Document:

exh_101.htm

Exhibit 10.1

 

SECOND AMENDMENT TO 

REVOLVING CREDIT AND SECURITY AGREEMENT, WAIVER AND 

FORBEARANCE EXTENSION

 

THIS SECOND AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT, WAIVER AND FORBEARANCE EXTENSION (this “Amendment”) is made and entered into effective as of the 18th day of December, 2012 (the “Second Amendment Closing Date”), by and among ENGLOBAL CORPORATION, a corporation organized under the laws of the State of Nevada (“Holdings”), ENGLOBAL U.S., INC., a corporation organized under the laws of the State of Texas (“ENGlobal US”), ENGLOBAL INTERNATIONAL, INC., a corporation organized under the BVI Business Companies Act of 2004 (“ENGlobal International”), ENGLOBAL GOVERNMENT SERVICES, INC., a corporation organized under the laws of the State of Texas (“ENGlobal Government”; and together with Holdings, ENGlobal US and ENGlobal International, individually, each a “Borrower” and jointly and severally, “Borrowers”), the financial institutions which are a party hereto (collectively, the “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for itself and as agent for the other Lenders (PNC, together with its successors and assigns in such capacity, “Agent”).

 

PRELIMINARY STATEMENTS

 

A. Borrowers, Lenders and Agent are parties to that certain Revolving Credit and Security Agreement dated May 29, 2012 (as amended, restated or otherwise modified from time to time, the “Credit Agreement”).

 

B. One or more Events of Default have occurred and are continuing under the Credit Agreement (the “Existing Defaults”) and Agent and Lenders agreed to forbear from the exercise of their rights and remedies under the Credit Agreement due to such Existing Defaults pursuant to that certain First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement, dated as of September 21, 2012 (the “Initial Forbearance”), as amended and extended pursuant to that certain Letter dated October 30, 2012 and that certain Letter dated November 14, 212 (collectively, the “Forbearance Extension”), each among Agent, Lenders and Borrowers (the Initial Forbearance and the Forbearance Extension are collectively referred to herein as the “Forbearance Agreement”).

 

C. Borrowers (i) desire to amend the Credit Agreement and (ii) request that Agent and Lenders extend the Forbearance Period set forth in the Forbearance Agreement.  Subject to the terms and conditions set forth herein, Agent and Lenders have agreed to Borrower’s desires and requests.

 

D. This Amendment shall constitute an Other Document (as defined in the Credit Agreement) and these recitals shall be construed as part of this Amendment.

 

NOW, THEREFORE, in consideration of the forgoing and the mutual covenants contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows:

 

  

 

  

ARTICLE I

DEFINITIONS

 

1.01 Capitalized terms used in this Amendment are defined in the Credit Agreement, as amended hereby, unless otherwise stated.

 

ARTICLE II

AMENDMENTS

 

2.01 Amendment to Section 1.2.  Effective as of the Effective Date hereof, Section 1.2 of the Credit Agreement is hereby amended by adding (in proper alphabetical order) the following definitions:

 

“EBITDAR” shall mean for any period the sum of (i) EBITDA plus (ii) restructuring fees, costs and expenses of Borrowers incurred during the Forbearance Period in connection with the restructuring of Borrowers and their operations (including Deloitte LLP’s fees and expenses and attorneys’ fees) to the extent included in determining net income of Borrowers.

 

“Second Amendment” shall mean that certain Second Amendment to Revolving Credit and Security Agreement, Waiver and Forbearance Extension dated as of December 18, 2012, by and among Borrowers, Agent and Lenders.

 

2.02 Amendment to Section 1.2.  Effective as of the date hereof, Section 1.2 of the Credit Agreement is hereby amended to amend and restate the following definition as follows:

 

“Forbearance Period” shall mean during the period commencing on the Effective Date and ending on the earlier to occur of (a) 5:00 p.m. (Dallas, Texas time) on April 30, 2013; or (b) the date that any Forbearance Default (as defined in Section 9.01 hereof) occurs; provided, however, the Forbearance Period will expire on (i) January 10, 2013 if Agent is not provided a copy of the final report prepared by Simmons & Co. of its analysis of the strategic restructuring options available to the Board of Directors of Holdings or (ii) January 31, 2013 if the Board of Directors of Holdings fails to act in a manner consistent with the strategic recommendations of Simmons & Co. set forth in the final report referenced in clause (ii) hereto in a manner acceptable to Agent in its Permitted Discretion.

