<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------------------------------------
Commission File Number: 0-15638
---------------------------------------------------------
MICHAEL FOODS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0498850
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 324, Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN, 55416
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(612) 546-1500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]Yes [ ]No
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of November 8, 1999 was 20,281,824 shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
- ------ ------------- ------------
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 9,685,000 $ 2,047,000
Accounts receivable, less allowances 92,492,000 97,639,000
Inventories 74,998,000 74,250,000
Prepaid expenses and other 7,300,000 3,884,000
-------------- --------------
Total current assets 184,475,000 177,820,000
PROPERTY, PLANT AND EQUIPMENT-AT COST
Land 4,129,000 4,336,000
Buildings and improvements 104,771,000 105,567,000
Machinery and equipment 375,829,000 328,067,000
-------------- --------------
484,729,000 437,970,000
Less accumulated depreciation 202,763,000 187,759,000
-------------- --------------
281,966,000 250,211,000
OTHER ASSETS
Goodwill, net 117,589,000 120,172,000
Investments in Joint Ventures and other assets 23,252,000 3,313,000
-------------- --------------
140,841,000 123,485,000
-------------- --------------
$ 607,282,000 $ 551,516,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 8,218,000 $ 10,663,000
Accounts payable 46,764,000 44,376,000
Accrued Liabilities
Compensation 12,036,000 11,034,000
Insurance 6,926,000 7,369,000
Customer programs 20,906,000 19,624,000
Other 22,375,000 23,457,000
-------------- --------------
Total current liabilities 117,225,000 116,523,000
LONG-TERM DEBT, less current maturities 196,393,000 155,444,000
DEFERRED INCOME TAXES 40,321,000 35,400,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock 202,000 211,000
Additional paid-in capital 102,325,000 119,871,000
Retained earnings 150,816,000 124,067,000
-------------- --------------
253,343,000 244,149,000
-------------- --------------
$ 607,282,000 $ 551,516,000
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30, (Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 269,911,000 $ 253,790,000
Cost of sales 223,162,000 210,357,000
------------- -------------
Gross profit 46,749,000 43,433,000
Selling, general and administrative expenses 25,355,000 22,660,000
------------- -------------
Operating profit 21,394,000 20,773,000
Interest expense, net 3,241,000 2,637,000
------------- -------------
Earnings before income taxes 18,153,000 18,136,000
Income tax expense 7,440,000 7,620,000
------------- -------------
NET EARNINGS $ 10,713,000 $ 10,516,000
============= =============
Net Earnings Per Share
Basic $ 0.53 $ 0.49
Diluted $ 0.52 $ 0.48
============= =============
Weighted average shares outstanding
Basic 20,251,000 21,627,000
Diluted 20,522,000 21,922,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended September 30, (Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 781,320,000 $ 743,064,000
Cost of sales 642,301,000 615,021,000
-------------- --------------
Gross profit 139,019,000 128,043,000
Selling, general and administrative expenses 77,831,000 68,175,000
-------------- --------------
Operating profit 61,188,000 59,868,000
Interest expense, net 8,862,000 7,981,000
-------------- --------------
Earnings before income taxes 52,326,000 51,887,000
Income tax expense 21,450,000 21,800,000
-------------- --------------
NET EARNINGS $ 30,876,000 $ 30,087,000
============== ==============
Net Earnings Per Share
Basic $ 1.50 $ 1.38
Diluted $ 1.48 $ 1.36
============== ==============
Weighted average shares outstanding
Basic 20,574,000 21,804,000
Diluted 20,818,000 22,156,000
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 73,327,000 $ 53,837,000
Cash flows from investing activities:
Capital expenditures (60,918,000) (49,579,000)
Investments in joint ventures and other assets (20,976,000) 96,000
-------------- -------------
Net cash used in investing activities (81,894,000) (49,483,000)
Cash flows from financing activities:
Payments on long-term debt (138,696,000) (15,965,000)
Proceeds from long-term debt 177,200,000 33,400,000
Proceeds from issuance of common stock 755,000 2,844,000
Repurchase of common stock (18,927,000) (21,355,000)
Dividends (4,127,000) (3,729,000)
-------------- -------------
Net cash provided by (used in) financing activities 16,205,000 (4,805,000)
-------------- -------------
Net increase (decrease) in cash and equivalents 7,638,000 (451,000)
Cash and equivalents at beginning of year 2,047,000 4,038,000
-------------- -------------
Cash and equivalents at end of period $ 9,685,000 $ 3,587,000
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Regulation S-X pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
Michael Foods, Inc. (the "Company") utilizes a fiscal year consisting of either
52 or 53 weeks, ending on the Saturday nearest to December 31 each year. The
quarters ended September 30, 1999 and 1998 each included thirteen weeks of
operations. For clarity of presentation, the Company has described both periods
presented as if the quarters ended on September 30.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 1999 and the results of operations for the three and nine month periods
ended September 30, 1999 and 1998 and cash flows for the nine months ended
September 30, 1999 and 1998. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results for the full
year.
