M-FOODS INVESTORS, LLC
December 21, 2000
Xxxx X. Xxxxx
c/o Xxxxxxx Foods, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, XX 00000
Dear Xx. Xxxxx:
1. Pursuant to the terms of the Agreement and Plan of Merger dated
as of the date hereof (the "Merger Agreement") among M-Foods Holdings, Inc., a
----------------
Delaware corporation ("Holdings"), Protein Acquisition Corp., a Minnesota
--------
corporation and a wholly owned subsidiary of Holdings ("Merger Sub"), and
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Xxxxxxx Foods, Inc., a Minnesota corporation (the "Company"), Merger Sub will be
-------
merged with and into the Company (the "Merger"). Terms not otherwise defined in
------
this letter agreement shall have the meanings set forth in the Merger Agreement.
2. You hereby acknowledge that you are the record and beneficial
owner of 27,176 shares of the Company's Common Stock, par value $0.01 per share
(the "Common Stock"), and that you hold options exercisable for 118,910 shares
------------
of Common Stock (the "Options") (your owned shares of Common Stock (as such
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owned shares may be adjusted by any stock dividend, stock split,
recapitalization, combination or other similar transaction) are referred to
herein as the "Owned Shares" and, your Owned Shares together with any other
------------
shares of capital stock of the Company acquired or otherwise obtained by you
after the date hereof (including shares of Common Stock issued upon exercise of
the Options (as the same may be adjusted as aforesaid)) are referred to herein
as the "Subject Shares"). The Owned Shares and the number of shares of Common
--------------
Stock issued upon exercise of the Options in the amounts set forth in this
Section 2 constitute all of the shares of capital stock of the Company either
owned by you or for which you have a right to obtain upon exercise of the
Options as of the date hereof. You hereby agree to promptly notify M-Foods
Investors, LLC, a Delaware limited liability company ("Investors"), of the
---------
number of any additional shares of (or rights to acquire additional shares of)
the Company's capital stock acquired or otherwise obtained in any manner by you,
if any, after the date hereof.
3. By executing this letter agreement, you hereby agree that:
(a) at any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the holders of capital stock of the
Company, however called, or in connection with any written consent of the
holders of capital stock of the Company solicited by the Company Board, you
will appear at the meeting or otherwise cause the Subject Shares to be
counted as present at such meeting for purposes of establishing a quorum
and vote or consent (or cause to be voted or consented) such Subject Shares
(i) in favor of the Merger Agreement and transactions contemplated thereby
(including the Merger), (ii) against any merger, consolidation,
combination, sale of substantial assets,
favor of the Merger Agreement and transactions contemplated thereby
(including the Merger), (ii) against any merger, consolidation,
combination, sale of substantial assets, reorganization, recapitalization,
dissolution, liquidation or winding up of or by the Company or any other
Acquisition Proposal (other than the Merger Agreement and transactions
contemplated thereby (including the Merger)) and (iii) against any
amendment of the Company's articles of incorporation or bylaws, or other
proposal or transaction involving the Company or any of its subsidiaries,
which amendment or other proposal or transaction would in any manner
impede, frustrate, delay, prevent or nullify the Merger Agreement or
transactions contemplated thereby (including the Merger);
(b) you will not, except as contemplated by the terms of this
Agreement or the Merger Agreement, (i) sell, transfer (with or without
consideration), pledge or otherwise encumber, assign or otherwise dispose
of, or enter into any contract, agreement, option or other arrangement or
understanding with respect to the sale, transfer (with or without
consideration), pledge, assignment or other disposition of, the Subject
Shares or Options to any person other than Investors or its designee, (ii)
enter into any voting arrangement, whether by proxy, voting agreement,
voting trust, power-of-attorney or otherwise, with respect to the Subject
Shares, (iii) exercise any of your Options or (iv) take any other action
that would in any way restrict, limit, hinder or interfere with the
performance by you of your obligations hereunder or the transactions
contemplated hereby, or in any way restrict, limit, hinder or interfere
with consummation of the transactions contemplated by the Merger Agreement
(including the Merger); and
(c) you hereby grant an irrevocable proxy during the term of
this letter agreement to Investors, and hereby constitute and appoint
Investors as your attorney-in-fact and proxy, with full power of
substitution, for and in your name, place and xxxxx, to vote (by written
consent or otherwise) the Subject Shares which you are entitled to vote at
any meeting of shareholders of the Company (whether annual or special and
whether or not an adjourned or postponed meeting), on the matters and in
the manner specified herein. THIS PROXY IS IRREVOCABLE AND COUPLED WITH AN
INTEREST. You hereby revoke all previous proxies granted with respect to
the Subject Shares, and no subsequent proxy shall be given (and if given or
executed, shall not be effective) by you with respect thereto. All
authority herein conferred or agreed to be conferred shall survive your
death or incapacity.
4. You hereby represent and warrant to Investors that:
(a) you are competent to and have sufficient capacity to execute
and deliver this letter agreement and to perform your obligations hereunder
and this letter agreement has been duly executed and delivered by you;
(b) assuming the due execution and delivery of this letter
agreement by Investors, this letter agreement constitutes your valid and
binding obligation, enforceable against you in accordance with its terms;
2
(c) the execution, delivery and performance of this letter
agreement by you will not (i) conflict with or violate any law, rule,
regulation, ordinance, writ, injunction, judgment or decree applicable to
you or by which any of your assets may be bound or affected or (ii) result
in any breach of any terms or conditions of, or constitute a default under,
any contract, agreement or instrument to which you are a party or by which
you are bound;
(d) the Owned Shares and the certificates representing the Owned
Shares are now, and at all times during the term hereof will be, held by
you, or by a nominee or custodian for your benefit, and you have good and
marketable title to the Owned Shares free and clear of all liens, except
for any such liens arising hereunder; and
(e) you understand and acknowledge that Merger Sub is entering
into the Merger Agreement in reliance upon your execution and delivery of
this letter agreement.
