-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GR/uqOAgL/xN6uEnXMg2N/uHnImxaO4KgdgRnKM1Pnvn9J+ctyRgg7C+fho5Z3jS b70W+hSC1PhPTWvVhXPo9w== 0000880117-98-000006.txt : 19981109 0000880117-98-000006.hdr.sgml : 19981109 ACCESSION NUMBER: 0000880117-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980924 FILED AS OF DATE: 19981106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANFILIPPO JOHN B & SON INC CENTRAL INDEX KEY: 0000880117 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 362419677 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19681 FILM NUMBER: 98739464 BUSINESS ADDRESS: STREET 1: 2299 BUSSE RD CITY: ELK GROVE VILLAGE STATE: IL ZIP: 60007-6057 BUSINESS PHONE: 8475932300 MAIL ADDRESS: STREET 1: 2299 BUSSE RD CITY: ELK GROVE VILLAGE STATE: IL ZIP: 60007-6057 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q --------- (Mark One) [ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 24, 1998 [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to --------- ---------- Commission file number 0-19681 JOHN B. SANFILIPPO & SON, INC. ------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 36-2419677 --------------------------------- --------------------- (State or other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) 2299 Busse Road Elk Grove Village, Illinois 60007 --------------------------------------- (Address of Principal Executive Offices) Registrant's telephone number, including area code -------------------------------------------------- (847) 593-2300 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 --------- --------- As of November 6, 1998, 5,461,139 shares of the Registrant's Common Stock, $.01 par value per share, excluding 117,900 treasury shares and 3,687,426 shares of the Registrant's Class A Common Stock, $.01 par value per share, were outstanding. JOHN B. SANFILIPPO & SON, INC. ------------------------------ INDEX TO FORM 10-Q ------------------ PART I. FINANCIAL INFORMATION PAGE NO. - ------------------------------ -------- Item 1 -- Consolidated Financial Statements: Consolidated Statements of Operations for the quarters ended September 24, 1998 and September 25, 1997 3 Consolidated Balance Sheets as of September 24, 1998 and June 25, 1998 4 Consolidated Statements of Cash Flows for the quarters ended September 24, 1998 and September 25, 1997 5 Notes to Consolidated Financial Statements 6 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3 -- Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION - --------------------------- Item 2 -- Changes in Securities 15 Item 5 -- Other Information 15 Item 6 -- Exhibits and Reports on Form 8-K 15 SIGNATURE 16 - --------- EXHIBIT INDEX 17 - ------------- OMITTED FINANCIAL STATEMENTS - ---------------------------- None PART I. FINANCIAL INFORMATION - ------------------------------ Item 1 -- Financial Statements - ------------------------------ JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except earnings per share) For the Quarter Ended ------------------------------- September 24, September 25, 1998 1997 ------------- ------------- Net sales $73,829 $77,256 Cost of sales 62,413 64,452 ------------- ------------- Gross profit 11,416 12,804 ------------- ------------- Selling expenses 6,574 6,893 Administrative expenses 2,192 2,491 ------------- ------------- 8,766 9,384 ------------- ------------- Income from operations 2,650 3,420 ------------- ------------- Other income (expense): Interest expense (2,275) (1,809) Interest income 7 6 Gain on disposition of properties 11 -- Rental income 129 118 ------------- ------------- (2,128) (1,685) ------------- ------------- Income before income taxes 522 1,735 Income tax (expense) (235) (720) ------------- ------------- Net income $ 287 $ 1,015 ============= ============= Basic earnings per common share $ 0.03 $ 0.11 ============= ============= Diluted earnings per common share $ 0.03 $ 0.11 ============= ============= The accompanying notes are an integral part of these financial statements. JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 24, June 25, 1998 1998 ------------- ------------ ASSETS CURRENT ASSETS: Cash $ 710 $ 549 Accounts receivable, net 25,125 23,901 Inventories 98,282 99,535 Deferred income taxes 417 417 Income taxes receivable 1,255 1,454 Prepaid expenses and other current assets 3,241 3,024 ------------- ------------ TOTAL CURRENT ASSETS 129,030 128,880 PROPERTIES: Buildings 55,369 55,318 Machinery and equipment 71,419 70,099 Furniture and leasehold improvements 5,009 5,001 Vehicles 4,188 4,260 ------------- ------------ 135,985 134,678 Less: Accumulated depreciation 62,520 60,943 ------------- ------------ 73,465 73,735 Land 1,892 1,892 ------------- ------------ 75,357 75,627 ------------- ------------ OTHER ASSETS: Goodwill and other intangibles 7,551 7,754 Miscellaneous 6,664 7,415 ------------- ------------ 14,215 15,169 ------------- ------------ $218,602 $219,676 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 45,323 $ 48,959 Current maturities 7,220 5,789 Accounts payable 17,222 12,038 Accrued expenses 7,563 9,244 ------------- ------------ TOTAL CURRENT LIABILITIES 77,328 76,030 ------------- ------------ LONG-TERM DEBT 60,523 63,182 ------------- ------------ LONG-TERM DEFERRED INCOME TAXES 2,266 2,266 STOCKHOLDERS' EQUITY Preferred Stock -- -- Class A Common Stock 37 37 Common Stock 56 56 Capital in excess of par value 57,196 57,196 Retained earnings 22,400 22,113 Treasury stock (1,204) (1,204) ------------- ------------ 78,485 78,198 ------------- ------------ $218,602 $219,676 ============= ============ The accompanying notes are an integral part of these financial statements. JOHN B. SANFILIPPO & SON, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Quarter Ended ----------------------------- September 24, September 25, 1998 1997 ------------- ------------- Cash flows from operating activities: Net income $ 287 $ 1,015 Adjustments: Depreciation and amortization 1,958 2,158 Gain on disposition of properties (11) -- Change in current assets and current liabilities: Accounts receivable, net (1,224) 462 Inventories 1,253 (20,102) Prepaid expenses and other current assets (217) (1,175) Accounts payable 5,184 19,145 Accrued expenses (1,681) (159) Income taxes payable/receivable 199 519 ------------- ------------- Net cash provided by operating activities 5,748 1,863 ------------- ------------- Cash flows from investing activities: Acquisition of properties (1,431) (864) Proceeds from disposition of properties 21 -- Other 687 (1,763) ------------- ------------- Net cash used in investing activities (723) (2,627) ------------- ------------- Cash flows from financing activities: Net borrowings (repayments) on notes payable (3,636) 2,256 Principal payments on long-term debt (1,228) (1,404) ------------- ------------- Net cash provided by (used in) financing activities (4,864) 852 ------------- ------------- Net increase in cash 161 88 Cash: Beginning of period 549 631 ------------- ------------- End of period $ 710 $ 719 ============= ============= Supplemental disclosures: Interest paid $ 2,751 $ 2,205 Taxes paid 38 201 Supplemental disclosure of noncash investing and financing activities: Capital lease obligation incurred -- 110 The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Note 1 - Basis of Consolidation - ------------------------------- The consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc. ("JBSS") and its wholly owned subsidiaries (collectively, with JBSS, the "Company"), including Sunshine Nut Co., Inc. ("Sunshine"). Note 2 - Inventories - -------------------- Inventories are stated at the lower of cost (first in, first out) or market. Inventories consist of the following: September 24, June 25, 1998 1998 ------------- --------- Raw material and supplies $51,999 $52,589 Work-in-process and finished goods 46,283 46,946 ------------- --------- $98,282 $99,535 ============= ========= Note 3 - Earnings Per Common Share - ---------------------------------- Earnings per common share is calculated using the weighted average number of shares of Common Stock and Class A Common Stock outstanding during the period. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share" which is effective for all reporting periods ending after December 15, 1997, and requires restatement for all prior periods presented. The following tables present the required disclosures under SFAS No. 128:
For the Quarter Ended September 24, 1998 For the Quarter Ended September 25, 1997 ---------------------------------------- ---------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- Net Income $287 $1,015 Basic Earnings Per Share Income available to common stockholders 287 9,148,565 $0.03 1,015 9,147,666 $0.11 ========= ========= Effect of Dilutive Securities Stock options -- 17,742 Diluted Earnings Per Share Income available to common stockholders $287 9,148,565 $0.03 $1,015 9,165,408 $0.11 =========== ============= ========= =========== ============= =========
The following table summarizes the weighted-average number of options which were outstanding for the periods presented but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares for the period: Weighted-Average Number of Options Exercise Price ----------------- ---------------- Quarter Ended September 24, 1998 366,630 $10.27 Quarter Ended September 25, 1997 272,808 $12.17 Note 4 - Stock Option Plan - -------------------------- Effective August 27, 1998, the Company's Board of Directors terminated the 1995 Equity Incentive Plan. The unexercised options outstanding at September 24, 1998 to purchase 157,900 shares of Common Stock, however, were not affected by the termination and will continue to be governed by the terms of the 1995 Equity Incentive Plan. At the Company's annual meeting of stockholders on October 28, 1998, the Company's stockholders approved, and the Company adopted, effective as of September 1, 1998, a new stock option plan (the "1998 Equity Incentive Plan") to replace the 1995 Equity Incentive Plan. The 1998 Equity Incentive Plan provides that an aggregate of 350,000 authorized but unissued shares of Common Stock will be available for awards in the form of stock options, including options intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code and nonqualified stock options. Such options may be granted to any employee of the Company (except that the Company's Chairman of the Board and Chief Executive Officer and the Company's President are not eligible to participate in the 1998 Equity Incentive Plan) or any of its subsidiaries or to any director who is not an employee of the Company or any of its subsidiaries (an "Outside Director"). Outside Directors, however, are only eligible to receive nonqualified options granted in accordance with a specific formula provided in the 1998 Equity Incentive Plan. Generally, each stock option granted under the 1998 Equity Incentive Plan will become exercisable in equal installments of 25% of the shares covered by the option on the first four anniversaries of the date of grant, subject to, in the case of an employee, continued employment with the Company, or in the case of an Outside Director, continued service as a director, on such date. The exercise price for each stock option granted under the 1998 Equity Incentive Plan will be determined by the Board of Directors (the "Option Price") and must be equal to fair market value of the Common Stock on the date of grant, with the exception of (i) nonqualified stock options, which must have an Option Price equal to at least 50% of the fair market value of the Common Stock on the date of grant, and (ii) incentive stock options granted to an employee who is a holder of more than 10% of the voting power of the Company's capital stock, which must have an Option Price equal to at least 110% of the fair market value of the Common Stock on the date of grant. The Company did not grant any stock options pursuant to the 1998 Equity Incentive Plan during the quarter ended September 24, 1998. On October 28, 1998, however, the Company granted a stock option to purchase 1,000 shares of Common Stock to each of its three Outside Directors. These options were granted in accordance with the formula specified under the 1998 Equity Incentive Plan upon the election of such Outside Directors to the Company's Board of Directors on October 28, 1998 and, pursuant to such formula, have an Option Price of $4.25 per share, the closing price of the Common Stock on October 28, 1998. Note 5 - Management's Statement - ------------------------------- The unaudited financial statements included herein have been prepared by the Company. In the opinion of the Company's management, these statements present fairly the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows, and reflect all normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the results of the interim periods. The interim results of operations are not necessarily indicative of the results to be expected for a full year. The data presented on the balance sheet for the fiscal year ended June 25, 1998 were derived from audited financial statements. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Annual Report to Stockholders for the year ended June 25, 1998. Item 2 - ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ---------------------------------------------- General - ------- The Company's business is seasonal. Demand for peanut and other nut products is highest during the months of October through December. Peanuts, pecans, walnuts, almonds and cashews, the Company's principal raw materials, are purchased primarily during the period from August to February and are processed throughout the year. As a result of this seasonality, the Company's personnel and working capital requirements peak during the last four months of the calendar year. Also, due primarily to the seasonal nature of the Company's business, the Company maintains significant inventories of peanuts, pecans, walnuts, almonds and other nuts at certain times of the year, especially during the second and third quarters of the Company's fiscal year. Fluctuations in the market prices of such nuts may affect the value of the Company's inventory and thus the Company's profitability. At September 24, 1998, the Company's inventories totaled approximately $98.3 million compared to approximately $99.5 million at June 25, 1998, and approximately $83.1 million at September 25, 1997. The increase in inventories at September 24, 1998 when compared to September 25, 1997 is primarily due to increased levels of pecans on hand due to higher purchases in the 1997 crop year than in the preceding crop year. See "Factors That May Affect Future Results -- Availability of Raw Materials and Market Price Fluctuations." RESULTS OF OPERATIONS - --------------------- Net Sales. Net sales decreased from approximately $77.3 million for the first quarter of fiscal 1998 to approximately $73.8 million for the first quarter of fiscal 1999, a decrease of approximately $3.4 million, or 4.5%. The decrease was due primarily to lower unit volume sales to retail customers, caused primarily by declines in regional brand and private label sales as a result of increased competitive activity. See "Factors That May Affect Future Results - Competitive Environment." The U.S. Department of Transportation has recently proposed guidelines to the major airlines which would require airlines to establish peanut-free buffer zones on request to passengers with medically documented severe allergies to peanuts. There can be no assurance that the airlines, some of which are customers of the Company, will not materially reduce or eliminate peanuts and other nut- related snacks on flights in response to these guidelines. The Company believes that, while such a decision by its airline customers would reduce the Company's revenues, given the relatively low percentage of the Company's total revenues represented by sales to these customers, such a decision should not otherwise have a material adverse effect on the Company's results of operations. Gross Profit. Gross profit for the first quarter of fiscal 1999 decreased approximately 10.8% to approximately $11.4 million from approximately $12.8 million for the first quarter of fiscal 1998. Gross profit margin decreased from approximately 16.6% for the first quarter of fiscal 1998 to approximately 15.5% for the first quarter of fiscal 1999. The decrease in gross profit margin for the first quarter of fiscal 1999 was due primarily to a decrease in sales as a percentage of the Company's total net sales to retail customers, which sales generally carry higher margins than sales to the Company's other customers, during the first quarter of fiscal 1999 compared to the first quarter of fiscal 1998. Selling and Administrative Expenses. Selling and administrative expenses as a percentage of net sales decreased from approximately 12.1% for the first quarter of fiscal 1998 to approximately 11.9% for the first quarter of fiscal 1999. Selling expenses as a percentage of net sales was approximately 8.9% for both the first quarters of fiscal 1999 and fiscal 1998. Administrative expenses as a percentage of net sales decreased slightly from approximately 3.2% for the first quarter of fiscal 1998 to approximately 3.0% for the first quarter of fiscal 1999. The slight decrease in administrative expenses as a percentage of net sales for the quarterly period was due primarily to decreases in expenses related to compensation programs and in amortization of expenses related to acquisitions. Income from Operations. Due to the factors discussed above, income from operations decreased from approximately $3.4 million, or 4.4% of net sales, for the first quarter of fiscal 1998, to approximately $2.7 million, or 3.6% of net sales, for the first quarter of fiscal 1999. Interest Expense. Interest expense increased from approximately $1.8 million for the first quarter of fiscal 1998 to approximately $2.3 million for the first quarter of fiscal 1999. The increase in quarterly interest expense was due primarily to a higher average level of borrowings to support higher levels of inventories. Income Taxes. The Company recorded income tax expense of approximately $0.2 million, or 45.0% of the loss before income taxes, for the first quarter of fiscal 1999. Liquidity and Capital Resources - ------------------------------- During the first quarter of fiscal 1999, the Company continued to finance its activities through a bank credit facility (the "Bank Credit Facility"), $35.0 million borrowed under a long-term financing facility originally entered into by the Company in 1992 (the "Long-Term Financing Facility") and $25.0 million borrowed on September 12, 1995 under a long-term financing arrangement (the "Additional Long-Term Financing"). Net cash provided by operating activities was approximately $5.7 million for the first quarter of fiscal 1999 compared to approximately $1.9 million for the first quarter of fiscal 1998. The increase in cash provided by operating activities was due primarily to purchases of certain nuts, especially walnuts and peanuts occurring earlier in the calendar year in fiscal 1998 as compared to fiscal 1999. During the first quarter of fiscal 1999, the Company spent approximately $1.4 million in capital expenditures, compared to approximately $0.9 million for the first quarter of fiscal 1998, and repaid approximately $1.2 million of long-term debt, compared to approximately $1.4 million for the first quarter of fiscal 1998. The Bank Credit Facility is comprised of (i) a working capital revolving loan which provided for working capital financing of up to approximately $61.7 million, in the aggregate, and matures on March 31, 2001, and (ii) an $8.3 million letter of credit to secure the industrial development bonds which matures on June 1, 2002. Borrowings under the working capital revolving loan accrued interest at a rate (the weighted average of which was 6.68% at September 24, 1998) determined pursuant to a formula based on the agent bank's quoted rate and the Eurodollar Interbank rate. Of the total $35.0 million of borrowings under the Long-Term Financing Facility, $25.0 million matures on August 15, 2004, bears interest rates ranging from 7.34% to 9.18% per annum payable quarterly, and requires equal semi-annual principal installments based on a ten-year amortization schedule. The remaining $10.0 million of this indebtedness matures on May 15, 2006, bears interest at the rate of 9.16% per annum payable quarterly, and requires equal semi-annual principal installments based on a ten- year amortization schedule. As of September 24, 1998, the total principal amount outstanding under the Long-Term Financing Facility was approximately $23.0 million. The Additional Long-Term Financing has a maturity date of September 1, 2005 and (i) as to $10.0 million of the principal amount thereof, bears interest at an annual rate of 8.3% payable semiannually and, beginning on September 1, 1999, requires annual principal payments of approximately $1.4 million each through maturity, and (ii) as to the other $15.0 million of the principal amount thereof, bears interest at an annual rate of 9.38% payable semiannually and requires principal payments of $5.0 million each on September 1, 2003 and September 1, 2004, with a final payment of $5.0 million at maturity on September 1, 2005. As of September 24, 1998, the total principal amount outstanding under the Additional Long-Term Financing was $25.0 million. The terms of the Company's financing facilities, as amended, include certain restrictive covenants that, among other things: (i) require the Company to maintain specified financial ratios; (ii) limit the Company's capital expenditures to $7.5 million annually; and (iii) require that Jasper B. Sanfilippo (the Company's Chairman of the Board and Chief Executive Officer) and Mathias A. Valentine (a director and the Company's President) together with their respective immediate family members and certain trusts created for the benefit of their respective sons and daughters, continue to own shares representing the right to elect a majority of the directors of the Company. In addition, (i) the Long-Term Financing Facility limits the Company's payment of dividends to a cumulative amount not to exceed 25% of the Company's cumulative net income from and after January 1, 1996, (ii) the Additional Long-Term Financing limits cumulative dividends to the sum of (a) 50% of the Company's cumulative net income (or minus 100% of the Company's cumulative net loss) from and after January 1, 1995 to the date the dividend is declared, (b) the cumulative amount of the net proceeds received by the Company during the same period from any sale of its capital stock, and (c) $5.0 million, and (iii) the Bank Credit Facility limits dividends to the lesser of (a) 25% of net income for the previous fiscal year, and (b) $5.0 million and prohibits the Company from redeeming shares of capital stock. As of September 24, 1998, the Company was in compliance with all restrictive covenants, as amended, under its financing facilities. However, the Company may not comply with the fixed charge financial covenant under its financing facilities as of the end of its second quarter of fiscal 1999 if its results of operations do not approximate its results of operations for the second quarter of fiscal 1998. While the Company has always obtained waivers from its lenders for past non-compliance with this covenant, and believes it will be able to obtain similar waivers, if necessary, as of the end of its next fiscal quarter, there can be no assurance that such waivers will be obtained. In the event the Company does not comply with its fixed charge covenant as of the end of its next fiscal quarter and if it is unable to secure the necessary waivers from its lenders, the lenders will have the right to accelerate the balances due under the facilities. As of September 24, 1998, the Company had approximately $18.8 million of available credit under the Bank Credit Facility. Approximately $1.4 million was incurred on capital expenditures for the first quarter of fiscal 1999. No significant capital expenditures are anticipated for fiscal 1999. The Company believes that cash flow from operating activities and funds available under the Bank Credit Facility will be sufficient to meet working capital requirements and anticipated capital expenditures for the foreseeable future. Year 2000 - --------- The Company has substantially completed its