AGREEMENT
EXHIBIT
10.2
AGREEMENT
THIS
AGREEMENT
(“Agreement”) dated as of October 1, 2005 (the “Effective Date”) is entered by
and between Xxxxx X. Xxxx, 0000 Xxxx Xxxx Xxxxxxxx Xxxx, Xxxxx, Xxxx 00000
(“Executive”), and Schiff Nutrition Group, Inc., a Utah corporation
(the
“Company”).
WITNESSETH:
WHEREAS,
Executive
is a senior executive of the Company and has made and is expected to continue
to
make major contributions to the short and long term profitability, growth
and
financial strength of the Company;
WHEREAS,
the
Company has entered into an Amended and Restated Change in Control Agreement
with Executive dated as of October 1, 2002 (the “Prior Agreement”) to provide
for both present and future continuity of management and to assure itself
that
Executive is not practically disabled from discharging his duties in respect
of
a proposed or actual transaction involving a Change in Control;
WHEREAS,
the Prior
Change in Control Agreement expired on September 30, 2005;
WHEREAS,
the
Company has entered into an Employment Agreement with Executive dated as
of June
1, 2002, as the same may be amended from time to time (the “Employment
Agreement”) that provides certain benefits to executive, including certain
severance payments;
WHEREAS,
the
Company and Executive desire to renew the Prior Agreement substantially in
the
same form as the Prior Agreement, thereby preserving the present and future
continuity of management and providing additional inducement for the Executive
to continue to remain in the employ of the Company; and
WHEREAS,
the
Company and Executive desire to amend certain provisions of the Employment
Agreement to ensure that severance payments under the Employment Agreement
would
not qualify as deferred compensation under Section 409A of the Code and to
otherwise clarify certain provisions thereof;
AGREEMENT
NOW,
THEREFORE, in
exchange for good and valuable consideration, the receipt and sufficiency
of
which is hereby acknowledged, the Company and Executive agree as
follows:
1. Certain
Defined Terms.
In addition to
terms defined elsewhere herein, the following terms have the following meanings
when used in this Agreement with initial capital letters:
(a) “Affiliate”
shall
mean a
domestic or foreign business entity controlled by, controlling, under common
control with, or in a joint venture with, the applicable person or
entity.
(b) “Board”
shall
mean the
Board of Directors of the Company.
(c) “Change
in
Control”
means
and
includes each of the following:
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(i) A
transaction or
series of transactions (other than an offering of SNI Class A common stock
to
the general public through a registration statement filed with the Securities
and Exchange Commission) whereby any “person” or related “group” of “persons”
(as such terms are used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended) (other than SNI, any of its
subsidiaries, an employee benefit plan maintained by SNI or any of its
subsidiaries or a “person” that, prior to such transaction, directly or
indirectly controls, is controlled by, or is under common control with, SNI)
directly or indirectly acquires beneficial ownership (within the meaning
of
Rule 13d-3 under the Exchange Act) of securities of SNI possessing more
than 50% of the total combined voting power of SNI’s securities outstanding
immediately after such acquisition, excluding any transaction involving a
distribution of SNI’s Class A common stock (or any substituted security) held by
Weider Health and Fitness (“WHF”)
to individual
stockholders of WHF or their family trusts if and to the extent the Board
finds
such distribution to not be within the intent of this
Section 1(d)(i);
(ii) During
any period
of two consecutive years, individuals who, at the beginning of such period,
constitute the Board of Directors of SNI together with any new director(s)
(other than a director designated by a person who shall have entered into
an
agreement with SNI to effect a transaction described in Section 1(d)(i) or
Section 1(d)(iii)) whose election by the Board of Directors of SNI or
nomination for election by SNI’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors
at
the beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof;
(iii) The
consummation by
SNI (whether directly involving SNI or indirectly involving SNI through one
or
more intermediaries) of (x) a merger, consolidation, reorganization, or
business combination or (y) a sale or other disposition of all or
substantially all of SNI’s assets or (z) the acquisition of assets or stock
of another entity, in each case other than a transaction:
(A) Which
results in SNI’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by
being
converted into voting securities of SNI or the person that, as a result of
the
transaction, controls, directly or indirectly, SNI or owns, directly or
indirectly, all or substantially all of SNI’s assets or otherwise succeeds to
the business of SNI (SNI or such person, the “Successor
Entity”))
directly or
indirectly, at least a majority of the combined voting power of the Successor
Entity’s outstanding voting securities immediately after the transaction,
or
(B) After
which no
person or group beneficially owns voting securities representing 50% or more
of
the combined voting power of the Successor Entity; provided,
however,
that no person or
group shall be treated for purposes of this Section 1(d)(iii)(B) as
beneficially owning 50% or more of combined voting power of the Successor
Entity
solely as a result of the voting power held in SNI prior to the consummation
of
the transaction; or
(iv) SNI’s
stockholders approve a liquidation or dissolution of SNI.