5. You further agree that in connection with the consummation of the
transactions contemplated by the Merger Agreement (including the Merger), you
will execute and deliver to Investors and its subsidiaries that are party
thereto (and Investors shall, and shall cause its subsidiaries that are party
thereto to, execute and deliver to you) each of the following agreements:
(a) an Employment Agreement substantially in the form attached
hereto as Exhibit 1;
---------
(b) a Management Stock Purchase and Unit Subscription Agreement
(the "Management Subscription Agreement"), substantially in the form
---------------------------------
attached hereto as Exhibit 2;
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(c) a Securityholders Agreement substantially in the form
attached hereto as Exhibit 3;
---------
(d) an Option Cancellation Agreement substantially in the form
attached hereto as Exhibit 4;
---------
(e) an Amended and Restated Limited Liability Company Agreement
of Investors containing terms consistent with the provisions of the term
sheet attached hereto as Exhibit 5 and such other provisions as are
---------
reasonable and customary in a limited liability company agreement of such
nature.
In addition, Investors shall cause Holdings to (i) adopt an option plan
containing terms consistent with the provisions of the term sheet attached
hereto as Exhibit 6, and (ii) issue to you options to acquire a number of shares
---------
of Holding's common stock as determined by the Compensation
3
Committee of Holding's Board of Directors/1/ pursuant to an option grant
agreement consistent with terms reflected on Exhibit 6.
---------
6. You hereby waive any rights of appraisal or any dissenter's
rights with respect to the Merger that you may have under applicable law.
7. At the request of Investors, you agree that a legend
substantially in the following form may be stamped, printed or typed on your
certificates evidencing the Subject Shares:
"THE VOTING, SALE, ASSIGNMENT, TRANSFER, GIFT,
PLEDGE, HYPOTHECATION, ENCUMBRANCE OR DISPOSITION
OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO A VOTING AGREEMENT DATED AS OF DECEMBER
21, 2000, BY AND BETWEEN M-FOODS INVESTORS, LLC
AND THE RECORD OWNER HEREOF, COPIES OF WHICH ARE
ON FILE AT THE OFFICES OF XXXXXXX FOODS, INC. "
8. You hereby represent that you have carefully reviewed this
agreement and the Exhibits hereto, including, without limitation, Sections 4.1
------------
and 4.2 of the Management Subscription Agreement. You also represent and
---
warrant that (as of the date hereof and at the Effective Time):
(a) your financial situation is such that you can afford to bear
the economic risk of holding securities of Investors for an indefinite
period of time, have adequate means for providing for your current needs
and personal contingencies, and can afford to suffer a complete loss of
your proposed investment in Investors;
(b) your knowledge and experience in financial and business
matters are such that you are capable of evaluating the merits and risks of
your proposed investment in Investors;
(c) you understand that your proposed investment in Investors is
a speculative investment which involves a high degree of risk of loss,
there are substantial restrictions on the transferability of the securities
of Investors and, on the Closing Date (as defined in form of Subscription
Agreement) and for an indefinite period following the Closing (as defined
in the form of Subscription Agreement), there will be no public market for
the
________________________
/1/ The Compensation Committee will be authorized to issue options to acquire
5% of the fully-diluted outstanding capital stock of Holdings as of the Closing
before giving effect to issuances of warrants to Holding's and its subsidiaries'
financing sources. 50% of such options (i.e., options to acquire 2.5% of the
fully-diluted outstanding capital stock of the Company as of the Closing before
giving effect to issuances of warrants to the Company's and its subsidiaries'
financing sources) will be issued to certain executives at Closing with an
exercise price equal to $30.10 per share. The Compensation Committee will
determine the number of options you will be granted.
4
securities of Investors and, accordingly, it may not be possible for you to
liquidate your proposed investment in case of emergency, if at all;
(d) if you cease to be an employee of Investors or its
subsidiaries, your proposed investment may be repurchased at a price which
may be less than the fair market value thereof;
(e) you understand and take cognizance of all the risk factors
related to your proposed investment and no representations or warranties
have been made to you or your representatives concerning (i) your proposed
investment, (ii) Investors and its subsidiaries, (iii) the prospects of any
thereof or (iv) other matters;
(f) you have been given the opportunity to examine all documents
and to ask questions of, and to receive answers from, Investors and its
representatives concerning Investors and its subsidiaries, the transactions
contemplated by the Merger Agreement (including the Merger) and this letter
agreement and the Exhibits hereto and to obtain any additional information
that you deem necessary;
(g) all information which you have provided to Investors and its
representatives concerning you and your financial position is complete and
correct as of the date hereof; and
(h) you are an "accredited investor" within the meaning of Rule
501(a) under the Securities Act of 1933, as amended.
9. You agree after the date hereof to cooperate with Investors in
taking action reasonably necessary to consummate the transactions contemplated
by this letter agreement and the Exhibits hereto, including the execution and
delivery of ancillary agreements reasonably necessary to effectuate the
aforesaid transactions, and to consent to modifications to the Exhibits hereto
that do not adversely affect you.
10. The provisions of this letter agreement shall be binding upon and
accrue to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
11. This letter agreement may be amended only by a written instrument
signed by the parties hereto. No waiver by any party hereto of any of the
provisions hereof shall be effective unless set forth in a writing executed by
the party so waiving.
12. This letter agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein.
5
13. Any suit, action or proceeding with respect to this letter
agreement, or any judgment entered by any court in respect of any thereof, shall
be brought in any court of competent jurisdiction in the State of Delaware, and
the parties hereto hereby submit to the exclusive jurisdiction of such courts
for the purpose of any such suit, action, proceeding or judgment. The parties
hereto hereby irrevocably waive (i) any objections which any of them may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this letter agreement brought in any court of
competent jurisdiction in the State of Delaware, (ii) any claim that any such
suit, action or proceeding brought in any such court has been brought in any
inconvenient forum and (iii) any right to a jury trial.
14. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when personally delivered,
telecopied (with confirmation of receipt), one day after deposit with a
reputable overnight delivery service (charges prepaid) and three days after
deposit in the U.S. Mail (postage prepaid and return receipt requested) to the
address set forth below or such other address as the recipient party has
previously delivered notice to the sending party.
(a) If to Investors:
M-Foods Investors, LLC
c/o Vestar Capital Partners IV, L.P.