The Company's basic net earnings per share is computed by dividing net earnings
by the weighted average number of outstanding common shares. The Company's
diluted net earnings per share is computed by dividing net earnings by the
weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. Options to purchase
390,275 and 734,824 shares of Common Stock, with a weighted average exercise
price of $25.56 and $24.80, which were outstanding during the three and nine
month periods ended September 30, 1999, were excluded from the computation of
common share equivalents for those periods because they were anti-dilutive.
Options to purchase 20,000 and 10,678 shares of common stock, with a weighted
average exercise price of $29.31 and $29.43, were outstanding during the three
and nine month periods ended September 30, 1998, but were excluded from the
computation of common share equivalents for those periods because they were
anti-dilutive.
NOTE B - INVENTORIES
Inventories, other than flocks, are stated at the lower of cost (determined on a
first-in, first-out basis) or market. Flock inventory represents the cost of
purchasing and raising flocks to laying maturity, at which time their cost is
amortized to operations over their expected useful life of generally one to two
years, assuming no salvage value.
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials and supplies $17,651,000 $15,389,000
Work in process and finished goods 37,273,000 36,977,000
Flocks 20,074,000 21,884,000
----------- -----------
$74,998,000 $74,250,000
=========== ===========
</TABLE>
<PAGE> 7
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - COMMITMENTS AND CONTINGENCIES
Use of Estimates
Preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
License Agreement
The Company has an exclusive license agreement for a patented process for the
production and sale of extended shelf-life egg products. Under the license
agreement, the Company has the right to defend and prosecute infringement of the
licensed patents. The U.S. Federal Court of Appeals has upheld the validity of
the patents subject to the license agreement, but, subsequently, a patent
examiner at the U.S. Patent and Trademark Office ("PTO") rejected the patents.
In August 1999, the examiner's rejections were largely overturned by the Board
of Appeals and Interferences of the PTO. Formal reexamination and reissue
certificates should be issued shortly confirming that the patents remain valid
and in full force and effect. These patents are scheduled to expire in 2006.
Litigation
The Company is engaged in routine litigation incidental to its business.
Management believes it will not have a material effect upon its consolidated
financial position, liquidity or results of operations.
NOTE D - SHAREHOLDERS' EQUITY
During the third quarter the Company repurchased no common stock under the share
repurchase program which began in July 1998.
NOTE E - RISKS AND UNCERTAINTIES
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the year 2000. The potential effect of
the Year 2000 issue on the Company and its business partners will not be fully
determinable until 2000 and thereafter. If Year 2000 modifications are not
properly completed either by the Company, or entities the Company conducts
business with, the Company's net sales and financial condition could be
adversely effected.
