Exhibit 10.5
CHANGE OF CONTROL
EXECUTIVE SEVERANCE PAY AGREEMENT
DATE: April 1, 1999
PARTIES:
Sparta Foods, Inc. ("Sparta")
0000 Xxxxx Xxxxxx XX
Xxx Xxxxxxxx, XX 00000
Xxxxx Xxxx ("Executive")
00000 Xxxxxxx Xxxxxx
#000
Xxxxx Xxxx, XX 00000
RECITALS:
A. Executive has been employed by Sparta since September 4, 1998 as
Executive Vice President of Sales and Operations, has extensive knowledge and
experience relating to Sparta's business and has contributed to Sparta's
success.
B. The general purposes of this Agreement are:
1. To provide Executive with severance pay if a "Termination"
(as defined below) of Executive's employment with Sparta or a successor
of Sparta occurs within twelve (12) months of a "Change of Control" (as
defined below) of Sparta; and
2. To provide security to Executive in order to facilitate
Executive's retention and ensure an orderly transition to a successor
owner.
C. The parties desire to enter into this Agreement.
AGREEMENTS:
In consideration of the mutual covenants set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence on the date set
forth above and shall continue in effect until the first anniversary of the date
set forth above and shall continue for consecutive one year periods until
terminated by either party pursuant to the terms of this Agreement; provided,
however, that if a Change of Control of Sparta shall occur during the term of
this Agreement, this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of such Change of Control. Any rights and
obligations accruing before the termination or expiration of this Agreement
shall survive to the extent necessary to enforce such rights and obligations.
2. "Change of Control." LaCanasta of Minnesota, Inc. ("LaCanasta") is a
wholly owned subsidiary of Sparta. For purposes of this Agreement, "Change of
Control" shall mean any of the following events occurring after the date of this
Agreement:
A. A merger, consolidation, stock sale, stock exchange, or
other reorganization to which Sparta or LaCanasta is a party if the
individuals and entities who were shareholders of Sparta immediately
prior to the effective date of such merger or consolidation have,
immediately following the effective date of such merger or
consolidation beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) less than fifty percent (50%) of the
total combined voting power of all classes of securities issued by the
surviving corporation for the election of directors of the surviving
corporations;
B. The sale of substantially all the assets of Sparta or
LaCanasta to any person or entity other than a sale to a corporation or
other entity with respect to which a majority of the shareholders of
Sparta immediately prior to such sale own a majority of the combined
voting power of all classes of securities of the purchasing person or
entity for the election of directors of the purchasing person or
entity;
C. The sale of a majority of the outstanding shares of
LaCanasta to any person or entity which is not a wholly-owned
subsidiary of Sparta or LaCanasta;
D. The direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of
Sparta representing, in the aggregate, a majority of the combined
voting power of all classes of Sparta's then issued and outstanding
securities by any person or entity or by a group of associated persons
or entities acting in concert; or
E. A change in the composition of the Board of Directors of
Sparta or LaCanasta at any time during any consecutive twenty-four (24)
month period such that the "Continuity Directors" cease for any reason
to constitute at least a seventy percent (70%) majority of the Board.
For purposes of this event, "Continuity Directors" means those members
of the Board who either:
(1) were directors at the beginning of such consecutive
twenty-four (24) month period; or
(2) were elected by, or on the nomination or
recommendation of, at least a two thirds (2/3)
majority of the then-existing Board of Directors.
3. Termination. For purposes of this Agreement, "Termination" shall
mean any of the following events occurring within twelve (12) months after a
Change of Control occurring during the term of this Agreement:
A. The termination of Executive's employment by Sparta for any
reason other than "Good Cause." Executive will not be deemed to have
been terminated for "Good Cause" under this paragraph 3.A. unless and
until Sparta's Chairman of the Board or his designee provides Executive
written notice stating that, in his good faith judgment, Executive has
engaged in conduct constituting "Good Cause" for termination and
setting forth a brief statement of the underlying conduct leading to
that conclusion. Notice shall be deemed to have been given when
delivered personally to Executive or Executive's last known address.
For purposes of this Agreement, Good Cause shall include, but not be
limited to, the following:
i. Conduct by Executive that is materially
detrimental to Sparta's business reputation or goodwill;
ii. Any dishonesty in dealing between Executive and
Sparta or between Executive and Sparta's vendors, advisors,
other employees, or customers;
iii. Executive's active use of alcohol or controlled
substances in a manner which impairs Executive's ability to
perform his duties;
iv. Executive's refusal to comply with Sparta's
directives, rules, regulations, or policies;
v. Executive's violation of any material provision of
this Agreement;
vi. If Executive is convicted, pleads guilty, or
enters a plea of nolo contendere of any crime punishable as a
felony or any other crime involving moral turpitude or immoral
conduct; and
vii. Employee's failure to substantially perform his
material duties, which failure is not cured within sixty (60)
days after Employee's receipt of written notice from Sparta's
Chairman of the Board of Directors specifying the
non-performance.