0000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and
---
c/o Goldner Xxxx Xxxxxxx & Xxxxxxxx Incorporated
0000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
with copies to:
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Vestar Capital Partners IV, L.P.
000 Xxxx Xxxxxx
00/xx/ Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
Facsimile: (000) 000-0000
6
and
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Xxxxxxxx & Xxxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
and
---
Faegre & Xxxxxx
2200 Xxxxx Fargo Center
00 Xxxxx Xxxxxxx XxxxxxXxxxxxxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
(b) If to you, to the address shown beneath your name on the
signature page attached hereto with copies to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxxx Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxx
Facsimile: (000) 000-0000
15. This letter agreement and the Exhibits hereto contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This letter agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
16. This letter agreement may be executed in separate counterparts
(including by means of telecopied signature pages), and by different parties on
separate counterparts each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
17. You acknowledge and agree that a violation of any of the terms of
this letter agreement will cause Investors and its subsidiaries irreparable
injury for which adequate remedy at law is not available. Accordingly, it is
agreed that Investors shall be entitled to an injunction, restraining order or
other equitable relief to prevent breaches of the provisions of this letter
agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which it may be entitled at law or equity.
7
18. Your rights and remedies and the rights and remedies of Investors
and its subsidiaries under this letter agreement shall be cumulative and not
exclusive of any rights or remedies which any of them would otherwise have
hereunder or at law or in equity or by statute, and no failure or delay by any
party in exercising any right or remedy shall impair any such right or remedy or
operate as a waiver of such right or remedy, nor shall any single or partial
exercise of any power or right preclude such party's other or further exercise
or the exercise of any other power or right. The waiver by any party hereto of
a breach of any provision of this letter agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
either party to exercise any right or privilege hereunder shall be deemed a
waiver of such party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any subsequent time or
times hereunder.
19. You acknowledge and agree that if Holdings receives an Expense
Payment (as defined in the Merger Agreement) in connection with a termination of
the Merger Agreement in accordance with its terms, Investors agrees that it
shall cause Holdings to reimburse the Executive Group (as defined below) for all
Management Transaction Expenses (as defined below); provided, however, that in
-----------------
no event shall Holdings be obligated to reimburse the Executive Group for
Management Transaction Expenses to the extent that Expense Payments received by
Holdings do not fully reimburse Holdings and its affiliates for all Buyer
Transaction Expenses (as defined below). For purposes of clarity and by way of
example, if Holdings incurs $5 million of Buyer Transaction Expenses, and if
Holdings receives Expense Payments pursuant to the Merger Agreement totaling $2
million, Holdings shall only be obligated to reimburse the Executive Group for
40% ($2 million / $5 million) of all Management Transaction Expenses. The term
"Executive Group" shall mean you and the other executives executing similar
---------------
letter agreements as of the date hereof. The term "Management Transaction
----------------------
Expenses" shall mean fees and expenses payable to Skadden, Arps, Slate, Xxxxxxx
--------
& Xxxx for legal fees incurred by the Executive Group in connection with the
execution and negotiation of this letter and the transactions contemplated
hereby. The term "Buyer Transaction Expenses" shall mean the out-of-pocket
--------------------------
expenses and fees incurred by Holdings and its affiliates in connection with the
transactions contemplated by the Merger Agreement, including but not limited to,
fees payable to banks, investment banking firms and other financial
institutions, and their respective agents and counsel, and fees of counsel,
accountants, financial printers, advisors, experts and consultants to Holdings
and its affiliates. Investors agrees that it shall cause Holdings or its
subsidiaries to reimburse the Executive Group for Management Transaction
Expenses if the transactions contemplated by the Merger Agreement are
consummated.
20. This letter agreement shall terminate, and be of no further force
or effect, automatically without any further action on the part of any parties
hereto, upon the earlier to occur of (i) a termination of the Merger Agreement
in accordance with its terms for any reason, (ii) the execution of an amendment
to the Merger Agreement that (A) materially and adversely affects your economic
interest in the transactions contemplated hereby, and (B) was not approved by
Xxxxx Xxxxxxxxx and (iii) July 31, 2001. Nothing herein shall relieve any party
from liability for any breach of this letter agreement occurring prior to such
termination.
8
Very truly yours,
M-FOODS INVESTORS, LLC
By: /s/ Xxxx X. Xxxxx
--------------------------------
Name: Xxxx X. Xxxxx
Title: Secretary
Agreed and accepted as of the
date first written above:
/s/ Xxxx X. Xxxxx
-----------------
Xxxx X. Xxxxx
c/o Xxxxxxx Foods, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
CONSENT OF SPOUSE
I, Xxxxxxxxxx Xxxxx, hereby acknowledge that I have read the foregoing
letter agreement (the "Agreement") and that I understand its contents. I agree
---------
that my spouse's interest in the common stock of Xxxxxxx Foods, Inc. is subject
to the Agreement and any interest I may have in such common stock shall also be
irrevocably bound by the Agreement and, further, that my community property
interest in such common stock, if any, shall be similarly bound by the
Agreement.
I am aware that the legal, financial and other matters contained in
the Agreement are complex and that I am encouraged to seek advice with respect
thereto from independent legal counsel and/or financial advisors. I have either
sought such advice or determined after carefully reviewing the Agreement that I
hereby waive such right.
Acknowledged and agreed this 21/st/ day of
December, 2000.
/s/ Xxxxxxxxxx Xxxxx
------------------------------------------------
Name: Xxxxxxxxxx Xxxxx
-----------------------------------------
/s/ Xxxxxx X. Xxxxxxx
------------------------------------------------
Witness
EXHIBIT 1
EXHIBIT 2
EXHIBIT 3
EXHIBIT 4
EXHIBIT 5
[K&E Draft 12/21/00]
OPTION CANCELLATION AGREEMENT
This Option Cancellation Agreement (the "Agreement") is made as of
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_________ ___, 2001, by and between Xxxxxxx Foods, Inc., a Minnesota corporation
(the "Company"), and the individual whose name appears on the signature page
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hereto (the "Optionee").