“Maximum Revolving Advance Amount” shall mean (i) $35,000,000 for the period from the Closing Date through and including January 31, 2013, (ii) $31,500,000 for the period from February 1, 2013 through and including April 29, 2013, and (iii) $26,5000,000 for the period from April 30, 2013 through and including the last day of the Term.

2.03 Amendment to Section 6.5.  Effective as of the Effective Date hereof, Section 6.5 of the Credit Agreement is hereby amended by adding the following sentence to the introduction thereof:

 

  

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6.5           Financial Covenants.  Borrowers shall not be required to maintain the financial covenants set forth in Sections 6.5(a), (b) and (c) for the period beginning on the Second Amendment Closing Date and ending on the last day of the Forbearance Period.

2.04 Amendment to Section 6.5.  Effective as of the Effective Date hereof, Section 6.5 of the Credit Agreement is hereby amended by adding the following subsection (e) immediately after subsection (d) thereof:

 

(e)           EBITDAR.  Cause to be maintained for the period beginning with the Second Amendment Closing Date through the Forbearance Period a minimum EBITDAR as set forth in the table below for such month:

	
Period

	
Amount

	
For month ending: December 31, 2012

	
($1,880,000)

	
For month ending: January 31, 2013

	
($1,971,000)

	
For month ending: February 28, 2013

For month ending: March 31, 2013

For month ending: April 30, 2013      

	
($2,088,000)

($2,127,000)

 ($2,207,000)

 

ARTICLE III

CONDITIONS PRECEDENT; CONDITIONS SUBSEQUENT AND POST-CLOSING OBLIGATIONS

 

3.01 Conditions to Effectiveness.  The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent, unless specifically waived in writing by Agent (the first date upon which all such conditions have been satisfied being herein called the “Effective Date”):

 

(a) Agent shall have received the following documents or items, each in form and substance satisfactory to Agent and its legal counsel:

 

(i) this Amendment duly executed by Borrowers and Lenders; and

 

(ii) all other documents Agent may reasonably request with respect to any matter relevant to this Amendment or the transactions contemplated hereby;

 

(b) Each document (including any Uniform Commercial Code financing statement) required by the Credit Agreement, any related agreement or under law or reasonably requested by Agent to be filed, registered or recorded in order to create, in favor of Agent, a perfected security interest in or lien upon the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested, and Agent shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto;

 

  

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(c) All fees and expenses due and owing by Borrowers to Agent and Lenders shall have been paid in full;

 

(d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel;

 

(e) The representations and warranties contained herein and in the Credit Agreement and the Other Documents, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof; and

 

(f) No Default or Event of Default, other than the Existing Defaults, shall have occurred and be continuing.

 

Agent shall provide notice to Borrowers of the occurrence of the “Effective Date;” provided, however, that Borrowers so have no rights arising from and Agent shall have no liability whatsoever with respect to any failure by Agent to provide such notice.

3.02 Amendment Fee.  In consideration of the agreements set forth herein, Borrowers agree to pay Agent, for the ratable benefit of Agent and Lenders, an amendment fee in an amount equal to $262,500, which amendment fee shall be deemed fully earned and nonrefundable upon Borrowers’ execution of, and release of its signature pages to, this Amendment.

 

ARTICLE IV

RATIFICATIONS, REPRESENTATIONS, WARRANTIES

AND OTHER AGREEMENTS

4.01 Ratifications.  The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and the Other Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the Other Documents are ratified and confirmed and shall continue in full force and effect.  Borrowers hereby agrees that all liens and security interest securing payment of the Obligations under the Credit Agreement are hereby collectively renewed, ratified and brought forward as security for the payment and performance of the Obligations.  Borrowers, Lenders and Agent agree that the Credit Agreement and the Other Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms.

 

4.02 For Avoidance of Doubt.  Borrowers hereby acknowledge that time is of the essence with respect to the performance of any and all collateral and financial reporting covenants made by Borrowers under the Credit Agreement (including all reporting covenants set fort in Article IX of the Credit Agreement as amended by this Amendment) and Borrowers shall strictly comply with the delivery dates and time lines associated with delivery of such reports and statements to Agent.

