J M SMUCKER Co 10-Q for FY2021 Q2
J M SMUCKER Co (SJM)
10-Q
2020-11-24
For: 2020-10-31
View Original
Added on
April 04, 2026
About this 10-Q
J M SMUCKER Co filed this 10-Q on November 24, 2020, covering the quarter ended October 31, 2020 (FY2021 Q2).
Headline figures
Quarter ended October 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.03B
- up 3.9% from $1.96B a year earlier
- Net income
- $230.8M
- up 9.3% from net income of $211.2M a year earlier
- Diluted EPS
- $2.02
- up 9.2% from $1.85 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________
FORM 10-Q
___________________________________________________
| QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended: October 31, 2020
or
| 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: 1-5111
___________________________________________________
(Exact name of registrant as specified in its charter)
___________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||||||||
Registrant’s telephone number, including area code: | |||||||||||||||||
N/A | |||||||||||||||||
| (Former name, former address and former fiscal year, if changed since last report) | |||||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | |||||||||||||||||
Title of each class | Trading symbol | Name of each exchange on which registered | |||||||||||||||
___________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ý | Accelerated filer | ☐ | |||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The Company had 114,092,704 common shares outstanding on November 17, 2020.
TABLE OF CONTENTS
| Page No. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| Dollars in millions, except per share data | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of products sold | |||||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| Selling, distribution, and administrative expenses | |||||||||||||||||||||||
| Amortization | |||||||||||||||||||||||
Other special project costs (A) | |||||||||||||||||||||||
| Other operating expense (income) – net | ( | ( | |||||||||||||||||||||
| Operating Income | |||||||||||||||||||||||
| Interest expense – net | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense) – net | ( | ( | ( | ( | |||||||||||||||||||
| Income Before Income Taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Net Income – Assuming Dilution | $ | $ | $ | $ | |||||||||||||||||||
(A) Other special project costs includes integration and restructuring costs. For more information, see Note 3: Integration and Restructuring Costs.
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| Dollars in millions | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||
| Cash flow hedging derivative activity, net of tax | ( | ( | |||||||||||||||||||||
| Pension and other postretirement benefit plans activity, net of tax | |||||||||||||||||||||||
| Available-for-sale securities activity, net of tax | ( | ||||||||||||||||||||||
| Total Other Comprehensive Income (Loss) | ( | ( | |||||||||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | |||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
2
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| Dollars in millions | October 31, 2020 | April 30, 2020 | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade receivables – net | |||||||||||
| Inventories: | |||||||||||
| Finished products | |||||||||||
| Raw materials | |||||||||||
| Total Inventory | |||||||||||
| Other current assets | |||||||||||
| Total Current Assets | |||||||||||
| Property, Plant, and Equipment | |||||||||||
| Land and land improvements | |||||||||||
| Buildings and fixtures | |||||||||||
| Machinery and equipment | |||||||||||
| Construction in progress | |||||||||||
| Gross Property, Plant, and Equipment | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total Property, Plant, and Equipment | |||||||||||
| Other Noncurrent Assets | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets – net | |||||||||||
| Other noncurrent assets | |||||||||||
| Total Other Noncurrent Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued trade marketing and merchandising | |||||||||||
| Current portion of long-term debt | |||||||||||
| Short-term borrowings | |||||||||||
| Current operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Noncurrent Liabilities | |||||||||||
| Long-term debt, less current portion | |||||||||||
| Deferred income taxes | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total Noncurrent Liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Shareholders’ Equity | |||||||||||
| Common shares | |||||||||||
| Additional capital | |||||||||||
| Retained income | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ( | |||||||||
| Total Shareholders’ Equity | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
3
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| Six Months Ended October 31, | |||||||||||
| Dollars in millions | 2020 | 2019 | |||||||||
| Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used for) operations: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Pension settlement loss (gain) | |||||||||||
| Share-based compensation expense | |||||||||||
| Other noncash adjustments – net | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Trade receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Other current assets | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued liabilities | |||||||||||
| Income and other taxes | ( | ( | |||||||||
| Other – net | ( | ||||||||||
| Net Cash Provided by (Used for) Operating Activities | |||||||||||
| Investing Activities | |||||||||||
| Additions to property, plant, and equipment | ( | ( | |||||||||
| Other – net | |||||||||||
| Net Cash Provided by (Used for) Investing Activities | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Short-term borrowings (repayments) – net | ( | ||||||||||
| Repayments of long-term debt | ( | ( | |||||||||
| Quarterly dividends paid | ( | ( | |||||||||
| Purchase of treasury shares | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Other – net | |||||||||||
| Net Cash Provided by (Used for) Financing Activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | |||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | |||||||||
( ) Denotes use of cash
See notes to unaudited condensed consolidated financial statements.
4
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(Unaudited)
| Six Months Ended October 31, 2020 | |||||||||||||||||||||||||||||||||||
| Dollars in millions | Common Shares Outstanding | Common Shares | Additional Capital | Retained Income | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Balance at May 1, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock plans | |||||||||||||||||||||||||||||||||||
Cash dividends declared, $ | ( | ( | |||||||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||||||||
| Balance at July 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock plans | |||||||||||||||||||||||||||||||||||
Cash dividends declared, $ | ( | ( | |||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Balance at October 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Six Months Ended October 31, 2019 | |||||||||||||||||||||||||||||||||||
| Dollars in millions | Common Shares Outstanding | Common Shares | Additional Capital | Retained Income | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Balance at May 1, 2019 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Stock plans | |||||||||||||||||||||||||||||||||||
Cash dividends declared, $ | ( | ( | |||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Balance at July 31, 2019 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock plans | |||||||||||||||||||||||||||||||||||
Cash dividends declared, $ | ( | ( | |||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Balance at October 31, 2019 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
5
THE J. M. SMUCKER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, unless otherwise noted, except per share data)
Note 1: Basis of Presentation
The unaudited interim condensed consolidated financial statements of The J. M. Smucker Company (“Company,” “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included.
Operating results for the six months ended October 31, 2020, are not necessarily indicative of the results that may be expected for the year ending April 30, 2021. For further information, reference is made to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended April 30, 2020.
Note 2: Recently Issued Accounting Standards
In August 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10825, Modernization of Regulation S-K Items 101, 103, and 105, to modernize certain disclosure requirements for the description of business, legal proceedings, and risk factors. These updates are part of the SEC’s broader disclosure effectiveness initiative, and reflect a principles-based, registrant-specific approach to disclosure, intended to improve the content and simplify compliance for registrants. The amendments were effective on November 9, 2020. While there was no impact to our interim disclosures, our annual disclosures will be updated accordingly to comply with these amendments.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod allocations, and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will be effective for us on May 1, 2021, with the option to early adopt at any time prior to the effective date. Accounting for franchise taxes will require adoption on a retrospective or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other applicable provisions will require adoption on a retrospective, modified retrospective, or prospective basis, as required by ASU 2019-12. We do not anticipate that the adoption of this ASU will have a material impact on our financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20) Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial and adds new, as well as clarifies certain other, disclosure requirements. ASU 2018-14 was effective for us on May 1, 2020. It did not impact our interim disclosures, and we do not anticipate a material impact on our annual disclosures.
Note 3: Integration and Restructuring Costs
Integration and restructuring costs primarily consist of employee-related costs and other transition and termination costs related to certain acquisition or restructuring activities. Employee-related costs include severance, retention bonuses, and relocation costs. Severance costs and retention bonuses are recognized over the estimated future service period of the affected employees, and relocation costs are expensed as incurred. Other transition and termination costs include fixed asset-related charges, contract and lease termination costs, professional fees, and other miscellaneous expenditures associated with the integration or restructuring activities, which are expensed as incurred. These integration and restructuring costs are not allocated to segment profit and are reported in other special project costs in the Condensed Statement of Consolidated Income. The obligation related to employee separation costs is included in other current liabilities in the Condensed Consolidated Balance Sheet.
Integration Costs: As of April 30, 2020, the integration of the Ainsworth Pet Nutrition, LLC (“Ainsworth”) acquisition was considered complete. We incurred total integration costs of $48.6 related to the acquisition, of which $4.7 were noncash charges, primarily consisting of accelerated depreciation. While we did no 3.3 and $6.6 during the three and six months ended October 31, 2019, respectively, primarily consisting of other
6
Note 4: Divestiture
On October 26, 2020, we announced a definitive agreement to sell our Crisco® oils and shortening business to B&G Foods, Inc. (“B&G Foods”). We expect the transaction to close during the third quarter of 2021, subject to customary closing conditions. The transaction includes oils and shortening products sold under the Crisco brand, certain trademarks and licensing agreements, dedicated manufacturing and warehouse facilities located in Cincinnati, Ohio, and approximately 160 employees who support the Crisco business. The business generated net sales of approximately $270.0 in 2020. The transaction also includes our oils and shortening business outside the U.S., which is primarily in Canada.
We expect to receive approximately $550.0 in proceeds from the divestiture, which is subject to a final working capital adjustment, and anticipate recognizing a gain upon completion of the transaction. The pre-tax gain is estimated to be approximately $115.0 based on the expected proceeds, including the assumed working capital and the carrying value of the net assets, less estimated costs to sell, at the closing date.
The operating results for this business were primarily included in the U.S. Retail Consumer Foods segment for the six months ended October 31, 2020. Additionally, the disposal group met the criteria to be classified as held for sale as of October 31, 2020, and was measured at the lower of carrying amount or fair value less costs to sell.
The assets and liabilities held for sale at October 31, 2020, are as follows:
| October 31, 2020 | |||||
| Assets held for sale: | |||||
| Inventories | $ | ||||
| Property, plant, and equipment | |||||
| Operating lease right-of-use assets | |||||
| Goodwill | |||||
| Other intangible assets – net | |||||
| Other noncurrent assets | |||||
| Total assets held for sale | $ | ||||
| Liabilities held for sale: | |||||
| Current operating lease liabilities | $ | ||||
| Noncurrent operating lease liabilities | |||||
| Total liabilities held for sale | |||||
| Net assets held for sale | $ | ||||
Note 5: Reportable Segments
We operate in one industry: the manufacturing and marketing of food and beverage products. We have three reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. Effective during the first quarter of 2021, the presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable. As a result of leadership changes, these operating segments are being managed and reported separately and no longer represent a reportable segment for segment reporting purposes. Prior year segment results have not been modified, as the combination of these operating segments represents the previously reported International and Away From Home reportable segment.
The U.S. Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray® Nutrish®, Meow Mix®, Milk-Bone®, 9Lives®, Kibbles ’n Bits®, Natural Balance®, Pup-Peroni®, and Nature’s Recipe® branded products; the U.S. Retail Coffee segment primarily includes the domestic sales of Folgers®, Dunkin’TM, and Café Bustelo® branded coffee; and the U.S. Retail Consumer Foods segment primarily includes the domestic sales of Smucker’s®, Jif®, and Crisco branded products. International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels
7
and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).
Segment profit represents net sales, less direct and allocable operating expenses, and is consistent with the way in which we manage our segments. However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment profit set forth below, as segment profit excludes certain expenses such as corporate administrative expenses, gains and losses related to the sale of a business, unallocated gains and losses on commodity and foreign currency exchange derivative activities, as well as amortization expense and impairment charges related to intangible assets.
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. We would expect that any gain or loss in the estimated fair value of the derivatives would generally be offset by a change in the estimated fair value of the underlying exposures.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| U.S. Retail Pet Foods | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Retail Coffee | |||||||||||||||||||||||
| U.S. Retail Consumer Foods | |||||||||||||||||||||||
| International and Away From Home | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Segment profit: | |||||||||||||||||||||||
| U.S. Retail Pet Foods | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Retail Coffee | |||||||||||||||||||||||
| U.S. Retail Consumer Foods | |||||||||||||||||||||||
| International and Away From Home | |||||||||||||||||||||||
| Total segment profit | $ | $ | $ | $ | |||||||||||||||||||
| Amortization | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense – net | ( | ( | ( | ( | |||||||||||||||||||
| Unallocated derivative gains (losses) | |||||||||||||||||||||||
Other special project costs (A) | ( | ( | |||||||||||||||||||||
| Corporate administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense) – net | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
(A)Other special project costs includes integration and restructuring costs. For more information, see Note 3: Integration and Restructuring Costs.
The following table presents certain geographical information.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| International: | |||||||||||||||||||||||
| Canada | $ | $ | $ | $ | |||||||||||||||||||
| All other international | |||||||||||||||||||||||
| Total international | $ | $ | $ | $ | |||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
8
The following table presents product category information.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | Primary Reportable Segment (A) | |||||||||||||||||||||||||
| Coffee | $ | $ | $ | $ | U.S. Retail Coffee | ||||||||||||||||||||||||
| Dog food | U.S. Retail Pet Foods | ||||||||||||||||||||||||||||
| Cat food | U.S. Retail Pet Foods | ||||||||||||||||||||||||||||
| Pet snacks | U.S. Retail Pet Foods | ||||||||||||||||||||||||||||
| Peanut butter | U.S. Retail Consumer Foods | ||||||||||||||||||||||||||||
| Frozen handheld | U.S. Retail Consumer Foods | ||||||||||||||||||||||||||||
| Fruit spreads | U.S. Retail Consumer Foods | ||||||||||||||||||||||||||||
| Shortening and oils | U.S. Retail Consumer Foods | ||||||||||||||||||||||||||||
| Juices and beverages | U.S. Retail Consumer Foods | ||||||||||||||||||||||||||||
| Portion control | Other (B) | ||||||||||||||||||||||||||||
| Baking mixes and ingredients | Other (B) | ||||||||||||||||||||||||||||
| Other | Other (B) | ||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||||||||
(A)The identified primary reportable segment generally represents at least 75 percent of total net sales for each respective product category.
Note 6: Earnings per Share
The following table sets forth the computation of net income per common share and net income per common share – assuming dilution under the two-class method.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Less: Net income allocated to participating securities | |||||||||||||||||||||||
| Net income allocated to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
| Add: Dilutive effect of stock options | |||||||||||||||||||||||
| Weighted-average common shares outstanding – assuming dilution | |||||||||||||||||||||||
| Net income per common share | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share – assuming dilution | $ | $ | $ | $ | |||||||||||||||||||
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Note 7: Debt and Financing Arrangements
The following table summarizes the components of our long-term debt.
| October 31, 2020 | April 30, 2020 | ||||||||||||||||||||||
| Principal Outstanding | Carrying Amount (A) | Principal Outstanding | Carrying Amount (A) | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Term Loan Credit Agreement due May 14, 2021 | |||||||||||||||||||||||
| Total long-term debt | $ | $ | $ | $ | |||||||||||||||||||
| Current portion of long-term debt | |||||||||||||||||||||||
| Total long-term debt, less current portion | $ | $ | $ | $ | |||||||||||||||||||
(A) Represents the carrying amount included in the Condensed Consolidated Balance Sheets, which includes the impact of capitalized debt issuance costs, offering discounts, and terminated interest rate contracts.
In April 2018, we entered into a senior unsecured delayed-draw Term Loan Credit Agreement (“Term Loan”) with a syndicate of banks and an available commitment amount of $1.5 billion. The full amount of the Term Loan was drawn on May 14, 2018, to partially finance the Ainsworth acquisition. Borrowings under the Term Loan bear interest on the prevailing U.S. Prime Rate or London Interbank Offered Rate (“LIBOR”), based on our election, and are payable either on a quarterly basis or at the end of the borrowing term. The Term Loan does not require scheduled amortization payments. Voluntary prepayments are permitted without premium or penalty. As of October 31, 2020, we have prepaid $1.3 billion on the Term Loan to date, including $500.0 during the first half of 2021, of which $200.0 was paid during the second quarter. The interest rate on the Term Loan at October 31, 2020, was 0.95 percent.
We have available a $1.8 billion unsecured revolving credit facility with a group of 11 banks that matures in September 2022. Borrowings under the revolving credit facility bear interest on the prevailing U.S. Prime Rate, LIBOR, or Canadian Dealer Offered Rate, based on our election. Interest is payable either on a quarterly basis or at the end of the borrowing term. We did no
We participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $1.8 billion at any time. The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding. Commercial paper will be used as a continuing source of short-term financing for general corporate purposes. As of October 31, 2020, and April 30, 2020, we had $280.0 and $248.0 of short-term borrowings outstanding, respectively, which were issued under our commercial paper program at weighted-average interest rates of 0.17 percent and 0.40 percent, respectively.
Interest paid totaled $76.2 and $78.4 for the three months ended October 31, 2020 and 2019, respectively, and $86.4 and $100.0 , for the six months ended October 31, 2020 and 2019, respectively. This differs from interest expense due to the amortization of debt issuance costs and discounts, effect of interest rate contracts, capitalized interest, payment of other debt fees, and the timing of interest payments.
Our debt instruments contain certain financial covenant restrictions, including a leverage ratio and an interest coverage ratio. We are in compliance with all covenants.
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Note 8: Pensions and Other Postretirement Benefits
The components of our net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below.
| Three Months Ended October 31, | |||||||||||||||||||||||
| Defined Benefit Pension Plans | Other Postretirement Benefits | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of net actuarial loss (gain) | |||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | ( | |||||||||||||||||||||
| Settlement loss (gain) | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
| Six Months Ended October 31, | |||||||||||||||||||||||
| Defined Benefit Pension Plans | Other Postretirement Benefits | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of net actuarial loss (gain) | ( | ||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | ( | |||||||||||||||||||||
| Settlement loss (gain) | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
Note 9: Derivative Financial Instruments
We are exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the volatility related to these exposures, we enter into various derivative transactions. We have policies in place that define acceptable instrument types we may enter into and establish controls to limit our market risk exposure.
Commodity Price Management: We enter into commodity derivatives to manage price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, corn, soybean meal, edible oils, and wheat. We also enter into commodity derivatives to manage price risk for energy input costs, including diesel fuel and natural gas. Our derivative instruments generally have maturities of less than one year .
We do not qualify commodity derivatives for hedge accounting treatment, and as a result, the derivative gains and losses are immediately recognized in earnings. Although we do not perform the assessments required to achieve hedge accounting for derivative positions, we believe all of our commodity derivatives are economic hedges of our risk exposure.
The commodities hedged have a high inverse correlation to price changes of the derivative instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.
Foreign Currency Exchange Rate Hedging: We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The
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contracts generally have maturities of less than one year . We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment.
Interest Rate Hedging: We utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the contract is recognized at fair value on the balance sheet and changes in the fair value are recognized in interest expense. Generally, changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings.
In 2020, we terminated interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050. They were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing. The termination resulted in a pre-tax loss of $239.8 , which was deferred and included as a component of accumulated other comprehensive income (loss) and is being amortized as interest expense over the life of the debt.
In 2015, we terminated the interest rate swap on the Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash, which included $4.6 of accrued and prepaid interest. The gain on termination was recorded as an increase in the long-term debt balance and is being recognized over the remaining life of the underlying debt as a reduction to interest expense. To date, we have recognized $45.3 of the gain, of which $2.0 and $4.2 was recognized during the three and six months ended October 31, 2020, respectively, and $2.1 and $4.1 was recognized during the three and six months ended October 31, 2019, respectively. The remaining gain will be recognized as follows: $4.2 through the remainder of 2021 and $4.0 in 2022.
The following tables set forth the gross fair value amounts of derivative instruments recognized in the Condensed Consolidated Balance Sheets.
| October 31, 2020 | |||||||||||||||||||||||
| Other Current Assets | Other Current Liabilities | Other Noncurrent Assets | Other Noncurrent Liabilities | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency exchange contracts | |||||||||||||||||||||||
| Total derivative instruments | $ | $ | $ | $ | |||||||||||||||||||
| April 30, 2020 | |||||||||||||||||||||||
| Other Current Assets | Other Current Liabilities | Other Noncurrent Assets | Other Noncurrent Liabilities | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency exchange contracts | |||||||||||||||||||||||
| Total derivative instruments | $ | $ | $ | $ | |||||||||||||||||||
We have elected to not offset fair value amounts recognized for our exchange-traded derivative instruments and our cash margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of our open positions. At October 31, 2020, and April 30, 2020, we maintained cash margin account balances of $15.3 and $43.2 , respectively, included in other current assets in the Condensed Consolidated Balance Sheets. The change in the cash margin account balances is included in other – net, investing activities in the Condensed Statements of Consolidated Cash Flows. In the event of default and immediate net settlement of all of our open positions with individual counterparties, all of our derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual counterparties.
Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $45.1 and $49.1 for the three months ended October 31, 2020 and 2019, respectively, and was $91.2 and $98.5 for the six months ended October 31, 2020
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and 2019, respectively. The following table presents information on the pre-tax gains and losses recognized on terminated interest rate contracts that were designated as cash flow hedges.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Gains (losses) recognized in other comprehensive income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Less: Gains (losses) reclassified from accumulated other comprehensive income (loss) to interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Change in accumulated other comprehensive income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Included as a component of accumulated other comprehensive income (loss) at October 31, 2020, and April 30, 2020, were deferred net pre-tax losses of $234.2 and $241.1 , respectively, related to the terminated interest rate contracts. The related net tax benefit recognized in accumulated other comprehensive income (loss) at October 31, 2020, and April 30, 2020, was $53.9 and $55.5 , respectively. Approximately $13.9 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate contracts.
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as hedging instruments.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Gains (losses) on commodity contracts | $ | $ | ( | $ | $ | ||||||||||||||||||
| Gains (losses) on foreign currency exchange contracts | ( | ( | ( | ( | |||||||||||||||||||
| Total gains (losses) recognized in cost of products sold | $ | $ | ( | $ | $ | ||||||||||||||||||
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. The following table presents the activity in unallocated derivative gains and losses.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net gains (losses) on mark-to-market valuation of unallocated derivative positions | $ | $ | ( | $ | $ | ||||||||||||||||||
| Less: Net gains (losses) on derivative positions reclassified to segment operating profit | ( | ( | ( | ( | |||||||||||||||||||
| Unallocated derivative gains (losses) | $ | $ | $ | $ | |||||||||||||||||||
As of October 31, 2020, the net cumulative unallocated derivative gains were $14.8 , and at April 30, 2020, the net cumulative unallocated derivative losses were $32.9 .
The following table presents the gross notional value of outstanding derivative contracts.
| October 31, 2020 | April 30, 2020 | ||||||||||
| Commodity contracts | $ | $ | |||||||||
| Foreign currency exchange contracts | |||||||||||
Note 10: Other Financial Instruments and Fair Value Measurements
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The following table provides information on the carrying amounts and fair values of our financial instruments.
| October 31, 2020 | April 30, 2020 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Marketable securities and other investments | $ | $ | $ | $ | |||||||||||||||||||
| Derivative financial instruments – net | ( | ( | |||||||||||||||||||||
| Total long-term debt | ( | ( | ( | ( | |||||||||||||||||||
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for our financial instruments.
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at October 31, 2020 | ||||||||||||||||||||
Marketable securities and other investments: (A) | |||||||||||||||||||||||
| Equity mutual funds | $ | $ | $ | $ | |||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
Derivative financial instruments: (B) | |||||||||||||||||||||||
| Commodity contracts – net | |||||||||||||||||||||||
| Foreign currency exchange contracts – net | ( | ( | |||||||||||||||||||||
Total long-term debt (C) | ( | ( | ( | ||||||||||||||||||||
| Total financial instruments measured at fair value | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at April 30, 2020 | ||||||||||||||||||||
Marketable securities and other investments: (A) | |||||||||||||||||||||||
| Equity mutual funds | $ | $ | $ | $ | |||||||||||||||||||
| Municipal obligations | |||||||||||||||||||||||
| Money market funds | |||||||||||||||||||||||
Derivative financial instruments: (B) | |||||||||||||||||||||||
| Commodity contracts – net | ( | ( | ( | ||||||||||||||||||||
| Foreign currency exchange contracts – net | |||||||||||||||||||||||
Total long-term debt (C) | ( | ( | ( | ||||||||||||||||||||
| Total financial instruments measured at fair value | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
(A)Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed in active markets, municipal obligations valued by a third party using valuation techniques that utilize inputs that are derived principally from or corroborated by observable market data, and money market funds with maturities of three months or less. Based on the short-term nature of these money market funds, carrying value approximates fair value. As of October 31, 2020, our municipal obligations are scheduled to mature as follows: $1.1 in 2021, $1.5 in 2022, $3.5 in 2024, and the remaining $20.8 in 2025 and beyond. We do no t have any municipal obligations scheduled to mature in 2023.