(d) “Code”
shall
mean the
Internal Revenue Code of 1986, as amended.
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(e) “Cure
Deadline”
shall
mean the
day on which the material breach or event occurs resulting in “cause” pursuant
to Section 5.2 of the Employment Agreement.
(f) “Severance
Payment Deadline”
shall
mean 15
days prior to the Severance Benefit Deadline (as defined in Section 4
below).
(g) “Termination
Date”
shall
mean the
effective date of the termination of Executive’s employment with the Company for
any reason.
(h) “SNI”
shall
mean Schiff
Nutrition International, Inc., a Delaware corporation and the parent of the
Company.
2. Term
of Agreement.
The term of this
Agreement shall commence on the Effective Date and shall continue through
the
full payment of all severance and other benefits to Executive in accordance
with
the terms and conditions of this Agreement. This Agreement shall be effective
with respect to any termination of Executive’s employment with the Company
pursuant to Section 5.2 or 5.3 of the Employment Agreement only if such
termination occurs (a) during the period commencing on the Effective Date
and
ending on September 30, 2008 and (b) “in connection with a Change in Control”
(as defined in Section 3).
3. Severance
Payment/Health Benefits.
(a) In
addition to any severance payments Executive may be entitled to receive under
the Employment Agreement, if Executive’s employment with the Company is
terminated pursuant to Section 5.2 or 5.3 of the Employment Agreement and
such
termination is made “in connection with a Change in Control,” then in
consideration of and subject to the delivery by Executive to the Company
of a
release, in form and substance reasonably satisfactory to the Company, of
any
claims that Executive might have against the Company, the Company shall pay
to
Executive an amount equal to his then current Base Salary (as defined in
the
Employment Agreement). Subject to Section 4 of this Agreement and to execution
and non-revocation by Executive of the release described above, such amount
shall be paid to Executive, without interest, in 24 equal semi-monthly
installments, beginning on the month following the last month Executive receives
any payments under Section 6 of the Employment Agreement; provided, however,
that notwithstanding the foregoing, in no event shall any amounts owing to
Executive pursuant to this Section 3(a) be paid to Executive later than the
Severance Payment Deadline. For purposes of this Agreement, any termination
“in
connection with a Change in Control” shall be any termination pursuant to
Section 5.2 or 5.3 of the Employment Agreement during the period beginning
90
days prior to and concluding 120 days subsequent to the consummation of a
Change
in Control, provided that the Change in Control is both (i) subject to a
definitive written purchase, sale, merger or similar agreement entered into
during the period beginning on the Effective Date and ending on September
30,
2008 and (ii) consummated on or prior to the expiration of six months following
September 30, 2008. The payments provided herein are expressly in addition
to
and not a supplement for any payments Executive is entitled to receive under
Section 6.1 of the Employment Agreement for such terminations.
(b) In
the event Executive’s employment with the Company is terminated pursuant to
Section 5.2 or 5.3 of the Employment Agreement, regardless of whether such
termination is in connection with a Change in Control, subject to Section
4 of
this Agreement, Executive shall be entitled to continue to receive, at the
expense of the Company (other than Executive’s continued payments of his current
portion of such costs), and participate in, for a period of 12 months from
the
Termination Date, any life insurance, disability insurance, health insurance
or
hospital plans or other benefit plans of the Company in effect at the time
of
termination (as such plans may be amended from time to time thereafter);
provided, however, that car allowances, if any, or Company matching of
individual 401(k) plan contributions shall not be continued. Notwithstanding
the
foregoing, any continued benefits or participation in the plans of the Company
under this Section 3(b) shall cease on the Severance Payment Deadline, to
the
extent such continued benefits or participation in plans of the Company would
constitute a nonqualified deferred compensation plan subject to Code Section
409A.
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4. Code
Section 409A.