 

  

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4.03 Representations and Warranties with respect to Other Documents.  Each Borrower hereby represents and warrants to Agent and Lenders as of the First Amendment Closing Date as follows: (A) it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (B) the execution, delivery and performance by it of this Amendment, the Credit Agreement and all Other Documents executed and/or delivered in connection herewith are within its powers, have been duly authorized, and do not contravene (i) its certificate of formation, operating agreement, or other organizational documents, or (ii) any applicable law; (C) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any Governmental Body or other Person, is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment, the Credit Agreement or any of the Other Documents executed and/or delivered in connection herewith by or against it; (D) this Amendment, the Credit Agreement and all Other Documents executed and/or delivered in connection herewith have been duly executed and delivered by it; (E) this Amendment, the Credit Agreement and all Other Documents executed and/or delivered in connection herewith constitute its legal, valid and binding obligation enforceable against it in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity; (F)  except for the Existing Events of Default, it is not in default under the Credit Agreement or any of the Other Documents, and no Default or Event of Default (other than the Existing Events of Default) exists, has occurred and is continuing or would result by the execution, delivery or performance of this Amendment; (G) except with the respect to the Existing Events of Default, each Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement and the Other Documents; (H) the representations and warranties contained in the Credit Agreement and the Other Documents are true and correct in all material respects on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; and (I) except as previously disclosed to Agent in writing, no Borrower has amended its certificate of formation or operating agreement (or applicable organizational or governing documents) since May 29, 2012.

 

ARTICLE V

MISCELLANEOUS PROVISIONS

 

5.01 Forbearance Period.  For the period beginning on the Second Amendment Closing Date through and including the last day of the Forbearance Period:

 

(a) Borrowers shall continue to retain Deloitte LLP to perform the scope of duties agreed to by Agent and the Lenders, dated October 30, 2012 and signed by Borrower and Deloitte; and

 

(b) ENGlobal US shall provide Agent with weekly updates of the Simmons & Co. strategic option process in form and detail satisfactory to Agent in its sole discretion.

 

5.02 Survival of Representations and Warranties.  All representations and warranties made in the Credit Agreement or the Other Documents, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the Other Documents, and no investigation by Agent or any Lender shall affect the representations and warranties or the right of Agent and Lenders to rely upon them.

 

  

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5.03 Reference to Credit Agreement.  Each of the Credit Agreement and the Other Documents, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in the Credit Agreement and such Other Documents to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby.

 

5.04 Expenses of Agent.  Borrowers agree to pay on demand all reasonable costs and expenses incurred by Agent in connection with any and all amendments, modifications, and supplements to the Other Documents, including, without limitation, the costs and fees of Agent’s legal counsel, and all costs and expenses incurred by Agent in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby, or any Other Documents, including, without, limitation, the costs and fees of Agent’s legal counsel.

 

5.05 Expenses of Lenders.  In addition to the costs and expenses set forth in Section 5.04 above, Borrowers agrees to pay on demand all reasonable costs and expenses incurred by Lenders (other than Agent) in connection with the enforcement of the Credit Agreement and any Other Document and this Amendment, including, without limitation, the costs and fees of legal counsel.

 

5.06 Severability.  Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.

 

5.07 Successors and Assigns.  This Amendment is binding upon and shall inure to the benefit of Agent, Lenders and Borrowers and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of Agent.

 

5.08 Counterparts.  This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument.

 

5.09 Effect of Waiver.  No consent or waiver, express or implied, by Lenders or Agent to or for any breach of or deviation from any covenant or condition by Borrowers shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty.

 

5.10 Headings.  The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

 

  

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5.11 Applicable Law.  THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

5.12 Final Agreement.  THE CREDIT AGREEMENT AND THE OTHER DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.  THE CREDIT AGREEMENT AND THE OTHER DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWERS AND AGENT.

 

5.13 Release.  BORROWERS HEREBY ACKNOWLEDGE THAT THEY HAVE NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY ANY LOANS OR EXTENSIONS OF CREDIT FROM AGENT AND LENDERS TO BORROWERS UNDER THE CREDIT AGREEMENT OR THE OTHER DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDERS AND AGENT.  EACH BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDERS, AGENT, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH BORROWERS MAY NOW OR HEREAFTER HAVE AGAINST LENDERS AND AGENT, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY LOANS OR EXTENSIONS OF CREDIT FROM LENDERS AND AGENT TO BORROWERS UNDER THE CREDIT AGREEMENT OR THE OTHER DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE CREDIT AGREEMENT OR OTHER DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.