(B)Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets. Level 2 commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets. For additional information, see Note 9: Derivative Financial Instruments.
(C)Long-term debt is composed of public Senior Notes classified as Level 1 and the Term Loan classified as Level 2. The public Senior Notes are traded in an active secondary market and valued using quoted prices. The fair value of the Term Loan is based on the net present value of each interest and principal payment calculated utilizing an interest rate derived from an estimated yield curve obtained from independent pricing sources for similar types of term loan borrowing arrangements. For additional information, see Note 7: Debt and Financing Arrangements.
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Note 11: Leases
We lease certain warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating lease agreements. We have elected to not recognize leases with a term of 12 months or less on the balance sheet. Instead, we recognize the related lease expense on a straight-line basis over the lease term.
Although the majority of our right-of-use asset and lease liability balances consist of leases with renewal options, these optional periods do not typically impact the lease term as we are not reasonably certain to exercise them. Certain leases also include termination provisions or options to purchase the leased property. Since we are not reasonably certain to exercise these types of options, minimum lease payments do not include any amounts related to these termination or purchase options. Our lease agreements generally do not contain residual value guarantees or restrictive covenants that are material.
We determine if an agreement is or contains a lease at inception by evaluating whether an identified asset exists that we control over the term of the arrangement. A lease commences when the lessor makes the identified asset available for our use. We generally account for lease and non-lease components as a single lease component. Minimum lease payments do not include variable lease payments other than those that depend on an index or rate.
For the majority of our leases, the interest rate implicit in the lease cannot be readily determined, so we utilize our incremental borrowing rate to present value lease payments using information available at the lease commencement date. We consider our credit rating and the current economic environment in determining this collateralized rate.
The following table sets forth the right-of-use assets and lease liabilities recognized in the Condensed Consolidated Balance Sheets.
| October 31, 2020 | April 30, 2020 | ||||||||||
| Operating lease right-of-use assets | $ | $ | |||||||||
| Operating lease liabilities: | |||||||||||
| Current operating lease liabilities | $ | $ | |||||||||
Noncurrent operating lease liabilities | |||||||||||
| Total operating lease liabilities | $ | $ | |||||||||
| Finance lease right-of-use assets: | |||||||||||
Machinery and equipment | $ | $ | |||||||||
Accumulated depreciation | ( | ( | |||||||||
| Total property, plant, and equipment | $ | $ | |||||||||
| Finance lease liabilities: | |||||||||||
Other current liabilities | $ | $ | |||||||||
Other noncurrent liabilities | |||||||||||
| Total finance lease liabilities | $ | $ | |||||||||
The following table summarizes the components of lease expense.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right-of-use assets | |||||||||||||||||||||||
Interest on lease liabilities | |||||||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||
| Net lease cost | $ | $ | $ | $ | |||||||||||||||||||
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The following table sets forth cash flow and noncash information related to leases.
| Six Months Ended October 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | |||||||||||
Financing cash flows from finance leases | |||||||||||
| Right-of-use assets obtained in exchange for new lease liabilities: | |||||||||||
| Operating leases | |||||||||||
Finance leases | |||||||||||
The following table summarizes the maturity of our lease liabilities by fiscal year.
| October 31, 2020 | |||||||||||
| Operating Leases | Finance Leases | ||||||||||
| 2021 (remainder of the year) | $ | $ | |||||||||
| 2022 | |||||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 and beyond | |||||||||||
| Total undiscounted minimum lease payments | $ | $ | |||||||||
| Less: Imputed interest | |||||||||||
| Lease liabilities | $ | $ | |||||||||
The following table sets forth the weighted average remaining lease term and discount rate.
| October 31, 2020 | April 30, 2020 | ||||||||||
| Weighted average remaining lease term (in years): | |||||||||||
Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | % | % | |||||||||
Finance leases | % | % | |||||||||
Note 12: Income Taxes
The effective tax rates for the three months ended October 31, 2020 and 2019, were 24.0 and 24.3 percent, respectively, and for the six months ended October 31, 2020 and 2019, were 24.2 and 24.7 percent, respectively. During the three and six months ended October 31, 2020 and 2019, the effective tax rates varied from the U.S. statutory income tax rate of 21.0
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an additional $2.6 , primarily as a result of expiring statute of limitations periods.
As of October 31, 2020, the undistributed earnings of our foreign subsidiaries remain permanently reinvested.
During 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, which included rollbacks of certain provisions of the U.S. Tax Cuts and Jobs Act (the “Tax Act”). While these specific rollbacks did not impact us, future legislative actions in response to the novel coronavirus (“COVID-19”) could further modify provisions of the Tax Act, and such changes will need to be analyzed for their respective impacts on our income taxes at that time.
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Note 13: Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), including the reclassification adjustments for items that are reclassified from accumulated other comprehensive income (loss) to net income, are shown below.
| Foreign Currency Translation Adjustment | Net Gains (Losses) on Cash Flow Hedging Derivatives (A) | Pension and Other Postretirement Liabilities (B) | Unrealized Gain (Loss) on Available- for-Sale Securities | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance at May 1, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Reclassification adjustments | |||||||||||||||||||||||||||||
| Current period credit (charge) | |||||||||||||||||||||||||||||
| Income tax benefit (expense) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance at October 31, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Foreign Currency Translation Adjustment | Net Gains (Losses) on Cash Flow Hedging Derivatives (A) | Pension and Other Postretirement Liabilities (B) | Unrealized Gain (Loss) on Available- for-Sale Securities | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance at May 1, 2019 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Reclassification adjustments | |||||||||||||||||||||||||||||
| Current period credit (charge) | ( | ( | |||||||||||||||||||||||||||
| Income tax benefit (expense) | ( | ( | |||||||||||||||||||||||||||
| Balance at October 31, 2019 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
(A)The reclassification from accumulated other comprehensive income (loss) to interest expense was related to terminated interest rate contracts. The current period charge in 2020 is related to losses on the interest rate contracts entered into in November 2018 and June 2018 that were terminated in 2020. For additional information, see Note 9: Derivative Financial Instruments.
(B)Amortization of net losses and prior service costs was reclassified from accumulated other comprehensive income (loss) to other income (expense) – net. The current period charge in 2021 primarily includes the impact of the nonrecurring settlement charge related to the purchase of a group annuity contract to transfer the obligations of our Canadian defined benefit pension plan to an insurance company. For additional information, see Note 8: Pensions and Other Postretirement Benefits.
Note 14: Contingencies
We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart Pet Brands, the significant majority of which were settled and paid during 2019. While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at October 31, 2020. Based on the information known to date, with the exception of the matter discussed below, we do not believe the final outcome of these proceedings would have a material adverse effect on our financial position, results of operations, or cash flows.
In addition to the legal proceedings discussed above, we are currently a defendant in Council for Education and Research on Toxics (the “Plaintiff” or “CERT”) v. Brad Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants (collectively the “Defendants”) who manufacture, package, distribute, or sell packaged coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code Section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (better known as “Proposition 65”). The Plaintiff sought equitable relief, including warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. The Plaintiff asserted that every consumed cup of coffee, absent a compliant warning, was equivalent to a violation under Proposition 65. In June 2019, the state agency responsible for administering the Proposition 65 program, the California Office of Environmental Health Hazard Assessment (“OEHHA”), approved a regulation clarifying that cancer warnings are not required for coffee under Proposition 65, and in August 2020, the Court granted the Defendants’ motion for summary judgment based on the regulation. The Plaintiff submitted its formal notice to appeal on November 20, 2020. The outcome and the financial impact of the case, if any, cannot be predicted at this time. Accordingly, no loss contingency has been recorded for this matter as of October 31, 2020, and the likelihood of loss is not
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Note 15: Common Shares
The following table sets forth common share information.
| October 31, 2020 | April 30, 2020 | ||||||||||
| Common shares authorized | |||||||||||
| Common shares outstanding | |||||||||||
| Treasury shares | |||||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollars and shares in millions, unless otherwise noted, except per share data)
This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three and six months ended October 31, 2020 and 2019. All comparisons presented are to the corresponding period of the prior year, unless otherwise noted.
We are the owner of all trademarks referenced herein, except for the following, which are used under license: Dunkin’ is a trademark of DD IP Holder LLC, and Rachael Ray is a trademark of Ray Marks II LLC. The Dunkin’ brand is licensed to us for packaged coffee products, including K-Cup® pods, sold in retail channels such as grocery stores, mass merchandisers, club stores, e-commerce, and drug stores. Information in this document does not pertain to products for sale in Dunkin’ restaurants. K-Cup® is a trademark of Keurig Green Mountain, Inc., used with permission.
COVID-19
The spread of COVID-19 throughout the United States and the international community has had, and will continue to have, an impact on financial markets, economic conditions, and portions of our business and industry.
During the first half of 2021, state governments have reopened their economies, while adhering to new guidelines and enhanced safety measures, such as physical distancing and face mask protocols. However, as many states continue to experience a sustained increase in new cases, state governments are beginning to impose additional safety measures and restrictions. In general, consumers are staying at home more frequently as a precaution, and as a result, at-home food consumption and consumer demand remains high, which we anticipate will continue in the months to come as cases continue to rise.
We also commenced a phased approach to reopen our corporate headquarters in Orrville, Ohio, with increased safety protocols. However, occupancy levels remain low as the majority of our office-based employees continue to work remotely where possible, and we continue to monitor the latest public health and government guidance related to COVID-19. We have crisis management teams at all of our facilities, which are monitoring the evolving situation and implementing risk mitigation actions as necessary. To date, there has been minimal disruption in our supply chain network, including the supply of our ingredients, packaging, or other sourced materials, although it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world, including the impact of e-commerce pressures on freight charges and potential shipping delays due to supply and demand imbalances. We also continue to work closely with our customers and external business partners, taking additional actions to ensure safety and business continuity and maximize product availability. We have increased production at all of our facilities and expanded the availability of appointments at distribution centers. All of our production operations remain open and none have experienced significant disruptions or labor reductions related to
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COVID-19. Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during this period of high demand.
During the first half of 2021, we continued to experience an increase in orders, primarily across our U.S. Retail Coffee and U.S. Retail Consumer Foods segments, in response to the increased consumer demand for our products related to the elevated at-home consumption. It is unknown if the increase in consumer demand will slow during the second half of 2021, as consumer purchasing behavior will continue to evolve depending on the length and severity of the pandemic, duration of physical distancing requirements, stay-at-home orders, and macroeconomic implications. During the first six months of 2021, consumer demand and customer orders for the U.S. Retail Coffee and U.S Retail Consumer Foods segments remained elevated compared to historical comparison periods. We have also experienced a decline in products sold in away from home channels as a result of COVID-19, which has negatively impacted our net sales in our Away From Home operating segment, and we expect COVID-19 will continue to adversely affect our net sales while government mandated safety measures are in place. However, as states have reopened their economies during the first half of 2021, our net sales for the away from home channels improved compared to the initial months of the pandemic and relative to our initial expectations. This trend could reverse during the second half of 2021 if cases continue to rise and governments impose additional safety measures that impact away from home consumption. Overall, the impact of COVID-19 remains uncertain and ultimately depends on the length and severity of the pandemic; the federal, state, and local government actions taken in response; vaccine availability and effectiveness; and the macroeconomic environment. We will continue to evaluate the nature and extent to which COVID-19 will impact our business, supply chain, consolidated results of operations, financial condition, and liquidity.
Results of Operations
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Increase (Decrease) | 2020 | 2019 | % Increase (Decrease) | ||||||||||||||||||||||||||||||
| Net sales | $ | 2,034.0 | $ | 1,957.8 | 4 | % | $ | 4,005.8 | $ | 3,736.7 | 7 | % | |||||||||||||||||||||||
| Gross profit | $ | 818.2 | $ | 754.0 | 9 | $ | 1,593.6 | $ | 1,453.6 | 10 | |||||||||||||||||||||||||
| % of net sales | 40.2 | % | 38.5 | % | 39.8 | % | 38.9 | % | |||||||||||||||||||||||||||
| Operating income | $ | 380.8 | $ | 329.8 | 15 | $ | 741.9 | $ | 587.4 | 26 | |||||||||||||||||||||||||
| % of net sales | 18.7 | % | 16.8 | % | 18.5 | % | 15.7 | % | |||||||||||||||||||||||||||
| Net income: | |||||||||||||||||||||||||||||||||||
| Net income | $ | 230.8 | $ | 211.2 | 9 | $ | 467.8 | $ | 365.8 | 28 | |||||||||||||||||||||||||
| Net income per common share – assuming dilution | $ | 2.02 | $ | 1.85 | 9 | $ | 4.10 | $ | 3.21 | 28 | |||||||||||||||||||||||||
Adjusted gross profit (A) | $ | 786.7 | $ | 753.1 | 4 | $ | 1,545.9 | $ | 1,423.7 | 9 | |||||||||||||||||||||||||
| % of net sales | 38.7 | % | 38.5 | % | 38.6 | % | 38.1 | % | |||||||||||||||||||||||||||
Adjusted operating income (A) | $ | 408.8 | $ | 391.0 | 5 | $ | 813.3 | $ | 681.7 | 19 | |||||||||||||||||||||||||
| % of net sales | 20.1 | % | 20.0 | % | 20.3 | % | 18.2 | % | |||||||||||||||||||||||||||
Adjusted income: (A) | |||||||||||||||||||||||||||||||||||
| Income | $ | 273.2 | $ | 257.5 | 6 | $ | 543.2 | $ | 437.2 | 24 | |||||||||||||||||||||||||
| Earnings per share – assuming dilution | $ | 2.39 | $ | 2.26 | 6 | $ | 4.76 | $ | 3.84 | 24 | |||||||||||||||||||||||||
(A)We use non-GAAP financial measures to evaluate our performance. Refer to “Non-GAAP Financial Measures” in this discussion and analysis for a reconciliation to the comparable GAAP financial measure.
Net Sales
Net sales in the second quarter of 2021 increased $76.2, or 4 percent, primarily due to favorable volume/mix for the U.S. Retail Coffee and U.S. Retail Consumer Foods segments, reflecting elevated at-home consumption, partially offset by unfavorable volume/mix for the Away From Home operating segment.
Net sales in the first six months of 2021 increased $269.1, or 7 percent, driven by favorable volume/mix across all of our retail businesses, supported by increased at-home consumption for the U.S. Retail Coffee and U.S. Retail Consumer Foods segments. The retail business growth was partially offset by unfavorable volume/mix for the Away From Home operating segment.
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Operating Income
The following table presents the components of operating income as a percentage of net sales.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Gross profit | 40.2 | % | 38.5 | % | 39.8 | % | 38.9 | % | |||||||||||||||
| Selling, distribution, and administrative expenses: | |||||||||||||||||||||||
| Marketing | 6.2 | % | 6.3 | % | 6.2 | % | 6.9 | % | |||||||||||||||
| Selling | 2.9 | 3.2 | 3.1 | 3.5 | |||||||||||||||||||
| Distribution | 3.5 | 3.6 | 3.5 | 3.6 | |||||||||||||||||||
| General and administrative | 6.3 | 5.4 | 5.7 | 5.9 | |||||||||||||||||||
| Total selling, distribution, and administrative expenses | 18.8 | % | 18.5 | % | 18.5 | % | 19.9 | % | |||||||||||||||
| Amortization | 2.9 | 3.0 | 3.0 | 3.1 | |||||||||||||||||||
| Other special project costs | — | 0.2 | — | 0.2 | |||||||||||||||||||
| Other operating expense (income) – net | (0.2) | — | (0.2) | — | |||||||||||||||||||
| Operating income | 18.7 | % | 16.8 | % | 18.5 | % | 15.7 | % | |||||||||||||||
Amounts may not add due to rounding.
Gross profit increased $64.2, or 9 percent, in the second quarter of 2021, primarily due to a favorable change in derivative gains and losses as compared to the prior year and the increased contribution from volume/mix. Operating income increased $51.0, or 15 percent, primarily reflecting the increase in gross profit, partially offset by a $21.3 increase in selling, distribution, and administrative (“SD&A”). The increase in SD&A was partially driven by higher incentive compensation and the reinstatement of salary increases, inclusive of executive officers, which were previously frozen.
Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets; divestiture, acquisition, integration, and restructuring costs; gains and losses related to the sale of a business; unallocated gains and losses on commodity and foreign currency exchange derivatives; and other one-time items that do not directly reflect ongoing operating results. Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information. Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) increased $33.6, or 4 percent, in the second quarter of 2021, reflecting the exclusion of unallocated derivative gains and losses, as compared to GAAP gross profit. Operating income excluding non-GAAP adjustments (“adjusted operating income”) increased $17.8, or 5 percent, as compared to the prior year.
Gross profit increased $140.0, or 10 percent, in the first six months of 2021, driven by increased contribution from volume/mix and a net benefit from price and costs, including a favorable change in derivative gains and losses as compared to the prior year. Operating income increased $154.5, or 26 percent, primarily reflecting the increase in gross profit.
Adjusted gross profit increased $122.2, or 9 percent, in the first six months of 2021, reflecting the exclusion of unallocated derivative gains and losses, as compared to GAAP gross profit. Adjusted operating income increased $131.6, or 19 percent, as compared to the prior year.
Interest Expense
Net interest expense decreased $4.0, or 8 percent, in the second quarter of 2021, and decreased $7.3, or 7 percent, in the first six months of 2021, primarily as a result of a decrease in interest rates and reduced debt outstanding, as compared to the prior year, partially offset by interest expense related to interest rate contracts terminated in the fourth quarter of 2020.
Other Income (Expense) – Net
Net other expense increased $30.6 and $30.5 in the second quarter and first six months of 2021, respectively, primarily reflecting pension settlement charges of $30.6, which includes the $27.9 pre-tax settlement charge recognized during the second quarter of 2021 related to the purchase of a group annuity contract to transfer the obligations of our Canadian defined benefit pension plan to an insurance company. For further information, refer to Note 8: Pensions and Other Postretirement Benefits.
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Income Taxes
Income taxes increased $4.8, or 7 percent, in the second quarter of 2021, and increased $29.3, or 24 percent, in the first six months of 2021, primarily due to the increase in income before income taxes, partially offset by a lower effective tax rate of 24.0 and 24.2 percent for the second quarter and first six months of 2021, respectively. The 2020 effective tax rates were 24.3 percent for the second quarter and 24.7 percent for the first six months.
During both the current and prior years, the effective tax rates varied from the U.S. statutory tax rate of 21.0 percent, primarily due to the impact of state income taxes. We anticipate a full-year effective tax rate for 2021 of approximately 24.0 percent, which does not include an estimate of the impact of the Crisco divestiture on our overall consolidated effective tax rate. For further information, refer to Note 12: Income Taxes.
Divestiture
On October 26, 2020, we announced a definitive agreement to sell our Crisco oils and shortening business to B&G Foods, and expect to close the transaction during the third quarter of 2021, subject to customary closing conditions. The transaction includes oils and shortening products sold under the Crisco brand, certain trademarks and licensing agreements, dedicated manufacturing and warehouse facilities located in Cincinnati, Ohio, and approximately 160 employees who support the Crisco business. The business generated net sales of approximately $270.0 in 2020, primarily in the U.S. Retail Consumer Foods segment. The transaction also includes our oils and shortening business outside the U.S., which is primarily in Canada.
We expect to receive approximately $550.0 in proceeds from the divestiture, which is subject to a final working capital adjustment, and anticipate recognizing a gain upon completion of the transaction. The pre-tax gain is estimated to be approximately $115.0 based on the expected proceeds, including the assumed working capital and the carrying value of the net assets, less estimated costs to sell, at the closing date. For further information, refer to Note 4: Divestiture.
Segment Results
We have three reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. Effective during the first quarter of 2021, the presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable. As a result of leadership changes, these operating segments are being managed and reported separately and no longer represent a reportable segment for segment reporting purposes. Prior year segment results have not been modified, as the combination of these operating segments represents the previously reported International and Away From Home reportable segment.
The U.S. Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray Nutrish, Meow Mix, Milk-Bone, 9Lives, Kibbles ’n Bits, Natural Balance, Pup-Peroni, and Nature’s Recipe branded products; the U.S. Retail Coffee segment primarily includes the domestic sales of Folgers, Dunkin’, and Café Bustelo branded coffee; and the U.S. Retail Consumer Foods segment primarily includes the domestic sales of Smucker’s, Jif, and Crisco branded products. International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).
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| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Increase (Decrease) | 2020 | 2019 | % Increase (Decrease) | ||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||
| U.S. Retail Pet Foods | $ | 708.7 | $ | 709.9 | — | % | $ | 1,401.3 | $ | 1,379.8 | 2 | % | |||||||||||||||||||||||
| U.S. Retail Coffee | 594.7 | 543.4 | 9 | 1,165.6 | 1,009.1 | 16 | |||||||||||||||||||||||||||||
| U.S. Retail Consumer Foods | 479.1 | 426.1 | 12 | 968.3 | 828.3 | 17 | |||||||||||||||||||||||||||||
| International and Away From Home | 251.5 | 278.4 | (10) | 470.6 | 519.5 | (9) | |||||||||||||||||||||||||||||
| Segment profit: | |||||||||||||||||||||||||||||||||||
| U.S. Retail Pet Foods | $ | 124.9 | $ | 137.0 | (9) | % | $ | 250.2 | $ | 257.1 | (3) | % | |||||||||||||||||||||||
| U.S. Retail Coffee | 202.1 | 182.5 | 11 | 384.7 | 311.4 | 24 | |||||||||||||||||||||||||||||
| U.S. Retail Consumer Foods | 135.3 | 91.4 | 48 | 266.8 | 172.4 | 55 | |||||||||||||||||||||||||||||
| International and Away From Home | 39.5 | 50.4 | (22) | 70.4 | 82.7 | (15) | |||||||||||||||||||||||||||||
| Segment profit margin: | |||||||||||||||||||||||||||||||||||
| U.S. Retail Pet Foods | 17.6 | % | 19.3 | % | 17.9 | % | 18.6 | % | |||||||||||||||||||||||||||
| U.S. Retail Coffee | 34.0 | 33.6 | 33.0 | 30.9 | |||||||||||||||||||||||||||||||
| U.S. Retail Consumer Foods | 28.2 | 21.5 | 27.6 | 20.8 | |||||||||||||||||||||||||||||||
| International and Away From Home | 15.7 | 18.1 | 15.0 | 15.9 | |||||||||||||||||||||||||||||||
U.S. Retail Pet Foods
The U.S. Retail Pet Foods segment net sales decreased $1.2 in the second quarter of 2021, reflecting a 1 percentage point impact from lower net pricing, mostly offset by a 1 percentage point improvement due to volume/mix. The contribution from volume/mix primarily reflects growth for cat food and dog snacks, driven by Meow Mix and private label cat food, as well as Pup-Peroni and Milk-Bone dog snacks. These gains were partially offset by declines for dog food, mostly driven by private label and the Natural Balance brand. Segment profit decreased $12.1, primarily due to the impact of lower net pricing and higher marketing expense.
The U.S. Retail Pet Foods segment net sales increased $21.5 in the first six months of 2021, reflecting favorable volume/mix, partially offset by lower net price realization. The favorable volume/mix contributed 3 percentage points to net sales, driven by growth for Meow Mix, 9Lives, and private label cat food, as well as Milk-Bone and Pup-Peroni dog snacks, partially offset by declines for private label, Natural Balance, and Nature’s Recipe dog food. Lower net price realization reduced net sales by 2 percentage points, primarily reflecting increased trade spend. Segment profit decreased $6.9, driven by lower pricing, partially offset by lower manufacturing costs, and the favorable volume/mix.
U.S. Retail Coffee
The U.S. Retail Coffee segment net sales increased $51.3 in the second quarter of 2021, reflecting favorable volume/mix, which contributed 10 percentage points to net sales, related to growth for the Dunkin’, Café Bustelo, and Folgers brands. The favorable volume/mix reflects elevated at-home coffee consumption. Net price realization reduced net sales by 1 percentage point. Segment profit increased $19.6, primarily due to the favorable volume/mix and decreased SD&A expenses, partially offset by the impact of net pricing and costs.
The U.S. Retail Coffee segment net sales increased $156.5 in the first six months of 2021, reflecting favorable volume/mix, which contributed 16 percentage points to net sales, related to growth for the Dunkin’, Folgers, and Café Bustelo brands. The favorable volume/mix reflects elevated at-home consumption and re-stocking of retailer inventory following the surge in consumer demand during the fourth quarter of 2020. Net price realization reduced net sales by 1 percentage point. Segment profit increased $73.3, primarily due to the favorable volume/mix.