--------
PRELIMINARY STATEMENTS:
Pursuant to that certain Agreement and Plan of Merger (the "Merger
------
Agreement"), dated as of December 21, 2000, by and among the Company, M-Foods
---------
Holdings, Inc., a Delaware corporation ("Holdings"), and Protein Acquisition
--------
Corp., a Minnesota corporation and a wholly owned subsidiary of Holdings
("Merger Sub"), Merger Sub shall be merged with and into the Company (the
----------
"Merger") at the Effective Time, and, by virtue of such Merger, each issued and
------
outstanding share of the Company's common stock, par value $0.01 per share (the
"Company Common Stock"), issued and outstanding at the Effective Time (other
--------------------
than shares owned by Merger Sub or the Company, or Dissenting Shares) will be
converted into the right to receive the Price Per Share. Capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in the Merger Agreement.
Pursuant to the Company's 1987 Non-Qualified Stock Option Plan, as
amended and 1997 Stock Incentive Plan, as amended (collectively, the "Option
------
Plan"), the Company has heretofore granted to the Optionee options (the
----
"Options") to purchase that number of shares of Company Common Stock set forth
-------
on the signature page hereto opposite the caption "Number of Shares Subject to
Options."
In connection with the consummation of the transactions contemplated
under the Merger Agreement, the Company has offered, and the Optionee desires to
accept, the consideration described below in exchange for the Optionee's consent
to allow the Company to cancel all of the Optionee's Options (the "Cancelled
---------
Options"), such Options having the per share exercise price(s) set forth on the
-------
signature page hereto opposite the caption "Exercise Price Per Share of the
Cancelled Options" (the "Exercise Price").
--------------
In consideration for such cancellations, with respect to the Cancelled
Options, the Company desires to pay to the Optionee an aggregate amount (in the
forms described below) equal to the sum of the products of (i) the excess, if
any, of the Price Per Share over the Exercise Price of such Cancelled Options
multiplied by (ii) the number of shares of Company Common Stock for which such
particular Cancelled Options relate that have not theretofore been exercised,
without interest (the "Cancellation Payment"), such amount set forth on the
--------------------
signature page hereto opposite the caption "Cancellation Payment." Such
Cancellation Payment will be paid in the form of (i) cash, if any, in such
amount as set forth on the signature page hereto opposite the caption "Cash
Payment" (the "Cash") and (ii) those certain deferred compensation rights, in
----
such amount as set forth on the signature page hereto opposite the caption
"Deferred Amount," contained in Optionee's Employment Agreement or Severance and
Deferred Compensation Agreement, as the case may be, the "Deferred
--------
Amount." Notwithstanding the foregoing, the Company shall be entitled to
------
withhold from Optionee the amount of any withholding or other tax due in
connection with such Cancellation Payment.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Cancellation. The Optionee hereby agrees to cancel and surrender
------------
all of the Optionee's rights under the Cancelled Options effective on the date
of the consummation of the Merger, and the Company hereby agrees to pay to the
Optionee on the date of the consummation of the Merger, the Cancellation Payment
in the form of the Cash and the Deferred Amount. Notwithstanding the foregoing,
the Company shall be entitled to withhold from the Optionee the amount of any
withholding tax due in connection with such Cancellation Payment.
2. Optionee's Representation, Warranties, and Covenants. As a
----------------------------------------------------
material inducement to the Company to enter into this Agreement and make the
Cancellation Payment, the Optionee hereby represents, warrants, and covenants to
the Company that:
(a) Capital Stock and Related Matters. Other than pursuant to the
---------------------------------
Options, the Optionee has no right, title or interest in any other securities
convertible or exchangeable for any shares of the Company's capital stock, and
the Optionee does not have any right, title or interest in any rights or options
to subscribe for or to purchase the Company's capital stock or any stock or
securities convertible into or exchangeable for the Company's capital stock. The
Optionee owns the Options, free and clear of all pledges, security interests,
liens, claims, encumbrances, agreements, rights of first refusal and options of
any kind whatsoever, other than such restrictions arising under the Securities
Act of 1933, as amended, state securities laws or any of the documents and other
agreements executed as of the date hereof in connection with the consummation of
the Merger.
(b) Authorization; No Breach. This Agreement has been duly executed
------------------------
and delivered by the Optionee. This Agreement constitutes a valid and binding
obligation of the Optionee, enforceable in accordance with its terms. To the
best of the Optionee's knowledge, the execution and delivery by the Optionee of
this Agreement and compliance with the terms hereof by the Optionee, do not and
shall not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in a violation of,
or (iv) require any authorization, consent, approval, exemption or other action
by or notice to any court or administrative or governmental body pursuant to,
any law, statute, rule or regulation to which the Optionee is subject, or any
agreement, instrument, order, judgment or decree to which the Optionee is a
party or by which it is bound. If the Optionee is married and the Cancelled
Options of such Optionee constitute community property or otherwise need spousal
or other approval to be legal, valid and binding, this Agreement has been duly
authorized, executed and delivered by such Optionee's spouse, enforceable
against such spouse in accordance with its terms.
3. Indemnification. The Optionee shall indemnify, defend and hold
---------------
harmless the Company from and against any and all claims, losses, liabilities,
costs, expenses, obligations and damages incurred or paid by the Company that
would not have been sustained, incurred or paid if all
-2-
of the representations and warranties set forth in Section 2 hereof had been
true and correct; provided, however, that the Optionee shall not be obligated to
-------- -------
indemnify the Company for any amounts in excess of the Cancellation Payment.
4. Release and Waiver. The Optionee does hereby forever release,
------------------
discharge and acquit the Company from all claims, demands, obligations and
liabilities, whensoever arising out of, connected with or relating to, the
Cancelled Options and the cancellation thereof; provided, however, that such
------------------
release and waiver does not extend to claims, demands, obligations and
liabilities arising out of this Agreement.
5. General Provisions.
------------------
(a) Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(c) Counterparts. This Agreement may be executed in separate
------------
counterparts (including by means of telecopied signature pages), each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
(d) Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Optionee, the Company and their respective successors and assigns; provided that
the rights and obligations of the Optionee under this Agreement shall not be
assignable without the prior written consent of the Company.