 

[remainder of page intentionally left blank; signature pages follow]

  

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IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment as of the date first above-written.

 

 

BORROWERS:

 

ENGLOBAL CORPORATION

 

By: _________________________

Name: _______________________

Title: ________________________

 

 

ENGLOBAL U.S., INC.

 

By: _________________________

Name: _______________________

Title: ________________________

 

 

ENGLOBAL INTERNATIONAL, INC.

 

By: _________________________

Name: _______________________

Title: ________________________

 

 

ENGLOBAL GOVERNMENT SERVICES, INC.

 

By: _________________________

Name: _______________________

Title: ________________________

 

  

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AGENT:

 

PNC BANK, NATIONAL ASSOCIATION,

as Lender and as Agent

 

By: _________________________

Name: Ron Eckhoff

Title: Vice President

 

 

 

9exh_101.htm

Exhibit 10.1

 

FIRST AMENDED AND RESTATED

MGP INGREDIENTS, INC. SHORT-TERM INCENTIVE PLAN

(FOR 2012 AND SUBSEQUENT YEARS)

This FIRST AMENDED AND RESTATED MGP INGREDIENTS, INC. SHORT-TERM INCENTIVE PLAN (“Plan”) is a program for providing eligible Employees with incentive compensation based upon increases in Modified Economic Profit (“MEP”) and/or attaining individual performance goals approved by the Committee, as herein defined.  The objective of the Plan is to encourage initiative, resourcefulness, teamwork, motivation, and efficiency on the part of all Participants that will result in financial success for both the stockholders of the Company and the Participants. The Plan is effective January 1, 2012.

 

SECTION 1

ESTABLISHMENT OF PLAN

 

1.1 Plan Document

 

This instrument, as amended from time to time, constitutes the governing document of the Plan.

 

1.2 Effective Dates

 

The effective date of the Plan is January 1, 2012.  The Plan will apply for Fiscal Year 2012 and each year thereafter, unless otherwise determined by the Committee. The Plan was amended and restated on December 14, 2012.

 

1.3 Incentive Compensation Plan

 

The Plan is an annual compensation program for eligible Employees.  Because the Plan does not provide welfare benefits and does not provide for the deferral of compensation to termination of employment, it is established with the intent and understanding that it is not an employee benefit plan within the meaning of the employee Retirement Income Security Act of 1974, as amended.  It is intended that any award under the Plan will not be subject to Section 409A of the Code.

 

SECTION 2

DEFINITIONS

 

The following terms shall have the definition stated, unless the context requires a different meaning:

 

2.1 Beneficiary

 

“Beneficiary” means the individual, trust, or other entity designated by the Participant to receive any incentive compensation payable to the Participant under the Plan in the event of the Participant’s death.  A Participant may designate or change a Beneficiary by filing a signed designation with the Secretary of the Company in a form approved by the Committee.

 

  

 

  

If a designation has not been completed properly and filed with the Company or is ineffective for any other reason, the Beneficiary shall be the Participant’s Surviving Spouse.  If there is no effective designation and the Participant does not have a Surviving Spouse, the remaining benefits, if any, shall be paid to the Participant’s estate.

 

2.2 Board of Directors

 

“Board” or “Board of Directors” means the Board of Directors of the Company.

 

2.3 Code

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

2.4 Change in Control

 

A Change in Control shall mean:

 

(i) The acquisition (other than from the Company) by any Person, entity or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding, for this purpose, the Company or its subsidiaries, any employee benefit plan of the Company or its subsidiaries, trustees of the MGP Ingredients, Inc. Voting Trust or of the Cray Family Trust, or any person who acquires Common or Preferred Stock from Cloud L. Cray, Jr. or from any trust controlled by or for the benefit of Cloud L. Cray, Jr. prior to or as a result of his death) of Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of at least 30% of the then outstanding shares of common stock and 50% of the then outstanding shares of preferred stock, par value $10 per share, or 30% of the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors; or

 

(ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any Person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be, for purposes of this Plan, considered as though such Person were a member of the Incumbent Board; or

 

(iii) Approval by the stockholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own collectively as a group more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company.