U.S. Retail Consumer Foods
The U.S. Retail Consumer Foods segment net sales increased $53.0 in the second quarter of 2021, reflecting a 7 percentage point increase from volume/mix, primarily driven by elevated at-home consumption for Smucker’s Uncrustables® frozen sandwiches, Crisco oils and shortening, and Jif peanut butter. Higher net pricing increased net sales by 5 percentage points, reflecting the impact of a peanut butter list price increase taken during the second quarter of 2021 and reduced promotional
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activity for the Jif brand. Segment profit increased $43.9, reflecting the favorable impact of net pricing and costs, the increased contribution from volume/mix, and lower SD&A expenses.
The U.S. Retail Consumer Foods segment net sales increased $140.0 in the first six months of 2021, as favorable volume/mix contributed 13 percentage points to net sales, reflecting growth for the Smucker’s, inclusive of Uncrustables® frozen sandwiches and fruit spreads, Crisco, and Jif brands. The favorable volume/mix reflects elevated at-home consumption and retailer inventory re-stocking following the surge in consumer demand during the fourth quarter of 2020. Higher net pricing increased net sales by 4 percentage points, driven by reduced promotional activity for the Jif brand and the impact of the peanut butter list price increase. Segment profit increased $94.4, reflecting the increased contribution from volume/mix, the favorable impact of net pricing and costs, and lower SD&A expenses.
International and Away From Home
International and Away From Home net sales decreased $26.9 in the second quarter of 2021, primarily reflecting a 24 percent decline for the Away From Home operating segment, partially offset by net sales growth of 7 percent for the International operating segment. Unfavorable volume/mix for the combined businesses reduced net sales by 11 percentage points, primarily driven by coffee and portion control products. Net price realization contributed a 1 percentage point increase to net sales. Segment profit decreased $10.9, reflecting the unfavorable volume/mix and the impact of higher net pricing and costs, partially offset by lower SD&A expenses.
International and Away From Home net sales decreased $48.9 in the first six months of 2021, primarily reflecting a 28 percent decline for the Away From Home operating segment, partially offset by net sales growth of 13 percent for the International operating segment, most notably for flour and baking ingredients. Unfavorable volume/mix for the combined businesses reduced net sales by 9 percentage points, primarily driven by coffee and portion control products, and foreign currency decreased net sales by 1 percentage point. Net price realization contributed a 1 percentage point increase to net sales. Segment profit decreased $12.3, primarily reflecting the unfavorable volume/mix and higher input costs, partially offset by lower SD&A expenses.
Financial Condition – Liquidity and Capital Resources
Liquidity
Our principal source of funds is cash generated from operations, supplemented by borrowings against our commercial paper program and revolving credit facility. At October 31, 2020, total cash and cash equivalents was $405.6, compared to $391.1 at April 30, 2020.
The following table presents selected cash flow information.
| Six Months Ended October 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net cash provided by (used for) operating activities | $ | 787.7 | $ | 445.5 | |||||||
| Net cash provided by (used for) investing activities | (100.9) | (104.2) | |||||||||
| Net cash provided by (used for) financing activities | (675.8) | (395.2) | |||||||||
| Net cash provided by (used for) operating activities | $ | 787.7 | $ | 445.5 | |||||||
| Additions to property, plant, and equipment | (129.0) | (136.4) | |||||||||
Free cash flow (A) | $ | 658.7 | $ | 309.1 | |||||||
(A)Free cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment, dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.
The $342.2 increase in cash provided by operating activities in the first six months of 2021 was primarily driven by lower working capital requirements in 2021, as well as higher net income adjusted for noncash items in the current year. The decrease in cash required to fund working capital, as compared to the prior year, was primarily attributable to lower payments for accounts payable driven by working capital initiatives, inclusive of a supplier financing program entered into during the second half of 2020.
Cash used for investing activities in the first six months of 2021 consisted of $129.0 in capital expenditures, partially offset by a $27.9 decrease in our derivative cash margin account balances. Cash used for investing activities in the first six months
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of 2020 consisted of $136.4 in capital expenditures, partially offset by a $32.1 decrease in our derivative cash margin account balances.
Cash used for financing activities in the first six months of 2021 consisted primarily of long-term debt repayments of $500.0 and dividend payments of $202.4, partially offset by a net increase in short-term borrowings of $31.7. Cash used for financing activities in the first six months of 2020 consisted primarily of dividend payments of $196.6, a net decrease of short-term borrowings of $102.9, and a long-term debt repayment of $100.0.
Supplier Financing Program
As part of ongoing efforts to maximize working capital, we work with our suppliers to optimize our terms and conditions, which includes the extension of payment terms. Payment terms with our suppliers, which we deem to be commercially reasonable, generally range from 0 to 180 days. During the second half of 2020, we entered into an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution. Participating suppliers can sell one or more of our payment obligations at their sole discretion, and our rights and obligations to our suppliers are not impacted. We have no economic interest in a supplier’s decision to enter into these agreements. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers’ decisions to sell amounts under these arrangements. As of October 31, 2020, $185.6 of our outstanding payment obligations were elected and sold to a financial institution by participating suppliers. During the first six months of 2021, we paid $171.0 to a financial institution for payment obligations that were settled through the supplier financing program.
Contingencies
We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart Pet Brands, the significant majority of which were settled and paid during the second half of 2019. While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at October 31, 2020. Based on the information known to date, with the exception of the matter discussed below, we do not believe the final outcome of these proceedings will have a material adverse effect on our financial position, results of operations, or cash flows.
In addition to the legal proceedings discussed above, we are currently a defendant in CERT v. Brad Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants who manufacture, package, distribute, or sell coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under Proposition 65. The Plaintiff sought equitable relief, including warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. The Plaintiff asserted that every consumed cup of coffee, absent a compliant warning, was equivalent to a violation under Proposition 65. In June 2019, the state agency responsible for administering the Proposition 65 program, the California Office of Environmental Health Hazard Assessment (“OEHHA”), approved a regulation clarifying that cancer warnings are not required for coffee under Proposition 65, and in August 2020, the Court granted the Defendants’ motion for summary judgment based on the regulation. The Plaintiff submitted its formal notice to appeal on November 20, 2020. The outcome and the financial impact of the case, if any, cannot be predicted at this time. Accordingly, no loss contingency has been recorded for this matter as of October 31, 2020, as the likelihood of loss is not considered probable or estimable. However, if we are required to pay significant statutory penalties or to add warning labels to any of our products or place warnings in certain locations where our products are sold as a result of Proposition 65, our business and financial results could be adversely impacted, and sales of those products could suffer not only in those locations but elsewhere.
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Capital Resources
The following table presents our capital structure.
| October 31, 2020 | April 30, 2020 | ||||||||||
| Current portion of long-term debt | $ | 957.3 | $ | — | |||||||
| Short-term borrowings | 280.0 | 248.0 | |||||||||
| Long-term debt, less current portion | 3,914.5 | 5,373.3 | |||||||||
| Total debt | $ | 5,151.8 | $ | 5,621.3 | |||||||
| Shareholders’ equity | 8,515.0 | 8,190.9 | |||||||||
| Total capital | $ | 13,666.8 | $ | 13,812.2 | |||||||
In April 2018, we entered into a Term Loan with a syndicate of banks and an available commitment amount of $1.5 billion. The full amount of the Term Loan was drawn on May 14, 2018, to partially finance the Ainsworth acquisition. Borrowings under the Term Loan bear interest on the prevailing U.S. Prime Rate or LIBOR, based on our election, and are payable either on a quarterly basis or at the end of the borrowing term. The Term Loan matures on May 14, 2021, and does not require scheduled amortization payments. Voluntary prepayments are permitted without premium or penalty. As of October 31, 2020, we have prepaid $1.3 billion on the Term Loan to date, including $500.0 during the first half of 2021, of which $200.0 was paid during the second quarter. The interest rate on the Term Loan at October 31, 2020, was 0.95 percent.
We have available a $1.8 billion unsecured revolving credit facility with a group of 11 banks that matures in September 2022. Additionally, we participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $1.8 billion at any time. The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding. Commercial paper will be used as a continuing source of short-term financing for general corporate purposes. As of October 31, 2020, we had $280.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 0.17 percent.
We are in compliance with all of our debt covenants. For additional information on our long-term debt, sources of liquidity, and debt covenants, see Note 7: Debt and Financing Arrangements.
During the second quarter of 2021, we did not repurchase any common shares under a repurchase plan authorized by the Board. On October 22, 2020, the Board authorized the repurchase of up to 5.0 million common shares, in addition to the 3.6 million common shares that remain available for repurchase pursuant to prior authorizations of the Board. Therefore, at October 31, 2020, approximately 8.6 million common shares remain available for repurchase pursuant to the Board’s authorizations. There is no guarantee as to the exact number of shares that may be repurchased or when such purchases may occur.
Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our commercial paper program and revolving credit facility, and access to capital markets, will be sufficient to meet our cash requirements for the next 12 months, including the payment of quarterly dividends, principal and interest payments on debt outstanding, and capital expenditures. However, as a result of COVID-19, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future, which could affect our financial condition or our ability to fund operations or future investment opportunities.
As of October 31, 2020, total cash and cash equivalents of $100.8 was held by our foreign subsidiaries, primarily in Canada. The undistributed earnings of our foreign subsidiaries remain permanently reinvested.
Non-GAAP Financial Measures
We use non-GAAP financial measures, including: adjusted gross profit, adjusted operating income, adjusted income, adjusted earnings per share, and free cash flow, as key measures for purposes of evaluating performance internally. We believe that investors’ understanding of our performance is enhanced by disclosing these performance measures. Furthermore, these non-GAAP financial measures are used by management in preparation of the annual budget and for the monthly analyses of our operating results. The Board also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.
Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets;
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divestiture, acquisition, integration, and restructuring costs (“special project costs”); gains and losses related to the sale of a business; unallocated gains and losses on commodity and foreign currency exchange derivatives (“unallocated derivative gains and losses”); and other one-time items that do not directly reflect ongoing operating results. Income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items, as well as any adjustments for one-time tax-related activities, when they occur. While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP results can significantly impact our adjusted effective income tax rate.
These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S. GAAP. Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our businesses and facilitate the comparison of past and present operations and liquidity. These non-GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments.
The following table reconciles certain non-GAAP measures to the comparable GAAP financial measure.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||
| Gross profit reconciliation: | |||||||||||||||||||||||||||||
| Gross profit | $ | 818.2 | $ | 754.0 | $ | 1,593.6 | $ | 1,453.6 | |||||||||||||||||||||
| Unallocated derivative losses (gains) | (31.5) | (0.9) | (47.7) | (29.9) | |||||||||||||||||||||||||
| Adjusted gross profit | $ | 786.7 | $ | 753.1 | $ | 1,545.9 | $ | 1,423.7 | |||||||||||||||||||||
| Operating income reconciliation: | |||||||||||||||||||||||||||||
| Operating income | $ | 380.8 | $ | 329.8 | $ | 741.9 | $ | 587.4 | |||||||||||||||||||||
| Amortization | 59.5 | 58.8 | 119.1 | 117.6 | |||||||||||||||||||||||||
| Unallocated derivative losses (gains) | (31.5) | (0.9) | (47.7) | (29.9) | |||||||||||||||||||||||||
| Other special project costs | — | 3.3 | — | 6.6 | |||||||||||||||||||||||||
| Adjusted operating income | $ | 408.8 | $ | 391.0 | $ | 813.3 | $ | 681.7 | |||||||||||||||||||||
| Net income reconciliation: | |||||||||||||||||||||||||||||
| Net income | $ | 230.8 | $ | 211.2 | $ | 467.8 | $ | 365.8 | |||||||||||||||||||||
| Income tax expense | 72.7 | 67.9 | 149.3 | 120.0 | |||||||||||||||||||||||||
| Amortization | 59.5 | 58.8 | 119.1 | 117.6 | |||||||||||||||||||||||||
| Unallocated derivative losses (gains) | (31.5) | (0.9) | (47.7) | (29.9) | |||||||||||||||||||||||||
| Other special project costs | — | 3.3 | — | 6.6 | |||||||||||||||||||||||||
| Other one-time items: | |||||||||||||||||||||||||||||
Pension plan termination settlement charge (A) | 27.9 | — | 27.9 | — | |||||||||||||||||||||||||
| Adjusted income before income taxes | $ | 359.4 | $ | 340.3 | $ | 716.4 | $ | 580.1 | |||||||||||||||||||||
| Income taxes, as adjusted | 86.2 | 82.8 | 173.2 | 142.9 | |||||||||||||||||||||||||
| Adjusted income | $ | 273.2 | $ | 257.5 | $ | 543.2 | $ | 437.2 | |||||||||||||||||||||
| Weighted-average shares – assuming dilution | 114.2 | 114.1 | 114.1 | 114.0 | |||||||||||||||||||||||||
| Adjusted earnings per share – assuming dilution | $ | 2.39 | $ | 2.26 | $ | 4.76 | $ | 3.84 | |||||||||||||||||||||
(A)Represents the nonrecurring pre-tax settlement charge of $27.9 related to the purchase of a group annuity contract to transfer the obligations of our Canadian defined benefit pension plan to an insurance company. For additional information, see Note 8: Pensions and Other Postretirement Benefits.
Off-Balance Sheet Arrangements and Contractual Obligations
We do not have material off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as variable interest entities. Transactions with related parties are in the ordinary course of business and are not material to our results of operations, financial condition, or cash flows.
As of October 31, 2020, there were no material changes to our future contractual obligations as previously reported in our
Annual Report on Form 10-K for the year ended April 30, 2020.
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Critical Accounting Estimates and Policies
A discussion of our critical accounting estimates and policies can be found in the “Management’s Discussion and Analysis” section of our Annual Report on Form 10-K for the year ended April 30, 2020. There were no material changes to the information previously disclosed.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in millions, unless otherwise noted)
The following discussions about our market risk disclosures involve forward-looking statements. Actual results could differ from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates, and commodity prices.
Interest Rate Risk: The fair value of our cash and cash equivalents at October 31, 2020, approximates carrying value. We are exposed to interest rate risk with regard to existing debt consisting of fixed- and variable-rate maturities. Our interest rate exposure primarily includes U.S. Treasury rates, LIBOR, and commercial paper rates in the U.S. The Financial Conduct Authority in the United Kingdom has stated that it will not require banks to submit LIBOR beyond 2021. We do not anticipate a significant impact to our financial position as a result of this action given our current mix of fixed- and variable-rate debt.
We utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss), and reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the contract is recognized at fair value on the balance sheet, and changes in the fair value are recognized in interest expense. Generally, changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings.
In 2020, we terminated interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050. They were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing. The termination resulted in a pre-tax loss of $239.8, which was deferred and included as a component of accumulated other comprehensive income (loss) and is being amortized as interest expense over the life of the debt.
In 2015, we terminated the interest rate swap on the Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash, which included $4.6 of accrued and prepaid interest and a $53.5 benefit that is deferred as a component of the carrying value of the long-term debt and is being recognized ratably as a reduction to interest expense over the remaining life of the related debt. At October 31, 2020, the remaining benefit of $8.2 was recorded as an increase in the long-term debt balance.
In measuring interest rate risk by the amount of net change in the fair value of our financial liabilities, a hypothetical 100 basis-point decrease in interest rates at October 31, 2020, would increase the fair value of our long-term debt by $423.2.
Foreign Currency Exchange Risk: We have operations outside the U.S. with foreign currency denominated assets and liabilities, primarily denominated in Canadian currency. Because we have foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates. The foreign currency balance sheet exposures as of October 31, 2020, are not expected to result in a significant impact on future earnings or cash flows.
We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts generally have maturities of less than one year. We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment. Therefore, the change in value of these instruments is immediately recognized in cost of products sold. Based on our hedged foreign currency positions as of October 31, 2020, a hypothetical 10 percent change in exchange rates would not materially impact the fair value.
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Revenues from customers outside the U.S., subject to foreign currency exchange, represented 6 percent of net sales during the six months ended October 31, 2020. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an impact on operating results.
Commodity Price Risk: We use certain raw materials and other commodities that are subject to price volatility caused by supply and demand conditions, political and economic variables, weather, investor speculation, and other unpredictable factors. To manage the volatility related to anticipated commodity purchases, we use derivatives with maturities of generally less than one year. We do not qualify commodity derivatives for hedge accounting treatment. As a result, the gains and losses on all commodity derivatives are immediately recognized in cost of products sold.
The following sensitivity analysis presents our potential loss of fair value resulting from a hypothetical 10 percent change in market prices related to commodities.
| October 31, 2020 | April 30, 2020 | ||||||||||
| High | $ | 38.1 | $ | 37.8 | |||||||
| Low | 18.4 | 14.5 | |||||||||
| Average | 28.2 | 26.9 | |||||||||
The estimated fair value was determined using quoted market prices and was based on our net derivative position by commodity for the previous four quarters. The calculations are not intended to represent actual losses in fair value that we expect to incur. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. The commodities hedged have a high inverse correlation to price changes of the derivative instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of its derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.
Certain Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of federal securities laws. The forward-looking statements may include statements concerning our current expectations, estimates, assumptions, and beliefs concerning future events, conditions, plans, and strategies that are not historical fact. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “expect,” “anticipate,” “believe,” “intend,” “will,” “plan,” and similar phrases.
Federal securities laws provide a safe harbor for forward-looking statements to encourage companies to provide prospective information. We are providing this cautionary statement in connection with the safe harbor provisions. Readers are cautioned not to place undue reliance on any forward-looking statements, as such statements are by nature subject to risks, uncertainties, and other factors, many of which are outside of our control and could cause actual results to differ materially from such statements and from our historical results and experience. These risks and uncertainties include, but are not limited to, the following:
•our ability to successfully complete the divestiture of our oils and shortening business in a timely and cost-effective manner;
•the impact of the COVID-19 pandemic on our business, industry, suppliers, customers, consumers, employees, and communities, particularly with respect to our Away From Home business;
•disruptions or inefficiencies in our operations or supply chain, including any impact of the COVID-19 pandemic;
•our ability to achieve cost savings related to our cost management programs in the amounts and within the time frames currently anticipated;
•our ability to generate sufficient cash flow to continue operating under our capital deployment model, including capital expenditures, debt repayment, dividend payments, and share repurchases;
•volatility of commodity, energy, and other input costs;
•risks associated with derivative and purchasing strategies we employ to manage commodity pricing and interest rate risks;
•the availability of reliable transportation on acceptable terms, including any impact of the COVID-19 pandemic;
•our ability to implement and realize the full benefit of price changes, and the impact of the timing of the price changes to profits and cash flow in a particular period;
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•the success and cost of marketing and sales programs and strategies intended to promote growth in our businesses, including product innovation;
•general competitive activity in the market, including competitors’ pricing practices and promotional spending levels;
•the impact of food security concerns involving either our products or our competitors’ products;
•the impact of accidents, extreme weather, natural disasters, and pandemics (such as COVID-19);
•the concentration of certain of our businesses with key customers and suppliers, including single-source suppliers of certain key raw materials and finished goods, and our ability to manage and maintain key relationships;
•impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in useful lives of other intangible assets or other long-lived assets;
•the impact of new or changes to existing governmental laws and regulations and their application, including tariffs;
•the outcome of tax examinations, changes in tax laws, and other tax matters;
•foreign currency exchange rate and interest rate fluctuations; and
•risks related to other factors described under “Risk Factors” in other reports and statements we have filed with the SEC.
Readers are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Quarterly Report on Form 10-Q. We do not undertake any obligation to update or revise these forward-looking statements to reflect new events or circumstances subsequent to the filing of this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Management, including the principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of October 31, 2020 (the “Evaluation Date”). Based on that evaluation, the principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls, During the quarter ended October 31, 2020, we began using a new integrated software solution to create and manage purchase orders for indirect materials, as well as process invoices. As a result of the implementation, new controls and procedures were executed during the quarter.
Other than the items discussed above, there have been no changes in our internal control over financial reporting during the three months ended October 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information required for Part II, Item 1 is incorporated by reference to the discussion in Note 14: Contingencies in Part I, Item 1 in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2020, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC, in connection with evaluating the Company, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers: The following table presents the total number of shares of common stock purchased during the second quarter of 2021, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase program, if any, and the approximate dollar value of the maximum number of shares that may yet be purchased under the share repurchase program:
| Period | (a) | (b) | (c) | (d) | ||||||||||||||||||||||
| Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||
| August 1, 2020 - August 31, 2020 | 288 | $ | 112.05 | — | 3,586,598 | |||||||||||||||||||||
| September 1, 2020 - September 30, 2020 | 764 | 110.90 | — | 3,586,598 | ||||||||||||||||||||||
| October 1, 2020 - October 31, 2020 | 403 | 117.96 | — | 8,586,598 | ||||||||||||||||||||||
| Total | 1,455 | $ | 113.09 | — | 8,586,598 | |||||||||||||||||||||
(a)Shares in this column include shares repurchased from stock plan recipients in lieu of cash payments.
(d) On October 22, 2020, the Board authorized the repurchase of up to 5.0 million common shares, in addition to the 3.6 million common shares that remain available for repurchase pursuant to prior authorizations of the Board. Therefore, at October 31, 2020, approximately 8.6 million common shares remain available for repurchase pursuant to the Board’s authorizations.
Item 6. Exhibits.
See the Index of Exhibits that appears on Page No. 32 of this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 24, 2020 | THE J. M. SMUCKER COMPANY | ||||
| /s/ Mark T. Smucker | |||||
| By: MARK T. SMUCKER | |||||
| President and Chief Executive Officer | |||||
| /s/ Tucker H. Marshall | |||||
| By: TUCKER H. MARSHALL | |||||
| Chief Financial Officer | |||||
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INDEX OF EXHIBITS
The following exhibits are either attached or incorporated herein by reference to another filing with the SEC.
| Exhibit Number | Exhibit Description | ||||
| 101.INS | XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||
| 104 | The cover page of this Quarterly Report on Form 10-Q for the quarter ended October 31, 2020, formatted in Inline XBRL | ||||
* Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
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Exhibit 10.1
THE J. M. SMUCKER COMPANY
2020 EQUITY AND INCENTIVE COMPENSATION PLAN
1.Purpose. The purpose of The J. M. Smucker Company 2020 Equity and Incentive Compensation Plan is to attract and retain Directors, consultants, officers and other employees of The J. M. Smucker Company, an Ohio corporation, and its Subsidiaries and to provide to such persons incentives and rewards for performance.
2.Definitions. As used in this Plan,
(a)“Appreciation Right” means a right granted pursuant to Section 5 or Section 9 of this Plan, and will include both Free-Standing Appreciation Rights and Tandem Appreciation Rights.
(b)“Base Price” means the price to be used as the basis for determining the Spread upon the exercise of a Free-Standing Appreciation Right or a Tandem Appreciation Right.
(c)“Board” means the Board of Directors of the Company and, to the extent of any delegation by the Board to a committee (or subcommittee thereof) pursuant to Section 11 of this Plan, such committee (or subcommittee).
(d)“Cash Incentive Award” means a cash award granted pursuant to Section 8 of this Plan.
(e)“Change in Control” has the meaning set forth in Section 13 of this Plan.
(f)“Code” means the Internal Revenue Code of 1986, as amended from time to time.
(g)“Common Shares” means the shares of common stock, without par value, of the Company or any security into which such common shares may be changed by reason of any transaction or event of the type referred to in Section 12 of this Plan.
(h)“Company” means The J. M. Smucker Company, an Ohio corporation, and its successors.
(i)“Date of Grant” means the date specified by the Board on which a grant of Option Rights, Appreciation Rights, Performance Shares, Performance Units, Cash Incentive Awards or other awards contemplated by Section 10 of this Plan, or a grant or sale of Restricted Stock, Restricted Stock Units, or other awards contemplated by Section 10 of this Plan will become effective (which date will not be earlier than the date on which the Board takes action with respect thereto).
(j)“Detrimental Activity” means:
(i)Engaging in any activity, as an employee, principal, agent, or consultant for another entity that competes with the Company in any actual, researched, or prospective product, service, system, or business activity for which the Participant has had any direct responsibility during the last two years of his or her employment with the Company or a Subsidiary, in any territory in which the Company or a Subsidiary manufactures, sells, markets, services, or installs such product, service, or system, or engages in such business activity.
(ii)Soliciting any employee of the Company or a Subsidiary to terminate his or her employment with the Company or a Subsidiary.
(iii)The disclosure to anyone outside the Company or a Subsidiary, or the use in other than the Company’s or a Subsidiary’s business, without prior written authorization from the Company, of any confidential, proprietary or trade secret information or material relating to the business of the Company or its Subsidiaries, acquired by the Participant during his or her employment with the Company or its Subsidiaries or while acting as a consultant for the Company or its Subsidiaries thereafter.
