-----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, GPOmHl2GeARdstfejwdXqhWvkpe9syY4IY2n95kzGubp6DNMWjgZzFogkfGuUA41 9Qa4qoYVo1uWdlhR+fzIqg== 0000880117-03-000040.txt : 20030915 0000880117-03-000040.hdr.sgml : 20030915 20030915113730 ACCESSION NUMBER: 0000880117-03-000040 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20030626 FILED AS OF DATE: 20030915 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: 0624 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19681 FILM NUMBER: 03895066 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-K 1 a200310k.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 26, 2003 ------------- [ ] 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, Zip Code) Registrant's telephone number, including area code: (847) 593-2300 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share -------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]. The aggregate market value of the voting Common Stock held by non- affiliates was $50,142,971 as of December 26, 2002 (5,111,414 shares at $9.81 per share). As of September 2, 2003, 5,777,764 shares of the Company's Common Stock, $.01 par value ("Common Stock"), including 117,900 treasury shares, and 3,667,426 shares of the Company's Class A Common Stock, $.01 par value ("Class A Stock"), were outstanding. Documents Incorporated by Reference: - ------------------------------------ Portions of the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held October 29, 2003 are incorporated by reference into Part III of this Report. PART I ------ Item 1 -- Business - ------------------ a. General Development of Business - ---------------------------------- (i) Background ----------------- John B. Sanfilippo & Son, Inc. (the "Company" or "JBSS") was incorporated under the laws of the State of Delaware in 1979 as the successor by merger to an Illinois corporation that was incorporated in 1959. As used herein, unless the context otherwise indicates, the terms "Company" or "JBSS" refer collectively to John B. Sanfilippo & Son, Inc. and its wholly owned subsidiary, JBS International, Inc. References herein to fiscal 2003 are to the fiscal year ended June 26, 2003. References herein to fiscal 2002 are to the fiscal year ended June 27, 2002. References herein to fiscal 2001 are to the fiscal year ended June 28, 2001. The Company is a processor, packager, marketer and distributor of shelled and inshell nuts. These nuts are sold under a variety of private labels and under the Company's Fisher, Evon's, Flavor Tree, Sunshine Country, Texas Pride and Tom Scott brand names. The Company also markets and distributes, and in most cases manufactures or processes, a diverse product line of food and snack items, including peanut butter, candy and confections, natural snacks and trail mixes, sunflower seeds, corn snacks, sesame sticks and other sesame snack products. The Company's headquarters and executive offices are located at 2299 Busse Road, Elk Grove Village, Illinois 60007, and its telephone number for investor relations is (847) 593-2300, extension 6612. b. Narrative Description of Business - ------------------------------------ (i) General -------------- As stated above, the Company is a processor, packager, marketer and distributor of shelled and inshell nuts. The Company also markets and distributes, and, in most cases manufactures or processes, a diverse product line of food and snack items including peanut butter, candy and confections, natural snacks and trail mixes, sunflower seeds, corn snacks, sesame sticks and other sesame snack products. (ii) Principal Products ------------------------- (A) Raw and Processed Nuts ---------------------------- The Company's principal products are raw and processed nuts. These products accounted for approximately 88.6%, 87.1% and 87.5% of the Company's gross sales for fiscal 2003, fiscal 2002 and fiscal 2001, respectively. The nut product line includes peanuts, almonds, Brazil nuts, pecans, pistachios, filberts, cashews, English walnuts, black walnuts, pine nuts and macadamia nuts. The Company's nut products are sold in numerous package styles and sizes, from poly-cellophane packages, composite cans, vacuum packed tins, plastic jars and glass jars for retail sales, to large cases and sacks for bulk sales to industrial, food service and government customers. In addition, the Company offers its nut products in a variety of different styles and seasonings, including natural (with skins), blanched (without skins), oil roasted, dry roasted, unsalted, honey roasted, butter toffee, praline and cinnamon toasted. The Company sells its products domestically to retailers and wholesalers as well as to industrial, food service and government customers. The Company also sells certain of its products to foreign customers in the retail, food service and industrial markets. 2 The Company acquires a substantial portion of its peanut, pecan, almond and walnut requirements directly from domestic growers. The balance of the Company's raw nut supply is purchased from importers and domestic processors. In fiscal 2003, the majority of the Company's peanuts, pecans and walnuts were shelled at the Company's four shelling facilities, and the remaining portion was purchased shelled from processors and growers. See "Raw Materials and Supplies" and Item 2 -- "Properties -- Manufacturing Capability, Technology and Engineering" below. (B) Peanut Butter ------------------- The Company manufactures and markets peanut butter in several sizes and varieties, including creamy, crunchy and natural. Peanut butter accounted for approximately 4.0%, 4.0% and 3.7% of the Company's gross sales for fiscal 2003, fiscal 2002 and fiscal 2001, respectively. (C) Candy and Confections --------------------------- The Company markets and distributes a wide assortment of candy and confections, including such items as wrapped hard candy, gummies, ju-ju's, brand name candies, chocolate peanut butter cups, peanut clusters, pecan patties and sugarless candies. Candy and confections accounted for approximately 1.7%, 2.6% and 2.9% of the Company's gross sales for fiscal 2003, fiscal 2002 and fiscal 2001, respectively. Most of these products are purchased from various candy manufacturers and sold to retailers in bulk or retail packages under private labels or the Evon's brand. (D) Other Products -------------------- The Company also markets and distributes, and in many cases processes and manufactures, a wide assortment of other food and snack products. These products accounted for approximately 5.7%, 6.3% and 5.9% of the Company's gross sales for fiscal 2003, fiscal 2002 and fiscal 2001, respectively. These other products include: natural snacks, trail mixes and chocolate and yogurt coated products sold to retailers and wholesalers; baking ingredients (including chocolate chips, peanut butter chips, flaked coconut and chopped, diced, crushed and sliced nuts) sold to retailers, wholesalers, industrial and food service customers; bulk food products sold to retail and food service customers; an assortment of corn snacks, sunflower seeds, party mixes, sesame sticks and other sesame snack products sold to retail supermarkets, vending companies, mass merchandisers and industrial customers; and a wide variety of toppings for ice cream and yogurt sold to food service customers. (iii) Customers ---------------- The Company sells products to approximately 3,500 retail, industrial, government and food service customers on a national level. Retailers of the Company's products include grocery chains, mass merchandisers and membership clubs. The Company markets many of its products directly to approximately 600 retail stores in Illinois and eight other states through its store-door delivery system discussed below. Wholesale grocery companies purchase products from the Company for resale to regional retail grocery chains and convenience stores. The Company's industrial customers include bakeries, ice cream and candy manufacturers and other food and snack processors. Food service customers include hospitals, schools, universities, airlines, retail and wholesale restaurant businesses and national food service franchises. In addition, the Company packages and distributes products manufactured or processed by others. Sales to Wal-Mart Stores, Inc. accounted for approximately 17% and 16% of the Company's net sales for fiscal 2003 and fiscal 2002, respectively. No single customer accounted for more than 10% of the Company's net sales for fiscal 2001. 3 (iv) Sales, Marketing and Distribution ---------------------------------------- The Company markets its products through its own sales department and through a network of over 200 independent brokers and various independent distributors and suppliers. The Company's sales department of 58 employees includes 20 regional managers, 4 sales specialists and 4 telemarketers. The Company's marketing and promotional campaigns include regional and national trade shows and limited newspaper advertisements, including coupons, done from time to time in cooperation with certain of the Company's retail customers. These programs were designed to bring new users and to increase consumption in the snack and baking nut categories. The Company also designs and manufactures point of purchase displays and bulk food dispensers for use by certain of its retail customers. These displays, and other shelving and pegboard displays purchased by the Company, are installed by Company personnel. The Company believes that controlling the type, style and format of display fixtures benefits the customer and ultimately the Company by presenting the Company's products in a consistent, attractive point of sale presentation. During fiscal 2003, the Company increased its promotion of the Fisher brand in the Chicago area through an integrated marketing campaign using multiple media outlets. The Company distributes its products from its Illinois, Georgia, California, North Carolina and Texas production facilities and from public warehouse and distribution facilities located in various other states. The majority of the Company's products are shipped from the Company's production, warehouse and distribution facilities by contract and common carriers. JBSS distributes its products to approximately 600 convenience stores, supermarkets and other retail customer locations through its store-door delivery system. Under this system, JBSS uses its own fleet of step-vans to market and distribute nuts, snacks and candy directly to retail customers on a store-by-store basis. Presently, the store-door delivery system consists of 22 route salespeople covering routes located in Illinois and other Midwestern states. District and regional route managers, as well as sales and marketing personnel operating out of JBSS's corporate offices, are responsible for monitoring and managing the route salespeople. In the Chicago area, JBSS operates thrift stores at two of its production facilities and at four other retail stores. These stores sell bulk foods and other products produced by JBSS and by other vendors. (v) Competition ------------------ Snack food markets are highly competitive. The Company's nuts and other snack food products compete against products manufactured and sold by numerous other companies in the snack food industry, some of which are substantially larger and have greater resources than the Company. In the nut industry, the Company competes with, among others, Planters, Ralcorp Holdings, Inc. and numerous regional snack food processors. Competitive factors in the Company's markets include price, product quality, customer service, breadth of product line, brand name awareness, method of distribution and sales promotion. See "Forward Looking Statements - -- Factors That May Affect Future Results -- Competitive Environment" below. (vi) Raw Materials and Supplies --------------------------------- The Company purchases nuts from domestic and foreign sources. Most of the Company's peanuts are purchased from the southeastern United States and most of its walnuts and almonds are purchased from California. The Company purchases most of its pecans from the southern United States and Mexico. Cashew nuts are imported from India, Africa, Brazil and Southeast Asia. The availability of nuts is subject to market conditions and crop size fluctuations caused by weather conditions, plant diseases and other factors beyond the Company's control. These fluctuations can adversely impact the Company's profitability. For fiscal 2003, approximately 35% of the Company's nut purchases were from foreign sources. 4 The Company generally purchases and shells peanuts, pecans and walnuts rather than buying shelled nuts from shellers. Due, in part, to the seasonal nature of the industry, the Company maintains significant inventories of peanuts, pecans, walnuts and almonds at certain times of the year, especially in the second and third quarters of the Company's fiscal year. Fluctuations in the market price of peanuts, pecans, walnuts, almonds and other nuts may affect the value of the Company's inventory and thus the Company's gross profit and gross profit margin. See "General", "Fiscal 2003 Compared to Fiscal 2002 -- Gross Profit" and "Fiscal 2002 Compared to Fiscal 2001 -- Gross Profit" under Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company purchases supplies, such as roasting oils, seasonings, glass jars, plastic jars, labels, composite cans and other packaging materials from third parties. The Company sponsors a seed exchange program under which it provides peanut seed to growers in return for a commitment to repay the dollar value of that seed, plus interest, in the form of farmer stock (i.e., peanuts at harvest). Approximately 80% of the farmer stock peanuts purchased by the Company in fiscal 2003 were grown from seed provided by the Company. The Company also contracts for the growing of a limited number of generations of peanut seeds to increase seed quality and maintain desired genetic characteristics of the peanut seed used in processing. The availability and cost of raw materials for the production of the Company's products, including peanuts, pecans, walnuts, almonds, other nuts, dried fruit, coconut and chocolate, are subject to crop size and yield fluctuations caused by factors beyond the Company's control, such as weather conditions and plant diseases. Additionally, the supply of edible nuts and other raw materials used in the Company's products could be reduced upon a determination by the USDA or any 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. (vii) Trademarks and Patents ----------------------------- The Company markets its products primarily under private labels and the Fisher, Evon's, Sunshine Country, Flavor Tree, Texas Pride and Tom Scott brand names, which are registered as trademarks with the U.S. Patent and Trademark Office as well as in various other jurisdictions. The Company also owns several patents of various durations. The Company expects to continue to renew for the foreseeable future those trademarks that are important to the Company's business. (viii) Employees ---------------- As of June 26, 2003, the Company had approximately 1,640 active employees, including approximately 180 corporate staff employees and 1,460 production and distribution employees. The Company's labor requirements typically peak during the last quarter of the calendar year, at which time temporary labor is generally used to supplement the full-time work force. (ix) Seasonality ------------------ The Company's business is seasonal. Demand for peanut and other nut products is highest during the months of October, November and December. Peanuts, pecans, walnuts and almonds, the Company's principal raw materials, are primarily purchased between August and February and are processed throughout the year until the following harvest. As a result of this seasonality, the Company's personnel, working capital requirements and inventories peak during the last four months of the calendar year. See Item 8 -- "Financial Statements and Supplementary Data" and Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General". 5 (x) Backlog -------------- Because the time between order and shipment is usually less than three weeks, the Company believes that backlog as of a particular date is not indicative of annual sales. (xi) 2002 Farm Bill --------------------- The Farm Security and Rural Investment Act of 2002 (the "2002 Farm Bill") terminated the federal peanut quota program beginning with the 2002 crop year. The 2002 Farm Bill replaced the federal peanut quota program with a fixed payment system through the 2007 crop year that can be either coupled or decoupled. A coupled system is tied to the actual amount of production, while a decoupled system is not. The series of loans and subsidies established by the 2002 Farm Bill is similar to the systems used for other crops such as grains and cotton. To compensate farmers for the elimination of the peanut quota, the 2002 Farm Bill provides a buy-out at a specified rate for each pound of peanuts that had been in that farmer's quota under the prior program. Additionally, among other provisions, the Secretary of Agriculture may make certain counter- cyclical payments whenever the Secretary believes that the effective price for peanuts is less than the target price. The termination of the federal peanut quota program has resulted in a decrease in the Company's cost for peanuts. Selling prices have not been adversely affected in a material manner during fiscal 2003, resulting in a favorable impact on the Company's gross profit and gross profit margin. There are no assurances that selling prices for peanuts will not be adversely affected in the future or that the termination of the federal peanut quota program will not have an adverse effect on the Company's business (xii) Operating Hazards and Uninsured Risks -------------------------------------------- The sale of food products for human consumption involves the risk of injury to consumers as a result of product contamination or spoilage, including the presence of foreign objects, substances, chemicals, aflatoxin and other agents, or residues introduced during the growing, storage, handling or transportation phases. Although the Company maintains rigid quality control standards, inspects its products by visual examination, metal detectors or electronic monitors at various stages of its shelling and processing operations for all of its nut and other food products, permits the USDA to inspect all lots of peanuts shipped to and from the Company's production facilities, and complies with the Nutrition Labeling and Education Act by labeling each product that it sells with labels that disclose the nutritional value and content of each of the Company's products, no assurance can be given that some nut or other food products sold by the Company may not contain or develop harmful substances. The Company currently maintains product liability insurance of $1 million per occurrence and umbrella coverage of up to $50 million which management and the Company's insurance carriers believe to be adequate. Item 2 -- Properties - -------------------- The Company presently owns or leases seven principal production facilities. Two of these facilities are located in Elk Grove Village, Illinois. The first Elk Grove Village facility, the Busse Road facility, serves as the Company's corporate headquarters and main production facility. The other Elk Grove Village facility is located on Arthur Avenue adjacent to the Busse Road facility. The remaining principal production facilities are located in Bainbridge, Georgia; Garysburg, North Carolina; Selma, Texas; Gustine, California; and Arlington Heights, Illinois. The Company also leases warehousing facilities in Des Plaines, Illinois and Elk Grove Village, Illinois. The Company also presently operates thrift stores out of the Busse Road facility and the Des Plaines facility, and owns one retail store and leases three additional retail stores in various Chicago suburbs. In addition, the Company leases space in public warehouse facilities in various states. The Company believes that its facilities are generally well maintained and in good operating condition. 6 a. Principal Facilities - ----------------------- The following table provides certain information regarding the Company's principal facilities:
Date Company Constructed, Type Acquired or Square of Description of First Location Footage Interest Principal Use Occupied - ------------------------------ ------- -------- ------------------ ------------ Elk Grove Village, Illinois(1) 300,000 Leased/ Processing, 1981 (Busse Road facility) Owned packaging, warehousing, distribution, JBSS corporate offices and thrift store Elk Grove Village, Illinois 83,000 Owned Processing, 1989 (Arthur Avenue facility) packaging, warehousing and distribution Des Plaines, Illinois(2) 68,000 Leased Warehousing and 1974 thrift store Bainbridge, Georgia(3) 245,000 Owned Peanut shelling, 1987 purchasing, processing, packaging, warehousing and distribution Garysburg, North Carolina 160,000 Owned Peanut shelling, 1994 purchasing, processing, packaging, warehousing and distribution Selma, Texas 265,000 Owned Pecan shelling, 1992 processing, packaging, warehousing and distribution Gustine, California 215,000 Owned Walnut shelling, 1993 processing, packaging, warehousing and distribution Arlington Heights, Illinois(4) 83,000 Owned Processing, 1994 packaging, warehousing and distribution Elk Grove Village, Illinois(5) 230,000 Leased Warehousing and 2003 (2400 Arthur facility) distribution
7 (1) Approximately 240,000 square feet of the Busse Road facility is leased from the Busse Land Trust under a lease that expires on May 31, 2015. Under the terms of the lease, the Company has a right of first refusal and a right of first offer with respect to this portion of the Busse Road facility. The remaining 60,000 square feet of space at the Busse Road facility (the "Addition") was constructed by the Company in 1994 on property owned by the Busse Land Trust and on property owned by the Company. Accordingly, (i) the Company and the Busse Land Trust entered into a ground lease with a term beginning January 1, 1995 pursuant to which the Company leases from the Busse Land Trust the land on which a portion of the Addition is situated (the "Busse Addition Property"), and (ii) the Company, the Busse Land Trust and the sole beneficiary of the Busse Land Trust entered into a party wall agreement effective as of January 1, 1995, which sets forth the respective rights and obligations of the Company and the Busse Land Trust with respect to the common wall which separates the existing Busse Road facility and the Addition. The ground lease has a term that expires on May 31, 2015 (the same date on which the Company's lease for the Busse Road facility expires). The Company has an option to extend the term of the ground lease for one five-year term, an option to purchase the Busse Addition Property at its then appraised fair market value at any time during the term of the ground lease, and a right of first refusal with respect to the Busse Addition Property. See "Compensation Committee Interlocks, Insider Participation and Certain Transactions -- Lease Arrangements" contained in the Company's Proxy Statement for the 2003 Annual Meeting. (2) The Des Plaines facility is leased under a lease that expires on October 31, 2010. The Des Plaines facility is also subject to a mortgage securing a loan from an unrelated third party lender to the related party lessor in the original principal amount of approximately $1.6 million. The rights of the Company under the lease are subject and subordinate to the rights of the lender. Accordingly, a default by the lessor under the loan could result in foreclosure on the facility and thereby adversely affect the Company's leasehold interest. See "Compensation Committee Interlocks, Insider Participation and Certain Transactions -- Lease Arrangements" contained in the Company's Proxy Statement for the 2003 Annual Meeting. (3) The Bainbridge facility is subject to a mortgage and deed of trust securing $6.75 million (excluding accrued and unpaid interest) in industrial development bonds. See Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources". (4) The Arlington Heights facility is subject to a mortgage dated September 27, 1995 securing a loan of $2.5 million with a maturity date of October 1, 2015. (5) The 2400 Arthur facility is leased under a lease that expires on March 31, 2008. b. Manufacturing Capability, Utilization, Technology and Engineering - -------------------------------------------------------------------- The Company's principal production facilities are equipped with modern processing and packaging machinery and equipment. The physical structure and the layout of the production line at the Busse Road facility were designed so that peanuts and other nuts can be processed, jarred and packed in cases for distribution on a completely automated basis. The facility also has production lines for chocolate chips, candies, peanut butter and other products processed or packaged by the Company. This processing facility is well utilized. The Selma facility contains the Company's automated pecan shelling and bulk packaging operation. The facility's pecan shelling production lines currently have the capacity to shell in excess of 65 million inshell pounds of pecans annually. For fiscal 2003, the Company processed approximately 64 million inshell pounds of pecans at the Selma, Texas facility. The Selma facility is well utilized. The Bainbridge facility is located in the largest peanut producing region in the United States. This facility takes direct delivery of farmer stock peanuts and cleans, shells, sizes, inspects, blanches, roasts and packages them for sale to the Company's customers. The production line at the Bainbridge facility is almost entirely automated and has the capacity to shell approximately 8 120 million inshell pounds of peanuts annually. During fiscal 2003, the Bainbridge facility shelled approximately 84 million inshell pounds of peanuts. The Garysburg facility has the capacity to process approximately 70 million inshell pounds of farmer stock peanuts annually. For fiscal 2003, the Garysburg facility processed approximately 15 million pounds of inshell peanuts. The Gustine facility is used for walnut shelling, walnut and almond processing and marketing operations. This facility has the capacity to shell approximately 50 million inshell pounds of walnuts annually. For fiscal 2003, the Gustine facility shelled approximately 42 million inshell pounds of walnuts. The Gustine facility has the capacity to process in excess of 70 million pounds of almonds annually. For fiscal 2003, the Gustine facility processed approximately 25 million pounds of almonds. The Arlington Heights facility is used for the production and packaging the majority of the Company's Fisher Nut products, the "stand-up pouch" packaging for its Flavor Tree brand products and for the production and packaging of the Company's sunflower meats. The Arlington Heights facility is well utilized. The Company is currently exploring the possible consolidation of certain of its facilities into a single location through the construction of a new production facility. See Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Capital Expenditures and -- Capital Resources". Item 3 -- Legal Proceedings - --------------------------- On June 17, 2003, the Company received a subpoena for the production of documents and records from the Antitrust Division of the U.S. Department of Justice in connection with an antitrust investigation of the peanut shelling industry. The Company expects to cooperate fully in the investigation. There can be no assurances as to the impact of the investigation on the peanut shelling industry or that the investigation will not have a material adverse effect on the Company. The Company is party to various lawsuits, proceedings and other matters arising out of the conduct of its business. Currently, it is management's opinion that the ultimate resolution of these matters will not have a material adverse effect upon the business, financial condition or results of operations of the Company. Item 4 -- Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- No matter was submitted during the fourth quarter of fiscal 2003 to a vote of security holders, through solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G (3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, the following information is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the Company's annual meeting of stockholders to be held on October 29, 2003: JASPER B. SANFILIPPO, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, age 72 -- Mr. Sanfilippo has been employed by the Company since 1953. Mr. Sanfilippo served as the Company's President from 1982 to December 1995 and was the Company's Treasurer from 1959 to October 1991. He became the Company's Chairman of the Board and Chief Executive Officer in October 1991 and has been a member of the Company's Board of Directors since 1959. Mr. Sanfilippo is also a member of the Company's Compensation Committee and was a member of the Stock Option Committee until February 27, 1997 (when that Committee was disbanded). 9 MATHIAS A. VALENTINE, PRESIDENT, age 70 -- Mr. Valentine has been employed by the Company since 1960 and was named its President in December 1995. He served as the Company's Secretary from 1969 to December 1995, as its Executive Vice President from 1987 to October 1991 and as its Senior Executive Vice President and Treasurer from October 1991 to December 1995. He has been a member of the Company's Board of Directors since 1969. Mr. Valentine is also a member of the Company's Compensation Committee and was a member of the Stock Option Committee until February 27, 1997 (when that Committee was disbanded). MICHAEL J. VALENTINE, EXECUTIVE VICE PRESIDENT FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY, age 44 -- Mr. Valentine has been employed by the Company since 1987 and in January 2001 was named its Executive Vice President Finance, Chief Financial Officer and Secretary. Mr. Valentine served as the Company's Senior Vice President and Secretary from August 1999 to January 2001. Mr. Valentine was elected as a director of the Company in April 1997. Mr. Valentine served as the Company's Vice President and Secretary from December 1995 to August 1999. He served as an Assistant Secretary and the General Manager of External Operations for the Company from June 1987 and 1990, respectively, to December 1995. Mr. Valentine's responsibilities also include the Company's peanut operations, including sales and procurement. JEFFREY T. SANFILIPPO, EXECUTIVE VICE PRESIDENT SALES AND MARKETING, age 40 -- Mr. Sanfilippo has been employed by the Company since 1991 and in January 2001 was named its Executive Vice President Sales and Marketing. Mr. Sanfilippo served as the Company's Senior Vice President Sales and Marketing from August 1999 to January 2001. Mr. Sanfilippo was named as a director of the Company in August 1999. He served as General Manager West Coast Operations from September 1991 to September 1993. He served as Vice President West Coast Operations and Sales from October 1993 to September 1995. He served as Vice President Sales and Marketing from October 1995 to August 1999. JASPER B. SANFILIPPO, JR., EXECUTIVE VICE PRESIDENT OF OPERATIONS AND ASSISTANT SECRETARY, age 35 -- Mr. Sanfilippo has been employed by the Company since 1991 and in August 2001 was named Executive Vice President of Operations and Assistant Secretary. He has served as an Assistant Secretary of the Company since 1993. Mr. Sanfilippo served as a Senior Vice President from August 1999 to August 2001. Mr. Sanfilippo served as a Vice President from December 1995 to August 1999. He served as General Manager of the Walnut Processing Division from 1993 to December 1995. Mr. Sanfilippo is responsible for the Company's non-peanut shelling operations, including plant operations and procurement. JAMES A. VALENTINE, EXECUTIVE VICE PRESIDENT INFORMATION TECHNOLOGY, age 39 -- Mr. Valentine has been employed by the Company since 1986 and in August 2001 was named Executive Vice President Information Technology. Mr. Valentine served as Senior Vice President Information Technology from January 2000 to August 2001. JAMES M. BARKER, SENIOR VICE PRESIDENT SALES AND MARKETING, age 38 - -- Mr. Barker has been employed by the Company since 1996 and in March 2001 was named Senior Vice President Sales and Marketing. He served as Vice President of Sales and Marketing from December 1998 to March 2001, Vice President of Marketing from December 1996 to December 1998 and Director of Marketing from January 1996 to December 1996. WILLIAM R. POKRAJAC, VICE PRESIDENT OF FINANCE, age 49 -- Mr. Pokrajac has been with the Company since 1985 and was named Vice President of Finance and Controller in August 2001. He served as the Company's Controller from 1987 to August 2003. Mr. Pokrajac is responsible for the Company's accounting and inventory control functions. WALTER R. TANKERSLEY, JR., SENIOR VICE PRESIDENT INDUSTRIAL SALES, age 52 -- Mr. Tankersley has been with the Company since 2002 and was named Senior Vice President in August 2003. He was previously Director of Industrial Sales at Mauna Loa Macadamia Co. from September 2000 to December 2001 and Vice President of Sales and Marketing with the Young Pecan Company from November 1992 to August 2000. 10 EVERARDO SORIA, SENIOR VICE PRESIDENT PECAN OPERATIONS AND PROCUREMENT, age 46 -- Mr. Soria has been with the Company since 1985 and was named Senior Vice President Pecan Operations and Procurement in August 2003. Mr. Soria is responsible for the procurement of pecans and for the shelling of pecans at the Company's Selma, Texas facility. HERBERT J. MARROS, CONTROLLER, age 45 -- Mr. Marros has been with the Company since 1995 and was named Controller in August 2003. Mr. Marros is responsible for the Company's financial reporting. CERTAIN RELATIONSHIPS AMONG DIRECTORS AND EXECUTIVE OFFICERS Jasper B. Sanfilippo, Chairman of the Board and Chief Executive Officer and a director of the Company, is (i) the father of Jasper B. Sanfilippo, Jr., an executive officer of the Company and Jeffrey T. Sanfilippo, an executive officer and a director of the Company, as indicated above, (ii) the brother-in-law of Mathias A. Valentine, President and a director of the Company, and (iii) the uncle of Michael J. Valentine who is an executive officer and a director of the Company and James A. Valentine, an executive officer of the Company, as indicated above. Mathias A. Valentine, President and a director of the Company, is (i) the brother-in-law of Jasper B. Sanfilippo, (ii) the uncle of Jasper B. Sanfilippo, Jr. and Jeffrey T. Sanfilippo, and (iii) the father of Michael J. Valentine and James A. Valentine. Michael J. Valentine, Executive Vice President, Chief Financial Officer and Secretary and a director of the Company, is (i) the son of Mathias A. Valentine, (ii) the brother of James A. Valentine, (iii) the nephew of Jasper B. Sanfilippo, and (iv) the cousin of Jasper B. Sanfilippo, Jr. and Jeffrey T. Sanfilippo. Jeffrey T. Sanfilippo, Executive Vice President Sales and Marketing and a director of the Company, is (i) the son of Jasper B. Sanfilippo, (ii) the brother of Jasper B. Sanfilippo Jr., (iii) the nephew of Mathias A Valentine, and (iv) the cousin of Michael J. Valentine and James A. Valentine. 11 PART II ------- Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------- The Company has two classes of stock: Class A Common Stock ("Class A Stock") and Common Stock. The holders of Common Stock are entitled to elect 25% of the members of the Board of Directors and the holders of Class A Stock are entitled to elect the remaining directors. With respect to matters other than the election of directors or any matters for which class voting is required by law, the holders of Common Stock are entitled to one vote per share while the holders of Class A Stock are entitled to ten votes per share. The Company's Class A Stock is not registered under the Securities Act of 1933 and there is no established public trading market for the Class A Stock. However, each share of Class A Stock is convertible at the option of the holder at any time and from time to time (and, upon the occurrence of certain events specified in the Company's Restated Certificate of Incorporation, automatically converts) into one share of Common Stock. The Common Stock of the Company is quoted on the NASDAQ National Market and its trading symbol is "JBSS". The following tables set forth, for the quarters indicated, the high and low reported last sales prices for the Common Stock as reported on the NASDAQ national market. Price Range of Common Stock -------------- Year Ended June 26, 2003 High Low ------------------------ ------ ------ 4th Quarter $19.40 $13.83 3rd Quarter $14.23 $ 9.80 2nd Quarter $ 9.81 $ 6.55 1st Quarter $ 6.99 $ 5.70 Price Range of Common Stock -------------- Year Ended June 27, 2002 High Low ------------------------ ------ ------ 4th Quarter $ 7.16 $ 6.00 3rd Quarter $ 6.40 $ 5.05 2nd Quarter $ 6.73 $ 4.90 1st Quarter $ 6.68 $ 4.75 As of September 2, 2003, there were approximately 1,200 holders and 15 holders of record of the Company's Common Stock and Class A Stock, respectively. Under the Company's Restated Certificate of Incorporation, the Class A Stock and the Common Stock are entitled to share equally on a share for share basis in any dividends declared by the Board of Directors on the Company's common equity. No dividends were declared from 1995 through 2003. The declaration and payment of future dividends will be at the sole discretion of the Board of Directors and will depend on the Company's profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. The Company's current loan agreements restrict the payment of annual dividends to amounts specified in the loan agreements. See Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations --Liquidity and Capital Resources." For purposes of the calculation of the aggregate market value of the Company's voting stock held by nonaffiliates of the Company as set forth on the cover page of this Report, the Company did not consider any of the siblings of Jasper B. Sanfilippo, or any of the lineal descendants (all of whom are adults and some of whom 12 are employed by the Company) of either Jasper B. Sanfilippo, Mathias A. Valentine or such siblings (other than those who are executive officers of the Company) as an affiliate of the Company. See "Compensation Committee Interlocks, Insider Participation and Certain Transactions" and "Security Ownership of Certain Beneficial Owners and Management" contained in the Company's Proxy Statement for the 2003 Annual Meeting and "Executive Officers of the Registrant -- Certain Relationships Among Directors and Executive Officers" appearing immediately after Part I of this Report. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table summarizes the Company's equity compensation plans as of June 26, 2003:
Number of securities remaining available for future issuance under equity Number of compensation plans securities to be Weighted average (excluding issued upon exercise price of securities reflected exercise of options outstanding options in the first column) ------------------- ------------------- -------------------- Equity compensation plans approved by stockholders 246,375 $6.27 389,000 Equity compensation plans not approved by stockholders 5,200 $9.43 -- ------- ------- Total 251,575 $6.34 389,000 ======= =======
For more information concerning the equity compensation plan not approved by stockholders (the 1991 Stock Option Plan), see Note 10 of the Notes to Consolidated Financial Statements. Item 6 -- Selected Financial Data - --------------------------------- The following historical consolidated financial data as of and for the years ended June 26, 2003, June 27, 2002, June 28, 2001, June 29, 2000 and June 24, 1999 were derived from the Company's audited consolidated financial statements. The financial data should be read in conjunction with the Company's audited consolidated financial statements and notes thereto, which are included elsewhere herein, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The information below is not necessarily indicative of the results of future operations. No dividends were declared from 1995 to 2003. 13 Statement of Operations Data: ($ in thousands, except per share data)
Year Ended ---------------------------------------------------- June 26, June 27, June 28, June 29, June 24, 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- Net sales $408,534 $343,245 $334,878 $320,926 $308,216 Cost of sales 347,041 294,931 283,278 272,025 268,333 -------- -------- -------- -------- -------- Gross profit 61,493 48,314 51,600 48,901 39,883 Selling and administrative expenses 32,664 30,412 31,199 30,304 27,955 -------- -------- -------- -------- -------- Income from operations 28,829 17,902 20,401 18,597 11,928 Interest expense 4,681 5,757 8,365 8,036 9,269 Other income 486 590 622 701 510 -------- -------- -------- -------- -------- Income before income taxes 24,634 12,735 12,658 11,262 3,169 Income tax expense 9,607 5,044 5,063 4,505 1,373 -------- -------- -------- -------- -------- Net income $ 15,027 $ 7,691 $ 7,595 $ 6,757 $ 1,796 ======== ======== ======== ======== ======== Basic earnings per common share $ 1.63 $ 0.84 $ 0.83 $ 0.74 $ 0.20 Diluted earnings per common share $ 1.61 $ 0.84 $ 0.83 $ 0.74 $ 0.20
Balance Sheet Data: ($ in thousands) June 26, June 27, June 28, June 29, June 24, 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- Working capital $ 75,182 $ 67,645 $ 55,055 $ 60,168 $ 53,515 Total assets 223,727 206,815 211,007 217,031 207,331 Long-term debt, less current maturities 29,640 40,421 39,109 51,779 57,508 Total debt 70,118 69,623 89,307 99,355 99,591 Stockholders' equity 118,781 102,060 94,346 86,751 79,994 Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations - ----------------------------------------------------------- GENERAL - ------- The Company's fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen week quarters). References herein to fiscal 2003 are to the fiscal year ended June 26, 2003. References herein to fiscal 2002 are to the fiscal year ended June 27, 2002. References herein to fiscal 2001 are to the fiscal year ended June 28, 2001. As used herein, unless the context otherwise indicates, the terms "Company" and "JBSS" refer collectively to John B. Sanfilippo & Son, Inc. and its wholly owned subsidiary, JBS International, Inc. The Company's business is seasonal. Demand for peanut and other nut products is highest during the months of October, November and 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 14 thus the Company's profitability. There can be no assurance that future write-downs of the Company's inventory may not be required from time to time because of market price fluctuations, competitive pricing pressures, the effects of various laws or regulations or other factors. See "Forward Looking Statements -- Factors That May Affect Future Results -- Availability of Raw Materials and Market Price Fluctuations". At June 26, 2003, the Company's inventories totaled approximately $112.0 million compared to approximately $99.5 million at June 27, 2002. The increase in inventories at June 26, 2003 when compared to June 27, 2002 is primarily due to (i) an increase in finished goods to support the increase in sales volume, (ii) an increase in the quantity of almonds on hand due to higher purchases during fiscal 2003 than fiscal 2002, and (iii) an increase in the purchase price of pecans. These increases in inventories were partially offset by decreases in inshell peanuts on hand due to a smaller domestic crop in fiscal 2003. See "Forward Looking Statements -- Factors That May Affect Future Results -- Availability of Raw Materials and Market Price Fluctuations." To enhance consumer awareness of dietary issues associated with the consumption of peanuts and other nut products, the Company has taken steps to educate consumers about the benefits of nut consumption. Also, there have been various medical studies detailing the healthy attributes of nuts and the Mediterranean Diet Pyramid promotes the daily consumption of nuts as part of a healthy diet. The Company has no experience or data that indicates that the growth in the number of health conscious consumers will cause a change in nut consumption. Also, over the last few years there has been some publicity concerning allergic reactions to peanuts and other nuts. However, the Company has no experience or data that indicates peanut and other nut related allergies have affected the Company's business. Furthermore, the Company does not presently believe that nut related allergies will have a material adverse affect on the Company's financial results in the foreseeable future. CRITICAL ACCOUNTING POLICIES - ---------------------------- The accounting policies as disclosed in the Notes to Consolidated Financial Statements are applied in the preparation of the Company's financial statements and accounting for the underlying transactions and balances. The policies discussed below are considered by management to be critical for an understanding of the Company's financial statements because the application of these policies places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks, if applicable, for these critical accounting policies are described in the following paragraphs. For a detailed discussion on the application of these and other accounting policies, see Note 1 of the Notes to Consolidated Financial Statements. Preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Accounts Receivable - ------------------- Accounts receivable are stated at the amounts charged to customers, less: (i) an allowance for doubtful accounts; (ii) a reserve for estimated cash discounts; and (iii) a reserve for customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks. The reserve for estimated cash discounts is estimated using historical payment patterns. The reserve for customer deductions represents an estimate of future credit memos that will be issued to customers and is based on historical experience. Inventories - ----------- Inventories are stated at the lower of cost (first-in, first-out) or market. Fluctuations in the market price of peanuts, pecans, walnuts, almonds and other nuts may affect the value of the Company's inventory and thus the Company's gross profit and gross profit margin. If market prices were to move below cost, the Company would record adjustments to write down the carrying values of inventories to fair market value. 15 Customer Incentives - ------------------- The ability to sell to certain retail customers often requires upfront payments by the Company. Such payments are made pursuant to contracts that usually stipulate the term of the agreement, the quantity and type of products to be sold and any exclusivity requirements. The cost of these payments is initially recorded as an asset and is amortized on a straight-line basis over the term of the contract as a reduction in revenues. Related Party Transactions - -------------------------- As discussed in Note 7 and Note 9 of the Notes to Consolidated Financial Statements, the Company leases space from related parties and transacts with other related parties in the normal course of business. These related party transactions are conducted on an arm's-length basis. RESULTS OF OPERATIONS - --------------------- The following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2002 to fiscal 2003 and from fiscal 2001 to fiscal 2002.
