and shall
not be offset against or reduce any other amounts due under this Plan.
ARTICLE 5
PLAN ADMINISTRATION
5.1 AUTHORITY TO PLAN ADMINISTRATOR. The Plan shall be
interpreted, administered and operated by the Plan Administrator, subject to the
express provisions of the Plan.
5.2 DELEGATION OF DUTIES. The Plan Administrator may delegate
any of his duties hereunder to such person or persons from time to time as he
may designate.
5.3 ENGAGEMENT OF THIRD PARTIES. The Plan Administrator is
empowered, on behalf of the Plan, to engage accountants, legal counsel and such
other personnel as he deems necessary or advisable to assist him in the
performance of his duties under the Plan. The functions of any such persons
engaged by the Plan Administrator shall be limited to the specified services and
duties for which they are engaged, and such persons shall have no other duties,
obligations or responsibilities under the Plan. Such persons shall exercise no
discretionary authority or discretionary control respecting the management of
the Plan. All reasonable expenses thereof shall be borne by the Company.
ARTICLE 6
CLAIMS
6.1 CLAIMS PROCEDURE. Claims for benefits under the Plan shall be
filed with the Plan Administrator. If any Executive or other payee claims to be
entitled to a benefit under the Plan and the Plan Administrator determines that
such claim should be denied in whole or in part, the Plan Administrator shall
notify such person of its decision in writing. Such notification will be written
in a manner calculated to be understood by such person and will contain (a)
specific reasons for the denial, (b) specific reference to pertinent Plan
provisions, (c) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary, and (d) information as to the steps to be
taken if the person wishes to submit a request for review. Such notification
will be given within 90 days after the claim is received by the Plan
Administrator. If such notification is not
21
given within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
6.2 REVIEW PROCEDURE. Within 60 days after the date on which a
person receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred) such
person (or his duly authorized representative) may (a) file a written request
with the Plan Administrator for a review of his denied claim and of pertinent
documents and (b) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by such
person and will contain specific reasons for the decision as well as specific
references to pertinent Plan provisions. The decision on review will be made
within 60 days after the request for review is received by the Plan
Administrator. If the decision on review is not made within such period, the
claim will be considered denied.
6.3 CLAIMS AND REVIEW PROCEDURES NOT MANDATORY. The claims
procedure and review procedure provided for in this Article 6 are provided for
the use and benefit of Executives who may choose to use such procedures, but
compliance with the provisions of this Article 6 is not mandatory for any
Executive claiming benefits under the Plan. It shall not be necessary for any
Executive to file a claim with the Plan Administrator or to exhaust the
procedures and remedies provided for by this Article 6 prior to bringing any
legal claim or action, or asserting any other demand, for payments or other
benefits to which he claims entitlement hereunder.
ARTICLE 7
PLAN MODIFICATION OR TERMINATION
The Plan may be amended or terminated by resolution of the Board at any
time; provided, however, that: (a) Schedule I hereto may be amended at any time
and in any manner by resolution of the Compensation Committee of the Board upon
recommendation of the Company's Chief Executive Officer; and (b) Schedule I
hereto may be amended at any time by the Company's Chief Executive Officer to
delete any one or more persons therefrom. Notwithstanding the foregoing: (a) the
Plan may not be terminated or amended in a manner adverse to the interests of
any Executive, without his consent (including the amendment of Schedule I hereto
to delete him therefrom) (i) after a Potential Change in Control occurs and for
one (1) year following the cessation of a Potential Change in Control, or (ii)
for the two-year period following consummation of the transaction(s) resulting
from or in the Change in Control; and (b) no termination of this Plan or
amendment hereof in a manner adverse to the interests of any Executive, without
his consent (including the amendment of Schedule I hereto to delete him
therefrom), shall be effective if such termination or amendment occurs (i) at
the request of a third party who has taken steps reasonably calculated to effect
a Change in Control or (ii) in connection with or in anticipation of a Change in
Control or Potential Change in Control. For this purpose, the cessation of a
Potential Change in Control occurs if a Change in Control has not occurred
within one year following the Potential Change in Control. In the event that the
termination of this Plan by the Company or an amendment hereof in a manner
adverse to the interests of any Executive (without his consent) occurs within
six (6) months prior to a Potential
22
Change in Control or a Change in Control, there shall be a presumption that the
conditions of subclauses (i) and (ii) of clause (b) of the next preceding
sentence shall have been met. Upon the expiration of the Coverage Period, the
Plan may not be amended in any manner which would adversely affect the rights
which any Executive has at that time to receive any and all payments or benefits
pursuant to Articles 2, 3, and 4 by reason of a Change in Control which has
theretofore occurred or by reason of a termination of his employment during the
Coverage Period, and the Company's obligations to make such payments and provide
such benefits shall survive any termination of the Plan.
ARTICLE 8
MISCELLANEOUS
8.1 TERMINATIONS IN ANTICIPATION OF CHANGE IN CONTROL. An
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if his employment is terminated by the
Company without Cause prior to a Change in Control or Potential Change in
Control and such termination of employment (a) was at the request of a third
party who had indicated an intention to take or had taken steps reasonably
calculated to effect a Change in Control, or (b) otherwise arose in connection
with or in anticipation of a Change in Control and (c) in either case, a Change
in Control does occur which may involve such third party (or a party competing
with such third party to effectuate a Change in Control). An Executive shall be
deemed to have terminated his employment for Good Reason during the Coverage
Period if he terminates his employment with Good Reason prior to a Change in
Control or Potential Change in Control if the circumstance or event which
constitutes Good Reason (a) occurred at the request of a third party who had
indicated an intention to take or had taken steps reasonably calculated to
effect a Change in Control, or (b) otherwise arose in connection with or in
anticipation of a Change in Control, and (c) in either case, a Change in Control
does occur which may involve such third party (or a party competing with such
third party to effectuate a Change in Control). In the event of a termination of
employment described in this Section 8.1, the Executive shall be entitled to all
payments and other benefits to which he would have been entitled had such
termination occurred during the Coverage Period (other than salary pursuant to
Subsection 3.1.1 hereof for any period after the actual date of termination) and
he shall be entitled to an additional payment in an amount which shall
compensate him to the extent that he was deprived by such termination of the
opportunity prior to termination of employment to exercise any stock options
granted to him under the KEIP (including any such stock options that were not
exercisable at the time of his termination of employment) at the highest market
price of the Company's Common Stock reached in connection with the Change in
Control or Potential Change in Control if a Potential Change in Control shall
occur and not be followed by a Change in Control within twelve (12) months of
the Potential Change in Control. In the event that the termination of employment
of an Executive as described in this Section 8.1 occurs following a Potential
Change in Control or within six (6) months prior to a Change in Control, there
shall be a presumption that clauses (a) and (b) of the first two sentences of
this Section 8.1 shall have been met.
8.2 BURDEN. In any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other
compensation or benefits under this Plan is at issue,
23
(i) the burden of proof as to whether Cause exists for purposes of this Plan
shall be upon the Company and (ii) in the event that the last sentence of
Section 8.1 applies, the Company shall have the burden to prove, by clear and
convincing evidence, that a termination of employment has not been made in
anticipation of a Change in Control as contemplated by Section 8.1.
8.3 NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in the Plan
shall be deemed to give any Executive the right to be retained in the employ of
the Company, or to interfere with the right of the Company to discharge him at
any time and for any lawful reason, with or without notice, subject in all cases
to the terms of this Plan.
8.4 NO ASSIGNMENT OF BENEFITS. Except as otherwise provided
herein or by law, no right or interest of any Executive under the Plan shall be
assignable or transferable, in whole or in part, either directly or by operation
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of any Executive
under the Plan shall be liable for, or subject to, any obligation or liability
of such Executive.
8.5 DEATH. This Plan shall inure to the benefit of and be
enforceable by an Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If an
Executive shall die while any amount would still be payable to him hereunder
(other than amounts which, by their terms, terminate upon his death) if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Plan to the executors, personal
representatives or administrators of his estate.
8.6 INCOMPETENCY. Any benefit payable to or for the benefit
of an Executive, if legally incompetent or incapable of giving a receipt
therefor, shall be deemed paid when paid to his guardian or to the party
providing or reasonably appearing to provide for his care, and such payment
shall fully discharge the Company, the Plan Administrator and all other parties
with respect thereto.
8.7 REDUCTION OF BENEFITS BY LEGALLY REQUIRED BENEFITS.
Notwithstanding any other provision of this Plan to the contrary, if the Company
is obligated by law or by contract (other than under this Plan) to pay severance
pay, a termination indemnity, notice pay, or the like, to an Executive or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period") to an Executive, then any Severance Benefits
payable to him hereunder shall be reduced by the amount of any such severance
pay, termination indemnity, notice pay or the like, as applicable, and by the
amount of any pay received during any Notice Period; provided however, that the
period following a Notice of Intent to Terminate shall not be considered a
Notice Period.
8.8 ENFORCEABILITY. If any provision of the Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as if
such provisions had not been included.
24
8.9 EFFECTIVE DATE. The Plan shall be effective as of the
Effective Date and shall remain in effect unless and until terminated by the
Board, subject to the requirements of Article 7 hereof.
8.10 NO MITIGATION. The Company agrees that, if an Executive's
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to him by the Company pursuant to this Plan. Further,
the amount of any payment or benefit provided for under this Plan (other than to
the extent provided in Subsections 3.2.2 and 3.2.4) shall not be reduced by any
compensation earned by him as a result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by him to
the Company, or otherwise.
8.11 SUCCESSORS. In addition to any obligations imposed by law upon
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform the
Company's obligations under this Plan in the same manner and to the same extent
that the Company would be required to perform them if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall entitle each Executive
to compensation and benefits from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he were to terminate his
employment for Good Reason during the Coverage Period.
8.12 CONSENT TO CANCELLATION OF AWARDS AND REDUCTION OF SERP BENEFIT.
The Company may condition the payment to an Executive of his Vested Current
Bonus Amount, Vested Current PSU Amount, Vested Deferred Bonus Amount and/or
Vested Deferred PSU Amount upon his providing a written consent to the
cancellation of the applicable contingent target AIP and PSU grants and AIP and
PSU Awards for which payment has been deferred on which his Vested Current Bonus
Amount, Vested Current PSU Amount, Vested Deferred Bonus Amount and/or Vested
Deferred PSU Amount is based and in lieu of which such amounts are paid. The
Company may condition the payment to an Executive of his Vested Pension Amount
or the providing of any benefit or payment under Section 2.5 or Subsection 3.4.4
hereof upon his providing a written consent to, as applicable, (i) the reduction
of the benefit to be paid under the SERP (whether in the form of a monthly
payment to him and his surviving spouse or as a lump sum) such reduction to be
in the amount of the SERP Benefit which was used in the calculation of his
Vested Pension Benefit or the amount of any payments or benefits provided under
Subsection 3.4.4, or (ii) the reduction of his Excess Account under the CLRP,
such reduction to be in the amount of the CLRP Benefit which was used in the
calculation of his Vested Pension Benefit.
8.13 EMPLOYMENT BY SUBSIDIARY. For purposes of this Plan, an
Executive who is employed by a Subsidiary shall be treated as if employed by the
Company and his entitlement to benefits hereunder shall be determined as if he
were employed by the Company. For such purpose, the Subsidiary shall be treated
as if it were an unincorporated division of the Company.
25
8.14 WAIVER. No waiver by an Executive at any time of any breach of
the terms of this Plan, or compliance with, any condition or provision of this
Plan to be performed by the Company shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8.15 WITHHOLDING TAXES. Any payments to an Executive provided
for hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which he has
agreed.
8.16 CONSTRUCTION. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan. Neither the gender
nor the number (singular or plural) of any word shall be construed to exclude
another gender or number when a different gender or number would be appropriate.
8.17 NOTICES. Any notice or other communication required or
permitted pursuant to the terms hereof shall be deemed to have been duly given
when delivered or mailed by United States Mail, first class, postage prepaid,
addressed to the intended recipient at his last known address (which in the case
of an Executive shall be the address specified by him in any written notice
provided to the Company in accordance with this Section 8.17).
8.18 STATUTORY CHANGES. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8.19 GOVERNING LAW. This Plan shall be construed and enforced
according to the laws of the State of Delaware to the extent not preempted by
Federal law, which shall otherwise control.
IN WITNESS WHEREOF, the Company has caused the Plan to be adopted as of
the 8th day of June, 1999.
HERSHEY FOODS CORPORATION
By: _________________________________
Robert M. Reese
Senior Vice President,
General Counsel
and Secretary
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EXHIBIT 10.4
CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE
This Confidential Separation Agreement and General Release
(the "AGREEMENT") is made as of this 11th day of December, 2000 (the "Effective
Date"), by and between Hershey Foods Corporation, a Delaware corporation (the
"COMPANY"), and Michael F. Pasquale ("EMPLOYEE"), and together with the Company,
(the "PARTIES").
WHEREAS, Employee will be retained as an employee of the
Company on paid leave of absence until the Separation Date, as hereinafter
defined, whereupon Employee's employment with the Company shall terminate (the
"SEPARATION");
WHEREAS, the Company and Employee desire voluntarily to enter
into this Agreement in order to set forth the definitive rights and obligations
of the Parties in connection with the Separation; and
WHEREAS, the Parties enter into this Agreement for their
mutual cooperation and benefit:
NOW, THEREFORE, in consideration of the mutual covenants,
commitments and agreements set forth herein, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
1. ACKNOWLEDGMENT OF SEPARATION. The Parties acknowledge and agree that the
Separation shall be effective (the "Separation Date") as of the earliest of (i)
the date Employee commences full-time employment with another employer; (ii) in
the event Employee breaches any of his covenants, agreements or obligations
hereunder, the date the Company provides notice of such breach to Employee;
(iii) Employee's date of death; and (iv) June 1, 2002. If Employee commences
full-time employment with another employer prior to June 1, 2002, a
determination of whether an exception or waiver of eligibility requirements
under the SERP (as hereinafter defined) to allow Employee to receive benefits
under the SERP may be made by and in the sole discretion of the Chief Executive
Officer and Board of Directors of the Company, taking into account Section 4.9.
2. RESIGNATION FROM COMPANY BOARD OF DIRECTORS AND COMPANY OFFICES. Effective
immediately, Employee hereby voluntarily resigns from all of his positions and
offices with the Company and its subsidiaries, including, without limitation,
(i) member of the Board of Directors of the Company and of each committee
thereof of which he is a member, (ii) the Board of Directors of any subsidiary
of the Company, (iii) Executive Vice President and Chief Operating Officer, and
(iv) each office he may occupy of any subsidiary of the Company.
3. EMPLOYEE'S ACKNOWLEDGMENT OF CONSIDERATION. Employee specifically
acknowledges and agrees that certain of the obligations created and payments
made to him by the Company under this Agreement are promises and payments to
which he is not otherwise entitled under any law or contract.
4. PAID LEAVE OF ABSENCE. Employee shall be placed on a paid leave of
absence commencing on the Effective Date and continuing until the Separation
Date. This period shall be known as the "Leave of Absence Period". The following
conditions shall apply during the Leave of Absence Period:
4.1. Except as provided for below and in Section 4.2, Employee
shall continue to be eligible to receive the following, and
only the following, employment benefits and participate in or
receive benefits under the following,and only the following,
programs and benefit plans (in accordance with the terms and
conditions of the programs and benefit plans of the Company,
including, without limitation, such terms and conditions
permitting the Company to amend or terminate such programs
and benefit plans) applicable to Employee immediately
prior to the Effective Date:
4.1.1. his salary, which shall be payable in regular installments in
accordance with the Company's general payroll practices and
shall be subject to customary withholding;
4.1.2. the Company's medical (including dental and vision) benefits
programs, including the retiree medical program if Employee's
Separation Date occurs concurrently with or after he is
eligible to retire;
4.1.3. the Company's life insurance program at one-times his base
salary;
4.1.4. the Hershey Foods Corporation Deferred Compensation Plan
("DCP");
4.1.5. the Hershey Foods Corporation Retirement Plan ("HRA");
4.1.6. the Hershey Foods Corporation Employees Savings Stock
Investment and Ownership Plan ("ESSIOP"); and
4.1.7. the Hershey Foods Corporation Supplemental Executive Retirement
Plan ("SERP").
From and after Employee's Separation Date, he shall not be entitled to
any payments or benefits of any kind from the Company under this Section
4.1, and any vested rights under the DCP, the HRA, the ESSIOP, the SERP,
and the retiree medical program shall be determined by the terms and
conditions of these plans respectively.
4.2. Notwithstanding the foregoing, the parties agree:
4.2.1. Employee shall not be eligible to accrue, earn or participate
in salary adjustments after the Effective Date;
4.2.2. Employee shall not be eligible to receive any employment
benefits or participate in or receive any payments or benefits
under any programs or benefit plans not listed in
Section 4.1 (in particular, Employee shall not, effective
immediately, be eligible for any benefits under any Company
employee benefit protection program, including its Executive
Benefits Protection Plans, whether Group 2, 3 or 3A,and its
Severance Benefits Plan);
4.2.3. Upon the Effective Date, all Employee's coverage under the
Company's short-term and long-term disability plans shall
cease;
4.2.4. Employee will be paid in January 2001 for any unused vacation
days to which he is entitled in 2000 but shall not be entitled
to payment for vacation days accrued for 2001 or any
subsequent year; and
4.2.5. Employee shall not be permitted to contribute to a medical
reimbursement account under the Company's flex benefits plan
for any period after December 31,2000.
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4.3. Employee shall not participate in any part of the Long -Term
Incentive Program ("LTIP") of the Company's Key Employee
Incentive Plan ("KEIP") during 2001 or any subsequent year and
any outstanding contingent target grants of Performance Stock
Units granted to Employee prior to December 31, 2000 are
hereby cancelled, except for those granted for the 1998-2000
cycle for pay-out, if any, in February 2001 in accordance with
the terms of LTIP.
4.4. Except as provided in the immediately following sentence,
presentation of a draft of this Agreement to Employee on
December 11, 2000 for his consideration constitutes notice
of termination of employment for purposes of Section 8(a)
of the KEIP. If Employee executes this Agreement on
December 11, 2000, presentation on December 11, 2000 of a
draft of this Agreement to Employee for his consideration
shall not constitute a notice of termination of employment for
purposes of Section 8(a) of the KEIP. Whether Employee
has received a notice of termination of employment for
purposes of Section 8(a) the KEIP can be determined only upon
the occurrence or non-occurrence of certain events
following the presentation of this Agreement to Employee for
his consideration. Employee, therefore, shall not be
permitted to exercise any currently outstanding Options
granted to him previously under the KEIP unless and until
this Agreement becomes effective and enforceable.
If this Agreement becomes effective and enforceable, then
from and after the Effective Date and through and including
his Separation Date, Employee shall be considered to
be an active employee for purposes of any Options granted to
him previously under KEIP during any years prior to 2001
and may exercise in accordance with the provisions of
KEIP any such Options at any time prior to his Separation
Date and thereafter in accordance with the KEIP and
the terms and conditions of the grants of such Options if his
Separation Date occurs concurrently with or after
he is eligible to retire.
4.5. Employee shall be eligible to receive an award, if any, of his
contingent target grant for 2000 under the Annual Incentive
Program ("AIP") of KEIP subject to the terms and conditions of
the KEIP and the contingent target grant. For these purposes
his score for personal objectives will be set at 100%.
Employee shall not be entitled to participate in or receive
any benefits under the Annual Incentive Program of KEIP for
2001 or any subsequent year.
4.6. During the Leave of Absence Period, Employee shall have no
assigned duties and shall perform no services for the Company.
4.7. Except as provided for in Section 6 below, Employee shall be
free to seek and accept other employment after the Effective
Date.
4.8. In the event Employee commences other employment during the
Leaveof Absence Period, and elects to receive health insurance
benefits from another employer, then Employee shall
immediately notify the Company at 100 Crystal A Drive,
Hershey, PA, Attn: Director, Employee Benefits, of his
election in writing and the health insurance provided by
the Company hereunder shall terminate as of the effective
date of such health insurance received from the other
employer. Nothing herein shall obligate Employee to
accept any health insurance benefit associated with any other
employment. Employee shall not, however, accept coverage from
BOTH the Company and a new employer.
4.9. If Employee commences full-time employment with another
employer prior to June 1, 2002, he shall be entitled to a
one-time lump-sum severance payment of
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One Million Dollars ($1,000,000), but shall receive no
futher payments or benefits under this Agreement,
in accordance with Section 4.1.
4.10. Employee shall not be subject to the minimum stockholding
requirements for Company executives or KEIP participants.
4.11. The Company will provide for the continuation of comparable
financial advisory services by AYCO for a period of six months
after the Effective Date.
5. SEPARATION AND COBRA RIGHTS. Effective as of the Separation Date, as required
by the continuation coverage provisions of Section 4980B of the U. S. Internal
Revenue Code of 1986, as amended ("THE CODE"), Employee shall be offered the
opportunity to elect continuation coverage under the group medical plan of the
Company ("COBRA COVERAGE"). The Company shall provide Employee with the
appropriate COBRA coverage notice and election form for this purpose. Employee
shall notify the Company within two weeks of any change in his circumstances
that would warrant discontinuation of his COBRA coverage and benefits (including
but not limited to Employee's receipt of group medical and dental benefits from
any other employer). The existence and duration of Employee's rights and/or the
COBRA rights of any of Employee's eligible dependents shall be determined in
accordance with Section 4980B of the Code.
6. CONFIDENTIAL, PROPRIETARY AND PRIVILEGED INFORMATION; NON-COMPETITION. The
parties agree the terms and conditions of that certain Long-Term Incentive
Program Participation Agreement and Mutual Agreement to Arbitrate Claims by and
between the Company and Employee executed by Employee January 27, 1997
("Participation and Arbitration Agreement"), a copy of which is attached hereto,
are incorporated herein by reference and made a part hereof as if fully set
forth herein. Notwithstanding any provisions to the contrary in the
Participation and Arbitration Agreement, the terms and conditions thereof shall
remain in effect for three years after Employee's Separation Date regardless of
whether Employee is eligible or not to receive benefits under the SERP.
7. GENERAL RELEASE AND WAIVER BY EMPLOYEE.
7.1. Employee, for and on behalf of himself and each of his
heirs, executors, administrators, personal representatives,
successors and assigns, hereby acknowledges full and
complete satisfaction of and fully and forever releases,
acquits and discharges the Company, together with its
subsidiaries and affiliates, and each of its and their past
and present direct and indirect stockholders, directors,
members, partners, officers, employees, agents, inside and
outside counsel and representatives and its and their
respective heirs, executors, administrators, personal
representatives, successors and assigns (collectively,
the "Releasees"), from any and all claims, demands, suits,
causes of action, liabilities, obligations, judgments,
orders, debts, liens, contracts, agreements, covenants and
causes of action of every kind and nature, whether known or
unknown, suspected or unsuspected, concealed or hidden,
vested or contingent, in law or equity, existing by statute,
common law, contract or otherwise, which have existed, may
exist or do exist, through and including the execution and
delivery by Employee of this Agreement (but not including the
Parties' performance under this Agreement), including,
without limitation, any of the foregoing arising out of or
in any way related to or based upon:
7.1.1. Employee's application for and employment with the
Company, his being an employee of the Company, or
the Separation;
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7.1.2. any and all claims in tort or contract, and any and
all claims alleging breach of an
express or implied, or oral or written, contract,
policy manual or employee handbook;
7.1.3. any alleged misrepresentation, coercion, duress,
defamation, interference with contract,
intentional or negligent infliction of emotional
distress, sexual harassment,negligence
or wrongful discharge; or
7.1.4 any federal, state or local statute, ordinance or
regulation, including but not limited to the Fair
Labor Standards Act, the Equal Pay Act, Title VII of
the Civil Rights Act of 1964, the Americans With
Disabilities Act, the Family and Medical Leave Act,
and the Pennsylvania Human Relations Act.
7.2. Employee acknowledges and agrees that other than to seek the
Company's performance under this Agreement he is waiving all
rights to sue or obtain equitable, remedial or punitive
relief from any or all Releasees of any kind whatsoever,
including, without limitation, reinstatement, back pay,
front pay, attorneys' fees and any form of injunctive relief.
Employee acknowledges and agrees that this waiver
and release is an essential and material term of this
Agreement. Employee further acknowledges and agrees that he
will not assert any breach of any agreement,plan, or right
referred to herein based on any action or inaction of the
Releasees prior to the date hereof.
7.3. Employee understands and intends that this SECTION 7
constitutes a general release, and that no reference therein
to a specific form of claim, statute or type of relief is
intended to limit the scope of such general release and
waiver; provided, however, notwithstanding any other provision
of this Section 7, the provisions of this Section 7 shall not
apply to any rights Employee may have under the Age
Discrimination in Employment Act of 1967, as amended.
7.4. Employee expressly waives all rights afforded by any statute
which limits the effect of a release with respect to unknown
claims. Employee understands the significance of his release
of unknown claims and his waiver of statutory protection
against a release of unknown claims.
7.5. Employee agrees that he will not be entitled to or accept any
benefit from any claim or proceeding within the scope of this
SECTION 7 general release that is filed or instigated by him
or on his behalf with any agency, court or other government
entity.
8. EMPLOYEE'S REPRESENTATIONS AND COVENANTS REGARDING ACTIONS. Employee
represents, warrants and covenants to each of the Releasees that at no time
prior to or contemporaneous with his execution of this Agreement has he filed or
caused or knowingly permitted the filing or maintenance, in any state, federal
or foreign court, or before any local, state, federal or foreign administrative
agency or other tribunal, any charge, claim or action of any kind, nature and
character whatsoever ("CLAIM"), known or unknown, suspected or unsuspected,
which he may now have or has ever had against the Releasees which is based in
whole or in part on any matter referred to in SECTION 7.1. above, and, to the
maximum extent permitted by law Employee is prohibited from filing or
maintaining, or causing or knowingly permitting the filing or maintaining, of
any such Claim in any such forum. Employee hereby grants the Company his
perpetual and irrevocable limited power of attorney with full right, power and
authority to take all actions necessary to dismiss or discharge any such Claim.
Employee further covenants and agrees that he will not encourage any person or
entity, including but not limited to any current or former employee, officer,
director or stockholder of the Company, to institute any Claim against
5
the Releasees or any of them, and that except as expressly permitted by law or
administrative policy or as required by legally enforceable order he will not
aid or assist any such person or entity in prosecuting such Claim.
9. NO DISPARAGING REMARKS. Employee hereby covenants to each of the Releasees
and agrees that he shall not, directly or indirectly, within or without the
Company, make or solicit or encourage others to make or solicit any disparaging
or negative remarks concerning the Releasees (as defined in SECTION 7 of this
Agreement), or any of their products, services, businesses or activities.
Employee understands that, in addition to the consequences such breach may have
under other provisions of this Agreement, his breach of this SECTION 9 and the
Company's delivery to him of notice of such breach shall result in his
Separation; shall eliminate his entitlement to any subsequent payment or
benefits under this Agreement including, without limitation, to further exercise
any Options under the KEIP and any further participation in or eligibility for
benefits under the SERP; and shall subject him to liability for any damages
arising from such remarks.
10. NO CONFLICT OF INTEREST. Employee hereby covenants and agrees that he shall
not, directly or indirectly, incur any obligation or commitment, or enter into
any contract, agreement or understanding, whether express or implied, and
whether written or oral, which would be in conflict with his obligations,
covenants or agreements hereunder or which could cause any of his
representations or warranties made herein to be untrue or inaccurate.
11. CONFIDENTIALITY. The Company and Employee agree that the terms and
conditions of this Agreement are to be strictly confidential, except that
Employee may disclose the terms and conditions to his family, attorneys,
accountants, tax consultants, state and federal tax authorities or as may
otherwise be required by law. The Company may disclose the terms and conditions
of this Agreement and the circumstances of Employee's separation as the Company
deems necessary or appropriate to its or its affiliates' or representatives'
officers, employees, board of directors, insurers, attorneys, accountants, state
and federal tax authorities, or as otherwise allowed by law. Employee represents
that except as expressly authorized by this SECTION 11 he has not discussed, and
agrees that except as expressly authorized by this SECTION 11 or by the Company
he will not discuss, this Agreement or the circumstances of his Separation, and
that he will take affirmative steps to avoid or absent himself from any such
discussion even if he is not an active participant therein. EMPLOYEE
ACKNOWLEDGES THE SIGNIFICANCE AND MATERIALITY OF THIS PROVISION TO THIS
AGREEMENT, AND HIS UNDERSTANDING THEREOF.
12. RETURN OF CORPORATE PROPERTY; CONVEYANCE OF INFORMATION. Employee hereby
covenants and agrees to immediately return all documents, keys, ID cards, credit
cards (without further use thereof), laptop computer, and all other items which
are the property of the Company and/or which contain confidential information;
and, in the case of documents, to return any and all materials of any kind and
in whatever medium evidenced, including, without limitation, all hard disk drive
data, diskettes, microfiche, photographs, negatives, blueprints, printed
materials, tape recordings and videotapes.
13. REMEDIES. In the event that Employee has breached any of his covenants,
agreements or obligations under this Agreement, the Company shall notify
Employee in writing at his home address as shown in the Company's records of the
reason for such determination. The notice shall be sent via hand delivery or
overnight courier. Employee hereby acknowledges and affirms that in the event of
any breach by Employee of any of his covenants, agreements and obligations
hereunder, Employee's Separation shall be effective as of the day the Company
provides notice thereof. Employee further hereby acknowledges and affirms that
in the event of such breach monetary damages would be inadequate to compensate
the Releasees or any of them. Accordingly, in addition to other remedies which
may be available to the Releasees hereunder or otherwise at law or in equity,
any Releasee shall be entitled to specifically enforce such
6
covenants, obligations and restrictions through injunctive and/or equitable
relief, in each case without the posting of any bond or other security with
respect thereto. Should any provision hereof be adjudged to any extent invalid
by any court or tribunal of competent jurisdiction, each provision shall be
deemed modified to the minimum extent necessary to render it enforceable.
14. ACKNOWLEDGMENT OF VOLUNTARY AGREEMENT. Employee hereby acknowledges and
affirms that he is entering into this Agreement knowingly and voluntarily,
without coercion or duress of any sort, in order to receive the payments and
other consideration from the Company as set forth herein. Employee acknowledges
and affirms that he has been given adequate opportunity to review and consider
this Agreement.
15. COMPLETE AGREEMENT; INCONSISTENCIES. This Agreement and the Participation
and Arbitration Agreement constitute the complete and entire agreement between
Employee and the Company with respect to the subject matter hereof, and
supersede in their entirety any and all prior understandings, commitments,
obligations and/or agreements, whether written or oral, with respect thereto; it
being understood and agreed that this Agreement and those agreements, including
the mutual covenants, agreements, acknowledgments and affirmations contained
herein and therein, are intended to constitute a complete settlement and
resolution of all matters set forth in SECTION 7 hereof.
16. NO STRICT CONSTRUCTION. The language used in this Agreement shall be
deemed to be the language mutually chosen by the Parties to reflect their
mutual intent, and no doctrine of strict construction shall be applied
against any Party.
17. THIRD PARTY BENEFICIARIES. The Releasees are intended third-party
beneficiaries of this Agreement, and this Agreement may be enforced by each of
them in accordance with the terms hereof in respect of the rights granted to
such Releasees hereunder. Except and to the extent set forth in the preceding
sentence, this Agreement is not intended for the benefit of any person other
than the Parties, and no such other person shall be deemed to be a third party
beneficiary hereof. Without limiting the generality of the foregoing, it is not
the intention of the Company to establish any policy, procedure, course of
dealing or plan of general application for the benefit of or otherwise in
respect of any other employee, officer, director or stockholder, irrespective of
any similarity between any contract, agreement, commitment or understanding
between the Company and such other employee, officer, director or stockholder,
on the one hand, and any contract, agreement, commitment or understanding
between the Company and Employee, on the other hand, and irrespective of any
similarity in facts or circumstances involving such other employee, officer,
director or stockholder, on the one hand, and the Employee, on the other hand.
18. TAX WITHHOLDINGS. Notwithstanding any other provision herein, the
Company shall be entitled to withhold from any amounts otherwise payable
hereunder to Employee any amounts required to be withheld in respect of
federal, state or local taxes.
19. GOVERNING LAW. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by,
and construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without giving effect to any choice of law or conflict of law rules or
provisions (whether of the Commonwealth of Pennsylvania or any other
jurisdiction) that would cause the application hereto of the laws of any
jurisdiction other than the Commonwealth of Pennsylvania. In furtherance of the
foregoing, the internal law of the Commonwealth of Pennsylvania shall control
the interpretation and construction of this Agreement, even though under any
other jurisdiction's choice of law or conflict of law analysis the substantive
law of some other jurisdiction may ordinarily apply.
20. SEVERABILITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall otherwise remain in full
force and effect.
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21. COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
22. SUCCESSORS AND ASSIGNS. The Parties' obligations hereunder shall be
binding upon their successors and assigns. The Parties' rights and the
rights of the other Releasees shall inure to the benefit of, and be
enforceable by, any of the Parties' and Releasees' respective successors and
assigns.
23. AMENDMENTS AND WAIVERS. No amendment or waiver shall be binding upon any
party hereto unless consented to in writing by such party.
24. HEADINGS. The headings of the Sections and subsections hereof are for
purposes of convenience only, and shall not be deemed to amend,modify,
expand, limit or in any way affect the meaning of any of the provisions
hereof.
25. WAIVER OF JURY TRIAL. Each of the Parties hereby waives its rights to a jury
trial of any claim or cause of action based upon or arising out of this
Agreement or any dealings between the Parties relating to the subject matter
hereof. Each of the Parties also waives any bond or surety or security upon such
bond which might, but for this waiver, be required of the other party. The scope
of this waiver is intended to be all-encompassing of any and all disputes that
may be filed in any court and that relate to the subject matter of this
Agreement, including, without limitation, contract claims, tort claims, breach
of duty claims, and all other common law and statutory claims. EACH OF THE
PARTIES ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO
THIS AGREEMENT, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO
THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED
FUTURE DEALINGS. Each of the Parties further represents and warrants that he or
it knowingly and voluntarily waives his or its jury trial rights. This waiver
may not be modified orally, but only in writing, and the waiver shall apply to
any subsequent amendments, renewals, supplements or modifications to this
agreement. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
* * * * *
IN WITNESS WHEREOF, the Parties have executed this
Confidential Separation Agreement and General Release effective as of the date
of the first signature affixed below or as otherwise provided in this Agreement.
READ CAREFULLY BEFORE SIGNING
I have read this Confidential Separation Agreement and General Release. I
understand that by executing this Confidential Separation Agreement and General
Release I will relinquish any right or demand, other than those created by or
otherwise set forth in this Agreement, I may have against the Releasees or any
of them.
DATED: DECEMBER 11, 2000 By: /S/ MICHAEL F. PASQUALE
------------------ -----------------------
Michael F. Pasquale
HERSHEY FOODS CORPORATION
DATED: DECEMBER 11, 2000 By: /S/ KENNETH L. WOLFE
----------------- --------------------
Kenneth L. Wolfe
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HERSHEY FOODS CORPORATION
LONG-TERM INCENTIVE PROGRAM PARTICIPATION AGREEMENT
The undersigned is an executive employee of Hershey Foods
Corporation or one of its subsidiaries (hereinafter collectively referred to
as "Hershey"). I understand that I have been selected to participate in the
Key Employee Incentive Plan (the "Plan"), including the Long-Term Incentive
Program ("LTIP") under the Plan. I understand, acknowledge and agree that
the purpose of this Agreement is to provide for enhanced confidentiality
requirements, an agreement not to compete with Hershey once I become
eligible for supplemental retirement benefits, and an arbitration program to
be the sole and exclusive method for resolving disputes. I understand and
acknowledge that by this Agreement, both I and Hershey, in order to avoid
delay and expense, are mutually waiving the right of access to a judicial
forum for resolving disputes covered by the arbitration program. I hereby
accept the opportunity to participate in the Plan, including the LTIP, and
in consideration of my selection by Hershey to be a participant in the Plan
and being eligible to receive benefits under the Plan, I agree to the
following:
1. PARTICIPATION.
I understand and agree that participating in the LTIP at any
time is no guarantee I will be selected to participate in the LTIP or any
other aspect of the Plan in any future years. I understand and agree that
participation in the Plan and the LTIP is voluntary; specifically, I
understand that I am under no obligation to participate in the LTIP or any
other aspect of the Plan, and that I may retain my job if I decline to so
participate. I understand and agree that if I elect to participate in the
Plan and the LTIP, then, depending on my job performance, the financial
performance of Hershey and the achievement of certain goals and objectives,
I will be eligible to receive Annual Incentive Program Awards, Performance
Stock Unit Awards and Stock Options, in accordance with the terms of the
Plan, as it may be amended from time to time.
2. CONFIDENTIALITY.
I acknowledge that due to the nature of my employment and the
position of trust that I hold with Hershey, I will have special access to,
learn, be provided with, and in some cases will prepare and create for
Hershey, trade secrets and other confidential and proprietary information
relating to Hershey's business, including, but not limited to, information
about Hershey's manufacturing processes; manuals, recipes and ingredient
percentages; engineering drawings; product and process research and
development; new product information; cost information; supplier data;
strategic business information;
1
marketing, financial and business development information, plans,
forecasts, reports and budgets; customer information; new product
strategies, plans and project activities; and acquisition and divestiture
strategies, plans and project activities. I acknowledge and agree that such
information, whether or not in written form,is the exclusive property of
Hershey, that it has been and will continue to be of critical importance
to the business of Hershey, and that the disclosure of it to, or use by,
competitors or others will cause Hershey substantial and irreparable harm.
Accordingly, I will not, either during my employment or at any time after
the termination (whether voluntary or involuntary) of my employment with
Hershey, use, reproduce or disclose any trade secrets or other confidential
information relating to the business of Hershey which is not generally
available to the public, except as may be specially authorized and
necessary in discharging my assigned duties as an employee of Hershey. I
understand and agree that my obligations under this Agreement shall be in
addition to, rather than in lieu of, any obligations I may already have
under any Confidentiality Agreement or other agreement with Hershey
relating to confidential information or under any applicable statute or at
common law.
3. UNFAIR COMPETITION.
I understand and acknowledge that Hershey is engaged in the
business of developing, producing, marketing, selling and distributing
confectionery products, chocolate-related grocery products and pasta
products. I acknowledge that the scope of Hershey's business and operations
is world-wide. I acknowledge that due to the nature of my employment with
Hershey, I have special access to, contact with, and information about,
Hershey's business activities as described above and to its customers,
suppliers, agents, licensees and licensors. I acknowledge that Hershey has
incurred considerable expense and invested considerable time and resources
in developing relationships with customers, suppliers, agents, licensees and
licensors, and that those relationships are critical to the success of
Hershey's business.