B. The termination of employment with Sparta by Executive for
Any Reason. Such termination shall be accomplished by, and be
effective upon, Executive giving written notice to Sparta of
his decision to terminate.
4. Compensation and Benefits. Subject to the limitations contained in
Paragraph 6 below, upon a Termination, Executive shall be entitled to the
following compensation and benefits:
A. Sparta shall pay to Executive:
i. All salary and other compensation including
vacation and bonus earned by Executive through the date of the
Termination at the rate in effect immediately prior to such
Termination;
ii. All other amounts which Executive may be entitled
to receive under any compensation plan maintained by Sparta,
subject to any distribution requirements contained in such
compensation plans;
iii. A severance payment determined as follows:
(a) If such Termination occurs after a
Change of Control, such severance payment shall be
equal to two (2) times Executive's base annual salary
(excluding any amounts earned or paid under any
long-term incentive compensation plan) in effect
immediately prior to termination. By illustration, if
the annual base salary in effect on the termination
date is $60,000, Executive will be entitled to
$120,000. Executive shall also receive payment for
any unpaid reimbursements of Executive's
out-of-pocket business expenses incurred by Executive
during the regular performance of his duties upon
providing receipts or other written verification of
such business expenses to Sparta;
(b) Sparta shall pay Executive his severance
payment bi-weekly in 52 payments; and
(iv) All bonuses and incentive compensation, which
Executive was receiving or entitled to receive immediately
prior to Termination, for two years from the date of the
Termination and payable on the date in which such bonuses or
other compensation was schedule to be paid to Executive.
B. Sparta shall continue to provide Executive with coverage
under life, health, dental or disability benefit plans at a level
comparable to the benefits which Executive was receiving or entitled to
receive immediately prior to the Termination or, if greater, at a level
comparable to the benefits which Executive was receiving immediately
prior to Termination. Such coverage shall continue for twenty four (24)
months following such Termination or, if earlier, until Executive is
eligible to be covered for such benefits through his employment with
another employer. Sparta may, in its sole discretion, provide such
coverage through the purchase of individual insurance contracts for
Executive.
C. All Sparta stock options granted to Executive shall
immediately vest immediately prior to the effective date of a Change of
Control.
5. Acknowledgments. Sparta and Executive agree, understand and
acknowledge that: (i) Sparta informed Executive, as part of the offer of this
Agreement, that confidentiality provisions would be required as part of the
terms and conditions of this Agreement; (ii) that Sparta has a legitimate and
proprietary interest in protecting its customer goodwill and proprietary
information; (iii) proprietary interests; and (iv) there is no adequate remedy
at law that will adequately compensate Sparta in the event Executive breach the
provisions of this Paragraph 5.
A. Confidentiality. "Confidential Information" as used in this
Agreement means any information or compilation of information about
Sparta's existing or reasonably foreseeable business that is not
generally known or readily ascertainable by proper means by Sparta's
competitors or the general public, including but not limited to, trade
secrets and financial information. Sparta's Confidential Information
also includes the identities of actual or potential customers and the
fact that they are working or considering doing business with Sparta,
the nature of the business with or by Sparta for the actual or
potential customer, and any other information about any actual or
potential customer of Sparta. During the period of Executive's
employment and during the two year period following receipt of a
severance payment upon Termination as defined in this Agreement,
Executive agrees to hold in strictest confidence and not to disclose
Sparta's Confidential Information to any person or entity or to use
Sparta's Confidential Information for Executive's own benefit or for
the benefit of another except as necessary in the execution of
Executive's official duties as an Executive of Sparta or as required by
law.
B. Return of Property. Upon termination of Executive's
employment for any reason, Executive agrees to promptly deliver to
Sparta all of Sparta's property, including but not limited to all
equipment, originals and copies of documents and software, customer
lists, financial information, and all other material in Executive's
possession or control which belongs to Sparta or contains Sparta's
Confidential Information.
C. Enforcement and Remedies. Sparta and Executive acknowledge
and agree that if Executive breaches the terms of this Paragraph 5
Sparta, in addition to any other remedies available at law or equity,
shall be entitled, as a matter of right, to injunctive relief in any
court of competent jurisdiction, plus reasonable attorneys' fees and
all costs and expenses for securing such relief.
6. Limitation on Change of Control Payments. It is the intention of
Sparta and Executive that payments of severance under this Agreement will not be
treated as "parachute payments" within the meaning of Sections 280G(b)(2) and
280G(b)(5) of the Internal Revenue Code of 1986, as amended ("the Code").
