EXHIBIT 10.3
CONSULTING AGREEMENT
This consulting Agreement is dated as of October 2, 2002 and is effective
as of the 30th day of September 2002 ("Consulting Agreement"), by and among
Interstate Bakeries Corporation ("Bakeries"), Interstate Brands Corporation
("Brands") and Interstate Brands West Corporation, each a Delaware corporation
(collectively, referred to as the "Companies"), and Xxxxxxx X. Xxxxxxxx
(hereinafter "Xxxxxxxx").
RECITALS
A. The Companies presently employ Xxxxxxxx as Chairman of the Board and
Chief Executive Officer pursuant to the terms of an Employment Agreement dated
March 1, 1989, as amended by a Memorandum of Agreement dated May 16, 1991 and a
Restated Memorandum of Agreement dated July 22, 1992 (as amended, the
"Employment Agreement").
X. Xxxxxxxx has announced his decision to retire effective September 30,
2002 (the "Effective Date"), at which time Xxxxxxxx will no longer be an
employee or officer of the Companies.
C. In connection with reviewing the Companies' executive compensation
levels and the anticipated retirement of Xxxxxxxx, the compensation committee of
Bakeries hired the executive compensation consulting firm of Xxxxx Xxxxx &
Partners ("Xxxxx Xxxxx") to among other things evaluate Bakeries' retirement
benefit and executive compensation programs, including its current CEO
compensation level, as compared to the programs of similar companies in the
Bakeries' peer group;
D. The report of Xxxxx Xxxxx indicated that the overall compensation level
of Xxxxxxxx for the most recent few years was below the average compensation
level for CEOs of similar companies in the Bakeries' peer group and that general
retirement benefits provided by the Companies relative to the market place were
inadequate in connection with Xxxxxxxx, especially in light of Xxxxxxxx'x
overall performance and contribution to the growth, profitability and
shareholder value of Bakeries in difficult times.
X. Xxxxxxxx has advised the Companies that he intends to exercise his
option as provided in Paragraph 1 of the Employment Agreement to convert the
Employment Agreement to a consulting agreement.
F. Because of the expertise and industry knowledge Xxxxxxxx has acquired
during his more than 20 years in the baking industry and the significant
contribution which Xxxxxxxx has made to the Companies, the Compensation
Committee of Bakeries has taken into account the past and future services
provided by Xxxxxxxx and desires that Xxxxxxxx continue to serve as a director
of Bakeries and as the non-employee, non-officer Chairman of the Board of
Bakeries, fulfilling the duties of that position as provided in Bakeries'
bylaws, and extend his services to the Companies for two additional years
pursuant to this Consulting Agreement.
G. As a condition to remaining on as a director, serving as the Chairman of
the Board of Bakeries, accepting such extended consulting position with the
Companies and agreeing to all the terms and conditions of this Consulting
Agreement, including the confidentiality and non-
competition provisions and the termination of the Employment Agreement effective
as of the date hereof, Xxxxxxxx has required that Bakeries (in addition to
entering into this Consulting Agreement) issue to Xxxxxxxx 133,000 shares of
Common Stock (the "Shares") as of October 1, 2002 pursuant to the Share Award
Agreement between Bakeries and Xxxxxxxx (the "2002 Share Award") and amend as of
the date hereof that certain Deferred Share Award Notice Agreement dated as of
September 23, 1997 (the "First Award Notice") to provide for issuance of the
shares of common stock granted under the First Award Notice by Bakeries within a
reasonable period of time following Xxxxxxxx'x retirement.
AGREEMENT
In consideration of the mutual covenants contained in this Consulting
Agreement, the sufficiency of which is hereby agreed and acknowledged, the
parties agree as follows:
I. Condition to Effectiveness. The effectiveness of this Consulting Agreement
is conditioned upon employment of the individual elected by the Companies'
respective boards of directors to succeed Xxxxxxxx as Chief Executive Officer of
the Companies as of the Effective Date. If for any reason Xxxxxxxx'x elected
successor is not serving as Chief Executive Officer of the Companies on the
Effective Date, this Consulting Agreement will automatically become null and
void and Xxxxxxxx will continue in his present capacity in accordance with the
terms of the Employment Agreement and all of the terms and conditions of the
Employment Agreement will remain in full force and effect.