Accordingly, both (a) during the term of my employment with
Hershey, and (b) for a period of three (3) years following the termination
of my employment for any reason, provided at the time of such termination I
am eligible to receive benefits under Hershey's Supplemental Executive
Retirement Plan, I shall not, without the prior written consent of Hershey,
directly or indirectly serve or act as an officer, director, employee,
consultant, adviser, agent or representative for the domestic or worldwide
confectionery, chocolate-related grocery or pasta businesses of any entity
or individual that is in competition with Hershey's confectionery,
chocolate-related grocery or pasta businesses.
2
4. SURVIVAL OF OBLIGATIONS.
Both I and Hershey understand and agree that our respective
rights and obligations under, and the terms and conditions of, this Agreement
(and the Mutual Agreement to Arbitrate Claims appended hereto) shall apply and
continue during, and survive the termination (for any reason) of, my employment
with Hershey.
5. ARBITRATION AND MEDIATION.
Both I and Hershey promise to arbitrate any claim covered by
the Mutual Agreement to Arbitrate Claims which is attached hereto and
incorporated in full herein by reference.
Both I and Hershey further agree, before seeking arbitration
of any claim, to engage in good faith efforts to resolve the dispute through
nonbinding mediation. Mediation shall be conducted by, and in accordance with
procedures for the mediation of employment disputes of, one of the American
Arbitration Association, the Judicial Arbitration + Mediation Services, Inc.
(JAMS/Endispute) or the Center for Public Resources (CPR) as Hershey and I may
agree (and if such agreement is not possible, then the mediation procedures of
CPR shall apply), together with any other procedures as may be agreed upon by me
and Hershey.
6. SAVINGS CLAUSE AND SEVERABILITY.
a. All provisions of this Agreement (and of the Mutual
Agreement to Arbitrate Claims appended hereto) are severable, and if
any of them is determined to be invalid or unenforceable for any
reason, the remaining provisions and portions shall be unaffected
thereby and shall remain in full force to the fullest extent permitted
by law.
b. Without limiting the foregoing, I specifically agree that
each of the covenants set forth in Paragraph 3 of this Agreement is
severable; that if any of them is held invalid or unenforceable by
reason of length of time, area covered or activity covered, or any
combination thereof, or for any other reason, the court or arbitrator
shall adjust, reduce or otherwise reform any such covenant to the
extent necessary to cure any invalidity and to protect the interests of
Hershey to the fullest extent of the law; that the area, time period
and scope of activity restricted shall be the maximum area, time period
and scope of activity the court or arbitrator deems valid and
enforceable; and that, as reformed, such covenant shall then be
enforced.
c. Without limiting the foregoing, I also specifically agree
that if any part of the Mutual Agreement to Arbitrate Claims is
determined to be invalid or
3
unenforceable for any reason, then the invalid or unenforceable
portion shall be severed and the agreement to submit any claim to
binding arbitration shall be interpreted and enforced as if the
invalid or unenforceable portion did not appear.
7. MISCELLANEOUS.
a. Any notice to Hershey shall be in writing and shall be sent
by certified mail to Hershey Foods Corporation, 100 Crystal A Drive,
Hershey, PA 17033-0810, Attention: Vice President, Human Resources. Any
notice to me shall be in writing and shall be sent to me by certified
mail at the latest address listed for me in Hershey's employment
records, unless I specifically notify Hershey in writing that notice
shall be delivered to me at a different address. Notice shall be deemed
delivered when personally delivered or a properly addressed notice is
deposited with the U.S. Postal Service for delivery by certified mail.
b. I understand and agree that neither this Agreement nor the
Mutual Agreement to Arbitrate Claims shall be construed in any way as
an agreement or guarantee of employment for any period of time and that
I remain an employee-at-will for all purposes.
c. The rights and obligations under this Agreement and the
Mutual Agreement to Arbitrate Claims shall inure to the benefit of,
shall be binding upon, and may be enforced by and for the benefit of,
Hershey Foods Corporation, any subsidiary or affiliate of Hershey Foods
Corporation, and their successors and assigns.
d. Any waiver by either Hershey or me of any breach, or the
failure to enforce any of the terms or conditions, of this Agreement or
the Mutual Agreement to Arbitrate Claims, shall not in any way affect,
limit, or waive any rights thereafter to enforce, and compel strict
compliance with, every term and condition of this Agreement and the
Mutual Agreement to Arbitrate Claims.
e. This Agreement and the Mutual Agreement to Arbitrate Claims
constitute the entire agreement between Hershey and me with respect to
the matters addressed herein and therein, there being no
representations, warranties, commitments, or other agreements, except
as set forth herein and therein. This Agreement and the Mutual
Agreement to Arbitrate Claims may be amended only by an instrument in
writing executed by me and an authorized officer of Hershey.
f. The substantive law governing this Agreement shall be the
law of the Commonwealth of Pennsylvania. The law of arbitrability shall
be that set forth in the Federal Arbitration Act. If for any reason the
Federal Arbitration Act is inapplicable, then the law of arbitrability
shall be that of the Commonwealth of Pennsylvania.
4
LONG-TERM INCENTIVE PROGRAM PARTICIPATION AGREEMENT
Mutual Agreement To Arbitrate Claims
I recognize that differences may arise between Hershey Foods
Corporation (the "Company") and me during or following my employment with the
Company, and that those differences may or may not be related to my employment.
I understand and agree that by entering into this Mutual Agreement to Arbitrate
Claims ("Arbitration Agreement"), I anticipate gaining the benefits of a speedy,
impartial dispute-resolution procedure.
I understand that any reference in this Arbitration Agreement
to the Company will be a reference also to all subsidiary and affiliated
entities, all benefit plans, the benefit plans' sponsors, fiduciaries,
administrators, affiliates and agents, and all successors and assigns of any of
them.
A. CLAIMS COVERED BY THE ARBITRATION AGREEMENT.
The Company and I mutually consent to the resolution by
arbitration of all claims or controversies ("claims"), past, present, or future,
whether or not arising out of my employment (or its termination), that the
Company may have against me or that I may have against the Company or against
its officers, directors, employees or agents in their capacity as such. The only
claims that are arbitrable are those that, in the absence of this Arbitration
Agreement, would have been justiciable under applicable state or federal law.
The claims covered by this Arbitration Agreement include, but are not limited
to, claims arising out of, connected with or relating to the Long-Term Incentive
Program Participation Agreement and this Arbitration Agreement; claims for wages
or other compensation due; claims for breach of any contract or covenant
(express or implied); tort claims; claims for discrimination (including, but not
limited to, race, sex, sexual orientation, religion, national origin, age,
marital status, or medical condition, handicap or disability); claims for
benefits (except claims under an employee benefit or pension plan that either
specifies that its claims procedure shall culminate in an arbitration procedure
different from this one or is underwritten by a commercial insurer which decides
claims); and claims for violation of any federal, state, or other governmental
law, statute, regulation, or ordinance, except as otherwise provided in this
Arbitration Agreement.
B. CLAIMS NOT COVERED BY THE ARBITRATION AGREEMENT.
Claims I may have for workers' compensation or unemployment
compensation benefits are not covered by this Agreement.
5
Also not covered are claims by the Company for injunctive
and/or other equitable relief, including but not limited to those for unfair
competition and/or the use and/or unauthorized disclosure of trade secrets or
confidential information, as to which I understand and agree that the Company
may seek and obtain relief from a court of competent jurisdiction. In
such an injunctive/equitable proceeding, I understand and agree that the court
is entitled to and will award to the prevailing party costs and actual
attorneys' fees incurred.
C. REQUIRED NOTICE OF ALL CLAIMS.
The Company and I agree that the aggrieved party must give
written notice of any claim to the other party. Written notice to the Company,
or its officers, directors, employees or agents, shall be sent pursuant to the
notice provision of the Agreement to which this Arbitration Agreement is
appended.
The written notice shall identify and describe the nature of
all claims asserted and the facts upon which such claims are based.
D. REPRESENTATION.
Any party may be represented by an attorney or other
representative selected by the party.
E. DISCOVERY.
Each party shall have the right to take the deposition of one
individual and any expert witness designated by another party. Each party also
shall have the right to make requests for production of documents to any party.
The subpoena right specified below shall be applicable to discovery pursuant to
this paragraph. Additional discovery may be had only where the arbitrator
selected pursuant to this Arbitration Agreement so orders, upon a showing of
substantial need.
F. DESIGNATION OF WITNESSES.
At least 30 days before the arbitration, the parties must
exchange lists of witnesses, including any expert, and copies of all exhibits
intended to be used at the arbitration.
6
G. SUBPOENAS.
Each party shall have the right to subpoena witnesses and
documents for the arbitration.
H. ARBITRATION PROCEDURES.
The arbitration will be held under the auspices of one of the
American Arbitration Association, Judicial Arbitration + Mediation Services,
Inc. or Center for Public Resources, with the designation of such sponsoring
organization to be made by the party that did not initiate the claim.
The arbitration shall be confidential and closed to the
public. Any evidence proffered in the arbitration shall be held in strict
confidence and not disclosed to any third party.
The Company and I agree that, except as provided in this
Agreement, the arbitration shall be in accordance with the then-current dispute
arbitration procedures of the sponsoring organization for the type of claim
involved. The arbitration shall take place in or near the location in which I am
or was last employed by the Company.
The Arbitrator shall be selected as follows. The sponsoring
organization shall give each party a list of 7 arbitrators. Each party may
strike all names on the list it deems unacceptable. If only one common name
remains on the lists of all parties, that individual shall be designated as the
Arbitrator. If more than one common name remains on the lists of all parties,
the parties shall strike names alternately from the list of common names until
only one remains. The party who did not initiate the claim shall strike first.
If no common name exists on the lists of all parties, the sponsoring
organization shall furnish an additional list and the process shall be repeated.
If no arbitrator has been selected after two lists have been distributed, then
the parties shall strike alternately from a third list, with the party
initiating the claim striking first, until only one name remains. That person
shall be designated as the Arbitrator.
The Arbitrator shall apply the substantive law (and the law of
remedies, if applicable) of the Commonwealth of Pennsylvania or federal law, or
both, as applicable to the claim(s) asserted. The Arbitrator is without
jurisdiction to apply any different substantive law, or law of remedies. The
Federal Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability, enforceability or
formation of this Arbitration Agreement, including but not limited to any claim
that all or any part of this Arbitration Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Arbitration Agreement.
7
The Arbitrator shall have jurisdiction to hear and rule on
pre-hearing disputes and is authorized to hold pre-hearing conferences by
telephone or in person, as the Arbitrator deems necessary. The Arbitrator shall
have the authority to entertain a motion to dismiss and/or a motion for summary
judgment by any party and shall apply the standards governing such motions under
the Federal Rules of Civil Procedure.
Either party, at its expense, may arrange for and pay the cost
of a court reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be
given leave to file a post-hearing brief. The time for filing such a brief shall
be set by the Arbitrator.
The Arbitrator shall render a proposed award and opinion in
the form typically rendered in labor arbitrations.
Either party shall have the right, within 20 days of issuance
of the Arbitrator's proposed award and opinion, to file with the Arbitrator a
motion to reconsider (accompanied by a supporting brief), and the other party
shall have 20 days from the date of the motion to respond. The Arbitrator
thereupon shall reconsider the issues raised by the motion and, promptly, either
confirm or change the decision, which (except as provided by this Arbitration
Agreement) shall then be final and conclusive upon the parties. The costs of
such a motion for reconsideration and written opinion of the Arbitrator shall be
borne by the party prevailing on the motion, unless the Arbitrator orders
otherwise.
I. ARBITRATION FEES AND COSTS.
The Company and I shall equally share the fees and costs of
the Arbitrator; provided, however, that my maximum contribution will be no more
than 20% of the amount at issue. Each party will deposit funds or post other
appropriate security for its share of the Arbitrator's fee, in an amount and
manner determined by the Arbitrator, 10 days before the first day of hearing.
Each party shall pay for its own costs and attorneys' fees, if any. However, if
any party prevails on a statutory claim which affords the prevailing party
attorneys' fees, or if there is a written agreement providing for fees, the
Arbitrator may award fees to the prevailing party as provided by statute or
agreement.
J. EXCLUSIVITY, WAIVER AND BINDING EFFECT.
The procedure set out in this Arbitration Agreement is the
exclusive procedure for resolving claims covered hereunder. The resolution of
any claim covered by this Arbitration Agreement pursuant to the procedure set
out herein shall be final and binding on the parties to the fullest extent
permitted by law. Both I and the Company expressly waive
8
any right to resolve any claim covered by this Arbitration Agreement through any
other means, including by filing a lawsuit in court for trial by the court or
before a jury. Both I and the Company are precluded from bringing or raising in
court or before another forum any claim which could have been brought or raised
hereunder, unless the right to pursue a statutory claim or remedy is expressly
preserved by law. Neither I nor the Company shall seek to enjoin any proceeding
hereunder on the basis that any award resulting therefrom would not be
enforceable.
K. INTERSTATE COMMERCE.
I understand and agree that the Company is engaged in
transactions involving interstate commerce.
L. CONSIDERATION.
The promises by the Company and by me to arbitrate
differences, rather than litigate them before courts or other bodies, provide
consideration for each other. In addition, my participation in this Long-Term
Incentive Program provides further consideration for this Arbitration Agreement.
9
IN WITNESS WHEREOF, by signing my name below, I am
acknowledging that I am entering into this Long-Term Incentive Program
Participation Agreement and Mutual Agreement to Arbitrate Claims voluntarily and
with a full understanding of all of their terms and conditions, and, intending
to be legally bound, I am agreeing to such terms and conditions.
Long-Term Incentive Program Participant
/S/ M. F. PASQUALE
-------------------
(Signature)
/S/ M. F. PASQUALE
------------------
Name (Print)
Date: JANUARY 27, 1997
----------------
IN WITNESS WHEREOF, Hershey Foods Corporation and/or its
employing subsidiary, intending to be legally bound, has or have caused this
Agreement to be signed by its or their authorized officer.
R. M. REESE
-----------
Vice President
Date: JANUARY 17, 1997
----------------
10
Exhibit 13
EXHIBIT 13
HERSHEY FOODS
CORPORATION
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales increased $250.1
million, or 6%, from 1999 to 2000. The higher sales primarily reflected an
increase in sales of core confectionery and grocery products in North America,
incremental sales from the introduction of new confectionery products, increased
international exports and lower product returns, discounts, and allowances. In
2000, certain international distributor allowances were netted against sales
instead of being reported in selling, marketing and administrative expenses as
in 1999 and 1998. These distributor allowances amounted to $18.3 million and
$17.8 million in 1999 and 1998, respectively. Net sales in 1999 included $29.3
million related to the Corporation’s pasta business, which was sold in
January 1999.
Net sales decreased $464.7
million, or 10%, from 1998 to 1999. The decrease in sales in 1999 was primarily
a result of the divestiture of the Corporation’s pasta business, which
resulted in a sales reduction of $343.8 million, and sales decreases in the
United States of core confectionery and grocery products. Sales of confectionery
and grocery products declined in the first quarter of 1999 primarily as a result
of the December 1998 buy-in on promotions of regular count and vending items.
Decreases in sales in the third and fourth quarters of 1999 were primarily the
result of problems encountered after the July 1999 start-up of new business
systems and processes. These sales declines were partially offset by incremental
sales from the introduction of new confectionery products, increased export
sales in international markets and sales increases in the Corporation’s
Canadian and Mexican markets.
Gross Margin
Gross margin increased from
40.7% in 1999 to 41.5% in 2000. The increase in gross margin reflected decreased
costs for certain major raw materials, primarily cocoa, as well as lower product
returns, discounts, and allowances. The impact of these items was offset
partially by higher absorption of fixed manufacturing costs in 2000, primarily
related to decreased finished goods inventory levels in 2000 compared to 1999.
In addition, the sales mix of confectionery items sold in 2000 compared to 1999
contributed to lower profitability, as the growth in sales of the more
profitable standard bars was outpaced by sales of packaged confectionery items.
Also, higher distribution and warehousing costs in 2000 reflected higher
warehouse handling costs, incremental costs associated with expanded warehousing
capacity and one-time start-up costs for new distribution centers located near
Hershey, Pennsylvania and Atlanta, Georgia.
Gross margin in 1999
benefited .3 percentage points from the inclusion in cost of sales of a one-time
$12.5 million gain from revisions to the Corporation’s retiree medical
plan, net of contributions into the Employee Savings Stock Investment and
Ownership Plan (“ESSIOP”). During the first quarter of 1999, the
Corporation changed its retiree medical plan to eliminate coverage for all
eligible hourly employees under age 45, to be replaced by annual contributions
into the ESSIOP. The change applied primarily to U.S. hourly employees working
in Pennsylvania. In addition, gross margin in 1999 would have been .3 percentage
points lower if certain international distributor allowances were reclassified
and reported as discussed above for 2000.
Gross margin decreased from
40.8% in 1998 to 40.7% in 1999. The decrease reflected lower profitability
resulting from the mix of confectionery items sold in 1999 compared with sales
during 1998, primarily related to lower sales of the more profitable standard
bars. Higher freight and distribution costs, reflecting increased costs related
to the implementation of new business systems and processes and distribution
center capacity constraints, and higher depreciation expense as a percent of
sales, also contributed to the lower gross margin. These cost increases were
offset partially by selling price
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increases in the Corporation’s Canadian
and Mexican markets and decreased costs for packaging materials and certain raw
materials. Effective December 1998, the Corporation changed its retiree medical
plan to eliminate coverage for all U.S. full-time salaried employees and all
non-union hourly plant employees working outside Hershey, Pennsylvania under age
45, replacing it with annual ESSIOP contributions, resulting in the recognition
of a $13.0 million pre-tax gain in 1998.
Selling,
Marketing and Administrative
Selling, marketing and
administrative expenses increased $69.3 million, or 7%, from 1999 to 2000,
primarily reflecting: increased marketing expenditures for core confectionery
brands, international exports and the introduction of new products; increased
selling and administrative expenses primarily related to higher staffing levels
to support sales and customer service activity in North America and the
international export business; higher incentive compensation expense reflecting
improved operating performance in 2000; and higher software amortization costs.
The impact of these items was offset partially by the inclusion in
administrative expense in 2000 of a one-time gain of $7.3 million arising from
the sale of certain corporate aircraft. Selling, marketing and administrative
costs in 1999 included $10.7 million related to the Corporation’s pasta
business, which was sold in January 1999.
Selling, marketing and
administrative expenses decreased by $110.1 million, or 9%, from 1998 to 1999,
reflecting lower expenses resulting from the divestiture of the pasta business,
reduced marketing expenses for core confectionery brands and lower
administrative expenses. These decreases were offset partially by increased
spending associated with the introduction of new products and international
exports, in addition to higher amortization expense for capitalized software.
Excluding the divestiture of the pasta business, advertising and promotion
expense was essentially equal to the prior year as a percent of sales.
Interest
Expense, Net
Net interest expense for
2000 was $1.7 million above the prior year, primarily as a result of higher
short-term interest expense related to increased average short-term borrowings
and borrowing rates, and lower capitalized interest. The impact of these items
was offset partially by higher interest income, and lower fixed interest expense
as a result of interest rate swap and forward agreements entered into in October
1999. Net interest expense in 1999 was $11.4 million below the prior year,
primarily as a result of lower short-term interest expense as a portion of the
proceeds from the sale of the pasta business and positive cash flow were used to
reduce short-term borrowings.
Income Taxes
The Corporation’s
effective income tax rate was 38.8%, 36.8% and 38.8% in 1998, 1999 and 2000,
respectively. Excluding the provision for income taxes associated with the gain
on the sale of the Corporation’s pasta business, the effective income tax
rate was 39.0% in 1999.
Net Income
Net income decreased $125.8
million, or 27%, from 1999 to 2000. In the first quarter of 1999, the
Corporation received cash proceeds of $450.0 million, retained a 6% minority
interest and recorded a gain of approximately $243.8 million before tax, $165.0
million or $1.17 per share—diluted after tax, as a result of the sale of
the Corporation’s pasta business. Excluding the gain, net income increased
$39.2 million, or 13%, from 1999 to 2000. The Corporation’s net income
increased $119.4 million, or 35%, from 1998 to 1999, reflecting the gain on the
sale of the pasta business. Excluding the gain, net income decreased $45.6
million, or 13% from 1998 to 1999.
Net income as a percent of
net sales was 7.9% in 2000, 7.4% in 1999, excluding the gain on the sale of the
pasta business, and 7.7% in 1998.
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FINANCIAL CONDITION
The Corporation’s
financial condition remained strong during 2000. The capitalization ratio (total
short-term and long-term debt as a percent of stockholders’ equity,
short-term and long-term debt) was 49% as of December 31, 2000 and 50% as
of December 31, 1999. The ratio of current assets to current liabilities was
1.7:1 as of December 31, 2000, and 1.8:1 as of December 31, 1999. The lower
ratio of current assets to current liabilities as of December 31, 2000,
primarily reflected increased short-term borrowings to finance stock repurchases
and a business acquisition.
In December 2000, the
Corporation completed the purchase of the intense and breath freshener mints and
gum businesses of Nabisco, Inc. (“Nabisco”). The Corporation paid
$135.0 million to acquire the businesses, including Ice Breakers and
Breath Savers Cool Blasts intense mints, Breath Savers mints, and
Ice Breakers, Carefree, Stick*Free, Bubble Yum and Fruit Stripe
gums. Also included in the purchase were manufacturing machinery and equipment
and a gum-manufacturing plant in Las Piedras, Puerto Rico. These businesses had
sales of approximately $270 million in 1999. The Corporation’s results of
operations for 2000 did not include results of the acquisition, as the
transaction was completed very late in the year. Had the results of the acquired
businesses been included in the consolidated results, the effect would not have
been material.
Assets
Total assets increased
$101.1 million, or 3%, as of December 31, 2000, primarily as a result of higher
accounts receivable, prepaid expenses and other current assets, property, plant
and equipment, and intangibles resulting from business acquisitions,
substantially offset by a decrease in cash and cash equivalents. These increases
were due, in part, to the acquisition of Nabisco’s mint and gum businesses.
Current assets increased by
$15.4 million, or 1%, reflecting increased accounts receivable, inventories,
prepaid expenses and other current assets. An increase in accounts receivable of
$26.9 million reflected higher sales in December 2000. The increase in prepaid
expenses and other current assets was principally associated with hedging
transactions. The decrease in cash and cash equivalents reflected the comparison
to an unusually high balance as of December 31, 1999, as a result of year 2000
(Y2K) liquidity contingency plans.
Property, plant and
equipment was higher than the prior year primarily due to capital additions of
$138.3 million and the acquisition of the Nabisco businesses, partially offset
by depreciation expense of $140.2 million. The increase in intangibles resulting
from business acquisitions primarily reflected preliminary goodwill associated
with the Nabisco acquisition, partly offset by the amortization of intangibles.
The decrease in other non-current assets was primarily associated with the
amortization of capitalized software.
Liabilities
Total liabilities increased
by $24.7 million, or 1%, as of December 31, 2000, primarily reflecting higher
accrued liabilities and an increase in short-term borrowings to finance the
acquisition of the Nabisco businesses and stock repurchases, partially offset by
a decrease in accrued and deferred income taxes. The increase in accrued
liabilities was associated primarily with higher accruals for promotion and
advertising programs and accrued liabilities related to the Nabisco acquisition.
The decrease in accrued income taxes primarily reflected a decrease in the
income tax provision which included accrued income taxes for the gain on sale of
the pasta business as of December 31, 1999, and the decrease in deferred income
taxes was associated with the payment in September 2000 of an assessment related
to a Corporate Owned Life Insurance program discussed further under Liquidity
below.
Capital
Structure
The Corporation has two
classes of stock outstanding, Common Stock and Class B Common Stock
(“Class B Stock”). Holders of the Common Stock and the Class B
Stock generally vote together without regard to class on matters submitted
to stockholders, including the election of directors, with the
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Common Stock
having one vote per share and the Class B Stock having ten votes per share.
However, the Common Stock, voting separately as a class, is entitled to elect
one-sixth of the Board of Directors. With respect to dividend rights, the Common
Stock is entitled to cash dividends 10% higher than those declared and paid on
the Class B Stock.
In December 2000, the
Corporation’s Board of Directors unanimously adopted a Stockholder
Protection Rights Agreement (“Rights Agreement”). The Rights Agreement
was supported by the Corporation’s largest stockholder, Hershey Trust
Company, as trustee for the benefit of Milton Hershey School (“Milton
Hershey School Trust”). This action was not in response to any specific
effort to acquire control of the Corporation. Under the Rights Agreement, the
Corporation’s Board of Directors declared a dividend of one right
(“Right”) for each outstanding share of Common Stock and Class B Stock
payable to stockholders of record at the close of business on December 26, 2000.
The Rights will at no time have voting power or receive dividends. The issuance
of the Rights has no dilutive effect, will not affect reported earnings per
share, is not taxable and will not change the manner in which the
Corporation’s Common Stock is traded. The Rights Agreement is discussed
further in Note 12 to the Consolidated Financial Statements.
LIQUIDITY
Historically, the
Corporation’s major source of financing has been cash generated from
operations. The Corporation’s income and, consequently, cash provided from
operations during the year are affected by seasonal sales patterns, the timing
of new product introductions, business acquisitions and divestitures, and price
increases. Chocolate, confectionery and grocery seasonal and holiday-related
sales have typically been highest during the third and fourth quarters of the
year, representing the principal seasonal effect. Generally, seasonal working
capital needs peak during the summer months and have been met by issuing
commercial paper.
Over the past three years,
cash provided from operating activities and proceeds from the sale of the pasta
business exceeded cash requirements for share repurchases, capital expenditures,
capitalized software additions, dividend payments and a business acquisition by
$88.7 million. Total debt, including debt assumed, decreased during the period
by $150.9 million, reflecting reduced short-term borrowings and the repayment of
long-term debt. Cash and cash equivalents decreased by $22.3 million during the
period.
The Corporation anticipates
that capital expenditures and capitalized software additions will be in the
range of $150 million to $170 million per annum during the next several
years as a result of continued modernization of existing facilities and capacity
expansion to support new products and line extensions, along with continued
improvement and enhancements of computer software. As of December 31, 2000,
the Corporation’s principal capital commitments included manufacturing
capacity expansion to support new products and line extensions, modernization
and efficiency improvements.
In February 2001, the
Corporation made a $75.0 million contribution to its domestic pension plans to
improve the funded status and reduce future expense.
In December 2000, the
Corporation entered into an operating lease agreement for a warehouse and
distribution facility to be constructed in southern California. The lease term
is approximately ten years and shall begin upon completion of the facility, but
no later than September 1, 2001. The Corporation or its designee has an option
between December 15, 2001 and March 31, 2002 to purchase the facility at
original cost. The estimated cost of the facility, including land, is
approximately $38.0 million.
In October 2000, the
Corporation entered into an operating lease agreement to finance the purchase of
a warehouse and distribution facility near Atlanta, Georgia for $18.2 million.
The lease term is five years, with up to four renewal periods of five years each
with the consent of the lessor. In July 1999, the Corporation entered into an
operating lease agreement to finance the construction of a warehouse and
distribution facility located on land owned by the Corporation near Hershey,
Pennsylvania. Under the agreement, the lessor paid construction costs totaling
$61.7 million. The lease term is six years, including the one-year construction
period, with up to four renewal periods of five years each with the consent of
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the lessor. Both leases provide
for substantial residual guarantees and include
options to purchase the facilities at original cost.
In 1999, the Corporation
implemented the first phase of an enterprise-wide integrated information system
in the United States. The first phase of system implementation included new
business systems and processes related to purchasing, accounts payable, fixed
assets, the general ledger, production reporting, and tracking of plant
inventories. The second phase of system implementation included systems and
processes in the areas of sales order and billing, transportation planning and
management, electronic data interchange communications with warehouses, finished
goods inventories, accounts receivable and tracking of marketing promotions.
Initial implementation costs amounted to approximately $101.0 million of
capitalized software and hardware and $10.6 million of expenses. These
expenditures were financed with cash provided from operations and proceeds from
the sale of the Corporation’s pasta business.
Under share repurchase
programs which began in 1993, a total of 17,624,037 shares of Common Stock have
been repurchased for approximately $705.5 million. Of the shares repurchased,
528,000 shares were retired, 1,427,289 shares were reissued to satisfy stock
options obligations, Supplemental Retirement Contributions and employee stock
ownership trust (“ESOP”) obligations and the remaining 15,668,748
shares were held as Treasury Stock as of December 31, 2000. Additionally, the
Corporation has purchased a total of 28,000,536 shares of its Common Stock to be
held as Treasury Stock from the Milton Hershey School Trust for $1.0 billion. As
of December 31, 2000, a total of 43,669,284 shares were held as Treasury Stock
and $124.5 million remained available for repurchases of Common Stock under a
program approved by the Corporation’s Board of Directors in October 1999.
In March 1997, the
Corporation issued $150 million of 6.95% Notes under a November 1993 Form S-3
Registration Statement. In August 1997, the Corporation filed another Form S-3
Registration Statement under which it could offer, on a delayed or continuous
basis, up to $500 million of additional debt securities. Also in August 1997,
the Corporation issued $150 million of 6.95% Notes due 2012 and $250 million of
7.2% Debentures due 2027 under the November 1993 and August 1997 Registration
Statements. Proceeds from the debt issuance were used to repay a portion of the
short-term borrowings associated with the purchase of Common Stock from the
Milton Hershey School Trust. As of December 31, 2000, $250 million of debt
securities remained available for issuance under the August 1997 Registration
Statement. Proceeds from any offering of the $250 million of debt securities
available under the shelf registration may be used for general corporate
requirements, which include reducing existing commercial paper borrowings,
financing capital additions and share repurchases, and funding future business
acquisitions and working capital requirements.
As of December 31, 2000,
the Corporation maintained a committed credit facility agreement with a
syndicate of banks in the amount of $500 million which could be borrowed
directly or used to support the issuance of commercial paper. The Corporation
may increase the credit facility by $1.0 billion with the concurrence of the
banks. In December 2000, the short-term credit facility agreement was renewed
for a total of $200 million and the long-term committed credit facility
agreement remained in effect for $300 million, expiring in December 2002. The
credit facilities may be used to fund general corporate requirements, to support
commercial paper borrowings and, in certain instances, to finance future
business acquisitions. The Corporation also had lines of credit with domestic
and international commercial banks of $27.5 million and $25.0 million as of
December 31, 2000 and 1999, respectively.
In January 1999, the
Corporation received a Notice of Proposed Deficiency (“Notice”) from
the Internal Revenue Service (“IRS”) related to years 1989 through
1996. The Notice pertained to the Corporate Owned Life Insurance
(“COLI”) program which was implemented by the Corporation in 1989. The
IRS disallowed the interest expense deductions associated with the underlying
life insurance policies. The total deficiency of $61.2 million, including
interest, was paid to the IRS in September 2000 to eliminate further accruing of
interest. The Corporation may be subject to additional assessments for federal
taxes and interest for 1997 and 1998 and for state taxes and interest for 1989
through 1998. The Corporation believes that it has fully complied with the tax
law as it relates to its COLI program, has filed for the refund of amounts paid
and will continue to seek favorable resolution of this matter.
A-5
|
Cash Flow
Activities
Over the past three years,
cash from operating activities provided approximately $1.1 billion. Over this
period, cash used by or provided from accounts receivable and inventories has
tended to fluctuate as a result of sales during December and inventory
management practices. The change in cash required for or provided from other
assets and liabilities between the years was primarily related to hedging
transactions, the timing of payments for accrued liabilities, including income
taxes, and variations in the funding status of pension plans.
Investing activities
included capital additions, capitalized software additions, a business
acquisition and a business divestiture. Capital additions during the past three
years included the purchase of manufacturing equipment, and expansion and
modernization of existing facilities. Capitalized software additions over the
past three years were associated primarily with the implementation of an
enterprise-wide integrated information system.
The acquisition of
Nabisco’s mint and gum businesses for $135.0 million was completed in 2000
and the Corporation’s pasta business was sold for $450.0 million in 1999.
Financing activities
included debt borrowings and repayments, payments of dividends, the exercise of
stock options, incentive plan transactions, and the repurchase of Common Stock.
During the past three years, short-term borrowings in the form of commercial
paper or bank borrowings were used to purchase Nabisco’s mint and gum
businesses, fund seasonal working capital requirements, and finance share
repurchase programs. During the past three years, a total of 8,013,318 shares of
Common Stock have been repurchased for $434.1 million, including 1,579,779
shares purchased from the Milton Hershey School Trust for $100.0 million. Cash
used for incentive plan transactions of $74.3 million during the past three
years was substantially offset by cash received from the exercise of stock
options of $62.6 million. Cash used by incentive plan transactions reflected
purchases, from time to time, of the Corporation’s Common Stock in the open
market to repurchase treasury stock issued for stock options exercises,
mitigating dilution of weighted-average shares outstanding.
ACCOUNTING POLICIES AND
MARKET RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
The Corporation utilizes
certain derivative instruments, from time to time, including interest rate swaps
and forward agreements, foreign currency forward exchange contracts and
commodity futures contracts, to manage interest rate, currency exchange rate and
commodity market price risk exposures. Interest rate swaps and forward
agreements, and foreign currency contracts are entered into for periods
consistent with related underlying exposures and do not constitute positions
independent of those exposures. Commodity futures contracts are entered into for
varying periods and are intended and effective as hedges of anticipated raw
material purchases. The Corporation does not hold or issue derivative
instruments for trading purposes and is not a party to any instruments with
leverage or prepayment features. In entering into these contracts, the
Corporation has assumed the risk which might arise from the possible inability
of counterparties to meet the terms of their contracts. The Corporation does not
expect any losses as a result of counterparty defaults.
The information below
summarizes the Corporation’s market risks associated with long-term debt
and derivative instruments outstanding as of December 31, 2000. This information
should be read in conjunction with Note 1, Note 5, Note 7 and Note 8 to the
Consolidated Financial Statements.
Long-Term Debt
The table below presents
the principal cash flows and related interest rates by maturity date for
long-term debt, including the current portion, as of December 31, 2000. The fair
value of long-term debt was determined based upon quoted market prices for the
same or similar debt issues.
A-6
|
|
Maturity Date
|
|
(In thousands of dollars except for rates) |
|
2001
|
2002
|
2003
|
2004
|
2005
|
There-
after
|
Total
|
Fair
Value
|
| Long-term Debt |
|
$529 |
|
$838 |
|
$17,133 |
|
$136 |
|
$202,138 |
|
$657,409 |
|
$878,183 |
|
$920,374 |
|
| Fixed Rate | |
2.0 |
% |
2.0 |
% |
4.4 |
% |
2.0 |
% |
6.7 |
% |
7.3 |
% |
7.1 |
% |
Interest Rate
Swaps and Forward Agreements
In order to minimize its
financing costs and to manage interest rate exposure, the Corporation, from time
to time, enters into interest rate swaps and forward agreements. In October
1999, the Corporation entered into an interest rate swap agreement to
effectively convert $200 million of 6.7% Notes Due 2005 (“Notes”) to
variable rate debt. In December 2000, the counterparty chose to cancel the
interest rate swap and forward agreements effective April 2, 2001.
Subsequent to this date, the effective interest rate on the Notes will return to
a fixed rate of 6.7%. The potential loss in fair value of interest rate swaps
and forward agreements resulting from a hypothetical near-term adverse change in
market rates of ten percent was not material as of December 31, 2000 and 1999.
Foreign
Exchange Contracts
The Corporation enters into
foreign exchange forward contracts to hedge transactions primarily related to
firm commitments to purchase equipment, certain raw materials and finished goods
denominated in foreign currencies and to hedge payment of intercompany
transactions with its non-domestic subsidiaries. These contracts reduce currency
risk from exchange rate movements.
Foreign exchange forward
contracts are intended to be and are effective as hedges of firm, identifiable,
foreign currency commitments. In accordance with Statement of Financial
Accounting Standards No. 52, “Foreign Currency Translation,”
these contracts meet the conditions for hedge accounting treatment and
accordingly, gains and losses are deferred and accounted for as part of the
underlying transactions. Gains and losses on terminated derivatives designated
as hedges are accounted for as part of the originally hedged transaction. Gains
and losses on derivatives designated as hedges of items which mature, are sold
or terminated, are recorded currently in income.
As of December 31, 2000,
the Corporation had foreign exchange forward contracts maturing in 2001 and 2002
to purchase $36.3 million in foreign currency, primarily British sterling and
euros, and to sell $11.5 million in foreign currency, primarily Japanese yen, at
contracted forward rates.
As of December 31, 1999,
the Corporation had foreign exchange forward contracts maturing in 2000 and 2001
to purchase $18.0 million in foreign currency, primarily euros and British
sterling, and to sell $31.2 million in foreign currency, primarily Canadian
dollars and Japanese yen, at contracted forward rates.
The fair value of foreign
exchange forward contracts was estimated by obtaining quotes for future
contracts with similar terms, adjusted where necessary for maturity differences.
As of December 31, 2000 and 1999, the fair value of foreign exchange forward
contracts approximated the contract value. The potential loss in fair value of
foreign exchange forward contracts resulting from a hypothetical near-term
adverse change in market rates of ten percent was not material as of December
31, 2000 and 1999.
Commodity
Price Risk Management
The Corporation’s most
significant raw material requirements include cocoa, sugar, milk, peanuts and
almonds. The Corporation attempts to minimize the effect of future price
fluctuations related to the purchase of these raw materials primarily through
forward purchasing to cover future manufacturing requirements, generally for
periods from 3 to 24 months. With regard to cocoa, sugar, corn sweeteners,
natural gas and certain dairy products, price risks are also managed by entering
into futures contracts. At the present time, active futures contracts are not
available for use in pricing the Corporation’s other major raw material
requirements. Futures contracts are used in combination with forward purchasing
of cocoa, sugar, corn sweetener, natural gas and certain dairy product
requirements principally to take
A-7
|
advantage of market fluctuations which provide
more favorable pricing opportunities and to increase diversity or flexibility in
sourcing these raw materials and energy requirements. The Corporation’s
commodity procurement practices are intended to reduce the risk of future price
increases, but also may potentially limit the ability to benefit from possible
price decreases.
The cost of cocoa beans and
the prices for the related commodity futures contracts historically have been
subject to wide fluctuations attributable to a variety of factors, including the
effect of weather on crop yield, other imbalances between supply and demand,
currency exchange rates, political unrest in producing countries and speculative
influences. Cocoa prices remained near historical lows during most of 2000, as
additional production, spurred by high prices in the mid-1990s, has come on
stream under favorable climatic conditions. Additionally, demand has been
reduced below historical levels as a result of economic difficulties in Eastern
Europe, particularly the former Soviet Union. During 2001, continued improvement
in chocolate consuming economies could result in prices stabilizing and possibly
moving higher. The Corporation’s costs during 2001 will not necessarily
reflect market price fluctuations because of its forward purchasing practices,
premiums and discounts reflective of relative values, varying delivery times,
and supply and demand for specific varieties and grades of cocoa beans.