(e) Choice of Law. The corporate law of the State of Delaware will
-------------
govern all questions concerning the relative rights of the Company and the
Optionee. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in accordance
with the internal laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
(f) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce its rights under this Agreement specifically, to recover damages and
costs (including attorneys' fees) caused by any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. The parties
hereto agree and acknowledge that money damages may not be an adequate
-3-
remedy for any breach of the provisions of this Agreement and that any party may
in its sole discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(g) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and the
Optionee.
*****
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Option
Cancellation Agreement on the date first written above.
XXXXXXX FOODS, INC.
By______________________________________
Its_____________________________________
OPTIONEE
________________________________________
Signature of Optionee
Xxxx Xxxxx
----------------------------------------
Name of Optionee
OPTIONEE'S SPOUSE
________________________________________
Signature of Optionee's Spouse
________________________________________
Name of Optionee's Spouse
Number of Shares Subject to Options:
(identified by applicable grant date(s) and Option Plan(s))
Option Date Plan/Type Outstanding
----------- --------- -----------
2/26/1991 1987/NQ 4,710.00
1/11/1993 1987/NQ 5,000.00
1/3/1995 1987/NQ 27,000.00
2/20/1996 1987/NQ 3,000.00
3/17/1997 1997/NQ 10,000.00
3/3/1998 1997/NQ 24,000.00
2/25/1999 1997/NQ 6,000.00
2/25/1999 1997/NQ 13,200.00
2/22/2000 1997/NQ 3,000.00
2/24/2000 1997/NQ 23,000.00
Number of Options to be Cancelled: 118,910.00
------------
-5-
Exercise Price Per Share of the Cancelled Options:
(identified by applicable grant date(s) and Option Plan(s))
Option Date Plan/Type Price
----------- --------- -----
5/1/1988 1987/NQ $10.667
2/26/1991 1987/NQ $17.833
1/11/1993 1987/NQ $10.125
1/3/1995 1987/NQ $10.000
2/20/1996 1987/NQ $11.125
3/17/1997 1987/NQ $11.000
3/3/1998 1997/NQ $25.000
2/25/1999 1997/NQ $18.625
2/25/1999 1997/NQ $22.688
2/22/2000 1997/NQ $21.438
2/24/2000 1997/NQ $21.438
Cancellation Payment: $1,462,593
Cash Payment: $22,593
Deferred Amount: $1,440,000
-6-
Exhibit 1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of the __th day of __________, 2001, by and among
Xxxxxxx Foods, Inc., a Minnesota corporation having its principal executive
offices in Minneapolis, Minnesota (the "Company"), Xxxx X. Xxxxx (the
"Executive"), and for the purposes of Section 6 hereof, M-Foods Holdings, Inc.,
a Delaware corporation and controlling entity of the Company ("Holdings").
WHEREAS, Executive currently serves as a senior executive officer of
the Company;
WHEREAS, the Company recognizes the Executive's substantial
contribution to the growth and success of the Company, desires to provide for
the continued employment of the Executive and to make certain changes in the
Executive's employment arrangements with the Company, which the Board has
determined will reinforce and encourage the continued attention and dedication
to the Company of the Executive as a member of the Company's senior management
in the best interests of the Company and its shareholders;
WHEREAS, the Executive is willing to continue to serve the Company on
the terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. Subject to the terms and conditions of this
Agreement, including Section 3, the Company hereby agrees to continue to employ
the Executive, and the Executive hereby agrees to continue in the employ of the
Company, for the period commencing on the date hereof (the "Effective Date") and
ending on the second anniversary of such Effective Date (the "Employment
Period"), provided, however, that commencing on the first anniversary of the
--------- -------
Effective Date and each subsequent anniversary thereafter, the Employment Period
shall automatically be extended for one additional year.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive shall
serve as Vice President-Finance, Treasurer and Chief Financial Officer of
the Company with the appropriate authority, duties and responsibilities
attendant to such positions. Executive shall also serve, at the request of
the Company, as a Director of the Company and each of its subsidiaries.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time
during his normal business hours to the business
and affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities.
(b) Compensation.
(i) Annual Base Salary. Effective immediately, and
------------------
during the Employment Period, the Executive shall receive an annual base
salary ("Annual Base Salary") of at least $275,000, the competitiveness of
which shall be periodically reviewed and adjusted in accordance with
Company policy. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased.
(ii) Annual Bonus. During the Employment Period, the
------------
Executive shall participate in such bonus arrangements as may be approved
by the Compensation Committee of the Board (the "Compensation Committee")
(the aggregate of all payments made under such bonus arrangements being
herein referred to as the "Annual Bonus"). Executive's aggregate bonus
opportunity will be no less than 100% of Annual Base Salary and the "Target
Bonus" will be no less than 62.5% of Annual Base Salary or greater as
determined by the Compensation Committee. The Annual Bonus shall be paid
within two and one-half months of the end of the fiscal year of the Company
to which it relates. If a Change in Control occurs, the Executive shall be
paid at least the Target Bonus for the year in which such Change in Control
occurs and in each subsequent year of continuing employment until the end
of the Employment Period.
(iii) Long-Term Incentive Plans. The Executive shall
-------------------------
participate in long-term incentive plans including all stock option plans
and other long-term incentive plans the Company may adopt from time to time
on a basis no less favorable than that provided to any other executive
officer of the Company.
(iv) Other Employee Benefit Plans. During the Employment
----------------------------
Period, except as otherwise expressly provided herein, the Executive shall
be entitled to participate in all compensation, incentive, employee
benefit, welfare and other plans, practices, policies and programs and
fringe benefits on a basis no less favorable than that provided to any
other executive officer of the Company.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written
-2-
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean a determination by the Company in its sole discretion
that Executive is unable to perform his job responsibilities as a result of
chronic illness, physical, mental or any other disability for a period of six
months or more.
(b) With or Without Cause. The Company may terminate the
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious
to the Company, or
(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% of the
entire membership of the Board (excluding the Executive) at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i),
(ii) or (iii) above, and specifying the particulars thereof in detail.