Percentage of Net Sales Percentage Increase(Decrease) ------------------------------------ ------------------------------------------ Fiscal 2003 Fiscal 2002 Fiscal 2001 Fiscal 2003 vs. 2002 Fiscal 2002 vs. 2001 ----------- ----------- ----------- -------------------- -------------------- Net sales 100.0% 100.0% 100.0% 19.0% 2.5% Gross profit 15.1 14.1 15.4 27.3 (6.4) Selling expenses 5.4 6.1 6.6 4.9 (5.4) Administrative expenses 2.6 2.7 2.7 13.1 4.7 Income from operations 7.1 5.2 6.1 61.0 (12.2)
Fiscal 2003 Compared to Fiscal 2002 - ----------------------------------- Net Sales. Net sales increased from approximately $343.2 million for fiscal 2002 to approximately $408.5 million for fiscal 2003, an increase of approximately $65.3 million or 19.0%. The increase in net sales was due primarily to higher unit volume sales to the Company's retail, export and industrial customers. The increase in net sales to retail customers was due primarily to an increase in private label business through the addition of new customers and the expansion of business to existing customers. The increase in net sales to export customers is due primarily to higher almond sales to the Asian market and increased snack nut sales to the Canadian market. The increase in sales to industrial customers is due primarily to the increased usage of nuts as ingredients in food products. The Company believes that a portion of the overall increase in net sales is attributable to the growing awareness of the health benefits of nuts in the daily diet. The following table shows an annual comparison of sales by distribution channel, as a percentage of total sales: Year Ended ----------------------------- Distribution Channel June 26, 2003 June 27, 2002 -------------------- ------------- ------------- Consumer 56.2% 56.5% Industrial 20.8 20.7 Food Service 8.8 10.8 Contract Packaging 6.4 6.6 Export 7.8 5.4 ----- ----- Total 100.0% 100.0% ===== ===== 16 The following table shows an annual comparison of sales by product type, as a percentage of total sales: Year Ended ----------------------------- Product Type June 26, 2003 June 27, 2002 -------------------- ------------- ------------- Peanuts 25.3% 27.8% Pecans 17.7 18.8 Cashews & Mixed Nuts 24.1 21.4 Walnuts 10.9 11.7 Almonds 10.1 7.7 Other 11.9 12.6 ----- ----- Total 100.0% 100.0% ===== ===== Gross Profit. Gross profit in fiscal 2003 increased 27.3% to approximately $61.5 million from approximately $48.3 million for fiscal 2002. Gross profit margin increased from 14.1% for fiscal 2002 to 15.1% for fiscal 2003. The increase in gross profit margin was due primarily to: (i) the increase in unit volume as certain costs of sales are of a fixed nature, (ii) changes in the sales mix, and (iii) generally lower commodity costs, especially for peanuts which were directly impacted by the 2002 Farm Bill. Selling and Administrative Expenses. Selling and administrative expenses as a percentage of net sales decreased from 8.9% for fiscal 2002 to 8.0% for fiscal 2003. Selling expenses as a percentage of net sales decreased from 6.1% for fiscal 2002 to 5.4% for fiscal 2003. This decrease was due primarily to: (i) continuous efforts to control expenses and (ii) the fixed nature of certain of these expenses relative to a larger revenue base. Administrative expenses as a percentage of net sales decreased from 2.7% for fiscal 2002 to 2.6% for fiscal 2003. This decrease was due primarily to the fixed nature of these expenses over a larger revenue base. Administrative expenses, in gross dollars, increased from approximately $9.4 million in fiscal 2002 to approximately $10.6 million in fiscal 2003, an increase of approximately $1.2 million, or 13.1%. This increase is due primarily to higher incentive compensation expenses due to improved operating results. Income from Operations. Due to the factors discussed above, income from operations increased from approximately $17.9 million, or 5.2% of net sales, for fiscal 2002 to approximately $28.8 million, or 7.1% of net sales, for fiscal 2003. Interest Expense. Interest expense decreased from approximately $5.8 million for fiscal 2002 to approximately $4.7 million for fiscal 2003. The decrease in interest expense was due primarily to: (i) lower average levels of borrowings and (ii) lower interest rates associated with the Bank Credit Facility, as defined below. Income Taxes. Income tax expense was approximately $9.6 million, or 39.0% of income before income taxes, for fiscal 2003, compared to approximately $5.0 million, or 39.6% of income before income taxes, for fiscal 2002. Fiscal 2002 Compared to Fiscal 2001 - ----------------------------------- Net Sales. Net sales increased from approximately $334.9 million for fiscal 2001 to approximately $343.2 million for fiscal 2002, an increase of approximately $8.4 million or 2.5%. The increase in net sales was due primarily to higher unit volume sales to the Company's retail and contract packaging customers, partially offset by lower unit volume sales to the Company's industrial customers during the first half of fiscal 2002. The increase in sales to retail customers was due primarily to increased sales of private label products. The decrease in sales to industrial customers was due primarily to high sales of pecans during the first half of fiscal 2001. The increase in net sales was accomplished despite lower average selling prices during the last half of fiscal 2002, due to lower commodity costs for pecans, cashews and almonds. 17 Gross Profit. Gross profit in fiscal 2002 decreased 6.4% to approximately $48.3 million from approximately $51.6 million for fiscal 2001. Gross profit margin decreased from 15.4% for fiscal 2001 to 14.1% for fiscal 2002. The decrease in gross profit margin was due primarily to: (i) a decrease in gross profit margin on sales to industrial customers, (ii) an increase in private label sales to retail customers, which sales generally carry lower gross profit margins than sales of branded products and (iii) an increase in sales to contract packaging customers, which sales generally carry lower margins than sales to the Company's other customers. Selling and Administrative Expenses. Selling and administrative expenses as a percentage of net sales decreased from 9.3% for fiscal 2001 to 8.9% for fiscal 2002. Selling expenses as a percentage of net sales decreased from 6.6% for fiscal 2001 to 6.1% for fiscal 2002. This decrease was due primarily to the fixed nature of these expenses relative to a larger revenue base and the Company's efforts to control costs. Administrative expenses as a percentage of net sales were 2.7% for both fiscal 2002 and fiscal 2001. Income from Operations. Due to the factors discussed above, income from operations decreased from approximately $20.4 million, or 6.1% of net sales, for fiscal 2001 to approximately $17.9 million, or 5.2% of net sales, for fiscal 2002. Interest Expense. Interest expense decreased from approximately $8.4 million for fiscal 2001 to approximately $5.8 million for fiscal 2002. The decrease in interest expense was due primarily to: (i) lower average levels of borrowings due to lower average levels of inventories and (ii) lower interest rates associated with the Bank Credit Facility, as defined below. Income Taxes. Income tax expense was approximately $5.0 million, or 39.6% of income before income taxes, for fiscal 2002, compared to approximately $5.1 million, or 40.0% of income before income taxes, for fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- General - ------- During fiscal 2003, the Company continued to finance its activities through the combination of a bank revolving credit facility entered into on March 31, 1998 and last amended on May 30, 2003 (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 $7.4 million for fiscal 2003 compared to approximately $24.4 million for fiscal 2002. The decrease in cash provided by operating activities for fiscal 2003 when compared to fiscal 2002 was due largely to an increase in inventories of approximately $12.5 million that occurred primarily as a result of (i) purchasing a significantly greater quantity of almonds in fiscal 2003, and (ii) an increase in the purchase price of pecans in fiscal 2003. The largest component of net cash used in investing activities during fiscal 2003 was approximately $7.9 million in capital expenditures, compared to approximately $4.6 million during fiscal 2002. This increase in capital expenditures was due primarily to the expansion of processing capacities and capabilities at the Company's Gustine, California facility. Notes payable increased to approximately $29.7 million at June 26, 2003 from approximately $23.5 million at June 27, 2002, due primarily to the increase in the purchase of inventories. During both fiscal 2003 and fiscal 2002, the Company repaid approximately $5.7 million of long-term debt. Financing Arrangements - ---------------------- The Bank Credit Facility is comprised of (i) a working capital revolving loan which provides working capital financing of up to approximately $73.1 million, in the aggregate, and matures, 18 as amended, on May 31, 2006, and (ii) a $6.9 million letter of credit (the "IDB Letter of Credit") to secure the industrial development bonds described below which matures on June 1, 2006. The IDB Letter of Credit replaced a prior letter of credit that matured on June 1, 2002. The Bank Credit Facility was amended on May 30, 2003 to, among other things: (i) extend the maturity of the facility for three additional years and (ii) increase the total amount of the facility from $70.0 million to $80.0 million. Borrowings under the working capital revolving loan accrue interest at a rate (the weighted average of which was 2.76% at June 26, 2003) determined pursuant to a formula based on the agent bank's quoted rate and the Eurodollar Interbank rate. As of June 26, 2003, the total principal amount outstanding under the Long-Term Financing Facility was $6.6 million of the original amount borrowed of $35.0 million. Of the remaining balance of $6.6 million, $3.75 million bears interest at rates ranging from 7.34% to 9.18% per annum payable quarterly, and requires equal semi- annual principal installments of approximately $1.3 million, with the final installment due on August 16, 2004. The remaining $2.85 million of this indebtedness bears interest at a rate of 9.16% per annum payable quarterly, and requires equal semi-annual principal installments of approximately $0.5 million, with the final installment due on May 15, 2006. As of June 26, 2003, the total principal amount outstanding under the Additional Long-Term Financing was approximately $19.3 million of the original amount borrowed of $25.0 million. Of the remaining balance of approximately $19.3 million, approximately $4.3 million bears interest at a rate of 8.3% per annum payable semiannually, and requires equal annual principal installments of approximately $1.4 million, with the final installment due on September 1, 2005. The remaining $15.0 million of this indebtedness (which is subordinated to the Company's other financing facilities) bears interest at a rate of 9.38% per annum payable semiannually, and requires equal annual principal installments of $5.0 million, with the final installment due on September 1, 2005. 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 annual capital expenditures; 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, or (b) $5.0 million, and prohibits the Company from redeeming shares of capital stock. As of June 26, 2003, the Company was in compliance with all restrictive covenants, as amended, under its financing facilities. The Company has $6.75 million in aggregate principal amount of industrial development bonds outstanding which was used to finance the acquisition, construction and equipping of the Company's Bainbridge, Georgia facility (the "IDB Financing"). The bonds bear interest payable semiannually at 4.00% (which was reset on June 1, 2002) through May 2006. On June 1, 2006, and on each subsequent interest reset date for the bonds, the Company is required to redeem the bonds at face value plus any accrued and unpaid interest, unless a bondholder elects to retain his or her bonds. Any bonds redeemed by the Company at the demand of a bondholder on the reset date are required to be remarketed by the underwriter of the bonds on a "best efforts" basis. Funds for the redemption of bonds on the demand of any bondholder are required to be obtained from the following sources in the following order of priority: (i) funds supplied by the Company for redemption; (ii) proceeds from the remarketing of the bonds; (iii) proceeds from a drawing under the IDB Letter of Credit; or (iv) in the event funds from the foregoing sources are insufficient, a mandatory payment by the Company. Drawings under the IDB Letter of Credit to redeem bonds on the demand of any bondholder are payable in full by the Company upon demand of the lenders under the Bank Credit Facility. In addition, the Company is required to 19 redeem the bonds in varying annual installments, ranging from approximately $0.3 million in fiscal 2004 to approximately $0.8 million in fiscal 2017. The Company is also required to redeem the bonds in certain other circumstances; for example, within 180 days after any determination that interest on the bonds is taxable. The Company has the option, subject to certain conditions, to redeem the bonds at face value plus accrued interest, if any. Capital Expenditures - -------------------- For fiscal 2003, capital expenditures were approximately $7.9 million. The Company believes that capital expenditures for fiscal 2004 will be in the $9.0 - $10.0 million range. The most significant planned capital expenditure for fiscal 2004 is approximately $2.5 - $3.0 million for an increase in storage capacity of inshell pecans at the Selma, Texas facility. Approximately $1.1 million was incurred on this project during fiscal 2003. The Company is currently exploring the possible consolidation of certain of its production facilities into a single location through the construction of a new production facility. If the consolidation proceeds, it is unlikely that such a facility could be financed using the Company's existing credit facilities. In that event, the Company would consider evaluating other financing alternatives, including but not limited to debt financing and/or the issuance of common stock in a private placement. Capital Resources - ----------------- As of June 26, 2003, the Company had approximately $40.5 million of available credit under the Bank Credit Facility. Scheduled long-term debt payments for fiscal 2004 are approximately $10.8 million. Scheduled operating lease payments are approximately $1.3 million. 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. However, if the Company elects to construct a new processing facility, additional financing sources may be required to fund the capital expenditures that would be necessary for that project. Contractual Cash Obligations - ---------------------------- At June 26, 2003, the Company had the following contractual cash obligations (amounts in thousands):
Year Year Year Year Year Ending Ending Ending Ending Ending June 24, June 30, June 29, June 28, June 26, 2004 2005 2006 2007 2008 Thereafter -------- -------- -------- -------- -------- ---------- Long-term debt $13,922 $11,816 $15,724 $1,575 $1,575 $4,519 Minimum operating lease commitments 1,252 1,355 1,000 214 133 10 ------- ------- ------- ------ ------ ------ Total contractual cash obligations $15,174 $13,171 $16,724 $1,789 $1,708 $4,529 ======= ======= ======= ====== ====== ======
RECENT ACCOUNTING PRONOUNCEMENTS - -------------------------------- The Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", effective June 28, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, SFAS 142 includes provisions for the reclassification of certain existing recognized intangible assets as goodwill, reassessment of the useful lives of existing recognized intangible assets, reclassification of certain intangible assets out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The Company's recorded assets at June 28, 2002 included both an intangible asset and goodwill. 20 Based upon the results of management's impairment testing, which included an independent valuation, no adjustment to the carrying amount of goodwill and the intangible asset is required. As required under SFAS 142, amortization of goodwill has been discontinued. In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations". This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 became effective in the first quarter of fiscal 2003. The implementation of SFAS 143 did not have an effect on the Company's cash flows, financial position or results of operations. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. SFAS 144 became effective in the first quarter of fiscal 2003. The adoption of SFAS 144 had no impact on the Company's cash flows, financial position or results of operations. In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 became effective in the third quarter of fiscal 2003. The adoption of SFAS 146 had no impact on the Company's cash flows, financial position or results of operations. In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". Interpretation 45 requires a guarantor to include disclosure of certain obligations and, if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement became effective for guarantees issued or modified after December 31, 2002 and did not have an impact on the Company. The Company adopted the disclosure requirements of Interpretation 45 effective December 2002. The Company has no obligations from guarantees that require disclosure at June 26, 2003, except for a $6,896 standby letter of credit to secure industrial revenue bonds (as discussed in Note 6) and a $1,833 standby letter of credit related to self- insurance requirements. In December 2002, the FASB issued SFAS 148, "Accounting for Stock- Based Compensation - Transition and Disclosure". SFAS 148 amends certain provisions of SFAS 123 and is effective for fiscal years beginning after December 15, 2002. The Company is currently evaluating the reporting alternatives of SFAS 148. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51". FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 will become effective during the first quarter of fiscal 2004. The Company enters into various transactions with certain related parties including the rental of buildings under capital leases and purchases from entities owned either directly or indirectly by certain directors, officers and stockholders of the Company. Based on management's initial analysis, it is at least reasonably possible that the Company may be required to consolidate or disclose information for one or more of these entities once the provisions of FIN 46 become effective during the first quarter of fiscal 2004. These related party transactions are more fully described in Notes 7 and 9 of the Notes to Consolidated Financial Statements. In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which 21 amends and clarifies financial accounting and reporting for certain derivative instruments. The Company does not anticipate the adoption of this statement to have a material impact on its consolidated financial statements, as the Company is not currently a party to derivative financial instruments included in this standard. In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Company does not anticipate the adoption of this statement to have a material impact on its consolidated financial statements, as the Company is not currently a party to such instruments included in this standard. FORWARD LOOKING STATEMENTS - -------------------------- The statements contained in this Annual Report on Form 10-K, and in the Chairman's letter to stockholders accompanying the Annual Report on Form 10-K delivered to stockholders, that are not historical (including statements concerning the Company's expectations regarding market risk) are "forward looking statements". These forward looking statements, which generally are followed (and therefore identified) by a cross reference to "Factors That May Affect Future Results" or are identified by the use of forward looking words and phrases such as "intend", "may", "believes" and "expects", represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including the factors described below under "Factors That May Affect Future Results", as well as the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the Company's control. Consequently, results actually achieved may differ materially from the expected results included in these statements. FACTORS THAT MAY AFFECT FUTURE RESULTS 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 and other nuts are subject to crop size and yield fluctuations caused by factors beyond the Company's control, such as weather conditions and plant diseases. Additionally, the supply of edible nuts and other raw materials used in the Company's products could be reduced upon a determination by the United States Department of Agriculture (the "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 and resulting increases in the prices of nuts and other raw materials used by the Company in its products (to the extent that cost increases cannot be passed on to customers) could have an adverse impact on the Company's profitability. Furthermore, fluctuations in the market prices of nuts may affect the value of the Company's inventories and the Company's profitability. The Company has significant inventories of nuts that would be adversely affected by any decrease in the market price of such raw materials. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." 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 and Ralcorp Holdings, 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. This competitive pricing 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. 22 Fixed Price Commitments - ----------------------- From time to time, the Company enters into fixed price commitments with its customers. Such commitments typically represent approximately 10% 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. However, the Company expects to 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. 2002 Farm Bill - -------------- The Farm Security and Rural Investment Act of 2002 (the "2002 Farm Bill") terminated the federal peanut quota program beginning with the 2002 crop year. The 2002 Farm Bill replaced the federal peanut quota program with a fixed payment system through the 2007 crop year that can be either coupled or decoupled. A coupled system is tied to the actual amount of production, while a decoupled system is not. The series of loans and subsidies established by the 2002 Farm Bill is similar to the systems used for other crops such as grains and cotton. To compensate farmers for the elimination of the peanut quota, the 2002 Farm Bill provides a buy-out at a specified rate for each pound of peanuts that had been in that farmer's quota under the prior program. Additionally, among other provisions, the Secretary of Agriculture may make certain counter- cyclical payments whenever the Secretary believes that the effective price for peanuts is less than the target price. The termination of the federal peanut quota program has resulted in a decrease in the Company's cost for peanuts. Selling prices have not been adversely affected in a material manner during fiscal 2003, resulting in a favorable impact on the Company's gross profit and gross profit margin. There are no assurances that selling prices for peanuts will not be adversely affected in the future or that the termination of the federal peanut quota program will not have an adverse effect on the Company's business Peanut Shelling Industry Antitrust Investigation - ------------------------------------------------ On June 17, 2003, the Company received a subpoena for the production of documents and records from the Antitrust Division of the U.S. Department of Justice in connection with an antitrust investigation of the peanut shelling industry. The Company expects to cooperate fully in the investigation. There can be no assurances as to the impact of the investigation on the peanut shelling industry or that the investigation will not have a material adverse effect on the Company. Item 7A -- 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. 23 Item 8 -- Financial Statements and Supplementary Data - ----------------------------------------------------- REPORT OF MANAGEMENT - -------------------- The management of John B. Sanfilippo & Son, Inc. has prepared and is responsible for the integrity of the information presented in this Annual Report on Form 10-K, including the Company's financial statements. These statements have been prepared in conformity with generally accepted accounting principles and include, where necessary, informed estimates and judgments by management. The Company maintains systems of accounting and internal controls designed to provide assurance that assets are properly accounted for, as well as to ensure that the financial records are reliable for preparing financial statements. The systems are augmented by qualified personnel and are reviewed on a periodic basis. Our independent auditors, PricewaterhouseCoopers LLP, conduct annual audits of our financial statements in accordance with generally accepted auditing standards, which include the review of internal controls for the purpose of establishing audit scope and the issuance of an opinion on the fairness of such financial statements. The Company has an Audit Committee that meets periodically with management and the independent accountants to review the manner in which they are performing their responsibilities and to discuss auditing, internal accounting controls and financial reporting matters. The independent accountants periodically meet alone with the Audit Committee and have free access to the Audit Committee at any time. /s/ Michael J. Valentine - ------------------------ Michael J. Valentine Executive Vice President Finance, Chief Financial Officer and Secretary REPORT OF INDEPENDENT AUDITORS - ------------------------------ To the Board of Directors and Stockholders of John B. Sanfilippo & Son, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of John B. Sanfilippo & Son, Inc. and its subsidiary at June 26, 2003 and June 27, 2002, and the results of their operations and their cash flows for the each of the three years in the period ended June 26, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Chicago, Illinois August 18, 2003 24 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended June 26, 2003, June 27, 2002 and June 28, 2001 (dollars in thousands, except for earnings per share) Year Ended Year Ended Year Ended June 26, 2003 June 27, 2002 June 28, 2001 ------------- ------------- ------------- Net sales $408,534 $343,245 $334,878 Cost of sales 347,041 294,931 283,278 -------- -------- -------- Gross profit 61,493 48,314 51,600 -------- -------- -------- Selling expenses 22,071 21,047 22,251 Administrative expenses 10,593 9,365 8,948 -------- -------- -------- Total selling and administrative expenses 32,664 30,412 31,199 -------- -------- -------- Income from operations 28,829 17,902 20,401 -------- -------- -------- Other income (expense): Interest expense ($842, $899 and $956 to related parties) (4,681) (5,757) (8,365) Rental income 484 576 605 Miscellaneous 2 14 17 -------- -------- -------- Total other (expense) (4,195) (5,167) (7,743) -------- -------- -------- Income before income taxes 24,634 12,735 12,658 Income tax expense 9,607 5,044 5,063 -------- -------- -------- Net income $ 15,027 $ 7,691 $ 7,595 ======== ======== ======== Basic earnings per common share $ 1.63 $ 0.84 $ 0.83 ======== ======== ======== Diluted earnings per common share $ 1.61 $ 0.84 $ 0.83 ======== ======== ======== Weighted average shares outstanding - basic 9,198,957 9,149,672 9,148,565 ========= ========= ========= Weighted average shares outstanding - diluted 9,332,889 9,194,951 9,150,332 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 25 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS June 26, 2003 and June 27, 2002 (dollars in thousands) June 26, June 27, 2003 2002 -------- --------- ASSETS CURRENT ASSETS: Cash $ 2,448 $ 1,272 Accounts receivable, less allowances of $1,552 and $1,406 29,142 24,133 Inventories 112,016 99,485 Deferred income taxes 1,257 861 Income taxes receivable 469 -- Prepaid expenses and other current assets 2,192 3,032 -------- -------- TOTAL CURRENT ASSETS 147,524 128,783 -------- -------- PROPERTIES: Buildings 61,485 60,348 Machinery and equipment 89,980 84,420 Furniture and leasehold improvements 5,385 5,399 Vehicles 3,185 3,684 Construction in progress 1,057 -- -------- -------- 161,092 153,851 Less: Accumulated depreciation 95,838 88,252 -------- -------- 65,254 65,599 Land 1,863 1,863 -------- -------- TOTAL PROPERTIES 67,117 67,462 -------- -------- OTHER ASSETS: Goodwill and other intangibles, less accumulated amortization of $6,054 and $5,628 4,370 4,796 Miscellaneous 4,716 5,774 -------- -------- TOTAL OTHER ASSETS 9,086 10,570 -------- -------- TOTAL ASSETS $223,727 $206,815 ======== ======== The accompanying notes are an integral part of these financial statements. 26 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS June 26, 2003 and June 27, 2002 (dollars in thousands, except per share amounts) June 26, June 27, 2003 2002 -------- -------- LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 29,702 $ 23,519 Current maturities of long-term debt 10,776 5,683 Accounts payable, including related party payables of $543 and $337 13,658 17,741 Drafts payable 5,507 4,049 Accrued expenses 12,699 10,098 Income taxes payable -- 298 -------- -------- TOTAL CURRENT LIABILITIES 72,342 61,388 -------- -------- LONG-TERM LIABILITIES: Long-term debt, less current maturities 29,640 40,421 Deferred income taxes 2,964 2,946 -------- -------- TOTAL LONG-TERM LIABILITIES 32,604 43,367 -------- -------- COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY: Class A Common Stock, convertible to Common Stock on a per share basis, cumulative voting rights of ten votes per share, $.01 par value; 10,000,000 shares authorized, 3,667,426 and 3,687,426 shares issued and outstanding 37 37 Common Stock, noncumulative voting rights of one vote per share, $.01 par value; 10,000,000 shares authorized, 5,775,564 and 5,583,939 shares issued and outstanding 58 56 Capital in excess of par value 58,911 57,219 Retained earnings 60,979 45,952 Treasury stock, at cost; 117,900 shares (1,204) (1,204) -------- -------- TOTAL STOCKHOLDERS' EQUITY 118,781 102,060 -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $223,727 $206,815 ======== ======== The accompanying notes are an integral part of these financial statements. 27 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended June 26, 2003, June 27, 2002 and June 28, 2001 (dollars in thousands)
Class A Common Common Capital in Excess Retained Treasury Stock Stock of Par Value Earnings Stock Total ------- ------ ----------------- -------- -------- -------- Balance, June 29, 2000 $37 $56 $57,196 $30,666 $(1,204) $ 86,751 Net income and comprehensive income 7,595 7,595 --- --- ------- ------- ------- -------- Balance, June 28, 2001 37 56 57,196 38,261 (1,204) 94,346 Net income and comprehensive income 7,691 7,691 Stock options exercised 23 23 --- --- ------- ------- ------- -------- Balance, June 27, 2002 37 56 57,219 45,952 (1,204) 102,060 Net income and comprehensive income 15,027 15,027 Stock options exercised 2 1,173 1,175 Tax benefit of stock options exercised 519 519 --- --- ------- ------- ------- -------- Balance, June 26, 2003 $37 $58 $58,911 $60,979 $(1,204) $118,781 === === ======= ======= ======= ========
The accompanying notes are an integral part of these financial statements. 28 JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 26, 2003, June 27, 2002 and June 28, 2001 (dollars in thousands)
Year Ended Year Ended Year Ended June 26, 2003 June 27, 2002 June 28, 2001 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 15,027 $ 7,691 $ 7,595 Adjustments: Depreciation and amortization 11,248 10,428 9,974 (Gain) loss on disposition of properties (14) (13) 57 Deferred income taxes (378) (123) 226 Tax benefit of option exercises 519 -- -- Change in current assets and current liabilities: Accounts receivable, net (5,009) 2,524 (1,822) Inventories (12,531) (918) 7,193 Prepaid expenses and other current assets 840 (1,101) 777 Accounts payable (4,083) 6,312 (422) Drafts payable 1,458 (895) (803) Accrued expenses 2,601 1,958 (1,383) Income taxes receivable/payable (767) 1,178 (1,341) Other (1,508) (2,675) (1,716) -------- -------- -------- Net cash provided by operating activities 7,403 24,366 18,335 -------- -------- -------- Cash flows from investing activities: Acquisition of properties (7,926) (4,559) (8,382) Proceeds from disposition of properties 29 51 80 -------- -------- -------- Net cash used in investing activities (7,897) (4,508) (8,302) -------- -------- -------- Cash flows from financing activities: Net borrowings (repayments) on notes payable 6,183 (14,013) (4,342) Principal payments on long-term debt (5,688) (5,671) (5,706) Issuance of Common Stock 1,175 -- -- -------- -------- -------- Net cash provided by (used in) financing activities 1,670 (19,684) (10,048) -------- -------- -------- Net increase (decrease) in cash 1,176 174 (15) Cash: Beginning of period 1,272 1,098 1,113 -------- -------- -------- End of period $ 2,448 $ 1,272 $ 1,098 ======== ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 4,579 $ 5,846 $ 8,359 Income taxes paid 10,287 4,062 6,178