 

  

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If any of the events enumerated in clauses (1) through (iii) occur, the Board shall determine the effective Change in Control resulting therefrom for purposes of the Plan.

 

2.5 Committee

 

“Committee” means the Human Resources and Compensation Committee of the Board of Directors and shall be comprised entirely of Directors who are considered “outside directors” under Section 162(m) of the Code.

 

2.6 Company

 

“Company” means MGP Ingredients, Inc., a Kansas corporation.

 

2.7 Director

 

“Director” means any individual who is a member of the Board.

 

2.8 Employee

 

“Employee” means an Officer, a Salaried Employee or an Hourly Staff Employee of the Company.

 

2.9 Fiscal Year

 

“Fiscal Year” means the financial reporting year of MGP Ingredients, Inc., which effective January 1, 2012 will be the calendar year.

 

2.10 Hourly Staff Employee

 

“Hourly Staff Employee” means a full-time non-union employee paid by the hour.

 

2.11 Officer

 

“Officer” means an officer of the Company elected by the Board of Directors of the Company and any other person who is a “named executive officer”, as defined in Item 402 of Regulation S-K, in the Company’s proxy statement with respect to the year the year preceding the Plan Year in question.

 

2.12 MEP

 

“MEP” refers to Modified Economic Profit and means adjusted net income from operations (net income from operations, plus depreciation less capital expenditures), net of taxes paid during the specified Fiscal Year (“Adjusted NOPAT”), minus a charge representing the weighted economic cost of capital (“C”) to the Company multiplied by the sum of average monthly total funded indebtedness plus average monthly total equity (“TC”).  The formula for determining MEP is:  MEP = Adjusted NOPAT — (C x TC).  MEP for a Fiscal Year shall be based upon the audited financial statements of the Company for the Fiscal Year; provided, that the Committee may in its sole discretion, (i) estimate the MEP for the Company’s Fiscal Year in order to calculate estimated MEP incentive compensation prior to the end of the current Fiscal Year (in the case of December Payments), and (ii) determine whether the calculation of MEP should include or exclude, in whole or in part, any unusual or non-recurring item or adjusted to reflect any unusual or non-recurring item.

 

  

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2.13 Participant

 

“Participant” means an Employee designated to participate in this Plan for a Plan Year pursuant to Section 4.

 

2.14 Plan Year

 

“Plan Year” means the Fiscal Year of the Company, as in effect at the time.

 

2.15 Salaried Employee

 

“Salaried Employee” means a salaried, full time employee of the Company, other than an Officer.

 

2.16 Surviving Spouse

 

“Surviving Spouse” means the spouse of the Participant at the time of the Participant’s death who survives the Participant.  If the Participant and spouse die under circumstances that make the order of their deaths uncertain, it shall be presumed for purposes of this Plan that the Participant survived the spouse.

 

SECTION 3

ADMINISTRATION OF PLAN

 

3.1 Administration of Plan by Committee

 

The Plan shall be administered by the Committee.  The Committee shall have full discretionary authority in the operation and administration of the Plan.  The Committee must approve any award under the Plan and, subject to the limitations set forth below, may modify any award prior to its payment.  The Committee shall act by vote or consent of a majority of its members.  To the extent necessary or appropriate, the Committee will adopt rules, policies, and forms for the administration, interpretation, and implementation of the Plan.  The Committee may delegate administrative authority and responsibility from time to time to and among other committees approved by the Committee and individual Employees of the Company, but all actions taken pursuant to delegated authority and responsibility shall be subject to review and change by the Committee.

 

A member of the Committee or individual or group to whom authority is delegated shall not participate in any action of the Committee directly affecting that member, individual or group.

 

  

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3.2 Responsibility; Indemnification

 

The Committee and each member thereof, and any person acting pursuant to authority delegated by the Committee, shall be entitled, in good faith, to rely or act upon any report or other information furnished by any executive officer, other officer or employee of the Company or a subsidiary or affiliate, the Company’s independent auditors, consultants or any other agents assisting in the administration of the Plan.  Members of the Committee, any person acting pursuant to authority delegated by the Committee, and any officer or employee of the Company or a subsidiary or affiliate acting at the direction or on behalf of the Committee or a delegee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified, held harmless and protected by the Company with respect to any such action or determination.