-3-
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's title and position (including status,
offices and reporting requirements), authority, duties or responsibilities
as contemplated by Section 2(a)(i) of this Agreement, or any other action
by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive; provided that it is specifically understood that within six
months of a Change in Control the Company shall have the flexibility to
appoint the Executive to a reporting relationship different from that which
existed prior to the Change in Control, to make an immaterial change in
Executive's duties, or to change the Executive's title provided that
Executive shall not have a stature less than that of Chief Financial
Officer of a business unit of the size of the Company, and it is understood
that equivalent positions may have different titles;
(ii) any failure by the Company to comply with any of the
provisions of Section 2(b) of this Agreement or the failure by the Company
to increase such base salary each year after a Change in Control by an
amount which at least equals on a percentage basis, the mean average
percentage increase in base salary for all employees similarly situated
during the two (2) full calendar years immediately preceding a Change in
Control, other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the failure of the Company upon a Change in Control
to (A) continue in effect any employee benefit plan, compensation plan,
welfare benefit plan or material fringe benefit plan in which Executive is
participating immediately prior to such Change in Control or the taking of
any action by the Company which would adversely affect Executive's
participation in or reduce Executive's benefits under any such plan, unless
Executive is permitted to participate in other plans providing Executive
with substantially equivalent benefits, or (B) provide Executive with paid
vacation in accordance with the most favorable past practice of the Company
as in effect for Executive immediately prior to such Change in Control;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement for Cause, death or Disability;
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
-4-
(vi) any requirement that the Executive (A) be based
anywhere more than fifty (50) miles from the office where the Executive is
currently located or (B) travel on Company business to an extent
substantially greater than the Executive's current travel obligations.
(d) Notice of Termination. Any termination by the Company or by
the Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company other than for Disability,
the date of receipt of the Notice of Termination or any later date specified
therein within 30 days of such notice, (ii) if the Executive's employment is
terminated by reason of death or Disability, the date of death of the Executive
or the Disability Effective Date, as the case may be, and (iii) if the
Executive's employment is terminated by the Executive, thirty days after the
giving of such notice by the Executive provided that the Company may elect to
place the Executive on paid leave for all or any part of such 30-day period.
(f) Change in Control. "Change in Control" means the
consummation of a transaction, whether in a single transaction or in a series of
related transactions that are consummated contemporaneously (or consummated
pursuant to contemporaneous agreements), with any other party or parties on an
arm's-length basis, pursuant to which (a) such party or parties, directly or
indirectly, acquire (whether by merger, stock purchase, recapitalization,
reorganization, redemption, issuance of capital stock or otherwise) more than
50% of the voting stock of the Company, (b) such party or parties, directly or
indirectly, acquire assets constituting all or substantially all of the assets
of the Company and its subsidiaries on a consolidated basis, or (c) prior to an
initial public offering of the Company Common Stock pursuant to an offering
registered under the 1933 Act, Vestar Capital Partners IV, L.P. a Delaware
limited partnership and its affiliates cease to have the ability to elect,
directly or indirectly, a majority of the Board of Directors of the Company.
4. Obligations of the Company upon Termination.
-5-
(a) Death or Disability. If, during the Employment Period, the
Executive's employment shall terminate on account of death or Disability:
(i) the Company shall pay to the Executive or his estate
or beneficiaries in a lump sum in cash within 30 days after the Date of
Termination the sum of (x) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, and (y) the product
of (1) the Target Bonus and (2) a fraction, the numerator of which is the
number of whole and partial months in the fiscal year in which the Date of
Termination occurs through the Date of Termination and the denominator of
which is 12, to the extent not theretofore paid (the sum of the amounts
described in clauses (x) and (y) shall be hereinafter referred to as the
"Accrued Obligations");
(ii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive or his estate or
beneficiaries any other amounts or benefits required to be paid or provided
or which the Executive is eligible to receive under any plan, program,
policy or practice of or contract or agreement with the Company and its
affiliated companies through the Date of Termination (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits"); and
(iii) the Company shall pay to the Executive or his estate
or beneficiaries in a lump sum in cash within 30 days after the Date of
Termination an amount equal to the product of (x) two (2) and (y) the sum
of the Executive's current Annual Base Salary and Target Bonus.
(b) By the Company for Cause; By the Executive Other than for
Good Reason. If the Executive's employment is terminated for Cause or the
Executive terminates his employment without Good Reason during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive (i) his Annual Base
Salary through the Date of Termination to the extent theretofore unpaid and (ii)
the Other Benefits.
(c) By the Company Other than for Cause, Death or Disability; By
the Executive for Good Reason. If, during the Employment Period the Executive's
employment is terminated by the Executive for Good Reason or by the Company
other than for Cause and other than on account of death or Disability:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the sum of:
(A) the Accrued Obligations; and
-6-
(B) the amount equal to the product of (x) two (2)
and (y) the sum of the Executive's current Annual Base Salary and
Target Bonus;
(ii) the Company shall provide the Executive with the
Other Benefits; and
(iii) for a period of two (2) years following Executive's
Date of Termination the Company shall continue to provide medical, dental
and life insurance benefits to the Executive, his spouse and children under
age 25 on the same basis, including without limitation employee
contributions, as such benefits are then currently provided to the
Executive ("Welfare Benefits"); provided that the provision of such Welfare
Benefits shall cease in the event Executive becomes eligible to receive
comparable benefits from another employer (either because he becomes
employed by, or becomes an independent contractor with respect to such
employer).