The accompanying notes are an integral part of these financial statements. 29 JOHN B. SANFILIPPO & SON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------- Basis of consolidation - ---------------------- The consolidated financial statements include the accounts of John B. Sanfilippo & Son, Inc. and its wholly owned subsidiary (collectively, "JBSS" or the "Company"). Intercompany balances and transactions have been eliminated. Certain prior years' amounts have been reclassified to conform with the current year's presentation. Nature of business - ------------------ The Company processes and sells shelled and inshell nuts and other snack foods in both retail and wholesale markets. The Company has plants located throughout the United States. Revenues are generated from sales to a variety of customers, including several major retailers and the U.S. government. The related accounts receivable from sales are unsecured. Revenue recognition - ------------------- The Company recognizes revenue when it is realized or realizable and has been earned. Revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, sales terms are complete, customer acceptance has occurred and payment is reasonably assured. Accounts Receivable - ------------------- Accounts receivable are stated at the amounts charged to customers, less: (i) an allowance for doubtful accounts; (ii) a reserve for estimated cash discounts; and (iii) a reserve for customer deductions. The allowance for doubtful accounts is calculated by specifically identifying customers that are credit risks. The reserve for estimated cash discounts is estimated using historical payment patterns. The reserve for customer deductions represents an estimate of future credit memos that will be issued to customers. Inventories - ----------- Inventories are stated at the lower of cost (first-in, first-out) or market. The value of inventories may be impacted by market price fluctuations. Customer Incentives - ------------------- The ability to sell to certain retail customers often requires upfront payments by the Company. Such payments are made pursuant to contracts that usually stipulate the term of the agreement, the quantity and type of products to be sold and any exclusivity requirements. The cost of these payments is initially recorded as an asset and is amortized on a straight-line basis over the term of the contract. Total customer incentives included in the "Miscellaneous assets" and "Prepaid expenses and other current assets" captions are $2,329 at June 26, 2003 and $3,399 at June 27, 2002. Amortization expense, which is recorded as a reduction in revenues, was $2,262, $1,865 and $1,528 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. Properties - ---------- Properties are stated at cost. Cost is depreciated using the straight-line method over the following estimated useful lives: buildings -- 30 to 40 years, machinery and equipment -- 5 to 10 years, furniture and leasehold improvements -- 5 to 10 years and vehicles -- 3 to 5 years. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss is recognized currently. Maintenance and repairs are charged to operations as incurred. 30 Certain lease transactions relating to the financing of buildings are accounted for as capital leases, whereby the present value of future rental payments, discounted at the interest rate implicit in the lease, is recorded as a liability. A corresponding amount is capitalized as the cost of the assets and is amortized on a straight- line basis over the estimated lives of the assets or over the lease terms which range from 20 to 30 years, whichever is shorter. See also Note 7. Income taxes - ------------ The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been reported in the Company's financial statements or tax returns. In estimating future tax consequences, the Company considers all expected future events other than changes in tax law or rates. Fair value of financial instruments - ----------------------------------- Based on borrowing rates presently available to the Company under similar borrowing arrangements, the Company believes the recorded amount of its long-term debt obligations approximates fair market value. The carrying amount of the Company's other financial instruments approximates their estimated fair value based on market prices for the same or similar type of financial instruments. Significant customers - --------------------- The highly competitive nature of the Company's business provides an environment for the loss of customers and the opportunity for new customers. Net sales to Wal-Mart Stores, Inc. represented approximately 17% and 16% of the Company's net sales for the years ended June 26, 2003 and June 27, 2002, respectively. Management estimates - -------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Goodwill and other long-lived assets - ------------------------------------- The Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", effective June 28, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, SFAS 142 includes provisions for the reclassification of certain existing recognized intangible assets as goodwill, reassessment of the useful lives of existing recognized intangible assets, reclassification of certain intangible assets out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The Company's recorded assets at June 28, 2002 included both an intangible asset and goodwill. The intangible asset consists of the Fisher brand name that was acquired in 1995. The Company determined that the brand name is of a finite life and is being amortized over a fifteen-year period. Amortization expense for the next five fiscal years is expected to be approximately $427 annually. The goodwill represents the excess of the purchase price over the fair value of the net assets in the Company's acquisition of Sunshine Nut Co., Inc. in 1992. The Company determined that it has no separate reporting units; therefore, the goodwill impairment test was performed using the fair value of the entire Company. Based upon the results of management's impairment testing, which included an independent valuation, no adjustment to the carrying amount of goodwill and the intangible asset is required. As required under SFAS 142, amortization of goodwill has been discontinued. The Company reviews the carrying value of goodwill and other long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If an impairment was determined to exist, any related impairment loss would be calculated based on fair value. Impairment losses, if any, on assets to be disposed of would be based on the estimated proceeds to be received, less costs of disposal. The following table details goodwill and other intangible assets as of June 26, 2003: Gross Carrying Accumulated Net Carrying Amount Amortization Amount ------- ------ ------ Goodwill $2,504 $1,262 $1,242 Finite-lived amortized intangible assets 6,368 3,240 3,128 ------ ------ ------ Total $8,872 $4,502 $4,370 ====== ====== ====== As required under SFAS 142, the results for the years ended June 27, 2002 and June 28, 2001 have not been restated. The tables below present the effect on net income and earnings per share as if SFAS 142 had been in effect for those years: Year Ended Year Ended Year Ended June 26, 2003 June 27, 2002 June 28, 2001 ------------- ------------- ------------- Reported net income $15,027 $7,691 $7,595 Add back: Goodwill amortization (net of tax) -- 75 75 ------- ------ ------ Adjusted net income $15,027 $7,766 $7,670 ======= ====== ====== Basic and diluted earnings per share: Reported earnings per common share (basic) $1.63 $0.84 $0.83 Adjusted earnings per common share (basic) $1.63 $0.85 $0.84 Reported earnings per common share (diluted) $1.61 $0.84 $0.83 Adjusted earnings per common share (diluted) $1.61 $0.84 $0.84 Recent accounting pronouncements - -------------------------------- In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations". This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 became effective in the first quarter of fiscal 2003. The implementation of SFAS 143 did not have an effect on the Company's cash flows, financial position or results of operations. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. SFAS 144 became effective in the first quarter of fiscal 2003. The adoption of SFAS 144 had no impact on the Company's cash flows, financial position or results of operations. In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 became effective in the third quarter of fiscal 2003. The adoption of SFAS 146 had no impact on the Company's cash flows, financial position or results of operations. 32 In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". Interpretation 45 requires a guarantor to include disclosure of certain obligations and, if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement became effective for guarantees issued or modified after December 31, 2002 and did not have an impact on the Company. The Company adopted the disclosure requirements of Interpretation 45 effective December 2002. The Company has no obligations from guarantees that require disclosure at June 26, 2003, except for a $6,896 standby letter of credit to secure industrial revenue bonds (as discussed in Note 6) and a $1,833 standby letter of credit related to self-insurance requirements. In December 2002, the FASB issued SFAS 148, "Accounting for Stock- Based Compensation - Transition and Disclosure". SFAS 148 amends certain provisions of SFAS 123 and is effective for fiscal years beginning after December 15, 2002. The Company is currently evaluating the reporting alternatives of SFAS 148. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51". FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 will become effective quarter of fiscal 2004. The Company enters into various transactions with certain related parties including the rental of buildings under capital leases and purchases from entities owned either directly or indirectly by certain directors, officers and stockholders of the Company. Based on management's initial analysis, it is at least reasonably possible that the Company may be required to consolidate or disclose information for one or more of these entities once the provisions of FIN 46 become effective during the first quarter of fiscal 2004. These related party transactions are more fully described in Notes 7 and 9 of the Notes to Consolidated Financial Statements. In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for certain derivative instruments. The Company does not anticipate the adoption of this statement to have a material impact on its consolidated financial statements, as the Company is not currently a party to derivative financial instruments included in this standard. In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Company does not anticipate the adoption of this statement to have a material impact on its consolidated financial statements, as the Company is not currently a party to such instruments included in this standard. NOTE 2 - EARNINGS PER 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. The following table presents the required earnings per share disclosures: Year Ended Year Ended Year Ended June 26, 2003 June 27, 2002 June 28, 2001 ------------- ------------- ------------- Net income $15,027 $7,691 $7,595 Weighted average shares outstanding 9,198,957 9,149,672 9,148,565 Basic earnings per common share $ 1.63 $ 0.84 $ 0.83 Effect of dilutive securities: Stock options 133,932 45,279 1,767 Weighted average shares outstanding 9,332,889 9,194,951 9,150,332 Diluted earnings per common share $ 1.61 $ 0.84 $ 0.83 33 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 Stock: Weighted Average Number of Options Exercise Price ----------------- ---------------- Year ended June 26, 2003 51,666 $10.38 Year ended June 27, 2002 166,256 $10.07 Year ended June 28, 2001 450,735 $ 8.16 NOTE 3 - COMMON STOCK The Company's Class A Common Stock, $.01 par value (the "Class A Stock"), has cumulative voting rights with respect to the election of those directors which the holders of Class A Stock are entitled to elect, and 10 votes per share on all other matters on which holders of the Company's Class A Stock and Common Stock are entitled to vote. In addition, each share of Class A Stock is convertible at the option of the holder at any time into one share of Common Stock and automatically converts into one share of Common Stock upon any sale or transfer other than to related individuals. Each share of the Company's Common Stock, $.01 par value (the "Common Stock") has noncumulative voting rights of one vote per share. The Class A Stock and the Common Stock are entitled to share equally, on a share-for- share basis, in any cash dividends declared by the Board of Directors, and the holders of the Common Stock are entitled to elect 25% of the members comprising the Board of Directors. NOTE 4 - INCOME TAXES - --------------------- The provision for income taxes for the years ended June 26, 2003, June 27, 2002 and June 28, 2001 are as follows: June 26, June 27, June 28, 2003 2002 2001 -------- -------- -------- Current: Federal $8,263 $4,183 $3,921 State 1,722 984 916 Deferred (378) (123) 226 ------ ------ ------ Total provision for income taxes $9,607 $5,044 $5,063 ====== ====== ====== The differences between income taxes at the statutory federal income tax rate and income taxes reported in the statements of operations for the years ended June 26, 2003, June 27, 2002 and June 28, 2001 are as follows: June 26, June 27, June 28, 2003 2002 2001 -------- -------- -------- Federal statutory income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 4.8 5.0 5.1 Surtax exemption -- (0.8) (0.8) Nondeductible items -- 0.6 1.2 Other (0.8) (0.2) (0.5) ----- ----- ----- Effective tax rate 39.0% 39.6% 40.0% ===== ===== ===== 34 The deferred tax assets and liabilities are comprised of the following: June 26, 2003 June 27, 2002 ------------------ ------------------ Asset Liability Asset Liability ------ --------- ------ --------- Current: Allowance for doubtful accounts $ 236 $ -- $ 204 $ -- Employee compensation 754 -- 560 -- Inventory 47 -- -- 19 Accounts receivable -- -- -- -- Other 220 -- 116 -- ------ ------ ------ ------ Total current $1,257 $ -- $ 880 $ 19 ------ ------ ------ ------ Long-term: Depreciation $ -- $5,054 $ -- $5,070 Capitalized leases 1,503 -- 1,524 -- Other 587 -- 600 -- ------ ------ ------ ------ Total long-term $2,090 $5,054 $2,124 $5,070 ------ ------ ------ ------ Total $3,347 $5,054 $3,004 $5,089 ====== ====== ====== ====== NOTE 5 - INVENTORIES - -------------------- Inventories consist of the following: June 26, June 27, 2003 2002 -------- ------- Raw material and supplies $ 36,852 $45,229 Work-in-process and finished goods 75,164 54,256 -------- ------- Total $112,016 $99,485 ======== ======= NOTE 6 - NOTES PAYABLE - ---------------------- Notes payable consist of the following: June 26, June 27, 2003 2002 -------- -------- Revolving bank loan $29,702 $23,519 ======= ======= On March 31, 1998, the Company entered into a new unsecured credit facility, with certain banks, totaling $70,000 (the "Bank Credit Facility"). On May 30, 2003, the Bank Credit Facility was amended to, among other things, increase the total amount available under the facility to $80,000. The Bank Credit Facility, as amended, is comprised of (i) a working capital revolving loan, which provides for working capital financing of up to approximately $73,104, in the aggregate, and matures on May 31, 2006, and (ii) a $6,896 standby letter of credit, which matures on June 1, 2006. Borrowings under the working capital revolving loan accrue interest at a rate (the weighted average of which was 2.76% at June 26, 2003) determined pursuant to a formula based on the agent bank's quoted rate and the Eurodollar Interbank Rate. The standby letter of credit replaced a prior letter of credit securing certain industrial development bonds that financed the original acquisition, construction, and equipping of the Company's Bainbridge, Georgia facility. The Bank Credit Facility, as amended, includes certain restrictive covenants that, among other things: (i) require the Company to maintain a minimum tangible net worth; (ii) comply with specified ratios; (iii) limit annual capital expenditures to $12,000; (iv) restrict dividends to the lesser of 25% of net income for the previous fiscal year or $5,000; (v) prohibit the Company from redeeming shares of capital stock; and (vi) require that certain officers and stockholders of the Company, together with their respective family members and certain trusts created for the benefits of their respective children, continue to own shares representing the right to elect a majority of the directors of the Company. As of June 26, 2003, the Company was in compliance with all restrictive covenants, as amended, under the Bank Credit Facility. 35 NOTE 7 - LONG-TERM DEBT - ----------------------- Long-term debt consists of the following: June 26, June 27, 2003 2002 -------- -------- Industrial development bonds, secured by building, machinery and equipment with a cost aggregating $8,000 $ 6,750 $ 7,000 Capitalized lease obligations 5,786 6,260 Series A note payable, interest payable quarterly at 8.72%, principal payable in semi-annual installments of $200 600 1,000 Series B note payable, interest payable quarterly at 9.07%, principal payable in semi-annual installments of $300 900 1,500 Series C note payable, interest payable quarterly at 9.07%, principal payable in semi-annual installments of $200 600 1,000 Series D note payable, interest payable quarterly at 9.18%, principal payable in semi-annual installments of $150 450 750 Series E note payable, interest payable quarterly at 7.34%, principal payable in semi-annual installments of $400 1,200 2,000 Series F notes payable, interest payable quarterly at 9.16%, principal payable in semi-annual installments of $475 2,850 3,800 Note payable, interest payable semi-annually at 8.30%, principal payable in annual installments of approximately $1,429 Note payable, subordinated, interest payable 4,286 5,714 semi-annually at 9.38%, principal payable in annual installments of $5,000 beginning on September 1, 2003 15,000 15,000 Arlington Heights facility, first mortgage, principal and interest payable at 8.875%, in monthly installments of $22 through October 1, 2015 1,994 2,080 Current maturities (10,776) (5,683) -------- ------- Total long-term debt $ 29,640 $40,421 ======== ======= JBSS financed the construction of a peanut shelling plant with industrial development bonds in 1987. On June 1, 1997, the Company remarketed the bonds, resetting the interest rate at 5.375% through May 2002, and at a market rate to be determined thereafter. On June 1, 2002, the Company remarketed the bonds, resetting the interest rate at 4% through May 2006, and at a market rate to be determined thereafter. On June 1, 2006, and on each subsequent interest reset date for the bonds, the Company is required to redeem the bonds at face value plus any accrued and unpaid interest, unless a bondholder elects to retain his or her bonds. Any bonds redeemed by the Company at the demand of a bondholder on the reset date are required to be remarketed by the underwriter of the bonds on a "best efforts" basis. The agreement requires the Company to redeem the bonds in varying annual installments, ranging from $250 to $780 annually through 2017. The Company is also required to redeem the bonds in certain other circumstances, for example, within 180 days after any determination that interest on the bonds is taxable. The Company has the option at any time, however, subject to certain conditions, to redeem the bonds at face value plus accrued interest, if any. On September 29, 1992, the Company entered into a long-term financing facility with a major insurance company (the "Long-Term Financing Facility") which provided financing to the Company evidenced by promissory notes in the aggregate principal amount of $14,000 (the "Initial Financing"). The Initial Financing was comprised of (i) a $4,000 7.87% Senior Secured Term Note due 2004 (the "Series A Note"), (ii) a $6,000 8.22% Senior Secured Term Note due 2004 (the "Series B Note"), and (iii) a $4,000 8.22% Senior Secured Term Note due 2004 (the "Series C Note"). In addition, the Long-Term Financing Facility included a shelf facility providing for the issuance by the Company of additional promissory notes with an aggregate original principal amount of up to $11,000 (the "Shelf Facility"). On January 15, 1993, the Company borrowed $3,000 under the Shelf Facility evidenced by an 8.33% Senior Secured Term Note due 2004 (the "Series D Note"). On September 15, 1993, the Company borrowed the remaining $8,000 available under the Shelf Facility evidenced by a 6.49% Senior Secured Term Note due 2004 (the "Series E Note"). 36 On October 19, 1993, the Long-Term Financing Facility was amended to provide for an additional shelf facility providing for the issuance by the Company of additional promissory notes with an aggregate original principal amount of $10,000 and to terminate and release all liens and security interests in Company properties. On June 23, 1994, the Company borrowed $10,000 under the additional shelf facility evidenced by an $8,000 8.31% Series F Senior Note due May 15, 2006 (the "Series F-1 Note") and a $2,000 8.31% Series F Senior Note due May 15, 2006 (the "Series F-2 Note"). Effective January 1, 1997, the interest rates on each promissory note comprising the Long-Term Financing Facility were increased by 0.85%, due to the Company not meeting the required ratio of (a) net income plus interest expense to (b) senior funded debt for the year ended December 31, 1996. The Long-Term Financing Facility includes certain restrictive covenants that, among other things: (i) require the Company to maintain specified financial ratios; (ii) require the Company to maintain a minimum tangible net worth; (iii) restrict dividends to a maximum of 25% of cumulative net income from and after January 1, 1995 to the date the dividend is declared; and (iv) require that certain officers and stockholders of the Company, together with their respective family members and certain trusts created for the benefits of their respective children, continue to own shares representing the right to elect a majority of the directors of the Company. As of June 26, 2003, the Company was in compliance with all restrictive covenants, as amended, under the Long-Term Financing Facility. On September 12, 1995, the Company borrowed an additional $25,000 under an unsecured long-term financing arrangement (the "Additional Long-Term Financing"). The Additional Long-Term Financing has a maturity date of September 1, 2005 and (i) as to $10,000 of the principal amount thereof, bears interest at an annual rate of 8.30% and requires annual principal payments of approximately $1,429 through maturity, and (ii) as to the other $15,000 of the principal amount thereof (which is subordinated to the Company's other debt facilities), bears interest at an annual rate of 9.38% and requires annual principal payments of $5,000 beginning on September 1, 2003 through maturity. The Additional Long-Term Financing includes certain restrictive covenants that, among other things: (i) require the Company to maintain specified financial ratios; (ii) require the Company to maintain a minimum tangible net worth; and (iii) limit cumulative dividends to the sum of (a) 50% of the Company's cumulative net income (or minus 100% of a 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) $5,000. As of June 26, 20032, the Company was in compliance with all restrictive covenants, as amended, under the Additional Long-Term Financing. Aggregate maturities of long-term debt, excluding capitalized lease obligations, are as follows for the years ending: June 24, 2004 $10,243 June 30, 2005 9,027 June 29, 2006 13,676 June 28, 2007 123 June 26, 2008 135 Subsequent years 1,426 ------- Total $34,630 ======= The accompanying financial statements include the following amounts related to assets under capital leases: June 26, June 27, 2003 2002 -------- -------- Buildings $9,520 $9,520 Less: Accumulated amortization 7,444 7,032 ------ ------ Total $2,076 $2,488 ====== ====== As discussed in Note 1, these assets are being amortized over the terms of the leases. Amortization expense aggregated $412 for the years ended June 26, 2003 and June 27, 2002, and $411 for the year ended June 28, 2001. 37 Buildings under capital leases are rented from entities that are owned by certain directors, officers and stockholders of JBSS. Future minimum payments under the leases, together with the related present value, are summarized as follows for the years ending: June 24, 2004 $1,308 June 30, 2005 1,308 June 29, 2006 1,308 June 28, 2007 1,308 June 26, 2008 1,308 Subsequent years 2,578 ------ Total minimum lease payments 9,118 Less: Amount representing interest 3,332 ------ Present value of minimum lease payments $5,786 ====== JBSS also leases buildings and certain equipment pursuant to agreements accounted for as operating leases. Rent expense under these operating leases aggregated $730, $598 and $724 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. Aggregate noncancelable lease commitments under these operating leases are as follows for the years ending: June 24, 2004 $1,252 June 30, 2005 1,355 June 29, 2006 1,000 June 28, 2007 214 June 26, 2008 133 Subsequent years 10 ------ $3,964 ====== NOTE 8 - EMPLOYEE BENEFIT PLANS - ------------------------------- JBSS maintains a contributory plan established pursuant to the provisions of section 401(k) of the Internal Revenue Code. The plan provides retirement benefits for all nonunion employees meeting minimum age and service requirements. The Company contributes 50% of the amount contributed by each employee up to certain maximums specified in the plan. Total Company contributions to the 401(k) plan were $535, $451 and $453 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. JBSS contributed $99, $90 and $98 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively, to multi-employer union-sponsored pension plans. JBSS is presently unable to determine its respective share of either accumulated plan benefits or net assets available for benefits under the union plans. NOTE 9 - TRANSACTIONS WITH RELATED PARTIES - ------------------------------------------ In addition to the related party transactions described in Note 7, JBSS also entered into transactions with the following related parties: Purchases - --------- JBSS purchases materials and manufacturing equipment from a company that is 7.8% owned by the Company's Chairman of the Board and Chief Executive Officer. The five children of the Company's Chairman of the Board and Chief Executive Officer own the balance of the entity either directly or as equal beneficiaries of a trust. Two of the children are officers of 38 the Company, and one of the two is also on the Company's Board of Directors. Purchases aggregated $7,170, $6,491 and $5,512 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. Accounts payable aggregated $516 and $302 at June 26, 2003 and June 27, 2002, respectively. In addition, JBSS previously leased office and warehouse space to the entity. Rental income from the entity aggregated $79 and $154 for the years ended June 27, 2002 and June 28, 2001, respectively. Accounts receivable aggregated $2 at June 27, 2002. JBSS purchases materials from a company that is 33% owned by an individual related to the Company's Chairman of the Board and Chief Executive Officer. Material purchases aggregated $473, $402 and $228 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. Accounts payable aggregated $7 and $3 at June 26, 2003 and June 27, 2002, respectively. JBSS purchases supplies from a company that is 33% owned by an individual related to the Company's Chairman of the Board and Chief Executive Officer. Material purchases aggregated $472, $408 and $290 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. Accounts payable aggregated $27 and $32 at June 26, 2003 and June 27, 2002, respectively. Product purchases and sales - --------------------------- JBSS previously purchased materials from and sells products to a company that is owned 33% by the Company's Chairman of the Board and Chief Executive Officer. Material purchases aggregated $526 and $408 for the years ended June 27, 2002 and June 28, 2001, respectively. The Company sold products to the same company aggregating $831and $1,414 for the years ended June 27, 2002 and June 28, 2001, respectively. Accounts receivable aggregated $3 at June 27, 2002. Legal services - -------------- A lawyer, who is related to an outside director of the Company, provides services to JBSS. This lawyer was a partner in a firm that previously provided services to JBSS. Legal services aggregated $24, $17 and $72 for the years ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively. NOTE 10 - STOCK OPTION PLANS - ---------------------------- The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock-based compensation plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under the plans with the alternative method of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the effect on the Company's net income for the years ended June 26, 2003, June 27, 2002 and June 28, 2001 would not have been significant. In October 1991, JBSS adopted a stock option plan (the "1991 Stock Option Plan") which became effective on December 10, 1991 and was terminated early by the Board of Directors on February 28, 1995. Pursuant to the terms of the 1991 Stock Option Plan, options to purchase up to 350,000 shares of Common Stock could be awarded to certain executives and key employees of JBSS and its subsidiaries. The exercise price of the options was determined as set forth in the 1991 Stock Option Plan by the Board of Directors. The exercise price for the stock options was at least fair market value with the exception of nonqualified stock options which had an exercise price equal to at least 33% of the fair market value of the Common Stock on the date of grant. Except as set forth in the 1991 Stock Option Plan, options expire upon termination of employment. All of the options granted were intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code (the "Code"). The termination of the 1991 Stock Option Plan, effective February 28, 1995, did not affect options granted under the 1991 Stock Option Plan which remained outstanding as of the effective date of termination. Accordingly, the unexercised options outstanding under the 1991 Stock Option Plan at June 26, 2003 will continue to be governed by the terms of the 1991 Stock Option Plan. 39 The following is a summary of activity under the 1991 Stock Option Plan: Number of Weighted Average Shares Exercise Price --------- ---------------- Outstanding at June 29, 2000 61,300 $12.12 Canceled (6,400) $12.09 -------- Outstanding at June 28, 2001 154,900 $12.12 Exercised (550) $ 6.00 Canceled (110,000) $12.16 -------- Outstanding at June 27, 2002 44,350 $11.55 Exercised (33,650) $11.32 Canceled (5,500) $15.00 -------- Outstanding at June 26, 2003 5,200 $ 9.43 ======== Options exercisable at June 26, 2003 5,200 $ 9.43 Options exercisable at June 27, 2002 44,350 $11.55 Options exercisable at June 28, 2001 154,900 $12.12 Exercise prices for options outstanding as of June 26, 2003 ranged from $6.00 to $13.75. The weighted average remaining contractual life of those options is 0.9 years. The options outstanding at June 26, 2003 may be segregated into two ranges, as is shown in the following: Option Price Per Option Price Per Share Share $6.00 $13.75 ---------------- ---------------- Number of options 2,900 2,300 Weighted-average exercise price $6.00 $13.75 Weighted-average remaining life (years) 1.5 0.1 Number of options exercisable 2,900 2,300 Weighted average exercise price for exercisable options $6.00 $13.75 At the Company's annual meeting of stockholders on May 2, 1995, the Company's stockholders approved, and the Company adopted, effective as of March 1, 1995, a new stock option plan (the "1995 Equity Incentive Plan") to replace the 1991 Stock Option Plan. The 1995 Equity Incentive Plan was terminated early by the Board of Directors on August 27, 1998. Pursuant to the terms of the 1995 Equity Incentive Plan, options to purchase up to 200,000 shares of Common Stock could be awarded to certain key employees and "outside directors" (i.e. directors who are not employees of the Company or any of its subsidiaries). The exercise price of the options was determined as set forth in the 1995 Equity Incentive Plan by the Board of Directors. The exercise price for the stock options was at least the fair market value of the Common Stock on the date of grant, with the exception of nonqualified stock options which had an exercise price equal to at least 50% of the fair market value of the Common Stock on the date of grant. Except as set forth in the 1995 Equity Incentive Plan, options expire upon termination of employment or directorship. The options granted under the 1995 Equity Incentive Plan are exercisable 25% annually commencing on the first anniversary date of grant and become fully exercisable on the fourth anniversary date of grant. All of the options granted, except those granted to outside directors, were intended to qualify as incentive stock options within the meaning of Section 422 of the Code. The termination of the 1995 Equity Incentive Plan, effective August 27, 1998, did not affect options granted under the 1995 Equity Incentive Plan which remained outstanding as of the effective date of termination. Accordingly, the unexercised options outstanding under the 1995 Equity 40 Incentive Plan at June 26, 2003 will continue to be governed by the terms of the 1995 Equity Incentive Plan. The following is a summary of activity under the 1995 Equity Incentive Plan: Number of Weighted Average Shares Exercise Price --------- ---------------- Outstanding at June 29, 2000 124,200 $7.75 Canceled (16,600) $9.04 ------- Outstanding at June 28, 2001 107,600 $7.58 Exercised (600) $6.25 Canceled (20,700) $7.51 ------- Outstanding at June 27, 2002 86,300 $7.61 Exercised (57,200) $7.41 Canceled (7,000) $8.48 ------- Outstanding at June 26, 2003 22,100 $7.86 ======= Options exercisable at June 26, 2003 22,100 $7.86 Options exercisable at June 27, 2002 86,300 $7.61 Options exercisable at June 28, 2001 107,600 $7.58 Exercise prices for options outstanding as of June 26, 2003 ranged from $6.00 to $10.50. The weighted average remaining contractual life of those options is 3.0 years. The options outstanding at June 26, 2003 may be segregated into two ranges, as is shown in the following: Option Price Per Option Price Per Share Range Share Range $6.00-$6.63 $9.38-$10.50 ---------------- ---------------- Number of options 11,100 11,000 Weighted-average exercise price $6.26 $9.48 Weighted-average remaining life (years) 3.8 2.2 Number of options exercisable 11,100 11,000 Weighted average exercise price for exercisable options $6.26 $9.48 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. Pursuant to the terms of the 1998 Equity Incentive Plan, options to purchase up to 700,000 shares of Common Stock could be awarded to certain key employees and "outside directors" (i.e. directors who are not employees of the Company or any of its subsidiaries). The exercise price of the options will be determined as set forth in the 1998 Equity Incentive Plan by the Board of Directors. The exercise price for the stock options must be at least the fair market value of the Common Stock on the date of grant, with the exception of nonqualified stock options which have an exercise price equal to at least 50% of the fair market value of the Common Stock on the date of grant. Except as set forth in the 1998 Equity Incentive Plan options expire upon termination of employment or directorship. The options granted under the 1998 Equity Incentive Plan are exercisable 25% annually commencing on the first anniversary date of grant and become fully exercisable on the fourth anniversary date of grant. All of the options granted, except those granted to outside directors, were intended to qualify as incentive stock options within the meaning of Section 422 of the Code. 41 The following is a summary of activity under the 1998 Equity Incentive Plan: Number of Weighted Average Shares Exercise Price --------- Outstanding at June 29, 2000 195,500 $4.38 Granted 3,000 $4.06 Canceled (28,750) $4.35 ------- Outstanding at June 28, 2001 169,750 $4.38 Granted 8,000 $5.68 Exercised (3,750) $4.50 Canceled (10,000) $4.33 ------- Outstanding at June 27, 2002 164,000 $4.35 Granted 144,500 $7.08 Exercised (82,975) $4.33 Canceled (1,250) $4.50 ------- Outstanding at June 26, 2003 224,275 $6.11 ======= Options exercisable at June 26, 2003 42,775 $4.36 Options exercisable at June 27, 2002 84,125 $4.34 Options exercisable at June 28, 2001 50,750 $4.31 Exercise prices for options outstanding as of June 26, 2003 ranged from $3.44 to $17.51. The weighted average remaining contractual life of those options is 8.3 years. The options outstanding at June 26, 2003 may be segregated into two ranges, as is shown in the following: Option Price Per Option Price Per Share Range Share $3.44-$7.80 $17.51 ---------------- ---------------- Number of options 222,775 1,500 Weighted-average exercise price $6.03 $17.51 Weighted-average remaining 8.3 10.0 life (years) Number of options exercisable 42,775 -- Weighted average exercise price for exercisable options $4.36 -- NOTE 11 - COMMITMENTS AND CONTINGENCIES - --------------------------------------- The Company is party to various lawsuits, proceedings and other matters arising out of the conduct of its business. It is management's opinion that the ultimate resolution of these matters will not have a material adverse effect upon the business, financial condition or results of operations of the Company. 42 Supplementary Quarterly Data - ---------------------------- The following unaudited quarterly consolidated financial data are presented for fiscal 2003 and fiscal 2002. Quarterly financial results necessarily rely on estimates and caution is required in drawing specific conclusions from quarterly consolidated results. First Second Third Fourth Quarter Quarter Quarter Quarter ------- -------- ------- ------- Year Ended June 26, 2003: Net sales $93,069 $134,236 $84,284 $96,945 Gross profit 11,042 22,558 13,072 14,821 Income from operations 3,818 14,483 3,652 6,876 Net income 1,678 8,243 1,573 3,533 Basic earnings per common share $ 0.18 $ 0.90 $ 0.17 $ 0.38 Diluted earnings per common share $ 0.18 $ 0.89 $ 0.17 $ 0.37 Year Ended June 27, 2002: Net sales $84,759 $112,755 $67,114 $78,617 Gross profit 11,192 17,331 8,633 11,158 Income from operations 3,284 9,205 1,732 3,681 Net income 1,079 4,773 268 1,571 Basic and diluted earnings per common share $ 0.12 $ 0.52 $ 0.03 $ 0.17 43 Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ------------------------------------------------------------------------- There were no disagreements on any matters of accounting principles or financial statement disclosure with the Company's independent accountants during the year ended June 26, 2003, the year ended June 27, 2002 or the year ended June 28, 2001. Item 9A -- Controls and Procedures - ---------------------------------- As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman and Chief Executive Officer along with the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's Chairman and Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings. There has been no change in the Company's internal control over financial reporting during the Company's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting. PART III -------- Item 10 -- Directors and Executive Officers of the Registrant - ------------------------------------------------------------- The Sections entitled "Nominees for Election by The Holders of Common Stock" and "Nominees for Election by The Holders of Class A Stock" of the Company's Proxy Statement for the 2003 Annual Meeting and filed pursuant to Regulation 14A are incorporated herein by reference. Information relating to the executive officers of the Company is included immediately after Part I of this Report. Item 11 -- Executive Compensation - --------------------------------- The Sections entitled "Compensation of Directors and Executive Officers", "Committees and Meetings of the Board of Directors" and "Compensation Committee Interlocks, Insider Participation and Certain Transactions" of the Company's Proxy Statement for the 2003 Annual Meeting are incorporated herein by reference. Item 12 -- Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------- The Section entitled "Security Ownership of Certain Beneficial Owners and Management" of the Company's Proxy Statement for the 2003 Annual Meeting is incorporated herein by reference. Item 13 -- Certain Relationships and Related Transactions - --------------------------------------------------------- The Sections entitled "Executive Compensation" and "Compensation Committee Interlocks, Insider Participation and Certain Transactions" of the Company's Proxy Statement for the 2003 Annual Meeting are incorporated herein by reference. Item 14 -- Principal Accountant Fees and Services - ------------------------------------------------- This item is first effective for annual reports for fiscal years ending after December 15, 2003, and therefore is not included in this filing. 44 PART IV ------- Item 15 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------- (a)(1) Financial Statements - ------------------------------ The following financial statements of the Company are included in Part II, Item 8 of this Report: Report of Independent Accountants Consolidated Statements of Operations for the Year Ended June 26, 2003, the Year Ended June 27, 2002 and the Year Ended June 28, 2001 Consolidated Balance Sheets as of June 26, 2003 and June 27, 2002 Consolidated Statements of Stockholders' Equity for the Year Ended June 26, 2003, the Year Ended June 27, 2002 and the Year Ended June 28, 2001 Consolidated Statements of Cash Flows for the Year Ended June 26, 2003, the Year Ended June 27, 2002 and the Year Ended June 28, 2001 Notes to Consolidated Financial Statements (2) Financial Statement Schedules ----------------------------------- The following information included in this Report is filed as a part hereof: Report of Independent Accountants on Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts and Reserves All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. (3) Exhibits -------------- The exhibits required by Item 601 of Regulation S-K and 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 - ------------------------- On April 29, 2003, the Company filed a Current Report on Form 8-K, dated April 23, 2003, announcing quarterly financial results. (c) Exhibits - -------------- See Item 15(a)(3) above. (d) Financial Statement Schedules - ----------------------------------- See Item 15(a)(2) above. 45 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: September 15, 2003 JOHN B. SANFILIPPO & SON, INC. ------------------------------ By: /s/ Jasper B. Sanfilippo ------------------------ Jasper B. Sanfilippo Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date - ------------------------- --------------------------------- ----------------- /s/ Jasper B. Sanfilippo Chairman of the Board and Chief September 15, 2003 - ------------------------ Executive Officer and Director Jasper B. Sanfilippo (Principal Executive Officer) /s/ Michael J. Valentine Executive Vice President Finance, September 15, 2003 - ------------------------ Chief Financial Officer and Michael J. Valentine Secretary and Director (Principal Financial Officer) /s/ William R. Pokrajac Vice President of Finance September 15, 2003 - ----------------------- (Principal Accounting Officer) William R. Pokrajac /s/ Mathias A. Valentine Director September 15, 2003 - ------------------------ Mathias A. Valentine /s/ Jim Edgar Director September 15, 2003 - ------------- Jim Edgar /s/ John W.A. Buyers Director September 15, 2003 - -------------------- John W.A. Buyers /s/ Timothy R. Donovan Director September 15, 2003 - ---------------------- Timothy R. Donovan /s/ Jeffrey T. Sanfilippo Director September 15, 2003 - ------------------------- Jeffrey T. Sanfilippo 46 Report of Independent Auditors on Financial Statement Schedule --------------------------------- To the Board of Directors and Stockholders of John B. Sanfilippo & Son, Inc.: Our audits of the consolidated financial statements of John B. Sanfilippo & Son, Inc. referred to in our report dated August 18, 2003 appearing on page 24 of this 2003 Annual Report on Form 10-K also included an audit of the Financial Statement Schedule listed in Item 15(a)(2). In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Chicago, Illinois August 18, 2003 47 JOHN B. SANFILIPPO & SON, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the year ended June 26, 2003, the year ended June 27, 2002 and the year ended June 28, 2001 (Dollars in thousands)