II. Termination of Employment Agreement. By signing this Consulting Agreement,
Companies and Xxxxxxxx each acknowledge receipt of notice of termination of the
Employment Agreement, and agree that the Employment Agreement is terminated,
effective as of the Effective Date (subject to the condition precedent set forth
in Section I above).
III. Option Exercise. By signing this Consulting Agreement, the parties agree
to convert the balance of the one-year term of Xxxxxxxx'x Employment Agreement,
through May 31, 2003, to a consulting agreement and the Companies acknowledge
delivery of the notice of termination of the Employment Agreement to their
respective Boards of Directors.
IV. Extension of Consulting Term. The Companies desire to retain Xxxxxxxx, and
Xxxxxxxx agrees to be retained by the Companies, for the purpose of providing
assistance to the Companies from time to time in connection with the strategic
planning and operations of the Companies as more particularly set forth in
Section V below for the additional term set forth in Section VI below.
V. Duties. Xxxxxxxx agrees to perform any and all tasks reasonably
necessary, and as mutually agreed upon by the Companies and Xxxxxxxx, to
assist the Companies from time to time in connection with (i) issues unique
to the baking industry or the Companies' operations and (ii) the development
and assessment of a strategic plan for the future of the Companies.
VI. Term. This Consulting Agreement will commence as of the Effective Date
and continue through May 28, 2005.
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VII.Compensation. Beginning on the Effective Date, the Companies agree to pay,
issue, deliver or provide to Xxxxxxxx the following: (a) from the Effective Date
to May 31, 2003 (the end of the Companies' 2003 fiscal year), fees in an
aggregate amount equal to Xxxxxxxx'x current annual salary prorated for eight
months under the Employment Agreement to be paid in eight equal monthly payments
on the first business day of each calendar month; (b) from June 1, 2003 to May
28, 2005, fees equal to an aggregate amount of Eight Hundred Thousand and
no/100s Dollars ($800,000.00) to be paid in twenty-four equal monthly payments
on the first business day of each calendar month; (c) the Shares as set forth in
the 2002 Share Award; (d) the shares granted under the First Award Notice within
a reasonable period of time following retirement rather than on June 1, 2003
pursuant to the amendment to the First Share Award; (e) from the Effective Date
to May 31, 2003, the bonus to which Xxxxxxxx would otherwise be entitled had he
remained an employee of the Companies prorated for the period of June 2, 2002
through September 30, 2002, should the Companies' performance for fiscal 2003 be
such as to qualify for the payment of bonuses under the Companies' incentive
compensation plan; (f) from the Effective Date to May 28, 2005, medical coverage
equivalent to that available to Companies' employees, as may be adjusted from
time to time for all participating employees, at Companies' cost (except those
costs paid by Companies' employees pursuant to the terms of Companies' medical
plan as in effect from time to time, such as premiums, deductibles, co-pays,
etc.); and (g) from the Effective Date to May 28, 2005, reasonable office
accommodations and secretarial support at no charge to Xxxxxxxx. Except as
provided herein, Xxxxxxxx shall not be entitled to receive any other
compensation, fees, benefits, bonuses or perquisites.
VIII. Independent Contractor. It is agreed that Xxxxxxxx'x status under this
Consulting Agreement is that of an Independent Contractor and not as an employee
or officer of the Companies. Nothing in this Agreement will be construed or
applied to create a relationship of partners, agency, joint adventurers or of
employer and employee. As such, it is further understood that the Companies have
no obligation to withhold payroll taxes or, except as required by the terms of
the Consulting Agreement as provided in Section VII above, to pay or credit
Xxxxxxxx with any of the Companies' employee benefits, including, but not
limited to, vacation and retirement benefits. As Xxxxxxxx is an independent
contractor, it is understood that the Companies have no obligation under state
or federal laws regarding employee liability, and that the total commitment and
liability of the Companies in regard to this arrangement is Xxxxxxxx'x
compensation and expense reimbursement rights as described above. The Companies
are interested solely in the results obtained from Xxxxxxxx'x services, and the
Companies will have no right to direct the manner or method which he employs to
obtain such results. Notwithstanding the above, the Companies reserve the right
to direct Xxxxxxxx to work on such project or projects as are necessary to
effectuate the intent of this Consulting Agreement.