(iv)The failure or refusal to disclose promptly and to assign to the Company upon request all right, title and interest in any invention or idea, patentable or not, made or conceived by the Participant during employment by the Company or any Subsidiary, relating in any manner to the actual or anticipated business, research or development work of the Company or any Subsidiary or the failure or refusal to do anything reasonably necessary to enable the Company or any Subsidiary to secure a patent where appropriate in the United States and in other countries.
(v)Activity that results in Termination for Cause. For the purposes of this Section, “Termination for Cause” will mean a termination:
(1)due to the Participant’s willful and continuous gross neglect of his or her duties for which he or she is employed; or
(2)due to an act of dishonesty on the part of the Participant constituting a felony resulting or intended to result, directly or indirectly, in his or her gain for personal enrichment at the expense of the Company or a Subsidiary.
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(vi)Any other conduct or act determined to be injurious, detrimental or prejudicial to any significant interest of the Company or any Subsidiary unless the Participant acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company.
(k)“Director” means a member of the Board.
(l)“Effective Date” means November 7, 2020 provided that this Plan is approved by the shareholders of the Company prior to or on such date.
(m)“Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Board that sets forth the terms and conditions of the awards granted under the Plan. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and records of the Company and, with the approval of the Board, need not be signed by a representative of the Company or a Participant.
(n)“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
(o)“Existing Plan” means The J. M. Smucker Company 2010 Equity and Incentive Compensation Plan.
(p)“Free-Standing Appreciation Right” means an Appreciation Right granted pursuant to Section 5 or Section 9 of this Plan that is not granted in tandem with an Option Right.
(q)“Incentive Stock Options” means Option Rights that are intended to qualify as “incentive stock options” under Section 422 of the Code or any successor provision.
(r)“Management Objectives” means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or Performance Units or, when so determined by the Board, Cash Incentive Awards, Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, dividend credits and other awards pursuant to this Plan. Management Objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or of the Subsidiary, division, department, region or function within the Company or Subsidiary in which the Participant is employed. The Management Objectives may be made relative to the performance of other companies or subsidiaries, divisions, departments, regions or functions within such other companies, and may be made relative to an index or one or more of the performance criteria themselves.
If the Board determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the Board may in
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its discretion modify such Management Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Board deems appropriate and equitable.
(s)“Market Value per Share” means, as of any particular date, the closing price of the Common Shares as reported on the New York Stock Exchange Composite Tape or, if not listed on such exchange, on any other national securities exchange on which the Common Shares are listed, or if there are no sales on such day, on the next preceding trading day during which a sale occurred. If there is no regular trading market for such Common Shares, the Market Value per Share will be determined by the Board.
(t)“Non-Employee Director” means a person who is a “Non-Employee Director” of the Company within the meaning of Rule 16b-3 of the Securities and Exchange Commission promulgated under the Exchange Act.
(u)“Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option Right.
(v)“Option Price” means the purchase price payable on exercise of an Option Right.
(w)“Option Right” means the right to purchase Common Shares upon exercise of an option granted pursuant to Section 4 or Section 9 of this Plan.
(x)“Participant” means a person who is selected by the Board to receive benefits under this Plan and who is at the time a consultant, an officer, or other employee of the Company or any one or more of its Subsidiaries, or who has agreed to commence serving in any of such capacities within 90 days of the Date of Grant, and will also include each Non-Employee Director who receives an award under this Plan. The term “Participant” will also include any person who provides services to the Company or a Subsidiary that are equivalent to those typically provided by an employee.
(y)“Performance Period” means, in respect of a Performance Share or Performance Unit, a period of time established pursuant to Section 8 of this Plan within which the Management Objectives relating to such Performance Share or Performance Unit are to be achieved.
(z)“Performance Share” means a bookkeeping entry that records the equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
(aa)“Performance Unit” means a bookkeeping entry awarded pursuant to Section 8 of this Plan that records a unit equivalent to $1.00 or such other value as is determined by the Board.
(ab)“Plan” means The J. M. Smucker Company 2020 Equity and Incentive Compensation Plan, as may be amended from time to time.
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(ac)“Restricted Stock” means Common Shares granted or sold pursuant to Section 6 or Section 9 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers has expired.
(ad)“Restriction Period” means the period of time during which Restricted Stock Units are subject to restrictions, as provided in Section 7 or Section 9 of this Plan.
(ae)“Restricted Stock Unit” means an award made pursuant to Section 7 or Section 9 of this Plan of the right to receive Common Shares or cash at the end of a specified period. An award of Restricted Stock Units may be described as an award of “Deferred Stock Units”.
(af)“Spread” means the excess of the Market Value per Share on the date when an Appreciation Right is exercised over the Option Price or Base Price provided for in the related Option Right or Free-Standing Appreciation Right, respectively.
(ag)“Subsidiary” means a corporation, company or other entity (i) at least 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but at least 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company except that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any corporation in which at the time the Company owns or controls, directly or indirectly, at least 50 percent of the total combined voting power represented by all classes of stock issued by such corporation.
(ah)“Tandem Appreciation Right” means an Appreciation Right granted pursuant to Section 5 or Section 9 of this Plan that is granted in tandem with an Option Right.
3.Shares Available Under the Plan.
(a)Maximum Shares Available Under Plan.
(i)Subject to adjustment as provided in Section 12 of this Plan, the number of Common Shares that may be issued or transferred (A) upon the exercise of Option Rights or Appreciation Rights, (B) in payment of Restricted Stock and released from substantial risks of forfeiture thereof, (C) in payment of Restricted Stock Units, (D) in payment of Performance Shares or Performance Units that have been earned, (E) as awards to Non-Employee Directors, (F) as awards contemplated by Section 10 of this Plan, or (G) in payment of dividend equivalents paid with respect to awards made under the Plan will not exceed the number of Common Shares available for awards under the Existing Plan on the Effective Date, which amount is 4,262,244 Common Shares. Such shares may be shares
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of original issuance or treasury shares or a combination of the foregoing.
(ii)Common Shares covered by an award granted under the Plan will not be counted as used unless and until they are actually issued and delivered to a Participant and, therefore, the total number of shares available under the Plan as of a given date will not be reduced by any shares relating to prior awards that have expired or have been forfeited or cancelled. Upon payment in cash of the benefit provided by any award granted under the Plan, any Common Shares that were covered by that award will again be available for issue or transfer hereunder. Notwithstanding anything to the contrary contained herein: (A) if Common Shares are tendered or otherwise used in payment of the Option Price of an Option Right the total number of shares covered by the Option Right being exercised will reduce the aggregate plan limit described above and will not again be available for award under the Plan; (B) Common Shares withheld by the Company to satisfy the tax withholding obligation will count against the plan limit described above and will not again be available for award under the Plan; and (C) the number of Common Shares covered by an Appreciation Right, to the extent that it is exercised and settled in Common Shares, and whether or not shares are actually issued to the Participant upon exercise of the right, will be considered issued or transferred pursuant to the Plan, will count against the plan limit described above, and will not again be available for award under the Plan. In the event that the Company repurchases shares with Option Right proceeds, those shares will not be added to the aggregate plan limit described above. If, under this Plan, a Participant has elected to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate plan limit described above.
(b)Life of Plan Limits. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary and subject to adjustment as provided in Section 12 of this Plan:
(i)The aggregate number of Common Shares actually issued or transferred by the Company upon the exercise of Incentive Stock Options will not exceed 4,262,244 Common Shares.
(ii)Awards will not be granted under Section 10 of the Plan to the extent they would involve the issuance of more than 213,112 shares in the aggregate.
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(c)Individual Participant Limits. Notwithstanding anything in this Section 3, or elsewhere in this Plan to the contrary, and subject to adjustment as provided in Section 12 of this Plan:
(i)No Participant will be granted Option Rights or Appreciation Rights, in the aggregate, for more than 1,000,000 Common Shares in respect of any fiscal year.
(ii)No Participant will be granted awards of Restricted Stock, Restricted Stock Units, Performance Shares or other awards under Section 10 of this Plan, in the aggregate, for more than 400,000 Common Shares in respect of any fiscal year.
(iii)Notwithstanding any other provision of this Plan to the contrary, in no event will any Participant in respect of any fiscal year receive an award of Performance Units having an aggregate maximum value as of their respective Dates of Grant in excess of $12,000,000.
(iv)In no event will any Participant in respect of any fiscal year receive an award that is a Cash Incentive Award having an aggregate maximum value in excess of $12,000,000.
(v)Notwithstanding any other provision of this Plan to the contrary, or any other plan or program of the Company or its Subsidiaries, the maximum amount of compensation that may be paid to any Non-Employee Director in respect of any fiscal year (including awards under the Plan, determined based on the fair market value of such award as of the grant date, as well as any retainer fees) will not exceed $750,000 (the “Non-Employee Director Compensation Limit”), provided that any amounts voluntarily deferred by a Non-Employee Director in a fiscal year under a deferred compensation plan of the Company will be deemed payable for purposes of the Non-Employee Director Compensation Limit in the year that such amounts are earned and not in the year that such amounts are subsequently paid to the Non-Employee Director.
4.Option Rights. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of options to purchase Common Shares. Each such grant may utilize any or all of the authorizations contained in the following provisions:
(a)Each grant will specify the number of Common Shares to which it pertains subject to the limitations set forth in Section 3 of this Plan.
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(b)Each grant will specify an Option Price per share, which may not be less than the Market Value per Share on the Date of Grant.
(c)Each grant will specify whether the Option Price will be payable (i) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company of Common Shares owned by the Optionee for at least six months (or other consideration authorized pursuant to Section 4(d) of this Plan) having a value at the time of exercise equal to the total Option Price, (iii) by a combination of such methods of payment, or (iv) by such other methods as may be approved by the Board.
(d)To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the shares to which such exercise relates.
(e)Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised.
(f)Each grant will specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary that is necessary before the Option Rights or installments thereof will become exercisable. A grant of Option Rights may provide for the earlier exercise of such Option Rights in the event of the retirement, the attainment of reasonable age and service requirements approved by the Board, death or disability of a Participant or a Change in Control.
(g)Any grant of Option Rights may specify Management Objectives that must be achieved as a condition to the exercise of such rights.
(h)Option Rights granted under this Plan may be (i) options, including, without limitation, Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii) options that are not intended so to qualify, or (iii) combinations of the foregoing. Incentive Stock Options may only be granted to Participants who meet the definition of “employees” under Section 3401(c) of the Code.
(i)The exercise of an Option Right will result in the cancellation on a share- for-share basis of any Tandem Appreciation Right authorized under Section 5 of this Plan.
(j)No Option Right will be exercisable more than 10 years from the Date of Grant.
(k)Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to this Plan and will contain such terms and provisions, consistent with this Plan, as the Board may approve.
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5.Appreciation Rights.
(a)The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting (i) to any Optionee, of Tandem Appreciation Rights in respect of Option Rights granted hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A Tandem Appreciation Right will be a right of the Optionee, exercisable by surrender of the related Option Right, to receive from the Company an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights may be granted at any time prior to the exercise or termination of the related Option Rights; provided, however, that a Tandem Appreciation Right awarded in relation to an Incentive Stock Option must be granted concurrently with such Incentive Stock Option. A Free-Standing Appreciation Right will be a right of the Participant to receive from the Company an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise.
(b)Each grant of Appreciation Rights may utilize any or all of the authorizations contained in the following provisions:
(i)Each grant will specify that the amount payable on exercise of an Appreciation Right will be paid by the Company in cash, Common Shares or in any combination thereof.
(ii)Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Board at the Date of Grant.
(iii)Any grant may specify waiting periods before exercise and permissible exercise dates or periods.
(iv)Any grant may specify that such Appreciation Right may be exercised only in the event of, or earlier in the event of, the retirement, the attainment of reasonable age and service requirements approved by the Board, death or disability of a Participant or a Change in Control.
(v)Any grant of Appreciation Rights may specify Management Objectives that must be achieved as a condition of the exercise of such Appreciation Rights.
(vi)Each grant of Appreciation Rights will be evidenced by an Evidence of Award, which Evidence of Award will describe such Appreciation Rights, identify the related Option Rights (if applicable), and contain such other terms and provisions, consistent with this Plan, as the Board may approve.
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(c)Any grant of Tandem Appreciation Rights will provide that such Tandem Appreciation Rights may be exercised only at a time when the related Option Right is also exercisable and at a time when the Spread is positive, and by surrender of the related Option Right for cancellation. Successive grants of Tandem Appreciation Rights may be made to the same Participant regardless of whether any Tandem Appreciation Rights previously granted to the Participant remain unexercised.
(d)Regarding Free-Standing Appreciation Rights only:
(i)Each grant will specify in respect of each Free-Standing Appreciation Right a Base Price, which may not be less than the Market Value per Share on the Date of Grant;
(ii)Successive grants may be made to the same Participant regardless of whether any Free-Standing Appreciation Rights previously granted to the Participant remain unexercised; and
(iii)No Free-Standing Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant.
6.Restricted Stock. The Board may, from time to time and upon such terms and conditions as it may determine, also authorize the grant or sale of Restricted Stock to Participants. Each such grant or sale may utilize any or all of the authorizations contained in the following provisions:
(a)Each such grant or sale will constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to.
(b)Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share at the Date of Grant.
(c)Each such grant or sale will provide that the Restricted Stock covered by such grant or sale that vests upon the passage of time will be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Board at the Date of Grant or upon achievement of Management Objectives referred to in subparagraph (e) below.
(d)Each such grant or sale will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Stock will be prohibited or restricted in the manner and to the extent prescribed by the Board at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee).
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(e)Any grant of Restricted Stock may specify Management Objectives that, if achieved, will result in termination or early termination of the restrictions applicable to such Restricted Stock; provided, however, that restrictions relating to Restricted Stock that vests upon the achievement of Management Objectives may not terminate sooner than one year from the Date of Grant. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of shares of Restricted Stock on which restrictions will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
(f)Notwithstanding anything to the contrary contained in this Plan, any grant or sale of Restricted Stock may provide for the earlier termination of restrictions on such Restricted Stock in the event of the retirement, the attainment of reasonable age and service requirements approved by the Board, death or disability of a Participant or a Change in Control.
(g)Any such grant or sale of Restricted Stock may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional shares of Restricted Stock, which may be subject to the same restrictions as the underlying award; provided, however, that dividends or other distributions on Restricted Stock with restrictions that lapse as a result of the achievement of Management Objectives will be deferred until and paid contingent upon the achievement of the applicable Management Objectives.
(h)Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Board may approve. Unless otherwise directed by the Board, (i) all certificates representing shares of Restricted Stock will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such shares or (ii) all shares of Restricted Stock will be held at the Company’s transfer agent in book entry form with appropriate restrictions relating to the transfer of such shares of Restricted Stock.
7.Restricted Stock Units. The Board may, from time to time and upon such terms and conditions as it may determine, also authorize the granting or sale of Restricted Stock Units (which may also be referred to as Deferred Stock Units) to Participants. Each such grant or sale may utilize any or all of the authorizations contained in the following provisions:
(a)Each such grant or sale will constitute the agreement by the Company to deliver Common Shares or cash to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include the achievement of Management Objectives) during the Restriction Period as the Board may specify. If a grant of Restricted Stock Units specifies that the Restriction Period will terminate only upon the achievement of Management Objectives, then such Restriction Period may not terminate sooner than one year from the Date of Grant. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of Restricted Stock Units on which restrictions will terminate if
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performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
(b)Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share at the Date of Grant.
(c)Notwithstanding anything to the contrary contained in this Plan, any grant or sale of Restricted Stock Units may provide for the earlier lapse or other modification of the Restriction Period in the event of the retirement, the attainment of reasonable age and service requirements approved by the Board, death or disability of a Participant or a Change in Control.
(d)During the Restriction Period, the Participant will have no right to transfer any rights under his or her award and will have no rights of ownership in the Common Shares deliverable upon payment of the Restricted Stock Units and will have no right to vote them, but the Board may, at the Date of Grant, authorize the payment of dividend equivalents on such Restricted Stock Units on either a current or deferred or contingent basis, either in cash or in additional Common Shares; provided, however, that dividends or other distributions on Common Shares underlying Restricted Stock Units with restrictions that lapse as a result of the achievement of Management Objectives will be deferred until and paid contingent upon the achievement of the applicable Management Objectives.
(e)Each grant or sale will specify the time and manner of payment of the Restricted Stock Units that have been earned. Each grant or sale will specify that the amount payable with respect thereto will be paid by the Company in Common Shares or cash.
(f)Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Board may approve.
8.Cash Incentive Awards, Performance Shares and Performance Units. The Board may, from time to time and upon such terms and conditions as it may determine, also authorize the granting of Cash Incentive Awards, Performance Shares and Performance Units. Each such grant may utilize any or all of the authorizations contained in the following provisions:
(a)Each grant will specify the number of Performance Shares or Performance Units, or amount payable with respect to Cash Incentive Awards, to which it pertains, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.
(b)The Performance Period with respect to each Cash Incentive Award, Performance Share or Performance Unit will be such period of time (not less than one year) as will be determined by the Board at the time of grant, which may be subject to earlier lapse or other modification in the event of the retirement, death or disability of a Participant or a Change in Control.
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(c)Any grant of Cash Incentive Awards, Performance Shares or Performance Units may specify Management Objectives which, if achieved, will result in payment or early payment of the award, and each grant may specify in respect of such specified Management Objectives a minimum acceptable level or levels of achievement and will set forth a formula for determining the number of Performance Shares or Performance Units, or amount payable with respect to Cash Incentive Awards, that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
(d)Each grant will specify the time and manner of payment of Cash Incentive Awards, Performance Shares or Performance Units that have been earned. Any grant may specify that the amount payable with respect thereto may be paid by the Company in cash, in Common Shares, in Restricted Stock or Restricted Stock Units or in any combination thereof.
(e)Any grant of Cash Incentive Awards, Performance Shares or Performance Units may specify that the amount payable or the number of Common Shares, shares of Restricted Stock or Restricted Stock Units with respect thereto may not exceed a maximum specified by the Board at the Date of Grant.
(f)The Board may, at the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof either in cash or in additional Common Shares, subject in all cases to deferral and payment on a contingent basis based on the Participant’s earning of the Performance Shares with respect to which such dividend equivalents are paid.
(g)Each grant of Cash Incentive Awards, Performance Shares or Performance Units will be evidenced by an Evidence of Award and will contain such other terms and provisions, consistent with this Plan, as the Board may approve.
9.Awards to Non-Employee Directors. Subject to the limit set forth in Section 3(b)(ii) of this Plan, the Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Non-Employee Directors of Option Rights, Appreciation Rights or other awards contemplated by Section 10 of this Plan and may also authorize the grant or sale of Common Shares, Restricted Stock or Restricted Stock Units (which may also be referred to as Deferred Stock Units) to Non-Employee Directors. Each grant of an award to a Non-Employee Director will be upon such terms and conditions as approved by the Board and will be evidenced by an Evidence of Award in such form as will be approved by the Board. Each grant will specify in the case of an Option Right an Option Price per share, and in the case of a Free-Standing Appreciation Right, a Base Price per share, which will not be less than the Market Value per Share on the Date of Grant. Each Option Right and Free-Standing Appreciation Right granted under the Plan to a Non-Employee Director will expire not more than 10 years from the Date of Grant and will be subject to earlier termination as hereinafter provided. Non-Employee Directors, pursuant to this Section 9, may be awarded, or may be permitted to elect to receive, pursuant to procedures established by the Board, all or any portion of their annual retainer, meeting fees or other fees in Common Shares, Restricted Stock, Restricted Stock Units or other awards under the Plan in lieu of cash.
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10.Other Awards.
(a)(a) Subject to limitations under applicable law and to the limit set forth in Section 3(b)(ii) of this Plan, the Board may grant to any Participant such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Shares, purchase rights for Common Shares, awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated by the Board, and awards valued by reference to the book value of Common Shares or the value of securities of, or the performance of specified Subsidiaries or affiliates or other business units of the Company. The Board will determine the terms and conditions of such awards. Common Shares delivered pursuant to an award in the nature of a purchase right granted under this Section 10 will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, Common Shares, other awards, notes or other property, as the Board determines.
(b)The Board may grant Common Shares as a bonus, or may grant other awards in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as will be determined by the Board.
(c)Share-based awards pursuant to this Section 10 are not required to be subject to any minimum vesting period.
11.Administration of the Plan.
(a)This Plan will be administered by the Board, which may from time to time delegate all or any part of its authority under this Plan to the Executive Compensation Committee of the Board or any other committee of the Board (or a subcommittee thereof), as constituted from time to time. To the extent of any such delegation, references in this Plan to the Board will be deemed to be references to such committee or subcommittee.
(b)The interpretation and construction by the Board of any provision of this Plan or of any agreement, notification or document evidencing the grant of Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or other awards pursuant to Section 10 of this Plan and any determination by the Board pursuant to any provision of this Plan or of any such agreement, notification or document will be final and conclusive.
(c)The Board or, to the extent of any delegation as provided in Section 11(a), the committee, may delegate to one or more of its members or to one or more executive officers of the Company, or to one or more agents or advisors, such administrative duties or powers as it may deem advisable, and the Board, the committee, or any person to whom duties or powers have been delegated as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Board, the committee or such person may have under the Plan. The
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Board or the committee may, by resolution, authorize one or more executive officers of the Company to do one or both of the following on the same basis as the Board or the committee: (i) designate employees to be recipients of awards under this Plan; (ii) determine the size of any such awards; provided, however, that (A) the Board or the Committee will not delegate such responsibilities to any such executive officer for awards granted to an employee who is an executive officer, Director, or more than 10% beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act; (B) the resolution providing for such authorization sets forth the total number of Common Shares such executive officer(s) may grant; and (C) the executive officer(s) will report periodically to the Board or the committee, as the case may be, regarding the nature and scope of the awards granted pursuant to the authority delegated.
12.Adjustments. The Board will make or provide for such adjustments in the numbers of Common Shares covered by outstanding Option Rights, Appreciation Rights, Restricted Stock Units, Performance Shares and Performance Units granted hereunder and, if applicable, in the number of Common Shares covered by other awards granted pursuant to Section 10 hereof, in the Option Price and Base Price provided in outstanding Option Rights and Appreciation Rights, and in the kind of shares covered thereby, as the Board, in its sole discretion, may determine is equitably required to prevent dilution or enlargement of the rights of Participants or Optionees that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation, spin-off, split- off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event or in the event of a Change in Control, the Board, in its discretion, may provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each Option Right or Appreciation Right with an Option Price or Base Price greater than the consideration offered in connection with any such transaction or event or Change in Control, the Board may in its sole discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding such Option Right or Appreciation Right. The Board will also make or provide for such adjustments in the numbers of shares specified in Section 3 of this Plan as the Board in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described in this Section 12; provided, however, that any such adjustment to the number specified in Section 3(b)(i) will be made only if and to the extent that such adjustment would not cause any option intended to qualify as an Incentive Stock Option to fail to so qualify.
13.Change in Control. For purposes of this Plan, except as may be otherwise prescribed by the Board in an Evidence of Award made under this Plan, a “Change in Control” will be deemed to have occurred upon the occurrence of any of the following events:
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(a)The consummation of a merger, consolidation, combination (as defined in Section 1701.01(Q), Ohio Revised Code), or majority share acquisition (as defined in Section 1701.01(R), Ohio Revised Code) involving the Company and as a result of which the securities of the Company entitled to vote generally in the election of Directors that are outstanding immediately prior to the transaction do not continue to represent, directly or indirectly (either by remaining outstanding or by being converted into securities of the surviving entity or any parent thereof entitled to vote in the election of directors of such entity), one-third or more of the voting power of the surviving entity or any parent thereof;
(b)The consummation of the sale of all or substantially all of the assets of the Company;
(c)The consummation of a dissolution of the Company pursuant to a resolution adopted by the shareholders;
(d)If during any period of two consecutive years, individuals who at the beginning of such period constitute the Directors of the Company cease for any reason to constitute a majority thereof; provided, however, that any individual who becomes a Director during such period whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the Directors then still in office who were Directors of the Company at the beginning of such period (either by specific vote or by approval of the proxy statement of the Company in which such individual is named as a nominee for Director, without objection to such nomination) will be considered as though such individual were a Director of the Company at the beginning of such period, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) other than the Board; or
(e)The acquisition by any person (including a group within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act other than the Company (or any of its Subsidiaries) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the Company’s then outstanding securities, unless such acquisition is approved by the vote of at least two-thirds of the Directors of the Company then in office.