Balance at Beginning Balance at Description of Period Additions Deductions End of Period - ------------------------------- ---------- --------- ---------- ------------- June 26, 2003 - ------------- Allowance for doubtful accounts $ 511 $ 314 $ (234) $ 591 Reserve for cash discounts 109 4,516 (4,485) 140 Reserve for customer deductions 786 7,355 (7,320) 821 ------ ------- --------- ------ Total $1,406 $12,185 $(12,039) $1,552 ====== ======= ========= ====== June 27, 2002 - ------------- Allowance for doubtful accounts $ 390 $ 155 $ (34) $ 511 Reserve for cash discounts 109 3,928 (3,928) 109 Reserve for customer deductions 894 5,169 (5,277) 786 ------ ------- --------- ------ Total $1,393 $ 9,252 $ (9,239) $1,406 ====== ======= ========= ====== June 28, 2001 - ------------- Allowance for doubtful accounts $ 769 $ 13 $ (392) $ 390 Reserve for cash discounts 109 3,610 (3,610) 109 Reserve for customer deductions 2,299 3,959 (5,364) 894 ------ ------- --------- ------ Total $3,177 $ 7,582 $ (9,366) $1,393 ====== ======= ========= ======
48 JOHN B. SANFILIPPO & SON, INC. EXHIBIT INDEX (Pursuant to Item 601 of Regulation S-K) Exhibit Number Description - ------- ---------------------------------------------------------------- 1 Not applicable 2 Not applicable 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")(17) 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(18) 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")(19) 4.14 Guaranty Agreement dated as of March 31, 1998 by JBS International, Inc. ("JBSI") in favor of Prudential(19) 4.15 Amendment and Waiver to the Second Amended and Restated Note Agreement dated February 5, 1999 by and among Prudential, the Registrant, Sunshine, JBSI and Quantz(22) 4.16 Amendment to the Second Amended and Restated Note Agreement dated May 30, 2003 by and among Prudential, the Registrant and JBSI, filed herewith 49 4.17 Guaranty Agreement dated as of May 30, 2003 by JBSI in favor of Prudential, filed herewith 4.18 Note Purchase Agreement dated as of August 30, 1995 between the Registrant and Teachers Insurance and Annuity Association of America ("Teachers")(14) 4.19 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(14) 4.20 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(14) 4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of Teachers (Senior Notes)(14) 4.22 Guaranty Agreement dated as of August 30, 1995 by Sunshine in favor of Teachers (Senior Subordinated Notes)(14) 4.23 Amendment, Consent and Waiver, dated as of March 27, 1996, by and among Teachers, Sunshine and the Registrant(16) 4.24 Amendment No. 2 to Note Purchase Agreement dated as of January 24, 1997 by and among Teachers, Sunshine and the Registrant(17) 4.25 Amendment to Note Purchase Agreement dated May 19, 1997 by and among Teachers, Sunshine and the Registrant(19) 4.26 Amendment No. 3 to Note Purchase Agreement dated as of March 31, 1998 by and among Teachers, Sunshine, Quantz and the Registrant(19) 4.27 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of Teachers (Senior Notes)(19) 4.28 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of Teachers (Senior Subordinated Notes)(19) 4.29 Amendment and Waiver to Note Purchase Agreement dated February 5, 1999 by and among Teachers, Sunshine, Quantz, JBSI and the Registrant(22) 4.30 Amendment and waiver to Note Purchase Agreement dated October 26, 1999 between Teachers and the Registrant(23) 5-9 Not applicable 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 (the "Touhy Avenue Lease") dated November 1, 1985 between the Registrant and LNB, as Trustee under Trust Agreement dated September 20, 1966 and known as Trust No. 34837(11) 10.3 First Amendment to the Touhy Avenue Lease dated June 1, 1987(11) 10.4 Second Amendment to the Touhy Avenue Lease dated December 14, 1990(11) 10.5 Third Amendment to the Touhy Avenue Lease dated September 1, 1991(15) 10.6 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 and 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) 10.7 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) 50 10.8 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) 10.9 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) 10.10 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(20) 10.11 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) 10.12 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) 10.13 Tax Indemnification Agreement between Registrant and certain Stockholders of Registrant prior to its initial public offering(2) *10.14 Indemnification Agreement between Registrant and certain Stockholders of Registrant prior to its initial public offering(2) *10.15 The Registrant's 1991 Stock Option Plan(1) *10.16 First Amendment to the Registrant's 1991 Stock Option Plan(4) *10.17 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) *10.18 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) 10.19 Outsource Agreement between the Registrant and Preferred Products, Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT REQUESTED](12) 10.20 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) *10.21 The Registrant's 1995 Equity Incentive Plan(13) 10.22 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")(15) 10.23 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(15) 51 10.24 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(15) 10.25 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(15) 10.26 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(19) *10.27 The Registrant's 1998 Equity Incentive Plan(22) *10.28 First Amendment to the Registrant's 1998 Equity Incentive Plan(25) 10.29 Second Amendment to Credit Agreement dated May 10, 2000 by and among the Registrant, JBSI, USB as Agent, LNB and SunTrust Bank, N.A.("STB") (replacing KNA)(24) 10.30 Third Amendment to Credit Agreement dated May 20, 2002 by and among the Registrant, JBSI, USB as Agent, LNB and STB)(26) 10.31 Fourth Amendment to Credit Agreement dated May 30, 2003 by and among the Registrant, JBSI, USB as Agent, LNB and STB, filed herewith 10.32 Revolving Credit Note in the principal amount of $40.0 million executed by the Registrant and JBSI in favor of USB, dated as of May 30, 2003, filed herewith 10.33 Revolving Credit Note in the principal amount of approximately $22.9 million executed by the Registrant and JBSI in favor of STB, dated as of May 30, 2003, filed herewith 10.34 Revolving Credit Note in the principal amount of approximately $17.1 million executed by the Registrant and JBSI in favor of LSB, dated as of May 30, 2003, filed herewith 10.35 Industrial Building Lease between the Registrant and Cabot Acquisition, LLC dated April 18, 2003, filed herewith 11-20 Not applicable 21 Subsidiaries of the Registrant, filed herewith 22 Not applicable 23 Consent of PricewaterhouseCoopers LLP, filed herewith 24-31 Not applicable 31.1 Certification of Jasper B. Sanfilippo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended, filed herewith 31.2 Certification of Michael J. Valentine pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended, filed herewith 32.1 Certification of Jasper B. Sanfilippo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith 32.2 Certification of Michael J. Valentine pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith 33-99 Not applicable 52 (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 and 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 Current Report on Form 8-K dated September 12, 1995 (Commission File No. 0-19681). (15) 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). (16) 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). (17) 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). (18) Incorporated by reference to the Registrant's Current Report on Form 8-K dated May 21, 1997 (Commission file No. 0-19681). 53 (19) 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). (20) 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). (21) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the first quarter ended September 24, 1998 (Commission File No. 0-19681). (22) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the second quarter ended December 24, 1998 (Commission File No. 0-19681). (23) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the first quarter ended September 23, 1999 (Commission File No. 0-19681). (24) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 29, 2000 (Commission File No. 0-19681). (25) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the second quarter ended December 28, 2000 (Commission File No. 0-19681). (26) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 27, 2002 (Commission File No. 0-19681). * Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c). EX-4 3 exhibit416.txt EXHIBIT 4.16 ------------ Prudential Capital Group Corporate Finance Two Prudential Plaza, Suite 5600 Chicago, Illinois 60601-6716 Tel 312-540-0931 Fax 312-540-4222 May 30, 2003 John B. Sanfilippo & Son, Inc. 2299 Busse Road Elk Grove Village, Illinois 60007 Attn: Jasper B. Sanfilippo, President Ladies and Gentlemen: Reference is made to that certain Second Amended and Restated Note Agreement dated as of January 24, 1997 (as amended from time to time, the "Note Agreement"), between John B. Sanfilippo & Son, Inc., a Delaware corporation (the "Company"), and The Prudential Insurance Company of America ("Prudential"), pursuant to which the Company issued and sold and Prudential purchased the Company's Series A, B, C, D, E and F Senior Notes in the original principal amounts of $4,000,000, $6,000,000, $4,000,000, $3,000,000, $8,000,000 and $10,000,000, respectively. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Note Agreement. The Company has requested that Prudential agree to modifications to the Note Agreement. Subject to the terms and conditions hereof, and effective upon the satisfaction of the conditions set forth herein, Prudential is willing to agree to such request. Accordingly, and in accordance with the provisions of paragraph 11C of the Note Agreement, the parties hereto agree as follows: SECTION 1. Amendments to the Note Agreement. From and after the time specified in Section 4 hereof, Prudential and the Company agree that the Note Agreement shall be amended as follows: 1.1 Paragraph 6 of the Note Agreement is amended and restated in its entirety as follows: 6. NEGATIVE COVENANTS So long as any Note shall remain unpaid, the Company agrees to observe and perform for the benefit of the holders of the Notes each of the negative covenants set forth below: 6A. Encumbrances The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, levy, assessment, attachment, seizure, writ, distress warrant, or other encumbrance of any nature whatsoever on or with regard to any of its assets other than: (a) Liens securing the payment of taxes, either not yet due or the validity of which is being contested in good faith by appropriate proceedings, and as to which the Company or such Subsidiary shall, if appropriate under Generally Accepted Accounting Principles, have set aside on its books and records adequate reserves; (b) Liens securing deposits under workmen's compensation, unemployment insurance, social security and other similar laws, or securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing indemnity, performance or other similar bonds for the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or securing statutory obligations or surety or appeal bonds, or securing indemnity, performance or other similar bonds in the ordinary course of business; (c) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of the Company's or a Subsidiary's real property, and other liens, security interests and encumbrances on property which are subordinate to any liens and security interests of the holders of the Notes and which do not, in the Required Holder(s)' reasonable determination (i) materially impair the use of such property or (ii) materially lessen the value of such property for the purposes for which the same is held by the Company or such Subsidiary; (d) purchase money security interests securing indebtedness permitted to be incurred under clause (e) of paragraph 6D; (e) any Liens in favor of the holders of the Notes and liens, security interests and other encumbrances existing by operation of law securing the Notes, and (f) Liens granted prior to March 27, 1996 to secure payment of Indebtedness of the type permitted and described in clause (b) of paragraph 6D. 6B. Consolidations, Mergers or Acquisitions The Company shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of the Required Holder(s), recapitalize or consolidate with, merge with, or otherwise acquire all or substantially all of the assets or properties of any other Person. The Company shall not have any Subsidiaries other than JBS, and JBS shall not have any Subsidiaries. 6C. Deposits, Investments, Advances or Loans The Company shall not, and shall not permit any of its Subsidiaries to, make or permit to exist deposits, investments, advances or loans in or to Affiliates or any other Person, except: (a) investments in short-term direct obligations of the United States Government; (b) investments in negotiable certificates of deposit issued by a bank satisfactory to the Required Holder(s) in their reasonable determination, made payable to the order of the Company, any Subsidiary or to bearer; (c) loans to officers, directors, partners, employees or Affiliates as and when permitted by paragraph 6H; and (d) demand deposits held by a bank satisfactory to the Required Holder(s) in their reasonable discretion. Without limiting the generality of the foregoing, the Company shall not, and shall not permit any of its Subsidiaries to, make or permit to exist deposits or investments in Margin Accounts. 6D. Indebtedness The Company shall not, and shall not permit any of its Subsidiaries to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness, direct or indirect, fixed or contingent, except: (a) Indebtedness under the Bank Agreement; (b) Indebtedness existing as of March 27, 1996 which is identified in Exhibit I hereof (exclusive of Indebtedness of the Company's Subsidiaries owing to the Company); (c) obligations secured by liens or security interests permitted under paragraph 6A or contingent obligations permitted under paragraph 6E; (d) trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which the Company or any Subsidiary is contesting in good faith the amount or validity thereof by appropriate proceedings, and then only to the extent that the Company or such Subsidiary has set aside on its books adequate reserves therefor, if appropriate under Generally Accepted Accounting Principles; (e) other Indebtedness secured by liens permitted under clause (d) of paragraph 6A, not exceeding $1,500,000 in the aggregate during any one Fiscal Year; and (f) other unsecured Indebtedness, including capitalized leases, not exceeding the lesser of (i) $2,000,000 or (ii) $3,500,000 less the amount of Indebtedness incurred under the preceding clause (e). JBS shall not directly receive the proceeds of any Loan (as defined in the Bank Agreement). 6E. Guarantees and Other Contingent Obligations The Company shall not, and shall not permit any of its Subsidiaries to, guarantee, endorse or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of such Person or through the purchase of goods, supplies or services, or maintenance of working capital or other balance sheet covenants or conditions, or by way of stock purchase, capital contribution, advance or loan for the purpose of paying or discharging any indebtedness or obligation of such Person or otherwise, except: (a) for endorsements of negotiable instruments for collection in the ordinary course of business; (b) that the Company or any Subsidiary may indemnify its officers and directors to the extent permitted under the laws of the State in which the Company or such Subsidiary is organized; (c) guaranties and other contingent obligations not exceeding $1,000,000 in the aggregate during any one Fiscal Year; and (d) guaranties by JBS of the Notes and of the Teachers Indebtedness. 6F. Disposition of Property The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties, assets or rights, to any Person, except: (a) in the ordinary course of the Company's or such Subsidiary's business; or (b) sales of obsolete, worn out or unusable assets. 6G. Capital Expenditure Limitations Company shall not, and shall not permit any of its Subsidiaries to, purchase, invest in or otherwise acquire (including acquisitions through capitalized leases) additional real estate, equipment or other fixed assets in any Fiscal Year in an amount in excess of $12,000,000 in the aggregate for the Company and its Subsidiaries in any such Fiscal Year. 6H. Loans to Affiliates The Company shall not, and shall not permit any of its Subsidiaries to, make any loans to any of its officers, directors, Affiliates or shareholders, except for (a) advances for travel and expenses to its officers, directors or employees in the ordinary course of business; and (b) loans (including obligations under existing split-dollar life insurance contracts) to its officers, directors or employees not exceeding $2,500,000 in the aggregate at any one time outstanding. 6I. Distributions, Prepayments of Debt The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (a) redeem any of its shares of capital stock; (b) declare any dividends in any year on any class of its capital stock, except that during each Fiscal Year, the Company may make, declare and pay dividends to its shareholders in amounts up to the lesser of (i) 25% of the Company's consolidated net income during the previous Fiscal Year, or (ii) $5,000,000; or (c) prepay, redeem, purchase or deposit funds for the prepayment, redemption or purchase of any principal, interest or other obligations related to any Indebtedness of the Company for borrowed money, other than the Notes and the Bank Obligations. 6J. Change of Control; Amendment of Organization Documents The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction which would result in the failure of Jasper B. Sanfilippo and Mathias Valentine, their respective immediate family members, and certain trusts created for the benefit of their respective sons and daughters to own, in the aggregate, shares of voting stock of the Company, on a fully diluted basis, representing the right to elect a majority of the directors of the Company. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction which would result in the failure of the Company to own directly and beneficially, 100% of the outstanding shares of all classes of common stock of JBS. The Company shall not, and shall not permit any of its Subsidiaries to, amend its articles or certifi- cate of incorporation, bylaws or any other agreement, instrument or document affecting its organization, management or governance, without the prior written consent of the Required Holder(s), which consent shall not be unreasonably withheld; provided, however, that so long as no liability to the Company shall ensure therefrom, and so long as any and all assets then owned by JBS shall be transferred to the Company, the holders of the Notes hereby consent to the dissolution of JBS at any time the Company elects to do so. 6K. Use of Names Except to the extent that the holders of the Notes have been notified in advance, the Company shall not, and shall not permit any of its Subsidiaries to, use any corporate names (as distinguished from brand names) other than John B. Sanfilippo & Son, Inc., Sunshine Nut Co., Inc., Midwest Nut & Seed, Inc., The Home Economist, JBS International, Inc. and Quantz Acquisition, Co., Inc., nor shall the Company change any of said names. 6L. Payment of Certain Debt The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay, prepay, redeem or purchase, or deposit funds or property for the payment, prepayment, redemption or purchase of the indebtedness of the Company which is subordinated to the payment of any portion of the Notes, except that the Company may make scheduled payments to the extent such payments do not conflict with any terms of subordination applicable thereto. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, prepay, redeem or purchase, or deposit funds or property for the prepayment, redemption or purchase of the Teachers Indebtedness. 6M. Amendments to Certain Documents. The Company will not consent to or permit any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, the Teachers Note Agreement, the Bank Agreement or any document or instrument evidencing or applicable to any Subordinated Debt, other than any amendment, supplement or other modification which: (i) extends the date or reduces the amount of any required repayment or redemption, (ii) causes the terms and provisions of such agreement, document or instrument to conform to and in any case not conflict with the terms and provisions of this Agreement, or (iii) solely with respect to the Bank Agreement and subject to the terms of paragraph 6O, increases the principal amount of Indebtedness thereunder or pricing applicable thereto if no default or event of default shall be continuing hereunder or under the Bank Agreement at the time (or immediately prior to the time) such amendment, supplement or modification is entered into (or series of related amendments, modifications or supplements entered into in concert), without, in all cases, the consent of the Required Holder(s), which consent shall not be unreasonably withheld or delayed. Without limiting the generality of the foregoing, the Company will not consent to or permit any amendment, supplement or other modification which has the effect of (i) increasing the interest rate or fees under such agreement (other than the Bank Agreement to the extend permitted by the immediately preceding sentence), (ii) increasing the amount of obligations of the Company or any Subsidiary under such agreement (other than the Bank Agreement to the extend permitted by the immediately preceding sentence), (iii) amending the financial covenants contained in such agreement or (iv) with respect to the Teachers Note Agreement, permitting any prepayment of obligations under such agreement. The Company shall not, and shall not permit any of its Subsidiaries to, amend the Bainbridge Bond Documents or the Bainbridge Loan Documents without the prior written consent of the Required Holder(s). 6N. Fiscal Year The Company shall not, and shall not permit any of its Subsidiaries to, change its Fiscal Year without the prior written consent of the Required Holder(s). 6O. Financial Covenants and Ratios. The Company shall not permit: (a) as of the end of each month, Tangible Net Worth to be less than $95,000,000, plus for each Fiscal Year beginning with the Fiscal Year 2003, 50% of the aggregate cumulative annual positive net income of the Company and its Subsidiaries during the previous Fiscal Year (with no deductions for annual losses); (b) as of the end of each month, the Working Capital Ratio to be less than 1.5 to 1.0; (c) as of the end of each fiscal quarter, and measured on a rolling four quarter basis, EBITDA to be less than (i) during Fiscal Year 2003, $25,000,000, (ii) during Fiscal Year 2004, $28,000,000, and (iii) beginning with the first fiscal quarter of Fiscal Year 2005 and at all times thereafter, $30,000,000; (d) as of the end of each month, Working Capital to be less than $50,000,000; (e) as of the end of each fiscal quarter, and measured on a rolling four quarter basis, the Leverage Ratio to be more than 3.50 to 1.00; (f) as of the end of each fiscal quarter, and measured on a rolling four quarter basis, the Fixed Charge Coverage Ratio to be less than 1.20 to 1.00; and (g) total assets of the Company on an unconsolidated basis to be less than 75% of total assets of the Company and its Subsidiaries on a consolidated basis at any time. 1.2 The following definitions appearing in paragraph 10B of the Note Agreement are amended and restated in their entirety as follows: "Bank Agent" shall mean U.S. Bank National Association, a national banking association (as successor to U.S. Bancorp Ag Credit, Inc., a Colorado corporation) in its capacity as agent under the Bank Agreement. "Bank Agreement" shall mean that certain Credit Agreement dated as of March 31, 1998 by and among the Company, JBS, Sunshine and Quantz, the financial institutions named on the signature page thereto, and the Bank Agent, as agent for such financial institutions, together with the "Financing Agreements" (as defined therein), all as amended, modified and in effect from time to time pursuant to the terms hereof. "Banks" shall mean the Bank Agent and each other financial institution named on the signature page to the Bank Agreement, and their respective successor and assigns and any together party that becomes a lender under the Bank Agreement. "Fixed Charge Coverage Ratio" shall mean, for the then preceding four fiscal quarters, the ratio of the aggregate amount: (a) Unallocated Cash Flow, plus (b) the aggregate cash interest paid during such period of by the Company and its Subsidiaries; divided by (c) (i) the aggregate amount of principal paid (or due to be paid if not paid on or before the original due date) by the Company and its Subsidiaries during such period with respect to long term debt (excluding capitalized or synthetic leases), excluding payments that were due and counted as of their original due date, plus (ii) the aggregate amount of cash interest paid by the Company and its Subsidiaries during such period (excluding implicit interest expense on capitalized or synthetic leases). For purposes of calculating the Fixed Charge Coverage Ratio, the Company and its Subsidiaries shall consider all payments made on subordinated debt to be normalized to an annual amount of $1,500,000 based on a ten (10) year amortization schedule. "Funded Debt" shall mean, for the then preceding four quarters, the aggregate amount of the outstanding principal amount of all interest bearing indebtedness for borrowed money (including without limitation, capitalized leases) of the Company and its Subsidiaries. For purposes of calculating Funded Debt, the outstanding principal amount of Loans (as defined in the Bank Agreement), as of any date of determination, shall be computed by averaging the outstanding balance thereof as of the last day of the month for each of the then preceding twelve months. "Tangible Net Worth" shall mean as of any particular date, the difference between: (a) the aggregate total assets of the Company and its Subsidiaries as they would normally be shown on a balance sheet in accordance with Generally Accepted Accounting Principles, adjusted by deducting: (i) all values attributable to general intangibles, as determined in accordance with Generally Accepted Accounting Principles, and by deducting (ii) Accounts due from Affiliates with no further adjustment required for Accounts due from Affiliates already eliminated in combination except Accounts due from Affiliates which the Company or any of its Subsidiaries could legally collect by setoff against Accounts due to Affiliates; and (b) the aggregate total liabilities of the Company and its Subsidiaries as they would normally be shown on a balance sheet, adjusted by adding as liabili- ties: (i) all capitalized leases and guarantees of the indebtedness of Affiliates, with no further adjustment required for guaranteed indebtedness already included in the balance sheet, and by deducting from liabilities: (ii) any and all liabilities which are expressly subordinated on terms satisfactory to the holders of the Notes (it being agreed that the current terms of subordination are and shall remain acceptable to the holders of the Notes). 1.3 The following definitions are added to paragraph 10B of the Note Agreement in their alphabetically proper place: "Accounts" shall mean all present and future rights (including without limitation, rights under any Margin Accounts) of the Company or any of its Subsidiaries to payment for Inventory or other goods sold or leased or for services rendered, which rights are not evidenced by instruments or chattel paper, regardless of whether such rights have been earned by performance. "Bainbridge Bond Documents" shall mean all agreements, instruments and documents as now in effect and executed or delivered in connection with the Bainbridge Indenture, and as the same may be amended, replaced, restated and/or supplemented from time to time hereafter, including without limitation, the Bainbridge Loan Agreement. "Bainbridge Indenture" shall mean that certain Trust Indenture dated as of June 1, 1987 between the Decatur County - Bainbridge Industrial Development Authority and Trust Company Bank, as now in effect and as the same may be amended, replaced, restated and/or supplemented from time to time hereafter. "Bainbridge Loan Agreement" shall mean that certain Loan Agreement dated as of June 1, 1987, between the Decatur County - Bainbridge Industrial Development Authority and the Company, as now in effect and as the same may be amended, replaced, restated and/or supplemented hereafter. "Bainbridge Loan Documents" shall mean all agreements, instruments and documents executed or delivered in connection with the Bainbridge Loan Agreement, as now in existence and as the same may be amended, replaced, restated and/or supplemented from time to time. "EBITDA" shall mean, for the then preceding four fiscal quarters, the aggregate net income of the Company and its Subsidiaries before provision for income taxes, interest expense (including without limitation, implicit interest expense on capitalized leases), depreciation, amortization and other non-cash expenses or charges (including (i) any non-cash charges associated with FAS 142 adjustments, and (ii) any one-time slotting fees or distribution allowances), excluding (to the extent otherwise included): (a) non-operating gains (including without limitation, extraordinary or nonrecurring gains, gains from discontinuance of operations and gains arising from the sale of assets other than Inventory or property, plant and equipment) during the applicable period; and (b) similar non-operating losses during such period. "Inventory" shall mean any and all goods which shall at any time constitute "inventory" or "farm products" (in each case, as defined in the Uniform Commercial Code as in effect in the State of Colorado) of the Company and its Subsidiaries, wherever located (including without limitation, goods in transit), or which from time to time are held for sale, lease or consumption, furnished under any contract of service or held as raw materials, work in process, finished inventory or supplies (including without limitation, packaging and/or shipping materials). "JBS" shall mean JBS International, Inc., a Barbados corporation. "Leverage Ratio" shall mean, for the then preceding four fiscal quarters, the ratio: (a) Funded Debt, divided by (b) EBITDA. "Margin Accounts" shall mean all futures contracts or funds and other property related to such futures contracts, which the Company, any of its Subsidiary or any authorized attorney-in-fact of the Company or any of its Subsidiary may acquire, accumulate, withdraw or pay out, and which may be held with any broker, including without limitation, any balance credited to any Margin Account upon its closing. "Working Capital" shall mean as of any particular date, the amount of the aggregate current assets of the Company and its Subsidiaries, less the aggregate current liabilities of the Company and its Subsidiaries determined in accordance with Generally Accepted Accounting Principles, adjusted by deducting: (i) all values attributable to general intangibles, as determined in accordance with Generally Accepted Accounting Principles; and by deducting (ii) Accounts due from Affiliates with no further adjustment required for Accounts due from Affiliates already eliminated in combination except Accounts due from Affiliates which the Company or any of its Subsidiaries could legally collect by setoff against Accounts due to Affiliates, and treating as equity any and all liabilities which are expressly subordinated on terms satisfactory to the holders of the Notes (it being agreed that the current terms of subordination are and shall remain acceptable to the holders of the Notes). "Working Capital Ratio" shall mean as of any particular date, the ratio of the aggregate current assets of the Company and its Subsidiaries, to the aggregate current liabilities of the Company and its Subsidiaries determined in accordance with Generally Accepted Accounting Principles, treating all amounts currently owing to Affiliates as current liabilities and giving no value as assets to any amounts currently owing from Affiliates. "Unallocated Cash Flow" shall mean, for any period of determination, (a) EBITDA during such period, plus (b) the aggregate amount of net new long term debt incurred by the Company and its Subsidiaries during such period, plus (c) the aggregate amount of net capital contributions made to the Company and its Subsidiaries during such period, minus (d) the aggregate amount of cash income taxes paid by the Company and its Subsidiaries during such period, minus (e) the aggregate amount of cash dividends paid by the Company and its Subsidiaries during such period, minus (f) the aggregate amount of cash interest paid by the Company and its Subsidiaries during such period, minus (g) the aggregate amount of the lesser of (i) depreciation, or (ii) actual capital expenditures, in each case of the Company and its Subsidiaries during such period. 