Commodities
Futures Contracts
In connection with the
purchasing of cocoa, sugar, corn sweeteners, natural gas and certain dairy
products for anticipated manufacturing requirements, the Corporation enters into
commodities futures contracts as deemed appropriate to reduce the effect of
price fluctuations. In accordance with Statement of Financial Accounting
Standards No. 80, “Accounting for Futures Contracts,” these
futures contracts meet the hedge criteria and are accounted for as hedges.
Accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost. Gains and losses on futures designated as hedges of
anticipated purchases which are no longer likely to occur are recorded currently
in income.
Exchange traded futures
contracts are used to fix the price of physical forward purchase contracts. Cash
transfers reflecting changes in the value of futures contracts are made on a
daily basis and are included in other current assets or accrued liabilities on
the Consolidated Balance Sheets. Such cash transfers will be offset by higher or
lower cash requirements for payment of invoice prices of raw materials and
energy requirements in the future. Futures being held in excess of the amount
required to fix the price of unpriced physical forward contracts are effective
as hedges of anticipated purchases.
The following sensitivity
analysis reflects the market risk of the Corporation to a hypothetical adverse
market price movement of ten percent, based on the Corporation’s net
commodity positions at four dates spaced equally throughout the year. The
Corporation’s net commodity positions consist of the excess of futures
contracts held over unpriced physical forward contracts for the same
commodities, relating to cocoa, sugar, corn sweeteners and natural gas.
Inventories, priced forward contracts and estimated anticipated purchases not
yet contracted for were not included in the sensitivity analysis calculations. A
loss is defined, for purposes of determining market risk, as the potential
decrease in fair value or the opportunity cost resulting from the hypothetical
adverse price movement. The fair values of net commodity positions were based
upon quoted market prices or estimated future prices including estimated
carrying costs corresponding with the future delivery period.
|
| For the years ended December 31, |
2000 |
1999 |
|
In millions of dollars
|
Fair
Value |
Market Risk
(Hypothetical
10% Change) |
Fair
Value |
Market Risk
(Hypothetical
10% Change) |
|
| Highest long position |
|
$77.6 |
|
$7.8 |
|
$147.7 |
|
$14.8 |
|
| Lowest long position | |
(28.3 |
) |
2.8 |
|
54.3 |
|
5.4 |
|
| Average position (long) | |
30.3 |
|
3.0 |
|
111.0 |
|
11.1 |
|
|
The decrease in fair values
and market risks from 1999 to 2000 primarily reflected a decrease in net
commodity positions and lower commodity futures prices in 2000. The negative
lowest long position in 2000 resulted as commodities futures required to fix the
price of unpriced physical forward contracts exceeded the amount of commodities
futures being held at a point in time during the year.
A-8
|
Sensitivity analysis
disclosures represent forward-looking statements which are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those presently anticipated or projected. The important factors that could
affect the sensitivity analysis disclosures include significant increases or
decreases in market prices reflecting fluctuations attributable to the effect of
weather on crop yield, other imbalances between supply and demand, currency
exchange rates, political unrest in producing countries and speculative
influences in addition to changes in the Corporation’s hedging strategies.
MARKET PRICES AND
DIVIDENDS
Cash dividends paid on the
Corporation’s Common Stock and Class B Stock were $144.9 million in 2000
and $136.7 million in 1999. The annual dividend rate on the Common Stock was
$1.12 per share, an increase of 8% over the 1999 rate of $1.04 per share. The
2000 dividend represented the 26th consecutive year of Common Stock dividend
increases.
On February 7, 2001, the
Corporation’s Board of Directors declared a quarterly dividend of $.28 per
share of Common Stock payable on March 15, 2001, to stockholders of record as of
February 23, 2001. It is the Corporation’s 285th consecutive Common Stock
dividend. A quarterly dividend of $.2525 per share of Class B Stock also was
declared.
Hershey Foods
Corporation’s Common Stock is listed and traded principally on the New York
Stock Exchange (“NYSE”) under the ticker symbol “HSY.”
Approximately 138.6 million shares of the Corporation’s Common Stock were
traded during 2000. The Class B Stock is not publicly traded.
The closing price of the
Common Stock on December 31, 2000, was $64 3/8. There were 41,482 stockholders of
record of the Common Stock and the Class B Stock as of December 31, 2000.
The following table shows
the dividends paid per share of Common Stock and Class B Stock and the price
range of the Common Stock for each quarter of the past two years:
|
|
Dividends Paid
Per Share
|
Common Stock
Price Range*
|
|
Common
Stock
|
Class B
Stock
|
High
|
Low
|
| 2000 |
|
|
|
|
|
|
|
|
|
| 1st Quarter | |
$ .26 |
|
$.2350 |
|
$50 |
11/16 |
$ 37 |
3/4 |
| 2nd Quarter | |
.26 |
|
.2350 |
|
55 |
13/16 |
45 |
|
| 3rd Quarter | |
.28 |
|
.2525 |
|
54 |
11/16 |
41 |
9/16 |
| 4th Quarter | |
.28 |
|
.2525 |
|
66 |
7/16 |
48 |
7/16 |
|
| Total | |
$1.08 |
|
$.9750 |
|
|
| 1999 | |
| 1st Quarter | |
$ .24 |
|
$.2175 |
|
$64 |
7/8 |
$ 54 |
1/8 |
| 2nd Quarter | |
.24 |
|
.2175 |
|
59 |
1/2 |
48 |
13/16 |
| 3rd Quarter | |
.26 |
|
.2350 |
|
61 |
7/16 |
48 |
1/2 |
| 4th Quarter | |
.26 |
|
.2350 |
|
54 |
3/16 |
45 |
3/4 |
|
| Total | |
$1.00 |
|
$.9050 |
|
|
| * |
|
NYSE-Composite
Quotations for Common Stock by calendar quarter. |
RETURN MEASURES
Operating
Return on Average Stockholders’ Equity
The Corporation’s
operating return on average stockholders’ equity was 29.4% in 2000. Over
the most recent five-year period, the return has ranged from 27.5% in 1996 to
36.0% in 1998. For the purpose of calculating operating return on average
stockholders’ equity, earnings is defined as net income, excluding the
after-tax loss on the disposal of businesses in 1996 and the after-tax gain on
the sale of the pasta business in 1999.
Operating
Return on Average Invested Capital
The Corporation’s
operating return on average invested capital was 16.1% in 2000. Over the most
recent five-year period, the return has ranged from 17.8% in 1996 to 14.8% in
1999. Average invested capital consists of the annual average of beginning and
ending balances of long-term debt, deferred income taxes and stockholders’
equity. For the purpose of calculating operating return on average invested
capital, earnings is defined as net income, excluding the after-tax loss on
disposal of businesses in 1996, the after-tax gain on the sale of the pasta
business in 1999 and the after-tax effect of interest on long-term debt.
OUTLOOK
The outlook section
contains a number of forward-looking statements, all of which are based on
current expectations. Actual results may differ materially.
The Corporation’s
strategy is to profitably grow its North American confectionery and grocery
business, and to build growing and profitable confectionery businesses in
selected markets outside North America. To implement this strategy, the
Corporation plans to continue to attract and hold customers and consumers with
products and services of consistently superior quality and value.
The total U.S.
confectionery market is anticipated to grow at a rate of three to four percent
in 2001. Over the years, the Corporation’s goal has been to grow at a
faster rate than the overall confectionery category. The Corporation expects to
achieve this goal in 2001 by the integration of recently acquired products,
strong results from new product introductions and the continued volume growth of
confectionery products in North America and selected international markets.
Variability of gross margin
in future periods is affected by various factors, including raw material and
logistics costs, manufacturing efficiencies, and the mix of products sold in any
period. The Corporation expects to improve profitability in 2001. Gross margin
is expected to increase in 2001, as compared to the full year 2000, as the
Corporation anticipates a more profitable sales mix, manufacturing efficiencies,
modest declines in freight and distribution costs as a percent of sales and
relatively stable commodity costs. These profitability improvements are expected
to more than offset anticipated increases in employee benefits and energy costs.
The industry in which the
Corporation operates is characterized by brand recognition. The Corporation will
continue spending to promote its products and to increase the value of its
brands. Planned spending on advertising in 2001 is significantly higher than
2000, while selling and administrative expenses are expected to remain
relatively constant as a percent of sales.
The tax rate is projected
to slightly decrease in 2001, as incremental earnings from the
Corporation’s recent acquisition will be taxed at a more favorable tax
rate.
The Corporation expects
continued strong cash flows from operating activities in 2001. Net cash provided
from operating activities is expected to exceed cash requirements for capital
additions, capitalized software additions and anticipated dividend payments.
Additionally, cash provided from operations is expected to be sufficient to
reduce short-term borrowings and/or finance possible business acquisitions and
continued repurchases of the Corporation’s Common Stock.
A-10
|
In May 2000, the Emerging
Issues Task Force (“EITF”) of the Financial Accounting Standards Board
reached consensus on EITF Issue No. 00-14 “Accounting for Coupons,
Rebates and Discounts,” requiring the reporting of certain sales
incentives such as consumer coupon redemption costs and off-invoice allowances
as a reduction of net sales. Effective with the quarter ending June 30, 2001,
consumer coupon redemption costs and off-invoice allowances currently reported
as marketing expense will be reported as a reduction of net sales. The
implementation of EITF Issue No. 00-14, along with other similar pending EITF
issues regarding the classification of certain sales incentives, may result in a
material restatement to reduce net sales, with a corresponding restatement to
reduce selling, marketing and administrative expenses. Upon adoption, all prior
period amounts will be reclassified to conform to the new requirements.
Safe Harbor
Statement
The nature of the
Corporation’s operations and the environment in which it operates subject
it to changing economic, competitive, regulatory and technological conditions,
risks and uncertainties. In connection with the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995, the
Corporation notes the following factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein. Many of the forward-looking
statements contained in this document may be identified by the use of
forward-looking words such as “believe,” “expect,”
“anticipate,” “should,” “planned,”
“estimated,” and “potential,” among others. Factors which
could cause results to differ include, but are not limited to: changes in the
confectionery and grocery business environment, including actions of competitors
and changes in consumer preferences; changes in governmental laws and
regulations, including income taxes; market demand for new and existing
products; changes in raw material costs; and the Corporation’s ability to
implement improvements and to reduce costs associated with the
Corporation’s customer service, warehousing and order fulfillment processes
and systems.
A-11
|
HERSHEY FOODS
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| In thousands of dollars except per share amounts |
|
|
| |
| Net Sales |
|
$4,220,976 |
|
$3,970,924 |
|
$4,435,615 |
|
|
| | |
| Costs and Expenses: | |
| Cost of sales | |
2,471,151 |
|
2,354,724 |
|
2,625,057 |
|
| Selling, marketing and administrative | |
1,127,175 |
|
1,057,840 |
|
1,167,895 |
|
| Gain on sale of business | |
— |
|
(243,785 |
) |
— |
|
|
| Total costs and expenses | |
3,598,326 |
|
3,168,779 |
|
3,792,952 |
|
|
| | |
| Income before Interest and Income Taxes | |
622,650 |
|
802,145 |
|
642,663 |
|
| Interest expense, net | |
76,011 |
|
74,271 |
|
85,657 |
|
|
| | |
| Income before Income Taxes | |
546,639 |
|
727,874 |
|
557,006 |
|
| Provision for income taxes | |
212,096 |
|
267,564 |
|
216,118 |
|
|
| | |
| Net Income | |
$ 334,543 |
|
$ 460,310 |
|
$ 340,888 |
|
|
| | |
| Net Income Per Share—Basic | |
$ 2.44 |
|
$ 3.29 |
|
$ 2.38 |
|
|
| | |
| Net Income Per Share—Diluted | |
$ 2.42 |
|
$ 3.26 |
|
$ 2.34 |
|
|
| | |
| Cash Dividends Paid Per Share: | |
| Common Stock | |
$ 1.08 |
|
$ 1.00 |
|
$ .920 |
|
| Class B Common Stock | |
.975 |
|
.905 |
|
.835 |
|
|
The notes to
consolidated financial statements are an integral part of these statements.
A-12
|
HERSHEY
FOODS CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
|
|
|
|
|
| ASSETS | |
| Current Assets: | |
| Cash and cash equivalents | |
$ 31,969 |
|
$ 118,078 |
|
| Accounts receivable—trade | |
379,680 |
|
352,750 |
|
| Inventories | |
605,173 |
|
602,202 |
|
| Deferred income taxes | |
76,136 |
|
80,303 |
|
| Prepaid expenses and other | |
202,390 |
|
126,647 |
|
|
| Total current assets | |
1,295,348 |
|
1,279,980 |
|
| Property, Plant and Equipment, Net | |
1,585,388 |
|
1,510,460 |
|
| Intangibles Resulting from Business Acquisitions, Net | |
474,448 |
|
450,165 |
|
| Other Assets | |
92,580 |
|
106,047 |
|
|
| Total assets | |
$3,447,764 |
|
$3,346,652 |
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| Current Liabilities: | |
| Accounts payable | |
$ 149,232 |
|
$ 136,567 |
|
| Accrued liabilities | |
358,067 |
|
292,497 |
|
| Accrued income taxes | |
1,479 |
|
72,159 |
|
| Short-term debt | |
257,594 |
|
209,166 |
|
| Current portion of long-term debt | |
529 |
|
2,440 |
|
|
| Total current liabilities | |
766,901 |
|
712,829 |
|
| Long-term Debt | |
877,654 |
|
878,213 |
|
| Other Long-term Liabilities | |
327,674 |
|
330,938 |
|
| Deferred Income Taxes | |
300,499 |
|
326,045 |
|
|
| Total liabilities | |
2,272,728 |
|
2,248,025 |
|
|
| Stockholders’ Equity: | |
| Preferred Stock, shares issued: none in 2000 and 1999 | |
— |
|
— |
|
| Common Stock, shares issued: 149,509,014 in 2000 and | |
| 149,506,964 in 1999 | |
149,508 |
|
149,507 |
|
| Class B Common Stock, shares issued: 30,441,858 in 2000 and |
|
| 30,443,908 in 1999 | |
30,442 |
|
30,443 |
|
| Additional paid-in capital | |
13,124 |
|
30,079 |
|
| Unearned ESOP compensation | |
(19,161 |
) |
(22,354 |
) |
| Retained earnings | |
2,702,927 |
|
2,513,275 |
|
| Treasury—Common Stock shares, at cost: 43,669,284 in 2000 and |
; |
| 41,491,253 in 1999 | |
(1,645,088 |
) |
(1,552,708 |
) |
| Accumulated other comprehensive loss | |
(56,716 |
) |
(49,615 |
) |
|
| Total stockholders’ equity | |
1,175,036 |
|
1,098,627 |
|
|
| Total liabilities and stockholders’ equity | |
$3,447,764 |
|
$3,346,652 |
|
|
|
The notes to
consolidated financial statements are an integral part of these balance sheets.
A-13
|
HERSHEY
FOODS CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| In thousands of dollars |
|
|
| |
| Cash Flows Provided from (Used by) |
|
|
|
|
|
|
|
| Operating Activities | |
| Net income | |
$ 334,543 |
|
$ 460,310 |
|
$ 340,888 |
|
| Adjustments to reconcile net income | |
| to net cash provided from operations: | |
| Depreciation and amortization | |
175,964 |
|
163,308 |
|
158,161 |
|
| Deferred income taxes | |
(16,400 |
) |
(8,336 |
) |
82,241 |
|
| Gain on sale of business, net of tax of $78,769 | |
— |
|
(165,016 |
) |
— |
|
| Changes in assets and liabilities, net of effects |
|
| from business acquisition and divestiture: | |
| Accounts receivable—trade | |
(26,930 |
) |
77,918 |
|
(90,493 |
) |
| Inventories | |
28,029 |
|
(136,535 |
) |
12,276 |
|
| Accounts payable | |
7,280 |
|
(8,742 |
) |
10,005 |
|
| Other assets and liabilities | |
(90,277 |
) |
(64,704 |
) |
(137,693 |
) |
| Other, net | |
— |
|
— |
|
745 |
|
|
| Net Cash Provided from Operating Activities | |
412,209 |
|
318,203 |
|
376,130 |
|
|
| Cash Flows Provided from (Used by) | |
| Investing Activities | |
| Capital additions | |
(138,333 |
) |
(115,448 |
) |
(161,328 |
) |
| Capitalized software additions | |
(4,686 |
) |
(25,394 |
) |
(42,859 |
) |
| Business acquisition | |
(135,000 |
) |
— |
|
— |
|
| Proceeds from divestiture | |
— |
|
450,000 |
|
— |
|
| Other, net | |
6,206 |
|
23,006 |
|
22,859 |
|
|
| Net Cash (Used by) Provided from Investing Activities | |
(271,813 |
) |
332,164 |
|
(181,328 |
) |
|
| Cash Flows Provided from (Used by) | |
| Financing Activities | |
| Net change in short-term borrowings | |
48,428 |
|
(136,742 |
) |
(36,543 |
) |
| Long-term borrowings | |
187 |
|
1,696 |
|
— |
|
| Repayment of long-term debt | |
(2,815 |
) |
(393 |
) |
(25,187 |
) |
| Cash dividends paid | |
(144,891 |
) |
(136,728 |
) |
(129,044 |
) |
| Exercise of stock options | |
24,376 |
|
18,878 |
|
19,368 |
|
| Incentive plan transactions | |
(51,859 |
) |
— |
|
(22,458 |
) |
| Repurchase of Common Stock | |
(99,931 |
) |
(318,024 |
) |
(16,151 |
) |
|
| Net Cash (Used by) Financing Activities | |
(226,505 |
) |
(571,313 |
) |
(210,015 |
) |
|
| (Decrease) Increase in Cash and Cash Equivalents | |
(86,109 |
) |
79,054 |
|
(15,213 |
) |
| Cash and Cash Equivalents as of January 1 | |
118,078 |
|
39,024 |
|
54,237 |
|
|
| Cash and Cash Equivalents as of December 31 | |
$ 31,969 |
|
$ 118,078 |
|
$ 39,024 |
|
|
| Interest Paid | |
$ 81,465 |
|
$ 77,049 |
|
$ 89,001 |
|
| Income Taxes Paid | |
299,104 |
|
218,665 |
|
123,970 |
|
|
The notes to
consolidated financial statements are an integral part of these statements.
A-14
|
HERSHEY FOODS
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
Preferred
Stock |
Common
Stock |
Class B
Common
Stock |
Additional
Paid-in
Capital |
Unearned
ESOP
Compensation |
Retained
Earnings |
Treasury
Common
Stock |
Accumulated
Other
Compre-
hensive
Income (Loss) |
Total
Stockholders’
Equity
|
|
| In thousands of dollars |
| Balance as of January 1, 1998 |
|
$ — |
|
$149,485 |
|
$30,465 |
|
$33,852 |
|
$(28,741 |
) |
$1,977,849 |
|
$(1,267,861 |
) |
$(42,243 |
) |
$852,806 |
|
|
| Comprehensive income (loss) | |
| Net income | |
|
|
|
|
|
|
|
|
|
|
340,888 |
|
|
|
|
|
340,888 |
|
| Other comprehensive income (loss): | |
| Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,073 |
) |
(18,073 |
) |
Minimum pension liability adjustments, net of
tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,051 |
) |
(4,051 |
) |
|
| Comprehensive income | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318,764 |
|
| Dividends: | |
| Common Stock, $.92 per share | |
|
|
|
|
|
|
|
|
|
|
(103,616 |
) |
|
|
|
|
(103,616 |
) |
| Class B Common Stock, $.835 per share |
|
|
|
|
|
|
|
|
|
|
|
(25,428 |
) |
|
|
|
|
(25,428 |
) |
Conversion of Class B Common Stock into
Common Stock | |
|
|
18 |
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
| Incentive plan transactions | |
|
|
|
|
|
|
(985 |
) |
|
|
|
|
|
|
|
|
(985 |
) |
| Exercise of stock options | |
|
|
|
|
|
|
(3,375 |
) |
|
|
|
|
16,590 |
|
|
|
13,215 |
|
| Employee stock ownership trust transactions | |
|
|
|
|
|
|
503 |
|
3,193 |
|
|
|
|
|
|
|
3,696 |
|
| Repurchase of Common Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
(16,151 |
) |
|
|
(16,151 |
) |
|
| Balance as of December 31, 1998 | |
— |
|
149,503 |
|
30,447 |
|
29,995 |
|
(25,548 |
) |
2,189,693 |
|
(1,267,422 |
) |
(64,367 |
) |
1,042,301 |
|
|
| Comprehensive income (loss) | |
| Net income | |
|
|
|
|
|
|
|
|
|
|
460,310 |
|
|
|
|
|
460,310 |
|
| Other comprehensive income (loss): | |
| Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,701 |
|
10,701 |
|
Minimum pension liability adjustments,
net of tax provision
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,051 |
|
4,051 |
|
|
| Comprehensive income | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
475,062 |
|
| Dividends: | |
| Common Stock, $1.00 per share | |
|
|
|
|
|
|
|
|
|
|
(109,175 |
) |
|
|
|
|
(109,175 |
) |
| Class B Common Stock, $.905 per share |
|
|
|
|
|
|
|
|
|
|
|
(27,553 |
) |
|
|
|
|
(27,553 |
) |
Conversion of Class B Common Stock into
Common Stock | |
|
|
4 |
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
| Incentive plan transactions | |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
2 |
|
| Exercise of stock options | |
|
|
|
|
|
|
(458 |
) |
|
|
|
|
32,738 |
|
|
|
32,280 |
|
Employee stock ownership trust/benefits
transactions | |
|
|
|
|
|
|
540 |
|
3,194 |
|
|
|
|
|
|
|
3,734 |
|
| Repurchase of Common Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
(318,024 |
) |
|
|
(318,024 |
) |
|
| Balance as of December 31, 1999 | |
— |
|
149,507 |
|
30,443 |
|
30,079 |
|
(22,354 |
) |
2,513,275 |
|
(1,552,708 |
) |
(49,615 |
) |
1,098,627 |
|
|
| Comprehensive income (loss) | |
| Net income | |
|
|
|
|
|
|
|
|
|
|
334,543 |
|
|
|
|
|
334,543 |
|
| Other comprehensive income (loss): | |
| Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,185 |
) |
(6,185 |
) |
Minimum pension liability adjustments,
net of tax benefit | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(916 |
) |
(916 |
) |
|
| Comprehensive income | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,442 |
|
| Dividends: | |
| Common Stock, $1.08 per share | |
|
|
|
|
|
|
|
|
|
|
(115,209 |
) |
|
|
|
|
(115,209 |
) |
| Class B Common Stock, $.975 per share |
|
|
|
|
|
|
|
|
|
|
|
(29,682 |
) |
|
|
|
|
(29,682 |
) |
Conversion of Class B Common Stock into
Common Stock | |
|
|
1 |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
| Incentive plan transactions | |
|
|
|
|
|
|
(426 |
) |
|
|
|
|
|
|
|
|
(426 |
) |
| Exercise of stock options | |
|
|
|
|
|
|
(16,728 |
) |
|
|
|
|
7,551 |
|
|
|
(9,177 |
) |
| Employee stock ownership trust/benefits transactions | |
|
|
|
|
|
|
199 |
|
3,193 |
|
|
|
|
|
|
|
3,392 |
|
| Repurchase of Common Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
(99,931 |
) |
|
|
(99,931 |
) |
|
| Balance as of December 31, 2000 | |
$ — |
|
$149,508 |
|
$30,442 |
|
$13,124 |
|
$(19,161 |
) |
$2,702,927 |
|
$(1,645,088 |
) |
$(56,716 |
) |
$1,175,036 |
|
|
|
The notes to
consolidated financial statements are an integral part of these statements.
A-15
|
HERSHEY FOODS
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies
employed by the Corporation are discussed below and in other notes to the
consolidated financial statements. Certain reclassifications have been made to
prior year amounts to conform to the 2000 presentation.
Principles of
Consolidation
The consolidated financial
statements include the accounts of the Corporation and its subsidiaries after
elimination of intercompany accounts and transactions.
Use of
Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates, particularly for accounts
receivable and certain current and long-term liabilities.
Revenue
Recognition
The Corporation records
sales when all of the following criteria have been met: a valid customer order
with a fixed price has been received; a delivery appointment with the customer
has been made; the product has been shipped in accordance with the delivery
appointment; there is no further significant obligation to assist in the resale
of the product; and collectibility is reasonably assured.
Cash
Equivalents
All highly liquid debt
instruments purchased with a maturity of three months or less are classified as
cash equivalents.
Commodities
Futures Contracts
In connection with the
purchasing of cocoa, sugar, corn sweeteners, natural gas and certain dairy
products for anticipated manufacturing requirements, the Corporation enters into
commodities futures contracts as deemed appropriate to reduce the effect of
price fluctuations. In accordance with Statement of Financial Accounting
Standards No. 80, “Accounting for Futures Contracts,” these
futures contracts meet the hedge criteria and are accounted for as hedges.
Accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost. Gains and losses on futures designated as hedges of
anticipated purchases which are no longer likely to occur are recorded in income
currently.
Property,
Plant and Equipment
Property, plant and
equipment are stated at cost and are depreciated on a straight-line basis over
the estimated useful lives of the assets, as follows: 3 to 15 years for
machinery and equipment; and 25 to 40 years for buildings and related
improvements.
Intangibles
Resulting from Business Acquisitions
Intangible assets resulting
from business acquisitions principally consist of the excess of the acquisition
cost over the fair value of the net assets of businesses acquired (goodwill).
Goodwill was $457.3 million and $431.7 million as of December 31, 2000 and 1999,
respectively. The increase in goodwill primarily reflected the acquisition of
the intense breath freshener mints and gum businesses of Nabisco, Inc. in
A-16
|
December 2000. Goodwill is amortized on a straight-line basis over
40 years. Other intangible assets are amortized on a straight-line basis
over the estimated useful lives. The Corporation periodically evaluates whether
events or circumstances have occurred indicating that the carrying amount of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Corporation uses an estimate of the
acquired business’ undiscounted future cash flows compared to the related
carrying amount of net assets, including goodwill, to determine if an impairment
loss should be recognized.
Accumulated amortization of
intangible assets resulting from business acquisitions was $135.5 million and
$121.6 million as of December 31, 2000 and 1999, respectively.
Comprehensive
Income
Comprehensive income (loss)
is reported on the Consolidated Statements of Stockholders’ Equity and
accumulated other comprehensive (loss) is reported on the Consolidated Balance
Sheets.
Results of operations for
foreign entities are translated using the average exchange rates during the
period. For foreign entities, assets and liabilities are translated to U.S.
dollars using the exchange rates in effect at the balance sheet date. Resulting
translation adjustments are recorded as a component of other comprehensive
income (loss), “Foreign Currency Translation Adjustments.”
A minimum pension liability
adjustment is required when the actuarial present value of accumulated pension
plan benefits exceeds plan assets and accrued pension liabilities, less
allowable intangible assets. Minimum pension liability adjustments, net of
income taxes, are recorded as a component of other comprehensive income (loss),
“Minimum Pension Liability Adjustments, net of tax benefit/provision.”
Foreign
Exchange Contracts
The Corporation enters into
foreign exchange forward contracts to hedge transactions primarily related to
firm commitments to purchase equipment, certain raw materials and finished goods
denominated in foreign currencies, and to hedge payment of intercompany
transactions with its non-domestic subsidiaries. These contracts reduce currency
risk from exchange rate movements.
Foreign exchange forward
contracts are intended and effective as hedges of firm, identifiable, foreign
currency commitments. Accordingly, gains and losses are deferred and accounted
for as part of the underlying transactions. Gains and losses on terminated
derivatives designated as hedges are accounted for as part of the originally
hedged transaction. Gains and losses on derivatives designated as hedges of
items which mature, are sold or terminated, are recorded currently in income. In
entering into these contracts the Corporation has assumed the risk which might
arise from the possible inability of counterparties to meet the terms of their
contracts. The Corporation does not expect any losses as a result of
counterparty defaults.
License
Agreements
The Corporation has entered
into license agreements under which it has access to certain trademarks and
proprietary technology, and manufactures and/or markets and distributes certain
products. The rights under these agreements are extendible on a long-term basis
at the Corporation’s option subject to certain conditions, including
minimum sales levels, which the Corporation has met. License fees and royalties,
payable under the terms of the agreements, are expensed as incurred.
Research and
Development
The Corporation expenses
research and development costs as incurred. Research and development expense was
$25.4 million, $26.7 million and $28.6 million in 2000, 1999 and 1998,
respectively.
A-17
|
Advertising
The Corporation expenses
advertising costs as incurred. Advertising expense was $161.6 million, $164.9
million and $187.5 million in 2000, 1999 and 1998, respectively. Prepaid
advertising as of December 31, 2000 and 1999, was $7.0 million and $5.8 million,
respectively.
Computer
Software
The Corporation capitalizes
certain costs of computer software developed or obtained for internal use. The
amount capitalized as of December 31, 2000 and 1999, was $66.2 million and
$82.2 million, respectively. Software assets are classified as other non-current
assets and are amortized over periods up to five years. Accumulated amortization
of capitalized software was $35.7 million and $15.1 million as of December 31,
2000 and 1999, respectively.
Pending
Accounting Pronouncements
In May 2000, the Emerging
Issues Task Force (“EITF”) of the Financial Accounting Standards Board
reached a consensus on EITF Issue No. 00-14, “Accounting for Coupons,
Rebates and Discounts,” requiring the reporting of certain sales
incentives such as consumer coupon redemption costs and off-invoice allowances
as a reduction of net sales. In November 2000, the EITF delayed implementation
of this change until the quarter ended June 30, 2001. The consumer coupon
redemption costs and off-invoice allowances currently being reported in selling,
marketing, and administrative expense will be recorded as a reduction of net
sales on the effective date of the consensus.
Consumer coupon redemption
costs are expensed and recognized at the offer date and measured based on
expected utilization. Off-invoice allowances are expensed and recognized as
incurred. These costs and allowances amounted to $116.1 million, $122.7 million
and $199.4 million in 2000, 1999 and 1998, respectively, and are included in
selling, marketing and administrative expenses in the Consolidated Statements of
Income.
The EITF is also addressing
several related topics that also impact the classification and recognition of
certain sales incentives including:
|
| • |
Issue No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables”; |
| • |
Issue No. 00-22 “Accounting for `Points’ and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the
Future”; and |
| • |
Issue No. 00-25 “Vendor Income Statement Characterization of Consideration from a Vendor
to a Retailer.” |
|
Final consensus has not yet
been reached on Issues No. 00-21, No. 00-22, and No. 00-25, although further
discussion is planned. The Corporation offers sales incentives to its customers
and consumers in the ordinary course of business that are covered by these
Issues. When consensus is reached on these Issues, certain other costs
historically recorded in selling, marketing and administrative expense, which
may be material, may also be reclassified as a reduction to net sales. These
changes will not affect the Corporation’s financial condition or net
income. Upon adoption, all prior period amounts will be reclassified to conform
with the new requirements.
2. ACQUISITION AND
DIVESTITURE
In December 2000, the
Corporation completed the purchase of the intense and breath freshener mints and
gum businesses of Nabisco, Inc. (“Nabisco”). The Corporation paid
$135.0 million to acquire the businesses, including Ice Breakers and
Breath Savers Cool Blasts intense mints, Breath Savers mints, and
Ice Breakers, Carefree, Stick*Free, Bubble Yum and Fruit Stripe
gums. Also included in the purchase were manufacturing machinery and equipment
and a gum-manufacturing plant in Las Piedras, Puerto Rico. These businesses had
sales of approximately $270 million in 1999.
A-18
|
In accordance with the
purchase method of accounting, the purchase price of the acquisition was
allocated on a preliminary basis to the underlying assets and liabilities at the
date of acquisition based on their estimated respective fair values, which may
be revised at a later date. Total liabilities assumed were $30.3 million. Had
the results of the acquisition been included in the consolidated results, the
effect would not have been material.
In January 1999, the
Corporation completed the sale of a 94% majority interest of its U.S. pasta
business to New World Pasta, LLC. The transaction included the American
Beauty, Ideal by San Giorgio, Light ‘n Fluffy, Mrs. Weiss, P&R,
Ronzoni, San Giorgio and Skinner pasta brands, along with six
manufacturing plants. In the first quarter of 1999, the Corporation received
cash proceeds of $450.0 million, retained a 6% minority interest and recorded a
gain of approximately $243.8 million before tax, $165.0 million or $1.17 per
share—diluted after tax, as a result of the transaction. Net sales for the
pasta business were $29.3 million and $373.1 million in 1999 and 1998,
respectively. Net income for the pasta business was $1.5 million and $25.9
million in 1999 and 1998, respectively.
3. COMMITMENTS
Rent expense was $40.8
million, $45.5 million, and $39.6 million for 2000, 1999 and 1998, respectively.
Rent expense pertains to all operating leases, which were principally related to
certain administrative buildings, distribution facilities and transportation
equipment. In December 2000, the Corporation entered into an operating lease
agreement for a warehouse and distribution facility to be constructed in
southern California. The lease term is for approximately ten years and shall
begin upon completion of the facility, but no later than September 1, 2001. The
Corporation or its designee has an option between December 15, 2001 and March
31, 2002 to purchase the facility at original cost. The estimated cost of the
facility, including land, is approximately $38.0 million.
In October 2000, the
Corporation entered into an operating lease agreement to finance the purchase of
a warehouse and distribution facility near Atlanta, Georgia for $18.2 million.
The lease term is five years, with up to four renewal periods of five years each
with the consent of the lessor. The lease provides for a substantial residual
guarantee and includes an option to purchase the facility at original cost. In
July 1999, the Corporation entered into an operating lease agreement to finance
the construction of a warehouse and distribution facility located on land owned
by the Corporation near Hershey, Pennsylvania. Under the agreement, the lessor
paid construction costs totaling $61.7 million. The lease term is six years,
including the one-year construction period, with up to four renewal periods of
five years each with the consent of the lessor. The lease provides for a
substantial residual guarantee and includes an option to purchase the facility
at original cost. Future minimum rental payments under non-cancelable operating
leases with a remaining term in excess of one year as of December 31, 2000,
were: 2001, $21.0 million; 2002, $24.2 million; 2003, $24.0 million; 2004, $23.8
million; 2005, $23.7 million; 2006 and beyond, $67.4 million.
As of December 31, 2000,
the Corporation had entered into purchase agreements with various suppliers.
Subject to the Corporation’s quality standards being met, the purchase
commitments covered by these agreements aggregated approximately $701.7 million
in 2001, $426.8 million in 2002, $280.4 million in 2003, $181.1 million in 2004,
$41.9 million in 2005 and $12.1 million in 2006 and beyond.
4. DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“SFAS No. 133”). Subsequently, the FASB
issued Statement No. 137, “Accounting for Derivative Instruments and
Hedging Activities—Deferral of the Effective Date of FASB Statement No.
133, an amendment of FASB Statement No. 133” and Statement No. 138,
“Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133.” SFAS No. 133, as
amended, establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative’s fair value be recognized currently in earnings unless
A-19
|
specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative’s gains and losses to offset related results on the
hedged item in the income statement, to the extent effective, and requires that
a company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133, as amended,
is effective for fiscal years beginning after June 15, 2000, but may be
implemented as of the beginning of any fiscal quarter after issuance.
Retroactive application is not permitted. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997. Changes in accounting methods will be required for derivative
instruments utilized by the Corporation to hedge commodity price, foreign
currency exchange rate and interest rate risks. Such derivatives include
commodity futures contracts, foreign exchange forward contracts and interest
rate swaps and forward agreements.
The Corporation adopted
SFAS No. 133 as of January 1, 2001. As of December 31, 2000, net deferred
losses on derivatives of approximately $68.5 million after tax would have been
reported as a component of other comprehensive loss and classified as
accumulated other comprehensive loss on the Consolidated Balance Sheets upon
adoption of SFAS No. 133. The adoption of SFAS No. 133 will not have a material
impact on the Corporation’s results of operations.
5. FINANCIAL INSTRUMENTS
The carrying amounts of
financial instruments including cash and cash equivalents, accounts receivable,
accounts payable and short-term debt approximated fair value as of December 31,
2000 and 1999, because of the relatively short maturity of these instruments.
The carrying value of long-term debt, including the current portion, was $878.2
million as of December 31, 2000, compared to a fair value of $920.4 million
based on quoted market prices for the same or similar debt issues. The carrying
value of long-term debt, including the current portion, was $880.7 million as of
December 31, 1999, compared to a fair value of $856.9 million.
As of December 31, 2000,
the Corporation had foreign exchange forward contracts maturing in 2001 and 2002
to purchase $36.3 million in foreign currency, primarily British sterling and
euros, and to sell $11.5 million in foreign currency, primarily Japanese yen, at
contracted forward rates.
As of December 31, 1999,
the Corporation had foreign exchange forward contracts maturing in 2000 and 2001
to purchase $18.0 million in foreign currency, primarily euros and British
sterling and to sell $31.2 million in foreign currency, primarily Canadian
dollars and Japanese yen, at contracted forward rates.
The fair value of foreign
exchange forward contracts is estimated by obtaining quotes for future contracts
with similar terms, adjusted where necessary for maturity differences. As of
December 31, 2000 and 1999, the fair value of foreign exchange forward contracts
approximated the contract value. The Corporation does not hold or issue
financial instruments for trading purposes.
In order to minimize its
financing costs and to manage interest rate exposure, the Corporation, from time
to time, enters into interest rate swaps and forward agreements. In October
1999, the Corporation entered into an interest rate swap agreement to
effectively convert $200 million of 6.7% Notes Due 2005 (“Notes”) to
variable rate debt. In December 2000, the counterparty chose to cancel the
interest rate swap and forward agreements effective April 2, 2001.
Subsequent to this date, the effective interest rate on the Notes will return to
a fixed rate of 6.7%.