IX. Expenses. The Companies agree to reimburse Xxxxxxxx for reasonable, prudent
and necessary business expenses which are incurred by him at the request of the
Companies in the course of travel or otherwise. Expense reimbursements will be
made to Xxxxxxxx within ten (10) days of his furnishing to the Companies a
written statement, accompanied by receipts where appropriate, detailing travel
and other business expenses. Such statements are to be submitted to the
Companies at the end of any month during which such expenses are incurred.
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X. Confidentiality. Xxxxxxxx will not at any time during or after the term of
this Consulting Agreement (and without regard to the circumstances under which
this Consulting Agreement or Xxxxxxxx'x consulting duties under this Consulting
Agreement may have terminated), directly or indirectly, disclose or permit those
under his control to disclose, or use, or permit those under his control to use,
except as will be necessary in the performance of his duties hereunder, any
trade secrets or other proprietary information owned by or confidential to any
of the Companies or any of their subsidiaries without the prior written consent
of the Companies including but not limited to (i) any confidential information
concerning the business, affairs, properties, management or prospects (financial
or otherwise) of the Companies or any of their subsidiaries that he may have
acquired in the course of, or as an incident to his consulting services for, or
employment by, the Companies or any of their subsidiaries or predecessors or
(ii) any confidential information entrusted to the Companies or any of their
subsidiaries or predecessors which any such company is obligated to keep
confidential.
XI. Non-Competition. During the term of this Consulting Agreement and for the
one-year period commencing after its termination for any reason, Xxxxxxxx shall
not engage directly or indirectly in any business activity that is materially
competitive with any primary business of the Companies as determined at the time
of the termination of this Consulting Agreement. The ownership by Xxxxxxxx of
not more than five percent of the voting power of any such business, by itself,
will not be deemed to be a competitive activity within the purview of this
provision. In the event Xxxxxxxx violates this Section XI, the Companies will
have no further obligations to Xxxxxxxx under Section VII and the Companies may
exercise all other rights and remedies they may have, at law or in equity,
against Xxxxxxxx.
XII. Assignment. Xxxxxxxx agrees that because the services provided for
hereunder are personal in nature, this Agreement is not assignable by him.
XIII. Termination.
(a) In the event the Companies fail or refuse to perform their obligations
under this Consulting Agreement, Xxxxxxxx may notify the Companies in writing of
the failure or refusal, specifying the defaults alleged. Unless the defaults are
promptly corrected, then Xxxxxxxx will be entitled, upon written notice to the
Companies, to declare this Consulting Agreement breached, to terminate further
performance under this Consulting Agreement, and will be released from further
obligation under this Consulting Agreement; provided, however, that the
termination will be without prejudice to Xxxxxxxx'x rights to compensation under
this Consulting Agreement as though the termination had not occurred.
(b) In the event Xxxxxxxx fails or refuses to perform his duties and to
carry out his obligations under this Consulting Agreement, the Companies may
notify him in writing of the failure or refusal, specifying the defaults
alleged. Unless Xxxxxxxx promptly corrects any conduct so specified and properly
performs his duties under this Consulting Agreement, then the Companies may upon
written notice to Xxxxxxxx declare this Consulting Agreement breached and
terminate further performance. In the event of termination pursuant to this
Section XIII(b), the Companies will pay to Xxxxxxxx any compensation provided
for in Section VII, above, earned but unpaid as of the date of termination. In
the event of Xxxxxxxx'x breach of this Consulting
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Agreement, Companies will also be entitled to an injunction issued by any
competent court enjoining and restraining Xxxxxxxx from continuing the breach in
addition to all other rights and remedies that Companies may have at law or in
equity.