1.4 The following definitions appearing in paragraph 10B of the Note Agreement are deleted in their entirety: "Current Ratio," "Funded Indebtedness," "Permitted Liens," "Rolling Fixed Charge Coverage Ratio," "Senior Funded Indebtedness," "Subordinated Funded Indebtedness," and "Total Capitalization." SECTION 2. Consent. Subject to the complete satisfaction of all of the conditions set forth in Section 4 below, pursuant to paragraph 6M of the Note Agreement, Prudential hereby consents to that certain Fourth Amendment to Credit Agreement dated as of May 30, 2003 by and among the Company, JBS, the Bank Agent and the Banks. SECTION 3. Representations, Warranties and Covenant. The Company represents and warrants to Prudential that, after giving effect hereto (a) each representation and warranty set forth in paragraph 8 of the Note Agreement is true and complete in all material respects as of the date of the execution and delivery of this letter agreement by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and complete in all material respects as of such earlier date), (b) no Event of Default or Default exists, (c) each of the representations and warranties made by the Company, and, if applicable, any Subsidiary in the Credit Agreement is true and complete in all material respects as of the date of the execution and delivery of this letter agreement by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and complete in all material respects as of such earlier date), (d) the Company has paid a fee of $145,000 to the Bank Agent and the Banks with respect to the amendment and consent referred to in clauses (iii) and (iv) of Section 4(a) below and the Company has not paid or agreed to pay, and the Company will not pay or agree to pay, any other fees or other consideration to any Person for or with respect to such amendment and consent, and (e) the Company has not paid or agreed to pay, and the Company will not pay or agree to pay, any fees or other consideration to any Person for or with respect to the consent referred to in clause (v) of Section 4(a) below. SECTION 4. Effectiveness. The amendments described in Section 1 above and the consent described in Section 2 above shall become effective on the date (the "Effective Date") when each of the following conditions has been satisfied in a manner satisfactory in form and substance to Prudential: (a) Prudential has received the following documents: (i) counterparts of this letter agreement duly executed by the Company; (ii) a consent of guarantor, dated the date hereof, duly executed by JBS International, Inc., in the form attached hereto as Exhibit A; (iii) a certified copy of an amendment to the Bank Agreement and all agreements, instruments and documents executed in connection therewith, in form and substance satisfactory to Prudential; (iv) a consent duly executed by the Bank Agent and each Bank and dated the date hereof, in the form attached hereto as Exhibit B; (v) a consent duly executed by Teachers and dated the date hereof, in the form attached hereto as Exhibit C; and (vi) that certain letter agreement regarding setoff rights dated March 31, 1998 by and among Prudential, Teachers, the Bank Agent and the Banks shall be in full force and effect; (b) all corporate and other proceedings in connection with the transactions contemplated by this letter agreement shall be satisfactory to Prudential and its counsel, and Prudential shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request; (c) Prudential has received payment of all costs and expenses of Prudential (including reasonable fees and disbursements of special counsel to Prudential) in connection with this letter agreement and the transactions contemplated hereby. SECTION 5. Reference to and Effect on Note Agreement. Upon the effectiveness of this letter agreement, each reference in the Note Agreement or any other document, instrument or agreement to the "Note Agreement" shall mean and be a reference to the Note Agreement as modified by this letter agreement. Except as specifically set forth in Section 1 hereof, the Note Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. SECTION 6. Expenses. The Company hereby confirms its obligations under the Note Agreement, whether or not the transactions hereby contemplated are consummated, to pay, promptly after request by Prudential, all reasonable out-of-pocket costs and expenses, including attorneys' fees and expenses, incurred by Prudential in connection with this letter agreement or the transactions contemplated hereby, in enforcing any rights under this letter agreement, or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this letter agreement or the transactions contemplated hereby. The obligations of the Company under this Section 6 shall survive transfer by Prudential of any Note and payment of any Note. SECTION 7. Governing Law. THIS LETTER AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE WHICH WOULD OTHERWISE CAUSE THIS LETTER AGREEMENT TO BE CONSTRUED OR ENFORCED OTHER THAN IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. SECTION 8. Counterparts; Section Titles. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. The section titles contained in this letter agreement are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ MATHEW DOUGLASS ------------------- Title: Vice President AGREED AND ACCEPTED: JOHN B. SANFILIPPO & SON, INC. By: /s/ MICHAEL J. VALENTINE ------------------------ Title: Chief Financial Officer EX-4 4 exhibit417.txt EXHIBIT 4.17 ------------ CONSENT OF GUARANTOR -------------------- The undersigned, a guarantor under a guaranty agreement (as amended from time to time, the "Guaranty") dated as of March 31, 1998, made by such guarantor in favor of Prudential and executed in connection with the Note Agreement referred to in that certain letter agreement (the "Letter Agreement") dated May 30, 2003, between John B. Sanfilippo & Son, Inc. and The Prudential Insurance Company of America (the "Prudential"), hereby consents to the Letter Agreement and the amendments and agreements contained therein and confirms and agrees that, notwithstanding the Letter Agreement and the effectiveness of the amendments and agreements contained therein, the Guaranty is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects. Nothing herein is intended or shall be deemed to limit any rights of Prudential under the Guaranty to take actions without the consent of the undersigned. Dated as of May 30, 2003 JBS INTERNATIONAL, INC. By: /s/ MICHAEL J. VALENTINE ------------------------ Title: President --------- EXHIBIT B Form of Consent - Bank Agent and Banks See Attached May 30, 2003 The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza, Suite 5600 Chicago, Illinois 60601 Attn: Managing Director John B. Sanfilippo & Son, Inc. 2299 Busse Road Elk Grove, Illinois 60007 Attn: Michael Valentine Re: John B. Sanfilippo & Son, Inc. Consent Ladies and Gentlemen: U.S. Bank National Association, Sun Trust Bank, N.A., and LaSalle Bank National Association (collectively, the "Lenders"), and U.S. Bank National Association in its capacity as agent for such Lenders (the "Agent"), in each case under that certain Credit Agreement dated as of March 31, 1998 (as the same has been amended, "Credit Agreement") by and among the Agent, the Lenders, John B. Sanfilippo & Son, Inc. (the "Company"), JBS International, Inc., Sunshine Nut Co., Inc., and Quantz Acquisition Co., Inc., each have reviewed, and hereby consents to, the terms and conditions of that certain letter agreement dated as of May 30, 2003 by and between the Company and The Prudential Insurance Company of America (the "Modification"). The Agent and the Lenders hereby provide the Company with all consents, waivers, and approvals required or necessary under the Credit Agreement to authorize the Company to enter into the Modification, and the Company shall not be in default under the Credit Agreement by virtue of its execution of the Modification. Sincerely, U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: Its: SUN TRUST BANK, N.A., as a Lender By: Its: LASALLE BANK NATIONAL ASSOCIATION, as a Lender By: Its: EXHIBIT C Form of Consent - Teachers See Attached May 30, 2003 The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza, Suite 5600 Chicago, Illinois 60601 Attn: Managing Director John B. Sanfilippo & Son, Inc. 2299 Busse Road Elk Grove, Illinois 60007 Attn: Michael Valentine Re: John B. Sanfilippo & Son, Inc. Consent Ladies and Gentlemen: Teachers Insurance and Annuity Association of America ("Teachers"), the lender under that certain Note Purchase Agreement dated as of August 30, 1995 (as the same has been amended, "Note Purchase Agreement"), has reviewed, and hereby consents to, the terms and conditions of that certain letter agreement dated as of May 30, 2003 by and between John B. Sanfilippo & Son, Inc. (the "Company") and The Prudential Insurance Company of America (the "Modification"). Teachers hereby provides the Company with all consents, waivers, and approvals required or necessary under the Note Purchase Agreement to authorize the Company to enter into the Modification, and the Company shall not be in default under the Note Purchase Agreement by virtue of its execution of the Modification. Sincerely, TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: Its: John B. Sanfilippo & Son, Inc. May 30, 2003 Page 7 Prudential Capital Group Corporate Finance Two Prudential Plaza, Suite 5600 Chicago, Illinois 60601-6716 Tel 312-540-0931 Fax 312-540-4222 4 EX-10 5 exhibit1031.txt EXHIBIT 10.31 ------------- FOURTH AMENDMENT TO CREDIT AGREEMENT ------------------------------------ This Fourth Amendment ("Amendment") is made as of the 30th day of May, 2003 to the Credit Agreement dated as of March 31, 1998 (as amended, supplemented, restated or otherwise modified and in effect from time to time, the "Credit Agreement"), by and among JOHN B. SANFILIPPO & SON, INC., a Delaware corporation (and successor in interest to Sunshine Nut Co., Inc. and Quantz Acquisition Co., Inc., "Sanfilippo"), and JBS INTERNATIONAL, INC., a Barbados corporation, ("JBS" and together with Sanfilippo, the "Borrower"), the financial institutions party thereto (collectively "Lenders" and individually a "Lender") and U.S. BANK NATIONAL ASSOCIATION, a national banking association, in its capacity as successor Agent for the Lenders to U.S. Bancorp Ag Credit, Inc., a Colorado corporation (the "Agent"). RECITAL Except as defined herein, all capitalized terms used in this Amendment shall have meaning assigned to them in the Credit Agreement. Borrower has requested to borrow increased sums and to otherwise amend the Credit Agreement, and the Agent and the Lenders have agreed to such amendments upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the foregoing and of the terms and conditions contained in the Credit Agreement and this Amendment, and of any loans or extensions of credit or other financial accommodations at any time made to or for the benefit of the Borrower by Lenders, the Borrower, the Agent and the Lenders agree as follows: 1. The following definitions as set forth in Section 1.1 of the Credit Agreement, General Definitions, shall be amended to add, delete or modify such definitions as follows: "Agent's Letter" shall mean the letter agreement between the Agent and the Borrower dated May 30, 2003, which letter shall amend and supercede all prior "Agent's Letters" under the Credit Agreement and any and all prior amendments thereto immediately upon the effectiveness thereof. "Anniversary Date" shall mean June 1, 2004 and each June 1 thereafter. "Applicable Margin" shall mean (i) with respect to Revolving Loans which are Prime Rate Loans, zero percent (0.00%) per annum; and (ii) with respect to Revolving Loans, which are either Overnight Funds Rate Loans or LIBOR Rate Loans, the rates per annum set forth below for the then applicable Financial Performance Level: Financial Performance Level LIBOR Rate ----------- ---------- Level 1 2.50% Level 2 2.00% Level 3 1.75% Level 4 1.50% Level 5 1.25% The initial Financial Performance Level shall be Level 4. The Agent will review Borrower's financial performance as of each fiscal quarter end, beginning with the fiscal quarter ending June, 2003, after its receipt of Borrower's financial statements and Compliance Certificate as of the end of such fiscal quarter, and will confirm Borrower's determination as to Borrower's Financial Performance Level based on such fiscal quarter. As so confirmed by the Agent, Borrower's Financial Performance Level will determine the Applicable Margin effective for Revolving Advances for the three month period beginning on the fifteenth day of the month following the month in which the Agent receives such quarter end financial statements from Borrower in accordance with Section 9.1. Any adjustment in the Applicable Margin will be effective on the fifteenth day of the month following the month in which the Agent receives such quarter end financial statements. If the Agent does not receive such quarter end statements on or before the date they are due in accordance with Section 9.1, Borrower's Financial Performance Level shall be deemed to be Level 1 beginning with the fifteenth day of the second month following the end of such fiscal quarter and shall remain at Level 1 until the 15th Business Day after such financial statements are received by the Agent and a determination by the Agent that a different Financial Level shall apply as provided herein. "Compliance Certificate" shall mean that certificate to be delivered to the Agent by the Borrower in the form attached as Exhibit 9A-2. "EBITDA" shall mean, for the then preceding four fiscal quarters and with respect to any Person, the net income of such Person before provision for income taxes, interest expense (including without limitation, implicit interest expense on capitalized leases), depreciation, amortization and other non-cash expenses or charges (including (i) any non-cash charges associated with FAS 142 adjustments, and (ii) any one-time slotting fees or distribution allowances), excluding (to the extent otherwise included): (a) non-operating gains (including without limitation, extraordinary or nonrecurring gains, gains from discontinuance of operations and gains arising from the sale of assets other than Inventory or property, plant and equipment) during the applicable period; and (b) similar non-operating losses during such period. "Financial Performance Level" shall mean the applicable level of Borrower's financial performance determined in accordance with the table set forth below. Financial Leverage Ratio Performance -------------- Level ----------- Level 1 Greater than or equal to 3.00 to 1.0 Level 2 Less than 3.00 to 1.0 but greater than or equal to 2.50 to 1.0 Level 3 Less than 2.50 to 1.0 but greater than or equal to 2.00 to 1.0 Level 4 Less than 2.00 to 1.0 but greater than or equal to 1.50 to 1.0 Level 5 Less than 1.50 to 1.0 "Fixed Charge Coverage Ratio" for the then preceding four fiscal quarters, the ratio of Borrower's: (a) Unallocated Cash Flow, plus (b) cash interest paid during such period; divided by (c) (i) the amount of principal paid (or due to be paid if not paid on or before the original due date) by Borrower during such period with respect to long term debt (excluding capitalized or synthetic leases), excluding payments that were due and counted as of their original due date, plus (ii) the amount of cash interest paid by Borrower during such period (excluding implicit interest expense on capitalized or synthetic leases). For purposes of calculating the Fixed Charge Coverage Ratio, Borrower shall consider all payments made on subordinated debt to be normalized to an annual amount of $1,500,000 based on a ten (10) year amortization schedule. "Funded Debt" shall mean, for the then preceding four quarters, Borrower's outstanding principal amount of all interest bearing indebtedness for borrowed money (including without limitation, capitalized leases). For purposes of calculating Funded Debt, the outstanding principal amount of Loans, as of any date of determination, shall be computed by averaging the outstanding balance of the Loans as of the last day of the month for each of the then preceding twelve months. "LC Commitment" shall mean as to any Lender, such Lender's Pro Rata Percentage of $20,000,000 using the percentage set forth opposite such Lender's name under the heading "LC Commitments" on Exhibit 1A-2, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, less such Lender's Pro Rata Percentage of payments received with respect to the LC Obligations, and "LC Commitments" shall mean, collectively, the LC Commitments for all the Lenders. "Leverage Ratio" shall mean, for the then preceding four fiscal quarters, the ratio of Borrower's: (a) Funded Debt divided by (b) EBITDA. "Loan Commitment" shall mean as to any Lender, such Lender's Pro Rata Percentage of $80,000,000 as set forth opposite such Lender's name under the heading "Loan Commitments" on Exhibit 1A-2, as such amount may be reduced or terminated from time to time pursuant to Section 4.4 or 11.1, and "Loan Commitments" shall mean, collectively, the Loan Commitments for all the Lenders. "Maturity Date" shall mean May 31, 2006, or such later date as may be agreed upon in writing by the Borrower, the Agent and the Lenders, or the earlier date of termination in whole of the commitments pursuant to Section 4.4 or 11.1. "Overnight Funds Rate" shall mean, as of any date of determination, an annual rate equal to the one-month LIBOR Rate quoted by U.S. Bank from Telerate Page 3750 or any successor thereto, which shall be that one-month LIBOR Rate in effect and reset each Business Day, plus twenty basis points (.20%). U.S. Bank's internal records of applicable interest rates shall be determinative in the absence of manifest error. In the event after the date of initial funding any governmental authority subjects U.S. Bank to any new or additional charge, fee, withholding or tax of any kind with respect to any Overnight Funds Rate loans or changes the method of taxation of such loans or changes the reserve or deposit requirements applicable to such loans, the Borrower shall pay to U.S. Bank such additional amounts as will compensate U.S. Bank for such costs or lost income resulting therefrom as reasonably determined by U.S. Bank. "Overnight Funds Rate Loan" shall mean any Loan, which bears interest at the Overnight Funds Rate plus the Applicable Margin. "Tangible Net Worth" shall mean as of any particular date, the difference between: (a) the Borrower's combined total assets as they would normally be shown on the balance sheet of the Borrower in accordance with GAAP, adjusted by deducting: (i) all values attributable to general intangibles, as determined in accordance with GAAP; and by deducting (ii) Accounts due from Affiliates with no further adjustment required for Accounts due from Affiliates already eliminated in combination except Accounts due from Affiliates which the Borrower could legally collect by setoff against Accounts due to Affiliates; and (b) the Borrower's combined total liabilities as they would normally be shown on the balance sheet of the Borrower, adjusted by adding as liabilities: (i) all capitalized leases and guarantees of the indebtedness of Affiliates, with no further adjustment required for guaranteed indebtedness already included in the combined balance sheet, and by deducting from liabilities, (ii) any and all liabilities which are expressly subordinated on terms satisfactory to the Agent. "Unallocated Cash Flow" shall mean for any period of determination (a) EBITDA during such period, plus (b) net new long term debt incurred during such period, plus (c) net capital contributions during such period, minus (d) the amount of cash income taxes paid during such period, minus (e) the amount of cash dividends paid during such period, minus (f) the amount of cash interest paid during such period, minus (g) the lesser of (i) depreciation or (ii) actual capital expenditures. "Working Capital" shall mean as of any particular date, the Borrower's combined current assets, less the Borrower's combined current liabilities (including without limitation, the aggregate amount of Loans outstanding) determined in accordance with GAAP, adjusted by deducting: (i) all values attributable to general intangibles, as determined in accordance with GAAP; and by deducting (ii) Accounts due from Affiliates with no further adjustment required for Accounts due from Affiliates already eliminated in combination except Accounts due from Affiliates which the Borrower could legally collect by setoff against Accounts due to Affiliates, and treating as equity any and all liabilities which are expressly subordinated on terms satisfactory to the Agent. 2. The Notes referred to in Subsection (h) of Section 2.1 of the Credit Agreement, Loans, shall be in the form attached hereto as Exhibit 2A-2. 3. The outside expiry date for Extended LC's set forth in Section 2.2(b)(iii) of the Credit Agreement shall be amended to "May 31, 2007." 4. Section 3.1 of the Credit Agreement, Interest, is amended and restated in full as follows: 3.1 Interest. The Borrower shall pay interest on the unpaid principal amount of each Loan made by each Lender from the date of such Loan until such principal amount shall be paid in full, at the times and at the rates per annum set for below: (a) (i) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is a Prime Rate Loan, a rate per annum equal to the lesser of (i) the Prime Rate plus the Applicable Margin and (ii) the Highest Lawful Rate, payable monthly in arrears on the first day of each month commencing on June 1, 2003, and on the Maturity Date, which interest shall be paid by an Agent initiated Loan pursuant to Section 2.1, without prior demand by the Agent. With respect to each Prime Rate Loan, the rate of interest accruing shall change concurrently with each change in the Prime Rate as announced by U.S. Bank. (ii) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is an Overnight Funds Rate Loan, a rate per annum equal to the lesser of (i) the Overnight Funds Rate plus the Applicable Margin and (B) the Highest Lawful Rate, payable monthly in arrears on the first day of each month commencing June 1, 2003, and on the Maturity Date. With respect to each Overnight Funds Rate Loan, the rate of interest accruing shall change concurrently with each change in the one-month LIBOR Rate as quoted by the Agent. (b) So long as no Matured Default has occurred or is continuing, during such periods as such Loan is a LIBOR Rate Loan, a rate per annum during each Interest Period for such Loan, equal to the lesser of (i) the sum of the LIBOR Rate for such Interest Period for such Loan plus the Applicable Margin and (ii) the Highest Lawful Rate, payable in arrears on the last day of the Interest Period in respect of such LIBOR Rate Loan, and, if the Interest Period with respect to such LIBOR Rate Loan exceeds three months, the day which is three months after the making of such LIBOR Rate Loan, which interest shall be paid by an Agent initiated Loan pursuant to Section 2.1, without prior demand by the Agent. (c) After the occurrence of a Matured Default, the Agent may notify the Borrower that for so long as such Matured Default is continuing, any amount due hereunder, under the Notes or under any other Financing Agreement, whether for principal, interest (to the extent permitted by applicable law), fees, expenses or otherwise, shall bear interest, from the date on which such Matured Default occurs and during the continuation of such Matured Default, payable on demand, at a rate per annum (the "Default Rate") equal to the lesser of (i) the sum of three percent (3.0%) per annum plus the otherwise applicable rate of interest on such Loans in effect at such time and (ii) the Highest Lawful Rate. (d) All computations of interest pursuant to this Section 3.1 shall be made by the Agent on the basis of 360 days, unless the foregoing would result in a rate exceeding the Highest Lawful Rate, in which case, such computations shall be based on a year of 365 or 366 days, as the case may be. Interest, whether based on a year of 360, 365 or 366 days, shall be charged for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Agent of an interest rate shall be conclusive and binding for all purposes, absent manifest error. 5. Section 6.2 of the Credit Agreement, Additional Fees with Respect to LC's, shall be amended and restated in full as follows: 6.2 Additional Fees with Respect to LC's. The Borrower agrees to pay to the Agent for distribution to the Lenders (based on their respective Pro Rata Percentages) a quarterly fee in respect of each LC issued hereunder beginning June 30, 2003, on the face amount of such LC (accrued on the basis of a 360 day year, and charged for actual days elapsed). The rate at which the LC fee is calculated during any quarter shall be the rate set forth below for the then applicable Financial Performance Level: Financial LCs with an expiry date LCs with an expiry date Performance less than or equal to 12 greater than 12 months Level months from issuance from issuance ----------- ------------------------ ----------------------- Level 1 2.50% 2.75% Level 2 2.00% 2.25% Level 3 1.75% 2.00% Level 4 1.50% 1.75% Level 5 1.25% 1.50% The quarterly LC fee shall be due and payable in arrears on the first day of each January, April, July and October hereafter through the Maturity Date, unless the Borrower has fully terminated the commitment in accordance with Section 4.4 and there are then no outstanding Letter of Credit Obligations. A pro-rated LC fee shall also be due and payable on the Maturity Date and on any date on which the Borrower terminates the Commitment in full in accordance with Section 4.4. Each quarterly LC fee shall be earned as it accrues and, at the option of the Agent, shall be paid by Agent-initiated Loans. Borrower shall also pay fronting fees with respect to any LC issued hereunder at the rate of one-eighth of one percent (0.125%) on the face amount of the LC regardless of the term for which it is issued, which fee shall be payable to the Issuer upon the issuance of such Letter of Credit. If the Issuer of any LC is the Agent or an Affiliate of the Agent, the Borrower shall also pay to the Agent for the account of the Agent or such Affiliate (as the case may be), the normal and customary processing fees charged by the Agent or such Affiliate in connection with the issuance of or drawings under each such LC. If the Issuer of any LC is a Lender other than the Agent, the Borrower shall pay directly to such Lender, the normal and customary processing fees charged by such Lender in connection with the issuance of or drawings under each such LC. 6. The compliance certificate required to be delivered by the Borrower to the Agent pursuant to Section 9.1 of the Credit Agreement, Financial Statements and Other Information, shall be in the form attached hereto as Exhibit 9A-2 ("Compliance Certificate"). 7. Section 9.6 of the Credit Agreement, Financial Covenants and Ratios, shall be amended and restated in full as follows: 9.6 Financial Covenants and Ratios. The Borrower shall maintain (a) as of the end of each month, Tangible Net Worth of not less than $95,000,000, plus for each Fiscal Year, beginning with the Borrower's 2003 Fiscal Year, 50% of the Borrower's cumulative annual positive net income during the previous Fiscal Year (with no deductions for annual losses); (b) as of the end of each month, a Working Capital Ratio of not less than 1.5 to 1.0; (c) as of the end of each fiscal quarter, and measured on a rolling four quarter basis, EBITDA not less than (i) during Fiscal Year 2003, $25,000,000, (ii) during Fiscal Year 2004, $28,000,000, and (iii) beginning with the first fiscal quarter of Fiscal Year 2005 and at all times thereafter, $30,000,000; (d) as of the end of each month, Working Capital of not less than $50,000,000; (e) as of the end of each fiscal quarter, and measured on a rolling four quarter basis, a Leverage Ratio of not more than 3.50 to 1.00; and (f) as of the end of each fiscal quarter, and measured on a rolling four quarter basis, a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00. 8. Subsection (e) of Section 10.4 of the Credit Agreement, Indebtedness, shall be amended and restated as follows: (e) other unsecured indebtedness, including capitalized leases, not exceeding the lesser of (i) $2,000,000 or (ii) $3,500,000 less the amount of indebtedness incurred under the preceding clause (d). 9. Section 10.7 of the Credit Agreement, Capital Investment Limitations, shall be amended and restated in full to read as follows: 10.7 Capital Investment Limitations. Borrower shall not purchase, invest in or otherwise acquire (including acquisitions through capitalized leases) additional real estate, equipment or other fixed assets in any fiscal year in an amount in excess of $12,000,000 in the aggregate in any such fiscal year. 10. Section 10.9 of the Credit Agreement, Loans to Affiliates, shall be amended in restated in full as follows: 10.9 Loans to Affiliates. The Borrower shall not make any loans to any officers, directors, Affiliates or shareholders of the Borrower, except for (a) advances for travel and expenses to the Borrower's officers, directors or employees in the ordinary course of the Borrower's business; and (b) loans (including obligations under existing split-dollar life insurance contracts) to the Borrower's officers, directors or employees not exceeding $2,500,000 in the aggregate at any one time outstanding. 11. Section 10.11 to the Credit Agreement, Change of Control; Amendment of Organization Documents, shall be amended and restated in full as follows: 10.11 Change of Control; Amendment of Organization Documents. The Borrower shall not enter into any transaction which would result in the failure of Jasper B. Sanfilippo and Mathias Valentine, their respective immediate family members, and certain trusts created for the benefit of their respective sons and daughters to own, in the aggregate, shares of voting stock of Sanfilippo, on a fully diluted basis, representing the right to elect a majority of the directors of Sanfilippo. The Borrower shall not enter into any transaction, which would result in the failure of Sanfilippo to own directly and beneficially, 100% of the outstanding shares of all classes of common stock of Sunshine, Quantz and JBS. The Borrower shall not amend the Borrower's articles or certificate of incorporation, bylaws or any other agreement, instrument or document affecting the Borrower's organization, management or governance, without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld; provided, however, that so long as no liability to Sanfilippo shall ensue therefrom, and so long as any and all assets then owned by JBS shall be transferred to Sanfilippo, the Lenders hereby consent to the dissolution of JBS at any time Borrower elects to do so. 12. Section 10.13 of the Credit Agreement, Use of Names, shall be amended and restated in full to read as follows: 10.13 Use of Names. Except to the extent that Agent has been notified in advance, the Borrower shall not use any corporate names (as distinguished from brand names) other than those referred to in Section 7.7, nor shall the Borrower change any of said names. 13. Section 10.14 of the Credit Agreement, Payment of Certain Debt, shall be amended and restated in full as follows: 10.14 Payment of Certain Debt. The Borrower shall not directly or indirectly, pay, prepay, redeem or purchase, or deposit funds or property for the payment, prepayment, redemption or purchase of the indebtedness of the Borrower which is subordinated to the payment of any portion of the Liabilities except the scheduled payment of the subordinated indebtedness under the Teachers' Notes as approved by the Agent. The Borrower shall not directly or indirectly, prepay, redeem or purchase, or deposit funds or property for the prepayment, redemption or purchase of the Prudential Notes and/or the Teachers Notes. 14. Section 13.6 of the Credit Agreement, Inspection, shall be amended and restated as follows: 13.6 Inspection. Upon reasonable prior notice (provided that such notice shall not be required after the occurrence and during the continuance of a Default or a Matured Default), the Agent (by and through its officers and employees), or any Person designated by the Agent in writing, shall have the right, from time to time hereafter, to call at the Borrower's place or places of business (or any other place where any information relating thereto is kept or located) during reasonable business hours, and without hindrance or delay, to: (a) inspect, audit, check and make copies of and extracts from the Borrower's books, records, journals, orders, receipts and any correspondence and other data relating to the Borrower's business or to any transactions between the parties to this Agreement; and (b) review operating procedures, review maintenance of property and discuss the affairs, finances and business of the Borrower with the Borrower's officers, employees or directors. The Borrower agrees to pay to the Agent an audit fee, in accordance with the Agent's Letter, upon the completion of each such audit, for all expenses incurred by or on behalf of the Agent in making inspections under this Section 13.6, including without limitation, travel and photocopying expenses. Notwithstanding the foregoing, the Agent shall not conduct field audits any more frequently than once in any twelve month period, unless a Matured Default is then outstanding (in which case such audits can be conducted at reasonable intervals). The foregoing fees shall be fully earned on the dates they become payable and, at the option of the Agent, shall be paid by Agent initiated Loans. The Lenders shall have the right to accompany the Agent on any inspections under this Section 13.6, at their own expense. 15. Any notices provided to the Agent pursuant to clause (a)(ii) of Section 3.18 of the Credit Agreement, Notices, shall be addressed as follows: If to the Agent at: U.S. Bank National Association Food & Agribusiness Group 950 Seventeenth Street, Suite 350 Denver, Colorado 80202 Attn: Sandra A. Sauer Fax: (303) 585-4732 with a copy to: Campbell Bohn Killin Brittan & Ray, LLC 270 St. Paul Street, Suite 200 Denver, Colorado 80206 Attn: Michael D. Killin, Esq. Fax: (303) 322-5800 16. The processing and recordation fee required to be paid to the Agent pursuant to Section 13.24 of the Credit Agreement, Assignments and Participations, shall be $3,500, not $5,000 as stated therein. All other provisions of Section 13.24 of the Credit Agreement shall remain in full force and effect. 17. Exhibits. Exhibit 1A to the Credit Agreement, Lenders' Commitments, shall hereafter be replaced by Exhibit 1A-2; Exhibit 2A to the Credit Agreement, Form of Notes, shall hereafter be replaced by Exhibit 2A-2; and Exhibit 9A to the Credit Agreement, Compliance Certificate, shall hereafter be replaced by Exhibit 9A-2. 18. The effectiveness of this Amendment is conditioned on the execution and delivery to the Agent of the items listed on Exhibit A attached to this Amendment. 