14.Detrimental Activity. Any Evidence of Award may provide that if a Participant, either during employment by the Company or a Subsidiary or within a specified period after termination of such employment, will engage in any Detrimental Activity, and the Board will so find, forthwith upon notice of such finding, the Participant will:
(a)Forfeit any award granted under this Plan then held by the Participant;
(b)Return to the Company, in exchange for payment by the Company of any amount actually paid therefor by the Participant, all Common Shares that the Participant has not
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disposed of that were offered pursuant to this Plan within a specified period prior to the date of the commencement of such Detrimental Activity, and
(c)With respect to any Common Shares so acquired that the Participant has disposed of, pay to the Company in cash the difference between:
(i)Any amount actually paid therefor by the Participant pursuant to this Plan, and
(ii)The Market Value per Share of the Common Shares on the date of such disposition.
(d)To the extent that such amounts are not paid to the Company, the Company may set off the amounts so payable to it against any amounts that may be owing from time to time by the Company or a Subsidiary to the Participant, whether as wages, deferred compensation or vacation pay or in the form of any other benefit or for any other reason.
In addition, notwithstanding anything in the Plan to the contrary, any Evidence of Award may provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Board from time to time. Further, if a Participant is a “Covered Employee” within the meaning of the Company’s Clawback of Incentive Compensation Policy (the “Policy”), he or she acknowledges and accepts the terms and conditions of the Policy as in effect on the Date of Grant.
15.Non U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Board may provide for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America or who provide services to the Company under an agreement with a foreign nation or agency, as the Board may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Board may approve such supplements to or amendments, restatements or alternative versions of this Plan (including, without limitation, sub-plans) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of the Company.
16.Transferability.
(a)Except as otherwise determined by the Board, no Option Right, Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Cash Incentive Award, award contemplated by Section 9 or 10 of this Plan or dividend
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equivalents paid with respect to awards made under the Plan will be transferable by the Participant except by will or the laws of descent and distribution, and in no event will any such award granted under the Plan be transferred for value. Except as otherwise determined by the Board, Option Rights and Appreciation Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law or court supervision.
(b)The Board may specify at the Date of Grant that part or all of the Common Shares that are (i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights, upon the termination of the Restriction Period applicable to Restricted Stock Units or upon payment under any grant of Performance Shares or Performance Units or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 6 of this Plan, will be subject to further restrictions on transfer.
17.Withholding Taxes. To the extent that the Company is required to withhold federal, state, local, or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. If a Participant’s benefit is to be received in the form of Common Shares, and such Participant fails to make arrangements for the payment of tax, the Company will withhold such Common Shares having a value equal to the amount required to be withheld. Notwithstanding the foregoing, when a Participant is required to pay the Company an amount required to be withheld under applicable income and employment tax laws, the Participant may elect to satisfy the obligation, in whole or in part, by electing to have withheld, from the shares required to be delivered to the Participant, Common Shares having a value equal to the amount required to be withheld (except in the case of Restricted Stock where an election under Section 83(b) of the Code has been made), or by delivering to the Company other Common Shares held by such Participant. The shares used for tax withholding will be valued at an amount equal to the Market Value per Share of such Common Shares on the date the benefit is to be included in Participant’s income. In no event will the number of Common Shares to be withheld and delivered pursuant to this Section to satisfy applicable withholding taxes in connection with the benefit exceed such number of Common Shares which have an aggregate Market Value per Share which exceeds the maximum statutory individual tax rate in the jurisdiction(s) applicable to the Participant. Participants will also make such arrangements as the Company may require for the payment of any withholding tax obligation that may arise in connection with the disposition of Common Shares acquired upon the exercise of Option Rights.
18.Compliance with Section 409A of the Code.
(a)To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion
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provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder will be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
(b)Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its Subsidiaries.
(c)If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant will be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company will not pay such amount on the otherwise scheduled payment date but will instead pay it, without interest, on the tenth business day of the seventh month after such separation from service.
(d)Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates will have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.
19.Amendments.
(a)The Board may at any time and from time to time amend this Plan in whole or in part; provided, however, that if an amendment to this Plan (i) would materially increase the benefits accruing to participants under this Plan, (ii) would materially increase the number of Common Shares which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan, (iv) would increase the Non-Employee Director Compensation Limit or (v) must otherwise be approved by the shareholders of the Company in order to comply with applicable law or the rules of the New York Stock Exchange or, if the
19
Common Shares are not traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Shares are traded or quoted, then, such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained.
(b)Except in connection with a corporate transaction or event described in Section 12 of this Plan, the terms of outstanding awards may not be amended to reduce the Option Price of outstanding Option Rights or the Base Price of outstanding Appreciation Rights, or cancel outstanding Option Rights or Appreciation Rights in exchange for cash, other awards or Option Rights or Appreciation Rights with an Option Price or Base Price, as applicable, that is less than the Option Price of the original Option Rights or Base Price of the original Appreciation Rights, as applicable, without shareholder approval. This Section 19(b) is intended to prohibit the repricing of “underwater” Option Rights and Appreciation Rights and will not be construed to prohibit the adjustments provided for in Section 12 of this Plan.
(c)If permitted by Section 409A of the Code, but subject to the paragraph that follows, in the case of involuntary termination of employment or termination of employment by reason of death, disability, retirement, closing of business or operation units, or elimination of job position, or in the case of unforeseeable emergency or other special circumstances (including reaching reasonable age and service requirements approved by the Board from time to time), of or relating to a Participant who holds an Option Right or Appreciation Right not immediately exercisable in full, or any shares of Restricted Stock as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the Restriction Period has not been completed, or any Cash Incentive Awards, Performance Shares or Performance Units which have not been fully earned, or any other awards made pursuant to Section 10 subject to any vesting schedule or transfer restriction, or who holds Common Shares subject to any transfer restriction imposed pursuant to Section 16(b) of this Plan, the Board may, in its sole discretion, accelerate the time at which such Option Right, Appreciation Right or other award may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time at which such Cash Incentive Awards, Performance Shares or Performance Units will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award.
Subject to Section 19(b) hereof, the Board may amend the terms of any award theretofore granted under this Plan prospectively or retroactively. Subject to Section 12 above, no such amendment will impair the rights of any Participant without his or her consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.
20.Governing Law. This Plan and all grants and awards and actions taken hereunder will be governed by and construed in accordance with the internal substantive laws of the State of Ohio.
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21.Effective Date/Termination. This Plan will be effective as of the Effective Date. No grants will be made on or after November 7, 2020 (provided that this Plan is approved by the shareholders of the Company prior to or on such date) under the Existing Plan, except that outstanding awards granted under the Existing Plan will continue unaffected following such date. No grant will be made under this Plan more than 10 years after November 7, 2020, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.
22.Miscellaneous Provisions.
(a)The Company will not be required to issue any fractional Common Shares pursuant to this Plan. The Board may provide for the elimination of fractions or for the settlement of fractions in cash.
(b)This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.
(c)To the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of this Plan.
(d)No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of stock thereunder, would be, in the opinion of counsel selected by the Board, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan.
(e)Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries will not be considered interruption or termination of service of any employee for any purposes of this Plan or awards granted hereunder, except that no awards may be granted to an employee while he or she is absent on leave.
(f)No Participant will have any rights as a stockholder with respect to any shares subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such shares upon the stock records of the Company.
(g)The Board may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant.
(h)Except with respect to Option Rights and Appreciation Rights, the Board may permit Participants to elect to defer the issuance of Common Shares under the Plan pursuant
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to such rules, procedures or programs as it may establish for purposes of this Plan and which are intended to comply with the requirements of Section 409A of the Code. The Board also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts.
(i)If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Board, such provision will be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Board, it will be stricken and the remainder of this Plan will remain in full force and effect.
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Exhibit 10.2
THE J. M. SMUCKER COMPANY
RESTRICTED STOCK AGREEMENT
WHEREAS, ______________ (the “Grantee”) is an employee of The J. M. Smucker Company, an Ohio corporation (the “Company”), or one of its Subsidiaries; and
WHEREAS, the execution of an agreement in the form hereof (this “Agreement”) has been authorized by a resolution of the Executive Compensation Committee (the “Committee”) of the Board, pursuant to The J. M. Smucker Company 2020 Equity and Incentive Compensation Plan (the “Plan”), as of ______________ (the “Date of Grant”);
NOW, THEREFORE, the Company hereby grants to the Grantee __________ shares of Restricted Stock (the “Restricted Stock”), effective as of the Date of Grant, subject to the terms and conditions of the Plan and the following additional terms, conditions, limitations and restrictions.
ARTICLE I
DEFINITIONS
All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan.
“Disability” means the occurrence of either of the following: (i) the Grantee becoming unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (ii) the Grantee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s accident and health plan for employees of the Company.
“Retirement Eligible” means the Grantee has attained, or would attain prior to the applicable vesting date, age 60 or older with at least ten years of service with the Company or its Subsidiaries.
ARTICLE II
CERTAIN TERMS OF THE RESTRICTED STOCK
1.Issuance of the Restricted Stock. The Restricted Stock covered by this Agreement shall be issued to the Grantee effective upon the Date of Grant. The Restricted Stock shall be registered in the Grantee’s name and shall be fully paid and nonassessable. Any certificates or evidence of award shall bear an appropriate legend referring to the restrictions hereinafter set forth.
2. Restrictions on Transfer of the Restricted Stock. The Restricted Stock may not be sold, exchanged, assigned, transferred, pledged, encumbered, or otherwise disposed of by the Grantee, except to the Company, unless the Restricted Stock has become nonforfeitable as provided in Article II, Section 3 hereof; provided, however, that the Grantee’s rights with respect to such Restricted Stock may be transferred by will or pursuant to the laws of descent and distribution. Any purported transfer or encumbrance in violation of the provisions of this Article II, Section 2 shall be void, and the other party to any such purported transaction shall not obtain any rights to or interest in such Restricted Stock. The Committee in its sole discretion, when and as permitted by the Plan, may waive the restrictions on transferability with respect to all or a portion of the Restricted Stock.
3. Vesting of the Restricted Stock. Subject to the terms of this Agreement and the Grantee’s compliance with the provisions set forth in the Restrictive Covenant Agreement attached hereto as Exhibit A (the “Restrictive Covenant Agreement”), the Restricted Stock conditionally vests as follows:
(a)The Restricted Stock covered by this Agreement shall vest and become nonforfeitable in three installments, one-third of the Restricted Stock shall vest on each of the first anniversary and second anniversary of the Date of Grant (or, if such date is not a business day, then on the next succeeding business day) and the remainder shall vest on the third anniversary of the Date of Grant (or, if such date is not a business day, then on the next succeeding business day), subject to the Grantee’s continuous service with the Company or a Subsidiary (“Continuous Service”) on each of these dates.
(b)Notwithstanding the provisions of Article II, Section 3(a), with respect to any Grantee who is or becomes Retirement Eligible, all of the Restricted Stock covered by this Agreement shall become nonforfeitable or transferable, as applicable, on the later of (i) the first anniversary of the Date of Grant or (ii) the date the Grantee becomes Retirement Eligible (or, if any of the above such dates is not a business day, then on the next succeeding business day).
(c)Notwithstanding the provisions of Article II, Section 3(a), if the Grantee leaves the employ of the Company or a Subsidiary following two years after the Date of Grant under circumstances determined by the Committee to be for the convenience of the Company, all of the Restricted Stock covered by this Agreement shall become nonforfeitable or transferable, as applicable.
(d)Notwithstanding the provisions of Article II, Section 3(a), if the following occur: (i) the death of the Grantee, (ii) the Grantee’s Continuous Service is terminated by the Company or a Subsidiary for Disability, or (iii) the occurrence of a Change in Control, then all of the Restricted Stock covered by this Agreement shall become nonforfeitable or transferable, as applicable.
4. Forfeiture of Shares. The Restricted Stock shall be forfeited, except as otherwise provided in Article II, Section 3 above, if the Grantee ceases to be in Continuous Service prior to the third anniversary of the Date of Grant or in the event the Committee determines the Grantee has engaged in Detrimental Activity as such term is defined in the Plan. In the event of a
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forfeiture, any certificate(s) representing the Restricted Stock or any evidence of direct registration of the Restricted Stock covered by this Agreement shall be cancelled.
5.Dividend, Voting and Other Rights. Except as otherwise provided herein, from and after the Date of Grant, the Grantee shall have all of the rights of a shareholder with respect to the Restricted Stock covered by this Agreement, including the right to vote such Restricted Stock; provided, however, that the Grantee shall have no right to any dividends (whether in the form of cash, Common Shares, or other securities) that are declared prior to the date the applicable Restricted Stock vests.
6.Retention of Restricted Stock in Book Entry Form. The Restricted Stock shall be held at the Company’s transfer agent in book entry form with appropriate restrictions relating to the transfer of such Restricted Stock until all restrictions thereon shall have lapsed.
ARTICLE III
GENERAL PROVISIONS
7.Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal, state, and foreign securities laws; provided, however, notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue any Common Shares pursuant to this Agreement if the issuance thereof would result in a violation of any such law.
8.Withholding Taxes. To the extent that the Company or any Subsidiary is required to withhold federal, state, local, or foreign taxes in connection with the Restricted Stock or any delivery of Common Shares pursuant to this Agreement, and the amounts available to the Company or such Subsidiary for such withholding are insufficient, it shall be a condition to the receipt of the Restricted Stock or such delivery that the Grantee make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld. The Grantee hereby elects to satisfy this withholding obligation by having withheld, from the Common Shares otherwise deliverable to the Grantee, Common Shares having a value equal to the minimum amount of taxes required to be withheld (except where the Grantee has made an election under Section 83(b) of the Code with respect to the Common Shares subject to delivery). The Common Shares so retained shall be credited against such withholding requirement at the Market Value per Share on the date of such retention. The Company may, at the request of the Grantee, withhold Common Shares for payment of taxes in excess of the minimum amount of taxes required to be withheld; provided, however, that in no event shall the Company withhold Common Shares for payment of taxes in excess of the maximum statutory individual tax rate in the jurisdiction(s) applicable to the Grantee.
9.Continuous Service. For purposes of this Agreement, the Continuous Service of the Grantee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the Grantee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by reason of the (a) transfer of his or her employment among the Company and its
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Subsidiaries or (b) a leave of absence approved by a duly constituted officer of the Company or a Subsidiary.
10.Right to Terminate Employment. No provision of this Agreement shall limit in any way whatsoever any right that the Company or a Subsidiary may otherwise have to terminate the employment of the Grantee at any time. Nothing herein shall be deemed to create a contract or a right to employment with respect to the Grantee.
11.Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement, or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a Subsidiary.
12.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall impair the rights of the Grantee under this Agreement without the Grantee’s consent; further provided, however, that the Grantee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with (or exemption from) Section 409A of the Code or the Dodd-Frank Wall Street Reform and Consumer Protection Act or any regulations promulgated thereunder.
13.Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.
14.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Restricted Stock.
15.Nature of Grant. The Grantee agrees that: (a) the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended, or terminated by the Company at any time; (b) the grant of the Restricted Stock is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock, or benefits in substitution of restricted stock, even if restricted stock have been granted repeatedly in the past; (c) all decisions with respect to future restricted stock grants shall be at the sole discretion of the Company; (d) participation in the Plan is voluntary; (e) the Restricted Stock are not a part of normal or expected pay package for any purposes; (f) if the Grantee is a Covered Employee within the meaning of the Company’s Clawback of Incentive Compensation Policy (the “Policy”), he or she acknowledges and accepts the terms and conditions of the Policy as in effect on the Date of Grant; and (g) in consideration of the grant of the Restricted Stock, no claim or entitlement to compensation or damages shall be created by any forfeiture or other termination
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of the Restricted Stock or diminution in value of the Restricted Stock, and the Grantee releases the Company and its Subsidiaries from any such claim that may arise. If any such claim is found by a court of competent jurisdiction to have been created, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived the Grantee’s entitlement to pursue such claim.
16.Restrictive Covenants. By executing this Agreement, the Grantee hereby agrees to the terms and conditions set forth in the Restrictive Covenant Agreement.
17.Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the Restricted Stock and the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the Grantee’s consent to participate in the Plan by electronic means. The Grantee consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
18.Governing Law. This Agreement is made under, and shall be governed by and construed in accordance with the internal substantive laws of, the State of Ohio, without giving effect to the choice of law principles thereof.
19.Transfer Restrictions. The Restricted Stock shall be subject to the provisions of Section 16 of the Plan relating to the prohibition on the assignment or transfer of the rights granted hereunder.
20.Professional Advice. The acceptance of the Restricted Stock may have consequences under federal and state tax and securities laws that may vary depending upon the individual circumstances of the Grantee. Accordingly, the Grantee acknowledges that the Grantee has been advised to consult his or her personal legal and tax advisors in connection with this Agreement and the Restricted Stock.
21.Notices. Any notice hereunder by the Grantee shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Corporate Secretary of the Company at the Company’s principal executive offices. Any notice hereunder by the Company shall be given to the Grantee in writing at the most recent address as the Grantee may have on file with the Company.
22.Data Privacy. The Grantee explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement by and among the Company and its Subsidiaries for the exclusive purpose of implementing, administering, and managing the Grantee’s participation in the Plan. The Grantee understands that the Company and its Subsidiaries hold (but only process or transfer to the extent required or permitted by local law) the following personal information about the Grantee: the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Common Shares or directorships held in the Company, details of all options or any other entitlement to
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Common Shares awarded, canceled, exercised, vested, unvested, or outstanding in the Grantee’s favor, for the purpose of implementing, administering, and managing the Plan (“Data”). The Grantee understands that Data may be transferred to third parties assisting in the implementation, administration, and management of the Plan, including [List administrator(s)], that these recipients may be located in the Grantee’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than those that apply in the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes these recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of implementing, administering, and managing the Grantee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee may elect to deposit any shares acquired upon the vesting of the Restricted Stock. The Grantee understands that Data shall be held only as long as is necessary to implement, administer, and manage the Grantee’s participation in the Plan and in accordance with local law. The Grantee understands that the Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing the Grantee’s consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee hereby understands that the Grantee may contact the Grantee’s local human resources representative.
23.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
24.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and assigns.
25.Entire Agreement. This Agreement, the Plan, and the Restrictive Covenant Agreement constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, merging any and all prior agreements.
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This Agreement is executed by the Company as of the ______ day of __________.
THE J. M. SMUCKER COMPANY
By: ____________________________________
Name:
Title:
The undersigned hereby acknowledges receipt of an executed original of this Agreement, together with a copy of the prospectus for the Plan, dated ________, summarizing key provisions of the Plan, and accepts the award of the Restricted Stock granted hereunder on the terms and conditions set forth herein and in the Plan.
Date: ______________________
Grantee:
Exhibit A
Restrictive Covenant Agreement
As a condition to the Grantee’s receipt of the Restricted Stock awarded to the Grantee under the terms of the Restricted Stock Agreement between the Grantee and The J. M. Smucker Company, an Ohio corporation (the “Company”), dated as of ________ (the “Award Agreement”), the Grantee agrees to be subject to the terms and conditions of this Restrictive Covenant Agreement (this “Agreement”).
1. Definitions.
All terms used herein with initial capital letters and not otherwise defined herein shall have the meanings assigned to them in the Award Agreement (including any definitions incorporated by reference to the Plan).
“Affiliated Company” means any organization controlling, controlled by, or under common control with the Company.
“Confidential Information” means the Company’s technical or business or personnel information not readily available to the public or generally known in the trade, including inventions, developments, trade secrets and other confidential information, knowledge, data and know-how of the Company or any Affiliated Company, whether or not they originated with the Grantee, or information which the Company or any Affiliated Company received from third parties under an obligation of confidentiality.
“Conflicting Product” means any product, process, machine, or service of any person or organization, other than the Company or any Affiliated Company, in existence or under development (i) that resembles or competes with a product, process, machine, or service upon or with which the Grantee shall have worked during the two years prior to the Grantee’s termination of service with the Company or any Affiliated Company or (ii) with respect to which during that period of time the Grantee, as a result of his or her job performance and duties, shall have acquired knowledge of Confidential Information, and whose use or marketability could be enhanced by application to it of Confidential Information. For purposes of this section, it shall be conclusively presumed that the Grantee has knowledge of information to which he or she has been directly exposed through actual receipt or review of memoranda or documents containing such information or through actual attendance at meetings at which such information was discussed or disclosed.
“Conflicting Organization” means any person or organization that is engaged in or about to become engaged in research on or development, production, marketing, or selling of a Conflicting Product.
“Look-back Period” means a 12-month period prior to a breach of the applicable section of this Agreement.
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“Restricted Period” means (a) if the Grantee is or becomes Retirement Eligible, the period beginning on the Date of Grant and continuing until the fourth anniversary of the Date of Grant and (b) if the Grantee has not become Retirement Eligible, the period during which the Grantee is employed by the Company or a Subsidiary plus one year after the date the Grantee’s Continuous Service is terminated.
2. Right to Retain Common Shares Contingent on Protection of Confidential Information.
The Grantee agrees that at all times, both during and after the term of the Grantee’s service with the Company or any Affiliated Company, to hold in the strictest confidence, and not to use (except for the benefit of the Company at the Company’s direction) or disclose (except for the benefit of the Company at the Company’s direction), regardless of when disclosed to the Grantee, any and all Confidential Information of the Company or any Affiliated Company. The Grantee understands that for purposes of this Section 2, Confidential Information further includes, but is not limited to, information pertaining to any aspect of the business of the Company or any Affiliated Company which is either information not known (or known as a result of a wrongful act of the Grantee or of others who were under confidentiality obligations as to the item or items involved) by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company. If, during the Restricted Period, the Grantee discloses or uses, or threatens to disclose or use, any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the Restricted Stock, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with the vesting of the Restricted Stock or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with any vesting of the Restricted Stock during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period.
3. No Interference with Customers or Suppliers.
In order to forestall the disclosure or use of Confidential Information as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares upon vesting of the Restricted Stock is contingent upon the Grantee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from using Confidential Information to (i) divert or attempt to divert from the Company (or any Affiliated Company) any business of any kind in which it is engaged, or (ii) intentionally solicit its customers with which it has a contractual relationship as to Conflicting Products, or to interfere with the contractual relationship with any of its suppliers or customers (collectively, “Interfere”). If, during the Restricted Period, the Grantee breaches his or
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her obligation not to Interfere, the Grantee’s right to the Common Shares upon vesting of the Restricted Stock shall not have been earned and the Restricted Stock, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with the vesting of the Restricted Stock or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with any vesting of the Restricted Stock during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. For avoidance of doubt, the term “Interfere” shall not include any advertisement of Conflicting Products through the use of media intended to reach a broad public audience (such as television, cable, or radio broadcasts, or newspapers or magazines) or the broad distribution of coupons through the use of direct mail or through independent retail outlets. THE GRANTEE UNDERSTANDS THAT THIS SECTION 3 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THE RESTRICTED STOCK AND (X) IF THE GRANTEE IS AT SUCH TIME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES AND (Y) IF THE GRANTEE HAS NOT BECOME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES RECEIVED IN CONNECTION WITH ANY VESTING OF THE RESTRICTED STOCK DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS “NO INTERFERENCE WITH CUSTOMERS OR SUPPLIERS” PROVISION DURING THE RESTRICTED PERIOD.
4. No Solicitation of Employees.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares upon vesting of the Restricted Stock is contingent upon the Grantee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from soliciting for employment any person employed by the Company, or by any Affiliated Company, during the period of the solicited person’s employment and for a period of one year after the termination of the solicited person’s employment with the Company or any Affiliated Company (collectively, “Solicit”). If, during the Restricted Period, the Grantee breaches his or her obligation not to Solicit, the Grantee’s right to the Common Shares upon vesting of the Restricted Stock shall not have been earned and the Restricted Stock, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with the vesting of the Restricted Stock or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common
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Shares received in connection with any vesting of the Restricted Stock during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. THE GRANTEE UNDERSTANDS THAT THIS SECTION 4 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THE RESTRICTED STOCK AND (X) IF THE GRANTEE IS AT SUCH TIME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES AND (Y) IF THE GRANTEE HAS NOT BECOME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES RECEIVED IN CONNECTION WITH ANY VESTING OF THE RESTRICTED STOCK DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS “NO SOLICITATION OF EMPLOYEES” PROVISION DURING THE RESTRICTED PERIOD.