 

SECTION 4

ELIGIBILITY

 

4.1 Participation

 

An Employee shall be a Participant in the Plan for a Plan Year upon designation as a Participant for that year by the Committee.  When deemed appropriate by the Committee, the Committee may designate an effective date for the commencement of participation by an Employee that is subsequent to the first day of the Plan Year.

 

Designated Participants shall be notified in writing and provided either a copy of the Plan or a written summary of the Plan.

 

4.2 Continuing Participation

 

The Committee may terminate participation by an Employee at any time with or without cause.

 

4.3 Basis of Participation

 

Annual incentive compensation for Officers shall be based 100% on MEP growth performance targets.  Annual incentive compensation for Salaried Employees shall be based 50% on MEP growth performance targets and 50% on the attainment of individual performance goals approved by the Committee.  Annual incentive compensation for Hourly Staff Employees shall be based 100% on the attainment of individual performance goals approved by the Committee.

 

SECTION 5

MEASUREMENT OF PERFORMANCE

 

5.1 MEP Performance/Individual Performance

 

For purposes of the Plan, financial performance of the Company shall be measured by MEP.  In general, the Plan shall be administered so that incentive compensation based on MEP that is provided to a Participant under the Plan for a Plan Year is based on improved MEP performance relative to prior MEP performance, initially measured for calendar year 2011. Individual performance goals may be measured by such factors as may be approved by the Committee and may vary among Participants and between Plan Years.

 

  

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5.2 Determination of MEP

 

MEP shall be determined for each Plan Year by the Committee, subject to Section 5.4.  At its discretion, the Committee may estimate MEP in the final month of the Plan Year if it desires to make December Payments.

 

5.3 MEP Growth Target/Individual Performance Goals

 

The MEP growth performance targets and individual performance goal targets for each Plan Year shall be determined by the Committee and communicated to Participants.

 

5.4 Adjustments

 

The Committee may determine, in its sole discretion, whether the calculation of MEP should include or exclude, in whole or in part, any unusual or non-recurring item or adjusted to reflect any unusual or non-recurring item and may make such other adjustments as permitted by Section 9.  The Committee also may determine, in its sole discretion, whether individual performance goals should be adjusted to take into account factors or events not reasonably foreseeable at the beginning of the Plan Year and may make such other adjustments as permitted by Section 9.

 

SECTION 6

INCENTIVE COMPENSATION TARGETS

 

6.1 Target Incentive Compensation

 

The target annual incentive compensation for each Participant for each Plan Year shall be determined by the Committee in accordance with Section 7.2(a).

 

SECTION 7

DETERMINATION AND PAYMENT OF INCENTIVE AMOUNTS

 

7.1 Plan Year MEP and Individual Performance Goals

 

MEP and MEP growth performance, and the extent to which individual performance goals have been met, including any necessary or appropriate adjustments required or permitted hereunder, shall be determined as soon as administratively practicable following the availability of financial results for the Plan Year; provided, however, that in the final month of each Plan Year, the Committee may use projections of MEP and MEP growth performance for such Plan Year to determine estimated annual incentive compensation payments of all or any class of Participants for whom MEP is relevant (i.e., Officers and Salaried Employees) where the Committee wishes to make a 90% payment thereon in the final month of such Plan Year (a “December Payment”).   After the financial results for the Plan Year are available, the annual incentive compensation payment of those Participants who received December Payments shall be determined, and any unpaid amount thereof (net of the December Payment) shall be calculated (a “Remainder Payment”).  In the event that a December Payment is in excess of the finally determined amount of actual incentive compensation, the Participant shall be promptly notified thereof and the Participant shall pay to the Company the amount of such excess payment within 15 days of the Company’s demand (or the Company may setoff any amount it otherwise owes to Participant by the amount of such excess payment, at its election).

 

  

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7.2 Determination of Incentive Compensation

 

Under rules established by the Committee, the incentive compensation for each Participant for each Plan be calculated by the following steps:

 

	
(a)  

	
Targeted annual incentive compensation for each Participant for the Plan Year shall be determined based upon a point system or a percentage of base pay, as determined by the Committee. If a Participant’s base pay changes during a Plan Year, proportionate annual compensation shall be calculated, under the rules established by the Committee, for each period of the Plan Year that each level of base pay was in effect. The proportionate targeted incentive compensation for each level of base pay shall be calculated by annualizing that level of base pay, multiplying by the applicable annual incentive percentage for that level of base pay, and then multiplying the resulting amount by a fraction, the numerator of which is the number of days during the Plan Year that the level of base pay was in effect and the denominator of which is the number of days in the Plan Year.