19. This Amendment shall be an integral part of the Credit Agreement, as amended, and all of the terms set forth therein are hereby incorporated in this Amendment by reference, and all terms of this Amendment are hereby incorporated into said Credit Agreement, as if made an original part thereof. All of the terms and provisions of the Agreement, as amended, which are not modified in this Amendment shall remain in full force and effect. [Signature Page Follows] IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written. JOHN B. SANFILIPPO & SON, INC., a Delaware corporation ATTEST: By /s/ MICHAEL J. VALENTINE By /s/ MATHIAS A VALENTINE ------------------------ ----------------------- Its Chief Financial Officer Its President ----------------------- --------- JBS INTERNATIONAL, INC., a Barbados corporation ATTEST: By /s/ JASPER SANFILIPPO, JR. By /s/ MICHAEL J. VALENTINE -------------------------- ------------------------ Its Vice President Its President -------------- --------- U.S. BANK NATIONAL ASSOCIATION as Agent and as a Lender By /s/ SANDRA A. SAUER ------------------- Its Vice President -------------- SUN TRUST BANK, as a Lender By /s/ GREGORY CANNON ------------------ Its Director -------- LASALLE BANK NATIONAL ASSOCIATION (f/k/a LaSalle National Bank), as a Lender By /s/ RANDI BASKIN ---------------- Its Commercial Banking Officer -------------------------- EX-10 6 exhibit1032.txt EXHIBIT 10.32 ------------- LINE OF CREDIT NOTE ------------------- $40,000,000 Denver, Colorado May 30, 2003 FOR VALUE RECEIVED, the undersigned JOHN B. SANFILIPPO & SON, INC., a Delaware corporation (and successor in interest to Sunshine Nut Co., Inc. and Quantz Acquisition Co., Inc.), and JBS INTERNATIONAL, INC., a Barbados corporation, (collectively, the "Borrower" whether one or more) promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (hereinafter referred to as "Lender"), at such place as U.S. Bank National Association, as agent for the Lender, may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Forty Million and 00/100 Dollars ($40,000,000) or so much thereof as may be advanced and be outstanding, together with interest on any and all principal amounts outstanding calculated in accordance with the provisions set forth below. This Note is issued under that certain Credit Agreement dated as of March 31, 1998 (as amended, supplemented, restated or otherwise modified and in effect from time to time, the "Credit Agreement") between Borrower, U.S. Bank National Association, a national banking association, as agent (the "Agent"), Lender and the other lenders identified therein (collectively the "Lenders"). Capitalized terms used and not defined herein shall have the meanings given to such terms in the Credit Agreement. The outstanding Loans hereunder shall be maintained as Prime Rate Loans, LIBOR Rate Loans, or Overnight Funds Rate Loans as more fully provided in the Credit Agreement. The Borrower shall have the right to make prepayments of principal only in accordance with the Credit Agreement. Borrower shall pay interest on the unpaid principal amount of each Loan made by the Lender from the date of such Loan until such principal amount shall be paid in full, at the times and at the rates per annum set forth in the Credit Agreement. The unpaid balance of this obligation at any time shall be the total amounts advanced hereunder by the Lender, together with accrued and unpaid interest, less the amount of payments made hereon by or for the Borrower, which balance may be endorsed hereon from time to time by the Lender. In addition to the repayment requirements imposed upon the Borrower under the Credit Agreement, together with the agreements referred to therein, the principal and interest owing under this Note shall be due and payable in full on the Maturity Date, without presentment, demand, protest or further notice (including without limitation, notice of intent to accelerate and notice of acceleration) of any kind, all of which are expressly waived by the Borrower. Time is of the essence hereof. Interim payments made by Borrower pursuant to and in accordance with the Credit Agreement shall be applied as provided therein. Should any Matured Default occur, then all sums of principal and interest outstanding hereunder may be declared immediately due and payable in accordance with the Credit Agreement, without presentment, demand or notice of dishonor, all of which are expressly waived, and the Lender shall have no obligation to make any further Loans pursuant to the Credit Agreement. This Note shall be construed in accordance with the laws of the State of Colorado. JOHN B. SANFILIPPO & SON, INC., a Delaware corporation ATTEST: By /s/ MICHAEL J. VALENTINE By /s/ MATHIAS A. VALENTINE ------------------------ ------------------------- Its Chief Financial Officer Its President ----------------------- --------- JBS INTERNATIONAL, INC., a Barbados corporation ATTEST: By /s/ JASPER SANFILIPPO, JR. By /s/ MICHAEL J. VALENTINE -------------------------- ------------------------ Its Vice President Its President -------------- --------- EX-10 7 exhibit1033.txt EXHIBIT 10.33 ------------- LINE OF CREDIT NOTE ------------------- $17,142,856 Denver, Colorado May 30, 2003 FOR VALUE RECEIVED, the undersigned JOHN B. SANFILIPPO & SON, INC., a Delaware corporation (and successor in interest to Sunshine Nut Co., Inc. and Quantz Acquisition Co., Inc.), and JBS INTERNATIONAL, INC., a Barbados corporation, (collectively, the "Borrower" whether one or more) promises to pay to the order of SUN TRUST BANK NATIONAL ASSOCIATION (hereinafter referred to as "Lender"), at such place as U.S. Bank National Association, as agent for the Lender, may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Seventeen Million One Hundred Forty-Two Thousand Eight Hundred Fifty-Six and 00/100 Dollars ($17,142,856) or so much thereof as may be advanced and be outstanding, together with interest on any and all principal amounts outstanding calculated in accordance with the provisions set forth below. This Note is issued under that certain Credit Agreement dated as of March 31, 1998 (as amended, supplemented, restated or otherwise modified and in effect from time to time, the "Credit Agreement") between Borrower, U.S. Bank National Association, a national banking association, as agent (the "Agent"), Lender and the other lenders identified therein (collectively the "Lenders"). Capitalized terms used and not defined herein shall have the meanings given to such terms in the Credit Agreement. The outstanding Loans hereunder shall be maintained as Prime Rate Loans, LIBOR Rate Loans, or Overnight Funds Rate Loans as more fully provided in the Credit Agreement. The Borrower shall have the right to make prepayments of principal only in accordance with the Credit Agreement. Borrower shall pay interest on the unpaid principal amount of each Loan made by the Lender from the date of such Loan until such principal amount shall be paid in full, at the times and at the rates per annum set forth in the Credit Agreement. The unpaid balance of this obligation at any time shall be the total amounts advanced hereunder by the Lender, together with accrued and unpaid interest, less the amount of payments made hereon by or for the Borrower, which balance may be endorsed hereon from time to time by the Lender. In addition to the repayment requirements imposed upon the Borrower under the Credit Agreement, together with the agreements referred to therein, the principal and interest owing under this Note shall be due and payable in full on the Maturity Date, without presentment, demand, protest or further notice (including without limitation, notice of intent to accelerate and notice of acceleration) of any kind, all of which are expressly waived by the Borrower. Time is of the essence hereof. Interim payments made by Borrower pursuant to and in accordance with the Credit Agreement shall be applied as provided therein. Should any Matured Default occur, then all sums of principal and interest outstanding hereunder may be declared immediately due and payable in accordance with the Credit Agreement, without presentment, demand or notice of dishonor, all of which are expressly waived, and the Lender shall have no obligation to make any further Loans pursuant to the Credit Agreement. This Note shall be construed in accordance with the laws of the State of Colorado. JOHN B. SANFILIPPO & SON, INC., a Delaware corporation ATTEST: By /s/ MICHAEL J. VALENTINE By /s/ MATHIAS A. VALENTINE ------------------------ ------------------------- Its Chief Financial Officer Its President ----------------------- --------- JBS INTERNATIONAL, INC., a Barbados corporation ATTEST: By /s/ JASPER SANFILIPPO, JR. By /s/ MICHAEL J. VALENTINE -------------------------- ------------------------ Its Vice President Its President -------------- --------- EX-10 8 exhibit1034.txt EXHIBIT 10.34 ------------- LINE OF CREDIT NOTE ------------------- $22,857,144 Denver, Colorado May 30, 2003 FOR VALUE RECEIVED, the undersigned JOHN B. SANFILIPPO & SON, INC., a Delaware corporation (and successor in interest to Sunshine Nut Co., Inc. and Quantz Acquisition Co., Inc.), and JBS INTERNATIONAL, INC., a Barbados corporation, (collectively, the "Borrower" whether one or more) promises to pay to the order of LASALLE BANK NATIONAL ASSOCIATION (hereinafter referred to as "Lender"), at such place as U.S. Bank National Association, as agent for the Lender, may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty-Two Million Eight Hundred Fifty-Seven Thousand One Hundred Forty-Four and 00/100 Dollars ($22,857,144) or so much thereof as may be advanced and be outstanding, together with interest on any and all principal amounts outstanding calculated in accordance with the provisions set forth below. This Note is issued under that certain Credit Agreement dated as of March 31, 1998 (as amended, supplemented, restated or otherwise modified and in effect from time to time, the "Credit Agreement") between Borrower, U.S. Bank National Association, a national banking association, as agent (the "Agent"), Lender and the other lenders identified therein (collectively the "Lenders"). Capitalized terms used and not defined herein shall have the meanings given to such terms in the Credit Agreement. The outstanding Loans hereunder shall be maintained as Prime Rate Loans, LIBOR Rate Loans, or Overnight Funds Rate Loans as more fully provided in the Credit Agreement. The Borrower shall have the right to make prepayments of principal only in accordance with the Credit Agreement. Borrower shall pay interest on the unpaid principal amount of each Loan made by the Lender from the date of such Loan until such principal amount shall be paid in full, at the times and at the rates per annum set forth in the Credit Agreement. The unpaid balance of this obligation at any time shall be the total amounts advanced hereunder by the Lender, together with accrued and unpaid interest, less the amount of payments made hereon by or for the Borrower, which balance may be endorsed hereon from time to time by the Lender. In addition to the repayment requirements imposed upon the Borrower under the Credit Agreement, together with the agreements referred to therein, the principal and interest owing under this Note shall be due and payable in full on the Maturity Date, without presentment, demand, protest or further notice (including without limitation, notice of intent to accelerate and notice of acceleration) of any kind, all of which are expressly waived by the Borrower. Time is of the essence hereof. Interim payments made by Borrower pursuant to and in accordance with the Credit Agreement shall be applied as provided therein. Should any Matured Default occur, then all sums of principal and interest outstanding hereunder may be declared immediately due and payable in accordance with the Credit Agreement, without presentment, demand or notice of dishonor, all of which are expressly waived, and the Lender shall have no obligation to make any further Loans pursuant to the Credit Agreement. This Note shall be construed in accordance with the laws of the State of Colorado. JOHN B. SANFILIPPO & SON, INC., a Delaware corporation ATTEST: By /s/ MICHAEL J. VALENTINE By /s/ MATHIAS A. VALENTINE ------------------------ ------------------------- Its Chief Financial Officer Its President ----------------------- --------- JBS INTERNATIONAL, INC., a Barbados corporation ATTEST: By /s/ JASPER SANFILIPPO, JR. By /s/ MICHAEL J. VALENTINE -------------------------- ------------------------ Its Vice President Its President -------------- --------- EX-10 9 exhibit1035.txt EXHIBIT 10.35 ------------- INDUSTRIAL LEASE ---------------- Basic Lease Information Date: April 18, 2003 Landlord: Cabot Acquisition, LLC, a Delaware limited liability company. Tenant: John B. Sanfilippo & Son, Inc. a Delaware corporation Guarantor: N/A Premises (section 1.1): The building depicted on Exhibit A, containing approximately 230,768 square feet (more or less) of building area, the street address of which is known as 2400 Arthur Avenue, Elk Grove Village, Illinois. Property (section 1.1): The land and the building(s) outlined in Exhibit A, containing approximately 230,768 square feet (more or less) of total building area, located in Elk Grove Village, Illinois and known as 2400 Arthur Avenue. Term (section 2.1): Five (5) years Commencement Date (section 2.1): April 18, 2003 Expiration Date (section 2.1): March 31, 2008 Monthly Base Rent (dollars per month) (section 3.1(a)): April 1, 2003 to March 31, 2004 $57,692.00 April 1, 2004 to March 31, 2005 $59,615.07 April 1, 2005 to March 31, 2006 $61,538.13 April 1, 2006 to March 31, 2007 $63,461.20 April 1, 2007 to March 31, 2008 $65,384.27 Tenant's Percentage Share (section 3.1(b)): 100% Initial Additional Monthly Rent Estimate (dollars per month) (section 3.2(a)): $26,922.93 Security Deposit (section 3.3): $84,614.93 Rent Payment Address (section 3.7): 12200 Collections Center Drive, Chicago, Illinois 60693 Permitted Use of the Premises (section 4.1): Warehouse and Distribution of Non-Perishable Food Products. Landlord's Address (section 14.1): Cabot Acquisition, LLC, c/o LaSalle Investment Management, Inc., 200 East Randolph Drive, 44th Floor; Chicago, Illinois 60601; Attention: Lauren Goldstein, and a copy simultaneously to LaSalle Investment Management, Inc.; 65 East State Street; Columbus, Ohio 43215; Attention: Russell Blackwell; and a copy simultaneously to Trammell Crow Company, 1375 East Woodfield Road, Suite #750, Schaumburg, Illinois 60173, Attention: CalEast Senior Property Manager. Tenant's Address (section 14.1): John B. Sanfilippo & Son, Inc., 2299 Busse Road, Elk Grove Village, Illinois 60007 Guarantor's Address (section 14.1):N/A Real Estate Broker(s) (section 15.5): Trammell Crow Company (Landlord Representative) and Colliers Bennett & Kahnweiler, Inc. (Tenant Representative) Exhibit A - Plan(s) Outlining the Premises and the Property Exhibit B - Description of Landlord's work Exhibit C - Form of Memorandum Confirming Term Exhibit D - Additional Maintenance Other Attachments (if any): None The foregoing Basic Lease Information is incorporated in and made a part of the Lease to which it is attached. If there is any conflict between the Basic Lease Information and the Lease, the Basic Lease Information shall control. JOHN B. SANFILIPPO & SON, INC. a Delaware corporation By: /s/ MICHAEL J. VALENTINE CABOT ACQUISITION, LLC, a Delaware ------------------------ limited liability company Title: Chief Financial Officer By: CALEAST INDUSTRIAL INVESTORS, LLC, Date: April 18, 2003 a California limited liability company, it sole member By: LASALLE INVESTMENT MANAGEMENT, INC., a Maryland corporation, Manager By: /s/ ERNEST FIORANTE ------------------- Title: Vice President Date: April 18, 2003 TABLE OF CONTENTS Page ARTICLE 1 Premises 1 1.1 Lease of Premises 1 ARTICLE 2 Term 1 2.1 Term of Lease 1 2.2 Improvements 1 2.3 Adjustment of Commencement Date 2 2.4 Holding Over 2 ARTICLE 3 Rent 2 3.1 Base Rent and Additional Rent 2 3.2 Procedures 3 3.3 Security Deposit 4 3.4 Late Payment 4 3.5 Other Taxes Payable by Tenant 4 3.6 Certain Definitions 4 3.7 Rent Payment Address 5 3.8 No Accord and Satisfaction 5 ARTICLE 4 Use of the Premises 5 4.1 Permitted Use 5 4.2 Environmental Definitions 6 4.3 Environmental Requirements 6 4.4 Compliance With Law 7 4.5 Rules and Regulations 7 4.6 Entry by Landlord 7 ARTICLE 5 Utilities and Services 7 5.1 Tenant's Responsibilities 7 ARTICLE 6 Maintenance and Repairs 8 6.1 Obligations of Landlord 8 6.2 Obligations of Tenant 8 ARTICLE 7 Alteration of the Premises 9 7.1 No Alterations by Tenant 9 7.2 Landlord's Property 9 ARTICLE 8 Indemnification and Insurance 10 8.1 Damage or Injury 10 8.2 Insurance Coverages and Amounts 10 8.3 Insurance Requirements 10 8.4 Subrogation 11 8.5 Landlord Insurance Requirements 11 ARTICLE 9 Assignment or Sublease 11 9.1 Prohibition 11 9.2 Landlord's Consent or Termination 12 9.3 Completion 12 9.4 Tenant Not Released 12 ARTICLE 10 Events of Default and Remedies 13 10.1 Default by Tenant 13 10.2 Termination 13 10.3 Continuation 14 10.4 Remedies Cumulative 14 10.5 Tenant's Primary Duty 14 10.6 Abandoned Property 14 10.7 Landlord Default 14 10.8 Landlord's Lien 14 ARTICLE 11 Damage or Destruction 15 11.1 Restoration 15 11.2 Termination of Lease 15 ARTICLE 12 Eminent Domain 15 12.1 Condemnation 15 12.2 Award 16 12.3 Temporary Use 16 12.4 Definition of Taking 16 ARTICLE 13 Subordination and Sale 16 13.1 Subordination 16 13.2 Sale of the Property 16 13.3 Estoppel Certificate 16 ARTICLE 14 Notices 17 14.1 Method 17 ARTICLE 15 Miscellaneous 17 15.1 General 17 15.2 No Waiver 17 15.3 Attorneys' Fees 18 15.4 Exhibits 18 15.5 Broker(s) 18 15.6 Waivers of Jury Trial and Certain Damages 18 15.7 Entire Agreement 18 15.8 Termination Option. 18 EXHIBIT A PLAN(S) OUTLINING THE PREMISES AND THE PROPERTY EXHIBIT B DESCRIPTION OF LANDLORD'S WORK EXHIBIT C MEMORANDUM CONFIRMING TERM EXHIBIT D ADDITIONAL MAINTENANCE INDUSTRIAL LEASE ---------------- THIS LEASE, made as of the date specified in the Basic Lease Information, by and between CABOT ACQUISITION, LLC, a Delaware limited liability company ("Landlord"), and JOHN B. SANFILIPPO & SON, INC., a Delaware corporation ("Tenant"), W I T N E S S E T H: -------------------- ARTICLE 1 --------- Premises -------- 1.1 Lease of Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the term and subject to the covenants hereinafter set forth, to all of which Landlord and Tenant hereby agree, the real property specified in the Basic Lease Information (the "Property"), together with all improvements located thereon (the improvements, together with the Property are sometimes referred to herein as the "Premises"), all as outlined on the plan(s) attached hereto as Exhibit A. The Property includes the land and the building(s) in which the Premises is located. Landlord and Tenant agree that, for purposes of this Lease, the Premises and the Property, respectively, each contains the number of square feet of the building area specified in the Basic Lease Information and Tenant's Percentage Share specified in the Basic Lease Information is the ratio of such building area of the Premises to such building area of the Property. ARTICLE 2 --------- Term ---- 2.1 Term of Lease. The term of this Lease shall be the term specified in the Basic Lease Information, which shall commence on the commencement date specified in the Basic Lease Information (the "Commencement Date") and, unless sooner terminated as hereinafter provided, shall end on the expiration date specified in the Basic Lease Information or as may be sooner terminated pursuant to Section 15.8 hereunder (the "Expiration Date"). If Landlord, for any reason whatsoever, does not deliver possession of the Premises to Tenant on the Commencement Date, this Lease shall not be void or voidable and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, but, in such event, the Commencement Date shall be postponed until the date on which Landlord delivers possession of the Premises to Tenant and the Expiration Date shall be extended for an equal period (subject to adjustment in accordance with section 2.3 hereof). Tenant acknowledges that Tenant has inspected the Premises and the Property or has had the Premises and the Property inspected by professional consultants retained by Tenant, Tenant is familiar with the condition of the Premises and the Property, the Premises and the Property are suitable for Tenant's purposes, and, except for the improvements to be constructed or installed by Landlord pursuant to Exhibit B (if any), and as otherwise required under this Lease, the condition of the Premises and the Property is acceptable to Tenant. Except for the improvements to be constructed or installed by Landlord pursuant to Exhibit B (if any), Landlord shall have no obligation to construct or install any improvements in the Premises or the Property or to remodel, renovate, recondition, alter or improve the Premises or the Property in any manner, and Tenant shall accept the Premises "as is" on the Commencement Date. Tenant agrees that upon termination of this Lease, Tenant shall surrender the Premises in the same or better condition as of the Commencement Date, normal wear and tear excepted. Landlord and Tenant expressly agree that there are and shall be no implied warranties of merchantability, habitability, fitness, for a particular purpose or of any other kind arising out of this Lease and there are no warranties which extend beyond those expressly set forth in this Lease. Notwithstanding the foregoing, Landlord acknowledges that it shall deliver the mechanical and electrical systems of the Building, including the HVAC system, lighting and dock equipment in good working order and shall deliver the Premises in a broom clean condition. 2.2 Improvements. This section 2.2 shall apply only if Landlord is required to construct or install improvements in the Premises or the Property pursuant to Exhibit B (the "Landlord's Improvements"). Landlord shall construct or install the improvements to be constructed or installed by Landlord pursuant to Exhibit B. Landlord shall deliver possession of the Premises to Tenant on the Commencement Date. If however on the date listed in the Basic Lease Information as the Commencement Date, the Landlord's Improvements are not substantially completed then and in that case the Commencement Date shall be extended until such date the Landlord's Improvements are substantially completed and possession of the Premises is delivered to Tenant. All references in this Lease to the Commencement Date shall be deemed to include said additional time. "Substantial Completion" for the purposes of this Section 2.2 shall mean that the Landlord's Improvements are sufficiently complete, substantially in accordance with the plans and specifications, so the improvements may be used or occupied for their intended purpose as permitted under this Lease. If Landlord is delayed in substantially completing the improvements by any cause of delay for which Tenant is responsible, then Tenant shall pay to Landlord, as additional rent, the monthly Base Rent (based on the first month for which the Base Rent is to be paid) and the additional monthly rent payable under section 3.1 hereof, calculated on a per diem basis, multiplied by the number of days of such delay, which shall be due and payable on the Commencement Date specified in the Basic Lease Information for such delay before such date and monthly in arrears on the first day of each month thereafter for such delay after such date. If the improvements are substantially complete and the Premises is ready for occupancy by Tenant prior to the Commencement Date, Tenant shall have the right to take early occupancy of the Premises prior to the Commencement Date and the term of this Lease shall commence on such date of early occupancy by Tenant, in which event the Commencement Date shall be advanced to such date of early occupancy and the Expiration Date shall be advanced by an equal period (subject to adjustment in accordance with section 2.3 hereof). Tenant shall give Landlord written notice of Tenant's determination to take early occupancy of the Premises at least ten (10) days in advance, which notice shall specify the date of such early occupancy. 2.3 Adjustment of Commencement Date. If the Commencement Date as determined in accordance with section 2.1 or section 2.2 hereof would not be the first day of the month and the Expiration Date would not be the last day of the month, then the Expiration Date shall be the last day of the calendar month in which the Expiration Date, as initially calculated falls. Tenant shall pay to Landlord, as additional rent, the monthly Base Rent (based on the first month for which the Base Rent is to be paid) and the additional monthly rent payable under section 3.1 hereof, calculated on a per diem basis, for the period of the fractional month between the Commencement Date and the end of the calendar month in which the Commencement Date falls. Landlord and Tenant each shall, promptly after the actual Commencement Date and the actual Expiration Date have been determined, execute and deliver to the other a Memorandum Confirming Term in the form of Exhibit C attached hereto, which shall set forth the actual Commencement Date and the actual Expiration Date for this Lease, but the term of this Lease shall commence and end in accordance with this Lease whether or not the Memorandum Confirming Term is executed. 2.4 Holding Over. In the event that Tenant shall continue in occupancy of the Premises after the expiration of the Term, such occupancy shall not be deemed to extend or renew the term of this Lease, but such occupancy shall continue as a tenancy at will upon the covenants, provisions and conditions herein contained at a daily Base Rental equal to one fifteenth (1/15) of the monthly Base Rental in effect at the expiration of the term of this Lease. In addition to any other rights Landlord may have either in equity or at law, Landlord may terminate such tenancy at any time on three (3) days' written notice. ARTICLE 3 --------- Rent ---- 3.1 Base Rent and Additional Rent. Tenant shall pay to Landlord the following amounts as rent for the Premises: (a) On a monthly basis during the Term of this Lease, Tenant shall pay to Landlord, as "Base Rent", the amount of Monthly Base Rent specified in the Basic Lease Information. So long as Tenant is not default hereunder, Tenant shall be permitted to abate all Base Rent due hereunder for the following periods: For the first six (6) months of the Term following the Commencement Date and for the thirty-seventh (37th) month, thirty-eighth (38th) month, thirty-ninth (39th) month, and for the first fourteen (14) days of the fortieth (40th) month of the Term. Notwithstanding the foregoing, during such abatement periods, Tenant shall be responsible for the payment of all Additional Rent due hereunder. (b) During each calendar year (or part thereof) during the term of this Lease, Tenant shall pay to Landlord, as additional monthly rent: (i) Tenant's Percentage Share specified in the Basic Lease Information of all Property Taxes paid or incurred by Landlord in such year. (ii) Tenant's Percentage Share specified in the Basic Lease Information of all Insurance Costs paid or incurred by Landlord in such year. (c) Throughout the term of this Lease, Tenant shall pay, as additional rent, all other amounts of money and charges required to be paid by Tenant under this Lease, whether or not such amounts of money or charges are designated "additional rent." As used in this Lease, "rent" shall mean and include all Base Rent, additional monthly rent and additional rent payable by Tenant in accordance with this Lease. 3.2 Procedures. The additional monthly rent payable by Tenant pursuant to section 3.1(b) hereof (Property Taxes and Insurance Costs) shall be calculated and paid in accordance with the following procedures: (a) On or before the Commencement Date, or as soon thereafter as practicable, and on or before the first day of each subsequent calendar year during the term of this Lease, or as soon thereafter as practicable, Landlord shall give Tenant written notice of Landlord's estimate of the amounts payable under section 3.1(b) for the balance of the first calendar year after the Commencement Date or for the ensuing calendar year, as the case may be. Notwithstanding the foregoing, Landlord's estimate of the initial additional monthly rent payable by Tenant under section 3.1(b) hereof for each month of the balance of the first calendar year after the Commencement Date is specified in the Basic Lease Information. Tenant shall pay such estimated additional monthly rent amounts to Landlord in equal monthly installments, in advance, on or before the Commencement Date and on or before the first day of each month during such balance of the first calendar year after the Commencement Date or during such ensuing calendar year, as the case may be. If such notice is not given for any calendar year, Tenant shall continue to pay additional monthly rent on the basis of the prior year's estimate until the month after such notice is given, and subsequent additional monthly rent payments by Tenant shall be based on Landlord's current estimate. If, at any time, Landlord determines that the additional monthly rent amounts payable under section 3.1(b) hereof for the current calendar year will vary from Landlord's estimate, Landlord may, by giving written notice to Tenant, revise Landlord's estimate of additional monthly rent for such year, and subsequent payments by Tenant for such year shall be based on such revised estimate. (b) Within 180 days after the end of each calendar year, Landlord shall give Tenant a written statement of the amounts of additional monthly rent payable by Tenant under section 3.1(b) hereof for such calendar year certified by Landlord. If such statement shows a total amount of additional monthly rent owing by Tenant that is less than the estimated payments for such calendar year previously made by Tenant, Landlord shall credit the excess to the next monthly installments of the amounts payable by Tenant under section 3.1(b) hereof (or, if the term of this Lease has ended, Landlord shall refund the excess to Tenant with such statement). If such statement shows a total amount of additional monthly rent owing by Tenant that is more than the estimated payments for such calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within ten (10) days after delivery of such statement. Tenant or Tenant's authorized agent or representative shall have the right once each calendar year to inspect the books of Landlord relating to Property Taxes and Insurance Costs for the prior calendar year, after giving reasonable prior written notice to Landlord and during the business hours of Landlord at the office of Landlord's property manager for the Property, for the purpose of verifying the information in such statement. Failure by Landlord to give any notice or statement to Tenant under this section 3.2 shall not waive Landlord's right to receive, or Tenant's obligation to pay, the amounts of additional monthly rent payable by Tenant under section 3.1(b) hereof. (c) If the term of this Lease commences or ends on a day other than the first or last day of a calendar year, respectively, the amounts payable by Tenant under section 3.1(b) hereof applicable to the calendar year in which such term commences or ends shall be prorated according to the ratio which the number of days during the term of this Lease in such calendar year bears to three hundred sixty-five (365). Termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to section 3.2(b) hereof to be performed after such termination. 3.3 Security Deposit. Upon signing this Lease, Tenant shall pay to Landlord (a) an amount equal to the Base Rent for the first month of the term of this Lease for which the Base Rent is to be paid, which amount Landlord shall apply to the Base Rent for such first month, and (b) the amount of the security deposit specified in the Basic Lease Information (the "Security Deposit"). The Security Deposit shall be held by Landlord as security for the performance by Tenant of all of the covenants of this Lease to be performed by Tenant, and Tenant shall not be entitled to interest thereon. If Tenant fails to perform any of the covenants of this Lease to be performed by Tenant, then Landlord shall have the right, but no obligation, to apply the Security Deposit, or so much thereof as may be necessary, to cure any such failure by Tenant. If Landlord applies the Security Deposit or any part thereof to cure any such failure by Tenant, then Tenant shall immediately pay to Landlord the sum necessary to restore the Security Deposit to the full amount required by this section 3.3. If no Event of Default then exists thereunder, Landlord shall return any remaining portion of the Security Deposit to Tenant within thirty (30) days after termination of this Lease. Upon termination of the original Landlord's or any successor owner's interest in the Premises, the original Landlord or such successor owner shall be released from further liability with respect to the Security Deposit upon the original Landlord's or such successor owner's transferring the Security Deposit to the new owner. 3.4 Late Payment. Tenant acknowledges that the late payment by Tenant of any monthly installment of Base Rent or additional monthly rent will cause Landlord to incur costs and expenses, the exact amount of which is extremely difficult and impractical to fix. Such costs and expenses will include administration and collection costs and processing and accounting expenses. Therefore, if any monthly installment of Base Rent or additional monthly rent is not received by Landlord within five (5) days after such installment is due, Tenant shall immediately pay to Landlord a late charge equal to five percent (5%) of such delinquent installment. Landlord and Tenant agree that such late charge represents a reasonable estimate of such costs and expenses and is fair reimbursement to Landlord. In no event shall such late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rent or prevent Landlord from exercising any right or enforcing any remedy available to Landlord upon Tenant's failure to pay each installment of rent due under this Lease when due, including the right to terminate this Lease and recover all damages from Tenant. All amounts of money payable by Tenant to Landlord hereunder, if not paid when due, shall bear interest from the due date until paid at the rate of ten percent (10%) per annum, and Tenant shall pay such interest to Landlord on written demand. 3.5 Other Taxes Payable by Tenant. Tenant shall reimburse Landlord upon written demand for all taxes, assessments, excises, levies, fees and charges, including all payments related to the cost of providing facilities or services, whether or not now customary or within the contemplation of Landlord and Tenant, that are payable by Landlord and levied, assessed, charged, confirmed or imposed by any public or government authority upon, or measured by, or reasonably attributable to (a) the cost or value of Tenant's furniture, fixtures, equipment and other personal property located in the Premises or the cost or value of any improvements made in or to the Premises by or for Tenant, regardless of whether title to such improvements is vested in Tenant or Landlord, (b) any rent payable under this Lease, including any gross income tax or excise tax levied by any public or government authority with respect to the receipt of any such rent so long as such tax is a tax on rent, (c) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. Such taxes, assessments, excises, levies, fees and charges shall not include net income (measured by the income of Landlord from all sources or from sources other than solely rent) or franchise taxes of Landlord, unless levied or assessed against Landlord in whole or in part in lieu of, as a substitute for, or as an addition to any such taxes, assessments, excises, levies, fees and charges. All taxes, assessments, excises, levies, fees and charges payable by Tenant under this section 3.5 shall be deemed to be, and shall be paid as, additional rent. 3.6 Certain Definitions. As used in this Lease, certain words are defined as follows: (a) "Property Taxes" shall mean all taxes, assessments, excises, levies, fees and charges (and any tax, assessment, excise, levy, fee or charge levied wholly or partly in lieu thereof or as a substitute therefor or as an addition thereto) of every kind and description, general or special, ordinary or extraordinary, foreseen or unforeseen, secured or unsecured, whether or not now customary or within the contemplation of Landlord and Tenant, that are levied, assessed, charged, confirmed or imposed by any public or government authority on or against, or otherwise with respect to, the Property or any part thereof or any personal property used in connection with the Property. Property Taxes shall not include net income (measured by the income of Landlord from all sources or from sources other than solely rent) or franchise taxes of Landlord, unless levied or assessed against Landlord in whole or in part in lieu of, as a substitute for, or as an addition to any Property Taxes. Property Taxes shall not include charges payable by Tenant pursuant to section 3.5 hereof. (b) "Insurance Costs" shall mean all premiums and other charges for all property, earthquake, flood, loss of rental income, business interruption, liability and other insurance relating to the Property carried by Landlord. 3.7 Rent Payment Address. Tenant shall pay all Base Rent and additional monthly rent under section 3.1 hereof to Landlord, in advance, on or before the first day of each and every calendar month during the term of this Lease. Tenant shall pay all rent to Landlord without notice, demand, deduction or offset, in lawful money of the United States of America, at the address for the payment of rent specified in the Basic Lease Information, or to such other person or at such other place as Landlord may from time to time designate in writing. 3.8 No Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser amount of Base Rent, additional monthly rent, additional rent or any other sum due hereunder, shall be deemed to be other than on account of the earliest due rent or payment, nor shall any endorsement or statement on any check or any letter accompanying any such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or payment or pursue any other remedy available in this Lease, at law or in equity. Landlord may accept any partial payment from Tenant without invalidation of any contractual notice required to be given herein (to the extent such contractual notice is required) and without invalidation of any notice required by any law pertaining to eviction or summary remedy for regaining possession of real property in the event of tenant default. ARTICLE 4 --------- Use of the Premises ------------------- 4.1 Permitted Use. Tenant shall use the Premises only for the Permitted Use of the Premises specified in the Basic Lease Information and for lawful purposes incidental thereto, and no other purpose whatsoever. Tenant shall not do or permit to be done in, on or about the Premises, nor bring or keep or permit to be brought or kept therein, anything which is prohibited by or will in any way conflict with any law, ordinance, rule, regulation or order now in force or which may hereafter be enacted, or which is prohibited by any insurance policy carried by Landlord for the Property, or will in any way increase the existing rate of, or disallow any fire rating or sprinkler credit, or cause a cancellation of, or affect any insurance for the Property. If Tenant causes any increase the premium for any insurance covering the Property carried by Landlord, Tenant shall pay to Landlord, on written demand as additional rent, the entire amount of such increase. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of Landlord or other tenants of the Property, or injure or annoy them. Tenant shall not use or allow the Premises to be used for any improper, immoral, unlawful or objectionable activity, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or commit or suffer to be committed any waste in, on or about the Premises. Tenant shall not store any materials, equipment or vehicles outside the Premises and agrees that no washing of any type (including washing vehicles) shall take place in or outside the Premises. Tenant shall not receive, store or otherwise handle any product or material that is explosive or highly inflammable. Tenant shall not install any signs on the Premises without the prior written consent of Landlord. Tenant shall, at Tenant's expense, remove all such signs prior to or upon termination of this Lease, repair any damage caused by the installation or removal of such signs, and restore the Premises to the condition that existed before installation of such signs. 