5. Right to Retain Common Shares Contingent on Continuing Non-Conflicting Employment.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares upon vesting of the Restricted Stock is contingent upon the Grantee refraining, during the Restricted Period, from rendering services, directly or indirectly, as director, officer, employee, agent, consultant, or otherwise, to any Conflicting Organization, except a Conflicting Organization whose business is diversified and that, as to that part of its business to which the Grantee renders services, is not a Conflicting Organization, provided that the Company shall receive separate written assurances satisfactory to the Company from the Grantee and the Conflicting Organization that the Grantee shall not render services during such period with respect to a Conflicting Product. If, during the Restricted Period, the Grantee shall render services to any Conflicting Organization other than as expressly permitted herein, the Grantee’s right to the Common Shares upon vesting of the Restricted Stock shall not have been earned and the Restricted Stock, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with the vesting of the Restricted Stock or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares received in connection with any vesting of the Restricted Stock during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. THE GRANTEE UNDERSTANDS THAT THIS SECTION 5 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE GRANTEE FROM RENDERING SERVICES TO A CONFLICTING ORGANIZATION BUT PROVIDES FOR THE CANCELLATION OF THE RESTRICTED STOCK AND (X) IF THE GRANTEE IS AT SUCH TIME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF
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THE COMMON SHARES AND (Y) IF THE GRANTEE HAS NOT BECOME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES RECEIVED IN CONNECTION WITH ANY VESTING OF THE RESTRICTED STOCK DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE GRANTEE SHOULD CHOOSE TO RENDER SUCH SERVICES DURING THE RESTRICTED PERIOD.
6. Injunctive and Other Available Relief.
To the extent not prohibited by law, any cancellation of the Restricted Stock pursuant to any of Sections 2 through 5 above shall not restrict, abridge, or otherwise limit in any fashion the types and scope of injunctive and other available relief to the Company. Notwithstanding any provision of this Agreement to the contrary, nothing under this Agreement shall limit, abridge, modify, or otherwise restrict the Company (or any Affiliated Company) from pursuing any or all legal, equitable, or other appropriate remedies to which the Company may be entitled under any other agreement with the Grantee, any other plan, program, policy, or arrangement of the Company (or any Affiliated Company) under which the Grantee is covered or participates, or any applicable law, all to the fullest extent not prohibited under applicable law.
7. Permitted Reporting and Disclosure.
Notwithstanding any language in this Agreement to the contrary, nothing in this Agreement prohibits the Grantee from reporting possible violations of federal law or regulation to any governmental agency or governmental entity, or making other disclosures that are protected under federal law or regulation; provided, that, in each case such communications and disclosures are consistent with applicable law. Notwithstanding the foregoing, under no circumstance is the Grantee authorized to disclose any information covered by the Company’s attorney-client privilege or attorney work product or the Company’s trade secrets without prior written consent of the Company’s General Counsel. Any reporting or disclosure permitted under this Section 7 shall not result in the cancellation of the Restricted Stock. The Grantee is entitled to certain immunities from liability under state and federal law for disclosing trade secrets if the disclosure was made to report or investigate an alleged violation of law, subject to certain conditions.
8. Severability.
If any provisions of this Agreement is determined to be invalid or unenforceable for any reason, that provision shall be modified rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. If any provision in this Agreement is held to be invalid or unenforceable for any non-material reason, and cannot be modified to make it enforceable, the remaining provisions shall be construed as if the invalid or unenforceable provision had not been included. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible.
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Exhibit 10.3
THE J. M. SMUCKER COMPANY
DEFERRED STOCK UNITS AGREEMENT
WHEREAS, ______________ (the “Grantee”) is an employee of The J. M. Smucker Company, an Ohio corporation (the “Company”), or one of its Subsidiaries; and
WHEREAS, the execution of an agreement in the form hereof (this “Agreement”) has been authorized by a resolution of the Executive Compensation Committee (the “Committee”) of the Board, pursuant to The J. M. Smucker Company 2020 Equity and Incentive Compensation Plan (the “Plan”), as of ______________ (the “Date of Grant”);
NOW, THEREFORE, the Company hereby grants to the Grantee __________ shares of Deferred Stock Units (the “Deferred Stock Units”), effective as of the Date of Grant, subject to the terms and conditions of the Plan and the following additional terms, conditions, limitations and restrictions.
ARTICLE I
DEFINITIONS
All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan.
“Disability” means the occurrence of either of the following: (i) the Grantee becoming unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (ii) the Grantee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s accident and health plan for employees of the Company.
“Retirement Eligible” means the Grantee has attained, or would attain prior to the applicable vesting date, age 60 or older with at least ten years of service with the Company or its Subsidiaries.
ARTICLE II
CERTAIN TERMS OF THE DEFERRED STOCK UNITS
1.Grant of the Deferred Stock Units. The Deferred Stock Units covered by this Agreement are granted to the Grantee effective on the Date of Grant and are subject to and granted upon the terms, conditions, and restrictions set forth in this Agreement and in the Plan. The Deferred Stock Units shall become vested in accordance with Article II, Section 3 hereof. Each Deferred Stock Unit shall represent the right to receive one Common Share (or cash equal
to the Market Value per Share) when the Deferred Stock Unit vests and shall at all times be equal in value to one hypothetical Common Share (or the Market Value per Share if settled in cash). The Deferred Stock Units shall be credited to the Grantee in an account established for the Grantee until payment in accordance with Article II, Section 4 hereof.
2.Restrictions on Transfer of the Deferred Stock Units. Neither the Deferred Stock Units granted hereby, nor any interest therein or in the Common Shares related thereto, shall be transferable prior to payment other than by will or pursuant to the laws of descent and distribution (or to a designated beneficiary in the event of the Grantee’s death).
3.Vesting of the Deferred Stock Units. Subject to the terms of this Agreement and the Grantee’s compliance with the provisions set forth in the Restrictive Covenant Agreement attached hereto as Exhibit A (the “Restrictive Covenant Agreement”), the Deferred Stock Units conditionally vest as follows:
(a)The Deferred Stock Units covered by this Agreement shall vest in three installments, one-third of the Deferred Stock Units shall vest on each of the first anniversary and second anniversary of the Date of Grant (or, if such date is not a business day, then on the next succeeding business day) and the remainder shall vest on the third anniversary of the Date of Grant (or, if such date is not a business day, then on the next succeeding business day), subject to the Grantee’s continuous service with the Company or a Subsidiary (“Continuous Service”) on each of these dates.
(b)Notwithstanding the provisions of Article II, Section 3(a), with respect to any Grantee who is or becomes Retirement Eligible, all of the Deferred Stock Units covered by this Agreement shall vest on the later of (i) the first anniversary of the Date of Grant or (ii) the date the Grantee becomes Retirement Eligible (or, if any of the above such dates is not a business day, then on the next succeeding business day).
(c)Notwithstanding the provisions of Article II, Section 3(a), if the Grantee leaves the employ of the Company or a Subsidiary following two years after the Date of Grant under circumstances determined by the Committee to be for the convenience of the Company, all of the Deferred Stock Units covered by this Agreement shall vest on such date.
(d)Notwithstanding the provisions of Article II, Section 3(a), if the following occur: (i) the death of the Grantee, (ii) the Grantee’s Continuous Service is terminated by the Company or a Subsidiary for Disability, or (iii) the occurrence of a Change in Control, then all of the Deferred Stock Units covered by this Agreement shall vest on such applicable date.
4.Settlement of the Deferred Stock Units.
(a) The Company shall issue to the Grantee the Common Shares underlying the vested Deferred Stock Units or, in the Committee’s discretion, shall pay the Grantee cash equal to the Market Value per Share on the vesting date of each Common Share underlying the vested Deferred Stock Units, as soon as practicable, but not later than 10 days, after such shares have vested in accordance with Article II, Section 3 above.
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(b) Except to the extent permitted by the Company and the Plan, no Common Shares may be issued, and no cash may be paid with respect to the Deferred Stock Units, to the Grantee at a time earlier than otherwise expressly provided in this Agreement.
(c) The Company’s obligations to the Grantee with respect to the Deferred Stock Units shall be satisfied in full upon the issuance of the Common Shares or the payment of cash equal to the Market Value per Share for each Common Share corresponding to such Deferred Stock Units.
5.Dividend, Voting and Other Rights.
(a) The Grantee shall have no rights of ownership in the Deferred Stock Units and shall have no right to dividends and no right to vote the Deferred Stock Units until the date on which the Deferred Stock Units are settled in Common Shares pursuant to Article II, Section 4 above.
(b) The obligations of the Company under this Agreement shall be merely that of an unfunded and unsecured promise of the Company to deliver Common Shares or cash in the future, and the rights of the Grantee shall be no greater than that of an unsecured general creditor. No assets of the Company shall be held or set aside as security for the obligations of the Company under this Agreement.
6.Forfeiture of Shares. The Deferred Stock Units shall be forfeited, except as otherwise provided in Article II, Section 3 above, if the Grantee ceases to be in Continuous Service prior to the third anniversary of the Date of Grant or in the event the Committee determines the Grantee has engaged in Detrimental Activity, as such term is defined in the Plan.
ARTICLE III
GENERAL PROVISIONS
7.Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal, state, and foreign securities laws; provided, however, notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue any Common Shares pursuant to this Agreement if the issuance thereof would result in a violation of any such law.
8.Withholding Taxes. To the extent that the Company or any Subsidiary is required to withhold federal, state, local, or foreign taxes in connection with the Deferred Stock Units or any delivery of Common Shares or payment of cash pursuant to this Agreement, and the amounts available to the Company or such Subsidiary for such withholding are insufficient, it shall be a condition to the receipt of the Deferred Stock Units or such delivery of Common Shares or payment of cash that the Grantee make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld. The Grantee hereby elects to satisfy this withholding obligation by having withheld, from the Common Shares otherwise deliverable to the Grantee, Common Shares having a value equal to the minimum amount of taxes required to
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be withheld. The Common Shares so retained shall be credited against such withholding requirement at the Market Value per Share on the date of such retention. The Company may, at the request of the Grantee, withhold Common Shares for payment of taxes in excess of the minimum amount of taxes required to be withheld; provided, however, that in no event shall the Company withhold Common Shares for payment of taxes in excess of the maximum statutory individual tax rate in the jurisdiction(s) applicable to the Grantee.
9.Continuous Service. For purposes of this Agreement, the Continuous Service of the Grantee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the Grantee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by reason of the (a) transfer of his or her employment among the Company and its Subsidiaries or (b) a leave of absence approved by a duly constituted officer of the Company or a Subsidiary.
10.Right to Terminate Employment. No provision of this Agreement shall limit in any way whatsoever any right that the Company or a Subsidiary may otherwise have to terminate the employment of the Grantee at any time. Nothing herein shall be deemed to create a contract or a right to employment with respect to the Grantee.
11.Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement, or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a Subsidiary.
12.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall impair the rights of the Grantee under this Agreement without the Grantee’s consent; further provided, however, that the Grantee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with (or exemption from) Section 409A of the Code or the Dodd-Frank Wall Street Reform and Consumer Protection Act or any regulations promulgated thereunder.
13.Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.
14.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Deferred Stock Units.
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15.Nature of Grant. The Grantee agrees that: (a) the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended, or terminated by the Company at any time; (b) the grant of the Deferred Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of deferred stock units, or benefits in substitution of deferred stock units, even if deferred stock units have been granted repeatedly in the past; (c) all decisions with respect to future deferred stock units grants shall be at the sole discretion of the Company; (d) participation in the Plan is voluntary; (e) the Deferred Stock Units are not a part of normal or expected pay package for any purposes; (f) if the Grantee is a Covered Employee within the meaning of the Company’s Clawback of Incentive Compensation Policy (the “Policy”), he or she acknowledges and accepts the terms and conditions of the Policy as in effect on the Date of Grant; and (g) in consideration of the grant of the Deferred Stock Units, no claim or entitlement to compensation or damages shall be created by any forfeiture or other termination of the Deferred Stock Units or diminution in value of the Deferred Stock Units, and the Grantee releases the Company and its Subsidiaries from any such claim that may arise. If any such claim is found by a court of competent jurisdiction to have been created, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived the Grantee’s entitlement to pursue such claim.
16.Restrictive Covenants. By executing this Agreement, the Grantee hereby agrees to the terms and conditions set forth in the Restrictive Covenant Agreement.
17.Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the Deferred Stock Units and the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the Grantee’s consent to participate in the Plan by electronic means. The Grantee consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
18.Governing Law. This Agreement is made under, and shall be governed by and construed in accordance with the internal substantive laws of, the State of Ohio, without giving effect to the choice of law principles thereof.
19.Transfer Restrictions. The Deferred Stock Units shall be subject to the provisions of Section 16 of the Plan relating to the prohibition on the assignment or transfer of the rights granted hereunder.
20.Professional Advice. The acceptance of the Deferred Stock Units may have consequences under federal and state tax and securities laws that may vary depending upon the individual circumstances of the Grantee. Accordingly, the Grantee acknowledges that the Grantee has been advised to consult his or her personal legal and tax advisors in connection with this Agreement and the Deferred Stock Units.
21.Notices. Any notice hereunder by the Grantee shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Corporate Secretary of the Company at the Company’s principal executive offices. Any notice hereunder
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by the Company shall be given to the Grantee in writing at the most recent address as the Grantee may have on file with the Company.
22.Data Privacy. The Grantee explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement by and among the Company and its Subsidiaries for the exclusive purpose of implementing, administering, and managing the Grantee’s participation in the Plan. The Grantee understands that the Company and its Subsidiaries hold (but only process or transfer to the extent required or permitted by local law) the following personal information about the Grantee: the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Common Shares or directorships held in the Company, details of all options or any other entitlement to Common Shares awarded, canceled, exercised, vested, unvested, or outstanding in the Grantee’s favor, for the purpose of implementing, administering, and managing the Plan (“Data”). The Grantee understands that Data may be transferred to third parties assisting in the implementation, administration, and management of the Plan, including [List administrator(s)], that these recipients may be located in the Grantee’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than those that apply in the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes these recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of implementing, administering, and managing the Grantee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee may elect to deposit any shares acquired upon the vesting of the Deferred Stock Units. The Grantee understands that Data shall be held only as long as is necessary to implement, administer, and manage the Grantee’s participation in the Plan and in accordance with local law. The Grantee understands that the Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing the Grantee’s consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee hereby understands that the Grantee may contact the Grantee’s local human resources representative.
23.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
24.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and assigns.
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25.Entire Agreement. This Agreement, the Plan, and the Restrictive Covenant Agreement constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, merging any and all prior agreements.
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This Agreement is executed by the Company as of the ______ day of __________.
THE J. M. SMUCKER COMPANY
By: ____________________________________
Name:
Title:
The undersigned hereby acknowledges receipt of an executed original of this Agreement, together with a copy of the prospectus for the Plan, dated ________, summarizing key provisions of the Plan, and accepts the award of the Deferred Stock Units granted hereunder on the terms and conditions set forth herein and in the Plan.
Date: ______________________
Grantee:
Exhibit A
Restrictive Covenant Agreement
As a condition to the Grantee’s receipt of the Deferred Stock Units awarded to the Grantee under the terms of the Deferred Stock Units Agreement between the Grantee and The J. M. Smucker Company, an Ohio corporation (the “Company”), dated as of _______ (the “Award Agreement”), the Grantee agrees to be subject to the terms and conditions of this Restrictive Covenant Agreement (this “Agreement”).
1. Definitions.
All terms used herein with initial capital letters and not otherwise defined herein shall have the meanings assigned to them in the Award Agreement (including any definitions incorporated by reference to the Plan).
“Affiliated Company” means any organization controlling, controlled by, or under common control with the Company.
“Confidential Information” means the Company’s technical or business or personnel information not readily available to the public or generally known in the trade, including inventions, developments, trade secrets and other confidential information, knowledge, data and know-how of the Company or any Affiliated Company, whether or not they originated with the Grantee, or information which the Company or any Affiliated Company received from third parties under an obligation of confidentiality.
“Conflicting Product” means any product, process, machine, or service of any person or organization, other than the Company or any Affiliated Company, in existence or under development (i) that resembles or competes with a product, process, machine, or service upon or with which the Grantee shall have worked during the two years prior to the Grantee’s termination of service with the Company or any Affiliated Company or (ii) with respect to which during that period of time the Grantee, as a result of his or her job performance and duties, shall have acquired knowledge of Confidential Information, and whose use or marketability could be enhanced by application to it of Confidential Information. For purposes of this section, it shall be conclusively presumed that the Grantee has knowledge of information to which he or she has been directly exposed through actual receipt or review of memoranda or documents containing such information or through actual attendance at meetings at which such information was discussed or disclosed.
“Conflicting Organization” means any person or organization that is engaged in or about to become engaged in research on or development, production, marketing, or selling of a Conflicting Product.
“Look-back Period” means a 12-month period prior to a breach of the applicable section of this Agreement.
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“Restricted Period” means (a) if the Grantee is or becomes Retirement Eligible, the period beginning on the Date of Grant and continuing until the fourth anniversary of the Date of Grant and (b) if the Grantee has not become Retirement Eligible, the period during which the Grantee is employed by the Company or a Subsidiary plus one year after the date the Grantee’s Continuous Service is terminated.
2. Right to Retain Common Shares Contingent on Protection of Confidential Information.
The Grantee agrees that at all times, both during and after the term of the Grantee’s service with the Company or any Affiliated Company, to hold in the strictest confidence, and not to use (except for the benefit of the Company at the Company’s direction) or disclose (except for the benefit of the Company at the Company’s direction), regardless of when disclosed to the Grantee, any and all Confidential Information of the Company or any Affiliated Company. The Grantee understands that for purposes of this Section 2, Confidential Information further includes, but is not limited to, information pertaining to any aspect of the business of the Company or any Affiliated Company which is either information not known (or known as a result of a wrongful act of the Grantee or of others who were under confidentiality obligations as to the item or items involved) by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company. If, during the Restricted Period, the Grantee discloses or uses, or threatens to disclose or use, any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the Deferred Stock Units, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with the settlement of the Deferred Stock Units or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with any settlement of the Deferred Stock Units during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period.
3. No Interference with Customers or Suppliers.
In order to forestall the disclosure or use of Confidential Information as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares or cash upon vesting of the Deferred Stock Units is contingent upon the Grantee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from using Confidential Information to (i) divert or attempt to divert from the Company (or any Affiliated Company) any business of any kind in which it is engaged, or (ii) intentionally solicit its customers with which it has a contractual relationship as to Conflicting Products, or to interfere with the contractual relationship with any of its suppliers
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or customers (collectively, “Interfere”). If, during the Restricted Period, the Grantee breaches his or her obligation not to Interfere, the Grantee’s right to the Common Shares or cash upon vesting of the Deferred Stock Units shall not have been earned and the Deferred Stock Units, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with the settlement of the Deferred Stock Units or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with any settlement of the Deferred Stock Units during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. For avoidance of doubt, the term “Interfere” shall not include any advertisement of Conflicting Products through the use of media intended to reach a broad public audience (such as television, cable, or radio broadcasts, or newspapers or magazines) or the broad distribution of coupons through the use of direct mail or through independent retail outlets. THE GRANTEE UNDERSTANDS THAT THIS SECTION 3 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THE DEFERRED STOCK UNITS AND (X) IF THE GRANTEE IS AT SUCH TIME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES AND (Y) IF THE GRANTEE HAS NOT BECOME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS RECEIVED IN CONNECTION WITH ANY SETTLEMENT OF THE DEFERRED STOCK UNITS DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS “NO INTERFERENCE WITH CUSTOMERS OR SUPPLIERS” PROVISION DURING THE RESTRICTED PERIOD.
4. No Solicitation of Employees.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares or cash upon vesting of the Deferred Stock Units is contingent upon the Grantee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from soliciting for employment any person employed by the Company, or by any Affiliated Company, during the period of the solicited person’s employment and for a period of one year after the termination of the solicited person’s employment with the Company or any Affiliated Company (collectively, “Solicit”). If, during the Restricted Period, the Grantee breaches his or her obligation not to Solicit, the Grantee’s right to the Common Shares or cash upon vesting of the Deferred Stock Units shall not have been earned and the Deferred Stock Units, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall
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immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with the settlement of the Deferred Stock Units or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with any settlement of the Deferred Stock Units during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. THE GRANTEE UNDERSTANDS THAT THIS SECTION 4 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THE DEFERRED STOCK UNITS AND (X) IF THE GRANTEE IS AT SUCH TIME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES AND (Y) IF THE GRANTEE HAS NOT BECOME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS RECEIVED IN CONNECTION WITH ANY SETTLEMENT OF THE DEFERRED STOCK UNITS DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS “NO SOLICITATION OF EMPLOYEES” PROVISION DURING THE RESTRICTED PERIOD.
5. Right to Retain Common Shares Contingent on Continuing Non-Conflicting Employment.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares or cash upon vesting of the Deferred Stock Units is contingent upon the Grantee refraining, during the Restricted Period, from rendering services, directly or indirectly, as director, officer, employee, agent, consultant, or otherwise, to any Conflicting Organization, except a Conflicting Organization whose business is diversified and that, as to that part of its business to which the Grantee renders services, is not a Conflicting Organization, provided that the Company shall receive separate written assurances satisfactory to the Company from the Grantee and the Conflicting Organization that the Grantee shall not render services during such period with respect to a Conflicting Product. If, during the Restricted Period, the Grantee shall render services to any Conflicting Organization other than as expressly permitted herein, the Grantee’s right to the Common Shares or cash upon vesting of the Deferred Stock Units shall not have been earned and the Deferred Stock Units, whether vested or not, shall be immediately forfeited and cancelled, and (x) if the Grantee is at such time Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with the settlement of the Deferred Stock Units or the pre-tax income derived from any disposition of the Common Shares and (y) if the Grantee has not become Retirement Eligible, the Grantee shall immediately return to the Company the Common Shares or the pre-tax cash amount received in connection with any settlement of the Deferred Stock Units during the Look-back Period or the pre-tax income derived from any disposition of
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the Common Shares during the Look-back Period. THE GRANTEE UNDERSTANDS THAT THIS SECTION 5 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE GRANTEE FROM RENDERING SERVICES TO A CONFLICTING ORGANIZATION BUT PROVIDES FOR THE CANCELLATION OF THE DEFERRED STOCK UNITS AND (X) IF THE GRANTEE IS AT SUCH TIME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES AND (Y) IF THE GRANTEE HAS NOT BECOME RETIREMENT ELIGIBLE, A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS RECEIVED IN CONNECTION WITH ANY SETTLEMENT OF THE DEFERRED STOCK UNITS DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE GRANTEE SHOULD CHOOSE TO RENDER SUCH SERVICES DURING THE RESTRICTED PERIOD.
6. Injunctive and Other Available Relief.
To the extent not prohibited by law, any cancellation of the Deferred Stock Units pursuant to any of Sections 2 through 5 above shall not restrict, abridge, or otherwise limit in any fashion the types and scope of injunctive and other available relief to the Company. Notwithstanding any provision of this Agreement to the contrary, nothing under this Agreement shall limit, abridge, modify, or otherwise restrict the Company (or any Affiliated Company) from pursuing any or all legal, equitable, or other appropriate remedies to which the Company may be entitled under any other agreement with the Grantee, any other plan, program, policy, or arrangement of the Company (or any Affiliated Company) under which the Grantee is covered or participates, or any applicable law, all to the fullest extent not prohibited under applicable law.
7. Permitted Reporting and Disclosure.
Notwithstanding any language in this Agreement to the contrary, nothing in this Agreement prohibits the Grantee from reporting possible violations of federal law or regulation to any governmental agency or governmental entity, or making other disclosures that are protected under federal law or regulation; provided, that, in each case such communications and disclosures are consistent with applicable law. Notwithstanding the foregoing, under no circumstance is the Grantee authorized to disclose any information covered by the Company’s attorney-client privilege or attorney work product or the Company’s trade secrets without prior written consent of the Company’s General Counsel. Any reporting or disclosure permitted under this Section 7 shall not result in the cancellation of the Deferred Stock Units. The Grantee is entitled to certain immunities from liability under state and federal law for disclosing trade secrets if the disclosure was made to report or investigate an alleged violation of law, subject to certain conditions.
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8. Severability.
If any provisions of this Agreement is determined to be invalid or unenforceable for any reason, that provision shall be modified rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. If any provision in this Agreement is held to be invalid or unenforceable for any non-material reason, and cannot be modified to make it enforceable, the remaining provisions shall be construed as if the invalid or unenforceable provision had not been included. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible.