Neither this
Agreement nor the Employment Agreement is intended to provide for any deferral
of compensation subject to Code Section 409A and, accordingly, notwithstanding
any other provision of this Agreement or the Employment Agreement to the
contrary, any and all amounts payable under this Agreement or the Employment
Agreement shall be paid not later than the later of: (a) two and one-half
(2½)
months from the end of the Executive’s tax year in which the Termination Date
(or, if earlier, the Cure Deadline) occurs, and (b) two and one-half (2½) months
from the end of the Company’s fiscal year in which the Termination Date (or, if
earlier, the Cure Deadline) occurs (the later of (a) and (b), the “Severance
Benefit Deadline”), as determined by the Company in accordance with Code Section
409A and any applicable Treasury Regulations.
5. Parachute
Payments.
(a) If
it is determined (as hereafter provided) that Executive would be subject
to the
excise tax imposed by Code Section 4999 (a “Parachute Tax”) to which Executive
would not have been subject but for any payment or stock option or restricted
stock vesting occurring pursuant to the terms of this Agreement or otherwise
upon a Change in Control or any tax, interest, penalty or other expense incurred
by Executive pursuant to Code Section 409A (a “Deferred Compensation Tax”) to
which Executive would not have been subject but for the Company’s failure to pay
any severance amounts pursuant to the provisions of Section 3 and Section
4 of
this Agreement or and the related provisions of the Employment Agreement
or
other failure to make such payments in a manner that avoids such payments
qualifying as deferred compensation under Section 409A of the Code
(collectively, a “Payment”), then Executive shall be entitled to receive an
additional payment or payments (a “Gross-Up Payment”) in an amount such that,
after payment by Executive of all taxes (including any Parachute Tax or Deferred
Compensation Tax) imposed upon the Gross-Up Payment, Executive retains an
amount
of the Gross-Up Payment equal to the Parachute Tax or Deferred Compensation
Tax
imposed upon the Payment.
(b) Subject
to the provisions of Section 5(a) hereof, all determinations required to
be made
under this Section 5, including whether a Parachute Tax or Deferred Compensation
Tax is payable by Executive with regard to a Payment and the amount of such
Parachute Tax or Deferred Compensation Tax and whether a Gross-Up Payment
is
required and the amount of such Gross-Up Payment, shall be made by the
nationally recognized firm of certified public accountants (the “Accounting
Firm”) used by the Company prior to the Change in Control (or, if such
Accounting Firm declines to serve, the Accounting Firm shall be a nationally
recognized firm of certified public accountants selected by the Company).
For
purposes of making the calculations required by this Section, the Accounting
Firm may make reasonable assumptions and approximations concerning applicable
taxes and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G, 4999 and 409A of the Code, provided that the
Accounting Firm’s determinations must be made with substantial authority (within
the meaning of Section 6662 of the Code). The Accounting Firm shall be directed
by the Company or Executive to submit its preliminary determination and detailed
supporting calculations to both the Company and Executive within 15 calendar
days after the determination date, if applicable, and any other such time
or
times as may be requested by the Company or Executive. If the Accounting
Firm
determines that any Parachute Tax or Deferred Compensation Tax is payable
by
Executive with regard to a Payment, the Company shall pay the required Gross-Up
Payment to, or for the benefit of, Executive within five business days after
receipt of such determination and calculations. If the Accounting Firm
determines that no Parachute Tax or Deferred Compensation Tax is payable
by
Executive with regard to a Payment, it shall, at the same time as it makes
such
determination, furnish Executive with an opinion that he has substantial
authority not to report any Parachute Tax or Deferred Compensation Tax on
his
federal tax return. Any good faith determination by the Accounting Firm as
to
whether a Gross-Up Payment is to be made with regard to a Payment and the
amount
of the Gross-Up Payment shall be binding upon the Company and Executive absent
a
contrary determination by the Internal Revenue Service or a court of competent
jurisdiction; provided, however, that no such
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determination
shall eliminate or reduce the Company’s obligation to provide any Gross-Up
Payments that shall be due as a result of such contrary determination.
As a
result of the uncertainty in the application of Code Section 4999 or Code
Section 409A at the time of any determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments that will not have been made by the
Company should have been made (an “Underpayment”),
consistent with the calculations required to be made hereunder. In the
event
that the Company exhausts or fails to pursue its remedies pursuant to Section
5(f) hereof and Executive thereafter is required to make a payment of any
Parachute Tax or Deferred Compensation Tax, Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to
both the
Company and Executive as promptly as possible. Any such Underpayment shall
be
promptly paid by the Company to, or for the benefit of, Executive within
five
business days after receipt of such determination and
calculations.