4.2 Environmental Definitions. As used in this Lease, "Hazardous Material" shall mean any substance that is (a) defined under any Environmental Law as a hazardous substance, hazardous waste, hazardous material, pollutant or contaminant, (b) a petroleum hydrocarbon, including crude oil or any fraction or mixture thereof, (c) hazardous, toxic, corrosive, flammable, explosive, infectious, radioactive, carcinogenic or a reproductive toxicant, or (d) otherwise regulated pursuant to any Environmental Law. As used in this Lease, "Environmental Law" shall mean all federal, state and local laws, statutes, ordinances, regulations, rules, judicial and administrative orders and decrees, permits, licenses, approvals, authorizations and similar requirements of all federal, state and local governmental agencies or other governmental authorities pertaining to the protection of human health and safety or the environment, now existing or later adopted during the term of this Lease. As used in this Lease, "Permitted Activities" shall mean the lawful activities of Tenant that are part of the ordinary course of Tenant's business in accordance with the Permitted Use specified in the Basic Lease Information. As used in this Lease, "Permitted Materials" shall mean the materials, which are not Hazardous Materials, handled by Tenant in the ordinary course of conducting Permitted Activities and any Hazardous Material that is used and handled by Tenant in the ordinary course of its business and which is stored, used and disposed of in compliance with all applicable laws. 4.3 Environmental Requirements. Tenant hereby agrees that: (a) Tenant shall not conduct, or permit to be conducted, on the Premises any activity which is not a Permitted Activity; (b) Tenant shall not use, store or otherwise handle, or permit any use, storage or other handling of, any Hazardous Material which is not a Permitted Material on or about the Premises; (c) Tenant shall obtain and maintain in effect all permits and licenses required pursuant to any Environmental Law for Tenant's activities on the Premises, and Tenant shall at all times comply with all applicable Environmental Laws; (d) Tenant shall not engage in the storage, treatment or disposal on or about the Premises of any Hazardous Material except for any temporary accumulation of waste generated in the course of Permitted Activities; (e) Tenant shall not install any aboveground or underground storage tank or any subsurface lines for the storage or transfer of any Hazardous Material, except for the lawful discharge of waste to the sanitary sewer, and Tenant shall store all Hazardous Materials in a manner that protects the Premises, the Property and the environment from accidental spills and releases; (f) Tenant shall not cause or permit to occur any release of any Hazardous Material or any condition of pollution or nuisance on or about the Premises, whether affecting surface water or groundwater, air, the land or the subsurface environment; (g) Tenant shall promptly remove from the Premises any Hazardous Material introduced, or permitted to be introduced, onto the Premises by Tenant which is not a Permitted Material and, on or before the date Tenant ceases to occupy the Premises, Tenant shall remove from the Premises all Hazardous Materials and all Permitted Materials handled by or permitted on the Premises by Tenant; and (h) if any release of a Hazardous Material to the environment, or any condition of pollution or nuisance, occurs on or about or beneath the Premises as a result of any act or omission of Tenant or its agents, officers, employees, contractors, invitees or licensees, Tenant shall, at Tenant's sole cost and expense, promptly undertake all remedial measures required to clean up and abate or otherwise respond to the release, pollution or nuisance in accordance with all applicable Environmental Laws; and (i) Tenant shall not use, store or handle any chlorinated solvent except for de minimus amounts contained in cleaning supplies provided that such chlorinated solvents and their de minimus amounts are used in conformance with Environmental Laws and good environmental practice. Landlord and Landlord's representatives shall have the right, but not the obligation, to enter the Premises at any reasonable time for the purpose of inspecting the storage, use and handling of any Hazardous Material on the Premises in order to determine Tenant's compliance with the requirements of this Lease and applicable Environmental Law. If Landlord gives written notice to Tenant that Tenant's use, storage or handling of any Hazardous Material on the Premises may not comply with this Lease or applicable Environmental Law, Tenant shall correct any such violation within five (5) days after Tenant's receipt of such notice from Landlord. Tenant shall indemnify and defend Landlord against and hold Landlord harmless from all claims, demands, actions, judgments, liabilities, costs, expenses, losses, damages, penalties, fines and obligations of any nature (including reasonable attorneys' fees and disbursements incurred in the investigation, defense or settlement of claims) that Landlord may incur as a result of, or in connection with, claims arising from the presence, use, storage, transportation, treatment, disposal, release or other handling, on or about or beneath the Premises, of any Hazardous Material introduced or permitted on or about or beneath the Premises by any act or omission of Tenant or its agents, officers, employees, contractors, invitees or licensees. The liability of Tenant under this section 4.3 shall survive the termination of this Lease with respect to acts or omissions that occur before such termination. 4.4 Compliance With Law. Tenant shall, at Tenant's sole cost and expense, promptly comply with all laws, ordinances, rules, regulations, orders and other requirements of any government or public authority now in force or which may hereafter be in force, with all requirements of any board of fire underwriters or other similar body now or hereafter constituted, and with all directions and certificates of occupancy issued pursuant to any law by any governmental agency or officer, insofar as any thereof relate to or are required by the condition, use or occupancy of the Premises or the operation, use or maintenance of any personal property, fixtures, machinery, equipment or improvements in the Premises, but Tenant shall not be required to make structural changes unless structural changes are related to or required by Tenant's acts or use of the Premises or by improvements made by or for Tenant. 4.5 Rules and Regulations. Tenant shall faithfully observe and fully comply with all rules and regulations (the "Rules and Regulations") from time to time made in writing by Landlord for the safety, care, use and cleanliness of the Property or the common areas of the Property and the preservation of good order therein. If there is any conflict, this Lease shall prevail over the Rules and Regulations. 4.6 Entry by Landlord. Landlord shall have the right to enter the Premises at any time, subject to the terms of this Section 4.6, to (a) inspect the Premises, (b) exhibit the Premises to prospective purchasers, lenders or tenants, (c) determine whether Tenant is performing all of Tenant's obligations, (d) supply any service to be provided by Landlord, (e) post notices of nonresponsibility, and (f) make any repairs to the Premises, or make any repairs to any adjoining space or utility services, or make any repairs, alterations or improvements to any other portion of the Property, provided all such work shall be done as promptly as reasonably practicable and so as to cause as little interference to Tenant as reasonably practicable. Except in the event of an emergency, Landlord shall give twenty-four (24) hours notice of Landlord's intent to enter the Premise. Except for damages caused from Landlords' gross negligence or willful misconduct, Tenant waives all other claims for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned by such entry. All locks for all doors in, on or about the Premises (excluding Tenant's vaults, safes and similar special security areas designated in writing by Tenant) shall be keyed to the master system for the Property. Landlord shall at all times have a key to unlock all such doors and Landlord shall have the right to use any and all means which Landlord may deem proper to open such doors in an emergency to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of such means shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. ARTICLE 5 --------- Utilities and Services ---------------------- 5.1 Tenant's Responsibilities. Tenant shall pay, directly to the appropriate supplier before delinquency, for all water, gas, heat, light, power, telephone, sewer, refuse disposal, landscaping, snow removal, parking lot, sidewalks and loading area maintenance and repair, fire sprinkler and fire suppression system maintenance and monitoring and other utilities and services supplied to the Premises, together with all taxes, assessments, surcharges and similar expenses relating to such utilities and services. Tenant shall also be responsible for all costs associated with permit and inspection fees; security, guards, extermination, water treatment, rubbish removal, plumbing and other services; supplies, tools, materials and equipment; costs and expenses required by or resulting from compliance with any laws, ordinances, rules, regulations or orders applicable to the Property; and costs and expenses of contesting by appropriate proceedings any matter concerning managing, operating, maintaining or repairing the Property. If any utilities or services are jointly metered with the Premises and another part of the Property, Landlord shall determine Tenant's share of the cost of such jointly metered utilities and services based on Landlord's estimate of usage, and Tenant shall pay as additional rent Tenant's share of the cost of such jointly metered utilities and services to Landlord within ten (10) days after receipt of Landlord's written statement for such cost. Tenant shall furnish the Premises with all telephone service, window washing, security service, janitor, scavenger and disposal services, and other services required by Tenant for the use of the Premises permitted by this Lease. Tenant shall furnish all electric light bulbs and tubes and restroom supplies used in the Premises. Landlord shall not be in default under this Lease or be liable for any damage or loss directly or indirectly resulting from, nor shall the rent be abated or a constructive or other eviction be deemed to have occurred by reason of, any interruption of or failure to supply or delay in supplying any such utilities and services or any limitation, curtailment, rationing or restriction on use of water, electricity, gas or any resource or form of energy or other service serving the Premises or the Property, whether such results from mandatory restrictions or voluntary compliance with guidelines. ARTICLE 6 --------- Maintenance and Repairs ----------------------- 6.1 Obligations of Landlord. At Landlord's cost and expense, Landlord shall maintain and repair only the foundations, the exterior walls (which shall not include windows, glass or plate glass, doors, special fronts, entries, or the interior surfaces of exterior walls, all of which shall be the responsibility of Tenant), the roof and other structural components of the Premises and keep them in good condition, reasonable wear and tear excepted. Tenant shall give Landlord written notice of the need for any maintenance or repair for which Landlord is responsible, after which Landlord shall have a reasonable opportunity to perform the maintenance or make the repair, and Landlord shall not be liable for any failure to do so unless such failure continues for an unreasonable time after Tenant gives such written notice to Landlord. Tenant waives any right to perform maintenance or make repairs for which Landlord is responsible at Landlord's expense. Landlord's liability with respect to any maintenance or repair for which Landlord is responsible shall be limited to the cost of the maintenance or repair. Any damage to any part of the Property for which Landlord is responsible that is caused by Tenant or any agent, officer, employee, contractor, licensee or invitee of Tenant shall be repaired by Landlord at Tenant's expense and Tenant shall pay to Landlord, upon billing by Landlord, as additional rent, the cost of such repairs incurred by Landlord. 6.2 Obligations of Tenant. Tenant shall, at all times during the term of this Lease and at Tenant's sole cost and expense, maintain and repair the Premises and every part thereof (except only the parts for which Landlord is expressly made responsible under this Lease) and all equipment, fixtures and improvements therein (including windows, glass, plate glass, doors, special fronts, entries, the interior surfaces of exterior walls, interior walls, floors, heating and air conditioning systems, dock boards, truck doors, dock bumpers, plumbing fixtures and equipment, electrical components and mechanical systems) and keep all of the foregoing clean and in good order and operating condition, ordinary wear and tear excepted. Tenant shall also be responsible for the providing for landscaping services and snow and ice removal. Tenant shall not damage the Premises or disturb the integrity and support provided by any wall. Tenant shall, at Tenant's expense, promptly repair any damage to the Premises caused by Tenant or any agent, officer, employee, contractor, licensee or invitee of Tenant. Tenant shall take good care of the Premises and keep the Premises free from dirt, rubbish, waste and debris at all times. Tenant shall not overload the floors in the Premises or exceed the load-bearing capacity of the floors in the Premises. Tenant shall, at Tenant's expense, enter into a regularly scheduled preventative maintenance and service contract with a maintenance contractor approved in writing by Landlord for servicing all hot water, heating, ventilating and air conditioning ("HVAC") systems and equipment in the Premises. The maintenance and service contract shall include all services suggested by the equipment manufacturer and shall become effective (and Tenant shall deliver a copy to Landlord) within thirty (30) days after the Commencement Date. Tenant and Tenant's maintenance contractor shall at all times conduct maintenance on the HVAC equipment at the Premises in accordance with all Federal, state or local laws. In the event that a leak occurs in any portion of the HVAC equipment at the Premises, Tenant shall cause Tenant's maintenance contractor to repair promptly such leak in accordance with such Federal, state or local laws and shall, in any event, cause such leaks to be repaired within the deadline imposed by such Federal, state or local laws. Tenant hereby agrees to indemnify, defend and hold Landlord harmless against any and all damages, liabilities, losses, costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Landlord as a result of Tenant's failure to cause maintenance to be conducted on the HVAC equipment at the Premises in accordance with all Federal, state or local laws or as a result of Tenant's failure to cause the repair of any leak in any portion of the HVAC equipment at the Premises in accordance with Federal, state or local laws. In the event of a replacement of a part or portion of the HVAC equipment which is warranted by the manufacturer and/or guaranteed by the installer, Tenant shall provide the Landlord with a duplicate original of the warranty and/or guarantee. Tenant shall, at the end of the term of this Lease, surrender to Landlord the Premises and all alterations, additions, fixtures and improvements therein or thereto in the same condition as when received, ordinary wear and tear excepted. Additionally, Tenant shall, at Tenant's expense, enter into a regularly scheduled preventative maintenance and service contract with a maintenance contractor approved in writing by Landlord for servicing all fire prevention and life safety systems in the Premises including the sprinkler system installed in the Premises. Such systems shall be maintained by Tenant in accordance with all applicable governmental regulations. Upon request from Landlord, Tenant shall provide Landlord a copy of such maintenance and service contract. Tenant shall also provide copies of all maintenance and service reports to Landlord within thirty (30) days after such maintenance or service is performed on any life safety or fire prevention systems in the Premises. Tenant also agrees that it shall perform maintenance to the Premises as set forth on Exhibit D attached hereto and incorporated herein by this reference. ARTICLE 7 --------- Alteration of the Premises -------------------------- 7.1 No Alterations by Tenant. Tenant shall not make any alterations, additions or improvements in or to the Premises or any part thereof, or attach any fixtures or equipment thereto, without Landlord's prior written consent. Notwithstanding the preceding sentence, Tenant may make any particular alteration, addition or improvement without Landlord's consent only if the total cost of any such alteration, addition or improvement is fifteen thousand dollars ($15,000) or less and such alteration, addition or improvement will not affect in any way the structural, exterior or roof elements of the Property or the mechanical, electrical, plumbing or life safety systems of the Property, but Tenant shall give prior written notice of any such alteration, addition or improvement to Landlord. All alterations, additions and improvements (except improvements made by Landlord pursuant to Exhibit B, if any) (the "Work") in or to the Premises to which Landlord consents shall be made by Tenant at Tenant's sole cost and expense as follows: (a) Tenant shall submit to Landlord, for Landlord's written approval, complete plans and specifications for the Work. Such plans and specifications shall be prepared by responsible licensed architect(s) and engineer(s), shall comply with all applicable codes, laws, ordinances, rules and regulations, shall not adversely affect any systems, components or elements of the Property, shall be in a form sufficient to secure the approval of all government authorities with jurisdiction over the Property, and shall be otherwise satisfactory to Landlord in Landlord's reasonable discretion. (b) Tenant shall obtain all required permits for the Work. Tenant shall engage responsible licensed contractor(s) to perform all Work. Tenant shall perform all Work in accordance with the plans and specifications approved by Landlord, in a good and workmanlike manner, in full compliance with all applicable laws, codes, ordinances, rules and regulations, and free and clear of any mechanics' liens. Tenant shall pay for all Work (including the cost of all utilities, permits, fees, taxes, and property and liability insurance premiums in connection therewith). Tenant shall pay to Landlord all direct costs and shall reimburse Landlord for all expenses incurred by Landlord in connection with the review, approval and supervision of any alterations, additions or improvements made by Tenant. Under no circumstances shall Landlord be liable to Tenant for any damage, loss, cost or expense incurred by Tenant on account of design of any work, construction of any Work, or delay in completion of any Work. (c) Tenant shall give written notice to Landlord of the date on which construction of any Work will commence at least five (5) days prior to such date. Tenant shall keep the Premises and the Property free from mechanics', materialmen's and all other liens arising out of any work performed, labor supplied, materials furnished or other obligations incurred by Tenant. Tenant shall promptly and fully pay and discharge all claims on which any such lien could be based. Tenant shall have the right to contest the amount or validity of any such lien, provided Tenant gives prior written notice of such contest to Landlord, prosecutes such contest by appropriate proceedings in good faith and with diligence, and, upon request by Landlord, furnishes such bond as may be required by law or such security as Landlord may reasonably require to protect the Premises and the Property from such lien. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Property from such liens, and to take any other action Landlord deems necessary to remove or discharge liens or encumbrances at the expense of Tenant, provided however, that Landlord shall not take such action to remove or discharge such lien so long as Tenant, if requested by Landlord, has posted a bond as set forth above, and is contesting such lien in accordance with this section 7.1(c). 7.2 Landlord's Property. All alterations, additions, fixtures and improvements, including improvements made pursuant to Exhibit B (if any), whether temporary or permanent in character, made in or to the Premises by Landlord or Tenant, shall become part of the Property and Landlord's property. Upon termination of this Lease, Landlord shall have the right, at Landlord's option, by giving written notice to Tenant at any time before or within sixty (60) days after such termination, to retain all such alterations, additions, fixtures and improvements in the Premises, without compensation to Tenant, or to remove all such alterations, additions, fixtures and improvements from the Premises, repair all damage caused by any such removal, and restore the Premises to the condition in which the Premises existed before such alterations, additions, fixtures and improvements were made, and in the latter case Tenant shall pay to Landlord, upon billing by Landlord, the cost of such removal, repair and restoration (including a reasonable charge for Landlord's overhead and profit). All movable furniture, equipment, trade fixtures, computers, office machines and other personal property shall remain the property of Tenant. Upon termination of this Lease, Tenant shall, at Tenant's expense, remove all such movable furniture, equipment, trade fixtures, computers, office machines and other personal property from the Property and repair all damage caused by any such removal. Termination of this Lease shall not affect the obligations of Tenant pursuant to this section 7.2 to be performed after such termination. ARTICLE 8 --------- Indemnification and Insurance ----------------------------- 8.1 Damage or Injury. Landlord shall not be liable to Tenant, and Tenant hereby waives all claims against Landlord, for any damage to or loss or theft of any property or for any bodily or personal injury, illness or death of any person in, on or about the Premises or the Property arising at any time and from any cause whatsoever, except to the extent caused by the gross negligence or willful misconduct of Landlord. Tenant shall indemnify and defend Landlord against and hold Landlord harmless from all claims, demands, liabilities, damages, losses, costs and expenses, including reasonable attorneys' fees and disbursements, arising from or related to any use or occupancy of the Premises, or any condition of the Premises, or any default in the performance of Tenant's obligations under this Lease, or any damage to any property (including property of employees and invitees of Tenant) or any bodily or personal injury, illness or death of any person (including employees and invitees of Tenant) occurring in, on or about the Premises or any part thereof arising at any time and from any cause whatsoever (except to the extent caused by the gross negligence or willful misconduct of Landlord) or occurring in, on or about any part of the Property other than the Premises when such damage, bodily or personal injury, illness or death is caused by any act or omission of Tenant or its agents, officers, employees, contractors, invitees or licensees. This section 8.1 shall survive the termination of this Lease with respect to any damage, bodily or personal injury, illness or death occurring prior to such termination. Where used in this Section 8.1 "Landlord" shall mean to include Landlord's employees, agents, licensees or contractors. 8.2 Insurance Coverages and Amounts. Tenant shall, at all times during the term of this Lease and at Tenant's sole cost and expense, obtain and keep in force the insurance coverages and amounts set forth in this section 8.2. Tenant shall maintain commercial general liability insurance, including contractual liability, broad form property damage liability, fire legal liability, premises and completed operations, and medical payments, with limits not less than one million dollars ($1,000,000) per occurrence and two million dollars ($2,000,000) in the aggregate, insuring against claims for bodily injury, personal injury and property damage arising from the use, occupancy or maintenance of the Premises and the Property. The policy shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from a hostile fire. Any general aggregate shall apply on a per location basis. Tenant shall maintain business auto liability insurance with limits not less than one million dollars ($1,000,000) per accident covering owned, hired and non-owned vehicles used by Tenant. Tenant shall maintain umbrella excess liability insurance on a following form basis in excess of the required commercial general liability, business auto and employers liability insurance with limits not less than five million dollars ($5,000,000) per occurrence and aggregate. Tenant shall carry workers' compensation insurance for all of its employees in statutory limits in the state in which the Property is located and employers liability insurance which affords not less than one million dollars ($1,000,000) for each coverage. Tenant shall maintain all risk property insurance for all personal property of Tenant and improvements, fixtures and equipment constructed or installed by Tenant in the Premises in an amount not less than the full replacement cost, which shall include business income and extra expense coverage with limits not less than one hundred percent (100%) of gross revenues for a period of twelve (12) months. If required by Landlord, Tenant shall maintain boiler and machinery insurance against loss or damage from an accident from the equipment in the Premises in an amount determined by Landlord and plate glass insurance coverage against breakage of plate glass in the Premises. Any deductibles selected by Tenant shall be the sole responsibility of Tenant. 8.3 Insurance Requirements. All insurance and all renewals thereof shall be issued by companies with a rating of at least "A-" "VIII" or better in the current edition of Best's Insurance Reports and be licensed to do and doing business in the state in which the Property is located. Each policy shall expressly provide that the policy shall not be canceled or materially altered without thirty (30) days' prior written notice to Landlord and shall remain in effect notwithstanding any such cancellation or alteration until such notice shall have been given to Landlord and such period of thirty (30) days shall have expired. All liability insurance (except employers liability) shall name Landlord and any other parties designated by Landlord (including any investment manager, asset manager or property manager) as an additional insured, shall be primary and noncontributing with any insurance which may be carried by Landlord, shall afford coverage for all claims based on any act, omission, event or condition that occurred or arose (or the onset of which occurred or arose) during the policy period, and shall expressly provide that Landlord, although named as an insured, shall nevertheless be entitled to recover under the policy for any loss, injury or damage to Landlord. All property insurance shall name Landlord as loss payee as respects Landlord's interest in any improvements and betterments. Tenant shall deliver certificates of insurance, acceptable to Landlord, to Landlord at least ten (10) days before the Commencement Date and at least ten (10) days before expiration of each policy. If Tenant fails to insure or fails to furnish any such insurance certificate, Landlord shall have the right from time to time to effect such insurance for the benefit of Tenant or Landlord or both of them, and Tenant shall pay to Landlord on written demand, as additional rent, all premiums paid by Landlord. 8.4 Subrogation. Tenant waives on behalf of all insurers under all policies of property insurance now or hereafter carried by Tenant insuring or covering the Premises, or any portion or any contents thereof, or any operations therein, all rights of subrogation which any such insurer might otherwise, if at all, have to any claims of Tenant against Landlord. Landlord waives on behalf of all insurers under all policies of property insurance now or hereafter carried by Landlord insuring or covering the Property, or any portion or any contents thereof, or any operations therein, all rights of subrogation which any such insurer might otherwise, if at all, have to any claims of Landlord against Tenant. Landlord and Tenant shall procure from each of the insurers under all policies of property insurance now or hereafter carried by Landlord or Tenant insuring or covering the Premises, or any portion or any contents thereof, or any operations therein, a waiver of all rights of subrogation which the insurer might otherwise, if at all, have to any claims of Landlord against Tenant or Tenant against Landlord as required by this section 8.4. 8.5 Landlord Insurance Requirements. Landlord shall, at all times during the term of this Lease, secure and maintain: (a) All risk property insurance coverage on the Property. Landlord shall not be obligated to insure any furniture, equipment, trade fixtures, machinery, goods, or supplies which Tenant may keep or maintain in the Demised Premises or any alteration, addition or improvement which Tenant may make upon the Demised Premises. In addition, Landlord shall secure and maintain rental income insurance. Landlord may elect to self-insure for the coverages required under this Section 8.5. If the annual cost to Landlord for such property or rental income insurance exceeds the standard rates because of the nature of Tenant's operations, Tenant shall, upon the receipt of appropriate invoices, reimburse Landlord for such increased cost. (b) Commercial general liability insurance with limits not less than $5,000,000 per occurrence and aggregate. Such insurance shall be in addition to, and not in lieu of, insurance required to be maintained by Tenant. Landlord may elect to self-insure for this coverage. Tenant shall not be named as an additional insured on any policy of liability insurance maintained by Landlord. ARTICLE 9 --------- Assignment or Sublease ---------------------- 9.1 Prohibition. Tenant shall not, directly or indirectly, without the prior written consent of Landlord, assign this Lease or any interest herein or sublease the Premises or any part thereof, or permit the use or occupancy of the Premises by any person or entity other than Tenant. Tenant shall not, directly or indirectly, without the prior written consent of Landlord, pledge, mortgage or hypothecate this Lease or any interest herein. This Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant involuntarily or by operation of law without the prior written consent of Landlord. For purposes of this Lease, any of the following transfers on a cumulative basis shall constitute an assignment of this Lease that requires the prior written consent of Landlord: if Tenant is a corporation, the transfer of more than forty-nine percent (49%) of the stock of the corporation; if Tenant is a partnership, the transfer of more than forty-nine percent (49%) of the capital or profits interest in the partnership; if Tenant is a limited liability company, the transfer of more than forty-nine percent (49%) of the membership interests in the limited liability company or a change in the manager of the limited liability company, if any; and if Tenant is a trust, the transfer of more than forty-nine percent (49%) of the beneficial interest under the trust. Any of the foregoing acts without such prior written consent of Landlord shall be void and shall, at the option of Landlord, constitute a default that entitles Landlord to terminate this Lease. Notwithstanding anything herein to the contrary contained in this Lease, the transfer of shares of Tenant (if Tenant is a corporation) for purposes of this section 9.1 shall not include that sale of shares by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended, which sale is effected through the "over-the counter- market" or through any recognized stock exchange. Tenant agrees that the instrument by which any assignment or sublease to which Landlord consents is accomplished shall expressly provide that the assignee or subtenant will perform all of the covenants to be performed by Tenant under this Lease (in the case of a sublease, only insofar as such covenants relate to the portion of the Premises subject to such sublease) as and when performance is due after the effective date of the assignment or sublease and that Landlord will have the right to enforce such covenants directly against such assignee or subtenant. Any purported assignment or sublease without an instrument containing the foregoing provisions shall be void. Tenant shall in all cases remain liable for the performance by any assignee or subtenant of all such covenants. 9.2 Landlord's Consent or Termination. If Tenant wishes to assign this Lease or sublease all or any part of the Premises, Tenant shall give written notice to Landlord identifying the intended assignee or subtenant by name and address and specifying all of the terms of the intended assignment or sublease. Tenant shall give Landlord such additional information concerning the intended assignee or subtenant (including complete financial statements and a business history) or the intended assignment or sublease (including true copies thereof) as Landlord requests. For a period of thirty (30) days after such written notice is given by Tenant, Landlord shall have the right, by giving written notice to Tenant, (a) to consent in writing to the intended assignment or sublease, unless Landlord determines not to consent, or (b) in the case of an assignment of this Lease or a sublease of substantially the entire Premises for substantially the balance of the term of this Lease, to terminate this Lease, which termination shall be effective as of the date on which the intended assignment or sublease would have been effective if Landlord had not exercised such termination right. If Landlord elects to exercise its termination option under clause (b) above, Tenant may withdraw its request for consent to such assignment or sublease by delivering to Landlord a notice of such withdrawal within three (3) days after receipt of notice from Landlord exercising its termination option under clause (b) above, and upon receipt of such notice of withdrawal from Tenant, the Lease shall remain in effect without regard to such assignment or sublease. 9.3 Completion. If Landlord consents in writing, Tenant may complete the intended assignment or sublease subject to the following covenants: (a) the assignment or sublease shall be on the same terms as set forth in the written notice given by Tenant to Landlord, (b) no assignment or sublease shall be valid and no assignee or subtenant shall take possession of the Premises or any part thereof until an executed duplicate original of such assignment or sublease, in compliance with section 9.1 hereof, has been delivered to Landlord, (c) no assignee or subtenant shall have a right further to assign or sublease, and (d) all "excess rent" (as hereinafter defined) derived from such assignment or sublease shall be paid to Landlord only in the event Tenant subleases or assigns the entire Premises. Such excess rent shall be deemed to be, and shall be paid by Tenant to Landlord as, additional rent. Tenant shall pay such excess rent to Landlord immediately as and when such excess rent becomes due and payable to Tenant. As used in this section 9.3, "excess rent" shall mean the amount by which the total money and other economic consideration to be paid by the assignee or subtenant as a result of an assignment or sublease, whether denominated rent or otherwise, exceeds, in the aggregate, the total amount of rent which Tenant is obligated to pay to Landlord under this Lease (prorated to reflect the rent allocable to the portion of the Premises subject to such assignment or sublease), less only the reasonable costs paid by Tenant for additional improvements installed in the portion of the Premises subject to such assignment or sublease by Tenant at Tenant's sole cost and expense for the specific assignee or subtenant in question and reasonable leasing commissions paid by Tenant in connection with such assignment or sublease, without deduction for carrying costs due to vacancy or otherwise. Such costs of additional improvements and leasing commissions shall be amortized without interest over the term of such assignment or sublease. Notwithstanding anything herein to the contrary, in the event Tenant subleases or assigns any or all of the office space located in the Premises, Tenant shall not have to pay Landlord any Excess Rent earned on such a sublease or assignment. 