NOTE F - INTERNATIONAL INVESTMENTS AND DAIRY PRODUCTS ACQUISITION
The Company made three international investments to further its leadership in
global egg products processing in 1999. The first investment was a 25% interest
in Belovo, S. A., a specialty egg products company based in Belgium. The second
investment was in a 50/50 joint venture with the founding shareholders of Belovo
forming The Lipid Company, S.A. a company involved in the extraction of
phospholipids from egg yolks for use in the field of nutraceuticals. The third
investment was the formation of a Canadian joint venture, Trilogy Egg Products,
Inc., with two partners, Canadian Inovatech, Inc. and The Egg Producers Co-op
Ltd. Trilogy Egg Products, Inc. will sell value-added egg products in Canada.
In May 1999, the Company's Kohler Mix Specialties, Inc. subsidiary acquired
certain operating assets, a customer list and a long-term lease, of a dairy mix
plant from H. P. Hood Inc., with an option to purchase the building and land at
the lease's termination. The Company also entered into a non-compete agreement
with H.P. Hood covering a period of six years under which the Company will pay
H.P. Hood $12,000,000 over five years beginning April 30, 1999. The plant mainly
produces ultra-high temperature pasteurized dairy mixes for foodservice
customers in
<PAGE> 8
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE F - INTERNATIONAL INVESTMENTS AND DAIRY PRODUCTS ACQUISITION, CONT.
the eastern United States. The facility generated 1998 net sales of
approximately $37 million.
NOTE G - BUSINESS SEGMENTS
The Company has adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information. The Company
operates in four reportable segments - Egg Products, Refrigerated Distribution,
Dairy Products and Potato Products. Certain financial information on the
Company's operating segments is as follows (unaudited, in thousands):
<TABLE>
<CAPTION>
Egg Refrigerated Dairy Potato
Products Distribution Products Products Corporate Total
-------- ------------ -------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999:
External net sales $157,843 $ 55,833 $ 41,498 $14,737 N/A $269,911
Intersegment sales 3,235 24 415 577 N/A 4,251
Operating profit (loss) 17,935 2,462 919 2,006 (1,928) 21,394
THREE MONTHS ENDED SEPTEMBER 30, 1998:
External net sales $147,846 $ 53,388 $ 39,442 $13,114 N/A $253,790
Intersegment sales 4,523 11 499 590 N/A 5,623
Operating profit (loss) 16,782 1,855 2,182 840 (886) 20,773
NINE MONTHS ENDED
SEPTEMBER 30, 1999:
External net sales $460,481 $166,382 $112,251 $42,206 N/A $781,320
Intersegment sales 12,723 69 993 1,775 N/A 15,560
Operating profit (loss) 52,537 7,046 3,872 4,565 (6,832) 61,188
NINE MONTHS ENDED
SEPTEMBER 30, 1998:
External net sales $444,026 $156,254 $104,309 $38,475 N/A $743,064
Intersegment sales 14,909 85 1,434 1,548 N/A 17,976
Operating profit (loss) 51,575 5,412 5,372 1,922 (4,413) 59,868
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS THREE MONTHS ENDED SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
Readers are directed to Note G - Business Segments for data on the unaudited
financial results of the Company's four business segments for the three months
ended September 30, 1999 and 1998.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS THREE MONTHS ENDED SEPTEMBER 30, 1998,
CONT.
RESULTS OF OPERATIONS, CONT.
Egg Products Division net sales for the 1999 period reflected unit sales
increases, particularly for value-added products, which more than offset
significant deflationary pricing impacts on certain products. Sales were
particularly strong for precooked frozen omelets, patties and curds. Egg prices
decreased approximately 12% compared to third quarter 1998 levels, as reported
by Urner Barry Publications - a widely quoted industry pricing service. This
decrease helped reduce the cost of purchased eggs, while also reducing selling
prices for certain egg products and shell eggs.