5. Noncompetition and Nonsolicitation. Executive acknowledges that
----------------------------------
in the course of his employment with the Company he will become familiar with
the Company's and its subsidiaries' trade secrets and other confidential
information concerning the Company and such subsidiaries and that his services
will be of special, unique and extraordinary value to the Company and its
subsidiaries. Therefore, Executive agrees that:
(a) Noncompetition. During the period commencing on the
--------------
Effective Date and ending on the second anniversary of the date Executive's
employment with the Company terminates (such period the "Restricted Period"),
Executive shall not, for himself or on behalf of any other person, firm,
partnership, corporation, or other entity, engage, directly or indirectly, as an
executive, agent, representative, consultant, partner, shareholder or holder of
any other financial interest, in any business that competes with the Company in
the business of the production, distribution or sales of eggs or egg products (a
"Competing Business"), it being understood and agreed that Executive shall not
be in violation of this restriction where Executive is employed by a person,
firm, partnership, corporation, or other entity engaged in a variety of
activities, including the Competing Business, so long as Executive is not
engaged in or responsible for the Competing Business of such entity. Nothing
herein shall prohibit Executive from being a passive owner of not more than 2%
of the outstanding publicly traded stock of any class of a Competing Business so
long as Executive has no active participation in the business of such entity,
except to the extent permitted above. Executive acknowledges that this
Agreement, and specifically, this Section 5 does not preclude Executive from
earning a livelihood, nor does it unreasonably impose limitations on Executive's
ability to earn a living. In addition, Executive agrees and acknowledges that
the potential harm to the Company of its non-enforcement outweighs any harm to
Executive of its enforcement by injunction or otherwise.
(b) Nonsolicitation. During the Restricted Period, Executive
---------------
shall not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its subsidiaries to leave the employ of
the Company or its subsidiaries, or in any way
-7-
interfere with the relationship between the Company or any of its subsidiaries
and any employee thereof, (ii) knowingly hire any person who was an employee of
the Company or any of its subsidiaries within 180 days prior to the time such
employee was hired by Executive, (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company or any of its
subsidiaries to cease doing business with the Company or its subsidiaries or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any subsidiary or (iv) directly
or indirectly acquire or attempt to acquire an interest in any business relating
to the business of the Company or any of its subsidiaries and with which the
Company or any of its subsidiaries has entertained discussions or has requested
and received information relating to the acquisition of such business by the
Company or its subsidiaries in the one-year period immediately preceding
Executive's termination of employment with the Company.
(c) Enforcement. The parties to this Agreement hereby agree and
-----------
stipulate that (i) the restrictions contained in this Agreement are reasonable
and necessary in order to protect the Company's and its subsidiaries' legitimate
business interests and (ii) in the event of any breach or violation of this
Agreement or of any provision hereof by Executive, the Company and its
subsidiaries will have no adequate remedy at law and will suffer irreparable
loss and damage thereby. The parties hereby further agree and stipulate that in
the event of any such breach or violation, either threatened or actual, the
Company's and its subsidiaries' rights shall include, in addition to any and all
other rights available to the Company and its subsidiaries at law or in equity,
the right to seek and obtain any and all injunctive relief or restraining orders
available to it in courts of proper jurisdiction, so as to prohibit, bar, and
restrain any and all such breaches or violations by Executive. The prevailing
party to any legal action, arbitration or other proceeding commenced in
connection with enforcing any provision of this Section 5, including without
limitation, obtaining the injunctive relief provided by this Section 5 shall be
entitled to recover all court costs, reasonable attorneys' fees, and related
expenses incurred by such party. Executive further agrees that no bond need be
filed in connection with any request by the Company and its subsidiaries for a
temporary restraining order or for temporary or preliminary injunctive relief.
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section 5 are in consideration of: (i) employment with the
Company, (ii) the issuance by M-Foods Investors, LLC, a Delaware corporation and
affiliate of the Company ("Investors"), to Executive of Investors' Class B Units
(the "Class B Units") and Investors' Class C Units pursuant to the terms of that
certain Management Stock Purchase Agreement and Unit Subscription Agreement,
dated as of the date hereof, by and between Investors and Executive (the
"Management Stock Purchase Agreement and Unit Subscription Agreement"), and
(iii) additional good and valuable consideration as set forth in this Agreement.
In addition, Executive acknowledges (i) that the business of the Company and its
subsidiaries is national in scope and without geographical limitation and (ii)
notwithstanding the state of incorporation or principal office of the Company or
any of its subsidiaries, or any of their respective executives or employees
(including the Executive), it is expected that the Company will have business
activities and have valuable business relationships within its industry
throughout the United States. Executive acknowledges that he has carefully read
this Agreement and has given careful consideration to the restraints imposed
upon
-8-
Executive by this Agreement, and is in full accord as to their necessity for the
reasonable and proper protection of confidential and proprietary information of
the Company and its subsidiaries now existing or to be developed in the future.
Executive expressly acknowledges and agrees that each and every restraint
imposed by this Agreement is reasonable with respect to subject matter, time
period and geographical area.
6. Deferral of Certain Compensation. In connection with the
Executive's agreement to cancel all of his options to acquire Company Common
Stock pursuant to the terms of that certain Option Cancellation Agreement, dated
as of the date hereof, by and between the Executive and the Company, the Company
shall (a) pay to Executive an amount equal to $22,593 (the "Cancellation
Payment") and (b) rollover an amount equal to $1,440,000 (the "Deferred Amount")
to an unfunded, unsecured nonqualified deferred compensation arrangement
established for this purpose (the "Deferred Account"). Each of the Executive,
the Company and Holdings agrees that Holdings, through an intercompany transfer,
shall assume all obligations associated with the Deferred Amount. The
Cancellation Payment shall be paid by the Company to the Executive on the
Effective Date, or as soon as reasonably practicable thereafter.