9.4 Tenant Not Released. No assignment or sublease whatsoever shall release Tenant from Tenant's obligations and liabilities under this Lease or alter the primary liability of Tenant to pay all rent and to perform all obligations to be paid and performed by Tenant. No assignment or sublease shall amend or modify this Lease in any respect, and every assignment and sublease shall be subject and subordinate to this Lease. The acceptance of rent by Landlord from any other person or entity shall not be deemed to be a waiver by Landlord of any provision of this Lease. Consent to one assignment or sublease shall not be deemed consent to any subsequent assignment or sublease. Tenant shall pay to Landlord all direct costs and shall reimburse Landlord for all expenses incurred by Landlord in connection with any assignment or sublease requested by Tenant. If any assignee, subtenant or successor of Tenant defaults in the performance of any obligation to be performed by Tenant under this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments or subleases or amendments or modifications to this Lease with assignees, subtenants or successors of Tenant, without notifying Tenant or any successor of Tenant and without obtaining any consent thereto from Tenant or any successor of Tenant, and such action shall not release Tenant from liability under this Lease. ARTICLE 10 ---------- Events of Default and Remedies ------------------------------ 10.1 Default by Tenant. The occurrence of any one or more of the following events ("Event of Default") shall constitute a breach of this Lease by Tenant: (a) Tenant fails to pay any Base Rent, or any additional monthly rent under section 3.1 hereof, or any additional rent or other amount of money or charge payable by Tenant hereunder as and when such rent becomes due and payable and such failure continues for more than five (5) days after Landlord gives written notice thereof to Tenant; provided, however, that after the second such failure in a calendar year, only the passage of time, but no further written notice, shall be required to establish an Event of Default in the same calendar year; or (b) Tenant fails to perform or breaches any other agreement or covenant of this Lease to be performed or observed by Tenant as and when performance or observance is due and such failure or breach continues for more than ten (10) days after Landlord gives written notice thereof to Tenant; provided, however, that if, by the nature of such agreement or covenant, such failure or breach cannot reasonably be cured within such period of ten (10) days, an Event of Default shall not exist as long as Tenant commences with due diligence and dispatches the curing of such failure or breach within such period of ten (10) days and, having so commenced, thereafter prosecutes with diligence and dispatches and completes the curing of such failure or breach; or (c) Tenant (i) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (ii) makes an assignment for the benefit of its creditors, or (iii) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of Tenant or of any substantial part of Tenant's property; or (d) Without consent by Tenant, a court or government authority enters an order, and such order is not vacated within thirty (30) days, (i) appointing a custodian, receiver, trustee or other officer with similar powers with respect to Tenant or with respect to any substantial part of Tenant's property, or (ii) constituting an order for relief or approving a petition for relief or reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction, or (iii) ordering the dissolution, winding-up or liquidation of Tenant; or (e) This Lease or any estate of Tenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within thirty (30) days; or (f) Tenant abandons the Premises and fails to (i) continue to pay Base Rent or any additional monthly rent due under section 3.1 hereof or any other amount of money or charge payable by Tenant when due; and (ii) fails to maintain the Premises in accordance with the terms of this Lease. 10.2 Termination. If an Event of Default occurs, Landlord shall have the right at any time to give a written termination notice to Tenant and, on the date specified in such notice, Tenant's right to possession shall terminate and this Lease shall terminate. Upon such termination, Landlord shall have the full and immediate right to possession of the Premises and Landlord shall have the right to recover from Tenant all unpaid rent which had been earned at the time of termination, all unpaid rent for the balance of the term of this Lease after termination, and all other amounts necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform all of Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. Landlord shall use reasonable good faith efforts to mitigate damages if an Event of Default occurs. 10.3 Continuation. If an Event of Default occurs, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to enforce all its rights and remedies under this Lease, including the right to recover all rent as it becomes due under this Lease. Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession unless written notice of termination is given by Landlord to Tenant. 10.4 Remedies Cumulative. Upon the occurrence of an Event of Default, Landlord shall have the right to exercise and enforce all rights and remedies granted or permitted by law. The remedies provided for in this Lease are cumulative and in addition to all other remedies available to Landlord at law or in equity by statute or otherwise. Exercise by Landlord of any remedy shall not be deemed to be an acceptance of surrender of the Premises by Tenant, either by agreement or by operation of law. Surrender of the Premises can be effected only by the written agreement of Landlord and Tenant. 10.5 Tenant's Primary Duty. All agreements and covenants to be performed or observed by Tenant under this Lease shall be at Tenant's sole cost and expense and without any abatement of rent. If Tenant fails to pay any sum of money to be paid by Tenant or to perform any other act to be performed by Tenant under this Lease, Landlord shall have the right, but shall not be obligated, and without waiving or releasing Tenant from any obligations of Tenant, to make any such payment or to perform any such other act on behalf of Tenant in accordance with this Lease. All sums so paid by Landlord and all costs incurred or paid by Landlord shall be deemed additional rent hereunder and Tenant shall pay the same to Landlord on written demand, together with interest on all such sums and costs from the date of expenditure by Landlord to the date of repayment by Tenant at the rate of ten percent (10%) per annum. 10.6 Abandoned Property. If Tenant abandons the Premises, or is dispossessed by process of law or otherwise, any movable furniture, equipment, trade fixtures or personal property belonging to Tenant and left in the Premises shall be deemed to be abandoned, at the option of Landlord, and Landlord shall have the right to sell or otherwise dispose of such personal property in any commercially reasonable manner. 10.7 Landlord Default. If Landlord defaults under this Lease, Tenant shall give written notice to Landlord specifying such default with particularity, and Landlord shall have thirty (30) days after receipt of such notice within which to cure such default. In the event of any default by Landlord, Tenant's exclusive remedy shall be an action for damages. Notwithstanding any other provision of this Lease, Landlord shall not have any personal liability under this Lease. In the event of any default by Landlord under this Lease, Tenant agrees to look solely to the equity or interest then owned by Landlord in the Property, and in no event shall any deficiency judgment or personal money judgment of any kind be sought or obtained against Landlord. 10.8 Landlord's Lien. As security for payment of rent, damages and all other payments required to be made by this Lease, Tenant hereby grants to Landlord a lien upon all property of Tenant now or subsequently located upon the Premises. If Tenant abandons or vacates any substantial portion of the Premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provisions of this Lease, Landlord may enter upon the Premises, and take possession of all or any part of the personal property, and may sell all or any part of the personal property at a public or private sale, in one or more sales, with or without notice to the extent permitted by law, to the highest bidder for cash, and, on behalf of Tenant, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Tenant's title and interest in the personal property sold. The proceeds from the sale of the personal property shall be applied by Landlord toward the reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment of all sums then due from Tenant under the terms of this Lease; any excess remaining shall be paid to Tenant or any other person entitled thereto by law. This Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of the state in which the Premises are situated, and Landlord, in addition to the right prescribed in this Lease, shall have all of the rights, titles, liens and interests in and to Tenant's property now or hereafter located upon the Premises which are granted a secured party, as that term is defined under the Uniform Commercial Code, to secure the payment to Landlord of the various amounts provided in this Lease. Tenant will on request execute and deliver to Landlord a financing statement for the purpose of perfecting Landlord's security interest under this Lease or Landlord may file this Lease or a copy thereof as a financing statement. ARTICLE 11 ---------- Damage or Destruction --------------------- 11.1 Restoration. If the Property or the Premises, or any part thereof, is damaged by fire or other casualty before the Commencement Date or during the term of this Lease, and this Lease is not terminated pursuant to section 11.2 hereof, Landlord shall repair such damage and restore the Property and the Premises to substantially the same condition in which the Property and the Premises existed before the occurrence of such fire or other casualty and this Lease shall, subject to this section 11.1, remain in full force and effect. If such fire or other casualty damages the Premises or common areas of the Property necessary for Tenant's use and occupancy of the Premises and if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, officers, employees, contractors, licensees or invitees, then, during the period the Premises is rendered unusable by such damage, Tenant shall be entitled to a reduction in Base Rent in the proportion that the area of the Premises rendered unusable by such damage bears to the total area of the Premises. Landlord shall not be obligated to repair any damage to, or to make any replacement of, any movable furniture, equipment, trade fixtures or personal property in the Premises. Tenant shall, at Tenant's sole cost and expense, repair and replace all such movable furniture, equipment, trade fixtures and personal property. 11.2 Termination of Lease. If the Property or the Premises, or any part thereof, is damaged by fire or other casualty before the Commencement Date or during the term of this Lease and (a) such fire or other casualty occurs during the last twelve (12) months of the term of this Lease and the repair and restoration work to be performed by Landlord in accordance with section 11.1 hereof cannot, as reasonably estimated by Landlord, be completed within two (2) months after the occurrence of such fire or other casualty, or (b) the insurance proceeds received by Landlord in respect of such damage are not adequate to pay the entire cost, as reasonably estimated by Landlord, of the repair and restoration work to be performed by Landlord in accordance with section 11.1 hereof (including inadequacy resulting from the requirement of the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises that the insurance proceeds be applied to such indebtedness), or (c) the repair and restoration work to be performed by Landlord in accordance with section 11.1 hereof cannot, as reasonably estimated by Landlord, be completed within four (4) months after the occurrence of such fire or other casualty, then, in any such event, Landlord shall have the right, by giving written notice to Tenant within sixty (60) days after the occurrence of such fire or other casualty, to terminate this Lease as of the date of such notice. If Landlord does not exercise the right to terminate this Lease in accordance with this section 11.2, Landlord shall repair such damage and restore the Property and the Premises in accordance with section 11.1 hereof and this Lease shall, subject to section 11.1 hereof, remain in full force and effect. A total destruction of the Property shall automatically terminate this Lease effective as of the date of such total destruction. ARTICLE 12 ---------- Eminent Domain -------------- 12.1 Condemnation. Landlord shall have the right to terminate this Lease if a substantial part of the Property (whether or not it includes the Premises) is taken by exercise of the power of eminent domain before the Commencement Date or during the term of this Lease. Tenant shall have the right to terminate this Lease if a substantial portion of the Premises is taken by exercise of the power of eminent domain before the Commencement Date or during the term of this Lease and the remaining portion of the Premises is not reasonably suitable for Tenant's purposes. In each such case, Landlord or Tenant shall exercise such termination right by giving written notice to the other within thirty (30) days after the date of such taking. If either Landlord or Tenant exercises such right to terminate this Lease in accordance with this section 12.1, this Lease shall terminate as of the date of such taking. If neither Landlord nor Tenant exercises such right to terminate this Lease in accordance with this section 12.1, this Lease shall terminate as to the portion of the Premises so taken as of the date of such taking and shall remain in full force and effect as to the portion of the Premises not so taken, and the Base Rent and Tenant's Percentage Share shall be reduced as of the date of such taking in the proportion that the area of the Premises so taken bears to the total area of the Premises. If all of the Premises is taken by exercise of the power of eminent domain before the Commencement Date or during the term of this Lease, this Lease shall terminate as of the date of such taking. 12.2 Award. If all or any part of the Premises is taken by exercise of the power of eminent domain, all awards, compensation, damages, income, rent and interest payable in connection with such taking shall, except as expressly set forth in this section 12.2, be paid to and become the property of Landlord, and Tenant hereby assigns to Landlord all of the foregoing. Without limiting the generality of the foregoing, Tenant shall have no claim against Landlord or the entity exercising the power of eminent domain for the value of the leasehold estate created by this Lease or any unexpired term of this Lease. Tenant shall have the right to claim and receive directly from the entity exercising the power of eminent domain only the share of any award determined to be owing to Tenant for the taking of improvements installed in the portion of the Premises so taken by Tenant at Tenant's sole cost and expense based on the unamortized cost actually paid by Tenant for such improvements, for the taking of Tenant's movable furniture, equipment, trade fixtures and personal property, for loss of goodwill, for interference with or interruption of Tenant's business, or for removal and relocation expenses. 12.3 Temporary Use. Notwithstanding sections 12.1 and 12.2 hereof to the contrary, if the use of all or any part of the Premises is taken by exercise of the power of eminent domain during the term of this Lease on a temporary basis for a period less than the shorter of (i) six (6) months or (ii) the term of this Lease remaining after such taking, this Lease shall continue in full force and effect, Tenant shall continue to pay all of the rent and to perform all of the covenants of Tenant in accordance with this Lease, to the extent reasonably practicable under the circumstances, and the condemnation proceeds in respect of such temporary taking shall be paid to Tenant. 12.4 Definition of Taking. As used herein, a "taking" means the acquisition of all or part of the Property for a public use by exercise of the power of eminent domain or voluntary conveyance in lieu thereof and the taking shall be considered to occur as of the earlier of the date on which possession of the Property (or part so taken) by the entity exercising the power of eminent domain is authorized as stated in an order for possession or the date on which title to the Property (or part so taken) vests in the entity exercising the power of eminent domain. ARTICLE 13 ---------- Subordination and Sale ---------------------- 13.1 Subordination. This Lease shall be subject and subordinate at all times to the lien of all mortgages and deeds of trust securing any amount or amounts whatsoever which may now exist or hereafter be placed on or against the Property or on or against Landlord's interest or estate therein, all without the necessity of having further instruments executed by Tenant to effect such subordination. Notwithstanding the foregoing, in the event of a foreclosure of any such mortgage or deed of trust or of any other action or proceeding for the enforcement thereof, or of any sale thereunder, this Lease shall not be terminated or extinguished, nor shall the rights and possession of Tenant hereunder be disturbed, if no Event of Default then exists under this Lease, and Tenant shall attorn to the person who acquires Landlord's interest hereunder through any such mortgage or deed of trust. Tenant agrees to execute, acknowledge and deliver upon demand such further instruments evidencing such subordination of this Lease to the lien of all such mortgages and deeds of trust as may reasonably be required by Landlord. Notwithstanding anything in this section 13.1 to the contrary, Tenant's subordination of this Lease shall be subject to the legal or beneficial owner of the lien of any mortgage or deed of trust which may now exists or hereafter be placed on or against the Property or on or against Landlord's interest or estate therein providing Tenant assurance, in the form of a non- disturbance agreement, that Tenant's possession and this Lease shall not be disturbed so long as Tenant is not in default hereunder and attorns to the record owner of the Property. 13.2 Sale of the Property. If the original Landlord hereunder, or any successor owner of the Property, sells or conveys the Property, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing after such sale or conveyance shall terminate and the original Landlord, or such successor owner, shall automatically be released therefrom, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner. 13.3 Estoppel Certificate. At any time and from time to time, Tenant shall, within ten (10) days after written request by Landlord, execute, acknowledge and deliver to Landlord a certificate certifying: (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the date and nature of each modification); (b) the Commencement Date and the Expiration Date determined in accordance with Article 2 hereof and the date, if any, to which all rent and other sums payable hereunder have been paid; (c) that no notice has been received by Tenant of any default by Tenant hereunder which has not been cured, except as to defaults specified in such certificate; (d) that Landlord is not in default under this Lease, except as to defaults specified in such certificate; and (e) such other matters as may be reasonably requested by Landlord or any actual or prospective purchaser or mortgage lender. Any such certificate may be relied upon by Landlord and any actual or prospective purchaser or mortgage lender of the Property or any part thereof. Landlord shall, within ten (10) business days after written request by Tenant, execute, acknowledge and deliver to (a) a proposed purchaser of all or substantially all of Tenant's assets, or (b) a proposed lender of Tenant that has or will obtain a security interest all or any portion of the assets of Tenant, an estoppel certificate certifying: (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the date and nature of each modification); (b) the Commencement Date and the Expiration Date determined in accordance with Article 2 hereof and the date, if any, to which all rent payable hereunder have been paid; (c) that no notice has been received by Landlord of any default by Landlord hereunder which has not been cured, except as to defaults specified in such certificate; and (d) that to the best of Landlord's knowledge, Tenant is not in monetary default under this Lease, except as to defaults specified in such certificate. If Tenant has not received the estoppel requested of Landlord within the time frame set forth herein, Tenant may provide written notice to Landlord to deliver the estoppel and upon receipt of such notice, Landlord shall have five (5) business days to deliver the estoppel. Tenant shall only request such estoppel certificates on a commercially reasonably basis, but in no event shall Tenant request such estoppel certificates from Landlord more than three (3) times during any calendar year. At any time and from time to time, Tenant shall, within ten (10) days after written request by Landlord, deliver to Landlord copies of all current financial statements (including a balance sheet, an income statement, and an accumulated retained earnings statement), annual reports, and other financial and operating information and data of Tenant prepared by Tenant in the course of Tenant's business. Unless available to the public, Landlord shall disclose such financial statements, annual reports and other information or data only to actual or prospective purchasers or mortgage lenders of the Property or any part thereof, and otherwise keep them confidential unless other disclosure is required by law. In the event Landlord discloses such information, Landlord shall request the recipient of such information to hold the same confidential. ARTICLE 14 ---------- Notices ------- 14.1 Method. All requests, approvals, consents, notices and other communications given by Landlord or Tenant under this Lease shall be properly given only if made in writing and either deposited in the United States mail, postage prepaid, certified with return receipt requested, or delivered by hand (which may be through a messenger or recognized delivery, courier or air express service) and addressed as follows: To Landlord at the address of Landlord specified in the Basic Lease Information, or at such other place as Landlord may from time to time designate in a written notice to Tenant; to Tenant at the address of Tenant specified in the Basic Lease Information, or at such other place as Tenant may from time to time designate in a written notice to Landlord; and to Guarantor at the address of Guarantor specified in the Basic Lease Information, or at such other place as Guarantor may from time to time designate in a written notice to Landlord. Such requests, approvals, consents, notices and other communications shall be effective on the date of receipt (evidenced by the certified mail receipt) if mailed or on the date of hand delivery if hand delivered. If any such request, approval, consent, notice or other communication is not received or cannot be delivered due to a change in the address of the receiving party of which notice was not previously given to the sending party or due to a refusal to accept by the receiving party, such request, approval, consent, notice or other communication shall be effective on the date delivery is attempted. Any request, approval, consent, notice or other communication under this Lease may be given on behalf of a party by the attorney for such party. ARTICLE 15 ---------- Miscellaneous ------------- 15.1 General. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." If there is more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. Time is of the essence of this Lease and each and all of its provisions. This Lease shall benefit and bind Landlord and Tenant and the permitted personal representatives, heirs, successors and assigns of Landlord and Tenant. If any provision of this Lease is determined to be illegal or unenforceable, such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect. Tenant shall not record this Lease or any memorandum or short form of it. This Lease shall be governed by and construed in accordance with the laws of the state in which the Property is located. 15.2 No Waiver. The waiver by Landlord or Tenant of any breach of any covenant in this Lease shall not be deemed to be a waiver of any subsequent breach of the same or any other covenant in this Lease, nor shall any custom or practice which may grow up between Landlord and Tenant in the administration of this Lease be construed to waive or to lessen the right of Landlord or Tenant to insist upon the performance by Landlord or Tenant in strict accordance with this Lease. The subsequent acceptance of rent hereunder by Landlord or the payment of rent by Tenant shall not waive any preceding breach by Tenant of any covenant in this Lease, nor cure any Event of Default, nor waive any forfeiture of this Lease or unlawful detainer action, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's or Tenant's knowledge of such preceding breach at the time of acceptance or payment of such rent. 15.3 Attorneys' Fees. If there is any legal action or proceeding between Landlord and Tenant to enforce this Lease or to protect or establish any right or remedy under this Lease, the unsuccessful party to such action or proceeding shall pay to the prevailing party all costs and expenses, including reasonable attorneys' fees and disbursements, incurred by such prevailing party in such action or proceeding and in any appeal in connection therewith. If such prevailing party recovers a judgment in any such action, proceeding or appeal, such costs, expenses and attorneys' fees and disbursements shall be included in and as a part of such judgment. 15.4 Exhibits. The Lease Guaranty, Exhibit A (Plan(s) Outlining the Premises and the Property), Exhibit B (Description of Landlord's Work), Exhibit C (Form of Memorandum Confirming Term) and any other attachments specified in the Basic Lease Information, are attached to and made a part of this Lease. 15.5 Broker(s). Tenant warrants and represents to Landlord that Tenant has negotiated this Lease directly with the real estate broker(s) specified in the Basic Lease Information and has not authorized or employed, or acted by implication to authorize or to employ, any other real estate broker to act for Tenant in connection with this Lease. Tenant agrees to indemnify, defend and hold Landlord, its property manager and their respective employees harmless from and against all claims, demands, actions, liabilities, damages, costs and expenses (including, attorneys' fees) arising from either (i) a claim for a fee or commission made by any broker, other than Broker, claiming to have acted by or on behalf of Tenant in connection with this Lease, or (ii) a claim of, or right to, lien under the statutes of Illinois relating to real estate broker liens with respect to any such broker retained by, or claiming to have acted by or on behalf of, Tenant. Landlord agrees to pay Broker a commission in accordance with a separate agreement between Landlord and Broker. 15.6 Waivers of Jury Trial and Certain Damages. Landlord and Tenant each hereby expressly, irrevocably, fully and forever releases, waives and relinquishes any and all right to trial by jury and any and all right to receive punitive, exemplary and consequential damages from the other (or any past, present or future board member, trustee, director, officer, employee, agent, representative, or advisor of the other) in any claim, demand, action, suit, proceeding or cause of action in which Landlord and Tenant are parties, which in any way (directly or indirectly) arises out of, results from or relates to any of the following, in each case whether now existing or hereafter arising and whether based on contract or tort or any other legal basis: This Lease; any past, present or future act, omission, conduct or activity with respect to this Lease; any transaction, event or occurrence contemplated by this Lease; the performance of any obligation or the exercise of any right under this Lease; or the enforcement of this Lease. Landlord and Tenant reserve the right to recover actual or compensatory damages, with interest, attorneys' fees, costs and expenses as provided in this Lease, for any breach of this Lease. 15.7 Entire Agreement. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, offers, agreements and understandings, oral or written, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease, the Premises or the Property. There are no commitments, representations or assurances between Landlord and Tenant or between any real estate broker and Tenant other than those expressly set forth in this Lease and all reliance with respect to any commitments, representations or assurances is solely upon commitments, representations and assurances expressly set forth in this Lease. This Lease may not be amended or modified in any respect whatsoever except by an agreement in writing signed by Landlord and Tenant. 15.8 Termination Option. Landlord and Tenant agree that Tenant shall have the right, upon at least twelve (12) months prior written notice to Landlord, to terminate this Lease (the "Termination Right") effective on the commencement of the fourth lease year (the "Termination Effective Date"), provided that no Event of Default on the part of Tenant has occurred and is continuing at the time of the exercise of such option and at the time of the Termination Effective Date. The Termination Right shall not affect Tenant's liability for (i) post-term adjustments to Additional Rent applicable to the period prior to the Termination Effective Date, (ii) unperformed obligations which accrued prior to the Termination Effective Date, and (iii) obligations which by their terms survive the expiration or earlier termination of the Term of this Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date specified in the Basic Lease Information. JOHN B. SANFILIPPO & SON, INC. a Delaware corporation By: /s/ MICHAEL J. VALENTINE CABOT ACQUISITION, LLC, a Delaware ------------------------ limited liability company Title: Chief Financial Officer By: CALEAST INDUSTRIAL INVESTORS, LLC, Date: April 18, 2003 a California limited liability company, it sole member By: LASALLE INVESTMENT MANAGEMENT, INC., a Maryland corporation, Manager By: /s/ ERNEST FIORANTE ------------------- Title: Vice President Date: April 18, 2003 EXHIBIT A --------- PLAN(S) OUTLINING THE PREMISES AND THE PROPERTY ----------------------------------------------- (GRAPHIC OF FLOOR PLAN) This site plan or floor plan is used solely for the purpose of identifying the approximate location and size of the Premises. Building sizes, site dimensions, access, common and parking areas, and existing tenants and locations are subject to change at Landlord's discretion. EXHIBIT B --------- Description of Landlord's Work Landlord shall complete to following improvements prior to the Commencement Date: Power wash warehouse floor Remove fluorescent light bulbs from abandoned fluorescent light fixtures in warehouse Clean out the storm sewer drain located in the northwest corner of the warehouse Landlord shall complete the following improvements within ninety (90) days of Commencement Date: Repairs and sealing to asphalt east and west parking areas Repairs and maintenance to put all mechanical and electrical systems in good working order, including HVAC, warehouse lighting, dock doors, and dock levelers Landlord shall complete the following improvements within one hundred eighty (180) days of Commencement Date: Replacement of concrete apron at west dock loading area EXHIBIT C --------- MEMORANDUM CONFIRMING TERM -------------------------- THIS MEMORANDUM, made as of April 21, 2003, by and between CABOT ACQUISITION, LLC, a Delaware limited liability company ("Landlord"), and JOHN B. SANFILIPO & SON, INC., a Delaware corporation ("Tenant"), W I T N E S S E T H: -------------------- Recital of Facts: Landlord and Tenant entered into the Industrial Lease (the "Lease") dated April 18, 2003. Words defined in the Lease have the same meanings in this Memorandum. NOW, THEREFORE, in consideration of the covenants in the Lease, Landlord and Tenant agree as follows: 1. Landlord and Tenant hereby confirm that: (a) The Commencement Date under the Lease is April 21, 2003 , (b) The Expiration Date under the Lease is April 21, 2008,; and (c) The date on which Landlord completed the improvements pursuant to Exhibit B to the Lease (if any), Landlord delivered possession of the Premises to Tenant as required by the Lease, and Tenant's obligation to pay rent begins under the Lease is April 21, 2003. , . 2. Tenant hereby confirms that: (a) All commitments, representations and assurances made to induce Tenant to enter into the Lease have been fully satisfied; (b) All improvements to the Property and in the Premises to be constructed or installed by Landlord have been completed and furnished in accordance with the Lease to the satisfaction of Tenant; and (c) Tenant has accepted and is in full and complete possession of the Premises. 3. This Memorandum shall be binding upon and inure to the benefit of Landlord and Tenant and their permitted successors and assigns under the Lease. The Lease is in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of the date first hereinabove written. JOHN B. SANFILIPPO & SON, INC. a Delaware corporation By: /s/ MICHAEL J. VALENTINE CABOT ACQUISITION, LLC, a Delaware ------------------------ limited liability company Title: Chief Financial Officer By: CALEAST INDUSTRIAL INVESTORS, LLC, Date: April 18, 2003 a California limited liability company, it sole member By: LASALLE INVESTMENT MANAGEMENT, INC., a Maryland corporation, Manager By: /s/ ERNEST FIORANTE ------------------- Title: Vice President Date: April 18, 2003 EXHIBIT D --------- Office Space Maintenance Tenant shall perform maintenance to the office space of the Premises as set forth below. During summer months, maintain temperature of no more than 85' F During winter months, maintain temperature of no less than 55' F Maintain lighting in all emergency and exit signs Flush toilets and urinals weekly to maintain valves and avoid sewer gas seepage Pour water down all floor drains weekly to avoid sewer gas seepage Inspect and report roof leaks to Landlord Inspect and report broken windows to Landlord Maintain pest control program Regularly clean space, including dusting window ledges and vacuuming or washing floors EX-21 10 exhibit21.txt EXHIBIT 21 ---------- LIST OF SUBSIDIARIES - -------------------- REGISTRANT'S RELATIONSHIP OWNERSHIP ENTITY TO REGISTRANT BUSINESS PERCENTAGE - ------------------------ ------------- ------------- ------------ JBS International, Inc., Subsidiary Export sales 100% a Barbados corporation of the Registrant's products EX-23 11 exhibit23.txt EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-56896) of John B. Sanfilippo & Son, Inc. of our report dated August 18, 2003 relating to the financial statements, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated August 18, 2003 relating to the financial statement schedules, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP - ------------------------------ Chicago, Illinois September 9, 2003 EX-31 12 exhibit311.txt EXHIBIT 31.1 ------------ CERTIFICATION ------------- I, Jasper B. Sanfilippo, certify that: 1. I have reviewed this Annual Report on Form 10-K of John B. Sanfilippo & Son, Inc. for the fiscal year ended June 26, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. September 15, 2003 /s/ JASPER B. SANFILIPPO ------------------------ Jasper B. Sanfilippo Chairman of the Board and Chief Executive Officer EX-31 13 exhibit312.txt EXHIBIT 31.2 ------------ CERTIFICATION ------------- I, Michael J. Valentine, certify that: 1. I have reviewed this Annual Report on Form 10-K of John B. Sanfilippo & Son, Inc. for the fiscal year ended June 26, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. September 15, 2003 /s/ MICHAEL J. VALENTINE ------------------------ Michael J. Valentine Executive Vice President Finance, Chief Financial Officer and Secretary EX-32 14 exhibit321.txt EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ------------------------------------------------- In connection with the Annual Report of John B. Sanfilippo & Son, Inc. (the "Company") on Form 10-K for the fiscal year ended June 26, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jasper B. Sanfilippo, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. September 15, 2003 /s/ JASPER B. SANFILIPPO ------------------------ Jasper B. Sanfilippo Chairman of the Board and Chief Executive Officer EX-32 15 exhibit322.txt EXHIBIT 32.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ------------------------------------------------- In connection with the Annual Report of John B. Sanfilippo & Son, Inc. (the "Company") on Form 10-K for the fiscal year ended June 26, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jasper B. Sanfilippo, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. September 15, 2003 /s/ MICHAEL J. VALENTINE ------------------------ Michael J. Valentine Executive Vice President Finance, Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----