Approximately two-thirds of the Division's annual egg needs are purchased under
contracts, or in the spot market. While a portion of these eggs are secured
under fixed price contracts, a majority are priced according to the cost of
grain inputs or to egg market prices as reported by Urner Barry. Approximately
one-third of annual egg needs are sourced from internal flocks, where feed costs
typically represent roughly two-thirds of the cost of producing such eggs. Feed
costs were lower in the 1999 period, compared to the 1998 period, due to lower
prices for both corn and soybean meal. Decreased egg costs, for both internally
and externally procured eggs, in the 1999 period, compared to the 1998 period,
were offset by pricing weakness, creating margin pressure for certain egg
products. Whereas profitability from egg products sold into the industrial, or
ingredient, market declined in the 1999 period, profitability for value-added
egg products increased. The net effect was that operating profit from base
operations rose slightly. Included in the 1999 period results were two
non-recurring items. First, a gain was recorded on the sale of a shell egg
production facility. Second, a Belgian animal feed contamination scare resulted
in losses at the Company's two European egg products joint ventures. The net
after-tax impact of these two events added $0.01 to net earnings per share.
Refrigerated Distribution Division net sales for the 1999 period reflected
strong unit sales increases, with cheese and butter showing particular strength.
Sales growth resulted from a brand repositioning over the past two years and a
more recent consumer advertising campaign in selected markets, along with new
account activity and new product introductions. The volume growth, along with a
decline in certain product costs related to the national butterfat market,
resulted in margin expansion in the 1999 period.
The Dairy Products Division net sales increase for the 1999 period reflected
strong unit sales gains from creamer products and the impact of sales from a
plant acquired during 1999's second quarter. Sales were weak for dairy core mix
items and certain cartoned specialty dairy products, the latter due to the
product line having not fully recovered from a recall in 1999's first quarter.
Divisional operating profit declined in the 1999 period as a result of
incremental operating expenses incurred post-recall, above average labor and
freight costs, and inefficient plant operations. Labor costs were high due, in
part, to training costs for newer production personnel and overtime incurred to
meet orders in a timely manner during a strong demand period.
Potato Products Division net sales for the 1999 period reflected a strong unit
sales increase, particularly for foodservice and retail mashed items. New
account activity, same-account sales growth and new product introductions all
contributed to the sales gain. The strong operating profit increase in the 1999
period resulted primarily from the volume growth, as plant operations at the
main potato processing facility benefited from the increased production
throughput.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS THREE MONTHS ENDED SEPTEMBER 30, 1998,
CONT.
RESULTS OF OPERATIONS, CONT.
The increase in gross profit margin of the Company for the period ended
September 30, 1999, as compared to the results of the same period in 1998,
reflected the factors discussed above, particularly the strength in the
Refrigerated Distribution and Potato Products segments. It is management's
strategy to increase value-added product sales as a percent of total sales over
time, while decreasing commodity-sensitive products' contribution to
consolidated sales. These efforts historically have been beneficial to gross
profit margins in most periods. Selling, general and administrative expenses
increased as a percent of sales in the period ended September 30, 1999, as
compared to the results of the same period in 1998. Expenses increased due to
amortization of the costs associated with the Company's information systems
upgrade project, amortization of a non-compete agreement related to a Dairy
Products acquisition, and additional sales and marketing efforts.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS NINE MONTHS ENDED SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
Readers are directed to Note G - Business Segments for data on the unaudited
financial results of the Company's four business segments for the nine months
ended September 30, 1999 and 1998.
Egg Products Division net sales for the 1999 period reflected unit sales
increases, particularly for value-added products, which more than offset
significant deflationary pricing impacts on certain products. Sales were
particularly strong for precooked frozen omelets, patties and curds. Egg prices
decreased approximately 10% compared to levels in the first nine months of 1998,
as reported by Urner Barry Publications. This decrease helped reduce the cost of
purchased eggs, while also reducing selling prices for certain egg products and
shell eggs.