review of its internal systems, processes and facilities to determine if it has software or hardware applications that are unable to appropriately interpret or recognize the calendar year 2000 (the "Year 2000"). In addition, the Company is in the process of conducting a survey of third parties with whom it has material business relationships (such as customers, suppliers and financial institutions) to determine if they have Year 2000 issues that will materially and adversely impact the Company. The Company believes, based on representations from its software vendors, that its internal computer system (which was installed in 1991) and applications are Year 2000 compliant. Furthermore, a regularly scheduled upgrade of the internal computer system to the latest release was implemented during the first quarter of fiscal 1999. The internal computer system is responsible for inventory control applications, financial reporting and payroll. In addition, the Company has reviewed its manufacturing operations and has determined that no material portion of such operations is date sensitive. Certain of the Company's customers submit orders through Electronic Data Interchange ("EDI"), a third party computer system utilized by the Company. The Company's EDI system is currently undergoing a regularly scheduled upgrade which is expected to be completed by the end of calendar 1998. Upon completion of this upgrade, the Company expects, based on representations from software vendors, that its EDI system will be Year 2000 compliant. The Company is also reviewing its desktop computer systems and facilities for Year 2000 issues (and expects to complete that review early in calendar 1999), but does not presently believe that any Year 2000 issues related to such systems and facilities would have a material adverse effect on the Company. Also, the Company is in the process of making initial inquiries of third parties with whom it has material business relationships to determine whether they will be able to resolve in a timely manner any Year 2000 problems materially and adversely affecting the Company. In the course of these initial inquiries, which have focused primarily on the Company's major customers, the Company has not been made aware of any material Year 2000 issues which would adversely affect the Company. In addition, the Company's major vendors are growers, and the Company believes they are not dependent upon computers in order to transact business. The Company expects to complete a survey of such third parties by the end of calendar 1998. Based upon the Company's review of its systems and the current status of the Company's survey of third parties with whom it has material business relationships, the Company has not identified any material costs to address, or material risks related to, Year 2000 issues. There can be no assurance, however, that Year 2000 issues will not have a material adverse effect on the Company if the Company and/or those with whom it conducts business are unsuccessful in identifying or implementing timely solutions to any Year 2000 issues. The Company intends to continue its review of its Year 2000 status with the intention of completing that review on the schedule described above and, as to the extent necessary, developing Year 2000 contingency plans for critical business processes. In a worst case Year 2000 scenario, the Company presently believes it would revert back to manual applications to perform order entry, billing and similar functions. Factors That May Affect Future Results - -------------------------------------- (a) Availability of Raw Materials and Market Price Fluctuations - ---------------------------------------------------------------- The availability and cost of raw materials for the production of the Company's products, including peanuts, pecans, other nuts, dried fruit and chocolate, are subject to crop size and yield fluctuations caused by factors beyond the Company's control, such as weather condition and plant diseases. Additionally, the supply of edible nuts and other raw materials used in the Company's products could be reduced upon any determination by the United States Department of Agriculture ("USDA") or other government agency that certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop or that the crop has been contaminated by aflatoxin or other agents. Shortages in the supply of and increases in the prices of nuts and other raw materials used by the Company in its products could have an adverse impact on the Company's profitability. Furthermore, fluctuations in the market prices of nuts, dried fruit or chocolate may affect the value of the Company's inventory and the Company's profitability. For example, during the quarter ended September 26, 1996 the Company was required to record a $2.6 million charge against its earnings to reflect the impact of a lower cost or market adjustment of its pecan inventory. The Company has a significant inventory of nuts, dried fruit and chocolate that would be adversely affected by any decrease in the market price of such raw materials. See "General" and "Results of Operations - Gross Profit". (b) Competitive Environment - --------------------------- The Company operates in a highly competitive environment. The Company's principal products compete against food and snack products manufactured and sold by numerous regional and national companies, some of which are substantially larger and have greater resources than the Company, such as Planters Lifesavers Company (a subsidiary of RJR Nabisco, Inc.). The Company also competes with other shellers in the industrial market and with regional processors in the retail and wholesale markets. In order to maintain or increase its market share, the Company must continue to price its products competitively, which may lower revenue per unit and cause declines in gross margin, if the Company is unable to increase unit volumes as well as reduce its costs. See "Results of Operations - Net Sales." (c) Fixed Price Commitments - --------------------------- From time to time, the Company enters into fixed price commitments with its customers. However, such commitments typically represent 10% or less of the Company's annual net sales and are normally entered into after the Company's cost to acquire the nut products necessary to satisfy the fixed price commitment is substantially fixed. The Company will continue to enter into fixed price commitments with respect to certain of its nut products prior to fixing its acquisition cost when, in management's judgment, market or crop harvest conditions so warrant. To the extent the Company does so, these fixed price commitments may result in losses. Historically, however, such losses have generally been offset by gains on other fixed price commitments. However, there can be no assurance that losses from fixed price commitments may not have a material adverse effect on the Company's results of operations. (d) Federal Regulation of Peanut Prices, Quotas and Poundage Allotments - ------------------------------------------------------------ Peanuts are an important part of the Company's product line. Approximately 50% of the total pounds of products processed annually by the Company are peanuts, peanut butter and other products containing peanuts. The production and marketing of peanuts are regulated by the USDA under the Agricultural Adjustment Act of 1938 (the "Agricultural Adjustment Act"). The Agricultural Adjustment Act, and regulations promulgated thereunder, support the peanut crop by: (i) limiting peanut imports (other than as described below pursuant to the North American Free Trade Agreement and the Uruguay Round Agreement of the General Agreement on Trade and Tariffs), (ii) limiting the amount of peanuts that American farmers are allowed to take to the domestic market each year, and (iii) setting a minimum price that a sheller must pay for peanuts which may be sold for domestic consumption. The amount of peanuts that American farmers can sell each year is determined by the Secretary of Agriculture and is based upon the prior year's peanut consumption in the United States. Only peanuts that qualify under the quota may be sold for domestic food products and seed. The peanut quota for the 1998 calendar year is approximately 1.2 million tons. Peanuts in excess of the quota are called "additional peanuts" and generally may only be exported or used domestically for crushing into oil or meal. Current regulations permit additional peanuts to be domestically processed and exported as finished goods to any foreign country. The quota support price for the 1998 calendar year is approximately $615 per ton. The 1996 Farm Bill extended the federal support and subsidy program for peanuts for seven years. However, there are no assurances that Congress will not change or eliminate the program prior to its scheduled expiration. Changes in the federal peanut program could significantly affect the supply of, and price for, peanuts. While the Company has successfully operated in a market shaped by the federal peanut program for many years, the Company believes that it could adapt to a market without federal regulation if that were to become necessary. However, the Company has no experience in operating in such a peanut market, and no assurances can be given that the elimination or modification of the federal peanut program would not adversely affect the Company's business. Future changes in import quota limitations or the quota support price for peanuts at a time when the Company is maintaining a significant inventory of peanuts or has significant outstanding purchase commitments could adversely affect the Company's business by lowering the market value of the peanuts in its inventory or the peanuts which it is committed to buy. While the Company believes that its ability to use its raw peanut inventories in its own processing operations gives it greater protection against these changes than is possessed by certain competitors whose operations are limited to either shelling or processing, no assurances can be given that future changes in, or the elimination of, the federal peanut program or import quotas will not adversely affect the Company's business. The North American Free Trade Agreement ("NAFTA"), effective January 1, 1994, committed the United States, Mexico and Canada to the elimination of quantitative restrictions and tariffs on the cross-border movement of industrial and agricultural products. Under NAFTA, United States import restrictions on Mexican shelled and inshell peanuts were replaced by a tariff rate quota, initially set at 3,377 tons and which increases by a 3% compound rate each year until 2001. Shipments within the quota's parameters enter the U.S. duty-free, while imports above-quota parameters from Mexico face tariffs. The tariffs are being phased out gradually and are scheduled to be eliminated by 2001. The Uruguay Round Agreement of the General Agreement on Trade and Tariffs ("GATT") took effect on July 1, 1995. Under GATT, the United States must allow peanut imports to grow to 5% of domestic consumption by 2001, and import quotas on peanuts were replaced by high ad valorem tariffs, which must be reduced annually pursuant to the terms of GATT. Also under GATT, the United States may continue to limit imports of peanut butter but is permitted to establish a tariff rate quota for peanut butter imports based on 1993 import levels. Peanut butter imports above the quota are subject to an over-quota ad valorem tariff which also must be reduced annually pursuant to the terms of GATT. Although NAFTA and GATT do not directly affect the federal peanut program, the federal government may, in future legislative initiatives, reconsider the federal peanut program in light of these agreements. The Company does not believe that NAFTA and GATT have had a material impact on the Company's business or will have a material impact on the Company's business in the near term. Item 3 - ------ Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- The Company has not entered into transactions using derivative financial instruments. The Company believes that its exposure to market risk related to its other financial instruments (which are the debt instruments