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Exhibit 10.4
THE J. M. SMUCKER COMPANY
PERFORMANCE UNITS AGREEMENT
WHEREAS, ___________ (the “Grantee”) is an employee of The J. M. Smucker Company, an Ohio corporation (the “Company”), or one of its Subsidiaries; and
WHEREAS, the execution of an agreement in the form hereof (this “Agreement”) has been authorized by a resolution of the Executive Compensation Committee (the “Committee”) of the Board, pursuant to The J. M. Smucker Company 2020 Equity and Incentive Compensation Plan (the “Plan”), as of _____________ (the “Date of Grant”);
NOW, THEREFORE, the Company hereby grants to the Grantee the opportunity to earn up to ___________ Performance Units at the Target Level (as set forth in Exhibit A) and up to a Maximum Level of 200% of the Target Level (as set forth in Exhibit A) (such total amount of Performance Units, the “Performance Units”), effective as of the Date of Grant, subject to the terms and conditions of the Plan and the following additional terms, conditions, limitations and restrictions.
ARTICLE I
DEFINITIONS
All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan.
“Disability” means the occurrence of either of the following: (i) the Grantee becoming unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (ii) the Grantee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s accident and health plan for employees of the Company.
ARTICLE II
CERTAIN TERMS OF THE PERFORMANCE UNITS
1.Grant of the Performance Units. The Performance Units (and Dividend Equivalents, as described further in Article II, Section 5 below) covered by this Agreement are granted to the Grantee effective on the Date of Grant and are subject to and granted upon the terms, conditions and restrictions set forth in this Agreement and in the Plan. The Performance Units and Dividend Equivalents shall become vested in accordance with Article II, Section 3 hereof. Each Performance Unit shall represent the right to receive one
DEPTS.00106
Common Share (or cash equal to the Market Value per Share) when the Performance Unit vests and shall at all times be equal in value to one hypothetical Common Share (or the Market Value per Share if settled in cash). The Performance Units and Dividend Equivalents shall be credited to the Grantee in an account established for the Grantee until payment in accordance with Article II, Section 4 hereof.
2.Restrictions on Transfer of the Performance Units. Neither the Performance Units granted hereby (and any applicable Dividend Equivalents), nor any interest therein or in the Common Shares related thereto, shall be transferable prior to payment other than by will or pursuant to the laws of descent and distribution (or to a designated beneficiary in the event of the Grantee’s death).
3.Vesting of the Performance Units and Dividend Equivalents.
( a)Subject to the terms of this Agreement and the Grantee’s compliance with the provisions set forth in the Restrictive Covenant Agreement attached hereto as Exhibit B (the “Restrictive Covenant Agreement”), the Performance Units (and corresponding Dividend Equivalents) shall become vested on the Determination Date (as defined in Exhibit A attached hereto) so long as (i) the Grantee shall have remained in the continuous service of the Company or a Subsidiary (“Continuous Service”) through the Determination Date and (ii) such Performance Units are “Vesting Eligible Units” in accordance with the terms set forth on Exhibit A. Any Performance Units (and corresponding Dividend Equivalents) not vested shall be forfeited, except as provided in Article II, Sections 3(b), 3(c), 3(d), and 3(e) below. The Performance Units (and corresponding Dividend Equivalents) may also be forfeited in the event the Committee determines the Grantee has engaged in Detrimental Activity as such term is defined in the Plan.
( b)Notwithstanding the provisions of Article II, Section 3(a), if the Grantee leaves the employ of the Company or a Subsidiary following the first anniversary of the beginning of the Performance Period (as defined in Exhibit A) under circumstances determined by the Committee to be for the convenience of the Company (a “Termination Event”), then the Grantee shall vest in such number of the Performance Units which become “Vesting Eligible Units” (based on actual performance) multiplied by a fraction, the numerator of which is (x) the number of months from the beginning of the Performance Period through the Termination Event (rounded up to the nearest whole month), and the denominator of which is (y) 36, in each case such vesting to occur on the Determination Date.
( c)Notwithstanding the provisions of Article II, Section 3(a), if the Grantee dies or Grantee’s Continuous Service is terminated by the Company or a Subsidiary for Disability (each, a “Qualifying Event”), then the Grantee shall vest in such number of Performance Units determined by multiplying the Target Units (as set forth in Exhibit A) by a fraction, the numerator of which is (x) the number of months from the beginning of the Performance Period through the Qualifying Event (rounded up to the nearest whole month), and the denominator of which is
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(y) 36, in each case such vesting to occur on the date of Grantee’s death or termination for Disability, as applicable.
( d)Notwithstanding the provisions of Article II, Section 3(a), if a Change in Control occurs, then the Grantee shall vest in all of the Performance Units at the Target Level with such vesting to occur upon the consummation of the Change in Control.
( e)Notwithstanding the provisions of Article II, Section 3(a), if the Grantee’s Continuous Service ends as a result of a retirement when the Grantee is age 60 or older with at least ten years of service with the Company or its Subsidiaries (a “Retirement”), then the Grantee shall vest in the total number of the Performance Units which become “Vesting Eligible Units” (based on actual performance) if such Retirement occurs after the first anniversary of the beginning of the Performance Period, with such vesting to occur on the Determination Date.
4.Settlement of the Performance Units and Dividend Equivalents.
( a)The Company shall issue to the Grantee the Common Shares underlying the vested Performance Units (and corresponding Dividend Equivalents) or, in the Committee’s discretion, shall pay the Grantee cash equal to the Market Value per Share of each Common Share underlying the vested Performance Units (and corresponding Dividend Equivalents), as soon as practicable, but not later than 10 days, after the earliest to occur of (i) the Determination Date, (ii) the date of Grantee’s death or termination for Disability, (iii) the occurrence of a Change in Control as set forth in Article II, Section 3(d), or (iv) March 5th of the year following the end of the Performance Period set forth in Exhibit A; provided that to the extent that the Grantee is subject to payment of U.S. tax at the time of such issuance, then to the extent required to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, such issuance shall only be made if, to the extent applicable, the Change in Control qualifies as a “change in the ownership of the corporation,” a “change in effective control of the corporation,” or a “change in the ownership of a substantial portion of the assets of the corporation,” in each case within the meaning of Section 409A of the Code.
( b)Except to the extent permitted by the Company and the Plan, no Common Shares may be issued, and no cash may be paid with respect to the Performance Units (and any corresponding Dividend Equivalents), to the Grantee at a time earlier than otherwise expressly provided in this Agreement.
( c)The Company’s obligations to the Grantee with respect to the Performance Units (and any corresponding Dividend Equivalents) shall be satisfied in full upon the issuance of the Common Shares or the payment of cash equal to the Market Value per Share for each Common Share corresponding to such Performance Units; provided that any corresponding Dividend Equivalents shall be solely settled in cash.
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5.Dividend, Voting and Other Rights.
( a)The Grantee shall have no rights of ownership in the Performance Units, except for a right to Dividend Equivalents as provided in Article II, Section 5(b) below, and shall have no right to vote the Performance Units until any date on which the Performance Units are settled in Common Shares pursuant to Article II, Section 4 above.
(b) The Performance Units granted hereunder are hereby granted in tandem with corresponding dividend equivalents with respect to each Common Share underlying the Performance Units granted hereunder (each, a “Dividend Equivalent”), which Dividend Equivalent shall remain outstanding from the Date of Grant until the earlier of the settlement or forfeiture of the Performance Unit to which it corresponds. No Dividend Equivalent shall be paid to the Grantee prior to the settlement of the Performance Units. Rather, such Dividend Equivalent payments shall accrue and be notionally credited to the Grantee’s Performance Unit account and paid out in cash when the underlying Performance Unit is settled in the form of additional Common Shares or cash, as described in Article II, Section 4 above.
(c) The obligations of the Company under this Agreement shall be merely that of an unfunded and unsecured promise of the Company to deliver Common Shares or cash in the future, and the rights of the Grantee shall be no greater than that of an unsecured general creditor. No assets of the Company shall be held or set aside as security for the obligations of the Company under this Agreement.
ARTICLE III
GENERAL PROVISIONS
6.Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal, state, and foreign securities laws; provided, however, notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue any Common Shares pursuant to this Agreement if the issuance thereof would result in a violation of any such law.
7.Compliance with Section 409A of the Code. The parties intend for this Agreement to either comply with, or be exempt from, Section 409A of the Code, to the extent applicable, and all provisions of this Agreement shall be interpreted and applied accordingly. Reference to Section 409A of the Code shall also include any proposed, temporary, or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
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8.Withholding Taxes. To the extent that the Company or any Subsidiary is required to withhold federal, state, local, or foreign taxes in connection with the Performance Units, any applicable Dividend Equivalents, the payment of cash, or the issuance of Common Shares pursuant to this Agreement, and the amounts available to the Company or such Subsidiary for such withholding are insufficient, it shall be a condition to the issuance of such Common Shares that the Grantee make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld. The Grantee hereby elects to satisfy this withholding obligation by having withheld, from the Common Shares otherwise deliverable to the Grantee, Common Shares having a value equal to the minimum amount of taxes required to be withheld. The Common Shares so retained shall be credited against such withholding requirement at the Market Value per Share on the date of such retention. The Company may, at the request of the Grantee, withhold Common Shares for payment of taxes in excess of the minimum amount of taxes required to be withheld; provided, however, that in no event shall the Company withhold Common Shares for payment of taxes in excess of the maximum statutory individual tax rate in the jurisdiction(s) applicable to the Grantee.
9.Continuous Service. For purposes of this Agreement, the Continuous Service of the Grantee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the Grantee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by reason of the (a) transfer of his or her employment among the Company and its Subsidiaries or (b) a leave of absence approved by a duly constituted officer of the Company or a Subsidiary.
10.Right to Terminate Employment. No provision of this Agreement shall limit in any way whatsoever any right that the Company or a Subsidiary may otherwise have to terminate the employment of the Grantee at any time. Nothing herein shall be deemed to create a contract or a right to employment with respect to the Grantee.
11.Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement, or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a Subsidiary.
12.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall impair the rights of the Grantee under this Agreement without the Grantee’s consent; further provided, however, that the Grantee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with (or exemption from) Section 409A of the Code or the Dodd-Frank Wall Street Reform and Consumer Protection Act or any regulations promulgated thereunder.
13.Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so
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invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.
14.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Performance Units (and any corresponding Dividend Equivalents).
15.Nature of Grant. The Grantee agrees that: (a) the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended, or terminated by the Company at any time; (b) the grant of the Performance Units is voluntary and occasional and does not create any contractual or other right to receive future grants of performance units, or benefits in substitution of performance units, even if performance units have been granted repeatedly in the past; (c) all decisions with respect to future performance unit grants shall be at the sole discretion of the Company; (d) participation in the Plan is voluntary; (e) the Performance Units are not a part of normal or expected pay package for any purposes; (f) if the Grantee is a Covered Employee within the meaning of the Company’s Clawback of Incentive Compensation Policy (the “Policy”), he or she acknowledges and accepts the terms and conditions of the Policy as in effect on the Date of Grant; and (g) in consideration of the grant of the Performance Units, no claim or entitlement to compensation or damages shall be created by any forfeiture or other termination of the Performance Units or diminution in value of the Performance Units, and the Grantee releases the Company and its Subsidiaries from any such claim that may arise. If any such claim is found by a court of competent jurisdiction to have been created, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived the Grantee’s entitlement to pursue such claim. References to the Performance Units in this Article II, Section 15 also refer, as applicable, to any corresponding Dividend Equivalents.
16.Restrictive Covenants. By executing this Agreement, the Grantee hereby agrees to the terms and conditions set forth in the Restrictive Covenant Agreement.
17.Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the Performance Units (and any corresponding Dividend Equivalents) and the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the Grantee’s consent to participate in the Plan by electronic means. The Grantee consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
18.Governing Law. This Agreement is made under, and shall be governed by and construed in accordance with the internal substantive laws of, the State of Ohio, without giving effect to the choice of law principles thereof.
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19.Transfer Restrictions. The Performance Units shall be subject to the provisions of Section 16 of the Plan relating to the prohibition on the assignment or transfer of the rights granted hereunder.
20.Professional Advice. The acceptance of the Performance Units may have consequences under federal and state tax and securities laws that may vary depending upon the individual circumstances of the Grantee. Accordingly, the Grantee acknowledges that the Grantee has been advised to consult his or her personal legal and tax advisors in connection with this Agreement and the Performance Units.
21.Notices. Any notice hereunder by the Grantee shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Corporate Secretary of the Company at the Company’s principal executive offices. Any notice hereunder by the Company shall be given to the Grantee in writing at the most recent address as the Grantee may have on file with the Company.
22.Data Privacy. The Grantee explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement by and among the Company and its Subsidiaries for the exclusive purpose of implementing, administering, and managing the Grantee’s participation in the Plan. The Grantee understands that the Company and its Subsidiaries hold (but only process or transfer to the extent required or permitted by local law) the following personal information about the Grantee: the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Common Shares or directorships held in the Company, details of all options or any other entitlement to Common Shares awarded, canceled, exercised, vested, unvested, or outstanding in the Grantee’s favor, for the purpose of implementing, administering, and managing the Plan (“Data”). The Grantee understands that Data may be transferred to third parties assisting in the implementation, administration, and management of the Plan, including [List administrator(s)], that these recipients may be located in the Grantee’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than those that apply in the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes these recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of implementing, administering, and managing the Grantee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee may elect to deposit any shares acquired upon the vesting of the Performance Units (and any corresponding Dividend Equivalents). The Grantee understands that Data shall be held only as long as is necessary to implement, administer, and manage the Grantee’s participation in the Plan and in accordance with local law. The Grantee understands that the Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands,
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however, that refusing or withdrawing the Grantee’s consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee hereby understands that the Grantee may contact the Grantee’s local human resources representative.
23.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
24.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and assigns.
25.Entire Agreement. This Agreement, the Plan, and the Restrictive Covenant Agreement constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, merging any and all prior agreements.
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This Agreement is executed by the Company as of the ________ day of ___________.
THE J. M. SMUCKER COMPANY
By: ____________________________________
Name:
Title:
The undersigned hereby acknowledges receipt of an executed original of this Agreement, together with a copy of the prospectus for the Plan, dated __________, summarizing key provisions of the Plan, and accepts the award of the Performance Units granted hereunder on the terms and conditions set forth herein and in the Plan.
Date: ______________________
Grantee:
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EXHIBIT A
Management Objectives
| Performance Period | Performance Units | Earnings Per Share (“EPS”) | Return on Invested Capital (“ROIC”) | ||||||||
| 5/1/20__- 4/30/20__ | Threshold Level: 50% of Target Level Target Level: _____ (“Target Units”) Maximum Level: 200% of Target Level | Threshold Level: _____ Target Level: _____ Maximum Level: _____ | Threshold Level: _____ Target Level: _____ Maximum Level: _____ | ||||||||
The Performance Units eligible to vest shall be determined 75% based upon the Company’s EPS and 25% based upon the Company’s ROIC. The total number of Performance Units eligible to vest in respect of the Performance Period shall be equal to the sum of (i) the number of EPS Qualified Shares plus (ii) the number of ROIC Qualified Shares (such number, the “Vesting Eligible Units”.) The Committee shall calculate the total number of Vesting Eligible Units no later than March 5th of the year following the end of the Performance Period (the date on which the Committee makes the actual determination, the “Determination Date”). In the event of a Change in Control, the Committee shall equitably adjust the EPS and ROIC metrics and shall calculate the performance through the date of the Change in Control. Notwithstanding the foregoing, if the EPS is below the Threshold Level set forth above for the Performance Period, then the number of Vesting Eligible Units shall be zero. In no event shall the number of Vesting Eligible Units exceed 200% of the Target Units.
“EPS Qualified Shares” means the product of (i) 75% multiplied by (ii) the Target Units multiplied by (iii):
(A) If the EPS is at the Threshold Level, then 50%.
(B) If the EPS is above the Threshold Level, then the percentage of the award is determined by mathematical interpolation: (i) for each increase of 1% from 90% of the Target Level to and including 95% of the Target Level, the percentage of the award increases by 7.5%; (ii) for each increase of 1% from 95% of the Target Level to and including 105% of the Target Level, the percentage of the award increases by 2.5%; (iii) for each increase of 1% from 105% of the Target Level to and including 110% of the Target Level, the percentage of the award increases by 5%; and (iv) for each increase of 1% above 110% of the Target Level but below the Maximum Level, the percentage of the award increases by 12.5%.
(C) If the EPS is at or above the Maximum Level, then 200%.
The determination of the EPS achievement shall be made by the Committee at the conclusion of the Performance Period and no later than the Determination Date, and shall be the non-GAAP
adjusted earnings per share which are reported in the Company’s Annual Report for the fiscal year in which the Performance Period ends.
“ROIC Qualified Shares” means the product of (i) 25% multiplied by (ii) the Target Units multiplied by (iii):
(A) If the ROIC is at the Threshold Level, then 50%.
(B) If the ROIC is above the Threshold Level, then the percentage of the award is determined by mathematical interpolation: (i) for each increase of 1% from 90% of the Target Level to and including 95% of the Target Level, the percentage of the award increases by 7.5%; (ii) for each increase of 1% from 95% of the Target Level to and including 105% of the Target Level, the percentage of the award increases by 2.5%; (iii) for each increase of 1% from 105% of the Target Level to and including 110% of the Target Level, the percentage of the award increases by 5%; and (iv) for each increase of 1% above 110% of the Target Level but below the Maximum Level, the percentage of the award increases by 12.5%.
(C) If the ROIC is at or above the Maximum Level, then 200%.
The determination of the ROIC achievement shall be made by the Committee at the conclusion of the Performance Period and no later than the Determination Date.
EXHIBIT B
Restrictive Covenant Agreement
As a condition to the Grantee’s receipt of the Performance Units (and any corresponding Dividend Equivalents) awarded to the Grantee under the terms of the Performance Units Agreement between the Grantee and The J. M. Smucker Company, an Ohio corporation (the “Company”), dated as of ________________ (the “Award Agreement”), the Grantee agrees to be subject to the terms and conditions of this Restrictive Covenant Agreement (this “Agreement”).
1. Definitions.
All terms used herein with initial capital letters and not otherwise defined herein shall have the meanings assigned to them in the Award Agreement (including any definitions incorporated by reference to the Plan).
“Affiliated Company” means any organization controlling, controlled by, or under common control with the Company.
“Confidential Information” means the Company’s technical or business or personnel information not readily available to the public or generally known in the trade, including inventions, developments, trade secrets and other confidential information, knowledge, data and know-how of the Company or any Affiliated Company, whether or not they originated with the Grantee, or information which the Company or any Affiliated Company received from third parties under an obligation of confidentiality.
“Conflicting Product” means any product, process, machine, or service of any person or organization, other than the Company or any Affiliated Company, in existence or under development (i) that resembles or competes with a product, process, machine, or service upon or with which the Grantee shall have worked during the two years prior to the Grantee’s termination of service with the Company or any Affiliated Company or (ii) with respect to which during that period of time the Grantee, as a result of his or her job performance and duties, shall have acquired knowledge of Confidential Information, and whose use or marketability could be enhanced by application to it of Confidential Information. For purposes of this section, it shall be conclusively presumed that the Grantee has knowledge of information to which he or she has been directly exposed through actual receipt or review of memoranda or documents containing such information or through actual attendance at meetings at which such information was discussed or disclosed.
“Conflicting Organization” means any person or organization that is engaged in or about to become engaged in research on or development, production, marketing, or selling of a Conflicting Product.
“Restricted Period” means the period beginning on the first date of the Performance Period and ending one year after the date the Performance Units are settled.
2. Right to Retain Common Shares Contingent on Protection of Confidential Information.
The Grantee agrees that at all times, both during and after the term of the Grantee’s service with the Company or any Affiliated Company, to hold in the strictest confidence, and not to use (except for the benefit of the Company at the Company’s direction) or disclose (except for the benefit of the Company at the Company’s direction), regardless of when disclosed to the Grantee, any and all Confidential Information of the Company or any Affiliated Company. The Grantee understands that for purposes of this Section 2, Confidential Information further includes, but is not limited to, information pertaining to any aspect of the business of the Company or any Affiliated Company which is either information not known (or known as a result of a wrongful act of the Grantee or of others who were under confidentiality obligations as to the item or items involved) by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company. If, during the Restricted Period, the Grantee discloses or uses, or threatens to disclose or use, any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the Performance Units (and any corresponding Dividend Equivalents), whether vested or not, shall be immediately forfeited and cancelled, and the Grantee shall immediately return to the Company the Common Shares received in connection with the settlement of the Performance Units (and any corresponding Dividend Equivalents) or the pre-tax income derived from any disposition of the Common Shares or the pre-tax cash amount received in connection with the settlement of the Performance Units (and any corresponding Dividend Equivalents).
3. No Interference with Customers or Suppliers.
In order to forestall the disclosure or use of Confidential Information as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares or cash upon settlement of the Performance Units (and any corresponding Dividend Equivalents) is contingent upon the Grantee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from using Confidential Information to (i) divert or attempt to divert from the Company (or any Affiliated Company) any business of any kind in which it is engaged, or (ii) intentionally solicit its customers with which it has a contractual relationship as to Conflicting Products, or to interfere with the contractual relationship with any of its suppliers or customers (collectively, “Interfere”). If, during the Restricted Period, the Grantee breaches his or her obligation not to Interfere, the Grantee’s right to the Common Shares or cash upon settlement of the Performance Units (and any corresponding Dividend Equivalents) shall not have been earned and the Performance Units (and any corresponding Dividend Equivalents), whether vested or not, shall be immediately forfeited and cancelled, and the Grantee shall immediately return to the Company the Common Shares or the pre-tax income derived from any disposition of the Common Shares or the pre-tax
cash amount received in connection with the settlement of the Performance Units (and any corresponding Dividend Equivalents). For avoidance of doubt, the term “Interfere” shall not include any advertisement of Conflicting Products through the use of media intended to reach a broad public audience (such as television, cable, or radio broadcasts, or newspapers or magazines) or the broad distribution of coupons through the use of direct mail or through independent retail outlets. THE GRANTEE UNDERSTANDS THAT THIS SECTION 3 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THE PERFORMANCE UNITS (AND ANY CORRESPONDING DIVIDEND EQUIVALENTS) AND A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS RECEIVED IN CONNECTION WITH THE SETTLEMENT OF THE PERFORMANCE UNITS (AND ANY CORRESPONDING DIVIDEND EQUIVALENTS) IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS “NO INTERFERENCE WITH CUSTOMERS OR SUPPLIERS” PROVISION DURING THE RESTRICTED PERIOD.
4. No Solicitation of Employees.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares or cash upon settlement of the Performance Units (and any corresponding Dividend Equivalents) is contingent upon the Grantee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from soliciting for employment any person employed by the Company, or by any Affiliated Company, during the period of the solicited person’s employment and for a period of one year after the termination of the solicited person’s employment with the Company or any Affiliated Company (collectively “Solicit”). If, during the Restricted Period, the Grantee breaches his or her obligation not to Solicit, the Grantee’s right to the Common Shares upon settlement of the Performance Units (and any corresponding Dividend Equivalents) shall not have been earned and the Performance Units (and any corresponding Dividend Equivalents), whether vested or not, shall be immediately forfeited and cancelled, and the Grantee shall immediately return to the Company the Common Shares or the pre-tax income derived from any disposition of the Common Shares or the pre-tax cash amount received in connection with the settlement of the Performance Units (and any corresponding Dividend Equivalents). THE GRANTEE UNDERSTANDS THAT THIS SECTION 4 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THE PERFORMANCE UNITS (AND ANY CORRESPONDING DIVIDEND EQUIVALENTS) AND A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS RECEIVED IN CONNECTION WITH THE SETTLEMENT OF THE PERFORMANCE UNITS (AND ANY CORRESPONDING DIVIDEND EQUIVALENTS) IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS
“NO SOLICITATION OF EMPLOYEES” PROVISION DURING THE RESTRICTED PERIOD.