 

	
(b)  

	
Growth in MEP shall initially be measured from MEP for calendar year 2011, as provided in Section 5.1.  The amount of actual incentive compensation based on MEP payable to Participants with respect to Fiscal Year 2012 and subsequent Fiscal Years that the Plan is in effect will be determined as follows.

 

 

	
  

	
•

	
If growth in MEP is less than 50% of the growth target, no incentive compensation based on MEP will be paid.

 

	
  

	
•

	
If growth in MEP is equal to or greater than 50% and less than or equal to 125% of the growth target, an equivalent percentage of targeted bonus based on MEP will be paid.  No amount will be paid in any Plan Year for growth in MEP in excess of 125% (or, in the Committee’s discretion, 100%); however, any such excess will be carried over to the next plan year and be added to the growth in MEP for the following year to determine the amount of incentive compensation payable, unless the Committee decides to carry over a lesser, or no, amount.  For example, if the percentage growth in year 1 is 150% and year two is 30%, and the Committee has not taken action otherwise, (i) 125% of targeted bonus will be paid in year 1, (ii) the growth in MEP in year two will be deemed to be 55% and 55% of targeted bonus will be paid in year 2.

 

	
(c)  

	
The percentage of targeted bonus payable with respect to varying levels of attainment of individual performance goals will be determined by Committee in its sole discretion, and may vary among Participants during a Plan Year or between Plan Years.

 

  

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7.3 Payment of Incentive Amounts

 

The dollar amount of (i) the annual incentive compensation for a Plan Year (not involving December Payments) and (ii) the Remainder Amount (in the case of a December Payments) shall be paid in a lump sum to the Participant as soon as feasible following the completion of the incentive compensation calculations for the Plan Year, but in no event later than two and one-half months following the end of the Plan Year.  December Payments shall be paid in the final month of the Plan Year.

 

7.4 Partial Year Participation, Employment Changes and Forfeitures

 

	
(a)  

	
Partial Year Participation.  If an Employee is designated to become a Participant in a Plan date other than the first day of the Plan Year, the Participant’s incentive compensation for the shall be determined on the basis of the Participant’s time of participation during the Plan Year.

 

	
(b)  

	
Employment Changes.  Target incentive percentages and incentive awards for a Participant for a Plan Year will be prorated in the event of any change in compensation or employment status or location, or any other change that would effect the determination for the Plan Year, in proportion to the duration of each applicable factor during the Plan Year.

 

	
(c)  

	
Termination of Employment.  Upon termination of a Participant’s employment during a Plan Year for any reason, the Participant shall not be entitled to the payment of incentive compensation for the Plan Year.  Notwithstanding the preceding sentence, the Committee shall have full discretion to determine that payment of a prorated annual component may be made when termination of the Participant’s employment results from job elimination, reduction in work force or other similar Company initiative or is otherwise without cause, or is encouraged or induced by incentives offered by the Company.

 

SECTION 8

CHANGE IN CONTROL

 

Upon a Change in Control, the Plan shall terminate.  The Committee will determine MEP on an annualized basis, based on the Company’s performance through the most recently completed fiscal quarter for which financial results are available.  The Committee will determine the extent to which individual performance goals with respect to a Plan Year have been satisfied through the most recently completed fiscal quarter.  Incentive compensation will be paid on a pro rata basis (measured through the end of such fiscal quarter) in accordance with the guidelines set forth in Section 7.2(b) and (c).  Such payment shall be made in a lump sum as soon as feasible following the Change in Control, but in no event later than two and one-half months following the end of the Plan Year in which the Change in Control occurs.