(c) The
Company and
Executive shall each provide the Accounting Firm access to and copies of
any
books, records and documents in the possession of the Company or Executive,
as
the case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation and
issuance of the determination contemplated by Section 5(b) hereof.
(d) The
federal tax
returns filed by Executive (or any filing made by a consolidated tax group
which
includes the Company) shall be prepared and filed on a basis consistent with
the
determination of the Accounting Firm with respect to the Parachute Tax or
Deferred Compensation Tax payable by Executive. Executive shall make proper
payment of the amount of any Parachute Tax or Deferred Compensation Tax,
and at
the request of the Company, provide to the Company true and correct copies
(with
any amendments) of his federal income tax return as filed with the Internal
Revenue Service, and such other documents reasonably requested by the Company,
evidencing such payment. If prior to the filing of Executive’s federal income
tax return, the Accounting Firm determines in good faith that the amount
of the
Gross-Up Payment should be reduced, Executive shall within five business
days
pay to the Company the amount of such reduction.
(e) The
fees and
expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by Sections 5(b) and (d) hereof
shall be borne by the Company. If such fees and expenses are initially advanced
by Executive, the Company shall reimburse Executive the full amount of such
fees
and expenses within five business days after receipt from Executive of a
statement therefor and reasonable evidence of his payment thereof.
(f) In
the event that
the Internal Revenue Service claims that any payment or benefit received
under
this Agreement constitutes an “excess parachute payment” within the meaning of
Code Section 280G(b)(1), Executive shall notify the Company in writing of
such
claim. Such notification shall be given as soon as practicable but not later
than 10 business days after Executive is informed in writing of such claim
and
shall apprise the Company of the nature of such claim and the date on which
such
claim is requested to be paid. Executive shall not pay such claim prior to
the
expiration of the 30 day period following the date on which Executive gives
such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires
to
contest such claim, Executive shall (i) give the Company any information
reasonably requested by the Company relating to such claim; (ii) take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
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selected
by the Company and reasonably satisfactory to Executive; (iii) cooperate
with
the Company in good faith in order to effectively contest such claim; and
(iv)
permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and
expenses (including, but not limited to, additional interest and penalties
and
related legal, consulting or other similar fees) incurred in connection
with
such contest and shall indemnify and hold Executive harmless, on an after-tax
basis, for and against for any Parachute Tax or income tax or other tax
(including interest and penalties with respect thereto) imposed as a result
of
such representation and payment of costs and expenses.
(g) The
Company shall
direct Executive with regard to all proceedings taken in connection with
such
contest and, at its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority
in
respect of such claim and may, at its sole option, either direct Executive
to
pay the tax claimed and xxx for a refund or contest the claim in any permissible
manner and Executive agrees to prosecute such contest to a determination
before
any administrative tribunal, in a court of initial jurisdiction and in one
or
more appellate courts, as the Company shall determine; provided, however,
that
if the Company directs Executive to pay such claim and xxx for a refund,
the
Company shall advance the amount of such payment to Executive on an
interest-free basis (to the extent permitted by applicable law), and shall
indemnify and hold Executive harmless, on an after tax basis, from any Parachute
Tax or Deferred Compensation Tax (or other tax including interest and penalties
with respect thereto) imposed with respect to such advance or with respect
to
any imputed income with respect to such advance; and provided, further, that
if
Executive is required to extend the statue of limitations to enable the Company
to contest such claim, Executive may limit this extension solely to such
contested amount. The Company’s right to direct Executive with regard to the
contest shall be limited to issues with respect to whether and the extent
to
which a payment or benefit is an “excess parachute payment” pursuant to Code
Section 280G(b)(1), the imposition of the Parachute Tax under Code Section
4999
and the imposition of the Deferred Compensation Tax under Code Section 409A,
and
Executive shall be entitled to settle or contest, as the case may be, any
other
issue raised by the Internal Revenue Service or any other taxing authority.
In
addition, the Company shall not direct Executive to take a position or agree
to
any final resolution if such position or resolution could reasonably be expected
to adversely affect Executive unrelated to matters covered hereto, unless
Executive consents in writing to such position or agreement.