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|
6. INTEREST EXPENSE
Interest expense, net
consisted of the following:
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| In thousands of dollars |
|
|
|
| |
| Long-term debt and lease obligations |
|
$64,681 |
|
$66,323 |
|
$67,538 |
|
| Short-term debt | |
16,420 |
|
12,191 |
|
23,657 |
|
| Capitalized interest | |
(145 |
) |
(1,214 |
) |
(2,547 |
) |
|
| Interest expense, gross | |
80,956 |
|
77,300 |
|
88,648 |
|
| Interest income | |
(4,945 |
) |
(3,029 |
) |
(2,991 |
) |
|
| Interest expense, net | |
$76,011 |
|
$74,271 |
|
$85,657 |
|
|
7. SHORT-TERM DEBT
Generally, the
Corporation’s short-term borrowings are in the form of commercial paper or
bank loans with an original maturity of three months or less. As of December 31,
2000, the Corporation maintained a committed credit facility agreement with a
syndicate of banks in the amount of $500 million which could be borrowed
directly or used to support the issuance of commercial paper. The Corporation
may increase the credit facility by $1.0 billion with the concurrence of the
banks. In December 2000, the short-term credit facility agreement was renewed
for a total of $200 million and the long-term committed credit facility
agreement remained in effect for $300 million, expiring in December 2002. The
credit facilities may be used to fund general corporate requirements, to support
commercial paper borrowings and, in certain instances, to finance future
business acquisitions.
The Corporation also
maintains lines of credit arrangements with domestic and international
commercial banks, under which it could borrow in various currencies up to
approximately $27.5 million and $25.0 million as of December 31, 2000 and
1999, respectively, at the lending banks’ prime commercial interest rates
or lower.
The Corporation had
combined domestic commercial paper borrowings and short-term foreign bank loans
against its credit facilities and lines of credit of $257.6 million as of
December 31, 2000, and $209.2 million as of December 31, 1999. The
weighted-average interest rates on short-term borrowings outstanding as of
December 31, 2000 and 1999, were 6.4% and 5.8%, respectively.
The credit facilities and
lines of credit were supported by commitment fee arrangements. The average fee
during 2000 was less than .1% per annum of the commitment. The
Corporation’s credit facility agreements contain a financial covenant which
requires that a specified interest and fixed charge ratio be maintained. These
agreements are also subject to other representations and covenants which do not
materially restrict the Corporation’s activities. The Corporation is in
compliance with all covenants included in the credit facility agreements. There
were no significant compensating balance agreements which legally restricted
these funds.
As a result of maintaining
a consolidated cash management system, the Corporation maintains overdraft
positions at certain banks. Such overdrafts, which were included in accounts
payable, were $22.5 million and $20.4 million as of December 31, 2000 and
1999, respectively.
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|
8. LONG-TERM DEBT
Long-term debt consisted of
the following:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| 6.7% Notes due 2005 |
|
$200,000 |
|
$200,000 |
|
| 6.95% Notes due 2007 | |
150,000 |
|
150,000 |
|
| 6.95% Notes due 2012 | |
150,000 |
|
150,000 |
|
| 8.8% Debentures due 2021 | |
100,000 |
|
100,000 |
|
| 7.2% Debentures due 2027 | |
250,000 |
|
250,000 |
|
| Other obligations, net of unamortized debt discount | |
28,183 |
|
30,653 |
|
|
| Total long-term debt | |
878,183 |
|
880,653 |
|
| Less—current portion | |
529 |
|
2,440 |
|
|
| Long-term portion | |
$877,654 |
|
$878,213 |
|
|
|
In October 1999, the
Corporation entered into an interest rate swap agreement to effectively convert
$200 million of 6.7% Notes due 2005 to variable rate debt. In December 2000, the
counterparty chose to cancel the interest rate swap and forward agreements
effective April 2, 2001. Subsequent to this date, the effective interest rate on
the Notes will return to a fixed rate of 6.7%.
Aggregate annual maturities
during the next five years are: 2001, $.5 million; 2002, $.8 million; 2003,
$17.1 million; 2004, $.1 million; and 2005, $202.1 million. The
Corporation’s debt is principally unsecured and of equal priority. None of
the debt is convertible into stock of the Corporation. The Corporation is in
compliance with all covenants included in the related debt agreements.
9. INCOME TAXES
The provision for income
taxes was as follows:
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| In thousands of dollars |
|
|
|
| |
| Current: |
|
|
|
|
|
|
|
| Federal | |
$ 212,858 |
|
$ 256,054 |
|
$ 119,706 |
|
| State | |
12,184 |
|
15,998 |
|
10,498 |
|
| Foreign | |
3,454 |
|
3,848 |
|
3,673 |
|
|
| Current provision for income taxes | |
228,496 |
|
275,900 |
|
133,877 |
|
|
| Deferred: | |
| Federal | |
(28,108 |
) |
(23,271 |
) |
73,422 |
|
| State | |
11,986 |
|
16,280 |
|
10,568 |
|
| Foreign | |
(278 |
) |
(1,345 |
) |
(1,749 |
) |
|
| Deferred income tax (benefit) provision | |
(16,400 |
) |
(8,336 |
) |
82,241 |
|
|
| Total provision for income taxes | |
$ 212,096 |
|
$ 267,564 |
|
$ 216,118 |
|
|
Deferred taxes reflect
temporary differences between tax reporting and financial statement reporting in
the recognition of revenue and expense. The tax effects of the significant
temporary differences which comprised the deferred tax assets and liabilities
were as follows:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| Deferred tax assets: |
|
|
|
|
|
| Post-retirement benefit obligations | |
$ 84,103 |
|
$ 84,305 |
|
| Accrued expenses and other reserves | |
109,116 |
|
103,232 |
|
| Accrued trade promotion reserves | |
33,987 |
|
34,708 |
|
| Other | |
16,159 |
|
16,513 |
|
|
| Total deferred tax assets | |
243,365 |
|
238,758 |
|
|
| Deferred tax liabilities: | |
| Depreciation | |
256,769 |
|
289,369 |
|
| Inventory | |
24,025 |
|
7,304 |
|
| Other | |
186,934 |
|
187,827 |
|
|
| Total deferred tax liabilities | |
467,728 |
|
484,500 |
|
|
| Net deferred tax liabilities | |
$224,363 |
|
$245,742 |
|
|
| Included in: | |
| Current deferred tax assets, net | |
$ 76,136 |
|
$ 80,303 |
|
| Non-current deferred tax liabilities, net | |
300,499 |
|
326,045 |
|
|
| Net deferred tax liabilities | |
$224,363 |
|
$245,742 |
|
|
|
The following table
reconciles the Federal statutory income tax rate with the Corporation’s
effective income tax rate:
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| Federal statutory income tax rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
| Increase (reduction) resulting from: | |
| State income taxes, net of Federal income tax benefits | |
3.5 |
|
2.3 |
|
3.0 |
|
| Non-deductible acquisition costs | |
.8 |
|
.6 |
|
.9 |
|
| Utilization of capital loss carryforwards | |
— |
|
(.9 |
) |
— |
|
| Other, net | |
(.5 |
) |
(.2 |
) |
(.1 |
) |
|
| Effective income tax rate | |
38.8 |
% |
36.8 |
% |
38.8 |
% |
|
|
In January 1999, the
Corporation received a Notice of Proposed Deficiency (“Notice”) from
the Internal Revenue Service (“IRS”) related to the years 1989 through
1996. The Notice pertained to the Corporate Owned Life Insurance
(“COLI”) program which was implemented by the Corporation in 1989. The
IRS disallowed the interest expense deductions associated with the underlying
life insurance policies. The total deficiency of $61.2 million, including
interest, was paid to the IRS in September 2000 to eliminate further accruing of
interest. The Corporation may be subject to additional assessments for federal
taxes and interest for 1997 and 1998 and for state taxes and interest for 1989
through 1998. The Corporation believes that it has fully complied with the tax
law as it relates to its COLI program, has filed for the refund of amounts paid
and will continue to seek favorable resolution of this matter.
10. PENSION AND OTHER
POST-RETIREMENT BENEFIT PLANS
The Corporation’s
policy is to fund domestic pension liabilities in accordance with the minimum
and maximum limits imposed by the Employee Retirement Income Security Act of
1974 and Federal income tax laws, respectively. Non-domestic pension liabilities
are funded in accordance with applicable local laws and regulations. Plan assets
are invested in a broadly diversified portfolio consisting primarily of domestic
and international common stocks and fixed income securities. Other benefits
include health care and life insurance provided by the Corporation under two
post-retirement benefit plans.
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|
A summary of the changes in
benefit obligations and plan assets as of December 31, 2000 and 1999 is
presented below:
|
|
Pension Benefits
|
Other Benefits
|
| December 31, |
2000 |
1999 |
2000 |
1999 |
|
| In thousands of dollars |
| |
| Change in benefits obligation |
|
|
|
|
|
|
|
|
|
| Benefits obligation at beginning of year | |
$ 627,710 |
|
$ 692,422 |
|
$ 214,510 |
|
$ 251,040 |
|
| Service cost | |
27,961 |
|
31,050 |
|
3,184 |
|
3,803 |
|
| Interest cost | |
45,710 |
|
41,781 |
|
14,056 |
|
13,813 |
|
| Amendments | |
2,362 |
|
16,404 |
|
— |
|
(11,092 |
) |
| Actuarial loss (gain) | |
7,243 |
|
(93,537 |
) |
36,785 |
|
(32,285 |
) |
| Acquisition/(divestiture) | |
6,980 |
|
(8,648 |
) |
514 |
|
— |
|
| Other | |
(1,031 |
) |
3,185 |
|
(148 |
) |
222 |
|
| Benefits paid | |
(61,757 |
) |
(54,947 |
) |
(12,594 |
) |
(10,991 |
) |
|
| Benefits obligation at end of year | |
655,178 |
|
627,710 |
|
256,307 |
|
214,510 |
|
|
| Change in plan assets | |
| Fair value of plan assets at beginning of year | |
650,699 |
|
628,041 |
|
— |
|
— |
|
| Actual return on plan assets | |
(1,155 |
) |
74,511 |
|
— |
|
— |
|
| Acquisition/(divestiture) | |
5,739 |
|
(5,993 |
) |
— |
|
— |
|
| Employer contribution | |
10,323 |
|
6,253 |
|
12,594 |
|
10,991 |
|
| Other | |
(978 |
) |
2,834 |
|
— |
|
— |
|
| Benefits paid | |
(61,757 |
) |
(54,947 |
) |
(12,594 |
) |
(10,991 |
) |
|
| Fair value of plan assets at end of year | |
602,871 |
|
650,699 |
|
— |
|
— |
|
|
| Funded status | |
(52,307 |
) |
22,989 |
|
(256,307 |
) |
(214,510 |
) |
| Unrecognized transition asset | |
(56 |
) |
(308 |
) |
— |
|
— |
|
| Unrecognized prior service cost | |
48,201 |
|
49,046 |
|
(16,805 |
) |
(24,842 |
) |
| Unrecognized net actuarial (gain) loss | |
(36,138 |
) |
(105,839 |
) |
63,032 |
|
26,085 |
|
| Accumulated other comprehensive (loss) | |
(1,528 |
) |
— |
|
— |
|
— |
|
| Prior service cost recognized due to curtailment | |
— |
|
— |
|
— |
|
17,034 |
|
| Unrecognized prior service cost due to amendment | |
— |
|
— |
|
— |
|
(11,105 |
) |
|
| (Accrued) benefits cost | |
$(41,828 |
) |
$ (34,112 |
) |
$(210,080 |
) |
$ (207,338 |
) |
|
| Weighted-average assumptions | |
| Discount rate | |
7.5 |
% |
7.5 |
% |
7.5 |
% |
7.5 |
% |
| Expected long-term rate of return on assets | |
9.5 |
|
9.5 |
|
N/A |
|
N/A |
|
| Rate of increase in compensation levels | |
4.9 |
|
4.8 |
|
N/A |
|
N/A |
|
|
For measurement purposes,
an 8% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2001 and future years.
The Corporation’s
acquisition of Nabisco’s mint and gum businesses in December 2000 included
its Hourly Pension Plan for employees at the Las Piedras, Puerto Rico
manufacturing plant. Salaried employees at the plant were covered by the Hershey
Foods Corporation Retirement Plan as of December 31, 2000 for services
subsequent to the date of acquisition.
As of December 31, 2000,
for pension plans with accumulated benefit obligations in excess of plan assets,
the related projected benefit obligation and accumulated benefit obligation were
$36.5 million and $34.9 million, respectively, with no plan assets.
As of December 31, 1999,
for pension plans with accumulated benefit obligations in excess of plan assets,
the related projected benefit obligation and accumulated benefit obligation were
$36.4 million and $35.0 million, respectively, with no plan assets.
A minimum pension liability
adjustment is required when the actuarial present value of accumulated plan
benefits exceeds plan assets and accrued pension liabilities. In 2000, a minimum
liability adjustment of $1.5 million, net of a deferred tax benefit of $.6
million, was recorded as a component of other
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|
comprehensive income (loss) and
reported in accumulated other comprehensive loss as a component of
stockholders’ equity. In 1999, accrued pension liabilities exceeded the
actuarial present value of accumulated plan benefits because the discount rate
used to determine the present value of accumulated benefits increased from 6.4%
to 7.5% and a plan amendment shifted benefits from an unfunded pension plan to a
funded plan. Accordingly, a minimum pension liability adjustment of $4.1
million, initially recorded in other comprehensive income in 1998, was reversed
in 1999, net of deferred income taxes of $2.7 million.
A summary of the components
of net periodic benefits cost for the years ended December 31, 2000 and 1999 is
presented below:
|
|
Pension Benefits
|
Other Benefits
|
| For the years ended December 31, |
2000 |
1999 |
2000 |
1999 |
|
| In thousands of dollars |
| |
| Components of net periodic benefits cost |
|
|
|
|
|
|
|
|
|
| Service cost | |
$ 27,961 |
|
$ 31,050 |
|
$ 3,184 |
|
$ 3,803 |
|
| Interest cost | |
45,710 |
|
41,781 |
|
14,056 |
|
13,813 |
|
| Expected return on plan assets | |
(60,143 |
) |
(57,836 |
) |
— |
|
— |
|
| Amortization of prior service cost | |
3,783 |
|
2,956 |
|
(2,165 |
) |
(2,293 |
) |
| Recognized net actuarial (gain) loss | |
(286 |
) |
341 |
|
— |
|
1,042 |
|
| Amortization of unrecognized (gain) | |
(2,670 |
) |
— |
|
— |
|
— |
|
| Other | |
— |
|
— |
|
(41 |
) |
54 |
|
|
| Corporate sponsored plans | |
14,355 |
|
18,292 |
|
15,034 |
|
16,419 |
|
| Multi-employer plans | |
577 |
|
698 |
|
— |
|
— |
|
| Administrative expenses | |
421 |
|
287 |
|
— |
|
— |
|
|
| Net periodic benefits cost | |
$ 15,353 |
|
$ 19,277 |
|
$ 15,034 |
|
$ 16,419 |
|
|
|
The Corporation has two
post-retirement benefit plans. The health care plan is contributory, with
participants’ contributions adjusted annually, and the life insurance plan
is non-contributory. During the first quarter of 1999, for all eligible
employees under age 45, the Corporation provided annual contributions into the
Employee Savings Stock Investment and Ownership Plan (“ESSIOP”)
instead of providing coverage under the current retiree medical plan. This
change resulted in the immediate recognition of a $15.4 million pre-tax gain
which is not included above as a component of net periodic benefits costs. The
changes applied primarily to U.S. hourly employees working in Pennsylvania.
Assumed health care cost
trend rates have a significant effect on the amounts reported for the health
care plans. A one percentage point change in assumed health care cost trend
rates would have the following effects:
|
|
1 Percentage Point
Increase |
1 Percentage Point
(Decrease) |
|
| In thousands of dollars |
|
|
| |
| Effect on total service and interest cost components |
|
$ 952 |
|
$ (816 |
) |
| Effect on post-retirement benefit obligation | |
13,241 |
|
(11,880 |
) |
11. EMPLOYEE STOCK
OWNERSHIP TRUST
The Corporation’s
employee stock ownership trust (“ESOP”) serves as the primary vehicle
for contributions to its existing ESSIOP for participating domestic salaried and
hourly employees. The ESOP was funded by a 15-year 7.75% loan of $47.9 million
from the Corporation. During 2000 and 1999, the ESOP received a combination of
dividends on unallocated shares and contributions from the Corporation equal to
the amount required to meet its principal and interest payments under the loan.
Simultaneously, the ESOP allocated to participants 159,176 shares of Common
Stock each year. As of December 31, 2000, the ESOP held 1,058,028 allocated
shares and 955,048 unallocated shares. All ESOP shares are considered
outstanding for income per share computations.
The Corporation recognized
net compensation expense equal to the shares allocated multiplied by the
original cost of $20 1/16 per share less dividends received by the ESOP on
unallocated shares.
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|
Compensation expense related to the ESOP for 2000, 1999 and
1998 was $3.2 million, $1.6 million and $1.0 million, respectively. Dividends
paid on unallocated ESOP shares were $1.1 million in 2000 and $1.2 million in
both 1999 and 1998. The unearned ESOP compensation balance in stockholders’
equity represented deferred compensation expense to be recognized by the
Corporation in future years as additional shares are allocated to participants.
12. CAPITAL STOCK AND
NET INCOME PER SHARE
As of December 31, 2000,
the Corporation had 530,000,000 authorized shares of capital stock. Of this
total, 450,000,000 shares were designated as Common Stock, 75,000,000 shares as
Class B Common Stock (“Class B Stock”), and 5,000,000 shares as
Preferred Stock, each class having a par value of one dollar per share. As of
December 31, 2000, a combined total of 179,950,872 shares of both classes
of common stock had been issued of which 136,281,588 shares were outstanding. No
shares of the Preferred Stock were issued or outstanding during the three-year
period ended December 31, 2000.
Holders of the Common Stock
and the Class B Stock generally vote together without regard to class on matters
submitted to stockholders, including the election of directors, with the Common
Stock having one vote per share and the Class B Stock having ten votes per
share. However, the Common Stock, voting separately as a class, is entitled to
elect one-sixth of the Board of Directors. With respect to dividend rights, the
Common Stock is entitled to cash dividends 10% higher than those declared and
paid on the Class B Stock.
Class B Stock can be
converted into Common Stock on a share-for-share basis at any time. During 2000,
1999 and 1998, a total of 2,050 shares, 4,000 shares and 18,000 shares,
respectively, of Class B Stock were converted into Common Stock.
In December 2000, the
Corporation’s Board of Directors unanimously adopted a Stockholder
Protection Rights Agreement and declared a dividend of one right
(“Right”) for each outstanding share of Common Stock and Class B Stock
payable to stockholders of record at the close of business on December 26, 2000.
The Rights will at no time have voting power or receive dividends. The issuance
of the Rights has no dilutive effect, will not affect reported earnings per
share, is not taxable and will not change the manner in which the
Corporation’s Common Stock is traded.
The Rights become
exercisable only upon (i) resolution of the Board of Directors after any person
has commenced a tender offer that would result in such person becoming the
beneficial owner of 15% or more of the Common Stock, (ii) the Corporation’s
announcement that a person or group has acquired 15% or more of the outstanding
shares of Common Stock, or (iii) a person or group becoming the beneficial owner
of more than 35% of the voting power of all of the outstanding Common Stock and
Class B Stock. When exercisable, each Right entitles its registered holder to
purchase from the Corporation, at a pre-determined exercise price, one
one-thousandth of a share of Series A Participating Preferred Stock, par value
$1.00 per share (which would be convertible by holders of Class B Stock into
Series B Participating Preferred Stock on the basis of one one-thousandth of a
share of Series B Participating Preferred Stock for every share of Class B
Common Stock held at that time). Each one one-thousandth of a share of Series A
Participating Preferred Stock would have economic and voting terms similar to
those of one share of Common Stock. Similarly, each one one-thousandth of a
share of Series B Participating Preferred Stock would have economic and voting
terms similar to those of one share of Class B Stock.
Upon the earlier of (a) a
public announcement by the Corporation that a person or group has acquired 15%
or more of the outstanding shares of Common Stock or (b) such person or group
acquiring more than 35% of the voting power of the Common Stock and Class B
Stock, each Right (except those owned by the acquiring person or group) will
automatically become a right to buy, at the pre-determined exercise price, that
number of one one-thousandth of a share of Series A Participating Preferred
Stock having a market value of twice the exercise price. In addition, if the
Corporation is acquired in a merger or other business combination, each Right
will entitle a holder to purchase from the acquiring company, for the
pre-determined exercise price, preferred stock of the acquiring company having
an aggregate market value equal to twice the exercise price.
A-26
|
Further, at any time after
a person or group acquires 15% or more (but less than 50%) of the
Corporation’s Common Stock or more than 35% of the voting power of all
outstanding Common Stock and Class B Stock, the Corporation’s Board of
Directors may, at its option, exchange all (but not less than all) of the
outstanding Preferred Stock (other than Rights held by the acquiring person or
group) for shares of Common Stock or Class B Stock, as applicable, at an
exchange ratio of one share of Common Stock or Class B Stock for each one
one-thousandth of a share of Preferred Stock.
The Corporation, solely at
its option, may amend the Rights or redeem the Rights for $.01 per Right at any
time before the acquisition by a person or group of beneficial ownership of 15%
or more of its Common Stock or more than 35% of the voting power of all of the
outstanding Common Stock and Class B Stock. Unless redeemed earlier or extended
by the Corporation, the Rights will expire on December 14, 2010.
Hershey Trust Company, as
Trustee for the benefit of Milton Hershey School (“Milton Hershey School
Trust”), as institutional fiduciary for estates and trusts unrelated to
Milton Hershey School, and as direct owner of investment shares, held a total of
12,787,537 shares of the Common Stock, and as Trustee for the benefit of Milton
Hershey School, held 30,306,006 shares of the Class B Stock as of December 31,
2000, and was entitled to cast approximately 77% of the total votes of both
classes of the Corporation’s common stock. The Milton Hershey School Trust
must approve the issuance of shares of Common Stock or any other action which
would result in the Milton Hershey School Trust not continuing to have voting
control of the Corporation.
Changes in outstanding
Common Stock for the past three years were:
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| Shares issued |
|
179,950,872 |
|
179,950,872 |
|
179,950,872 |
|
|
| Treasury shares at beginning of year | |
(41,491,253 |
) |
(36,804,157 |
) |
(37,018,566 |
) |
| Stock repurchases: | |
| Repurchase programs | |
(2,284,539 |
) |
(5,478,379 |
) |
(250,400 |
) |
| Stock options and benefits | |
(957,261 |
) |
— |
|
(343,300 |
) |
| Stock issuances: | |
| Stock options and benefits | |
1,063,769 |
|
791,283 |
|
808,109 |
|
|
| Treasury shares at end of year | |
(43,669,284 |
) |
(41,491,253 |
) |
(36,804,157 |
) |
|
| Net shares outstanding at end of year | |
136,281,588 |
|
138,459,619 |
|
143,146,715 |
|
|
|
Basic and Diluted Earnings
per Share were computed based on the weighted-average number of shares of the
Common Stock and the Class B Stock outstanding as follows:
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| In thousands of dollars except per share amounts |
|
|
|
| |
| Net income |
|
$334,543 |
|
$460,310 |
|
$340,888 |
|
|
| Weighted-average shares—basic | |
137,326 |
|
140,031 |
|
143,446 |
|
| Effect of dilutive securities: | |
| Employee stock options | |
1,016 |
|
1,260 |
|
2,008 |
|
| Performance and restricted stock units | |
23 |
|
9 |
|
109 |
|
|
| Weighted-average shares—diluted | |
138,365 |
|
141,300 |
|
145,563 |
|
|
| Net income per share—basic | |
$ 2.44 |
|
$ 3.29 |
|
$ 2.38 |
|
|
| Net income per share—diluted | |
$ 2.42 |
|
$ 3.26 |
|
$ 2.34 |
|
|
|
For the years ended
December 31, 2000 and 1999, 5.5 million and 1.8 million stock options,
respectively, were not included in the diluted earnings per share calculation
because the exercise price was higher than the average market price of the
Common Stock for the year and therefore, the effect would have been
antidilutive.
A-27
|
13. STOCK COMPENSATION
PLAN
The long-term portion of
the Key Employee Incentive Plan (“Incentive Plan”), provides for
grants of stock-based compensation awards to senior executives and key employees
of one or more of the following: non-qualified stock options (fixed stock
options), performance stock units, stock appreciation rights and restricted
stock units. The Incentive Plan also provides for the deferral of performance
stock unit awards by participants. As of December 31, 2000, 15.3 million shares
were authorized for grants under the long-term portion of the Incentive Plan.
In 1996, the
Corporation’s Board of Directors approved a world-wide, broad-based
employee stock option program, called HSY Growth. HSY Growth provides all
eligible employees with a one-time grant of 100 non-qualified stock options.
Under HSY Growth, over 1.2 million options were granted on January 7, 1997.
The Corporation applies
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees,” and related Interpretations, in accounting for the
Incentive Plan and HSY Growth. Accordingly, no compensation cost has been
recognized for its fixed stock option grants. Had compensation cost for the
Corporation’s stock-based compensation plans been determined based on the
fair value at the grant dates for awards under the Incentive Plan and HSY Growth
consistent with the method of Statement of Financial Accounting Standards No.
123, “Accounting for Stock-Based Compensation,” the
Corporation’s net income and net income per share would have been reduced
to the pro forma amounts indicated below:
|
| For the years ended December 31, |
|
2000 |
1999 |
1998 |
|
| In thousands of dollars except per share amounts |
|
| |
| Net income |
|
As reported |
|
$334,543 |
|
$460,310 |
|
$340,888 |
|
| | |
Pro forma | |
328,156 |
|
449,986 |
|
329,621 |
|
| |
| Net income per share—Basic | |
As reported | |
$ 2.44 |
|
$ 3.29 |
|
$ 2.38 |
|
| | |
Pro forma | |
2.39 |
|
3.21 |
|
2.30 |
|
| |
| Net income per share—Diluted | |
As reported | |
$ 2.42 |
|
$ 3.26 |
|
$ 2.34 |
|
| | |
Pro forma | |
2.37 |
|
3.18 |
|
2.26 |
|
|
The fair value of each option grant is estimated on the date of grant using a Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 2000, 1999 and
1998, respectively: dividend yields of 1.8%, 1.4% and 1.6%, expected volatility
of 27%, 23% and 21%, risk-free interest rates of 6.7%, 4.9% and 5.9%, and
expected lives of 6.5 years for all periods.
Fixed Stock
Options
The exercise price of each
option equals the market price of the Corporation’s Common Stock on the
date of grant. Each option has a maximum term of ten years. Options granted
under the Incentive Plan prior to December 31, 1999, vest at the end of the
second year after grant. In 2000, the terms and conditions of the grant were
changed to provide for pro-rated vesting over four years for options granted
subsequent to December 31, 1999. Options granted under the HSY Growth program
vest at the end of the fifth year and have a term of ten years.
A-28
|
A summary of the status of
the Corporation’s fixed stock options as of December 31, 2000, 1999 and
1998, and changes during the years ending on those dates is presented below:
|
|
2000
|
1999
|
1998
|
| Fixed Options |
Shares |
Weighted-
Average
Exercise
Price |
Shares |
Weighted-
Average
Exercise
Price |
Shares |
Weighted-
Average
Exercise
Price |
|
| Outstanding at beginning of year |
|
6,905,924 |
|
$40.23 |
|
7,665,270 |
|
$38.91 |
|
6,713,920 |
|
$31.73 |
|
| Granted | |
2,403,400 |
|
$44.99 |
|
197,450 |
|
$59.24 |
|
1,739,050 |
|
$61.22 |
|
| Exercised | |
(933,219 |
) |
$26.19 |
|
(701,596 |
) |
$26.80 |
|
(751,600 |
) |
$25.78 |
|
| Forfeited | |
(77,440 |
) |
$49.81 |
|
(255,200 |
) |
$52.16 |
|
(36,100 |
) |
$52.61 |
|
|
| Outstanding at end of year | |
8,298,665 |
|
$43.10 |
|
6,905,924 |
|
$40.23 |
|
7,665,270 |
|
$38.91 |
|
|
| Options exercisable at year-end | |
4,655,855 |
|
$41.24 |
|
4,015,624 |
|
$29.78 |
|
4,480,670 |
|
$28.45 |
|
|
| Weighted-average fair value of | |
| options granted during the | |
| year (per share) | |
$ 15.58 |
|
|
|
$ 17.23 |
|
|
|
$ 18.30 |
|
|
|
|
|
The following table
summarizes information about fixed stock options outstanding as of
December 31, 2000:
|
|
Options Outstanding
|
Options Exercisable
|
Range of Exercise
Prices |
Number
Outstanding as
of 12/31/00 |
Weighted-
Average
Remaining
Contractual
Life in Years |
Weighted-
Average
Exercise Price |
Number
Exercisable as of
12/31/00 |
Weighted-
Average
Exercise Price |
|
| $22.375-37.625 |
|
2,836,955 |
|
4.2 |
|
$29.63 |
|
2,836,955 |
|
$29.63 |
|
| $41.00-45.00 |
|
3,675,610 |
|
7.9 |
|
$44.81 |
|
230,250 |
|
$44.50 |
|
| $49.813-63.875 |
|
1,786,100 |
|
7.1 |
|
$60.96 |
|
1,588,650 |
|
$61.50 |
|
|
| $22.375-63.875 |
|
8,298,665 |
|
6.5 |
|
$43.10 |
|
4,655,855 |
|
$41.24 |
|
|
Performance
Stock Units
Under the long-term portion
of the Incentive Plan, each January the Corporation grants selected executives
and other key employees performance stock units whose vesting is contingent upon
the achievement of certain performance objectives. If at the end of the
applicable three-year performance cycle, targets for financial measures of
earnings per share, economic value added and free cash flow are met, the full
number of shares are awarded to the participants. The performance scores can
range from 0% to 150% of the targeted amounts. The compensation amount charged
against (credited to) income for the performance-based plan was $1.8 million,
$(1.9) million and $6.6 million for 2000, 1999 and 1998, respectively. The
compensation credit in 1999 resulted from a partial achievement of the 1999
cycle objectives, expectation of partially achieving the target objectives for
the 2000 cycle and the lower stock price. The compensation cost associated with
the long-term portion of the Incentive Plan is recognized ratably over the
three-year term based on the year-end market value of the stock. Performance
stock units and restricted stock units granted for potential future distribution
were as follows:
|
| For the years ended December 31, |
2000 |
1999 |
1998 |
|
| Shares granted |
|
58,550 |
|
48,550 |
|
48,150 |
|
| Weighted-average fair value at date of grant | |
$ 49.65 |
|
$ 59.48 |
|
$ 61.54 |
|
|
Deferred performance stock
units, deferred directors’ fees and accumulated dividend amounts totaled
353,874 shares as of December 31, 2000.
No stock appreciation
rights were outstanding as of December 31, 2000.
A-29
|
14. SUPPLEMENTAL BALANCE
SHEET INFORMATION
Accounts
Receivable—Trade
In the normal course of
business, the Corporation extends credit to customers which satisfy pre-defined
credit criteria. The Corporation believes that it has little concentration of
credit risk due to the diversity of its customer base. Receivables, as shown on
the Consolidated Balance Sheets, were net of allowances and anticipated
discounts of $16.0 million and $16.9 million as of December 31, 2000 and 1999,
respectively.
Inventories
The Corporation values the
majority of its inventories under the last-in, first-out (“LIFO”)
method and the remaining inventories at the lower of first-in, first-out
(“FIFO”) cost or market. LIFO cost of inventories valued using the
LIFO method was $456.7 million and $469.2 million as of December 31, 2000
and 1999, respectively, and inventories were stated at amounts that did not
exceed realizable values. Total inventories were as follows:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| Raw materials |
|
$ 263,658 |
|
$ 270,711 |
|
| Goods in process | |
47,866 |
|
49,412 |
|
| Finished goods | |
338,749 |
|
365,575 |
|
|
| Inventories at FIFO | |
650,273 |
|
685,698 |
|
| Adjustment to LIFO | |
(45,100 |
) |
(83,496 |
) |
|
| Total inventories | |
$ 605,173 |
|
$ 602,202 |
|
|
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other
current assets were as follows:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| Hedging transactions |
|
$141,572 |
|
$ 74,243 |
|
| Other | |
60,818 |
|
52,404 |
|
|
| Total prepaid expenses and other | |
$202,390 |
|
$126,647 |
|
|
|
Hedging transactions were
associated with exchange traded futures contracts entered into to manage price
risk related to the purchase of raw materials for manufacturing requirements.
Property,
Plant and Equipment
Property, plant and
equipment balances included construction in progress of $125.0 million and $76.6
million as of December 31, 2000 and 1999, respectively. Major classes of
property, plant and equipment were as follows:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| Land |
|
$ 53,725 |
|
$ 50,830 |
|
| Buildings | |
502,419 |
|
484,768 |
|
| Machinery and equipment | |
2,208,701 |
|
2,036,670 |
|
|
| Property, plant and equipment, gross | |
2,764,845 |
|
2,572,268 |
|
| Accumulated depreciation | |
(1,179,457 |
) |
(1,061,808 |
) |
|
| Property, plant and equipment, net | |
$ 1,585,388 |
|
$ 1,510,460 |
|
|
Accrued
Liabilities
Accrued liabilities were as
follows:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| Payroll, compensation and benefits |
|
$107,914 |
|
$ 98,527 |
|
| Advertising and promotion | |
135,123 |
|
71,233 |
|
| Other | |
115,030 |
|
122,737 |
|
|
| Total accrued liabilities | |
$358,067 |
|
$292,497 |
|
|
Other
Long-term Liabilities
Other long-term liabilities
were as follows:
|
| December 31, |
2000 |
1999 |
|
| In thousands of dollars |
|
|
| |
| Accrued post-retirement benefits |
|
$194,354 |
|
$194,563 |
|
| Other | |
133,320 |
|
136,375 |
|
|
| Total other long-term liabilities | |
$327,674 |
|
$330,938 |
|
|
15. SEGMENT INFORMATION
The Corporation operates in a
single consumer foods line of business, encompassing the manufacture,
distribution and sale of confectionery and grocery products. Consolidated net
sales represented primarily sales of confectionery products. The
Corporation’s principal operations and markets are located in the United
States. The Corporation also manufactures, markets, sells and distributes
confectionery and grocery products in Canada and Mexico, imports and/or markets
selected confectionery products in Japan, the Philippines, China and Korea, and
markets confectionery products in over 90 countries worldwide.
Net sales and long-lived
assets of businesses outside of the United States were not significant. Sales to
Wal-Mart Stores, Inc. and Subsidiaries exceeded 10% of total net sales and
amounted to approximately $710.9 million, $605.3 million and $619.1 million in
2000, 1999 and 1998, respectively.
16. QUARTERLY DATA
(Unaudited)
Summary quarterly results
were as follows:
|
| Year 2000 |
First |
Second |
Third |
Fourth |
|
| In thousands of dollars except per share amounts |
| |
| Net sales |
|
$993,115 |
|
$836,204 |
|
$1,196,755 |
|
$1,194,902 |
|
| Gross profit | |
388,018 |
|
334,134 |
|
500,324 |
|
527,349 |
|
| Net income | |
71,180 |
|
39,996 |
|
107,405 |
|
115,962 |
|
| Net income per share—Basic(a) | |
.51 |
|
.29 |
|
.78 |
|
.85 |
|
| Net income per share—Diluted | |
.51 |
|
.29 |
|
.78 |
|
.84 |
|
| Year 1999 |
First |
Second |
Third |
Fourth |
|
| In thousands of dollars except per share amounts |
| |
| Net sales |
|
$945,152 |
|
$853,239 |
|
$1,066,695 |
|
$1,105,838 |
|
| Gross profit | |
382,988 |
|
340,443 |
|
432,653 |
|
460,116 |
|
| Net income | |
224,670 |
(b) |
50,055 |
|
87,578 |
|
98,007 |
|
| Net income per share—Basic(a) | |
1.58 |
|
.36 |
|
.63 |
|
.71 |
|
| Net income per share—Diluted(a) | |
1.57 |
|
.35 |
|
.62 |
|
.70 |
|
| (a) |
|
Quarterly
income per share amounts do not total to the annual amounts due to changes in
weighted-average shares outstanding during the year. |
| (b) |
|
Net
income for the first quarter and year 1999 included an after-tax gain on the sale of the
Corporation’s pasta business of $165.0 million. Net income per share was similarly
impacted. |
RESPONSIBILITY FOR
FINANCIAL STATEMENTS
Hershey Foods Corporation
is responsible for the financial statements and other financial information
contained in this report. The Corporation believes that the financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States appropriate under the circumstances to reflect in all
material respects the substance of applicable events and transactions. In
preparing the financial statements, it is necessary that management make
informed estimates and judgments. The other financial information in this annual
report is consistent with the financial statements.
The Corporation maintains a
system of internal accounting controls designed to provide reasonable assurance
that financial records are reliable for purposes of preparing financial
statements and that assets are properly accounted for and safeguarded. The
concept of reasonable assurance is based on the recognition that the cost of the
system must be related to the benefits to be derived. The Corporation believes
its system provides an appropriate balance in this regard. The Corporation
maintains an Internal Audit Department which reviews the adequacy and tests the
application of internal accounting controls.
The financial statements
have been audited by Arthur Andersen LLP, independent public accountants, whose
appointment was ratified by stockholder vote at the stockholders’ meeting
held on April 25, 2000. Their report expresses an opinion that the
Corporation’s financial statements are fairly stated in conformity with
accounting principles generally accepted in the United States, and they have
indicated to us that their audit was performed in accordance with auditing
standards generally accepted in the United States which are designed to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.
The Audit Committee of the Board of Directors of the Corporation, consisting solely of non-management directors,
meets regularly with the independent public accountants, internal auditors and
management to discuss, among other things, the audit scopes and results.
Arthur Andersen LLP and the internal auditors both have full and free
access to the Audit Committee, with and without the presence of management.
A-32
|
REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors
of Hershey Foods Corporation:
We have audited the
accompanying consolidated balance sheets of Hershey Foods Corporation (a
Delaware Corporation) and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, cash flows and stockholders’
equity for each of the three years in the period ended December 31, 2000,
appearing on pages A-12 through A-31. These financial statements are the
responsibility of the Corporation’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.