5. Right to Retain Common Shares Contingent on Continuing Non-Conflicting Employment.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantee’s right to the Common Shares or cash upon settlement of the Performance Units (and any corresponding Dividend Equivalents) is contingent upon the Grantee refraining, during the Restricted Period, from rendering services, directly or indirectly, as director, officer, employee, agent, consultant, or otherwise, to any Conflicting Organization, except a Conflicting Organization whose business is diversified and that, as to that part of its business to which the Grantee renders services, is not a Conflicting Organization, provided that the Company shall receive separate written assurances satisfactory to the Company from the Grantee and the Conflicting Organization that the Grantee shall not render services during such period with respect to a Conflicting Product. If, during the Restricted Period, the Grantee shall render services to any Conflicting Organization other than as expressly permitted herein, the Grantee’s right to the Common Shares upon settlement of the Performance Units (and any corresponding Dividend Equivalents) shall not have been earned and the Performance Units (and any corresponding Dividend Equivalents), whether vested or not, shall be immediately forfeited and cancelled, and the Grantee shall immediately return to the Company the Common Shares or the pre-tax income derived from any disposition of the Common Shares or the pre-tax cash amount received in connection with the settlement of the Performance Units (and any corresponding Dividend Equivalents). THE GRANTEE UNDERSTANDS THAT THIS SECTION 5 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE GRANTEE FROM RENDERING SERVICES TO A CONFLICTING ORGANIZATION BUT PROVIDES FOR THE CANCELLATION OF THE PERFORMANCE UNITS (AND ANY CORRESPONDING DIVIDEND EQUIVALENTS) AND A RETURN TO THE COMPANY OF THE COMMON SHARES OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES OR THE GROSS CASH PROCEEDS RECEIVED IN CONNECTION WITH THE SETTLEMENT OF THE PERFORMANCE UNITS (AND ANY CORRESPONDING DIVIDEND EQUIVALENTS) IF THE GRANTEE SHOULD CHOOSE TO RENDER SUCH SERVICES DURING THE RESTRICTED PERIOD.
6. Injunctive and Other Available Relief.
To the extent not prohibited by law, any cancellation of the Performance Units (and any corresponding Dividend Equivalents) pursuant to any of Sections 2 through 5 above shall not restrict, abridge, or otherwise limit in any fashion the types and scope of injunctive and other available relief to the Company. Notwithstanding any provision of this Agreement to the contrary, nothing under this Agreement shall limit, abridge, modify, or otherwise restrict the Company (or any Affiliated Company) from pursuing any or all legal, equitable, or other
appropriate remedies to which the Company may be entitled under any other agreement with the Grantee, any other plan, program, policy, or arrangement of the Company (or any Affiliated Company) under which the Grantee is covered or participates, or any applicable law, all to the fullest extent not prohibited under applicable law.
7. Permitted Reporting and Disclosure.
Notwithstanding any language in this Agreement to the contrary, nothing in this Agreement prohibits the Grantee from reporting possible violations of federal law or regulation to any governmental agency or governmental entity, or making other disclosures that are protected under federal law or regulation; provided, that, in each case such communications and disclosures are consistent with applicable law. Notwithstanding the foregoing, under no circumstance is the Grantee authorized to disclose any information covered by the Company’s attorney-client privilege or attorney work product or the Company’s trade secrets without prior written consent of the Company’s General Counsel. Any reporting or disclosure permitted under this Section 7 shall not result in the cancellation of the Performance Units (and any corresponding Dividend Equivalents). The Grantee is entitled to certain immunities from liability under state and federal law for disclosing trade secrets if the disclosure was made to report or investigate an alleged violation of law, subject to certain conditions.
8. Severability.
If any provisions of this Agreement is determined to be invalid or unenforceable for any reason, that provision shall be modified rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. If any provision in this Agreement is held to be invalid or unenforceable for any non-material reason, and cannot be modified to make it enforceable, the remaining provisions shall be construed as if the invalid or unenforceable provision had not been included. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible.
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Exhibit 10.5
THE J. M. SMUCKER COMPANY
NONSTATUTORY STOCK OPTION AGREEMENT
This NONSTATUTORY STOCK OPTION AGREEMENT (this “Agreement”), dated _____, 20__ (the “Date of Grant”), is between The J. M. Smucker Company, an Ohio corporation (the “Company”), and _________ (the “Optionee”). The award hereunder is granted pursuant to the terms of the Company’s 2020 Equity and Incentive Compensation Plan (the “Plan”). Capitalized terms used herein but not defined shall have the respective meanings set forth in the Plan.
1.Option. Grant of Option. The Company hereby grants to the Optionee, as of the Date of Grant, the right and option (this “Option”) to purchase ______ Common Shares, at a price per Common Share of $_____ (the “Exercise Price”).1 This Option is not intended to qualify as an Incentive Stock Option for purposes of Section 422 of the Code.
(a)Vesting. Subject to the terms of this Agreement and the Optionee’s compliance with the provisions set forth in the Restrictive Covenant Agreement attached hereto as Exhibit A (the “Restrictive Covenant Agreement”), this Option shall vest and become exercisable in three installments, one-third of this Option shall vest on each of the first anniversary and second anniversary of the Date of Grant (or, if such date is not a business day, then on the next succeeding business day) and the remainder shall vest on the third anniversary of the Date of Grant (or, if such date is not a business day, then on the next succeeding business day), subject to the Optionee’s continuous service with the Company or a Subsidiary (“Continuous Service”) on each of these dates.
(b)Termination of Continuous Service. If the Optionee’s Continuous Service terminates for any reason, this Option, to the extent not then vested, shall immediately terminate without consideration. Notwithstanding the foregoing, if (i) the Optionee leaves the service of the Company or a Subsidiary following two years after the Date of Grant under circumstances determined by the Committee to be for the convenience of the Company, (ii) the Optionee’s Continuous Service is terminated as a result of the Optionee’s retirement when the Optionee is age 60 or older with at least ten years of service with the Company or its Subsidiaries and following the first anniversary of the Date of Grant, (iii) the Optionee’s Continuous Service is terminated by the Company or a Subsidiary for Disability, (iv) the Optionee dies, or (v) a Change in Control occurs, then the Optionee shall be deemed to have vested in all of the Common Shares subject to this Option. For purposes of this Agreement, “Disability” means the occurrence of either of the following: (i) the Optionee becoming unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (ii) the Optionee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s accident and health plan for employees of the Company.
1 NTD: Insert Market Value per Share on the Date of Grant.
DEPTS.00106
2.Term. This Option shall terminate on _________2 (the “Option Expiration Date”); provided that if:
(a)the Optionee’s Continuous Service is terminated by the Company for any reason other than a Termination for Cause, death, or Disability, then the Optionee may exercise the vested portion of this Option in full until the 90th day following such termination (at which time this Option shall be cancelled), but not later than the Option Expiration Date;
(b)the Optionee’s Continuous Service is voluntarily terminated by the Optionee (except as provided in Section 2(d) below), then the Optionee may exercise the vested portion of this Option in full until the 30th day following such termination (at which time this Option shall be cancelled), but not later than the Option Expiration Date;
(c)the Optionee’s Continuous Service is terminated by the Company due to the Optionee’s death or Disability, then the Optionee (or his or her beneficiary, in the case of death) may exercise the vested portion of this Option in full until one year following such termination (at which time this Option shall be cancelled), but not later than the Option Expiration Date;
(d)the Optionee’s Continuous Service is terminated by the Company as a result of a Termination for Cause (or by the Optionee at a time when the Company could terminate the Optionee under a Termination for Cause), then this Option shall be cancelled upon the date of such termination; and
(e)the Optionee’s Continuous Service is terminated as a result of the Optionee’s retirement when the Optionee is age 60 or older with at least ten years of Service with the Company or its Subsidiaries, then the Optionee may exercise the vested portion of this Option in full until the earlier of (x) the fifth year following such retirement and (y) the Option Expiration Date. For purposes of this Agreement, whether the Optionee’s Continuous Service with the Company has been terminated as a result of the Optionee’s retirement shall be determined by the Board in its sole discretion.
3.Exercise. Subject to Sections 1 and 2 of this Agreement and the terms of the Plan, this Option may be exercised, in whole or in part, in cash or in any other form of legal consideration that may be acceptable to the Board in accordance with the terms of the Plan. On the tenth anniversary of the Date of Grant (or, if such date is not a business day, then on the preceding business day), all unexercised Options shall be deemed to exercise on a so-called “net exercise basis” (for purposes of both the Exercise Price and any applicable tax withholding), provided that the Exercise Price is lower than the Market Value per Share on such date.
4.Adjustments. This Option shall be subject to the adjustment provisions of Section 12 of the Plan.
2 NTD: Insert 10 years from the Date of Grant.
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5.Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal, state, and foreign securities laws; provided, however, notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue any Common Shares pursuant to this Agreement if the issuance thereof would result in a violation of any such law.
6.Tax Withholding. To the extent that the Company or any Subsidiary is required to withhold federal, state, local, or foreign taxes in connection with any delivery of the Common Shares purchased upon exercise of this Option, such Common Shares shall be reduced by the amount equal to the applicable federal, state, local, and foreign income taxes and other amounts required to be withheld (the “Withholding Taxes”) in connection with such exercise. Subject to the limitations of applicable law, the Company shall have the power and the right to deduct or withhold, or require the Optionee to remit to the Company, the minimum amount necessary to satisfy the Withholding Taxes with respect to any taxable event arising as a result of this Agreement. The Optionee is advised to consult with the Optionee’s own tax advisors regarding the exercise of this Option and holding of the Common Shares.
7.Continuous Service. For purposes of this Agreement, the Continuous Service of the Optionee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the Optionee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by reason of the (a) transfer of his or her employment among the Company and its Subsidiaries or (b) a leave of absence approved by a duly constituted officer of the Company or a Subsidiary.
8.Right to Terminate Employment. No provision of this Agreement shall limit in any way whatsoever any right that the Company or a Subsidiary may otherwise have to terminate the employment of the Optionee at any time. Nothing herein shall be deemed to create a contract or a right to employment with respect to the Optionee.
9.Relation to Other Benefits. Any economic or other benefit to the Optionee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Optionee may be entitled under any profit-sharing, retirement, or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a Subsidiary.
10.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall impair the rights of the Optionee under this Agreement without the Optionee’s consent; further provided, however, that the Optionee’s consent shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with (or exemption from) Section 409A of the Code or the Dodd-Frank Wall Street Reform and Consumer Protection Act or any regulations promulgated thereunder.
11.Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision
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so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.
12.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of this Option.
13.Nature of Option. The Optionee agrees that: (a) the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended, or terminated by the Company at any time; (b) the grant of this Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in substitution of options, even if options have been granted repeatedly in the past; (c) all decisions with respect to future option grants shall be at the sole discretion of the Company; (d) participation in the Plan is voluntary; (e) this Option is not a part of normal or expected pay package for any purposes; (f) if the Optionee is a Covered Employee within the meaning of the Company’s Clawback of Incentive Compensation Policy (the “Policy”), he or she acknowledges and accepts the terms and conditions of the Policy as in effect on the Date of Grant; and (g) in consideration of the grant of this Option, no claim or entitlement to compensation or damages shall be created by any forfeiture or other termination of this Option or diminution in value of this Option, and the Optionee releases the Company and its Subsidiaries from any such claim that may arise. If any such claim is found by a court of competent jurisdiction to have been created, then, by signing this Agreement, the Optionee shall be deemed irrevocably to have waived the Optionee’s entitlement to pursue such claim.
14.Restrictive Covenants. By executing this Agreement, the Optionee hereby agrees to the terms and conditions set forth in the Restrictive Covenant Agreement.
15.Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to this Option and the Optionee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the Optionee’s consent to participate in the Plan by electronic means. The Optionee consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
16.Governing Law. This Agreement is made under, and shall be governed by and construed in accordance with the internal substantive laws of, the State of Ohio, without giving effect to the choice of law principles thereof.
17.Transfer Restrictions. This Option shall be subject to the provisions of Section 16 of the Plan relating to the prohibition on the assignment or transfer of the rights granted hereunder.
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18.Professional Advice. The acceptance and exercise of this Option may have consequences under federal and state tax and securities laws that may vary depending upon the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that the Optionee has been advised to consult his or her personal legal and tax advisors in connection with this Agreement and this Option.
19.Notices. Any notice hereunder by the Optionee shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Corporate Secretary of the Company at the Company’s principal executive offices. Any notice hereunder by the Company shall be given to the Optionee in writing at the most recent address as the Optionee may have on file with the Company.
20.Data Privacy. The Optionee explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement by and among the Company and its Subsidiaries for the exclusive purpose of implementing, administering, and managing the Optionee’s participation in the Plan. The Optionee understands that the Company and its Subsidiaries hold (but only process or transfer to the extent required or permitted by local law) the following personal information about the Optionee: the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Common Shares or directorships held in the Company, details of all options or any other entitlement to Common Shares awarded, canceled, exercised, vested, unvested, or outstanding in the Optionee’s favor, for the purpose of implementing, administering, and managing the Plan (“Data”). The Optionee understands that Data may be transferred to third parties assisting in the implementation, administration, and management of the Plan, including [List administrator(s)], that these recipients may be located in the Optionee’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than those that apply in the Optionee’s country. The Optionee understands that the Optionee may request a list with the names and addresses of any potential recipients of the Data by contacting the Optionee’s local human resources representative. The Optionee authorizes these recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of implementing, administering, and managing the Optionee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Optionee may elect to deposit any shares acquired upon the exercise of this Option. The Optionee understands that Data shall be held only as long as is necessary to implement, administer, and manage the Optionee’s participation in the Plan and in accordance with local law. The Optionee understands that the Optionee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Optionee’s local human resources representative. The Optionee understands, however, that refusing or withdrawing the Optionee’s consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee hereby understands that the Optionee may contact the Optionee’s local human resources representative.
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21.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
22.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and assigns.
23.Entire Agreement. This Agreement, the Plan, and the Restrictive Covenant Agreement constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, merging any and all prior agreements.
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This Agreement is executed by the Company as of the ______ day of __________.
THE J. M. SMUCKER COMPANY
By: ____________________________________
Name:
Title:
The undersigned hereby acknowledges receipt of an executed original of this Agreement, together with a copy of the prospectus for the Plan, dated ________, summarizing key provisions of the Plan, and accepts the award of this Option granted hereunder on the terms and conditions set forth herein and in the Plan.
Date: ______________________
Optionee:
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Exhibit A
Restrictive Covenant Agreement
As a condition to the Optionee’s receipt of this Option awarded to Optionee under the terms of the Nonstatutory Stock Option Agreement between the Optionee and The J. M. Smucker Company, an Ohio corporation (the “Company”), dated as of ________ (the “Award Agreement”), the Optionee agrees to be subject to the terms and conditions of this Restrictive Covenant Agreement (this “Agreement”).
1. Definitions.
All terms used herein with initial capital letters and not otherwise defined herein shall have the meanings assigned to them in the Award Agreement (including any definitions incorporated by reference to the Plan).
“Affiliated Company” means any organization controlling, controlled by, or under common control with the Company.
“Confidential Information” means the Company’s technical or business or personnel information not readily available to the public or generally known in the trade, including inventions, developments, trade secrets and other confidential information, knowledge, data and know-how of the Company or any Affiliated Company, whether or not they originated with the Optionee, or information which the Company or any Affiliated Company received from third parties under an obligation of confidentiality.
“Conflicting Product” means any product, process, machine, or service of any person or organization, other than the Company or any Affiliated Company, in existence or under development (i) that resembles or competes with a product, process, machine, or service upon or with which the Optionee shall have worked during the two years prior to the Optionee’s termination of service with the Company or any Affiliated Company or (ii) with respect to which during that period of time the Optionee, as a result of his or her job performance and duties, shall have acquired knowledge of Confidential Information, and whose use or marketability could be enhanced by application to it of Confidential Information. For purposes of this section, it shall be conclusively presumed that the Optionee has knowledge of information to which he or she has been directly exposed through actual receipt or review of memoranda or documents containing such information or through actual attendance at meetings at which such information was discussed or disclosed.
“Conflicting Organization” means any person or organization that is engaged in or about to become engaged in research on or development, production, marketing, or selling of a Conflicting Product.
“Look-back Period” means a 12-month period prior to a breach of the applicable section of this Agreement.
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“Restricted Period” means the period during which the Optionee is employed by the Company or a Subsidiary plus one year after the date the Optionee’s Continuous Service is terminated.
2. Right to Retain Options Contingent on Protection of Confidential Information.
The Optionee agrees that at all times, both during and after the term of the Optionee’s service with the Company or any Affiliated Company, to hold in the strictest confidence, and not to use (except for the benefit of the Company at the Company’s direction) or disclose (except for the benefit of the Company at the Company’s direction), regardless of when disclosed to the Optionee, any and all Confidential Information of the Company or any Affiliated Company. The Optionee understands that for purposes of this Section 2, Confidential Information further includes, but is not limited to, information pertaining to any aspect of the business of the Company or any Affiliated Company which is either information not known (or known as a result of a wrongful act of the Optionee or of others who were under confidentiality obligations as to the item or items involved) by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company. If, prior to the expiration of the Restricted Period, the Optionee discloses or uses, or threatens to disclose or use, any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), this Option, whether vested or not, shall be immediately forfeited and cancelled, and the Optionee shall immediately return to the Company the Common Shares received in connection with any exercise of this Option during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period.
3. No Interference with Customers or Suppliers.
In order to forestall the disclosure or use of Confidential Information as well as to deter the Optionee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Optionee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company and to promote fair competition, the Optionee agrees that the Optionee’s rights with respect to this Option is contingent upon the Optionee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from using Confidential Information to (i) divert or attempt to divert from the Company (or any Affiliated Company) any business of any kind in which it is engaged, or (ii) intentionally solicit its customers with which it has a contractual relationship as to Conflicting Products, or to interfere with the contractual relationship with any of its suppliers or customers (collectively, “Interfere”). If, during the Restricted Period, the Optionee breaches his or her obligation not to Interfere, this Option, whether vested or not, shall be immediately forfeited and cancelled, and the Optionee shall immediately return to the Company the Common Shares received in connection with any exercise of this Option during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. For avoidance of doubt, the term “Interfere” shall not include any advertisement of Conflicting Products through the use of media intended to reach a broad public audience (such as television, cable, or radio broadcasts, or newspapers or magazines) or the broad distribution of
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coupons through the use of direct mail or through independent retail outlets. THE OPTIONEE UNDERSTANDS THAT THIS SECTION 3 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THIS OPTION AND A RETURN TO THE COMPANY OF THE COMMON SHARES RECEIVED IN CONNECTION WITH ANY EXERCISE OF THIS OPTION DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE OPTIONEE SHOULD CHOOSE TO VIOLATE THIS “NO INTERFERENCE WITH CUSTOMERS OR SUPPLIERS” PROVISION DURING THE RESTRICTED PERIOD.
4. No Solicitation of Employees.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Optionee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Optionee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Optionee agrees that the Optionee’s rights with respect to this Option is contingent upon the Optionee refraining, during the Restricted Period, for himself or herself or any third party, directly or indirectly, from soliciting for employment any person employed by the Company, or by any Affiliated Company, during the period of the solicited person’s employment and for a period of one year after the termination of the solicited person’s employment with the Company or any Affiliated Company (collectively, “Solicit”). If, during the Restricted Period, the Optionee breaches his or her obligation not to Solicit, this Option, whether vested or not, shall be immediately forfeited and cancelled, and the Optionee shall immediately return to the Company the Common Shares received in connection with any exercise of this Option during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. THE OPTIONEE UNDERSTANDS THAT THIS SECTION 4 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED BUT PROVIDES FOR THE CANCELLATION OF THIS OPTION AND A RETURN TO THE COMPANY OF THE COMMON SHARES RECEIVED IN CONNECTION WITH ANY EXERCISE OF THIS OPTION DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE OPTIONEE SHOULD CHOOSE TO VIOLATE THIS “NO SOLICITATION OF EMPLOYEES” PROVISION DURING THE RESTRICTED PERIOD.
5. Right to Retain Options Contingent on Continuing Non-Conflicting Employment.
In order to forestall the disclosure or use of Confidential Information, as well as to deter the Optionee’s intentional interference with the contractual relations of the Company or any Affiliated Company, the Optionee’s intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Optionee agrees that the Optionee’s rights with respect to this Option is contingent upon the Optionee refraining, during the Restricted Period, from rendering services, directly or indirectly, as director, officer, employee, agent, consultant, or otherwise, to any Conflicting Organization,
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except a Conflicting Organization whose business is diversified and that, as to that part of its business to which the Optionee renders services, is not a Conflicting Organization, provided that the Company shall receive separate written assurances satisfactory to the Company from the Optionee and the Conflicting Organization that the Optionee shall not render services during such period with respect to a Conflicting Product. If, prior to the expiration of the Restricted Period, the Optionee shall render services to any Conflicting Organization other than as expressly permitted herein, this Option, whether vested or not, shall be immediately forfeited and cancelled, and the Optionee shall immediately return to the Company the Common Shares received in connection with any exercise of this Option during the Look-back Period or the pre-tax income derived from any disposition of the Common Shares during the Look-back Period. THE OPTIONEE UNDERSTANDS THAT THIS SECTION 5 IS NOT INTENDED TO AND DOES NOT PROHIBIT THE OPTIONEE FROM RENDERING SERVICES TO A CONFLICTING ORGANIZATION BUT PROVIDES FOR THE CANCELLATION OF THIS OPTION AND A RETURN TO THE COMPANY OF THE COMMON SHARES RECEIVED IN CONNECTION WITH ANY EXERCISE OF THIS OPTION DURING THE LOOK-BACK PERIOD OR THE GROSS TAXABLE PROCEEDS OF ANY DISPOSITION OF THE COMMON SHARES DURING THE LOOK-BACK PERIOD IF THE OPTIONEE SHOULD CHOOSE TO RENDER SUCH SERVICES DURING THE RESTRICTED PERIOD.
6. Injunctive and Other Available Relief.
To the extent not prohibited by law, any cancellation of this Option pursuant to any of Sections 2 through 5 above shall not restrict, abridge, or otherwise limit in any fashion the types and scope of injunctive and other available relief to the Company. Notwithstanding any provision of this Agreement to the contrary, nothing under this Agreement shall limit, abridge, modify, or otherwise restrict the Company (or any Affiliated Company) from pursuing any or all legal, equitable, or other appropriate remedies to which the Company may be entitled under any other agreement with the Optionee, any other plan, program, policy, or arrangement of the Company (or any Affiliated Company) under which the Optionee is covered or participates, or any applicable law, all to the fullest extent not prohibited under applicable law.
7. Permitted Reporting and Disclosure.
Notwithstanding any language in this Agreement to the contrary, nothing in this Agreement prohibits the Optionee from reporting possible violations of federal law or regulation to any governmental agency or governmental entity, or making other disclosures that are protected under federal law or regulation; provided, that, in each case such communications and disclosures are consistent with applicable law. Notwithstanding the foregoing, under no circumstance is the Optionee authorized to disclose any information covered by the Company’s attorney-client privilege or attorney work product or the Company’s trade secrets without prior written consent of the Company’s General Counsel. Any reporting or disclosure permitted under this Section 7 shall not result in the cancellation of Options. The Optionee is entitled to certain immunities from liability under state and federal law for disclosing trade secrets if the disclosure was made to report or investigate an alleged violation of law, subject to certain conditions.
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8. Severability.
If any provisions of this Agreement is determined to be invalid or unenforceable for any reason, that provision shall be modified rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. If any provision in this Agreement is held to be invalid or unenforceable for any non-material reason, and cannot be modified to make it enforceable, the remaining provisions shall be construed as if the invalid or unenforceable provision had not been included. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible.
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Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATIONS
I, Mark T. Smucker, President and Chief Executive Officer of The J. M. Smucker Company, certify that:
(1)I have reviewed this quarterly report on Form 10-Q of The J. M. Smucker Company;
(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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.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
d.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 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.
Date: November 24, 2020
| /s/ Mark T. Smucker | ||||||||
| Name: | Mark T. Smucker | |||||||
| Title: | President and Chief Executive Officer | |||||||
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATIONS
I, Tucker H. Marshall, Chief Financial Officer of The J. M. Smucker Company, certify that:
(1)I have reviewed this quarterly report on Form 10-Q of The J. M. Smucker Company;
(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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.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
d.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 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.
Date: November 24, 2020
| /s/ Tucker H. Marshall | ||||||||
| Name: | Tucker H. Marshall | |||||||
| Title: | Chief Financial Officer | |||||||
Exhibit 32
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 Quarterly Report on Form 10-Q of The J. M. Smucker Company (the “Company”) for the quarter ended October 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s 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 as of the dates and for the periods expressed in the Report.
| /s/ Mark T. Smucker | ||||||||
| Name: | Mark T. Smucker | |||||||
| Title: | President and Chief Executive Officer | |||||||
| /s/ Tucker H. Marshall | ||||||||
| Name: | Tucker H. Marshall | |||||||
| Title: | Chief Financial Officer | |||||||
Date: November 24, 2020
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.