Approximately two-thirds of the Division's annual egg needs are purchased under
contracts, or in the spot market. While a portion of these eggs are secured
under fixed price contracts, a majority are priced according to the cost of
grain inputs or to egg market prices as reported by Urner Barry. Approximately
one-third of annual egg needs are sourced from internal flocks, where feed costs
typically represent roughly two-thirds of the cost of producing such eggs. Feed
costs were lower in the 1999 period, compared to the 1998 period, due to lower
prices for both corn and soybean meal. Decreased egg costs, for both internally
and externally procured eggs, in the 1999 period, compared to the 1998 period,
were offset by pricing weakness, creating margin pressure for certain egg
products. Profitability from egg products sold into the industrial, or
ingredient, market declined in the 1999 period, while profitability for
value-added egg products increased. The net effect was that operating profit
from base operations rose slightly. Included in the 1999 period results were two
non-recurring items. First, a gain was recorded on the sale of a shell egg
production facility. Second, a Belgian animal feed contamination scare resulted
in losses at the Company's two European egg products joint ventures. The net
after-tax impact of these two events added $0.01 to net earnings per share.
Refrigerated Distribution Division net sales for the 1999 period reflected
strong unit sales increases, with cheese and butter showing particular strength.
Sales growth resulted from a brand repositioning over the past two years and a
more recent consumer advertising campaign in selected markets, along with new
account activity and new product introductions. The volume growth, along with a
decline
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS NINE MONTHS ENDED SEPTEMBER 30, 1998,
CONT.
RESULTS OF OPERATIONS, CONT.
in certain product costs related to the national butterfat market, resulted in
margin expansion in the 1999 period.
The Dairy Products Division net sales increase for the 1999 period reflected
strong unit sales gains for core dairy mix and creamer products and the effect
of five months' of sales from a plant acquired during 1999's second quarter.
Sales were weak for cartoned specialty dairy products as a result of a recall of
certain items in 1999's first quarter. Divisional operating profit declined in
the 1999 period as a result of incremental operating expenses incurred as a
result of the recall, above average labor and freight costs, and inefficient
plant operations. Labor costs were high due, in part, to training costs for
newer production personnel and overtime incurred to meet orders in a timely
manner during the high demand summer season.
Potato Products Division net sales for the 1999 period reflected a strong unit
sales increase, particularly for foodservice and retail mashed items. New
account activity, same-account sales growth and new product introductions all
contributed to the sales gain. The strong operating profit increase in the 1999
period resulted primarily from the volume growth, as plant operations at the
main potato processing facility benefited from the increased production
throughput.
The increase in gross profit margin of the Company for the period ended
September 30, 1999, as compared to the results of the same period in 1998,
reflected the factors discussed above, particularly the strength in the
Refrigerated Distribution and Potato Products segments. It is management's
strategy to increase value-added product sales as a percent of total sales over
time, while decreasing commodity-sensitive products' contribution to
consolidated sales. These efforts historically have been beneficial to gross
profit margins in most periods.
Selling, general and administrative expenses increased as a percent of sales in
the period ended September 30, 1999, as compared to the results of the same
period in 1998. Expenses increased due to amortization of the costs associated
with the Company's information systems upgrade project, amortization of a
non-compete agreement related to a Dairy Products acquisition, and additional
sales and marketing efforts.
GENERAL
Certain of the Company's products are sensitive to changes in commodity prices.
The Company's Egg Products Division derived less than 5% of the Division's net
sales for the first nine months of 1999 from shell eggs, which are sensitive to
commodity price swings. Value-added extended shelf-life liquid egg products
lines and precooked egg products accounted for approximately 50% of the Egg
Products Division's net sales. The remainder of Egg Products Division sales is
derived from the sale of other egg products, which vary from being
commodity-sensitive to value-added. Gross profit from shell eggs is primarily
dependent upon the relationship between shell egg prices and the cost of feed,
both of which can fluctuate significantly. Shell egg pricing in the 1999 period
was approximately 10% below 1998 levels as measured by a widely quoted pricing
service. Gross profit margins for extended shelf-life liquid eggs, egg
substitutes, and precooked egg products are less sensitive to commodity price
fluctuations than are other egg products or shell eggs.