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, the
financial statements referred to above present fairly, in all material respects,
the financial position of Hershey Foods Corporation and subsidiaries as of
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
|
|
New York, New York
January 26, 2001
A-33
|
HERSHEY FOODS
CORPORATION
ELEVEN-YEAR CONSOLIDATED FINANCIAL SUMMARY
All dollar and share
amounts in thousands except
market price and per share statistics
|
|
10-Year
Compound
Growth Rate
|
2000
|
1999
|
1998
|
| Summary of Operations |
|
|
|
|
|
|
|
|
|
| Net Sales | |
4.5 |
% |
$4,220,976 |
|
3,970,924 |
|
4,435,615 |
|
|
| Cost of Sales | |
4.5 |
% |
$2,471,151 |
|
2,354,724 |
|
2,625,057 |
|
| Selling, Marketing and Administrative | |
3.8 |
% |
$1,127,175 |
|
1,057,840 |
|
1,167,895 |
|
| Non-recurring Credits/(Charges)(o) | |
|
|
$ — |
|
243,785 |
|
— |
|
| Interest Expense, Net | |
11.9 |
% |
$ 76,011 |
|
74,271 |
|
85,657 |
|
| Provision for Income Taxes | |
3.8 |
% |
$ 212,096 |
|
267,564 |
|
216,118 |
|
|
| Income from Continuing Operations | |
| Before Accounting Changes | |
4.5 |
% |
$ 334,543 |
|
460,310 |
|
340,888 |
|
| Net Cumulative Effect of Accounting Changes | |
|
|
$ — |
|
— |
|
— |
|
|
| Net Income | |
4.5 |
% |
$ 334,543 |
|
460,310 |
|
340,888 |
|
|
| Income Per Share:(a) | |
| From Continuing Operations Before | |
| Accounting Changes | |
| —Basic | |
7.4 |
% |
$ 2.44 |
|
3.29 |
(i) |
2.38 |
|
| —Diluted | |
7.4 |
% |
$ 2.42 |
|
3.26 |
|
2.34 |
|
| Net Cumulative Effect of Accounting Changes |
|
| —Basic and Diluted |
|
|
|
$ — |
|
— |
|
— |
|
| Net Income—Basic | |
7.4 |
% |
$ 2.44 |
|
3.29 |
(i) |
2.38 |
|
| Net Income—Diluted | |
7.4 |
% |
$ 2.42 |
|
3.26 |
|
2.34 |
|
| Weighted-Average Shares Outstanding—Basic(a) | |
|
|
137,326 |
|
140,031 |
|
143,446 |
|
| Weighted-Average Shares Outstanding-—Diluted(a) | |
|
|
138,365 |
|
141,300 |
|
145,563 |
|
| Dividends Paid on Common Stock | |
4.5 |
% |
$ 115,209 |
|
109,175 |
|
103,616 |
|
| Per Share(a) | |
8.1 |
% |
$ 1.08 |
|
1.00 |
|
.920 |
|
| Dividends Paid on Class B Common Stock | |
8.1 |
% |
$ 29,682 |
|
27,553 |
|
25,428 |
|
| Per Share(a) | |
8.2 |
% |
$ .975 |
|
.905 |
|
.835 |
|
| Income from Continuing Operations Before | |
| Accounting Changes as a Percent of Net Sales |
|
|
|
7.9 |
% |
7.4 |
%(c) |
7.7 |
% |
| Depreciation | |
8.5 |
% |
$ 140,168 |
|
135,574 |
|
138,489 |
|
| Advertising | |
1.0 |
% |
$ 161,580 |
|
164,894 |
|
187,505 |
|
| Promotion | |
3.4 |
% |
$ 441,914 |
|
395,849 |
|
469,709 |
|
| Payroll | |
4.1 |
% |
$ 557,342 |
|
534,854 |
|
563,045 |
|
| Year-end Position and Statistics | |
| Capital Additions | |
(2.6 |
)% |
$ 138,333 |
|
115,448 |
|
161,328 |
|
| Capitalized Software Additions | |
N/A |
|
$ 4,686 |
|
25,394 |
|
42,859 |
|
| Total Assets | |
5.2 |
% |
$3,447,764 |
|
3,346,652 |
|
3,404,098 |
|
| Long-term Portion of Debt | |
12.4 |
% |
$ 877,654 |
|
878,213 |
|
879,103 |
|
| Stockholders' Equity | |
(.6 |
)% |
$1,175,036 |
|
1,098,627 |
|
1,042,301 |
|
| Operating Return on Average Stockholders' Equity(b) | |
|
|
29.4 |
% |
27.6 |
% |
36.0 |
% |
| Operating Return on Average Invested Capital(b) | |
|
|
16.1 |
% |
14.8 |
% |
17.4 |
% |
| Full-time Employees | |
|
|
14,300 |
|
13,900 |
|
14,700 |
|
| Stockholders’ Data(a) | |
| Outstanding Shares of Common Stock and | |
| Class B Common Stock at Year-end | |
|
|
136,282 |
|
138,460 |
|
143,147 |
|
| Market Price of Common Stock at Year-end | |
13.1 |
% |
$ 643/8 |
|
477/16 |
|
623/16 |
|
| Range During Year | |
|
|
$667/16-373/4 |
|
647/8-453/4 |
|
763/8-5911/16 |
|
See Notes to the Eleven-Year
Consolidated Financial Summary on page A-36.
A-34
|
|
1997
|
1996
|
1995
|
1994
|
| Summary of Operations |
|
|
|
|
|
|
|
|
|
| Net Sales | |
4,302,236 |
|
3,989,308 |
|
3,690,667 |
|
3,606,271 |
|
|
| Cost of Sales | |
2,488,896 |
|
2,302,089 |
|
2,126,274 |
|
2,097,556 |
|
| Selling, Marketing and Administrative | |
1,183,130 |
|
1,124,087 |
|
1,053,758 |
|
1,034,115 |
|
| Non-recurring Credits/(Charges)(o) | |
— |
|
(35,352 |
) |
151 |
|
(106,105 |
) |
| Interest Expense, Net | |
76,255 |
|
48,043 |
|
44,833 |
|
35,357 |
|
| Provision for Income Taxes | |
217,704 |
|
206,551 |
|
184,034 |
|
148,919 |
|
|
| Income from Continuing Operations | |
| Before Accounting Changes | |
336,251 |
|
273,186 |
|
281,919 |
|
184,219 |
|
| Net Cumulative Effect of Accounting Changes | |
— |
|
— |
|
— |
|
— |
|
|
| Net Income | |
336,251 |
|
273,186 |
|
281,919 |
|
184,219 |
|
|
| Income Per Share:(a) | |
| From Continuing Operations Before | |
| Accounting Changes | |
| –Basic | |
2.25 |
|
1.77 |
(j) |
1.70 |
(k) |
1.06 |
(l) |
| —Diluted | |
2.23 |
|
1.75 |
|
1.69 |
|
1.05 |
|
| Net Cumulative Effect of Accounting Changes |
|
| —Basic and Diluted |
|
— |
|
— |
|
— |
|
— |
|
| Net Income—Basic | |
2.25 |
|
1.77 |
(j) |
1.70 |
(k) |
1.06 |
(l) |
| Net Income—Diluted | |
2.23 |
|
1.75 |
|
1.69 |
|
1.05 |
|
| Weighted-Average Shares Outstanding–Basic(a) | |
149,174 |
|
154,334 |
|
166,036 |
|
174,367 |
|
| Weighted-Average Shares Outstanding-–Diluted(a) | |
151,016 |
|
155,690 |
|
166,721 |
|
174,740 |
|
| Dividends Paid on Common Stock | |
98,390 |
|
93,884 |
|
91,190 |
|
89,660 |
|
| Per Share(a) | |
.840 |
|
.760 |
|
.685 |
|
.625 |
|
| Dividends Paid on Class B Common Stock | |
23,156 |
|
20,879 |
|
18,900 |
|
17,301 |
|
| Per Share(a) | |
.760 |
|
.685 |
|
.620 |
|
.5675 |
|
| Income from Continuing Operations Before | |
| Accounting Changes as a Percent of Net Sales |
|
7.8 |
% |
7.7 |
%(d) |
7.6 |
% |
7.3 |
%(e) |
| Depreciation | |
135,016 |
|
119,443 |
|
119,438 |
|
114,821 |
|
| Advertising | |
202,408 |
|
174,199 |
|
159,200 |
|
120,629 |
|
| Promotion | |
451,580 |
|
429,208 |
|
402,454 |
|
419,164 |
|
| Payroll | |
524,827 |
|
491,677 |
|
461,928 |
|
472,997 |
|
| Year-end Position and Statistics | |
| Capital Additions | |
172,939 |
|
159,433 |
|
140,626 |
|
138,711 |
|
| Capitalized Software Additions | |
29,100 |
|
— |
|
— |
|
— |
|
| Total Assets | |
3,291,236 |
|
3,184,796 |
|
2,830,623 |
|
2,890,981 |
|
| Long-term Portion of Debt | |
1,029,136 |
|
655,289 |
|
357,034 |
|
157,227 |
|
| Stockholders’ Equity | |
852,806 |
|
1,161,021 |
|
1,082,959 |
|
1,441,100 |
|
| Operating Return on Average Stockholders’ Equity(b) | |
33.4 |
% |
27.5 |
% |
22.2 |
% |
18.5 |
% |
| Operating Return on Average Invested Capital(b) | |
17.5 |
% |
17.8 |
% |
17.1 |
% |
15.6 |
% |
| Full-time Employees | |
14,900 |
|
14,000 |
|
13,300 |
|
14,000 |
|
| Stockholders’ Data(a) | |
| Outstanding Shares of Common Stock and | |
| Class B Common Stock at Year-end | |
142,932 |
|
152,942 |
|
154,532 |
|
173,470 |
|
| Market Price of Common Stock at Year-end | |
6115/16 |
|
433/4 |
|
321/2 |
|
243/16 |
|
| Range During Year | |
637/8-421/8 |
|
513/4-3115/16 |
|
3315/16-24 |
|
263/4-209/16 |
|
|
1993
|
1992
|
1991
|
1990
|
| Summary of Operations |
|
|
|
|
|
|
|
|
|
| Net Sales | |
3,488,249 |
|
3,219,805 |
|
2,899,165 |
|
2,715,609 |
|
|
| Cost of Sales | |
1,995,502 |
|
1,833,388 |
|
1,694,404 |
|
1,588,360 |
|
| Selling, Marketing and Administrative | |
1,035,519 |
|
958,189 |
|
814,459 |
|
776,668 |
|
| Non-recurring Credits/(Charges)(o) | |
80,642 |
|
— |
|
— |
|
35,540 |
|
| Interest Expense, Net | |
26,995 |
|
27,240 |
|
26,845 |
|
24,603 |
|
| Provision for Income Taxes | |
213,642 |
|
158,390 |
|
143,929 |
|
145,636 |
|
|
| Income from Continuing Operations | |
| Before Accounting Changes | |
297,233 |
|
242,598 |
|
219,528 |
|
215,882 |
|
| Net Cumulative Effect of Accounting Changes | |
(103,908 |
) |
— |
|
— |
|
— |
|
|
| Net Income | |
193,325 |
|
242,598 |
|
219,528 |
|
215,882 |
|
|
| Income Per Share:(a) | |
| From Continuing Operations Before | |
| Accounting Changes | |
| –Basic | |
1.65 |
(m) |
1.34 |
|
1.21 |
|
1.19 |
(n) |
| –Diluted | |
1.65 |
|
1.34 |
|
1.21 |
|
1.19 |
|
| Net Cumulative Effect of Accounting Changes |
|
| –Basic and Diluted |
|
(.58 |
) |
— |
|
— |
|
— |
|
| Net Income–Basic | |
1.07 |
(m) |
1.34 |
|
1.21 |
|
1.19 |
(n) |
| Net Income–Diluted | |
1.07 |
|
1.34 |
|
1.21 |
|
1.19 |
|
| Weighted-Average Shares Outstanding–Basic(a) | |
179,929 |
|
180,775 |
|
180,767 |
|
180,766 |
|
| Weighted-Average Shares Outstanding-–Diluted(a) | |
180,495 |
|
181,160 |
|
181,112 |
|
180,987 |
|
| Dividends Paid on Common Stock | |
84,711 |
|
77,174 |
|
70,426 |
|
74,161 |
(g) |
| Per Share(a) | |
.570 |
|
.515 |
|
.470 |
|
.495 |
(g) |
| Dividends Paid on Class B Common Stock | |
15,788 |
|
14,270 |
|
12,975 |
|
13,596 |
(g) |
| Per Share(a) | |
.5175 |
|
.4675 |
|
.425 |
|
.445 |
(g) |
| Income from Continuing Operations Before | |
| Accounting Changes as a Percent of Net Sales |
|
7.4 |
%(f) |
7.5 |
% |
7.6 |
% |
7.2 |
%(h) |
| Depreciation | |
100,124 |
|
84,434 |
|
72,735 |
|
61,725 |
|
| Advertising | |
130,009 |
|
137,631 |
|
117,049 |
|
146,297 |
|
| Promotion | |
444,546 |
|
398,577 |
|
325,465 |
|
315,242 |
|
| Payroll | |
469,564 |
|
433,162 |
|
398,661 |
|
372,780 |
|
| Year-end Position and Statistics | |
| Capital Additions | |
211,621 |
|
249,795 |
|
226,071 |
|
179,408 |
|
| Capitalized Software Additions | |
— |
|
— |
|
— |
|
— |
|
| Total Assets | |
2,855,091 |
|
2,672,909 |
|
2,341,822 |
|
2,078,828 |
|
| Long-term Portion of Debt | |
165,757 |
|
174,273 |
|
282,933 |
|
273,442 |
|
| Stockholders’ Equity | |
1,412,344 |
|
1,465,279 |
|
1,335,251 |
|
1,243,537 |
|
| Operating Return on Average Stockholders’ Equity(b) | |
17.8 |
% |
17.3 |
% |
17.0 |
% |
16.6 |
% |
| Operating Return on Average Invested Capital(b) | |
15.0 |
% |
14.4 |
% |
13.8 |
% |
13.4 |
% |
| Full-time Employees | |
14,300 |
|
13,700 |
|
14,000 |
|
12,700 |
|
| Stockholders’ Data(a) | |
| Outstanding Shares of Common Stock and | |
| Class B Common Stock at Year-end | |
175,226 |
|
180,373 |
|
180,373 |
|
180,373 |
|
| Market Price of Common Stock at Year-end | |
241/2 |
|
231/2 |
|
223/16 |
|
183/4 |
|
| Range During Year | |
2715/16-213/4 |
|
243/16-191/8 |
|
221/4-179/16 |
|
1913/16-141/8 |
|
See Notes to the Eleven-Year
Consolidated Financial Summary on page A-36.
A-35
|
Notes to the
Eleven-Year Consolidated Financial Summary
|
| (a) |
|
All
shares and per share amounts have been adjusted for the two-for-one stock split effective
September 13, 1996. |
| (b) |
|
Operating
Return on Average Stockholders’ Equity and Operating Return on Average Invested Capital
have been computed using Net Income, excluding the 1993 Net Cumulative Effect of
Accounting Changes, and the after-tax impacts of the 1990 Restructuring Gain, Net, the
1993 Gain on Sale of the Investment Interest in Freia Marabou a.s (Freia), the 1994
Restructuring Charge, the net 1995 Restructuring Credit, the 1996 Loss on Sale of
Businesses, and the 1999 Gain on Sale of Business. |
| (c) |
|
Calculated percent excludes the 1999 Gain on Sale of Business. Including the
gain, Income from Continuing Operations Before Accounting Changes as a Percent
of Net Sales was 11.6%. |
| (d) |
|
Calculated percent excludes the 1996 Loss on Sale of Businesses. Including the
loss, Income from Continuing Operations Before Accounting Changes as a Percent
of Net Sales was 6.8%. |
| (e) |
|
Calculated
percent excludes the 1994 Restructuring Charge. Including the charge, Income from
Continuing Operations Before Accounting Changes as a Percent of Net Sales was 5.1%. |
| (f) |
|
Calculated percent excludes the 1993 Gain on Sale of Investment Interest in
Freia. Including the gain, Income from Continuing Operations Before Accounting
Changes as a Percent of Net Sales was 8.5%. |
| (g) |
|
Amounts included a special dividend for 1990 of $11.2 million or $.075 per share
of Common Stock and $2.1 million or $.0675 per share of Class B Common Stock. |
| (h) |
|
Calculated percent excludes the 1990 Restructuring Gain, Net. Including the
gain, Income from Continuing Operations Before Accounting Changes as a Percent
of Net Sales was 7.9%. |
| (i) |
|
Income Per Share from Continuing Operations Before Accounting Changes—Basic
and Net Income Per Share—Basic for 1999 included a $1.18 per share gain on
the sale of the pasta business. Excluding the impact of this gain, Income Per
Share from Continuing Operations Before Accounting Changes—Basic and Net
Income Per Share—Basic would have been $2.11. |
| (j) |
|
Income Per Share from Continuing Operations Before Accounting Changes—Basic
and Net Income Per Share—Basic for 1996 included a $.23 per share loss on
the sale of the Gubor and Sperlari businesses. Excluding the impact of this
loss, Income Per Share from Continuing Operations Before Accounting
Changes—Basic and Net Income Per Share—Basic would have been $2.00. |
| (k) |
|
Income Per Share from Continuing Operations Before Accounting Changes—Basic
and Net Income Per Share—Basic for 1995 included a net $.01 per share
credit associated with adjustments to accrued restructuring reserves. Excluding
the impact of this net credit, Income Per Share from Continuing Operations
Before Accounting Changes—Basic and Net Income Per Share—Basic would
have been $1.69. |
| (l) |
|
Income Per Share from Continuing Operations Before Accounting Changes—Basic
and Net Income Per Share—Basic for 1994 included a $.46 per share
restructuring charge. Excluding the impact of this charge, Income Per Share from
Continuing Operations Before Accounting Changes—Basic and Net Income Per
Share—Basic would have been $1.52. |
| (m) |
|
Income Per Share from Continuing Operations Before Accounting Changes—Basic
and Net Income Per Share—Basic for 1993 included a $.23 per share gain on
the sale of the investment interest in Freia. Excluding the impact of this gain,
Income Per Share from Continuing Operations Before Accounting Changes—Basic
would have been $1.43. |
| (n) |
|
Income Per Share from Continuing Operations Before Accounting Changes—Basic
and Net Income Per Share—Basic for 1990 included an $.11 per share
Restructuring Gain, Net. Excluding the impact of this gain, Income Per Share
from Continuing Operations Before Accounting Changes—Basic and Net Income
Per Share—Basic would have been $1.08. |
| (o) |
|
Includes the Gain on Sale of Business in 1999; Loss on Sale of Businesses in
1996; Restructuring Credit in 1995; Restructuring Charge in 1994; Gain on Sale
of Investment Interest in 1993 and Restructuring Gain, Net in
1990. |
OTHER STOCKHOLDER
INFORMATION
INVESTOR INFORMATION
Stockholders
As of December 31, 2000,
Hershey Foods Corporation had outstanding 105,839,730 shares of Common Stock and
30,441,858 shares of Class B Stock.
|
|
|
Year |
Year-End Common Stock
and Class B Stock
Stockholders |
Approximate
Annual Composite
Trading Volume |
|
| |
|
2000 |
|
41,482 |
|
138,636,000 |
|
|
| | |
1999 |
|
43,265 |
|
128,557,000 |
|
|
| | |
1998 |
|
44,364 |
|
78,955,000 |
|
|
| | |
1997 |
|
44,602 |
|
74,781,000 |
|
|
| | |
1996 |
|
42,483 |
|
47,002,000 |
|
|
Stock Market
Data
Hershey Foods
Corporation’s Common Stock is listed and traded principally on the New York
Stock Exchange under the ticker symbol “HSY.” Class B Stock is not
listed for trading. The stock tables of most financial publications list the
Corporation as “Hershey.” Options on the Corporation’s Common
Stock are traded on the American Stock Exchange.
Common Stock
Profile
|
|
| 2000 |
Common Stock Price
|
Dividends Paid Per Share
|
| Calendar Quarter |
High |
Low |
Close |
Common Stock |
Class B Stock |
|
| 1st Quarter |
|
$5011/16 |
|
$373/4 |
|
$483/4 |
|
$.26 |
|
$ .235 |
|
|
| 2nd Quarter | |
5513/16 |
|
45 |
|
481/2 |
|
.26 |
|
.235 |
|
|
| 3rd Quarter | |
5411/16 |
|
419/16 |
|
541/8 |
|
.28 |
|
.2525 |
|
|
| 4th Quarter | |
667/16 |
|
487/16 |
|
643/8 |
|
.28 |
|
.2525 |
|
|
Dividend Policy
Dividends on Hershey Foods
Corporation’s Common Stock and Class B Stock are declared by the Board of
Directors and are paid normally in March, June, September and December.
The dividend on
the Common Stock payable on March 15, 2001, is the 285th consecutive quarterly
dividend paid by the Corporation. The dividend rate has been increased annually
for 26 consecutive years. Historically, the Corporation has targeted
approximately one-third of its income from continuing operations for dividends
to stockholders.
A-37
|
Investor
Services Program
The Corporation offers an
Investor Services Program. Features of the Program include the ability to
purchase directly from our agent initial shares of Hershey Foods Corporation
Common Stock, as well as additional shares; dividend reinvestment on 10 shares
or greater; automatic monthly deductions from a bank account for optional cash
purchases; safekeeping of certificates; direct deposit of dividends; and an IRA
option. For more information, contact:
|
| Mellon Investor Services |
|
www.mellon-investor.com |
|
| P. O. Box 3338 | |
To request enrollment materials, | |
| South Hackensack, NJ 07606-1938 | |
please call (800) 842-7629. | |
| (800) 851-4216 | |
Stockholder
Inquiries
Questions relating to
stockholder records, change of ownership, change of address and dividend
payments should be sent to the Corporation’s Transfer Agent, Mellon
Investor Services, whose address appears below.
Financial
Information
Securities analysts,
investment managers and stockholders should direct financial information
inquiries to the Investor Relations contact listed below.
2000 Annual
Report
To control costs and to
meet our stockholders’ needs, we have published this 2000 Annual Report to
Stockholders, including the Consolidated Financial Statements and
Management’s Discussion and Analysis, as an appendix to the
Corporation’s Proxy Statement. Further information regarding various
aspects of the Corporation’s business can be found on the
Corporation’s web site (www.hersheys.com).
Electronic
Delivery
In an effort to reduce
paper mailed to your home and to help lower printing and postage costs, we now
offer to registered stockholders the convenience of viewing Proxy Statements,
Annual Reports to Stockholders and related materials on-line. With your consent,
we can stop sending future paper copies of these documents to you by mail. To
participate, follow the instructions at www.icsdelivery.com/hsy or select the
On-Line Proxy/Voting option in the Investor Relations section of the
Corporation’s web site (www.hersheys.com).
On-Line Voting
at www.proxyvote.com
Use the Internet to
transmit your voting instructions anytime before 11:59 p.m. EDT on April 23,
2001. Have your proxy card in hand when you access the web site. You will be
prompted to enter your Control Number to obtain your records and create an
electronic voting instruction form.
A-38
|
|
|
| Executive Offices |
|
Independent Public Accountants |
|
| 100 Crystal A Drive | |
Arthur Andersen LLP | |
| P. O. Box 810 | |
1345 Avenue of the Americas | |
| Hershey, PA 17033-0810 | |
New York, NY 10105 | |
| (717) 534-4000 | |
| | |
Investor Relations Contact | |
| | |
James A. Edris | |
| | |
Director, Investor Relations | |
| Transfer Agent and Registrar | |
100 Crystal A Drive | |
| Mellon Investor Services | |
P. O. Box 810 | |
| Overpeck Centre | |
Hershey, PA 17033-0810 | |
| 85 Challenger Road | |
(717) 534-7556 | |
| Ridgefield Park, NJ 07660 | |
jedris@hersheys.com | |
| www.mellon-investor.com | |
| (800) 851-4216 - Domestic Holders | |
Financial Information | |
| (201) 329-8660 - Foreign Holders | |
(800) 539-0261 | |
| (800) 231-5469 - Hearing Impaired | |
www.hersheys.com | |
www.hersheys.com
Hershey Foods
Corporation’s web site provides access to a wide variety of information
including products, recipes, news releases, a plant tour, and consumer
information. A principal feature of the web site is the Investor Relations
section which contains general financial information (e.g., Hershey’s
corporate overview, Mission Statement, product information, financial
fundamentals, and current stock quotes), the current Proxy Statement and Annual
Report to Stockholders and archived information (e.g., historical financial
releases, annual reports, dividends and stock prices). The site also provides
analyst presentations and audio archives of conference calls and analyst group
presentations for those interested in a more in-depth review of the
Corporation’s operations as presented by senior management to the financial
community. Another interesting feature is the “email alert,” which
allows users to receive automatic updates informing them when new items such as
calendar events, presentations, dividend information, annual reports and SEC
documents are added to the site.
www.mellon-investor.com
Mellon Investor
Services’ web site provides access to an Internet self-service product,
Investor ServiceDirect (sm) (“ISD”). Through ISD, stockholders can view
their account profiles, stock certificate histories, dividend
reinvestment/book-entry transactions (including any new funds pending
investment), dividend payment histories, Form 1099 tax information, current
stock price quote (20-minute delay), and historical stock prices. Stockholders
may also request a replacement dividend check, the issuance of stock
certificates or the sale of shares from a book-entry position, duplicate Form
1099 or dividend reinvestment statement, safekeeping of stock certificates, an
address change, or a stock transfer involving book-entry shares. Future ISD
enhancements are planned; be sure to check the www.mellon-investor.com web site.
A-39
|
DIRECTORS AND MANAGEMENT COMMITTEE
As
of March 15, 2001
|
|
|
|
| Directors |
|
|
|
|
|
| Kenneth L. Wolfe | |
Mackey J. McDonald | |
Richard H. Lenny | |
| Chairman of the Board | |
Chairman of the Board, | |
President and | |
| of Directors | |
Chief Executive Officer | |
Chief Executive Officer | |
| | |
and President | |
| William H. Alexander | |
VF Corporation | |
William F. Christ | |
| Administrator | |
Greensboro, NC | |
Executive Vice President and | |
| Family Business Program | |
| |
Chief Operating Officer | |
| The Wharton School of | |
John M. Pietruski | |
| the University of Pennsylvania | |
Chairman of the Board | |
Robert M. Reese | |
| Philadelphia, PA | |
Texas Biotechnology | |
Senior Vice President, | |
| | |
Corporation | |
General Counsel and | |
| Robert H. Campbell | |
Houston, TX | |
Secretary | |
| Chairman of the Board and | |
| Chief Executive Officer | |
Audit Committee | |
Raymond Brace | |
| (Retired) | |
John C. Jamison, Chair | |
Vice President | |
| Sunoco, Inc. | |
William H. Alexander | |
Conversion and Procurement | |
| Philadelphia, PA | |
Mackey J. McDonald | |
| | |
| |
John R. Canavan | |
| C. McCollister Evarts, M.D | |
Committee on Directors | |
Vice President | |
| University Professor and | |
and Corporate Governance | |
Human Resources | |
| Professor of Orthopaedics | |
John M. Pietruski, Chair | |
| The Pennsylvania State | |
William H. Alexander | |
Jay F. Carr | |
| University | |
Bonnie G. Hill | |
Vice President | |
| College of Medicine | |
Kenneth L. Wolfe | |
Research Services and | |
| Hershey, PA | |
| |
Special Operations | |
| | |
Compensation and | |
| Bonnie G. Hill | |
Executive Organization | |
Frank Cerminara | |
| President and Chief | |
Committee | |
Vice President, Chief | |
| Executive Officer | |
Robert H. Campbell, Chair | |
Financial Officer and | |
| The Times Mirror | |
C. McCollister Evarts, M.D. | |
Treasurer | |
| Foundation | |
John C. Jamison | |
| Senior Vice President | |
Mackey J. McDonald | |
George F. Davis | |
| The Los Angeles Times | |
| |
Vice President and Chief | |
| Los Angeles, CA | |
Executive Committee | |
Information Officer | |
| | |
Kenneth L. Wolfe, Chair | |
| John C. Jamison | |
Richard H. Lenny | |
Michael H. Holmes | |
| Chairman | |
| |
Vice President | |
| Mallardee Associates | |
Management Committee | |
U.S. Marketing | |
| Williamsburg, VA | |
Kenneth L. Wolfe | |
| | |
Chairman of the Board | |
Milton T. Matthews | |
| Richard H. Lenny | |
of Directors | |
Vice President, U.S. Sales | |
| President and | |
| Chief Executive Officer | |
|
Exhibit 4.1
___________________________________________________________________________
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
dated as of
December 15, 2000
between
HERSHEY FOODS CORPORATION
and
MELLON INVESTOR SERVICES LLC,
as Rights Agent
____________________________________________________________________________
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
Table of Contents
Page
ARTICLE I DEFINITIONS....................................................................................1
1.1 DEFINITIONS............................................................................1
-----------
ARTICLE II THE RIGHTS....................................................................................9
2.1 SUMMARY OF RIGHTS......................................................................9
-----------------
2.2 LEGEND ON COMMON SHARES CERTIFICATES...................................................9
------------------------------------
2.3 EXERCISE OF RIGHTS; SEPARATION OF RIGHTS..............................................10
----------------------------------------
2.4 ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS.......................................12
-----------------------------------------------
2.5 DATE ON WHICH EXERCISE IS EFFECTIVE...................................................13
-----------------------------------
2.6 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES.................13
---------------------------------------------------------------------
2.7 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE...................................14
---------------------------------------------------
2.8 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES.............................15
---------------------------------------------------------
2.9 PERSONS DEEMED OWNERS.................................................................15
---------------------
2.10 DELIVERY AND CANCELLATION OF CERTIFICATES.............................................16
-----------------------------------------
2.11 AGREEMENT OF RIGHTS HOLDERS...........................................................16
---------------------------
ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS.............................17
3.1 FLIP-IN...............................................................................17
-------
3.2 FLIP-OVER.............................................................................19
---------
ARTICLE IV THE RIGHTS AGENT.............................................................................20
4.1 GENERAL...............................................................................20
-------
4.2 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.............................20
---------------------------------------------------------
ii
4.3 DUTIES OF RIGHTS AGENT................................................................21
----------------------
4.4 CHANGE OF RIGHTS AGENT................................................................23
----------------------
ARTICLE V MISCELLANEOUS................................................................................24
5.1 REDEMPTION............................................................................24
----------
5.2 EXPIRATION............................................................................24
----------
5.3 ISSUANCE OF NEW RIGHTS CERTIFICATES...................................................25
-----------------------------------
5.4 SUPPLEMENTS AND AMENDMENTS............................................................25
--------------------------
5.5 FRACTIONAL SHARES.....................................................................26
-----------------
5.6 RIGHTS OF ACTION......................................................................26
----------------
5.7 HOLDER OF RIGHTS NOT DEEMED A STOCKHOLDER.............................................26
-----------------------------------------
5.8 NOTICE OF PROPOSED ACTIONS............................................................26
--------------------------
5.9 NOTICES...............................................................................27
-------
5.10 SUSPENSION OF EXERCISABILITY..........................................................27
----------------------------
5.11 COSTS OF ENFORCEMENT..................................................................28
--------------------
5.12 SUCCESSORS............................................................................28
----------
5.13 BENEFITS OF THIS AGREEMENT............................................................28
--------------------------
5.14 DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC..............................28
---------------------------------------------------------
5.15 DESCRIPTIVE HEADINGS..................................................................28
--------------------
5.16 GOVERNING LAW.........................................................................29
-------------
5.17 COUNTERPARTS..........................................................................29
------------
5.18 SEVERABILITY..........................................................................29
------------
iii
EXHIBITS
Exhibit A Form of Rights Certificate for Common Stock
(Together with Form of Election to Exercise)
Exhibit B Form of Certificate of Designation and Terms of
Series A Participating Preferred Stock
Exhibit C Form of Certificate of Designation and Terms
of Series B Participating Preferred Stock
iv
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
STOCKHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time
to time, this "Agreement"), dated as of December 15, 2000, between HERSHEY FOODS
CORPORATION, a Delaware corporation (the "COMPANY"), and MELLON INVESTOR
SERVICES LLC, a New Jersey limited liability company, as Rights Agent (the
"RIGHTS AGENT", which term shall include any successor Rights Agent hereunder).
WITNESSETH:
WHEREAS, the Board of Directors of the Company has (a)
authorized and declared a dividend of one right ("RIGHT") in respect of each
share of Common Stock (as hereinafter defined) and Class B Common Stock (as
hereinafter defined) held of record as of the close of business on December 26,
2000 (the "RECORD TIME") payable in respect of each such share at the Record
Time or, if applicable, upon certification by the New York Stock Exchange to the
Securities and Exchange Commission that the Rights have been approved for
listing and registration (the "PAYMENT TIME") and (b) as provided in Section
2.4, authorized the issuance of one Right in respect of each share of Common
Stock and Class B Common Stock issued after the Record Time and prior to the
Separation Time (as hereinafter defined) and, to the extent provided in Section
5.3, each share of Common Stock and Class B Common Stock issued after the
Separation Time;
WHEREAS, subject to the terms and conditions hereof, each Right
entitles the holder thereof, after the Separation Time, to purchase securities
or assets of the Company (or, in certain cases, securities of certain other
entities) pursuant to the terms and subject to the conditions set forth herein;
and
WHEREAS, the Company desires to appoint the Rights Agent to
act on behalf of the Company, and the Rights Agent is willing so to act, in
connection with the issuance, transfer, exchange and replacement of Rights
Certificates (as hereinafter defined), the exercise of Rights and other matters
referred to herein;
NOW THEREFORE, in consideration of the premises and the
respective agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For purposes of this Agreement, the following terms
have the meanings indicated:
"ACQUIRING PERSON" shall mean any Person who is or becomes the Beneficial
Owner of 15% or more of the outstanding shares of Common Stock; provided,
however, that the term "Acquiring Person" shall not include (i) Hershey Trust
Company, a Pennsylvania corporation, as trustee for Milton Hershey School
(together with any successor or other validly appointed trustee, the "Trustee")
and Milton Hershey School as beneficiary under deed of trust dated as of
November 15, 1909 between Milton S. Hershey and Catherine S. Hershey and the
Hershey Trust Company, or any Affiliates or Associates of the Trustee or Milton
Hershey School, (ii) any Person who shall become the Beneficial Owner of 15% or
more of the outstanding shares of Common Stock as the result of purchasing
Common Shares from the Trustee in its capacity as trustee or Milton Hershey
School (the "Trust Shares") so long as at the time of such purchase (a "Trust
Transaction"), and after giving effect to such Trust Transaction, such Person
does not become the Beneficial Owner of more than 35% of the voting power of all
of the outstanding Common Shares, until such time thereafter as such Person
shall become the Beneficial Owner (other than (A) by means of a stock dividend
or stock split or (B) as the result of a Trust Transaction after giving effect
to which such Person does not Beneficially Own more than 35% of the voting power
of all of the outstanding Common Shares) of any additional shares of Common
Stock while such Person is, or as the result of which such Person becomes, the
Beneficial Owner of 15% or more of the outstanding shares of Common Stock, (iii)
any Person who is the Beneficial Owner of 15% or more of the outstanding shares
of Common Stock on the date of this Agreement, or any Person who shall become
the Beneficial Owner of 15% or more of the outstanding Common Stock solely as a
result of an acquisition by the Company of shares of Common Stock, until such
time hereafter or thereafter as such Person shall become the Beneficial Owner
(other than (A) by means of a stock dividend or stock split or (B) as the result
of a Trust Transaction after giving effect to which such Person does not
Beneficially Own more than 35% of the voting power of all of the outstanding
Common Shares) of any additional shares of Common Stock while such Person is or
as a result of which such Person becomes the Beneficial Owner of 15% or more of
the outstanding shares of Common Stock, (iv) any Person who becomes the
Beneficial Owner of 15% or more of the outstanding shares of Common Stock but
who acquired Beneficial Ownership of shares of Common Stock without any plan or
intention to seek or affect control of the Company, if such Person promptly
divests, or promptly enters into an agreement with, and satisfactory to, the
Company, in its sole discretion, to divest (without exercising or retaining any
power, including voting power, with respect to such shares), sufficient shares
of Common Stock (or securities convertible into, exchangeable into or
exercisable for Common Stock) so that such Person ceases to be the Beneficial
Owner of 15% or more of the outstanding shares of Common Stock or (v) any Person
who Beneficially Owns shares of Common Stock consisting solely of one or more
(A) shares of Common Stock Beneficially Owned pursuant to the grant or exercise
of an option granted to such Person (an "Option Holder") by the Company in
connection with an agreement to merge with, or acquire, the Company entered into
prior to a Flip-in Date, (B) shares of Common Stock (or securities convertible
into, exchangeable into or exercisable for Common
2
Stock) Beneficially Owned by such Option Holder or its Affiliates or Associates
at the time of grant of such option and (C) shares of Common Stock (or
securities convertible into, exchangeable into or exercisable for Common Stock)
acquired by Affiliates or Associates of such Option Holder after the time of
such grant which, in the aggregate, amount to less than 1% of the outstanding
shares of Common Stock. In addition, the Company, any Subsidiary of the Company
and any employee stock ownership or other employee benefit plan of the Company
or a Subsidiary of the Company (or any entity or trustee holding Common Shares
for or pursuant to the terms of any such plan or for the purpose of funding any
such plan or funding other employee benefits for employees of the Company or of
any Subsidiary of the Company) shall not be an Acquiring Person.
"AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to
such terms in Rule 12b-2 under the Exchange Act, as such Rule is in effect on
the date of this Agreement.
"AGREEMENT" shall have the meaning set forth in the Preamble.
A Person shall be deemed the "BENEFICIAL OWNER", and to have "BENEFICIAL
OWNERSHIP" of, and to "Beneficially Own", any securities as to which such Person
or any of such Person's Affiliates or Associates is or may be deemed to be the
beneficial owner of pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, as
such Rules are in effect on the date of this Agreement, as well as any
securities as to which such Person or any of such Person's Affiliates or
Associates has the right to become Beneficial Owner (whether such right is
exercisable immediately or only after the passage of time or the occurrence of
conditions) pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon the exercise
of conversion rights, exchange rights, rights (other than the Rights), warrants
or options, or otherwise; provided, however, that a Person shall not be deemed
the "Beneficial Owner", or to have "Beneficial Ownership" of, or to
"Beneficially Own", any security (i) solely because such security has been
tendered pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered security is accepted
for payment or exchange or (ii) solely because such Person or any of such
Person's Affiliates or Associates has or shares the power to vote or direct the
voting of such security pursuant to a revocable proxy or consent given in
response to a public proxy or consent solicitation made to more than ten holders
of shares of a class of stock of the Company registered under Section 12 of the
Exchange Act and pursuant to, and in accordance with, the applicable rules and
regulations under the Exchange Act, except if such power (or the arrangements
relating thereto) is then reportable under Item 6 of Schedule 13D under the
Exchange Act (or any similar provision of a comparable or successor report).
Notwithstanding the foregoing, no officer or director of the Company shall be
deemed to Beneficially Own any securities of any other Person by virtue of any
actions such officer or director takes in such capacity. For purposes of this
Agreement, in determining the percentage of the outstanding shares of Common
Stock with respect to which a Person is
3
the Beneficial Owner, all shares as to which such Person is deemed the
Beneficial Owner shall be deemed outstanding.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York, New York are generally authorized or
obligated by law or executive order to close.
"CLASS B COMMON STOCK" shall mean the shares of Class B Common Stock, par
value $1.00 per share, of the Company.
"CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m. New York, New
York time on such date or, if such date is not a Business Day, 5:00 p.m. New
York, New York time on the next succeeding Business Day.
"COMMON SHARES" shall mean the shares of Common Stock and Class B Common
Stock.
"COMMON STOCK" shall mean the shares of Common Stock, par value $1.00 per
share, of the Company.
"COMPANY" shall have the meaning set forth in the preamble.
"ELECTION TO EXERCISE" shall have the meaning set forth in Section 2.3(d)
hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"EXCHANGE RATIO" shall have the meaning set forth in Section
3.1(c) hereof.
"EXCHANGE TIME" shall mean the time at which the right to
exercise the Rights shall terminate pursuant to Section 3.1(c) hereof.
"EXERCISE PRICE" shall mean, as of any date, the price at
which a holder may purchase the securities issuable upon exercise of one whole
Right. Until adjustment thereof in accordance with the terms hereof, the
Exercise Price shall equal $270.
"EXPANSION FACTOR" shall have the meaning set forth in Section
2.4(a) hereof.
"EXPIRATION TIME" shall mean the earliest of (i) the Exchange
Time, (ii) the Redemption Time, (iii) the Close of Business on the tenth
anniversary of the date of this Agreement, unless extended by action of the
Board of Directors (in which case the applicable time shall be the time at which
it has been so extended) and (iv) immediately
4
prior to the effective time of a consolidation, merger or statutory share
exchange effective pursuant to an agreement to which the Company is a party that
does not constitute a Flip-over Transaction or Event.
"FLIP-IN DATE" shall mean any Stock Acquisition Date or such
later date and time as the Board of Directors of the Company may fix by
resolution adopted prior to the Flip-in Date that would otherwise have occurred.
"FLIP-OVER ENTITY," for purposes of Section 3.2, shall mean
(i) in the case of a Flip-over Transaction or Event described in clause (i) of
the definition thereof, the Person issuing any securities into which any Common
Shares are being converted or exchanged and, if no such securities are being
issued, the other Person to such Flip-over Transaction or Event and (ii) in the
case of a Flip-over Transaction or Event referred to in clause (ii) of the
definition thereof, the Person receiving the greatest portion of the (A) assets
or (B) operating income or cash flow being transferred in such Flip-over
Transaction or Event, provided in all cases if such Person is a Subsidiary of
another Person, the ultimate parent entity shall be the Flip-over Entity.
"FLIP-OVER STOCK" shall mean, as applicable, (i) preferred
stock (the "SERIES A FLIP-OVER STOCK") with terms substantially identical to the
Preferred Stock, including, without limitation, conversion terms such that the
preferred stock can be converted into a series of preferred stock with terms
substantially identical to the Series B Preferred Stock and with a Reference
Package comprised of an equity security ("REFERENCE SECURITY") that prior to the
Flip-over Transaction had the greatest voting power in respect of the election
of directors (or other persons similarly responsible for the direction of the
business and affairs of the Flip-over Entity) but, after the Flip-over
Transaction, is second in voting power only to the equity security referred to
in clause (ii) below and (ii) a series of preferred stock substantially
identical to the Series B Preferred Stock, including without limitation,
conversion terms such that the preferred stock can be converted into the
Reference Security referred to in clause (i) above and with a Reference Package
comprised of an equity security identical to that of the Class B Common Stock,
including the voting provisions.
"FLIP-OVER TRANSACTION OR EVENT" shall mean a transaction or
series of transactions on or after a Flip-in Date in which, directly or
indirectly, (i) the Company shall consolidate or merge or participate in a
statutory share exchange with any other Person if, at the time of consummation
of the consolidation, merger or statutory share exchange or at the time the
Company enters into any agreement with respect to any such consolidation, merger
or statutory share exchange, the Acquiring Person is the Beneficial Owner of 90%
or more of the outstanding shares each of the Common Stock and, to the extent it
then exists, the Class B Common Stock or controls the Board of Directors of the
Company and either (A) any term of or arrangement concerning the treatment of
shares of Common Stock or Class B Common Stock, as the case may be, in such
consolidation, merger or statutory share exchange relating to the Acquiring
Person is not identical to the
5
terms and arrangements relating to other holders of the Common Stock or
Class B Common Stock, as the case may be, or (B) the Person with whom the
transaction or series of transactions occurs is the Acquiring Person or an
Affiliate or Associate of the Acquiring Person or (ii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer) assets (A) aggregating more than 50% of the assets (measured by either
book value or fair market value) or (B) generating more than 50% of the
operating income or cash flow, of the Company and its Subsidiaries (taken as a
whole) to any Person (other than the Company or one or more of its wholly owned
Subsidiaries) or to two or more such Persons which are Affiliates or Associates
or otherwise acting in concert, if, at the time of the entry by the Company (or
any such Subsidiary) into an agreement with respect to such sale or transfer of
assets, the Acquiring Person controls the Board of Directors of the Company. For
purposes of the foregoing description, the term "Acquiring Person" shall include
any Acquiring Person and its Affiliates and Associates, counted together as a
single Person. An Acquiring Person shall be deemed to control the Company's
Board of Directors when, on or following a Stock Acquisition Date, the persons
who were directors of the Company (or persons nominated and/or appointed as
directors by vote of a majority of such persons) before the Stock Acquisition
Date shall cease to constitute a majority of the Company's Board of Directors.
"MARKET PRICE" per share of any securities on any date shall
mean the average of the daily closing prices per share of such securities
(determined as described below) on each of the 20 consecutive Trading Days
through and including the Trading Day immediately preceding such date; provided,
HOWEVER, that if any event described in Section 2.4 hereof, or any analogous
event, shall have caused the closing prices used to determine the Market Price
on any Trading Days during such period of 20 Trading Days not to be fully
comparable with the closing price on such date, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date. The closing price per share of any securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange, Inc.
or, if the securities are not listed or admitted to trading on the New York
Stock Exchange, Inc., as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the securities are listed or admitted to trading
or, if the securities are not listed or admitted to trading on any national
securities exchange, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if on any such date the securities are not listed or admitted to trading on any
national securities exchange or quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the securities selected by the Board of Directors of the
Company; PROVIDED, HOWEVER, that if on any such date the securities are not
listed or admitted to trading on a
6
national securities exchange or traded in the over-the-counter market, the
closing price per share of such securities on such date shall mean the fair
value per share of securities on such date as determined in good faith by the
Board of Directors of the Company, after consultation with a nationally
recognized investment banking firm, and set forth in a certificate delivered to
the Rights Agent.
"OPTION HOLDER" shall have the meaning set forth in the
definition of Acquiring Person.
"PAYMENT TIME" shall have the meaning set forth in the
Recitals.
"PERSON" shall mean any individual, firm, partnership, limited
liability company, association, group (as such term is used in Rule 13d-5 under
the Exchange Act, as such Rule is in effect on the date of this Agreement),
corporation or other entity.
"PREFERRED STOCK" shall mean the Series A Participating
Preferred Stock, par value $1.00 per share, of the Company created by a
Certificate of Designation and Terms in substantially the form set forth in
Exhibit B hereto appropriately completed.
"RECORD TIME" shall have the meaning set forth in the
Recitals.
"REDEMPTION PRICE" shall mean an amount equal to one cent
($0.01).
"REDEMPTION TIME" shall mean the time at which the right to
exercise the Rights shall terminate pursuant to Section 5.1 hereof.
"REFERENCE PACKAGE" with respect to the Preferred Stock, shall
have the meaning set forth in the Certificate of Designation in substantially
the form set forth in Exhibit B hereto appropriately completed and, with respect
to the Series B Preferred Stock, shall have the meaning set forth in the
Certificate of Designation in substantially the form set forth in Exhibit C
hereto appropriately completed.
"RIGHT" shall have the meaning set forth in the Recitals.
"RIGHTS AGENT" shall have the meaning set forth in the
Preamble.
"RIGHTS CERTIFICATE" shall have the meaning set forth in
Section 2.3(c) hereof.
"RIGHTS REGISTER" shall have the meaning set forth in Section
2.7(a) hereof.
"SEPARATION TIME" shall mean the earlier of (i) the Close of
Business on the tenth Business Day (or such later date as the Board of Directors
of the Company may
7
from time to time fix by resolution adopted prior to the Separation Time that
would otherwise have occurred) after the date on which any Person commences a
tender or exchange offer which, if consummated, would result in such Person's
becoming an Acquiring Person and (ii) the time of the first event causing a
Flip-in Date to occur; provided, that if the foregoing results in the Separation
Time being prior to the Payment Time, the Separation Time shall be the Payment
Time and provided further, that if any tender or exchange offer referred to in
clause (i) of this paragraph is cancelled, terminated or otherwise withdrawn
prior to the Separation Time without the purchase of any Common Shares in
connection therewith, such offer shall be deemed, for purposes of this
paragraph, never to have been made.
"SERIES A FLIP-OVER STOCK" shall have the meaning set forth in the
definition of Flip-over Stock.
"SERIES B PREFERRED STOCK" shall mean the Series B Participating
Preferred Stock, par value $1.00 per share, of the Company created by a
Certificate of Designation and Terms in substantially the form set forth in
Exhibit C hereto appropriately completed.
"Stock Acquisition Date" shall mean the earlier of (i) the first date
on which there shall be a public announcement by the Company (by any means)
that a Person has become an Acquiring Person or (ii) the date and time on
which any Acquiring Person becomes the Beneficial Owner of more than 35% of
the voting power of all of the outstanding Common Shares.
"Subsidiary" of any specified Person shall mean any
corporation or other entity of which a majority of the voting power of the
equity securities or a majority of the equity or membership interest is
Beneficially Owned, directly or indirectly, by such Person.
"TRADING DAY," when used with respect to any securities, shall mean a day
on which the New York Stock Exchange, Inc. is open for the transaction of
business or, if such securities are not listed or admitted to trading on the New
York Stock Exchange, Inc., a day on which the principal national securities
exchange on which such securities are listed or admitted to trading is open for
the transaction of business or, if such securities are not listed or admitted to
trading on any national securities exchange, a Business Day.
"Trustee" shall have the meaning set forth in the definition of Acquiring
Person.
"TRUST SHARES" shall have the meaning set forth in the definition of
Acquiring Person.
8
"TRUST TRANSACTION" shall have the meaning set forth in the definition of
Acquiring Person.
ARTICLE II
THE RIGHTS
2.1 SUMMARY OF RIGHTS. As soon as practicable after the Record Time, the Company
will mail a letter, that incorporates by reference the terms of this Agreement,
to each holder of record of Common Shares as of the Record Time, at such
holder's address as shown by the records of the Company.
2.2 LEGEND ON COMMON SHARES CERTIFICATES. Certificates for the Common Shares
issued after the Payment Time but prior to the Separation Time shall evidence
one Right for each Common Share represented thereby and shall have impressed on,
printed on, written on or otherwise affixed to them the following legend:
Until the Separation Time (as defined in the Rights Agreement referred
to below), this certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Rights Agreement, dated as
of December 15, 2000 (as such may be amended from time to time, the
"Rights Agreement"), between Hershey Foods Corporation (the "Company")
and the Rights Agent named therein, the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may become exercisable for securities or assets of the
Company or securities of another entity, may be exchanged for Preferred
Stock or other securities or assets of the Company, may expire, may
become void (if they are "Beneficially Owned" by an "Acquiring Person"
or an Affiliate or Associate thereof, as such terms are defined in the
Rights Agreement, or by any transferee of any of the foregoing) or may
be evidenced by separate certificates and may no longer be evidenced by
this certificate. The Company will mail or arrange for the mailing of a
copy of the Rights Agreement to the holder of this certificate without
charge after the receipt of a written request therefor.
Certificates representing Common Shares that are issued and outstanding at the
Payment Time shall, together with the letter mailed pursuant to Section 2.1,
evidence one Right for each Common Share evidenced thereby notwithstanding the
absence of the foregoing legend.
If the Common Shares issued after the Payment Time but prior
to the Separation Time shall be uncertificated, the registration of such Common
Shares on the stock transfer books of the Company shall evidence one Right for
each Common Share represented thereby and the Company shall mail to every Person
that holds such Common Shares a confirmation of the registration of such Common
Shares on the stock transfer books of the Company, which confirmation will have
impressed, printed, written
9
or stamped thereon or otherwise affixed thereto the above legend. The Company
shall mail or arrange for the mailing of a copy of this Agreement to any Person
that holds Common Shares, as evidenced by the registration of the Common Shares
in the name of such Person on the stock transfer books of the Company, without
charge after the receipt of a written request therefor.
2.3 EXERCISE OF RIGHTS; SEPARATION OF RIGHTS. (a) Subject to Sections 3.1, 5.1
and 5.10 and subject to adjustment as herein set forth, each Right will entitle
the holder thereof, on or after the Separation Time and prior to the Expiration
Time, to purchase, for the Exercise Price, one one-thousandth of a share of
Preferred Stock.
(b) Until the Separation Time, (i) no Right may be exercised
and (ii) each Right will be evidenced by the certificate for the associated
Common Share together, in the case of certificates issued prior to the Payment
Time, with the letter mailed to the record holder thereof pursuant to Section
2.1 (or, if the Common Shares shall be uncertificated, by the registration of
the associated Common Share on the stock transfer books of the Company and the
confirmation thereof provided for in Section 2.2) and will be transferable only
together with, and will be transferred by a transfer (whether with or without
such letter or confirmation) of, such associated share.
(c) Subject to the terms and conditions hereof, on or after
the Separation Time and prior to the Expiration Time, the Rights (i) may be
exercised and (ii) may be transferred independent of the Common Shares. Promptly
following the Separation Time, upon receipt by the Rights Agent of notice
thereof and receipt of all other necessary information, the Rights Agent will
mail to each holder of record of a Common Share as of the Separation Time (other
than any Person whose Rights have become void pursuant to Section 3.1(b)), at
such holder's address as shown by the records of the Company (the Company hereby
agreeing to furnish copies of such records to the Rights Agent for this
purpose), (x) a certificate in substantially the form of Exhibit A hereto (a
"RIGHTS CERTIFICATE"), appropriately completed, representing the number of
Rights held by such holder at the Separation Time and having such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate (but which do not effect the
rights or duties of the Rights Agent) and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any national securities exchange or quotation system on which the Rights may
from time to time be listed or traded, or to conform to usage, and (y) a
disclosure statement describing the Rights; provided, however, that the Company
shall have no obligation to distribute Rights Certificates to any Acquiring
Person or Affiliate or Associate of an Acquiring Person or any transferee of any
of the foregoing.
(d) Subject to the terms and conditions hereof, Rights may be
exercised on any Business Day on or after the Separation Time and prior to
the
10
Expiration Time by submitting to the Rights Agent the Rights Certificate
evidencing such Rights with an Election to Exercise (an "Election to Exercise")
substantially in the form attached to the Rights Certificate duly and properly
completed, accompanied by payment in cash, or by certified or official bank
check or money order payable to the order of the Company, of a sum equal to the
Exercise Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any tax or charge which may be payable in respect of any
transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates (or, if uncertificated, the registration on
the stock transfer books of the Company) for shares or depositary receipts (or
both) in a name other than that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, with a duly and properly
completed Election to Exercise accompanied by payment as set forth in Section
2.3(d), and subject to the terms and conditions hereof, the Rights Agent will
thereupon promptly (i)(A) requisition from a transfer agent stock certificates
evidencing such number of shares or other securities to be purchased or, in the
case of uncertificated shares or other securities, requisition from a transfer
agent a notice setting forth such number of shares or other securities to be
purchased for which registration will be made on the stock transfer books of the
Company (the Company hereby irrevocably authorizing its transfer agents to
comply with all such requisitions) and (B) if the Company elects pursuant to
Section 5.5 not to issue certificates (or effect registrations on the stock
transfer books of the Company) representing fractional shares, requisition from
the depositary selected by the Company depositary receipts representing the
fractional shares to be purchased or requisition from the Company the amount of
cash to be paid in lieu of fractional shares in accordance with Section 5.5 and
(ii) after receipt of such certificates, depositary receipts, notices and/or
cash, deliver the same to or upon the order of the registered holder of such
Rights Certificate, registered (in the case of certificates, depositary receipts
or notices) in such name or names as may be designated by such holder. The
Rights Agent shall have no duty or obligation with respect to this Section and
any other Section of this Agreement relating to fractional shares unless and
until it has received specific instructions (and sufficient cash, if required)
from the Company with respect to its duties and obligations under such Sections.
(f) In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised will be issued by the Rights Agent
to such holder or to such holder's duly authorized assigns.
(g) The Company covenants and agrees that it will (i) take all such
action as may be necessary to ensure that all shares delivered (or evidenced by
registration on the stock transfer books of the Company) upon exercise of Rights
shall, at the time of delivery of the certificates (or registration) for such
shares (subject to payment of the Exercise Price), be duly and validly
authorized, executed, issued and delivered (or registered) and fully paid and
nonassessable; (ii) take all such action as may be necessary
11
to comply with any applicable requirements of the Securities Act of 1933 or the
Exchange Act, and the rules and regulations thereunder, and any other applicable
law, rule or regulation, in connection with the issuance of any shares upon
exercise of Rights; and (iii) pay when due and payable any and all federal and
state taxes and charges which may be payable in respect of the original issuance
or delivery of the Rights Certificates or of any shares issued upon the exercise
of Rights, provided, that the Company shall not be required to pay any tax or
charge which may be payable in respect of any transfer involved in the transfer
or delivery of Rights Certificates or the issuance or delivery of certificates
(or the registration) for shares in a name other than that of the holder of the
Rights being transferred or exercised.
2.4 ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS. (a) In the event
the Company shall at any time after the Record Time and prior to the Separation
Time (i) declare or pay a dividend on any class of Common Shares payable in
Common Stock or Class B Common Stock, as the case may be, (ii) subdivide any
outstanding class of Common Shares or (iii) combine any outstanding class of
Common Shares into a smaller number of shares of Common Stock or Class B Common
Stock, as the case may be, (x) the Exercise Price in effect after such
adjustment will be equal to the Exercise Price in effect immediately prior to
such adjustment divided by the number of shares of Common Stock or Class B
Common Stock (the "Expansion Factor"), that a holder of one share of Common
Stock or Class B Common Stock, as the case may be, immediately prior to such
dividend, subdivision or combination would hold thereafter as a result thereof
and (y) each Right held prior to such adjustment will become that number of
Rights equal to the Expansion Factor, and the adjusted number of Rights will be
deemed to be distributed among the shares of Common Stock or Class B Common
Stock, as the case may be, with respect to which the original Rights were
associated (if they remain outstanding) and the shares issued in respect of such
dividend, subdivision or combination, so that each such share of Common Stock or
Class B Common Stock, as the case may be, will have exactly one Right associated
with it. Each adjustment made pursuant to this paragraph shall be made as of the
payment or effective date for the applicable dividend, subdivision or
combination.
In the event the Company shall at any time after the Record Time and prior to
the Separation Time issue any Common Shares otherwise than in a transaction
referred to in the preceding paragraph, each such Common Share so issued shall
automatically have one new Right associated with it, which Right shall be
evidenced by the certificate representing such share (or, if the Common Shares
shall be uncertificated, such Right shall be evidenced by the registration of
such Common Shares on the stock transfer books of the Company and the
confirmation thereof provided for in Section 2.2). Rights shall be issued by the
Company in respect of Common Shares that are issued or sold by the Company after
the Separation Time only to the extent provided in Section 5.3.
12
(b) In the event the Company shall at any time after the Record Time
and prior to the Separation Time issue or distribute any securities or assets in
respect of, in lieu of or in exchange for Common Shares (other than pursuant to
any non-extraordinary periodic cash dividend or a dividend paid solely in Common
Shares) whether by dividend, in a reclassification or recapitalization
(including any such transaction involving a merger, consolidation or statutory
share exchange), or otherwise, the Company shall make such adjustments, if any,
in the Exercise Price, number of Rights and/or securities or other property
purchasable upon exercise of Rights as the Board of Directors of the Company, in
its sole discretion, may deem to be appropriate under the circumstances in order
to adequately protect the interests of the holders of Rights generally, and the
Company and the Rights Agent shall amend this Agreement as necessary to provide
for such adjustments.
(c) Each adjustment to the Exercise Price made pursuant to this
Section 2.4 shall be calculated to the nearest cent. Whenever an adjustment to
the Exercise Price is made pursuant to this Section 2.4, the Company shall (i)
promptly prepare a certificate setting forth such adjustment and a brief,
reasonably detailed statement of the facts, computations and methodology
accounting for such adjustment and (ii) promptly file with the Rights Agent and
with each transfer agent for the Common Shares a copy of such certificate. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained and shall have no duty with respect to and
shall not be deemed to have knowledge of any adjustment unless and until it
shall have received such a certificate.
(d) Rights Certificates shall represent the right to purchase the
securities purchasable under the terms of this Agreement, including any
adjustment or change in the securities purchasable upon exercise of the Rights,
even though such certificates may continue to express the securities purchasable
at the time of issuance of the initial Rights Certificates.
2.5 DATE ON WHICH EXERCISE IS EFFECTIVE. Each Person in whose name any
certificate for shares is issued (or registration on the stock transfer books is
effected) upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the shares represented thereby on the date upon
which the Rights Certificate evidencing such Rights was duly surrendered and
payment of the Exercise Price for such Rights (and any applicable taxes and
other governmental charges payable by the exercising holder hereunder) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the stock transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
(or registration) shall be dated, the next succeeding Business Day on which the
stock transfer books of the Company are open.
2.6 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS
CERTIFICATES. (a) The Rights Certificates shall be executed on behalf of
the Company by
13
its Chairman of the Board, President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Rights
Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature and delivery of such Rights
Certificates.
Promptly after the Separation Time, the Company will notify, in
writing, the Rights Agent of such Separation Time and will deliver Rights
Certificates executed by the Company to the Rights Agent for counter-signature,
and, subject to Section 3.1(b), the Rights Agent shall manually countersign and
deliver such Rights Certificates to the holders of the Rights pursuant to
Section 2.3(c) hereof. No Rights Certificate shall be valid for any purpose
unless manually countersigned by the Rights Agent.
(b) Each Rights Certificate shall be dated the date of
countersignature thereof.
2.7 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. (a) After the
Separation Time, the Company will cause to be kept a register (the "RIGHTS
REGISTER") in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the Rights Agent
shall cease to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times after the Separation Time.
After the Separation Time and prior to the Expiration Time, upon
surrender for registration of transfer or exchange of any Rights Certificate,
and subject to the provisions of Section 2.7(c) and (d), the Company will
execute, and the Rights Agent will countersign and deliver, in the name of the
holder or the designated transferee or transferees, as required pursuant to the
holder's instructions, one or more new Rights Certificates evidencing the same
aggregate number of Rights as did the Rights Certificate so surrendered.
(b) Except as otherwise provided in Section 3.1(b), all Rights issued
upon any registration of transfer or exchange of Rights Certificates shall be
the valid obligations of the Company, and such Rights shall be entitled to the
same benefits under this Agreement as the Rights surrendered upon such
registration of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer
14
in form satisfactory to the Company or the Rights Agent, as the case may be,
duly executed by the holder thereof or such holder's attorney duly authorized in
writing. As a condition to the issuance of any new Rights Certificate under this
Section 2.7, the Company may require the payment of a sum sufficient to cover
any tax or other charge that may be imposed in relation thereto. The Rights
Agent shall have no duty or obligation to take any action under any Section of
this Agreement which requires the payment by a Rights holder of applicable taxes
and charges unless and until the Rights Agent is satisfied that all such taxes
and/or charges have been paid.
(d) The Company shall not register the transfer or exchange of any
Rights which have become void under Section 3.1(b), been exchanged under Section
3.1(c) or been redeemed under Section 5.1.
2.8 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES. (a) If
any mutilated Rights Certificate is surrendered to the Rights Agent prior to the
Expiration Time, then, subject to Sections 3.1(b), 3.1(c) and 5.1, the Company
shall execute and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Company and the Rights Agent
prior to the Expiration Time (i) evidence to their satisfaction of the
destruction, loss or theft of any Rights Certificate and (ii) such security or
indemnity as may be required by them to save each of them and any of their
agents harmless, then, subject to Sections 3.1(b), 3.1(c) and 5.1 and in the
absence of notice to the Company or the Rights Agent that such Rights
Certificate has been acquired by a BONA FIDE purchaser, the Company shall
execute and upon its request the Rights Agent shall countersign and deliver, in
lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights
Certificate evidencing the same number of Rights as did the Rights Certificate
so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate under
this Section 2.8, the Company may require the payment of a sum sufficient to
cover any tax or other charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Rights Agent) connected
therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.8
in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and, subject to Section 3.1(b) shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Rights duly
issued hereunder.
2.9 PERSONS DEEMED OWNERS. Prior to due presentment of a Rights
Certificate (or, prior to the Separation Time, the associated Common Share
certificate or
15
notice of transfer, if uncertificated) for registration of transfer, the
Company, the Rights Agent and any agent of the Company or the Rights Agent may
deem and treat the person in whose name such Rights Certificate (or, prior to
the Separation Time, such Common Share certificate or Common Share registration,
if uncertificated) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, including the payment of the
Redemption Price and neither the Company nor the Rights Agent shall be affected
by any notice to the contrary. As used in this Agreement, unless the context
otherwise requires, the term "holder" of any Rights shall mean the registered
holder of such Rights (or, prior to the Separation Time, the associated Common
Shares).
2.10 DELIVERY AND CANCELLATION OF CERTIFICATES. All Rights
Certificates surrendered upon exercise or for registration of transfer or
exchange shall, if surrendered to any Person other than the Rights Agent, be
delivered to the Rights Agent and, in any case, shall be promptly cancelled by
the Rights Agent. The Company may at any time deliver to the Rights Agent for
cancellation any Rights Certificates previously countersigned and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Rights Certificates so delivered shall be promptly cancelled by the Rights
Agent. No Rights Certificates shall be countersigned in lieu of or in exchange
for any Rights Certificates cancelled as provided in this Section 2.10, except
as expressly permitted by this Agreement. The Rights Agent shall destroy all
cancelled Rights Certificates and deliver a certificate of destruction to the
Company.
2.11 AGREEMENT OF RIGHTS HOLDERS. Every holder of Rights by accepting
the same consents and agrees with the Company and the Rights Agent and with
every other holder of Rights that:
(a) prior to the Separation Time, each Right will be transferable
only together with, and will be transferred by a transfer of, the associated
Common Share;
(b) after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(c) prior to due presentment of a Rights Certificate (or, prior to
the Separation Time, the associated Common Share certificate or Common Share
registration, if uncertificated) for registration of transfer, the Company, the
Rights Agent and any agent of the Company or the Rights Agent may deem and treat
the person in whose name the Rights Certificate (or, prior to the Separation
Time, the associated Common Share certificate or Common Share registration, if
uncertificated) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, and neither the Company nor the
Rights Agent shall be affected by any notice to the contrary;
(d) Rights beneficially owned by certain Persons will, under the
circumstances set forth in Section 3.1(b), become null and void; and
16
(e) this Agreement may be supplemented or amended from time to
time pursuant to Section 2.4(b) or 5.4 hereof.
ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
3.1 FLIP-IN (a) In the event that prior to the Expiration Time a
Flip-in Date shall occur, except as provided in this Section 3.1, each Right
shall constitute the right to purchase from the Company, upon exercise thereof
in accordance with the terms hereof (but subject to Section 5.10), that number
of one one-thousandths of a share of Preferred Stock equal to that number of
shares of Common Stock, having an aggregate Market Price on the Stock
Acquisition Date that gave rise to the Flip-in Date equal to twice the Exercise
Price for an amount in cash equal to the Exercise Price (such right to be
appropriately adjusted in order to protect the interests of the holders of
Rights generally in the event that on or after such Stock Acquisition Date any
of the events described in Section 2.4(a) or (b), or any analogous event, shall
have occurred with respect to the Common Shares).
(b) Notwithstanding the foregoing, any Rights that are or were
Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person
or an Affiliate or Associate thereof or by any transferee, direct or indirect,
of any of the foregoing shall become null and void and any holder of such Rights
(including transferees) shall thereafter have no right to exercise or transfer
such Rights under any provision of this Agreement. If any Rights Certificate is
presented for assignment or exercise and the Person presenting the same will not
complete the certification set forth at the end of the form of assignment or
notice of election to exercise and provide such additional evidence of the
identity of the Beneficial Owner and its Affiliates and Associates (or former
Beneficial Owners and their Affiliates and Associates) as the Company shall
reasonably request, then the Company shall be entitled conclusively to deem the
Beneficial Owner thereof to be an Acquiring Person or an Affiliate or Associate
thereof or a transferee of any of the foregoing and accordingly will deem the
Rights evidenced thereby to be null and void and not transferable or
exercisable.
(c) The Board of Directors of the Company may, at its option, at any
time after a Flip-in Date and prior to the time that an Acquiring Person becomes
the Beneficial Owner of more than 50% of the outstanding voting power of the
Common Shares elect to exchange all (but not less than all) the then outstanding
Rights (which shall not include Rights that have become null and void pursuant
to the provisions of Section 3.1(b)) for shares of Preferred Stock, at an
exchange ratio of one one-thousandth of a share of Preferred Stock, per Right,
appropriately adjusted in order to protect the interests of holders of Rights
generally in the event that after the Stock Acquisition Date any of the events
described in Section 2.4(a) or (b), or any analogous event, shall have
17
occurred with respect to the Common Shares (such exchange ratio, as adjusted
from time to time, being hereinafter referred to as the "Exchange Ratio").
Immediately upon the action of the Board of Directors of the Company
electing to exchange the Rights, without any further action and without any
notice, the right to exercise the Rights will terminate and each Right (other
than Rights that have become null and void pursuant to Section 3.1(b)), whether
or not previously exercised, will thereafter represent only the right to receive
a number of one one-thousandths of a share of Preferred Stock equal to the
Exchange Ratio. Promptly after the action of the Board of Directors electing to
exchange the Rights, the Company shall give written notice thereof (specifying
the steps to be taken to receive Common Shares in exchange for Rights) to the
Rights Agent and the holders of the Rights (other than Rights that have become
void pursuant to Section 3.1(b)) outstanding immediately prior thereto by
mailing such notice in accordance with Section 5.9.
Each Person in whose name any certificate for shares is issued (or for
whom any registration on the stock transfer books of the Company is made) upon
the exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall
for all purposes be deemed to have become the holder of record of the shares
represented thereby on, and such certificate (or registration on the stock
transfer books of the Company) shall be dated (or registered as of) the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of any applicable taxes and other charges payable by the holder was
made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate (or registration on the stock transfer books of the Company) shall
be dated (or registered as of) the next succeeding Business Day on which the
stock transfer books of the Company are open.
(d) Whenever the Company shall become obligated under Section 3.1(a)
or (c) to issue a share (or fractional share) of Preferred Stock upon exercise
of or in exchange for Rights, the Company, to the extent permitted by the
Company's Restated Certificate of Incorporation, as amended, at its option, may
substitute therefor shares of Common Stock or Class B Common Stock, as
applicable, at a ratio of one share of Common Stock or Class B Common Stock, as
applicable, for each one-thousandth of a share of the Preferred Stock so
issuable.
(e) In the event that there shall not be sufficient treasury shares or
authorized but unissued Common Shares or Preferred Stock of the Company to
permit the exercise or exchange in full of the Rights in accordance with Section
3.1(a) or if the Company so elects, to make the exchange referred to in Section
3.1(c), the Company shall either (i) call a meeting of stockholders seeking
approval to cause sufficient additional shares to be authorized (provided that
if such approval is not obtained the Company will take the action specified in
clause (ii) of this sentence) or (ii) take such
18
action as shall be necessary to ensure and provide, to the extent permitted by
applicable law and any agreements or instruments in effect on the Stock
Acquisition Date to which it is a party, that each Right shall thereafter
constitute the right to receive, (x) at the Company's option, either (A) in
return for the Exercise Price, debt or equity securities or other assets (or a
combination thereof) having a fair value equal to twice the Exercise Price, or
(B) without payment of consideration (except as otherwise required by applicable
law), debt or equity securities or other assets (or a combination thereof)
having a fair value equal to the Exercise Price, or (y) if the Board of
Directors of the Company elects to exchange the Rights in accordance with
Section 3.1(c), debt or equity securities or other assets (or a combination
thereof) having a fair value equal to the product of the Market Price of a share
of Common Stock on the Flip-in Date times the Exchange Ratio in effect on the
Flip-in Date, where in any case set forth in (x) or (y) above the fair value of
such debt or equity securities or other assets shall be as determined in good
faith by the Board of Directors of the Company, after consultation with a
nationally recognized investment banking firm.
3.2 FLIP-OVER. (a) Prior to the Expiration Time, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event unless and until it shall have entered into a
supplemental agreement with the Flip-over Entity, for the benefit of the holders
of the Rights, providing that, upon consummation or occurrence of the Flip-over
Transaction or Event (i) the Flip-over Entity will have duly authorized and
available for issuance sufficient shares of (x) Flip-over Stock and (y) the
classes of common equity securities into which the shares of Flip-over Stock are
convertible, (ii) each Right shall thereafter constitute the right to purchase
from the Flip-over Entity, upon exercise thereof in accordance with the terms
hereof, that number of shares of Series A Flip-over Stock of the Flip-over
Entity having an aggregate Market Price (based on the Market Price of the Common
Stock in the Reference Package) on the date of consummation or occurrence of
such Flip-over Transaction or Event equal to twice the Exercise Price for the
Right for an amount in cash equal to the Exercise Price for the Right (such
right to be appropriately adjusted in order to protect the interests of the
holders of Rights generally in the event that after such date of consummation or
occurrence any of the events described in Section 2.4(a) or (b), or any
analogous event, shall have occurred with respect to the Flip-over Stock) and
(iii) the Flip-over Entity shall thereafter be liable for, and shall assume, by
virtue of such Flip-over Transaction or Event and such supplemental agreement,
all the obligations and duties of the Company pursuant to this Agreement. The
provisions of this Section 3.2 shall apply to successive Flip-over Transactions
or Events.
(b) Prior to the Expiration Time, unless the Rights will be redeemed
pursuant to Section 5.1 hereof pursuant to an agreement entered into by the
Company prior to a Flip-in Date, the Company shall not enter into any agreement
with respect to, consummate or permit to occur any Flip-over Transaction or
Event if at the time thereof there are any rights, warrants or securities
outstanding or any other arrangements, agreements or instruments that would
eliminate or otherwise diminish in any material
19
respect the benefits intended to be afforded by this Rights Agreement to the
holders of Rights upon consummation of such transaction.
ARTICLE IV
THE RIGHTS AGENT
4.1 GENERAL. (a) The Company hereby appoints the Rights Agent to act
as agent for the Company in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the preparation,
execution, delivery, administration and amendment of this Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, settlement, cost or expense,
incurred without gross negligence, bad faith or willful misconduct on the part
of the Rights Agent (which gross negligence, bad faith or willful misconduct
must be determined by an order, judgment, decree or ruling of a court of
competent jurisdiction), for any action taken, suffered or omitted by the Rights
Agent in connection with the acceptance and administration of this Agreement,
including without limitation the costs and expenses of defending against any
claim of liability. The indemnity provided herein shall survive the termination
of this Agreement and the termination and expiration of the Rights. The costs
and expenses incurred in successfully enforcing this right of indemnification
shall be paid by the Company.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its acceptance and administration of this Agreement in reliance upon any
certificate for securities (or registration on the stock transfer books of the
Company) purchasable upon exercise of Rights, Rights Certificate, certificate
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 4.3 hereof.
4.2 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any
Person into which the Rights Agent or any successor Rights Agent may be merged
or with which it may be consolidated, or any Person resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent is a
party, or any Person succeeding to the shareholder services business of the
Rights Agent or any successor Rights Agent, will be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such Person
would be eligible for appointment as a successor
20
Rights Agent under the provisions of Section 4.4 hereof. In case at the time
such successor Rights Agent succeeds to the agency created by this Agreement any
of the Rights Certificates have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates have not been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates will have the full force provided in the
Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
4.3 DUTIES OF RIGHTS AGENT. The Rights Agent undertakes only the
duties and obligations expressly imposed by this Agreement (and no implied
duties or obligations) upon the following terms and conditions, by all of which
the Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company or an employee of the Rights Agent), and the advice or
opinion of such counsel will be full and complete authorization and protection
to the Rights Agent and the Rights Agent shall incur no liability for or in
respect of any action taken, suffered by it or omitted by it in good faith and
in accordance with such advice or opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent deems it necessary or desirable that any fact or matter (including,
without limitation, the identity of any Acquiring Person and the determination
of Market Price) be proved or established by the Company prior to taking,
suffering or omitting to take any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by a
person believed by the Rights Agent to be the Chairman of the Board, the
President or any Vice President and by the Treasurer or any Assistant Treasurer
or the Secretary or any Assistant Secretary of the Company and delivered to the
Rights Agent; and such certificate will be full authorization and protection to
the Rights Agent and the Rights Agent shall incur no liability for or in respect
of any action taken, suffered or omitted in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
21
(c) The Rights Agent will be liable hereunder only for its own gross
negligence, bad faith or willful misconduct (which gross negligence, bad faith
or willful misconduct must be determined by an order, judgment, decree or ruling
of a court of competent jurisdiction). Anything to the contrary notwithstanding,
in no event shall the Rights Agent be liable for special, punitive, indirect,
consequential or incidental loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Rights Agent has been advised of the
likelihood of such loss or damage.
(d) The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates, if any, for securities purchasable upon exercise of Rights or the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and will be deemed to
have been made by the Company only.
(e) The Rights Agent will have no liability nor be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due authorization, execution and delivery hereof by
the Rights Agent) or in respect of the validity or execution of any certificate,
if any, for securities purchasable upon exercise of Rights or Rights Certificate
(except its countersignature thereof); nor will it be responsible for any breach
by the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor will it be responsible for any change in the
exercisability of the Rights (including the Rights becoming null and void
pursuant to Section 3.1(b) hereof) or any adjustment required under the
provisions of Section 2.4, 3.1 or 3.2 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights after receipt of the certificate contemplated by Section 2.4
describing any such adjustment); nor will it by any act hereunder be deemed to
make any representation or warranty as to the authorization or reservation of
any securities purchasable upon exercise of Rights or any Rights or as to
whether any securities purchasable upon exercise of Rights will, when issued, be
duly and validly authorized, executed, issued and delivered and fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
advice or instructions with respect to the performance of its duties hereunder
from any person believed by the Rights Agent to be the Chairman of the Board,
the President or any Vice President or the Secretary or any Assistant Secretary
or the Treasurer or any Assistant Treasurer of the Company, and to apply to such
persons for advice or
22
instructions in connection with its duties, and such advice or instructions
shall be full authorization and protection to the Rights Agent and the Rights
Agent shall incur no liability for or in respect of any action taken, suffered
or omitted by it in good faith in accordance with the advice or instructions of
any such person.