(h) If,
after the
receipt by Executive of an amount advanced by the Company in connection with
the
contest of the Parachute Tax or Deferred Compensation Tax claim, Executive
receives any refund with respect to such claim, Executive shall promptly
pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto); provided, however, if the
amount of that refund exceeds the amount advanced by the Company Executive
may
retain such excess. If, after the receipt by Executive of an amount advanced
by
the Company in connection with a Parachute Tax or Deferred Compensation Tax
claim, a determination is made that Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify Executive
in
writing of its intent to direct Executive to contest the denial of such refund
prior to the expiration of 30 days after such determination such advance
shall
be deemed to be in consideration for services rendered after the Termination
Date.
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6. Effect
on Employment Agreement.
Executive and the
Company agree that: (i) Section 4 of this Agreement expressly amends the
Employment Agreement and the timing of the severance payments to be made
pursuant to Section 6.1 of the Employment Agreement; and (ii) the definition
of
Change in Control in the Employment Agreement is of no further force and
effect.
7. Confidentiality.
Executive agrees
that, without the prior written consent of the Chairman of the Board of
Directors of the Company or except as required by law, Executive will not
disclose to any person the existence or contents of this Agreement or that
discussions or negotiations are taking place concerning a possible merger,
sale
or similar transaction between the Company and a third party or any of the
terms, conditions or other facts with respect to any such possible transaction,
including the status thereof.
8. Successors
and
Binding Agreement.
(a) The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation, reorganization or otherwise, including, without
limitation, any successor due to a Change in Control) to the business or
assets
of the Company, by agreement in form and substance reasonably satisfactory
to
the Executive, expressly assume and agree to perform this Agreement in the
same
manner and to the same extent the Company would be required to perform if
no
such succession had taken place. This Agreement will be binding upon and
inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any person directly or indirectly acquiring the business
or
assets of the Company in a transaction constituting a Change in Control (and
such successor shall thereafter be deemed the “Company” for the purpose of this
Agreement), but will not otherwise be assignable, transferable or delegable
by
the Company.
(b) This
Agreement will inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors,
heirs,
distributees and legatees, but will not otherwise be assignable, transferable
or
delegable by Executive.
9. Validity.
If any provision
of this Agreement or the application of any provision hereof to any person
or
circumstances is held invalid, unenforceable or otherwise illegal, the remainder
of this Agreement and the application of such provision to any other person
or
circumstances will not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal will be reformed to the extent (and only
to
the extent) necessary to make it enforceable, valid or legal.
10. Governing
Law;
Jurisdiction.
The laws of the
state of Utah shall govern the interpretation, validity and performance of
the
terms of this Agreement, regardless of the law that might be applied under
principles of conflicts of law. Any suit, action or proceeding against
Executive, with respect to this Agreement, or any judgment entered by any
court
in respect of any of such, may be brought in any court of competent jurisdiction
in the State of Utah, and Executive hereby submits to the jurisdiction of
such
courts for the purpose of any such suit, action, proceeding or
judgment.
11. Notices.
Any notices or
communications given by any party hereto to the other party shall be in writing
and personally delivered or mailed by registered or certified mail, return
receipt requested, postage prepaid. Notices shall be addressed to the parties
at
the addresses set forth above. Notices shall be deemed given when received.
Either party may designate in writing, by notice to the others, such other
address to which notices to such party shall thereafter be sent.
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12. Further
Assurances.
Each party agrees
at any time, and from time-to-time, to execute, acknowledge, deliver and
perform, and/or cause to be executed, acknowledged, delivered and performed,
all
such further acts, deeds assignments, transfers, conveyances, powers of attorney
and/or assurances as may be necessary, and/or proper to carry out the provisions
and/or intent of this Agreement.
13. Amendment;
Waiver; Entire Agreement.
No provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Executive
and
the Company. No waiver by either party hereto at any time of any breach by
the
other party hereto or compliance with any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of
similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement and the Employment Agreement (to the extent not modified
hereby) constitute the entire agreement of the parties with respect to the
subject matter hereof and supersedes any and all prior agreements of the
parties
with respect to such subject matter.
14. Counterparts.
This Agreement
may be executed in one or more counterparts, each of which shall be deemed
to be
an original but all of which together will constitute one and the same
agreement.
IN
WITNESS WHEREOF,
the parties have caused this Agreement to be duly executed and delivered
on the
date set forth below.
SCHIFF
NUTRITION
GROUP, INC.
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By:
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Title:
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Date:
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EXECUTIVE
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Date:
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