under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources") is not material. PART II. OTHER INFORMATION - --------------------------- Item 2 -- Changes in Securities - ------------------------------- As described above under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" under Part I of this report, there are restrictive covenants under the Company's financing facilities which limit the payment of dividends. Item 5 -- Other Information - ---------------------------- The Company's 1998 Annual Meeting of Stockholders was held on October 28, 1998 for the purpose of (i) electing those directors entitled to be elected by the holders of the Company's Class A Common Stock, (ii) electing those directors entitled to be elected by the holders of the Company's Common Stock, (iii) ratifying the action of the Company's Board of Directors in appointing PricewaterhouseCoopers LLP as independent accountants for fiscal 1999, (iv) to consider and take action upon a proposal to approve The John B. Sanfilippo & Son, Inc. 1998 Equity Incentive Plan (the "1998 Equity Incentive Plan"), and (v) to transact such other business properly brought before the meeting. The meeting proceeded and (i) the holders of Class A Common Stock elected Jasper B. Sanfilippo, Mathias A. Valentine, John C. Taylor, J. William Petty and Michael J. Valentine to serve on the Company's Board of Directors by a unanimous vote of 3,687,426 votes cast for, representing 100% of the then outstanding shares of Class A Common Stock, (ii) the holders of Common Stock elected William D. Fischer by a vote of 4,821,319 votes cast for and 324,219 votes withheld, (iii) the holders of Common Stock elected John W. A. Buyers by a vote of 4,821,319 votes cast for and 324,219 votes withheld, (iv) the holders of Class A Common Stock and Common Stock ratified the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for fiscal 1999 by a total of 42,012,679 votes cast for ratification, 5,669 votes against ratification and 1,450 abstentions, and (v) the holders of Class A Common Stock and Common Stock approved the adoption of the 1998 Equity Incentive Plan by a total of 39,554,846 votes cast for adoption, 2,233,613 votes against adoption, 4,932 abstentions and 1,226,407 broker non-votes. Item 6 -- Exhibits and Reports on Form 8-K - ------------------------------------------ (a) The exhibits filed herewith are listed in the exhibit index which follows the signature page and immediately precedes the exhibits filed. (b) Reports on Form 8-K: There were no Current Reports on Form 8-K filed during the quarter ended September 24, 1998. SIGNATURE - --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHN B. SANFILIPPO & SON, INC. Date: November 6, 1998 By: /s/ Gary P. Jensen ------------------------------------- Gary P. Jensen Executive Vice President, Finance and Chief Financial Officer EXHIBIT INDEX ------------- Exhibit Number Description - ------- ------------------------------------------------------------- 2 None 3.1 Restated Certificate of Incorporation of Registrant(2) 3.2 Certificate of Correction to Restated Certificate(2) 3.3 Bylaws of Registrant(1) 4.1 Specimen Common Stock Certificate(3) 4.2 Specimen Class A Common Stock Certificate(3) 4.3 Second Amended and Restated Note Agreement by and between the Registrant and The Prudential Insurance Company of America ("Prudential") dated January 24, 1997 (the "Long-Term Financing Facility")(19) 4.4 7.87% Series A Senior Note dated September 29, 1992 in the original principal amount of $4.0 million due August 15, 2004 executed by the Registrant in favor of Prudential(5) 4.5 8.22% Series B Senior Note dated September 29, 1992 in the original principal amount of $6.0 million due August 15, 2004 executed by the Registrant in favor of Prudential(5) 4.6 8.22% Series C Senior Note dated September 29, 1992 in the original principal amount of $4.0 million due August 15, 2004 executed by the Registrant in favor of Prudential(5) 4.7 8.33% Series D Senior Note dated January 15, 1993 in the original principal amount of $3.0 million due August 15, 2004 executed by the Registrant in favor of Prudential(6) 4.8 6.49% Series E Senior Note dated September 15, 1993 in the original principal amount of $8.0 million due August 15, 2004 executed by the Registrant in favor of Prudential(9) 4.9 8.31% Series F Senior Note dated June 23, 1994 in the original principal amount of $8.0 million due May 15, 2006 executed by the Registrant in favor of Prudential(10) 4.10 8.31% Series F Senior Note dated June 23, 1994 in the original principal amount of $2.0 million due May 15, 2006 executed by the Registrant in favor of Prudential(10) 4.11 Amended and Restated Guaranty Agreement dated as of October 19, 1993 by Sunshine in favor of Prudential(8) 4.12 Amendment to the Second Amended and Restated Note Agreement dated May 21, 1997 by and among Prudential, Sunshine and the Registrant(20) 4.13 Amendment to the Second Amended and Restated Note Agreement dated March 31, 1998 by and among Prudential, the Registrant, Sunshine, and Quantz Acquisition Co., Inc. ("Quantz")(21) 4.14 Guaranty Agreement dated as of March 31, 1998 by JBS International, Inc. ("JBSI") in favor of Prudential(21) 4.15 $1.8 million Promissory Note dated March 31, 1989 evidencing a loan by Cohen Financial Corporation to LaSalle National Bank ("LNB"), as Trustee under Trust Agreement dated March 17, 1989 and known as Trust No. 114243(12) 4.16 Modification Agreement dated as of September 29, 1992 by and among LaSalle National Trust, N.A. ("LaSalle Trust"), a national banking association, not personally but as Successor Trustee to LNB under Trust Agreement dated March 17, 1989 known as Trust Number 114243; the Registrant; Jasper B. Sanfilippo and Mathias A. Valentine; and Mutual Trust Life Insurance Company(5) 4.17 Note Purchase Agreement dated as of August 30, 1995 between the Registrant and Teachers Insurance and Annuity Association of America ("Teachers")(15) 4.18 8.30% Senior Note due 2005 in the original principal amount of $10.0 million, dated September 12, 1995 and executed by the Registrant in favor of Teachers(15) 4.19 9.38% Senior Subordinated Note due 2005 in the original principal amount of $15.0 million, dated September 12, 1995 and executed by the Registrant in favor of Teachers(15) 4.20 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of Teachers (Senior Notes)(15) 4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of Teachers (Senior Subordinated Notes)(15) 4.22 Amendment, Consent and Waiver, dated as of March 27, 1996, by and among Teachers, Sunshine and the Registrant(17) 4.23 Amendment No. 2 to Note Purchase Agreement dated as of January 24, 1997 by and among Teachers, Sunshine and the Registrant(19) 4.24 Amendment to Note Purchase Agreement dated May 19, 1997 by and among Teachers, Sunshine and the Registrant(20) 4.25 Amendment No. 3 to Note Purchase Agreement dated as of March 31, 1998 by and among Teachers, Sunshine, Quantz and the Registrant(21) 4.26 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of Teachers (Senior Notes)(21) 4.27 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of Teachers (Senior Subordinated Notes)(21) 10.1 Certain documents relating to $8.0 million Decatur County- Bainbridge Industrial Development Authority Industrial Development Revenue Bonds (John B. Sanfilippo & Son, Inc. Project) Series 1987 dated as of June 1, 1987(1) 10.2 Industrial Building Lease dated as of October 1, 1991 between JesCorp., Inc. and LNB, as Trustee under Trust Agreement dated March 17, 1989 and known as Trust No. 114243(14) 10.3 Industrial Building Lease (the "Touhy Avenue Lease") dated November 1, 1985 between Registrant and LNB, as Trustee under Trust Agreement dated September 20, 1966 and known as Trust No. 34837(11) 10.4 First Amendment to the Touhy Avenue Lease dated June 1, 1987(11) 10.5 Second Amendment to the Touhy Avenue Lease dated December 14, 1990(11) 10.6 Third Amendment to the Touhy Avenue Lease dated September 1, 1991(16) 10.7 Industrial Real Estate Lease (the "Lemon Avenue Lease") dated May 7, 1991 between Registrant, Majestic Realty Co. and Patrician Associates, Inc(1) 10.8 First Amendment to the Lemon Avenue Lease dated January 10, 1996(17) 10.9 Mortgage, Assignment of Rents and Security Agreement made on September 29, 1992 by LaSalle Trust, not personally but as Successor Trustee under Trust Agreement dated February 7, 1979 known as Trust Number 100628 in favor of the Registrant relating to the properties commonly known as 2299 Busse Road and 1717 Arthur Avenue, Elk Grove Village, Illinois(5) 10.10 Industrial Building Lease dated June 1, 1985 between Registrant and LNB, as Trustee under Trust Agreement dated February 7, 1979 and known as Trust No. 100628(1) 10.11 First Amendment to Industrial Building Lease dated September 29, 1992 by and between the Registrant and LaSalle Trust, not personally but as Successor Trustee under Trust Agreement dated February 7, 1979 and known as Trust Number 100628(5) 10.12 Second Amendment to Industrial Building Lease dated March 3, 1995, by and between the Registrant and LaSalle Trust, not personally but as Successor Trustee under Trust Agreement dated February 7, 1979 and known as Trust Number 100628(12) 10.13 Third Amendment to Industrial Building Lease dated August 15, 1998, by and between the Registrant and LaSalle Trust, not personally but as Successor Trustee under Trust Agreement dated February 7, 1979 and known as Trust Number 100628(22) 10.14 Ground Lease dated January 1, 1995, between the Registrant and LaSalle Trust, not personally but as Successor Trustee under Trust Agreement dated February 7, 1979 and known as Trust Number 100628(12) 10.15 Party Wall Agreement, dated March 3, 1995, between the Registrant, LaSalle Trust, not personally but as Successor Trustee under Trust Agreement dated February 7, 1979 and known as Trust Number 100628 and the Arthur/Busse Limited Partnership(12) 10.16 Secured Promissory Note in the amount of $6,223,321.81 dated September 29, 1992 executed by Arthur/Busse Limited Partnership in favor of the Registrant(5) 10.17 Tax Indemnification Agreement between Registrant and certain Stockholders of Registrant prior to its initial public offering(2) 10.18 Indemnification Agreement between Registrant and certain Stockholders of Registrant prior to its initial public offering(2) 10.19 The Registrant's 1991 Stock Option Plan(1) 10.20 First Amendment to the Registrant's 1991 Stock Option Plan(4) 10.21 John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number One among John E. Sanfilippo, as trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990, Jasper B. Sanfilippo, Marian R. Sanfilippo and Registrant, and Collateral Assignment from John E. Sanfilippo as trustee of the Jasper and Marian Sanfilippo Irrevocable Trust, dated September 23, 1990, as assignor, to Registrant, as assignee(7) 10.22 John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement Number Two among Michael J. Valentine, as trustee of the Valentine Life Insurance Trust, dated May 15, 1991, Mathias Valentine, Mary Valentine and Registrant, and Collateral Assignment from Michael J. Valentine, as trustee of the Valentine Life Insurance Trust, dated May 15, 1991, as assignor, and Registrant, as assignee(7) 10.23 Certain documents relating to Reverse Split-Dollar Insurance Agreement between Sunshine and John Charles Taylor dated November 24, 1987(12) 10.24 Outsource Agreement between the Registrant and Preferred Products, Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT REQUESTED](12) 10.25 Letter Agreement between the Registrant and Preferred Products, Inc., dated February 24, 1995, amending the Outsource Agreement dated January 19, 1994 [CONFIDENTIAL TREATMENT REQUESTED](12) 10.26 The Registrant's 1995 Equity Incentive Plan(13) 10.27 Promissory Note (the "ILIC Promissory Note") in the original principal amount of $2.5 million, dated September 27, 1995 and executed by the Registrant in favor of Indianapolis Life Insurance Company ("ILIC")(16) 10.28 First Mortgage and Security Agreement (the "ILIC" Mortgage") by and between the Registrant, as mortgagor, and ILIC, as mortgagee, dated September 27, 1995, and securing the ILIC Promissory Note and relating to the property commonly known as 