(h) The Rights Agent and any stockholder, affiliate, director, officer
or employee of the Rights Agent may buy, sell or deal in Common Stock, Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any Person.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent will not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, absent gross negligence, bad faith, or willful misconduct
(which gross negligence, bad faith or willful misconduct must be determined by
an order, judgment, decree or ruling of a court of competent jurisdiction) in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties or obligations hereunder or in the exercise of
its rights if it believes that repayment of such funds or adequate
indemnification against such risk or liability is not assured to it.
4.4 CHANGE OF RIGHTS AGENT. The Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 days' notice (or such
lesser notice as is acceptable to the Company) in writing mailed to the Company
and to each transfer agent of Common Shares by registered or certified mail, and
to the holders of the Rights in accordance with Section 5.9. The Company may
remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent and to each transfer agent of the Common Shares by registered or certified
mail, and to the holders of the Rights in accordance with Section 5.9. If the
Rights Agent should resign or be removed or otherwise become incapable of
acting, the Company will appoint a successor to the Rights Agent. If the Company
fails to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of any Rights (which
holder shall, with such notice, submit such holder's Rights Certificate for
inspection by the Company), then the holder of any Rights may apply to any court
of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a Person organized
23
and doing business under the laws of the United States or any state of the
United States, in good standing, which is authorized under such laws to exercise
the powers of the Rights Agent contemplated by this Agreement and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50,000,000 or (b) an Affiliate of a Person described in clause (a) of
this sentence that is under control of such Person. After appointment, the
successor Rights Agent will be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company will file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares, and mail a notice thereof in
writing to the holders of the Rights. Failure to give any notice provided for in
this Section 4.4, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
ARTICLE V
MISCELLANEOUS
5.1 REDEMPTION. (a) The Board of Directors of the Company may, at its
option, at any time prior to the Flip-in Date, elect to redeem all (but not less
than all) the then outstanding Rights at the Redemption Price and the Company,
at its option, may pay the Redemption Price either in cash or other securities
of the Company deemed by the Board of Directors, in the exercise of its sole
discretion, to be at least equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the
Company electing to redeem the Rights (or, if the resolution of the Board of
Directors electing to redeem the Rights states that the redemption will not be
effective until the occurrence of a specified future time or event, upon the
occurrence of such future time or event), without any further action and without
any notice, the right to exercise the Rights will terminate and each Right,
whether or not previously exercised, will thereafter represent only the right to
receive the Redemption Price in cash or securities, as determined by the Board
of Directors. Promptly after the Rights are redeemed, the Company shall give
written notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice in accordance with Section 5.9.
5.2 EXPIRATION. The Rights and this Agreement shall expire at
the Expiration Time and no Personshall have any rights pursuant to this
Agreement or any
24
Right after the Expiration Time, except, if the Rights are exchanged or
redeemed, as provided in Section 3.1 or 5.1 hereof , respectively.
5.3 ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the number or kind or class of shares of stock purchasable upon exercise of
Rights made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Shares by the Company following
the Separation Time and prior to the Expiration Time pursuant to the terms of
securities convertible or redeemable into Common Shares (other than any such
securities issued or issuable in connection with the exercise or exchange of
Rights or upon conversion of shares of Class B Common Stock after the Separation
Time) or to options, in each case issued or granted prior to, and outstanding
at, the Separation Time, the Company shall issue to the holders of such Common
Shares, Rights Certificates representing the appropriate number of Rights in
connection with the issuance or sale of such Common Shares; PROVIDED, HOWEVER,
in each case, (i) no such Rights Certificate shall be issued, if, and to the
extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or
to the Person to whom such Rights Certificates would be issued, (ii) no such
Rights Certificates shall be issued if, and to the extent that, appropriate
adjustment shall have otherwise been made in lieu of the issuance thereof, and
(iii) the Company shall have no obligation to distribute Rights Certificates to
any Acquiring Person or Affiliate or Associate of an Acquiring Person or any
transferee of any of the foregoing.
5.4 SUPPLEMENTS AND AMENDMENTS. The Company and the Rights Agent may
from time to time supplement or amend this Agreement without the approval of any
holders of Rights (i) prior to the Flip-in Date, in any respect and (ii) on or
after the Flip-in Date, to make any changes that the Company may deem necessary
or desirable and which shall not materially adversely affect the interests of
the holders of Rights generally or in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be inconsistent with any
other provisions herein or otherwise defective. The Rights Agent will, upon
delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment complies with this Section 5.4,
duly execute and deliver any supplement or amendment hereto requested by the
Company which satisfies the terms of the preceding sentence, provided that any
supplement or amendment shall become effective immediately upon execution by the
Company, whether or not also executed by the Rights Agent. Notwithstanding
anything contained in this Agreement to the contrary, the Rights Agent may, but
shall not be obligated to, enter into any supplement or amendment that affects
only the rights, duties, obligations or indemnities of the Rights Agent
hereunder.
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5.5 FRACTIONAL SHARES. If the Company elects not to issue certificates
representing (or register on the stock transfer books of the Company) fractional
shares upon exercise, exchange or redemption of Rights, the Company shall, in
lieu thereof, in the sole discretion of its Board of Directors, either (a)
evidence such fractional shares by depositary receipts issued pursuant to an
appropriate agreement between the Company and a depositary selected by it,
providing that each holder of a depositary receipt shall have all of the rights,
privileges and preferences to which such holder would be entitled as a
beneficial owner of such fractional share, or (b) pay to the registered holder
of such Rights the appropriate fraction of the Market Price per share in cash.
5.6 RIGHTS OF ACTION. Subject to the terms of this Agreement
(including Sections 3.1(b) and 5.14), rights of action in respect of this
Agreement, other than rights of action vested solely in the Rights Agent, are
vested in the respective holders of the Rights; and any holder of any Rights,
without the consent of the Rights Agent or of the holder of any other Rights,
may, on such holder's own behalf and for such holder's own benefit and the
benefit of other holders of Rights, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, such holder's right to exercise such holder's Rights in the manner
provided in such holder's Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
5.7 HOLDER OF RIGHTS NOT DEEMED A STOCKHOLDER. No holder, as such, of
any Rights shall be entitled to vote, receive dividends or be deemed for any
purpose the holder of shares or any other securities which may at any time be
issuable on the exercise of such Rights, nor shall anything contained herein or
in any Rights Certificate be construed to confer upon the holder of any Rights,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights,
or otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.
5.8 NOTICE OF PROPOSED ACTIONS. In case the Company shall propose on
or after the Separation Time and prior to the Expiration Time (i) to effect or
permit a Flip-over Transaction or Event or (ii) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right, in accordance with Section 5.9 hereof, a
notice of such proposed action, which shall specify the date on which such
Flip-over Transaction or Event, liquidation, dissolution,
26
or winding up is to take place, and such notice shall be so given at least 20
Business Days prior to the date of the taking of such proposed action.
5.9 NOTICES. Notices or demands authorized or required by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
to or on the Company shall be sufficiently given or made if delivered or sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Hershey Foods Corporation
100 Crystal A Drive
Hershey, Pennsylvania 17033
Attention: General Counsel and Secretary
Any notice or demand authorized or required by this Agreement to be given or
made by the Company or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:
Mellon Investor Services LLC
44 Wall Street
6th and 7th Floor
New York, New York 10005
Attention: Relationship Manager
With a copy to:
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, New Jersey 07660-2108
Attention: General Counsel
Notices or demands authorized or required by this Agreement to be given or made
by the Company or the Rights Agent to or on the holder of any Rights shall be
sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the registry books of the Rights Agent or, prior to the Separation Time, on
the registry books of the transfer agent for the Common Shares. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice.
5.10 SUSPENSION OF EXERCISABILITY. To the extent that the Company
determines in good faith that some action will or need be taken pursuant to
Section 3.1 or to comply with federal or state securities laws, the Company may
suspend the exercisability of the Rights for a reasonable period in order to
take such action or comply with
27
such laws. In the event of any such suspension, the Company shall issue as
promptly as practicable a public announcement stating that the exercisability or
exchangeability of the Rights has been temporarily suspended (with prompt
written notice thereof to the Rights Agent). Notice thereof pursuant to Section
5.9 shall not be required.
Failure to give a notice pursuant to the provisions of this Agreement
shall not affect the validity of any action taken hereunder.
5.11 COSTS OF ENFORCEMENT. The Company agrees that if the Company or
any other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.
5.12 SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
5.13 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this
Agreement and this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the holders of the Rights.
5.14 DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement. All such actions, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) done
or made by the Board, shall (x) be final, conclusive and binding on the Company,
the Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board of Directors of the Company to any liability to the holders of
the Rights. The Rights Agent shall always be entitled to assume that the
Company's Board of Directors acted in good faith and shall be fully protected
and incur no liability in reliance thereon.
5.15 DESCRIPTIVE HEADINGS. Descriptive headings appear herein
for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
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5.16 GOVERNING LAW. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF DELAWARE
AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY
WITHIN SUCH STATE; PROVIDED, HOWEVER, THAT ALL PROVISIONS REGARDING THE RIGHTS,
DUTIES AND OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
5.17 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
5.18 Severability. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
HERSHEY FOODS CORPORATION
By: /S/ ROBERT M. REESE
____________________________
Name: Robert M. Reese
Title: Vice President,
General Counsel
and Secretary
MELLON INVESTOR SERVICES LLC,
As Rights Agent
By: /S/ ROBERT G. SCOTT, JR.
____________________________
Name: Robert G. Scott, Jr.
Title: Vice President
29
EXHIBIT A
[Form of Rights Certificate]
Certificate No. W- _______ Rights
THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE
OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR
ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID.
Rights Certificate
HERSHEY FOODS CORPORATION
This certifies that ____________________, or registered
assigns, is the registered holder of the number of Rights set forth above, each
of which entitles the registered holder thereof, subject to the terms,
provisions and conditions of the Stockholder Protection Rights Agreement, dated
as of December 15, 2000 (as amended from time to time, the "RIGHTS AGREEMENT"),
between Hershey Foods Corporation, a Delaware corporation (the "COMPANY"), and
Mellon Investor Services LLC, a New Jersey limited liability company, as Rights
Agent (the "RIGHTS AGENT", which term shall include any successor Rights Agent
under the Rights Agreement), to purchase from the Company at any time after the
Separation Time (as such term is defined in the Rights Agreement) and prior to
the close of business on December 15, 2010, one one-thousandth of a fully paid
share of Series A Participating Preferred Stock, par value $1.00 per share (the
"SERIES A PREFERRED STOCK"), of the Company (subject to adjustment as provided
in the Rights Agreement) at the Exercise Price referred to below, upon
presentation and surrender of this Rights Certificate with the Form of Election
to Exercise duly executed at the office of the Rights Agent designated for such
purpose. The Exercise Price shall initially be $270 per Right and shall be
subject to adjustment in certain events as provided in the Rights Agreement.
Under certain circumstances, each one one-thousandth of a share of
Series A Preferred Stock held by a holder of a share of Class B Common Stock at
the Separation Time may be converted at the election of the holder thereof into
one one-thousandth of a fully paid share of Series B Participating Preferred
Stock, par value $1.00 per share (the "SERIES B PREFERRED STOCK"), of the
Company. The procedures to be followed and
limitations on effecting such conversion are set forth in the Certificate of
Designation and Terms of the Series A Preferred Stock.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase
securities of an entity other than the Company or securities of the Company
other than Series A Preferred Stock or assets of the Company, all as provided in
the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
available without cost upon written request.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor evidencing an aggregate number of Rights equal to the aggregate number of
Rights evidenced by the Rights Certificate or Rights Certificates surrendered.
If this Rights Certificate shall be exercised in part, the registered holder
shall be entitled to receive, upon surrender hereof, another Rights Certificate
or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, each Right
evidenced by this Rights Certificate may be (a) redeemed by the Company under
certain circumstances, at its option, at a redemption price of $0.01 per Right
or (b) exchanged by the Company under certain circumstances, at its option, for
one share of Common Stock or Class B Common Stock, as applicable, or one
one-thousandth of a share of Series A Preferred Stock per Right (or, in certain
cases, other securities or assets of the Company), subject in each case to
adjustment in certain events as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of any
securities which may at any time be issuable on the exercise hereof, nor shall
anything contained in the Rights Agreement or herein be construed to confer upon
the holder hereof, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised or exchanged as provided in
the Rights Agreement.
A-2
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Date: ____________
ATTEST: HERSHEY FOODS CORPORATION
___________________________ By______________________
Secretary
Countersigned:
MELLON INVESTOR SERVICES LLC,
As Rights Agent
By____________________________
Authorized Signature
A-3
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer this Rights Certificate.)
FOR VALUE RECEIVED ________________________ hereby
sells, assigns and transfers unto ______________________________________
(Please Print name
______________________________________________________________
and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated: _______________, ____
Signature Guaranteed: _________________________
Signature
(Signature must correspond to
name as written upon the face
of this Rights Certificate in
every particular, without
alteration or enlargement or
any change whatsoever)
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee Medallion program), pursuant to
Exchange Act Rule 17Ad-15.
______________________________________________________
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights and
Common Shares, that the Rights evidenced by this Rights Certificate are not,
and, to the knowledge
of the undersigned, have never been, Beneficially Owned by an Acquiring Person
or an Affiliate or Associate thereof (as defined in the Rights Agreement).
__________________________
Signature
________________________________________________________
NOTICE
In the event the certification set forth above is not
completed in connection with a purported assignment, the Company will deem the
Beneficial Owner of the Rights evidenced by the enclosed Rights Certificate to
be an Acquiring Person or an Affiliate or Associate thereof (as defined in the
Rights Agreement) or a transferee of any of the foregoing and accordingly will
deem the Rights evidenced by such Rights Certificate to be void and not
transferable or exercisable.
-2-
[To be attached to each Rights Certificate]
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: HERSHEY FOODS CORPORATION
The undersigned hereby irrevocably elects to exercise
_______________________ whole Rights represented by the attached Rights
Certificate to purchase the shares of Series A Participating Preferred Stock
issuable upon the exercise of such Rights and requests that certificates for
such shares be issued in the name of:
___________________________________
ADDRESS:
___________________________________
SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER:
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
___________________________________
ADDRESS:
___________________________________
SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER:
Dated: _______________, ____
Signature Guaranteed: _________________________
Signature
(Signature must correspond to
name as written upon the
face of the attached Rights
Certificate in every
particular, without
alteration or enlargement or
any change whatsoever)
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee Medallion program), pursuant to
Exchange Act Rule 17Ad-15.
______________________________________________________________
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of
Rights and Common Shares, that the Rights evidenced by the attached Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
_________________________
Signature
- ------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights Agreement)
or a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
-2-
EXHIBIT B
FORM OF CERTIFICATE OF DESIGNATION AND TERMS
OF SERIES A PARTICIPATING PREFERRED STOCK OF
HERSHEY FOODS CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delware
We, the undersigned, ____________________ and
____________________, the ____________________, and __________, respectively, of
Hershey Foods Corporation, a Delaware corporation (the "CORPORATION"), do hereby
certify as follows:
Pursuant to authority granted by Article FOURTH of the Restated
Certificate of Incorporation of the Corporation, as amended, and in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, the Board of Directors of the Corporation has adopted the following
resolutions fixing the designation and certain terms, powers, preferences and
other rights of a new series of the Corporation's Preferred Stock, par value
$1.00 per share, and certain qualifications, limitations and restrictions
thereon:
RESOLVED, that there is hereby established a series of Preferred
Stock, par value $1.00 per share, of the Corporation, and the designation
and certain terms, powers, preferences and other rights of the shares of
such series, and certain qualifications, limitations and restrictions
thereon, are hereby fixed as follows:
(i) The distinctive serial designation of this series
shall be "Series A Participating Preferred Stock" (hereinafter
called "THIS SERIES"). Each share of this Series shall be
identical in all respects with the other shares of this Series
except as to the dates from and after which dividends thereon
shall be cumulative and except as otherwise herein provided.
(ii) The number of shares in this Series shall initially
be _______, which number may from time to time be increased or
decreased (but not below the number then outstanding) by the
Board of Directors. Shares of this Series purchased by the
Corporation or converted into Common Stock or into a different
series of Preferred Stock of the Corporation shall be
cancelled and shall revert to authorized and designated as to
series, but unissued shares of Preferred Stock. Shares of this
Series may be issued in fractional shares which are whole
number multiples of one one-thousandth of a share, which
fractional shares shall entitle the holder, in proportion to
such holder's fractional share, to all rights of a holder of a
whole share of this Series.
(iii) The holders of full or fractional shares of this
Series shall be entitled to receive, when and as declared by
the Board of Directors, but only out of funds legally
available therefor, dividends, (A) on each date that dividends
or other distributions (other than dividends or distributions
payable in Common Stock of the Corporation) are payable on or
in respect of Common Stock comprising part of the Reference
Package (as defined below), in an amount per whole share of
this Series equal to the aggregate amount of dividends or
other distributions (other than dividends or distributions
payable in Common Stock of the Corporation) that would be
payable on such date to a holder of the Reference Package and
(B) on the last day of March, June, September and December in
each year, in an amount per whole share of this Series equal
to the amount by which $10 exceeds the aggregate dividends
paid per whole share of this Series during the three month
period ending on such last day. Each such dividend shall be
paid to the holders of record of shares of this Series on the
date, not exceeding sixty days preceding such dividend or
distribution payment date, fixed for the purpose by the Board
of Directors in advance of payment of each particular dividend
or distribution. Dividends on each full and each fractional
share of this Series shall be cumulative from the date such
full or fractional share is originally issued; provided that
any such full or fractional share originally issued after a
dividend record date and on or prior to the dividend payment
date to which such record date relates shall not be entitled
to receive the dividend payable on such dividend payment date
or any amount in respect of the period from such original
issuance to such dividend payment date.
The term "Reference Package" shall initially
mean 1000 shares of Common Stock, par value $1.00 per share
("COMMON STOCK"), of the Corporation. In the event the
Corporation shall at any time after the close of business on
________, ____*/f1/ (A) declare or pay a dividend on any
Common Stock payable in Common Stock, (B) subdivide any Common
Stock or (C) combine any Common Stock into a smaller number
- ------------------------------
/f1/* For a certificate of designation relating to shares to be issues
pursuant to Section 2.3 of the Rights Agreement, insert the Separation
Time. For a certificate of designation relating to shares to be issued
pursuant to Section 3.1(d) of the Rights Agreement, insert the Flip-in
Date.
B-2
of shares, then and in each such case the Reference Package
after such event shall be the Common Stock that a holder of
the Reference Package immediately prior to such event would
hold thereafter as a result thereof.
Holders of shares of this Series shall not be
entitled to any dividends, whether payable in cash, property
or stock, in excess of full cumulative dividends, as herein
provided on this Series. This Series shall rank pari passu in
all respects with the Series B Participating Preferred Stock
of the Company except with respect to voting rights.
So long as any shares of this Series are
outstanding, no dividend (other than a dividend in Common
Stock or in any other stock ranking junior to this Series as
to dividends and upon liquidation) shall be declared or paid
or set aside for payment or other distribution declared or
made upon the Common Stock or Class B Common Stock or upon any
other stock ranking junior to this Series as to dividends or
upon liquidation, unless the full cumulative dividends
(including the dividend to be paid upon payment of such
dividend or other distribution) on all outstanding shares of
this Series shall have been, or shall contemporaneously be,
paid. When dividends are not paid in full upon this Series and
any other stock ranking on a parity as to dividends with this
Series, all dividends declared upon shares of this Series and
any other stock ranking on a parity as to dividends shall be
declared pro rata so that in all cases the amount of dividends
declared per share on this Series and such other stock shall
bear to each other the same ratio that accumulated dividends
per share on the shares of the Series and such other stock
bear to each other. Neither the Common Stock or Class B Common
Stock nor any other stock of the Corporation ranking junior to
or on a parity with this Series as to dividends or upon
liquidation may be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares
of any such stock) by the Corporation (except by conversion
into or exchange for stock of the Corporation ranking junior
to this Series as to dividends and upon liquidation), unless,
in each case, the full cumulative dividends (including the
dividend to be due upon payment of such dividend,
distribution, redemption, purchase or other acquisition) on
all outstanding shares of this Series shall have been, or
shall contemporaneously be, paid.
(iv) In the event of any merger, consolidation,
reclassification or other transaction in which the Common
Shares are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such
case the shares of this Series shall at the same time be
similarly exchanged or changed in an amount per whole share
equal to the aggregate amount of stock, securities, cash
and/or any other property
B-3
(payable in kind), as the case may be, that a holder of the
Reference Package would be entitled to receive as a result of
such transaction.
(v) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether
voluntary or involuntary, the holders of full and fractional
shares of this Series shall be entitled, before any
distribution or payment is made on any date to the holders of
the Common Stock or Class B Common Stock or any other stock of
the Corporation ranking junior to this Series upon
liquidation, to be paid in full an amount per whole share of
this Series equal to the greater of (A) $__________*/f2/ or
(B) the aggregate amount distributed or to be distributed in
connection with such liquidation, dissolution or winding up to
a holder of the Reference Package (such greater amount being
hereinafter referred to as the "Liquidation Preference"),
together with accrued dividends to such distribution or
payment date, whether or not earned or declared. If such
payment shall have been made in full to all holders of shares
of this Series, the holders of shares of this Series as such
shall have no right or claim to any of the remaining assets of
the Corporation.
In the event the assets of the Corporation
available for distribution to the holders of shares of this
Series upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such holders
are entitled pursuant to the first paragraph of this Section
(v), no such distribution shall be made on account of any
shares of any other class or series of Preferred Stock ranking
on a parity with the shares of this Series upon such
liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of
this Series, ratably in proportion to the full distributable
amounts for which holders of all such parity shares are
respectively entitled upon such liquidation, dissolution or
winding up.
Upon the liquidation, dissolution or winding
up of the Corporation, the holders of shares of this Series
then outstanding shall be entitled to be paid out of assets of
the Corporation available for distribution to its stockholders
all amounts to which such holders are entitled pursuant to the
first paragraph of this Section (v) before any payment shall
be made to the holders of Common Stock or Class B Common Stock
or any other stock of the Corporation ranking junior upon
liquidation to this Series.
- ------------------------------
/f2/* Insert an amount equal to 10 times the Exercise Price in effect
as of the Separation Time.
B-4
For the purposes of this Section (v), the
consolidation or merger of, or binding share exchange by, the
Corporation with any other corporation shall not be deemed to
constitute a liquidation, dissolution or winding up of the
Corporation.
(vi) The shares of this Series shall not be redeemable.
(vii) In addition to any other vote or consent of
stockholders required by law or by the Restated Certificate of
Incorporation, as amended, of the Corporation and except as
otherwise required by law, each share (or fraction thereof) of
this Series shall, on any matter, vote as a class with any
other capital stock comprising part of the Reference Package
and shall have the number of votes thereon that a holder of
the Reference Package (or a similar fraction thereof) would
have.
(viii) To the extent any holder of this Series was the
record holder of Class B Common Stock at the Separation Time
(a "CLASS B HOLDER"), as reflected in the stock transfer books
of the Company, such holder may convert one one-thousandth of
a share of this Series for every share of Class B Common Stock
held as of Separation Time at any time at the election of the
holder thereof into one one-thousandth of a fully paid share
of Series B Participating Preferred Stock, par value $1.00 per
share (the "SERIES B PREFERRED STOCK") of the Corporation. Any
such Class B Holder may elect to convert any or all of such
one one-thousandths of a share of this Series at one time or
at various times in such Class B Holder's discretion but in no
event shall such Holder be able to convert more
one-thousandths of a share of this Series than the number of
shares of Class B Common Stock held at the Separation Time.
Such right shall be exercised by the surrender of the
certificate representing each one one-thousandth of a share of
this Series to be converted to the agent for the registration
of transfer of shares of this Series at its office, or to the
Corporation at its principal executive offices, accompanied by
a written notice of the election by the holder thereof to
convert, a statement (the "Ownership Statement") certifying
the number of, and if requested further identifying the,
shares of Class B Common Stock held as of the Separation Time
and (if so required by the transfer agent or by the
Corporation) by instruments of transfer, in form satisfactory
to the transfer agent and to the Corporation, duly executed by
such holder or his duly authorized attorney. The issuance of a
certificate or certificates for shares of Series B Preferred
Stock upon conversion of shares of this Series shall be made
without charge for any stamp or other similar tax in respect
of such issuance. However, if any such certificate or
certificates is or are to be issued in a name other than that
of the holder of the share or shares of this Series converted,
the person or persons requesting the issuance thereof shall
pay to the transfer agent or to the Corporation the amount of
any tax which
B-5
may be payable in respect of any such transfer, or shall
establish to the satisfaction of the transfer agent or of the
Corporation that such tax has been that such tax has been
paid. As promptly as practicable after the surrender for
conversion of a certificate or certificates representing
shares of this Series and the payment of any tax as
hereinbefore provided, the Corporation, subject to
verification of the Ownership Statement, will deliver or cause
to be delivered at the office of the transfer agent to, or
upon the written order of, the holder of such certificate or
certificates, a certificate or certificates representing the
number of shares of the Series B Preferred Stock issuable upon
such conversion, issued in such name or names as such holder
may direct. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of the
surrender of the certificate or certificates representing
shares of this Series (if on such date the transfer books of
the Corporation shall be closed, then immediately prior to the
close of business on the first date thereafter that said books
shall be open), and all rights of such holder arising from
ownership of shares of this Series shall cease at such time,
and the person or persons in whose name or names the
certificate or certificates representing shares of the Series
B Preferred Stock are to be issued shall be treated for all
purposes as having become the record holder or holders of such
shares of the Series B Preferred Stock at such time and shall
have and may exercise all the rights and powers appertaining
thereto.
(ix) For so long as there are shares of Class B Common
Stock outstanding, this Series shall be convertible into
Series B Preferred Stock in accordance with Paragraph (viii)
above. Immediately upon the automatic conversion of all
outstanding shares of Class B Common Stock into shares of
Common Stock pursuant to the terms of the Restated Certificate
of Incorporation of the Corporation, as amended, each one
one-thousandth of a share of this Series which is then
outstanding shall, without any action by the Board of
Directors of the Corporation or the holder or holders thereof,
automatically convert into and become for all purposes a share
of the Common Stock, subject to a sufficient number of shares
of Common Stock being authorized and available for issuance to
permit such conversion. To the extent a sufficient number of
shares of Common Stock is not authorized and available for
issuance to permit the conversion set forth in the previous
sentence, then the one one-thousandths of a share of this
Series shall be converted into Common Stock on a pro-rata
basis to the extent possible given the number of shares of
Common Stock that is authorized and available for issuance.
The Board of Directors of the Corporation is hereby authorized
to take such actions, consistent with the Delaware General
Corporation Law, as it
B-6
deems appropriate or advisable with respect to the replacement
of certificates then outstanding evidencing ownership of this
Series, or otherwise, in order to carry into effect the
foregoing provisions.
IN WITNESS WHEREOF, the undersigned have signed and attested
this certificate on the___________ day of _________, _____.
__________________________
Attest:
______________________________
B-7
EXHIBIT C
FORM OF CERTIFICATE OF DESIGNATION AND TERMS
OF SERIES B PARTICIPATING PREFERRED STOCK OF
HERSHEY FOODS CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delware
---------------------------------------
We, the undersigned, ____________________ and
____________________, the ____________________, and __________, respectively, of
Hershey Foods Corporation, a Delaware corporation (the "CORPORATION"), do hereby
certify as follows:
Pursuant to authority granted by Article FOURTH of the
Restated Certificate of Incorporation of the Corporation, as amended, and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation has adopted the
following resolutions fixing the designation and certain terms, powers,
preferences and other rights of a new series of the Corporation's Preferred
Stock, par value $1.00 per share, and certain qualifications, limitations and
restrictions thereon:
RESOLVED, that there is hereby established a series of
Preferred Stock, par value $1.00 per share, of the Corporation, and the
designation and certain terms, powers, preferences and other rights of
the shares of such series, and certain qualifications, limitations and
restrictions thereon, are hereby fixed as follows:
(i) The distinctive serial designation of this series
shall be "Series B Participating Preferred Stock" (hereinafter
called "THIS SERIES"). Each share of this Series shall be
identical in all respects with the other shares of this Series
except as to the dates from and after which dividends thereon
shall be cumulative.
(ii) The number of shares in this Series shall initially
be _______, which number may from time to time be increased or
decreased (but not below the number then outstanding) by the
Board of Directors. Shares of this Series purchased by the
Corporation or converted into Common Stock or into a different
series of Preferred Stock of the Corporation shall be
cancelled and shall revert to authorized but unissued shares
of Preferred Stock undesignated as to series. Shares of this
Series may be issued in fractional shares which are whole
number multiples of one one-thousandth of a share, which
fractional shares shall entitle the holder, in proportion to
such holder's fractional share, to all rights of a holder of a
whole share of this Series.
(iii) The holders of full or fractional shares of this
Series shall be entitled to receive, when and as declared by
the Board of Directors, but only out of funds legally
available therefor, dividends, (A) on each date that dividends
or other distributions (other than dividends or distributions
payable in Class B Common Stock of the Corporation) are
payable on or in respect of Class B Common Stock comprising
part of the Reference Package (as defined below), in an amount
per whole share of this Series equal to the aggregate amount
of dividends or other distributions (other than dividends or
distributions payable in Class B Common Stock of the
Corporation) that would be payable on such date to a holder of
the Reference Package and (B) on the last day of March, June,
September and December in each year, in an amount per whole
share of this Series equal to the amount by which $9.091
exceeds the aggregate dividends paid per whole share of this
Series during the three month period ending on such last day.
Each such dividend shall be paid to the holders of record of
shares of this Series on the date, not exceeding sixty days
preceding such dividend or distribution payment date, fixed
for the purpose by the Board of Directors in advance of
payment of each particular dividend or distribution. Dividends
on each full and each fractional share of this Series shall be
cumulative from the date such full or fractional share is
originally issued; provided that any such full or fractional
share originally issued after a dividend record date and on or
prior to the dividend payment date to which such record date
relates shall not be entitled to receive the dividend payable
on such dividend payment date or any amount in respect of the
period from such original issuance to such dividend payment
date.
The term "Reference Package" shall initially
mean 1000 shares of Class B Common Stock, par value $1.00 per
share ("CLASS B COMMON STOCK"), of the Corporation. In the
event the Corporation shall at any time after the close of
business on ________, ____*.f1/ (A) declare or pay a dividend
on any Class B Common Stock payable in Class B Common Stock,
(B) subdivide any Class B Common Stock or
- ----------------------
/f1/* For certificate of designation relating to shares to be issued
pursuant to Section 2.3 of the Rights Agreement, insert the
Separation Time. For a certificate of designation relating to
shares to be issued pursuant to Section 3.1(d) of the Rights
Agreement, insert the Flip-in Date.
C-2
(C) combine any Class B Common Stock into a smaller number of
shares, then and in each such case the Reference Package after
such event shall be the Class B Common Stock that a holder
of the Reference Package immediately prior to such event
would hold thereafter as a result thereof.
Holders of shares of this Series shall not
be entitled to any dividends, whether payable in cash,
property or stock, in excess of full cumulative dividends, as
herein provided on this Series. This Series shall rank pari
passu in all respects with the Series A Participating
Preferred Stock of the Corporation except with respect to
voting rights.
So long as any shares of this Series are
outstanding, no dividend (other than a dividend in Class B
Common Stock or in any other stock ranking junior to this
Series as to dividends and upon liquidation) shall be declared
or paid or set aside for payment or other distribution
declared or made upon the Common Stock or Class B Common Stock
or upon any other stock ranking junior to this Series as to
dividends or upon liquidation, unless the full cumulative
dividends (including the dividend to be paid upon payment of
such dividend or other distribution) on all outstanding shares
of this Series shall have been, or shall contemporaneously be,
paid. When dividends are not paid in full upon this Series and
any other stock ranking on a parity as to dividends with this
Series, all dividends declared upon shares of this Series and
any other stock ranking on a parity as to dividends shall be
declared pro rata so that in all cases the amount of dividends
declared per share on this Series and such other stock shall
bear to each other the same ratio that accumulated dividends
per share on the shares of the Series and such other stock
bear to each other. Neither the Common Stock or Class B Common
Stock nor any other stock of the Corporation ranking junior to
or on a parity with this Series as to dividends or upon
liquidation may be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares
of any such stock) by the Corporation (except by conversion
into or exchange for stock of the Corporation ranking junior
to this Series as to dividends and upon liquidation), unless,
in each case, the full cumulative dividends (including the
dividend to be due upon payment of such dividend,
distribution, redemption, purchase or other acquisition) on
all outstanding shares of this Series shall have been, or
shall contemporaneously be, paid.
(iv) In the event of any merger, consolidation,
reclassification or other transaction in which the Common
Shares are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such
case the shares of this Series shall at the same time be
similarly exchanged or changed in an amount per whole share
equal to the
C-3
aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, that a holder
of the Reference Package would be entitled to receive as a
result of such transaction.
(v) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether
voluntary or involuntary, the holders of full and fractional
shares of this Series shall be entitled, before any
distribution or payment is made on any date to the holders of
the Common Stock or Class B Common Stock or any other stock of
the Corporation ranking junior to this Series upon
liquidation, to be paid in full an amount per whole share of
this Series equal to the greater of (A) $__________*/f2/ or
(B) the aggregate amount distributed or to be distributed in
connection with such liquidation, dissolution or winding up to
a holder of the Reference Package (such greater amount being
hereinafter referred to as the "Liquidation Preference"),
together with accrued dividends to such distribution or
payment date, whether or not earned or declared. If such
payment shall have been made in full to all holders of shares
of this Series, the holders of shares of this Series as such
shall have no right or claim to any of the remaining assets of
the Corporation.
In the event the assets of the Corporation
available for distribution to the holders of shares of this
Series upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such holders
are entitled pursuant to the first paragraph of this Section
(v), no such distribution shall be made on account of any
shares of any other class or series of Preferred Stock ranking
on a parity with the shares of this Series upon such
liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of
this Series, ratably in proportion to the full distributable
amounts for which holders of all such parity shares are
respectively entitled upon such liquidation, dissolution or
winding up.
Upon the liquidation, dissolution or winding
up of the Corporation, the holders of shares of this Series
then outstanding shall be entitled to be paid out of assets of
the Corporation available for distribution to its stockholders
all amounts to which such holders are entitled pursuant to the
first paragraph of this Section (v) before any payment shall
be made to the holders of Common Stock or Class B Common Stock
or any other stock of the Corporation ranking junior upon
liquidation to this Series.
- ----------------------
/f2/* Insert an amount equal to 10 times the Exercise Price in effect
as of the Separation Time.
C-4
For the purposes of this Section (v), the
consolidation or merger of, or binding share exchange by, the
Corporation with any other corporation shall not be deemed to
constitute a liquidation, dissolution or winding up of the
Corporation.
(vi) Shares of this Series (or fractions thereof) shall
not be redeemable. Shares of this Series (or fractions
thereof) shall only be issued in connection with the
conversion of shares of Series A Participating Preferred Stock
(or fractions thereof) of the Corporation ("Series A Preferred
Stock").
(vii) In addition to any other vote or consent of
stockholders required by law or by the Restated Certificate of
Incorporation, as amended, of the Corporation and except as
otherwise required by law, each share of this Series (or
fraction thereof) shall, on any matter, vote as a class with
any other capital stock comprising part of the Reference
Package and shall have the number of votes thereon that a
holder of the Reference Package (or a similar fraction
thereof) would have.
(viii) Each one one-thousandth of a share of this Series
may at any time be converted at the election of the holder
thereof into one one-thousandth of a share of Series A
Preferred Stock. Any holder of one one-thousandth of a share
of this Series may elect to convert any or all of such one
one-thousandths of a share at one time or at various times in
such holder's discretion. Such right shall be exercised by the
surrender of the certificate(s) representing the number of one
one-thousandths of a share of this Series to be converted to
the agent for the registration of transfer of shares of this
Series at its office, or to the Corporation at its principal
executive offices, accompanied by a written notice of the
election by the holder thereof to convert and (if so required
by the transfer agent or by the Corporation) by instruments of
transfer, in form satisfactory to the transfer agent and to
the Corporation, duly executed by such holder or his duly
authorized attorney. The issuance of a certificate or
certificates for a number of one one-thousandths of a share of
Series A Preferred Stock upon conversion of a number of one
one-thousandths of a share of this Series shall be made
without charge for any stamp or other similar tax in respect
of such issuance. However, if any such certificate or
certificates is or are to be issued in a name other than that
of the holder of the share or shares of this Series converted,
the person or persons requesting the issuance thereof shall
pay to the transfer agent or to the Corporation the amount of
any tax which may be payable in respect of any such transfer,
or shall establish to the satisfaction of the transfer agent
or of the Corporation that such tax has been paid. As promptly
as practicable after the surrender for conversion of a
certificate or certificates representing one
C-5
one-thousandths of a share of this Series and the payment of
any tax as hereinbefore provided, the Corporation will deliver
or cause to be delivered at the office of the transfer agent
to, or upon the written order of, the holder of such
certificate or certificates, a certificate or certificates
representing the number of one one-thousandths of a share of
Series A Preferred Stock issuable upon such conversion, issued
in such name or names as such holder may direct. Such
conversion shall be deemed to have been made immediately prior
to the close of business on the date of the surrender of the
certificate or certificates representing one one-thousandths
of a share of this Series (if on such date the transfer books
of the Corporation shall be closed, then immediately prior to
the close of business on the first date thereafter that said
books shall be open), and all rights of such holder arising
from ownership of one one-thousandths of a share of this
Series shall cease at such time, and the person or persons in
whose name or names the certificate or certificates
representing a number of one one-thousandths of a share of
Series A Preferred Stock are to be issued shall be treated for
all purposes as having become the record holder or holders of
such number of one one-thousandths of a share of Series A
Preferred Stock at such time and shall have and may exercise
all the rights and powers appertaining thereto. No adjustments
in respect of past cash dividends shall be made upon the
conversion of any one one-thousandths of a share of this
Series; provided, however, that if any one one-thousandths of
a share of this Series shall be converted subsequent to the
record date for the payment of a cash or stock dividend or
other distribution on one one-thousandths of a share of this
Series but prior to such payment, the registered holder of
such one one-thousandths of a share at the close of business
on such record date shall be entitled to receive the cash or
stock dividend or other distribution payable to holders of
Series A Preferred Stock. The Corporation shall at all times
reserve and keep available, solely for the purpose of issue
upon conversion of outstanding one one-thousandths of a share
of this Series, such number of one one-thousandths of a share
of Series A Preferred Stock as may be issuable upon the
conversion of all such outstanding one one-thousandths of a
share of this Series, provided, the Corporation may deliver
shares of Series A Preferred Stock which are held in the
treasury of the Corporation for shares of this Series to be
converted. If any shares of the Series A Preferred Stock
require registration with or approval of any governmental
authority under any federal or state law before such shares of
the Series A Preferred Stock may be issued upon conversion,
the Corporation will cause such shares to be duly registered
or approved, as the case may be. The Corporation will endeavor
to list shares of the Series A Preferred Stock required to be
delivered upon conversion prior to such delivery upon any
national securities exchange or national market system on
which the outstanding shares of the Series A Preferred Stock
may be listed at the time of such delivery. All shares of the
Series A Preferred Stock which
C-6
may be issued upon conversion of shares of this Series will,
upon issue, be fully paid and nonassessable.