 

  

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SECTION 9

COMMITTEE DISCRETION

 

The Committee shall exercise all of its power and duties as the Committee deems appropriate in its sole and absolute discretion.  All decisions of the Committee shall be final and binding on all Participants and their respective heirs and representatives.  In the event it is determined, in the judgment and discretion of the Committee, that any factor applicable in the ultimate determination of incentive compensation under the Plan for a Plan Year is not appropriate v or more Participants due to unusual events, unforeseen circumstances, or other factors deemed material an applicable factor or the amount of the resulting incentive compensation may be adjusted or modified in an appropriate by the Committee.  Any such adjustment may vary among Participants during a Plan Year and the Committee, need not be made in subsequent Plan Years under similar circumstances.

 

SECTION 10

CLAWBACK PROVISION

 

Incentive compensation paid under the Plan to any Participant will be subject to any claw back policy that may be adopted by the Committee from time to time providing for the recovery of incentive based compensation that was paid based on erroneous data.

 

SECTION 11

AMENDMENT AND TERMINATION

 

The Plan may be amended in any manner or terminated at any time by action of the Board of Directors.

 

SECTION 12

GENERAL PROVISIONS

 

12.1 Benefits Not Guaranteed

 

Neither the establishment nor maintenance of the Plan nor participation in the Plan shall provide any guarantee or other assurance that incentive compensation will be payable under the Plan.  The success of MGP Ingredients, Inc., as determined hereunder, and adjusted as provided herein, and application of the administrative rules and determinations by the Committee shall determine the extent to which Participants are entitled to receive incentive compensation payments hereunder.

 

12.2 No Right to Participate

 

Nothing in this Plan shall be deemed or interpreted to provide a Participant or any non-participating Employee with any contractual right to participate in or receive benefits of the Plan. No designation of an Employee as a Participant for all or any part of a Plan Year shall create a right to incentive compensation or other benefits of the Plan for any other Plan Year.

 

  

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12.3 No Employment Right

 

Participation in this Plan shall not be construed as constituting a commitment, guarantee, agreement, or understanding of any kind that the Company will continue to employ an individual, and this Plan shall not be construed or applied as any type of employment contract or obligation.  Nothing herein shall abridge or diminish the rights of the Company to determine the terms and conditions of employment of any Participant or other employee or to terminate the employment of any Participant or other Employee with or without cause at any time.

 

12.4 No Assignment or Transfer

 

Neither a Participant nor any beneficiary or other representative of a Participant shall have any right to assign, transfer, attach, or hypothecate any incentive compensation amount or credit, potential payment, or right to future payments of any incentive compensation amount or credit, or any other benefit provided under this Plan.  Payment of any amount due or to become due under this Plan shall not be subject to the claims of creditors of the Participant or to execution by attachment or garnishment or any other legal or equitable proceeding or process.

 

12.5 Withholding and Payroll Taxes

 

The Company shall deduct from any payment made under this Plan all amounts required by federal, state, and local tax laws to be withheld and shall subject any payments made under the Plan to all applicable payroll taxes and assessments.

 

12.6 Incompetent Payee

 

If the Committee determined that a person entitled to a payment hereunder is incompetent, it may cause benefits to be paid to another person for the use or benefit of the Participant or the Participant’s Beneficiary at the time or times otherwise payable hereunder, in total discharge of the Plan’s obligations to the Participant or Beneficiary.

 

12.7 Section 409A

 

It is intended that the Plan and awards issued hereunder will be exempt from Section 409A of the Code (and any regulations and guidelines issued thereunder) because the Plan and the awards do not provide for the deferral of compensation, and the Plan and such awards shall be interpreted on a basis consistent with such intent.  The Plan and any award agreements issued thereunder may be amended in any respect deemed by the Board or the Committee to be necessary in order to preserve exemption with Section 409A of the Code.

 

12.8 Governing Law

 

The provisions of the Plan shall be construed and governed under the laws of the State of Kansas.

 

  

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12.9 Construction

 

The singular includes the plural, and the plural includes the singular, and terms connoting gender include both the masculine and feminine, unless the context clearly indicates the contrary. Capitalized terms, except those at the beginning of a sentence or part of a heading, have the meaning defined in the Plan.

 

SECTION 13

EXECUTION

 

IN WITNESS WHEREOF, MGP Ingredients, Inc. has caused this Plan, as amended and restated, to be executed by its duly authorized officer this 14th of December, 2012.

 

MGP INGREDIENTS, INC.

 

/s/ Timothy W. Newkirk

By:  Timothy W. Newkirk

Title:  President and CEO

 

 

 

 

 

 

 

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