3001 Malmo Drive, Arlington Heights, Illinois (16) 10.29 Assignment of Rents, Leases, Income and Profits dated September 27, 1995, executed by the Registrant in favor of ILIC and relating to the ILIC Promissory Note, the ILIC Mortgage and the Arlington Heights facility(16) 10.30 Environmental Risk Agreement dated September 27, 1995, executed by the Registrant in favor of ILIC and relating to the ILIC Promissory Note, the ILIC Mortgage and the Arlington Heights facility(16) 10.31 Credit Agreement among the Registrant, Bank of America Illinois ("BAI") as agent, NCB, The Northern Trust Company ("NTC") and BAI, dated as of March 27, 1996(17) 10.32 Reimbursement Agreement between the Registrant and BAI, dated as of March 27, 1996(17) 10.33 Guaranty Agreement dated as March 27, 1996 by Sunshine in favor of BAI as agent on behalf of NCB, NTC and BAI(17) 10.34 Amendment No. 1 and Waiver to Credit Agreement dated as of August 1, 1996 by and among the Registrant, BAI, NCB and NTC(18) 10.35 Amendment No. 2 and Waiver to Credit Agreement dated as of October 30, 1996 by and among the Registrant, BAI, NCB and NTC(18) 10.36 Amendment No. 3 to Credit Agreement dated as of January 24, 1997 by and among the Registrant, BAI, NCB, and NTC(19) 10.37 Amendment No. 5 to Credit Agreement dated as of June 2, 1997 by and among the Registrant, BAI, NCB, and NTC(20) 10.38 Amendment No. 7 to Credit Agreement dated as of March 27, 1998 by and among the Registrant, BAI, NCB, and NTC(21) 10.39 Employment Agreement by and between Sunshine and Steven G. Taylor dated June 17, 1992(19) 10.40 Credit Agreement dated as of March 31, 1998 among the Registrant, Sunshine, Quantz, JBSI, U.S. Bancorp Ag Credit, Inc. ("USB") as Agent, Keybank National Association ("KNA"), and LNB(21) 10.41 Revolving Credit Note in the principal amount of $35.0 million executed by the Registrant, Sunshine, Quantz and JBSI in favor of USB, dated as of March 31, 1998(21) 10.42 Revolving Credit Note in the principal amount of $15.0 million executed by the Registrant, Sunshine, Quantz and JBSI in favor of KNA, dated as of March 31, 1998(21) 10.43 Revolving Credit Note in the principal amount of $20.0 million executed by the Registrant, Sunshine, Quantz and JBSI in favor of LSB, dated as of March 31, 1998(21) 10.44 The Registrant's 1998 Equity Incentive Plan 11 None 15 None 17 None 18 None 24-26 None 27 Financial Data Schedule 99 None (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-43353, as filed with the Commission on October 15, 1991 (Commission File No. 0-19681). (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (Commission File No. 0-19681). (3) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Amendment No. 3), Registration No. 33- 43353, as filed with the Commission on November 25, 1991 (Commission File No. 0-19681). (4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the second quarter ended June 25, 1992 (Commission File No. 0-19681). (5) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 29, 1992 (Commission File No. 0- 19681). (6) Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 15, 1993 (Commission File No. 0- 19681). (7) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-59366, as filed with the Commission on March 11, 1993 (Commission File No. 0- 19681). (8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1993 (Commission File No. 0-19681). (9) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 15, 1993 (Commission file No. 0- 19681). (10) Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 23, 1994 (Commission File No. 0-19681). (11) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Commission File No. 0-19681). (12) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (Commission File No. 0-19681). (13) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the first quarter ended March 30, 1995 (Commission File No. 0-19681). (14) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the second quarter ended June 29, 1995 (Commission File No. 0-19681). (15) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 12, 1995 (Commission File No. 0-19681). (16) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the third quarter ended September 28, 1995 (Commission file No. 0-19681). (17) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission file No. 0-19681). (18) Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 24, 1997 (Commission file No. 0-19681). (19) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission file No. 0-19681). (20) Incorporated by reference to the Registrant's Current Report on Form 8-K dated May 21, 1997 (Commission file No. 0-19681). (21) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the third quarter ended March 26, 1998 (Commission file No. 0-19681). (22) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 25, 1998 (Commission file No. 0-19681). John B. Sanfilippo & Son, Inc. will furnish any of the above exhibits to its stockholders upon written request addressed to the Secretary at the address given on the cover page of this Form 10- Q. The charge for furnishing copies of the exhibits is $.25 per page, plus postage. EX-10 2 THE JOHN B. SANFILIPPO & SON, INC. 1998 EQUITY INCENTIVE PLAN - ---------------------------------- John B. Sanfilippo & Son, Inc. (the "Company") hereby establishes The John B. Sanfilippo & Son, Inc. 1998 Equity Incentive Plan (the "Plan"), to become effective September 1, 1998 (the "Effective Date"), subject to approval by the holders of a majority of the combined voting power of the Common Stock, $.01 par value, of the Company ("Common Stock") and Class A Common Stock, $.01 par value, of the Company ("Class A Stock") present, or represented, and entitled to vote at a meeting duly called and held. Grants may be made hereunder prior to such stockholder approval, provided that any such grants shall be subject to such stockholder approval. 1. Definitions. In this Plan, except where the context otherwise indicates, the following definitions apply: 1.1. "Agreement" means a written agreement implementing a grant of an Option. 1.2 "Board" means the Board of Directors of the Company. 1.3 "Change in Control" shall have the meaning set forth in Subsection 15.1 hereof. 1.4 "Class A Stock" means the Class A Common Stock, $.01 par value per share, of the Company. 1.5 "Code" means the Internal Revenue Code of 1986, as amended. 1.6 "Committee" means the entire Board or any committee of the Board appointed by the Board to administer the Plan, meeting the standards of Rule 16b-3(d)(1) under the Exchange Act, or any similar successor rule and Temp. Treas. Reg. Section 1.162-27(e)(3) or any similar successor rule. Unless otherwise determined by the Board, the entire Board shall be the Committee and shall administer the Plan. 1.7 "Common Stock" means the Common Stock, par value $.01 per share, of the Company, and any other shares into which such common stock shall thereafter be exchanged by reason of a recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like. 1.8. "Company" means John B. Sanfilippo & Son, Inc., a Delaware corporation, its successors and assigns. 1.9. "Current Grant" shall have the meaning set forth in Subsection 6.4(e) hereof. 1.10. "Date of Exercise" means the date on which the Company receives notice of the exercise of an Option in accordance with the terms of Section 8 hereof. 1.11. "Date of Grant" means the date on which an Option is granted by the Committee (or such later date as specified in advance by the Committee) or, in the case of a Nonstatutory Stock Option granted to an Outside Director, the date on which such Nonstatutory Stock Option is granted pursuant to and in accordance with the provisions of Section 10 hereof. 1.12. "Effective Date" means September 1, 1998, subject to approval by the holders of the combined voting power of the Common Stock and Class A Stock present, or represented, and entitled to vote at a meeting duly called and held. 1.13. "Employee" means any person determined by the Committee to be an employee of the Company or any Subsidiary. 1.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended. 1.15. "Fair Market Value" of a Share means: (a) If on the applicable date the Common Stock is listed for trading on a national or regional securities exchange or authorized for quotation on the Nasdaq National Market System, the closing price of the Common Stock on such exchange or Nasdaq National Market System, as the case may be, on the applicable date, or if no sales of Common Stock shall have occurred on such exchange or Nasdaq National Market System, as the case may be, on the applicable date, the closing price of the Common Stock on the next preceding date on which there were such sales; (b) If on the applicable date the Common Stock is not listed for trading on a national or regional securities exchange or authorized for quotation on the Nasdaq National Market System, the mean between the closing bid price and the closing ask price of the Common Stock as otherwise reported by the Nasdaq Stock Market, Inc. with respect to the applicable date or, if closing bid and ask prices for the Common Stock shall not have been so reported with respect to the applicable date, on the next preceding date with respect to which such bid and ask prices were so reported; or (c) If on the applicable date the Common Stock is not listed for trading on a national or regional securities exchange or authorized for quotation on the Nasdaq National Market System or otherwise reported by the Nasdaq Stock Market, Inc., the fair market value of a Share as determined by the Committee pursuant to a reasonable method adopted in good faith for such purpose. Such Fair Market Value shall be subject to adjustment as provided in Section 23 hereof. 1.16. "For Cause" shall have the meaning set forth in Subsection 14.2 hereof. 1.17. "Incentive Stock Option" means an Option granted under the Plan that qualifies as an incentive stock option under Section 422 of the Code and that the Company designates as such in the Agreement granting the Option. 1.18. "Insider" means a director, officer or beneficial owner of more than 10% of the Common Stock of the Company for purposes of Section 16 of the Exchange Act. 1.19. "Nonstatutory Stock Option" means an Option granted under the Plan that is not an Incentive Stock Option. 1.20. "Option" means a right to purchase Common Stock granted under the Plan in accordance with the terms of either Section 6 or Section 10 hereof. 1.21. "Optionee" means an Outside Director or an Employee to whom an Option has been granted. 1.22. "Option Period" means the period during which an Option may be exercised. 1.23. "Option Price" means the price per Share at which an Option may be exercised. The Option Price shall be determined by the Committee in accordance with the terms and conditions of the Plan, except that, in the case of Nonstatutory Stock Options granted to Outside Directors pursuant to the provisions of Section 10, in no event shall the Option Price be less than 100% of the Fair Market Value per Share determined as of the Date of Grant. 1.24. "Other Plans" shall have the meaning set forth in Subsection 6.4(d) hereof. 1.25. "Outside Director" means any person who is a director of the Company and who is not also an employee of either the Company, any Subsidiary or any of their respective affiliates. 1.26. "Permanent Disability" means a mental or physical condition which, in the opinion of the Committee, renders an Optionee unable or incompetent to carry out the job responsibilities which such Optionee held or tasks to which such Optionee was assigned at the time the disability was incurred and which is expected to be permanent or for an indefinite period. 1.27. "Plan" means The John B. Sanfilippo & Son, Inc. 1998 Equity Incentive Plan. 1.28. "Prior Grants" shall have the meaning set forth in Subsection 6.4(e) hereof. 1.29. "Reload Option" means a new Option granted to an Optionee pursuant to and in accordance with Subsections 4.3(f)(v) and 8.2 hereof, upon the surrender of Shares to pay the Option Price of a previously granted Option. 1.30 "Share" means a share of Common Stock. 1.31. "Share Withholding" shall have the meaning set forth in Subsection 13.1 hereof. 