(ix) Immediately upon the automatic conversion of all
outstanding shares of Class B Common Stock into shares of
Common Stock pursuant to the terms of the Restated Certificate
of Incorporation of the Corporation, as amended, each one
one-thousandth of a share of this Series which is then
outstanding shall, without any action by the Board of
Directors of the Corporation or the holder or holders thereof,
automatically convert into and become for all purposes one
share (subject to adjustment) of the Common Stock, and the
provisions of this Certificate of Designation which provide
for different voting or cash dividend rights for this Series
shall not be of any effect; PROVIDED, HOWEVER, if there is not
a sufficient number of shares of Common Stock authorized and
available for issuance to permit such conversion, each one
one-thousandth of a share of this Series which is then
outstanding shall, without any action by the Board of
Directors of the Corporation or the holder or holders thereof,
automatically convert into and become for all purposes one
share (subject to adjustment) of the Common Stock on a pro
rata basis to the extent possible given the number of shares
of Common Stock that is authorized and available for issuance
and each one one-thousandth of a share of this Series which is
then remaining shall automatically convert into one
one-thousandth of a share of Series A Participating Preferred
Stock of the Company. The Board of Directors of the
Corporation is hereby authorized to take such actions,
consistent with the Delaware General Corporation Law, as it
deems appropriate or advisable with respect to the replacement
of certificates then outstanding evidencing ownership of this
Series, or otherwise, in order to carry into effect the
foregoing provisions.
IN WITNESS WHEREOF, the undersigned have signed and attested
this certificate on the_______ day of _________, _____.
_____________________________
Attest:
____________________________
C-7
- ----------------------
FOOTNOTES:
* For a certificate of designation relating to shares to be issued
pursuant to Section 2.3 of the Rights Agreement, insert the Separation
Time. For a certificate of designation relating to shares to be issued
pursuant to Section 3.1(d) of the Rights Agreement, insert the Flip-in
Date.
* Insert an amount equal to 10 times the Exercise Price in effect as of
the Separation Time.
* For a certificate of designation relating to shares to be issued
pursuant to Section 2.3 of the Rights Agreement, insert the Separation
Time. For a certificate of designation relating to shares to be issued
pursuant to Section 3.1(d) of the Rights Agreement, insert the Flip-in
Date.
* Insert an amount equal to 10 times the Exercise Price in effect as of
the Separation Time.
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 December 31, 2000
Commission File Number 1-183
Registrant, State of Incorporation,
Address and Telephone Number
HERSHEY FOODS CORPORATION
(a Delaware Corporation)
100 Crystal A Drive
Hershey, Pennsylvania 17033
(717) 534-6799
I.R.S. Employer Identification Number 23-0691590
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class: |
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Name of each exchange on which registered: |
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Common Stock, one dollar par value |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, one dollar par value
(Title of Class)
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|
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of a specified date within 60 days prior to the date of
filing.
Common Stock, one dollar par value — $5,943,458,722 as of
February 26, 2001.
Class B Common Stock, one dollar par value — $8,683,660 as of
February 26, 2001. While the Class B Common Stock is not listed for public
trading on any exchange or market system, shares of that class are convertible
into shares of Common Stock at any time on a share-for-share basis. The market
value indicated is calculated based on the closing price of the Common Stock on
the New York Stock Exchange on February 26, 2001.
Indicate the number of shares outstanding of each of the Registrant’s
classes of common stock as of the latest practicable date.
Common Stock, one dollar par value — 106,049,141 shares, as of
February 26, 2001.
Class B Common Stock, one dollar par value — 30,441,858 shares, as of
February 26, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
The Corporation’s Annual Report to Stockholders for the year ended December
31, 2000 is included as Appendix A to the Corporation’s Proxy Statement for
the Corporation’s 2001 Annual Meeting of Stockholders (the “Proxy
Statement”) and is incorporated by reference into Part II and filed as
Exhibit 13 hereto. Portions of the Proxy Statement are incorporated by reference
herein into Part III.
PART I
Item 1. BUSINESS
Hershey Foods Corporation and its subsidiaries (the
“Corporation”) are engaged in the manufacture, distribution and sale
of consumer food products. The Corporation produces and distributes a broad line
of chocolate and non-chocolate confectionery and grocery products.
The Corporation was organized under the laws of the State of Delaware on
October 24, 1927, as a successor to a business founded in 1894 by Milton S.
Hershey.
In December 2000, the Corporation completed the purchase of the intense and
breath freshener mints and gum businesses of Nabisco, Inc. The Corporation paid
$135.0 million to acquire the businesses, including ICE BREAKERS and
BREATH SAVERS COOL BLASTS intense mints, BREATH SAVERS mints,
and ICE BREAKERS, CAREFREE, STICK*FREE, BUBBLE YUM and FRUIT STRIPE
gums. Also included in the purchase were manufacturing machinery and
equipment and a gum-manufacturing plant in Las Piedras, Puerto Rico. These
businesses had sales of approximately $270 million in 1999.
The Corporation’s principal product groups include: chocolate and
non-chocolate confectionery products sold in the form of bar goods, bagged items
and boxed items; and grocery products in the form of baking ingredients,
chocolate drink mixes, peanut butter, dessert toppings and beverages. The
Corporation believes it is a leader in these product groups in North America.
Operating profit margins vary considerably among individual products and brands.
Generally, such margins on chocolate and non-chocolate confectionery products
are greater than those on grocery products.
In North America, the Corporation manufactures chocolate and non-chocolate
confectionery products in a variety of packaged forms and markets them under
more than 50 brands. The different packaged forms include various arrangements
of the same bar products, such as boxes, trays and bags, as well as a variety of
different sizes and weights of the same bar products, such as snack size,
standard, king size, large and giant bars. Among the principal chocolate and
non-chocolate confectionery products in the United States are: HERSHEY'S
BITES candies, HERSHEY'S classic caramels, HERSHEY'S
COOKIES 'N' CREME chocolate bars, HERSHEY'S
HUGS chocolates, HERSHEY'S KISSES chocolates, HERSHEY'S
KISSES WITH ALMONDS chocolates, HERSHEY'S milk chocolate bars,
HERSHEY'S milk chocolate bars with almonds, HERSHEY'S
MINIATURES chocolate bars, HERSHEY'S NUGGETS chocolates,
AMAZIN' FRUIT gummy bears fruit candy, CARAMELLO candy bars,
GOOD & PLENTY candy, HEATH toffee bar, JOLLY RANCHER
candy, KIT KAT wafer bars, LUDEN'S throat drops, MILK
DUDS chocolate covered caramels, MR. GOODBAR milk chocolate bars with
peanuts, PAYDAY peanut caramel bar, PETER PAUL ALMOND JOY candy
bars, PETER PAUL MOUNDS candy bars, POT OF GOLD boxed chocolates,
RAIN-BLO and SUPER BUBBLE gum, REESE'S NUTRAGEOUS
candy bars, REESE'S peanut butter cups, REESE'S PIECES
candies, REESESTICKS wafer bars, ROLO caramels in milk
chocolate, SIXLETS candies, SKOR toffee bars, SYMPHONY milk
chocolate bars, SWEET ESCAPES candy bars, TASTETATIONS candy,
TWIZZLERS candy, WHATCHAMACALLIT candy bars, WHOPPERS
malted milk balls, YORK peppermint pattie candy, 5TH AVENUE candy
bars and ZERO candy bars. Principal products in Canada include
CHIPITS chocolate chips, GLOSETTE chocolate-covered raisins,
peanuts and almonds, OH HENRY! candy bars, POT OF GOLD boxed
chocolates, REESE PEANUT BUTTER CUPS candy, and TWIZZLERS candy.
The Corporation also manufactures, imports, markets, sells and distributes
chocolate products in Mexico under the HERSHEY'S brand name.
The Corporation manufactures and/or markets a line of grocery products in
the baking, beverage, peanut butter and toppings categories. Principal products
in the United States include HERSHEY'S, REESE'S and HEATH baking
pieces, HERSHEY'S drink boxes, HERSHEY'S chocolate milk mix,
HERSHEY'S cocoa, HERSHEY'S CHOCOLATE SHOPPE ice cream
toppings, HERSHEY'S HOT COCOA COLLECTION hot cocoa mix,
HERSHEY'S syrup and REESE'S peanut butter. HERSHEY'S
chocolate and strawberry flavored milks are produced and sold under license
by various dairies throughout the United States, using milk mixes manufactured
by the Corporation. Baking and various other products are produced and sold
under the HERSHEY'S and REESE'S brand names by third parties who
have been granted licenses by the Corporation to use these trademarks.
1
The Corporation’s products are sold primarily to grocery wholesalers,
chain grocery stores, candy distributors, mass merchandisers, chain drug stores,
vending companies, wholesale clubs, convenience stores, concessionaires and food
distributors by full-time sales representatives, food brokers and part-time
retail sales merchandisers throughout the United States, Canada and Mexico. The
Corporation believes its products are sold in over 2 million retail outlets in
North America. In 2000, sales to Wal-Mart Stores, Inc. and Subsidiaries amounted
to approximately 17% of the Corporation’s total net sales.
In Japan, the Philippines, Korea and China, the Corporation imports and/or
markets selected confectionery and grocery products. The Corporation also
markets confectionery and grocery products in over 90 countries worldwide.
The Corporation’s marketing strategy is based upon the consistently
superior quality of its products, mass distribution and the best possible
consumer value in terms of price and weight. In addition, the Corporation
devotes considerable resources to the identification, development, testing,
manufacturing and marketing of new products. The Corporation utilizes a variety
of promotional programs for customers and advertising and promotional programs
for consumers. The Corporation employs promotional programs at various times
during the year to stimulate sales of certain products. Chocolate and
non-chocolate confectionery and grocery seasonal and holiday-related sales have
typically been highest during the third and fourth quarters of the year.
The Corporation recognizes that the mass distribution of its consumer food
products is an important element in maintaining sales growth and providing
service to its customers. The Corporation attempts to meet the changing demands
of its customers by planning optimum stock levels and reasonable delivery times
consistent with achievement of efficiencies in distribution. To achieve these
objectives, the Corporation has developed a distribution network from its
manufacturing plants, distribution centers and field warehouses strategically
located throughout the United States, Canada and Mexico. The Corporation uses a
combination of public and contract carriers to deliver its products from the
distribution points to its customers. In conjunction with sales and marketing
efforts, the distribution system has been instrumental in the effective
promotion of new, as well as established, products on both national and regional
scales.
From time to time, the Corporation has changed the prices and weights of
its products to accommodate changes in manufacturing costs, the competitive
environment and profit objectives, while at the same time maintaining consumer
value. The last standard candy bar price increase was implemented by the
Corporation in December 1995, resulting in a wholesale price increase of
approximately 11% on its standard and king-size candy bars sold in the United
States.
The most significant raw material used in the production of the
Corporation’s chocolate products is cocoa beans. This commodity is imported
principally from West African, South American and Far Eastern equatorial
regions. West Africa accounts for approximately 70% of the world’s crop.
Cocoa beans are not uniform, and the various grades and varieties reflect the
diverse agricultural practices and natural conditions found in the many growing
areas. The Corporation buys a mix of cocoa beans to meet its manufacturing
requirements.
The table below sets forth annual average cocoa prices as well as the
highest and lowest monthly averages for each of the calendar years indicated.
The prices are the monthly average of the quotations at noon of the three active
futures trading contracts closest to maturity on the New York Board of Trade.
Because of the Corporation’s forward purchasing practices discussed below,
and premium prices paid for certain varieties of cocoa beans, these average
futures contract prices are not necessarily indicative of the Corporation’s
average cost of cocoa beans or cocoa products.
Cocoa Futures Contract Prices
(cents per pound)
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1996 |
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1997 |
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1998 |
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1999 |
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2000 |
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Annual Average |
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62.1 |
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70.0 |
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72.7 |
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48.8 |
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37.9 |
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High |
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64.4 |
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77.2 |
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78.3 |
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62.7 |
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40.1 |
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Low |
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57.4 |
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59.1 |
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65.5 |
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39.6 |
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34.4 |
Source: International Cocoa Organization Quarterly Bulletin of Cocoa Statistics
The Federal Agricultural and Improvement Reform Act of 1996, which is a
seven-year farm bill, impacts the prices of sugar, peanuts and milk because it
sets price support levels for these commodities.
2
The price of sugar, the Corporation's second most important commodity for
its domestic chocolate and confectionery products, is subject to price supports
under the above referenced farm legislation. Due to import quotas and duties
imposed to support the price of sugar established by that legislation, sugar
prices paid by United States users are currently substantially higher than
prices on the world sugar market. The average wholesale list price of refined
sugar, F.O.B. Northeast, has remained in a range of 25¢ to 32¢ per
pound for the past ten years. Peanut and almond prices remained near normal
levels throughout 2000. Milk prices moderated in 2000 as a result of strong milk
production. The Corporation believes that the supply of raw materials is
adequate to meet its manufacturing requirements.
The Corporation attempts to minimize the effect of price fluctuations
related to the purchase of its major raw materials primarily through the forward
purchasing of such commodities to cover future manufacturing requirements
generally for periods ranging from 3 to 24 months. With regard to cocoa, sugar,
corn sweeteners, natural gas and certain dairy products, price risks are also
managed by entering into futures contracts. At the present time, active futures
contracts are not available for use in pricing the Corporation's other major raw
materials. Futures contracts are used in combination with forward purchasing of
cocoa, sugar, corn sweeteners, natural gas and certain dairy product
requirements principally to take advantage of market fluctuations which provide
more favorable pricing opportunities and to increase diversity or flexibility in
sourcing these raw materials. The Corporation's commodity procurement practices
are intended to reduce the risk of future price increases, but also may
potentially limit the Corporation's ability to benefit from possible price
decreases.
The primary effect on liquidity from using futures contracts is associated
with margin requirements for futures contracts related to cocoa, sugar, corn
sweeteners, natural gas and certain dairy products. Cash outflows and inflows
result from original margins which are "good faith deposits" established by
futures exchanges to ensure that market participants will meet their contractual
financial obligations. Additionally, variation margin payments and receipts are
required when the value of open positions is adjusted to reflect daily price
movements. The magnitude of such cash inflows and outflows is dependent upon
price coverage levels and the volatility of the markets. Historically, cash
flows related to margin requirements have not been material to the Corporation's
total working capital requirements.
The Corporation manages the purchase of forward and futures contracts by
developing and monitoring procurement strategies for each of its major
commodities. These procurement strategies, including the use of futures
contracts to hedge the pricing of cocoa, sugar, corn sweeteners, natural gas and
certain dairy products, are directly linked to the overall planning and
management of the Corporation's business, since the cost of raw materials
accounts for a significant portion of the cost of finished goods. Procurement
strategies with regard to cocoa, sugar and other major raw material requirements
are developed by the analysis of fundamentals, including weather and crop
analysis, and by discussions with market analysts, brokers and dealers.
Procurement strategies are determined, implemented and monitored on a regular
basis by senior management. Procurement activities for all major commodities are
also reported to the Board of Directors on a regular basis.
The Corporation has license agreements with several companies to
manufacture and/or sell products worldwide. Among the more significant are
agreements with affiliated companies of Cadbury Schweppes p.l.c. to manufacture
and/or market and distribute YORK, PETER PAUL ALMOND JOY and
PETER PAUL MOUNDS confectionery products worldwide as well as
CADBURY and CARAMELLO confectionery products in the United States.
The Corporation's rights under these agreements are extendible on a long-term
basis at the Corporation's option. The license for CADBURY and
CARAMELLO products is subject to a minimum sales requirement which the
Corporation exceeded in 2000. The Corporation also has an agreement with Societe
des Produits Nestle SA, which licenses the Corporation to manufacture and
distribute KIT KAT and ROLO confectionery products in the United
States. The Corporation's rights under this agreement are extendible on a
long-term basis at the Corporation's option, subject to certain conditions,
including minimum unit volume sales. In 2000, the minimum volume requirements
were exceeded. The Corporation has an agreement with an affiliate of
Huhtamäki Oy (Huhtamaki) pursuant to which it licenses the use of certain
trademarks, including GOOD & PLENTY, HEATH, JOLLY
RANCHER, MILK DUDS, PAYDAY and WHOPPERS confectionery
products worldwide. The Corporation's rights under this agreement are extendible
on a long-term basis at the Corporation's option.
Competition
Many of the Corporation's brands enjoy wide consumer acceptance and are
among the leading brands sold in the marketplace. However, these brands are sold
in highly competitive markets and compete with many other multinational,
national, regional and local firms, some of which have resources in excess of
those available to the Corporation.
3
Trademarks
The Corporation owns various registered and unregistered trademarks and
service marks, and has rights under licenses to use various trademarks which are
of material importance to the Corporation's business.
Backlog of Orders
The Corporation manufactures primarily for stock and fills customer orders
from finished goods inventories. While at any given time there may be some
backlog of orders, such backlog is not material in respect to total annual
sales, nor are the changes from time to time significant, aside from the third
quarter of 1999 when a significant backlog of orders resulted from customer
service and order fulfillment problems encountered during the start-up of new
business systems and processes.
Research and Development
The Corporation engages in a variety of research activities. These
principally involve development of new products, improvement in the quality of
existing products, improvement and modernization of production processes, and
the development and implementation of new technologies to enhance the quality
and value of both current and proposed product lines. Information concerning the
Corporation's research and development expense is contained in Note 1 of the
Corporation's Annual Report to Stockholders included as Appendix A to the Proxy
Statement, which information is incorporated herein by reference and filed as
Exhibit 13 hereto.
Regulation
The Corporation's domestic plants are subject to inspection by the Food and
Drug Administration and various other governmental agencies, and its products
must comply with regulations under the Federal Food, Drug and Cosmetic Act and
with various comparable state statutes regulating the manufacturing and
marketing of food products.
Environmental Considerations
In the past the Corporation has made investments based on compliance with
environmental laws and regulations. Such expenditures have not been material
with respect to the Corporation's capital expenditures, earnings or competitive
position.
Employees
As of December 31, 2000, the Corporation had approximately 14,300 full-time
and 1,400 part-time employees, of whom approximately 6,300 were covered by
collective bargaining agreements. The Corporation considers its employee
relations to be good.
Financial Information by Geographic Area
Information concerning the Corporation's geographic segments is contained
in Note 15 of the Corporation's Annual Report to Stockholders included as
Appendix A to the Proxy Statement, which information is incorporated herein by
reference and filed as Exhibit 13 hereto.
Safe Harbor Statement
The nature of the Corporation's operations and the environment in which it
operates subject it to changing economic, competitive, regulatory and
technological conditions, risks and uncertainties. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Corporation notes the following factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein. Many of the forward-looking
statements contained in this document may be identified by the use of
forward-looking words such as "believe," "expect," "anticipate," "should,"
"planned," "estimated," and "potential," among others. Factors which could cause
results to differ include, but are not limited to: changes in the confectionery
and grocery business environment, including actions of competitors and changes
in consumer preferences; changes in governmental laws and regulations, including
income taxes; market demand for new and existing products; changes in raw
material costs; and the Corporation's ability to implement improvements to and
reduce costs associated with the Corporation's customer service, warehousing and
order fulfillment processes and systems.
4
Item 2. PROPERTIES
The following is a list of the Corporation's principal manufacturing
properties. The Corporation owns each of these properties.
UNITED STATES
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Hershey, Pennsylvania - confectionery and grocery products
(3 principal plants) |
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Lancaster, Pennsylvania - confectionery products |
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Oakdale, California - confectionery and grocery products
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Robinson, Illinois - confectionery and grocery products |
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Stuarts Draft, Virginia - confectionery and grocery products
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CANADA
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Smiths Falls, Ontario - confectionery and grocery products
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In addition to the locations indicated above, the Corporation owns or
leases several other properties used for manufacturing chocolate and
non-chocolate confectionery and grocery products and for sales, distribution and
administrative functions.
The Corporation's plants are efficient and well maintained. These plants
generally have adequate capacity and can accommodate seasonal demands, changing
product mixes and certain additional growth. The largest plants are located in
Hershey, Pennsylvania. Many additions and improvements have been made to these
facilities over the years and the plants' manufacturing equipment includes
equipment of the latest type and technology.
Item 3. LEGAL PROCEEDINGS
In January 1999, the Corporation received a Notice of Proposed Deficiency
(Notice) from the Internal Revenue Service (IRS) related to the years 1989
through 1996. The Notice pertained to the Corporate Owned Life Insurance (COLI)
program which was implemented by the Corporation in 1989. The IRS disallowed the
interest expense deductions associated with the underlying life insurance
policies. The total deficiency of $61.2 million, including interest, was paid to
the IRS in September 2000 to eliminate further accruing of interest. The
Corporation may be subject to additional assessments for federal taxes and
interest for years 1997 and 1998 and for state taxes and interest for 1989
through 1998. The Corporation believes that it has fully complied with the tax
law as it relates to its COLI program, has filed for the refund of amounts paid
and will continue to seek favorable resolution of this matter. The Corporation
has no other material pending legal proceedings, other than ordinary routine
litigation incidental to its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the principal United States trading market for,
market prices of and dividends on the Corporation's Common Stock and Class B
Common Stock, and the approximate number of stockholders, may be found in the
section "Market Prices and Dividends" on page A-9 of the Corporation's Annual
Report to Stockholders included as Appendix A to the Proxy Statement,
incorporated herein by reference and filed as Exhibit 13 hereto.
Item 6. SELECTED FINANCIAL DATA
The following information, for the five years ended December 31, 2000,
found in the section "Eleven-Year Consolidated Financial Summary" on pages A-34
through A-36 of the Corporation's Annual Report to Stockholders included as
Appendix A to the Proxy Statement, is incorporated herein by reference and filed
as Exhibit 13 hereto: Net Sales; Income from Continuing Operations Before
Accounting Changes; Income Per Share from Continuing Operations Before
Accounting Changes - Basic (excluding Notes i and j); Dividends Paid on Common
Stock (and related Per Share amounts); Dividends Paid on Class B Common Stock
(and related Per Share amounts); Long-term Portion of Debt; and Total Assets.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section "Management's Discussion and Analysis of Financial Condition
and Results of Operations," found on pages A-1 through A-11 of the Corporation's
Annual Report to Stockholders included as Appendix A to the Proxy Statement, is
incorporated herein by reference and filed as Exhibit 13 hereto.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements of the Corporation
and its subsidiaries are found at the indicated pages in the Corporation's
Annual Report to Stockholders included as Appendix A to the Proxy Statement, and
such financial statements, along with the Report of the Independent Public
Accountants thereon, are incorporated herein by reference and filed as Exhibit
13 hereto.
1. Consolidated Statements of Income for the years ended December 31,
2000, 1999 and 1998. (Page A-12) |
2. Consolidated Balance Sheets as of December 31, 2000 and 1999.
(Page A-13) |
3. Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999 and 1998. (Page A-14) |
4. Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998. (Page A-15) |
5. Notes to Consolidated Financial Statements (Pages A-16
through A-31), including "Quarterly Data (Unaudited)."
(Page A-31) |
6. Report of Independent Public Accountants. (Page A-33) |
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
6
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions held with the Corporation, periods of service as
a director, principal occupations, business experience and other directorships
of nominees for director of the Corporation are set forth in the section
"Election of Directors" in the Proxy Statement. This information is incorporated
herein by reference.
Executive Officers of the Corporation as of March 15, 2001
|
|
|
|
|
| Name |
|
Age |
|
Positions Held During the Last Five Years |
|
|
|
|
|
K. L. Wolfe
|
|
62 |
|
Chairman of the Board of Directors (2001);
Chairman of the Board and Chief Executive Officer (1993) |
|
R.H. Lenny (1)
|
|
49 |
|
President and Chief Executive Officer (2001) |
|
W. F. Christ
|
|
60 |
|
Executive Vice President and Chief Operating Officer (2000);
Senior Vice President, Chief Financial Officer and Treasurer (1997);
Senior Vice President and Chief Financial Officer (1994) |
|
R. M. Reese
|
|
51 |
|
Senior Vice President -
Public Affairs, General Counsel and Secretary (1999);
Vice President, General Counsel and Secretary (1995) |
|
R. Brace
|
|
57 |
|
Vice President,
Conversion and Procurement (2000); Senior Vice President, Operations
(1999); Vice President, Operations (1997); Vice President,
Manufacturing, Hershey Chocolate North America (1995) |
|
J. R. Canavan (2)
|
|
53 |
|
Vice President,
Human Resources (1999) |
|
J. F. Carr
|
|
56 |
|
Vice President,
Research Services and Special Operations (1999);
President, Hershey Pasta and Grocery Group (1997);
President, Hershey International (1994)
|
|
F. Cerminara
|
|
52 |
|
Vice President, Chief
Financial Officer and Treasurer (2000); Vice President, Procurement
(1994)
|
|
G. F. Davis (3)
|
|
53 |
|
Vice President and
Chief Information Officer (2000)
|
|
M. H. Holmes
|
|
56 |
|
Vice President, U. S.
Marketing (2000); Vice President and General Manager, Chocolate (1994)
|
|
M. T. Matthews
|
|
55 |
|
Vice President,
U. S. Sales (1989)
|
|
D. W. Tacka
|
|
47 |
|
Vice President,
Corporate Controller and Chief Accounting Officer (2000);
Corporate Controller and Chief Accounting Officer (1995)
|
|
There are no family relationships among any of the above-named officers of
the Corporation.
(1) Mr. Lenny was elected President and Chief Executive Officer effective
March 12, 2001. Prior to joining the Corporation he was Group Vice President,
Kraft Foods, Inc. and President, Nabisco Biscuit and Snacks (2000); President,
Nabisco Biscuit Company (1998); President, Pillsbury North America (1996).
(2) Mr. Canavan was elected Vice President, Human Resources effective
January 1, 1999. Prior to joining the Corporation he was Vice President,
Staffing, IBM United States Corporation in New York (1998) and Vice President,
Human Resources, IBM North America (1993).
7
(3) Mr. Davis was elected Vice President and Chief Information Officer
effective December 14, 2000. Prior to joining the Corporation he was Vice
President - Global Infrastructure Services, Computer Sciences Corporation
(2000); Director - Global Infrastructure Services, Computer Sciences Corporation
(1999); Executive Director - Global Infrastructure and Financial Systems, Pratt
and Whitney (1998); Chief Information Officer, Rocco Inc. (1992).
Corporate Officers and Division Presidents are generally elected each year
at the organization meeting of the Board of Directors in April.
Reporting of any inadvertent late filings of a Securities and Exchange
Commission Form 4 under Section 16 of the Securities Exchange Act of 1934, as
amended, is set forth in the section of the Proxy Statement entitled "Section
16(a) Beneficial Ownership Reporting Compliance."
Item 11. EXECUTIVE COMPENSATION
Information concerning compensation of the named executive officers,
including the Chairman of the Board and Chief Executive Officer, of the
Corporation individually, and compensation of directors, is set forth in the
sections "2000 Executive Compensation" and "Directors' Compensation" in the
Proxy Statement. This information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning ownership of the Corporation's voting securities by
certain beneficial owners, individual nominees for director and by management,
including the five most highly-compensated executive officers and one appointed
officer, is set forth in the section "Voting Securities" in the Proxy Statement.
This information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning "Certain Relationships and Related Transactions" is
set forth in the sections entitled "Certain Transactions and Relationships" and
"Transactions with Management and Others" in the Proxy Statement. This
information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a)(1): Financial Statements
The audited consolidated financial statements of the Corporation and its
subsidiaries and the Report of Independent Public Accountants thereon, as
required to be filed with this report, are set forth in Item 8 of this report
and are incorporated therein by reference to specific pages of the Corporation's
Annual Report to Stockholders included as Appendix A to the Proxy Statement and
filed as Exhibit 13 hereto.
Item 14(a)(2): Financial Statement Schedule
The following consolidated financial statement schedule of the Corporation
and its subsidiaries for the years ended December 31, 2000, 1999 and 1998 is
filed herewith on the indicated page in response to Item 14(d):
Schedule II -- Valuation and Qualifying Accounts (Page 15)
Other schedules have been omitted as not applicable or required, or because
information required is shown in the consolidated financial statements or notes
thereto.
Financial statements of the parent corporation only are omitted because the
Corporation is primarily an operating corporation and there are no significant
restricted net assets of consolidated and unconsolidated subsidiaries.
8
Item 14(a)(3): Exhibits
The following items are attached or incorporated by reference in response
to Item 14(c):
(3) Articles of Incorporation and By-laws
The Corporation's Restated Certificate of Incorporation, as amended, is
incorporated by reference from Exhibit 3 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended April 3, 1988. The By-laws, as amended and
restated as of December 1, 1998, are incorporated by reference from Exhibit 3 to
the Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
(4) Instruments defining the rights of security holders, including
indentures
a. Stockholder Protection Rights Agreement
between Hershey Foods Corporation and Mellon Investor Services LLC, as
Rights Agent, dated December 14, 2000, is attached hereto and filed as Exhibit
4.1.
b. The Corporation has issued certain long-term
debt instruments, no one class of which creates indebtedness
exceeding 10% of the total assets of the Corporation and its
subsidiaries on a consolidated basis. These classes consist
of the following:
1) 6.7% Notes due 2005 |
2) 6.95% Notes due 2007 |
3) 6.95% Notes due 2012 |
4) 8.8% Debentures due 2021 |
5) 7.2% Debentures due 2027 |
6) Other Obligations |
The Corporation will furnish copies of the above debt instruments to the
Commission upon request.
(10) Material contracts
a. Kit Kat and Rolo License Agreement
(the "License Agreement") between Hershey Foods Corporation and Rowntree
Mackintosh Confectionery Limited is incorporated by reference from Exhibit 10(a)
to the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1980. The License Agreement was amended in 1988 and the Amendment
Agreement is incorporated by reference from Exhibit 19 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1988. The License
Agreement was assigned by Rowntree Mackintosh Confectionery Limited to Societe
des Produits Nestle SA as of January 1, 1990. The Assignment Agreement is
incorporated by reference from Exhibit 19 to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990.
|
b. Peter Paul/York Domestic Trademark & Technology License Agreement
between Hershey Foods Corporation and Cadbury Schweppes Inc. (now CBI Holdings,
Inc.) dated August 25, 1988, is incorporated by reference from Exhibit 2(a) to
the Corporation's Current Report on Form 8-K dated September 8, 1988. This
agreement was assigned by the Corporation to its wholly owned subsidiary,
Hershey Chocolate & Confectionery Corporation.
|
c. Cadbury Trademark & Technology License Agreement among Hershey
Foods Corporation and Cadbury Schweppes Inc. (now CBI Holdings, Inc.) and
Cadbury Limited dated August 25, 1988, is incorporated by reference from Exhibit
2(a) to the Corporation's Current Report on Form 8-K dated September 8, 1988.
|
9
d. The Amended and Restated 364-Day Credit Agreement among Hershey
Foods Corporation, the banks, financial institutions and other institutional
lenders listed on the signature pages thereof, and Citibank, N.A. as
administrative agent, Banc America Securities LLC as co-syndication agent, and
Salomon Smith Barney Inc., as co-syndication agent and arranger is incorporated
by reference from Exhibit 10.1 to the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999. The 364-day Credit Agreement was
renewed in December 2000.
|
e. Five-Year Credit Agreement among Hershey Foods Corporation, the
banks, financial institutions and other institutional lenders listed on the
signature pages thereof, and Citibank, N.A. as administrative agent and Citicorp
Securities, Inc. (now Salomon Smith Barney Inc.) and BA Securities, Inc. (now
Banc America Securities LLC) as co-syndication agents, is incorporated by
reference from Exhibit 10.2 to the Corporation's Current Report on Form 8-K
dated January 29, 1996. The Five-Year Credit Agreement was renewed in late 1997.
|
f. Trademark and Technology License Agreement between Huhtamaki and
Hershey Foods Corporation dated December 30, 1996, is incorporated by reference
from Exhibit 10 to the Corporation's Current Report on Form 8-K dated February
26, 1997. This agreement was assigned by the Corporation to its wholly owned
subsidiary, Hershey Chocolate & Confectionery Corporation. The agreement was
amended and restated in 1999 and the Amended and Restated Trademark and
Technology License Agreement is incorporated by reference from Exhibit 10.2 to
the Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
|
Executive Compensation Plans and Management Contracts
g. Hershey Foods Corporation's Restated Key Employee Incentive Plan,
incorporated by reference from Exhibit 10.3 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 was amended in 2000,
and a copy of the plan, as amended, is attached hereto and filed as Exhibit 10.1.
h. Hershey Foods Corporation's Restated Supplemental Executive
Retirement Plan is attached hereto and filed as Exhibit 10.2.
i. Hershey Foods Corporation's Deferred Compensation Plan is
incorporated by reference from Exhibit 10.3 to the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.
j. Hershey Foods Corporation's Directors' Compensation Plan is
incorporated by reference from Exhibit 10 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 28, 1997.
k. Hershey Foods Corporation's Executive Benefits Protection Plan
(Group 3A), covering certain of its executive officers, is attached hereto
and filed as Exhibit 10.3.
l. Separation Agreement and General Release entered into on
December 11, 2000 between Hershey Foods Corporation and Michael F. Pasquale is
attached hereto and filed as Exhibit 10.4.
|
(12) Computation of ratio of earnings to fixed charges statement
A computation of ratio of earnings to fixed charges for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996 is filed as Exhibit 12 hereto.
(13) Annual report to security holders
The Corporation's Annual Report to Stockholders is included as Appendix A
to the Proxy Statement and is filed as Exhibit 13 hereto.
10
(14b) Reports on Form 8-K
a. A Current
Report on Form 8-K was filed on December 11, 2000, announcing that Michael F.
Pasquale, Executive Vice President and Chief Operating Officer and a member of
the Board of Directors, resigned from those positions effective that date. The
Corporation also announced that William F. Christ, Senior Vice President, Chief
Financial Officer and Treasurer, would become Executive Vice President and Chief
Operating Officer, and that Frank Cerminara would become Vice President, Chief
Financial Officer and Treasurer.
b. A Current
Report on Form 8-K was filed on December 14, 2000, announcing that the Board of
Directors of the Corporation unanimously adopted a Stockholder Protection Rights
Agreement between the Corporation and Mellon Investor Services LLC, as Rights
Agent, dated December 14, 2000. A copy of the Stockholder Protection Rights
Agreement is attached hereto and filed as Exhibit 4.1.
(21) Subsidiaries of the Registrant
A list setting forth subsidiaries of the Corporation is filed as Exhibit 21
hereto.
(23) Consent of Independent Public Accountants
The consent to the incorporation of reports of the Corporation's
Independent Public Accountants dated January 26, 2001, is filed as Exhibit 23
hereto.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, this 15th day of
March 2001.
|
|
| |
HERSHEY FOODS CORPORATION |
|
|
|
|
|
F. Cerminara |
|
Vice President, Chief Financial Officer and Treasurer |
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
Corporation and in the capacities and on the date indicated.
|
|
|
|
|
|
|
| Signature |
|
Title |
|
Date
|
|
|
|
|
|
/s/ K. L. WOLFE
K. L. Wolfe |
|
Chairman of the Board of Directors |
|
|
March 15, 2001
|
|
/s/ R. H. Lenny
R. H. Lenny |
|
President and Chief Executive Officer |
|
|
March 15, 2001
|
|
/s/ F. CERMINARA
F. Cerminara |
|
Chief Financial Officer and Treasurer |
|
|
March 15, 2001
|
|
/s/ D. W. TACKA
D. W. Tacka |
|
Chief Accounting Officer |
|
|
March 15, 2001
|
|
/s/W. H. ALEXANDER
W. H. Alexander |
|
Director |
|
|
March 15, 2001
|
|
/s/ R. H. CAMPBELL
R. H. Campbell |
|
Director |
|
|
March 15, 2001
|
|
/s/ C. M. EVARTS, M.D.
C. M. Evarts, M.D. |
|
Director |
|
|
March 15, 2001
|
|
12
|
|
|
|
|
|
|
| Signature |
|
Title |
|
Date
|
|
|
|
|
|
/s/ B. G. HILL
B. G. Hill |
|
Director |
|
|
March 15, 2001
|
|
/s/ J. C. JAMISON
J.C. Jamison |
|
Director |
|
|
March 15, 2001
|
|
/s/ M.J. MCDONALD
M.J. McDonald |
|
Director |
|
|
March 15, 2001
|
|
/s/ J. M. PIETRUSKI
J. M. Pietruski |
|
Director |
|
|
March 15, 2001
|
|
13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hershey Foods Corporation:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in Hershey
Foods Corporation's Proxy Statement for its 2001 Annual Meeting of Stockholders
incorporated by reference in this Form 10-K, and have issued our report thereon
dated January 26, 2001. Our audit was made for the purpose of forming an opinion
on those financial statements taken as a whole. The schedule listed on page 15
in Item 14(a)(2) is the responsibility of the Corporation's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
January 26, 2001
14
Schedule II
HERSHEY FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands of dollars)
Additions
| |
Description |
|
| Balance at
Beginning
of Period |
| Charged to
Costs and
Expenses |
| Charged
to Other
Accounts (a) |
| Deductions
from
Reserves |
| Balance
at End
of Period |
|
|
Year Ended December 31,2000:
Reserves deducted in the
balance sheet from the assets
to which
they apply: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts Receivable -
Trade....... |
$ |
16,941 |
|
$ |
8,531 |
|
$ |
1,362 |
|
$ |
(10,830 |
) |
$ |
16,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,1999:
Reserves deducted in the
balance sheet from the assets
to which they apply: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts Receivable -
Trade....... |
$ |
19,941 |
|
$ |
2,629 |
|
$ |
597 |
|
$ |
(6,226) |
(b) |
$ |
16,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,1998:
Reserves deducted in the
balance sheet from the assets
to which they apply: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts Receivable -
Trade....... |
$ |
15,843 |
|
$ |
5,540 |
|
$ |
(210) |
|
$ |
(1,232 |
) |
$ |
19,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes recoveries of amounts previously written off.
(b) Includes reserves related to the Corporation's pasta business
which was sold in January 1999.
15