With respect to the Deferred Account, the Deferred Amount shall be deemed
to be invested (i.e., an actual investment will not be made), as of the
Effective Date, in that number of Class A Units (the "Class A Units") of
Investors equal to the quotient determined by dividing (i) the Deferred Amount
by (ii) $100 (the per unit price of Class A Units). Holdings shall credit
Executive's Deferred Account with certain of the distributions that would be
received by the Deferred Account if such Deferred Account were actually invested
in Class A Units, the extent of such crediting to be based upon the number of
Class A Units deemed held by the Deferred Account in accordance with the
calculation set forth in the following sentences. Holdings shall credit
Executive's Deferred Account with any distributions made in respect of Class A
Units pursuant to or in accordance with Sections 4.4(a)(i) and 4.4(a)(ii) [such
sections to correspond with the "First" and "Second" distributions described in
the LLC term sheet under the heading "Distributions"] of the Investors' Amended
and Restated Limited Liability Company Agreement, dated ________ __, 2001 (the
"LLC Agreement"). In the event Investors distributes non-cash property to
holders of Class A Units pursuant to Sections 4.4(a)(i) or 4.4(a)(ii) of the LLC
Agreement, Holdings shall credit Executive's Deferred Account in an amount equal
to the fair market value of such property, as determined by the Management
Committee of Investors. Executive's Deferred Account shall not be credited with
any distributions made in respect of Class A Units pursuant to or in accordance
with any subsections of Section 4.4 of the LLC Agreement other than Sections
4.4(a)(i) and 4.4(a)(ii) thereof. In the event that Class A Units are sold to a
buyer unrelated to the holders of Class A Units on the date hereof, Holdings
shall credit Executive's Deferred Account with an amount equal to the result of
(x) the percentage of outstanding Class A Units being purchased by an unrelated
buyer multiplied by (y) the number of Class A Units deemed held in the Deferred
Account multiplied by (z) the lesser of (i) the amount of cash or fair market
value of any property, as determined by the Management Committee of Investors,
received by holders of Class A Units in exchange for a Class A Unit and (ii) the
sum of the Unreturned Capital and Unpaid Yield (as such terms are defined in the
LLC Agreement) of a Class A Unit (assuming such Class A Unit was issued on the
Closing Date, as such term is defined
-9-
in the Management Stock Purchase and Unit Subscription Agreement); it being
understood and agreed that any distribution made pursuant to this sentence
shall, with respect to future distributions, reduce the number of Class A Units
deemed held by the Deferred Account by the percentage described in subclause (x)
of this sentence. All amounts in the Executive's Deferred Account shall be
subject to the claims of the creditors of Holdings.
Executive shall receive from Holdings distributions from his Deferred
Account, in the amount indicated, upon the occurrence of the following events:
(i) upon a Change in Control, Executive shall receive a total distribution of
the amount then deemed held in the Deferred Account; (ii) upon the tenth
anniversary of the date hereof, Executive shall receive a total distribution of
the amount then deemed held in the Deferred Account; and (iii) upon the purchase
by Investors of any of Executive's Class B Units pursuant to Section 7.2 of the
Management Stock Purchase and Unit Subscription Agreement, Executive shall
receive a distribution from the Deferred Account equal to the result of (x) the
percentage of Executive's Class B Units being purchased by Investors multiplied
by (y) the number of Class A Units deemed held in the Deferred Account
multiplied by (z) the lesser of (i) the fair market value of a Class A Unit, as
determined by the Management Committee of Investors and (ii) the sum of the
Unreturned Capital and Unpaid Yield (as such terms are defined in the LLC
Agreement) of a Class A Unit (assuming such Class A Unit was issued on the
Closing Date, as such term is defined in the Management Stock Purchase and Unit
Subscription Agreement); it being understood and agreed that any distribution
made pursuant to clause (iii) of this sentence shall, with respect to future
distributions, reduce the number of Class A Units deemed held by the Deferred
Account by the percentage described in subclause (x) of this sentence. The form
of payment made with respect to any of the foregoing distributions shall be a
cash payment except that (A) in the event of a Change in Control in which the
consideration effecting such Change in Control is non-cash consideration, such
distribution may be made in the form of such non-cash consideration, the fair
market value of which shall be determined by the Management Committee of
Investors, and (B) in the event of a distribution of the type described in
clause (iii) above, if, with respect to Holdings, any of the Cash Deferral
Conditions (as such term is defined in the Management Stock Purchase and Unit
Subscription Agreement) exists, the portion of the cash payment so affected may
be made by the delivery of Holdings' unfunded and unsecured promise to pay
Executive the portion of the cash payment so affected in cash, together with
interest, at the first date on which the Cash Deferral Conditions no longer
exist. The interest on such delayed cash payment will accrue annually at the
"prime rate" published by The Wall Street Journal on the date Holdings delivers
its unfunded and unsecured promise.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy,
-10-
practice, program, contract or agreement except as explicitly modified by this
Agreement; provided that the Executive shall not be eligible for severance
benefits under any other program or policy of the Company.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code.
9. Certain Additional Payments by the Company.
Notwithstanding anything in this Agreement to the contrary, this Section 9
shall be limited in its application solely to the change in ownership that will
occur as a result of the consummation of the transactions set forth in that
certain Agreement and Plan of Merger, dated December 21, 2000, by and among the
Company, Holdings, and Protein Acquisition Corp:
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments. For purposes
of this Agreement, the term "Reduced Amount" shall mean the greatest amount that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax. Notwithstanding the foregoing provisions of this Section
9(a), if it shall be determined that the
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Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
120% of the Reduced Amount, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's independent auditors or such other certified public accounting
firm reasonably acceptable to the Executive as may be designated by the Company
(the "Accounting Firm") which shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time as
is requested by the Company. All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive not later than the
due date for the payment of any Excise Tax. Any determination by the Accounting
Firm shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the 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. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it 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 the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the 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 selected by the Company,
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(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 additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control 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
the Executive to pay the tax claimed and xxx for a refund or contest the claim
in any permissible manner, and the 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 the Executive to pay
such claim and xxx for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the 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.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Successors.
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(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Xxxx X. Xxxxx
0000 Xxxxxx Xxxxx
Xxxx Xxxxxxx, Xxxxxxxxx 00000
If to the Company:
Xxxxxxx Foods, Inc.
324 Park National Bank Building
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Telecopy Number: (000) 000-0000
Attention: Secretary
with a copy to:
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Vestar Capital Partners IV, L.P.
000 Xxxx Xxxxxx
00/xx/ Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including; without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date this Agreement shall
supersede any other employment agreement between the parties with respect to the
subject matter hereof.
(g) Subject to the provisions of Section 3(d), there shall be no
limitation on the ability of the Company to terminate the Executive at any time
with or without Cause.
* * * * * * * * *
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
______________________________
Xxxx X. Xxxxx
XXXXXXX FOODS, INC.
By:___________________________
Title:________________________
M-FOODS HOLDINGS, INC.
By:___________________________
Title:________________________
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