1.32. "Subsidiary" means a corporation at least 50% of the total combined voting power of all classes of stock of which is owned by the Company either directly or through one or more Subsidiaries. 1.33. "Ten Percent Owner" shall have the meaning set forth in Subsection 6.4(a) hereof. 1.34. "Termination of Employment" shall have the meaning set forth in Subsection 14.1 hereof. 1.35. "$100,000 Limit" shall have the meaning set forth in Subsection 6.4(d) hereof. 2. Purpose. The purpose of the Plan is to advance the interests of the Company and its Subsidiaries by encouraging and facilitating the acquisition of a larger personal financial interest in the Company by Outside Directors and those Employees upon whose judgment and interest the Company and its Subsidiaries are largely dependent for the successful conduct of their operations, and by making executive positions in the Company and its Subsidiaries more attractive. It is anticipated that the acquisition of such financial interest will stimulate the efforts of such Employees and Outside Directors on behalf of the Company and its Subsidiaries and strengthen their desire to continue in the service of the Company and its Subsidiaries. It is also anticipated that the opportunity to obtain such a financial interest will prove attractive to promising executive talent and will assist the Company and its Subsidiaries in attracting such persons. The Plan is intended to meet the requirements of Rule 16b-3 of the Exchange Act at all times during which Insiders are subject to the requirements of Section 16 of the Exchange Act. 3. Scope of the Plan. 3.1. Shares Available. An aggregate of 350,000 Shares is hereby authorized and made available and shall be reserved for issuance under the Plan with respect to the exercise of Options. Such number of Shares shall be reduced by the aggregate number of Shares acquired from time to time to be held as treasury Shares reserved for use under the Plan. Subject to the foregoing and the other provisions of this Section 3, Shares that are issued upon the exercise of Options awarded under the Plan may be issued out of either the Company's authorized and unissued or treasury shares of Common Stock. The aggregate number of Shares available under this Plan shall be subject to adjustment upon the occurrence of any of the events and in the manner set forth in Section 23 hereof. 3.2. Shares Subject to Terminated Options. If, and to the extent, an Option shall expire or terminate for any reason without having been exercised in full, the Shares subject thereto which have not become outstanding shall (unless the Plan shall have terminated) become available under the Plan for other grants. 3.3 Authority to Purchase Shares. The Board, such committee of the Board that the Board shall specifically authorize or direct on its behalf, or the Committee shall have the authority to cause the Company to purchase from time to time, in such amounts and at such prices as the Board, in its discretion, shall deem advisable or appropriate, Shares to be held as treasury Shares and reserved and used solely for or in connection with grants under the Plan, at the discretion of the Committee. 4. Administration. 4.1. The Committee. The Plan shall be administered by the Committee. 4.2. Authority of the Committee. The Committee shall have full and final authority, in its discretion, but subject to the express provisions of the Plan, as follows: (a) to grant Options; (b) subject to Sections 6 and 10, to determine (a) the Option Price of the Shares subject to each Option, (b) the Employees and Outside Directors to whom, and the time or times at which, Options shall be granted, and (c) subject to Section 3, the number of Shares subject to an Option to be granted to each Optionee thereof; (c) to determine all other terms and provisions of each Agreement (which may, but need not be, identical), other than the exercisability of Options which is governed by Subsection 6.2 hereof, and, with the consent of the Optionee, to modify any Agreement; (d) to construe and interpret the Plan and Agreements; (e) to prescribe, amend and rescind rules and regulations relating to the Plan, including, without limitation and subject to Section 14 hereof, the rules with respect to the exercisability of Options; (f) to require, whether or not provided for in the pertinent Agreement, of any person exercising an Option, at the time of such exercise, the making of any representations or agreements which the Committee may deem necessary or advisable in order to comply with the securities laws of the United States of America or of any state; (g) to prescribe the method by which grants of Options shall be evidenced; (h) to cancel, with the consent of the Optionee thereof, outstanding Options and to grant new Options in substitution therefor; (i) to require withholding from or payment by an Optionee of any federal, state or other governmental taxes; (j) to prohibit the election described in Section 11 hereof; (k) to make all other determinations deemed necessary or advisable for the administration of the Plan; and (l) to impose such additional conditions, restrictions and limitations upon the exercise, vesting or retention of Options as the Committee may, prior to or concurrently with the grant or award thereof, deem appropriate, including, but not limited to, limiting the percentage of Options which may from time to time be exercised by an Optionee. 4.3. Agreements Evidencing Stock Options. (a) Options awarded under the Plan shall be evidenced by Agreements which shall not be inconsistent with the terms and provisions of the Plan, and which shall contain such provisions as the Committee may in its sole discretion deem necessary or desirable. Without limiting the generality of the foregoing, the Committee may in any Agreement impose such restrictions or conditions upon the exercise of such Option or upon the sale or other disposition of the shares of Common Stock issuable upon exercise of such Option as the Committee may in its sole discretion determine. By accepting an award pursuant to the Plan each Optionee shall thereby agree that each such award shall be subject to all of the terms and provisions of the Plan, including, but not limited to, the provisions of Section 4.6. (b) Each Agreement shall set forth the number of shares of Common Stock subject to the Option granted thereby, subject to adjustment by the Committee to reflect changes in capitalization as contemplated by Section 23. (c) Each Agreement relating to Options shall set forth the amount payable by the Optionee to the Company upon exercise of the Option evidenced thereby, subject to adjustment by the Committee to reflect changes in capitalization as contemplated by Section 23. (d) Each Agreement shall set forth the period during which the Option shall be exercisable, which shall be determined by the Committee in its discretion, subject to the terms of Subsection 6.4(b) and Section 10 hereof; provided, however, that no Option shall be exercisable after the expiration of ten (10) years from the Date of Grant, and each Option shall be subject to earlier termination as herein provided. (e) Each Agreement shall specify whether the Option is a Nonstatutory Stock Option or an Incentive Stock Option. (f) Without limiting the foregoing, the Committee shall provide, in its discretion, in any Agreement: (i) for an agreement by the Optionee to render services to the Company or a Subsidiary upon such terms and conditions as may be specified in the Agreement, provided that the Committee shall not have the power to commit the Company or a Subsidiary to employ or otherwise retain any Optionee; (ii) for restrictions on the transfer, sale or other disposition of Shares issued to the Optionee upon the exercise of an Option; (iii) for an agreement by the Optionee to resell to the Company, under specified conditions, Shares issued upon the exercise of an Option; (iv) for the payment of the Option Price upon the exercise of an Option otherwise than in cash, including without limitation by delivery of Shares valued at Fair Market Value on the Date of Exercise of the Option in accordance with the terms of Subsection 8.1 hereof, or a combination of cash and Shares, or for the payment in part of the Option Price with a promissory note in accordance with the terms of Subsection 8.3 hereof; (v) for the automatic issuance of a Reload Option covering a number of Shares equal to the number of any Shares used to pay the Option Price in accordance with the terms of Subsection 8.2 hereof; or (vi) for the right of the Optionee to surrender to the Company an Option (or a portion thereof) that has become exercisable and to receive upon such surrender, without any payment to the Company or a Subsidiary (other than required tax withholding amounts), that number of Shares (equal to the highest whole number of Shares) having an aggregate Fair Market Value as of the date of surrender equal to that number of Shares subject to the Option (or portion thereof) being surrendered multiplied by an amount equal to the excess of (i) the Fair Market Value of a Share on the date of surrender, over (ii) the Option Price, plus an amount of cash equal to the Fair Market Value of any fractional Share to which the Optionee might be entitled. Any such surrender shall be treated as the exercise of the Option (or portion thereof). 4.4. Finality of Committee Determinations: Liability of Members. The determination of the Committee on all matters relating to the Plan or any Agreement shall be final, binding and conclusive. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan, any Agreement or any grant thereunder. 4.5. Periodic Committee Review and Meetings with Management. The Committee shall from time to time review the implementation and results of the Plan to determine the extent to which the Plan's purpose is being accomplished. In addition, the Committee shall periodically meet with senior management of the Company to review their suggestions regarding grants under the Plan, including the individuals who are proposed to receive grants and the amount and terms of such grants; provided, however, that all such grants shall be determined solely by the Committee in its discretion. 4.6. Indemnification of Committee. In addition to such other rights of indemnification as they may have as directors of the Company or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted hereunder, and against all amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, other than for actions involving wilful misfeasance, gross negligence or reckless disregard of the member's duties. 5. Eligibility. Options may be granted only to Outside Directors and Employees, except that (i) Outside Directors are not eligible to receive Options other than pursuant to Section 10 and (ii) neither Jasper B. Sanfilippo, Sr. nor Mathias A. Valentine shall be eligible to receive Options under the Plan. Subject to the provisions of Section 3 and Subsection 6.5 hereof, an Employee or Outside Director who has been granted an Option may be granted additional Options; provided, however, that grants of Nonstatutory Stock Options to Outside Directors are subject to the limitations set forth in Section 10. In selecting the individuals to whom Options shall be granted as well as in determining the number of Shares subject to each Option to be granted, the Committee shall take into consideration such factors as it deems relevant in connection with promoting the purposes of the Plan. 6. Conditions to Grants and Awards. 6.1. General. Subject to the provisions of Sections 5 and 10 hereof, the Committee is hereby authorized to grant Nonstatutory Stock Options to Outside Directors and Employees and Incentive Stock Options to Employees. All Options designated as Incentive Stock Options shall be, in addition to the other provisions of this Plan, subject to the terms and conditions of Subsection 6.4 below. Subject to the provisions of Section 3 hereof, an individual who has been granted an Option may, if such individual is otherwise eligible, be granted additional Options if the Committee shall so determine. Subject to the other provisions of this Plan, the Committee may grant Options with terms and conditions which differ among the Optionees thereof. 