(c) Exercise of any rights under this Section XIII will not prejudice the
rights of Xxxxxxxx or the Companies, as applicable, in law or equity arising as
a consequence of any breach by another party hereunder.
XIV. Death or Disability of Xxxxxxxx. This Consulting Agreement will terminate
automatically upon the death or permanent disability of Xxxxxxxx and no
compensation will be payable after Xxxxxxxx'x death or permanent disability
except (i) that attributable to the period prior to his death or permanent
disability and (ii) the payments required by Section VII (a) and (e) above. In
the event of the termination of this Consulting Agreement pursuant to this
Section XIV, Companies and Xxxxxxxx will be released from all further
obligations and liabilities under this Consulting Agreement (except as provided
in this Section XIV and Sections X and XI above). For purposes of this Section
XIV, the term "permanent disability" will have the same meaning as ascribed to
it in the Companies' long-term disability insurance program in effect on the
Effective Date.
XV. Miscellaneous.
(a) Subject to Section XII above, this Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective heirs, legal
representatives, successors and assigns.
(b) The Companies' waiver of any provision or default under this Agreement
will not constitute a waiver concerning any other provision, and will not affect
the Companies' right to subsequently exercise any right or remedy concerning any
other provision or default whether similar or not.
(c) The terms and conditions contained in this Consulting Agreement, the
First Award Notice, as amended, and the 2002 Share Award constitute the entire
understanding of the parties relating to this arrangement. Upon the Effective
Date, this Consulting Agreement, the First Award Notice, as amended, and the
2002 Share Award supersede all previous communications, either oral or written,
including the Employment Agreement, except as otherwise specifically provided in
this Consulting Agreement.
XVI. Notice. Any notice which Xxxxxxxx or the Companies may be required or
desire to give will be deemed to be given when delivered personally or mailed
to the party to whom the notice is being given at the address indicated below:
Companies: Interstate Brands Corporation
Attention: Chief Executive Officer
00 Xxxx Xxxxxx Xxxxxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
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with copy to: Interstate Brands Corporation
Attention: General Counsel
00 Xxxx Xxxxxx Xxxxxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
Xxxxxxxx: Xxxxxxx X. Xxxxxxxx
0000 Xxxx 000xx Xxxxxx
Xxxxxxx, Xxxxxx 00000
XVII. Law Governing. This Agreement and all rights and obligations of the
parties are to be construed and interpreted under and pursuant to the laws of
the State of Missouri.
XVIII. Arbitration. Any controversy or claim arising out of or relating to this
Consulting Agreement, or the breach or asserted breach of its terms, will be
settled by final and binding arbitration in Kansas City, Missouri, in accordance
with the rules of the Federal Arbitration Act as in effect at that time, and
judgment on the award rendered may be entered in any court having jurisdiction.
Xxxxxxxx and the Companies will share equally any fees and expenses of any
arbitrator.
XIX. Acknowledgment. The Companies acknowledge and agree that as Chief Executive
Officer, Xxxxxxxx has provide significant services to the Companies by taking
them from near insolvency to a Fortune 500 company since taking that position.
His continued involvement with the Companies will be very valuable to the
continued success of the Companies.
(Remainder of page left blank intentionally.)
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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
the date and year first above written.
INTERSTATE BAKERIES CORPORATION
By: /s/ Xxxx X. Xxxxxx
-------------------------------------------
Xxxx X. Xxxxxx, Vice President - Treasurer
INTERSTATE BRANDS CORPORATION
By: /s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx, Vice President - Treasurer
INTERSTATE BRANDS WEST CORPORATION
By: /s/ Xxxx X. Xxxxxx
-------------------------------------------
Xxxx X. Xxxxxx, Vice President - Treasurer
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------------------
Xxxxxxx X. Xxxxxxxx, an Individual
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