Amounts otherwise payable under Paragraph 4.A.iii. of this Agreement are
conditioned upon:
A. Satisfying the requirements for the compensation deduction
under Section 280G of the Code.
7. Withholding Taxes. Sparta shall be entitled to deduct from all
payments or benefits provided for under this Agreement any federal, state or
local income and employment-related taxes required by law to be withheld with
respect to such payments or benefits.
8. Successors and Assigns. Executive's right to receive payments or
benefits under this Agreement shall not be assignable or transferable, whether
by pledge, creation of a security interest or otherwise, other than a transfer
by will or by the laws of descent of distribution. In the event of any attempted
assignment or transfer by Executive contrary to this Xxxxxxxxx 0, Xxxxxx shall
have no liability to pay any amount so attempted to be assigned or transferred.
This Agreement shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall be binding upon and
inure to the benefit of Sparta, and its successors and assigns including,
without limitation, any company into or with which Sparta may merge or
consolidate. Reference to Chairman in this Agreement shall apply equally to the
Chairman, or chief executive officer in absence of a chairman, to any successor
entity to Sparta.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the last known address of the other party. All notices to Sparta
shall be directed to the attention of the Board of Directors of Sparta.
10. Captions. The headings or captions set forth in this Agreement are
for convenience only and shall not affect the meaning or interpretation of this
Agreement.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Minnesota except to the extent federal law controls.
12. Construction. Wherever possible, each term and provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. If any term or provision of this Agreement is invalid or
unenforceable under applicable law, (a) the remaining terms and provisions shall
be unimpaired, and (b) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the unenforceable term or
provision.
13. Amendment; Waivers. This Agreement may not be modified, amended,
waived or discharged in any manner except by an instrument in writing signed by
both parties hereto. The waiver by either party of compliance with any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any other provision of this Agreement, or of any subsequent breach by
such party of a provision of this Agreement.
14. Employment-at-Will. Executive acknowledges and agrees,
notwithstanding this Agreement, that Executive's employment with Sparta
continues to be in the status of employment-at-will and subject to the policies
and practices otherwise applicable to Sparta's employees. Executive understands
that this Agreement does not give him any rights to, or impose any obligations
on him with respect to, continued employment with Sparta. Executive further
understands and agrees that his employment with Sparta shall terminate as
follows:
A. Sparta may immediately terminate his employment for Good
Cause upon written notice to Executive and, in that event, Sparta shall
only be obligated to pay Executive his base salary through the date of
termination. If terminated for Good Cause, Executive understands and
agrees that he shall not be entitled to any severance pay pursuant to
this Agreement or otherwise, and he shall not be entitled to payment of
any short-term incentive compensation as may have otherwise been agreed
upon between the parties.
B. In addition, either Executive or Sparta may terminate
Executive's employment for any reason upon ninety (90) days' written
notice to the other. In the event Sparta terminates Executive's
employment pursuant to this paragraph, Executive shall be entitled to
any applicable severance pay pursuant to this Agreement and shall be
entitled to a pro-rata share of any short-term or long-term incentive
compensation as may have otherwise been agreed upon between the
parties.
15. Entire Agreement. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements (written or oral) and
writings between Sparta and Executive with respect to the subject matter hereof
and constitutes the entire agreement and understanding between the parties
hereto. All such other negotiations, commitments, agreements and writings will
have no further force or effect, and the parties to any such other negotiation,
commitment, agreement or writing will have no further rights or obligations
thereunder.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
17. Arbitration. Any dispute arising out of or relating to this
Agreement, except as relates to Section 5, or the alleged breach of it, or the
making of this Agreement, including claims of fraud in the inducement, shall be
discussed between the disputing parties in a good faith effort to arrive at a
mutual settlement of any such controversy. If, notwithstanding, such dispute
cannot be resolved, such dispute shall be settled by binding arbitration.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or federal
judge or an attorney who has practiced corporate or business litigation for at
least 10 years. If the parties cannot agree on an arbitrator within 20 days, any
party may request that the chief judge of the District Court for Hennepin
County, Minnesota, select an arbitrator. Arbitration will be conducted pursuant
to the provisions of this Agreement, and the commercial arbitration rules of the
American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement. Limited civil discovery shall be permitted for the
production of documents and taking of depositions. Unresolved discovery disputes
may be brought to the attention of the arbitrator who may dispose of such
dispute. The arbitrator shall have the authority to award any remedy or relief
that a court of this state could order or grant; provided, however, that
punitive or exemplary damages shall not be awarded. The arbitrator may award to
the prevailing party, if any, as determined by the arbitrator, all of its costs
and fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SPARTA FOODS, INC.
By: /s/ Xxxxxxx Xxxxxx
Its Chairman of the Board
EXECUTIVE
/s/ Xxxxx Xxxx
Xxxxx Xxxx