6.2. Exercisability. Each Option granted under this Plan shall provide that the Option shall become exercisable in equal installments of 25% of the total number of Shares subject to being purchased thereunder on each of the first, second, third and fourth anniversaries of the Option's Date of Grant; provided, however, that the Optionee remains an Employee (or a director of the Company in the case of a Nonstatutory Stock Option granted to an Outside Director pursuant to Section 10 hereof) on each such anniversary of the Date of Grant. To the extent not set forth in the Plan, the terms and conditions of each grant shall be set forth in an Agreement. 6.3. Grants of Options and Option Price. Subject to the provisions of Section 10, before the grant of any Option, the Committee shall determine the Option Price of the Shares subject to such Option; provided that, except as provided in Subsection 6.4 below with respect to Incentive Stock Options, the Option Price shall not be less than fifty percent (50%) of the Fair Market Value of a Share on the Date of Grant. 6.4. Grants of Incentive Stock Options. Any Option designated as an Incentive Stock Option may be granted only to an Employee and shall: (a) have an Option Price of (i) not less than 100% of the Fair Market Value of a Share on the Date of Grant, or (ii) in the case of an Employee who owns stock (including stock treated as owned under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries (a "Ten Percent Owner"), not less than 110% of the Fair Market Value of a Share on the Date of Grant; (b) have an Option Period of not more than ten (10) years (five (5) years, in the case of a Ten Percent Owner) from the Date of Grant, and shall be subject to earlier termination as herein provided; (c) notwithstanding the provisions relating to termination of employment set forth in Section 14 hereof, not be exercisable more than three (3) months (or one (1) year, in the case of an Optionee who is disabled within the meaning of Section 22(e)(3) of the Code) after termination of employment; (d) not have an aggregate Fair Market Value of Shares (determined for each Incentive Stock Option at the time it is granted) with respect to which Incentive Stock Options are exercisable for the first time by such Optionee during any calendar year (under this Plan and any other employee stock option plan of the Optionee's employer or any parent or 50%- or-more owned subsidiary thereof ("Other Plans")), determined in accordance with the provisions of Section 422 of the Code, which exceeds $100,000 (the "$100,000 Limit"); (e) if the aggregate Fair Market Value of Shares (determined on the Date of Grant) with respect to all Incentive Stock Options previously granted under this Plan and the Other Plans ("Prior Grants") and any Incentive Stock Options under such grant (the "Current Grant") which are exercisable for the first time during any calendar year would exceed the $100,000 Limit, be exercisable as follows: (i) the portion of the Current Grant exercisable for the first time by the Optionee during any calendar year which would be, when added to any portions of any Prior Grants exercisable for the first time by the Optionee during any such calendar year with respect to Shares which would have an aggregate Fair Market Value (determined at the time of each such grant) in excess of the $100,000 Limit shall, notwithstanding the terms of the Current Grant, be exercisable for the first time by the Optionee in the first subsequent calendar year or years in which it could be exercisable for the first time by the Optionee when added to all Prior Grants without exceeding the $100,000 Limit; and (ii) if, viewed as of the date of the Current Grant, any portion of a Current Grant could not be exercised under the provisions of the immediately preceding sentence during any calendar year commencing with the calendar year in which it is first exercisable through and including the last calendar year in which it may by its terms be exercised, such portion of the Current Grant shall not be an Incentive Stock Option, but shall be exercisable as a separate Option at such date or dates as are provided in the Current Grant. (f) be granted within ten (10) years from the earlier of the date the Plan is adopted or the date the Plan is approved by the stockholders of the Company; and (g) require the Optionee to notify the Committee of any disposition of any Shares issued pursuant to the exercise of the Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within ten (10) days of such disposition. 6.5. Code Section 162(m) Compliance for Option Grants. The maximum number of Shares subject to Options which may be awarded to any Optionee in any one calendar year shall not exceed 50,000 Shares. In all events, determinations under the preceding sentence shall be made in a manner which is consistent with Code Section 162 and the regulations promulgated thereunder. 7. Non-transferability. Each Option granted hereunder shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution. During the life of the Optionee, all rights granted to the Optionee under the Plan or under any Agreement shall be exercisable only by the Optionee. 8. Exercise of Options. 8.1. Manner of Exercise and Payment. Subject to the provisions hereof and the provisions of the Agreement under which it was granted, each Option shall be exercised by delivery to the Company's treasurer of written notice of intent to purchase a specific whole number of Shares subject to the Option. The Option Price of any Shares as to which an Option is exercised shall be paid in full at the time of the exercise, unless and to the extent that the Committee agreed in the Agreement in which the Option was granted to accept a promissory note as provided in Subsection 8.3 below. Payment may, at the election of the Optionee, be made in (i) cash, (ii) Shares valued at their Fair Market Value on the Date of Exercise, (iii) surrender of an exercisable Option covering Shares with an aggregate Fair Market Value as of the date of exercise in excess of the aggregate dollar amount of the Option Prices of such Shares under such Option equal to the Option Price of the Options sought to be exercised, (iv) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount in cash equal to the Option Price, (v) any combination of the foregoing, or (vi) in accordance with the terms of the Agreement under which the Options sought to be exercised were granted. In certain circumstances, payment may also be made in accordance with Subsection 8.3 below. 8.2. Reload Option. Pursuant to Subsection 4.3(f)(v) hereof, the Committee may, in its sole discretion, award Reload Options in an amount equal to the number of Shares that could be delivered in payment of the Option Price (as set forth in Subsection 8.1 above) in connection with the exercise of an Option. To the extent required by applicable law, the number of Reload Options available to each Optionee shall be set forth in each grant. The Option Price for any Reload Option shall be the Fair Market Value of a Share on the date that Shares are surrendered in payment of the Option Price. Other terms of the Reload Option shall be the same as the terms contained in the Agreement relating to the Option being exercised, provided that if a Reload Option is granted in connection with the use of Shares to pay the exercise price of an Incentive Stock Option, the Reload Option shall be a Nonstatutory Stock Option. 8.3. Deferred Payment of Option Price. To the extent permitted by applicable law, the Committee may agree in the Agreement in which an Option is granted to accept as partial payment for the Shares a promissory note of the Optionee evidencing his or her obligation to make future cash payment therefor; provided, however, that in no event may the Committee accept a promissory note for an amount in excess of the difference between the aggregate Option Price and the par value of the Shares purchased pursuant to the Option. Promissory notes made pursuant to this Subsection 8.3 shall be payable as determined by the Committee, shall be secured by a pledge of the Shares in respect of the purchase of which the promissory is being delivered and shall bear interest at a rate fixed by the Committee (which rate shall not be lower than a reasonable commercial rate). 9. Accelerated Exercise. Notwithstanding any other provisions of the Plan, all unexercised Options may be exercised or disposed of commencing on the date of a Change of Control, as defined in Section 15 hereof; provided, however, that the Company may cancel all such Options under the Plan as of the date of a Change of Control by giving notice to each Optionee thereof of its intention to do so and by permitting the purchase during the thirty-day period next preceding such effective date of all of the Shares subject to such outstanding Options. 10. Grant of Stock Options to Outside Directors. Each Outside Director shall be eligible to be granted Nonstatutory Stock Options and all such grants shall only be made under and in accordance with the provisions in this Section 10. 10.1. Grant to Outside Directors. Each person who becomes an Outside Director shall be granted on the date such person first becomes elected as an Outside Director, and on each date such person is re-elected as an Outside Director, which in each case shall be the Date of Grant, a Nonstatutory Stock Option to purchase 1,000 Shares at an Option Price equal to the Fair Market Value of such Shares on the Date of Grant. Each such Nonstatutory Stock Option shall provide that it may be exercised no later than ten (10) years following the Date of Grant and that the Nonstatutory Stock Option shall become exercisable in equal installments of 250 Shares on each of the first, second, third and fourth anniversaries of the Date of Grant, provided, however, that the Optionee remains a director of the Company on each such anniversary of the Date of Grant. 10.2. Insufficient Shares Available. If on any date on which Nonstatutory Stock Options are to be granted pursuant to Subsection 10.1 above there is an insufficient number of Shares available pursuant to Section 3 hereof for such grant, the number of Shares subject to each Option granted pursuant to Subsection 10.1 on such date shall equal the number of Shares that otherwise would be subject to such Nonstatutory Stock Options but for such limitation multiplied by a fraction, the numerator of which shall be the total number of Shares then available pursuant to Section 3 for the grant of Nonstatutory Stock Options,. and the denominator of which shall be the aggregate number of Shares that otherwise would be granted pursuant to Subsection 10.1, such product to be rounded down to the nearest whole number. 10.3. Amendments to Section. Notwithstanding Section 24 hereof, the provisions in this Section 10 may not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. 11. Notification under Section 83(b). Provided that the Committee has not prohibited such Optionee from making the following election, if an Optionee shall, in connection with the exercise of any Option, make the election permitted under Section 83(b) of the Code (i e., an election to include in such Optionee's gross income in the year of transfer the amounts specified in Section 83(b) of the Code), such Optionee shall notify the Committee of such election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Section 83(b) of the Code. 12. Withholding Taxes. 12.1. Remittance of Tax as Condition of Delivery. The Company shall be entitled to require as a condition of delivery of Shares hereunder that the Optionee remit an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto. 12.2. Mandatory Withholding on Officers, Directors and Greater Than 10% Stockholders. In the case of an Optionee who is an officer, director or beneficial owner of more than 10% of the Common Stock of the Company (as determined in accordance with Rule 13d-3 under the Exchange Act), whenever under the Plan, Shares are to be delivered, the Company shall withhold an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto. 13. Elective Share Withholding. 13.1. An Optionee, other than an Insider, may, subject to Committee approval, elect the withholding ("Share Withholding") by the Company of a portion of the Shares otherwise deliverable to such Optionee upon his or her exercise of an Option having a Fair Market Value equal to either (a) the amount necessary to satisfy such Optionee's required federal, state or other governmental withholding tax liability with respect thereto, or (b) a greater amount, not to exceed the estimated total amount of such Optionee's tax liability with respect thereto. 13.2. Share Withholding Is Subject to Committee Approval. Share Withholding is subject to Committee approval and each Share Withholding election by an Optionee shall also be subject to the following restrictions: (a) the election must be made prior to the date on which the amount of tax to be withheld is determined; and (b) the election shall be irrevocable. 14. Termination of Employment. 14.1. Forfeiture. Subject to the provisions of Subsection 6.4 hereof with respect to Incentive Stock Options, an unexercised Option shall terminate and/or be forfeited upon the date on which the Optionee thereof is no longer an Employee ("Termination of Employment") if the Termination of Employment was the result of the resignation of the Optionee or the Optionee was terminated For Cause (as defined in Subsection 14.2 below) or otherwise, except that: (a) Death. If the Optionee's Termination of Employment is by reason of his or her death, unexercised Options to the extent exercisable on the date of the Optionee's death, may be exercised, in whole or in part, at any time within one (1) year after the date of death by the Optionee's personal representative or by the person to whom the Options are transferred by will or the applicable laws of descent and distribution. (b) Retirement. If the Optionee's employment is terminated as a result of retirement under the provisions of a retirement plan of the Company or a Subsidiary applicable to the Optionee (or on or after age 60 if no retirement plan of the Company or Subsidiary is applicable to the Optionee), any unexercised Option, to the extent exercisable at the date of such Termination of Employment, may be exercised, in whole or in part, at any time within ninety (90) days after the date of such Termination of Employment; provided that, if the Optionee dies after such Termination of Employment and before the expiration of such 90-day period, unexercised Options held by such deceased Optionee may be exercised by his or her personal representative or by the person to whom the Option is trans- ferred by will or the applicable laws of descent and distribution within one (1) year after the Optionee's Termination of Employment. (c) Permanent Disability. If the Optionee's employment is terminated as a result of his or her Permanent Disability, any unexercised Option, to the extent exercisable at the date of such Termination of Employment, may be exercised, in whole or in part, at any time within one (1) year after the date of such Termination of Employment; provided that, if an Optionee dies after such Termination of Employment and before the expiration of such one (1) year period, the unexercised Options may be exercised by the deceased Optionee's personal representative or by the person to whom the unexercised Options are transferred by will or the applicable laws of descent and distribution within one (1) year after the Optionee's Termination of Employment, or, if later, within 180 days after the Optionee's death. (d) Other Reasons for Termination. If the Optionee has a Termination of Employment for any reason other than by death, retirement, Permanent Disability, resignation or For Cause, any unexercised Option to the extent exercisable on the date of such Termination of Employment, may be exercised, in whole or in part, at any time within three (3) months from the date of such Termination of Employment. 14.2. "For Cause." A Termination of Employment "For Cause" shall mean a Termination of Employment that, in the judgment of the Committee, is the result of (i) the breach by the Employee of any employment agreement, employment arrangement or any other agreement with the Company or a Subsidiary, (ii) the Employee engaging in a business that competes with the Company or a Subsidiary, (iii) the Employee disclosing business secrets, trade secrets or confidential information of the Company or a Subsidiary to any party, (iv) dishonesty, misconduct, fraud or disloyalty by the Employee, (v) misappropriation of corporate funds, or (vi) such other conduct by the Employee of an incompetent, insubordinate, immoral or criminal nature as to have rendered the continued employment of the Employee incompatible with the best interests of the Company and its Subsidiaries. 14.3. Option Term. Any of the provisions herein to the contrary notwithstanding, no Option shall be exercisable beyond the term specified in the related Agreement thereof. 15. Change of Control. 15.1. Definition of "Change of Control." A "Change of Control" occurs if, and as of the first date on which, no shares of Class A Stock remain outstanding. 15.2. Notice of Change of Control. The Company shall notify all Optionees of the occurrence of a Change of Control promptly after its occurrence, but any failure of the Company to notify shall not deprive the Optionees of any rights accruing hereunder by virtue of a Change of Control. 16. Substituted Options. If the Committee cancels, with the consent of an Optionee, any Option granted under the Plan, and a new Option is substituted therefor, then the Committee may, in its discretion, provide that the Date of Grant of the canceled Option shall be the date used to determine the earliest date or dates for exercising the new substituted Option under Subsection 6.2 hereof so that the Optionee may exercise or dispose of the substituted Option at the same time as if the Optionee had held the substituted Option since the Date of Grant of the canceled Option; provided, however, that no Optionee who for purposes of Section 16 of the Exchange Act is treated as an officer, director or 10% stockholder of the Company may dispose of a substituted Option, within less than six months after the Date of Grant (calculated without reference to this Section 16). 17. Securities Law Matters. 17.1. Investment Intent Representation: Restrictive Legend. Where an investment intent representation or restrictive legend is deemed necessary to comply with the Securities Act of 1933, as amended, the Committee may require a written representation to that effect by the Optionee, or may require that such legend be affixed to certificates for Shares at the time the Option is exercised. 17.2. Company's Right to Postpone Exercise. If based upon the opinion of counsel to the Company, the Committee determines that the exercise of any Options would violate any applicable provision of (i) state or federal securities law, (ii) the listing requirements of any securities exchange registered under the Exchange Act on which are listed any of the Company's equity securities, (iii) the listing requirements of the Nasdaq National Market if any of the Company's equity securities are listed thereon, or (iv) the listing requirements of The Nasdaq Small Cap Market if any of the Company's equity securities are listed thereon, then the Committee may postpone any such exercise; provided, however, that the Company shall use its best efforts to cause such exercise to comply with all such provisions at the earliest practicable date; and provided further, that the Committee's authority under this Subsection 17.2 shall expire from and after the date of any Change of Control. 17.3. Rule 16b-3 Compliance. With respect to Insiders, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Board or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board and the Committee. 18. Funding. Benefits payable under the Plan to any person shall be paid directly by the Company. The Company shall not be required to fund, or otherwise segregate assets to be used for payment of, benefits under the Plan. 19. No Employment Rights. Neither the establishment of the Plan, nor the granting of any rights under the Plan, shall be construed to (a) give any Optionee the right to remain employed by the Company, any Subsidiary or any of their affiliates or to any benefits not specifically provided by the Plan, or (b) in any manner modify the right of the Company, any Subsidiary or any of their affiliates to modify, amend or terminate any of its employee benefit plans. 20. Stockholder Rights. An Optionee shall not, by reason of any right granted hereunder, have any right as a stockholder of the Company with respect to the Shares which may be deliverable upon exercise of such Option until such Shares have been delivered to him or her. 21. Nature of Payments. Any and all grants or deliveries of Shares hereunder shall constitute special incentive payments to the Optionee and shall not be taken into account in computing the amount of salary or compensation of the Optionee for the purposes of determining any pension, retirement, death or other benefits under (a) any pension, retirement, profit-sharing, bonus, life insurance or other employee benefit plan of the Company, any Subsidiary or any of their affiliates, or (b) any agreement between the Company, any Subsidiary or any of their affiliates, on the one hand, and the Optionee, on the other hand, except as such plan or agreement shall otherwise expressly provide. 22. Non-Uniform Determinations. Neither the Committee's nor the Board's determinations under the Plan need be uniform and may be made by the Committee or the Board selectively among persons who receive, or are eligible to receive, grants under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Option agreements as to (a) the persons to receive grants under the Plan, (b) the terms and provisions of grants under the Plan, and (c) the treatment, under Section 14 hereof, of leaves of absence. 23. Adjustments. Any Option entered into hereunder may contain such provisions as the Committee shall determine for equitable adjustment of (a) the number of Shares covered thereby, (b) the Option Price, or (c) otherwise, to reflect a stock dividend, stock split, reverse stock split, Share combination, recapitalization, merger, consolidation, asset spin-off, reorganization or similar event, of or by the Company. In any such event, regardless of whether specified in an Agreement, the aggregate number of Shares available under the Plan shall be appropriately adjusted to equitably reflect such event. 24. Amendment of the Plan. Subject to Subsection 10.3 hereof, the Board may make such modifications of the Plan as it shall deem advisable; provided, however, no modifications shall be made which would impair the rights of any Option theretofore granted without the Optionee's consent; and provided further, the Board may not, without further approval of the stockholders of the Company, except as provided in Section 23 above, either: (a) materially increase the number of Shares reserved for issuance under the Plan; (b) materially increase the benefits accruing to participants under the Plan; (c) materially modify the requirements as to eligibility for participation in the Plan; or (d) extend the date of termination of the Plan. 25. Termination of the Plan. The Plan shall terminate on the tenth (10th) anniversary of the Effective Date or at such earlier time as the Board may determine. Any termination, whether in whole or in part, shall not affect any rights then outstanding under the Plan. 26. Controlling Law. The Plan shall be governed, construed and administered in accordance with the laws of the State of Delaware, except its laws with respect to choice of law. 27. Action by the Company. Any action required by the Company under the Plan shall be by resolution of the Board. EX-27 3
5 This schedule contains summary financial information extracted from the John B. Sanfilippo & Son, Inc. Consolidated Statement of Operations for the quarter ended September 24, 1998 and Consolidated Balance Sheet as of September 24, 1998 and is qualified in its entirety by reference to such statements. 1,000 3-MOS JUN-24-1999 SEP-24-1998 549 0 25,125 0 98,282 129,030 137,877 62,520 218,602 77,328 60,523 0 0 93 78,392 218,602 73,829 73,829 62,413 62,413 0 0 2,275 522 235 287 0 0 0 287 0.03 0.03
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