The Company's Refrigerated Distribution Division derives approximately 70% of
its net sales from refrigerated products produced by others, thereby reducing
the effects of commodity price swings.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
GENERAL, CONT.
The balance of refrigerated distribution sales are from shell eggs, some of
which are produced by the Egg Products Division and are sold on a distribution,
or non-commodity, basis by the Refrigerated Distribution Division.
The Dairy Products Division sells its products primarily on a cost-plus basis
and, therefore, the Division's earnings are not typically affected greatly by
raw ingredient price fluctuations, except over short time periods.
The Potato Products Division typically purchases 75%-95% of its raw potatoes
from contract producers under annual contracts. The remainder is purchased at
market prices to satisfy short-term production requirements or to take advantage
of market prices when they are lower than contracted prices. Moderate variations
in the purchase price of raw materials or the selling price per pound of
finished products can have a significant effect on Potato Products Division
operating results.
Inflation is not expected to have a significant impact on the Company's
business. The Company generally has been able to offset the impact of inflation
through a combination of productivity gains and price increases.
In August 1999, the Company announced that it retained investment bankers to
assist the Company in exploring strategic alternatives to enhance shareholder
value. The alternatives under consideration include strategic alliances,
acquisitions, mergers and the sale of all, or some, of the Company's businesses.
The Company does not intend to offer additional comments about these matters
unless and until the Company decides to proceed with a material transaction.
CAPITAL RESOURCES AND LIQUIDITY
Acquisitions and capital expenditures have been, and will likely continue to be,
a significant capital requirement. The Company plans to continue to invest in
state-of-the-art production facilities to enhance its competitive position.
Historically, the Company has financed its growth principally from internally
generated funds, bank borrowings, issuance of senior debt and the sale of Common
Stock. The Company believes that these financing alternatives will continue to
meet its anticipated needs.
During the first nine months of 1999, the Company made three international egg
products investments. The first investment was a 25% interest in Belovo, S. A.,
a specialty egg products company based in Belgium. The second investment was a
50/50 joint venture with the founding shareholders of Belovo forming The Lipid
Company, S.A. a company involved in the extraction of phospholipids from egg
yolks for use in the field of nutraceuticals. The third investment was the
formation of a Canadian joint venture, Trilogy Egg Products, Inc., with two
partners, Canadian Inovatech, Inc. and The Egg Producers Co-op Ltd. Trilogy Egg
Products, Inc. will sell value-added egg products in Canada. The cash paid at
the time of closing the transactions was approximately $12 million, which was
funded through the Company's bank line of credit. The investments will expand
the Company's leadership position in global egg products processing.
Also in the first nine months of 1999, the Company acquired certain operating
assets and the long-term lease of a dairy products plant in Connecticut. The
cash paid at time of closing was approximately $5.7 million, which was funded
through the Company's bank line of credit. This transaction greatly expanded the
Company's Dairy Products business in the eastern United States.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
CAPITAL RESOURCES AND LIQUIDITY, CONT.
The Company invested $60,918,000 in capital expenditures during the nine months
ended September 30, 1999. The Company plans to spend approximately $89,500,000
in total capital expenditures in 1999, the majority of which is to expand
production capacity for value-added products.
The Company has an unsecured line of credit for $80,000,000 with its principal
banks which expires in February 2002. As of September 30, 1999, $63,100,000 was
outstanding under this line of credit.
In July 1998, the Company's Board of Directors authorized the purchase of up to
two million shares of Common Stock on the open market. Through September 30,
1999, the Company had repurchased 1,902,800 shares of Common Stock for
$43,005,000. There were no stock purchases in the three month period ended
September 30, 1999.
SEASONALITY
Consolidated quarterly operating results are affected by the seasonality of the
Company's net sales and operating profits. Specifically, shell egg prices
typically rise seasonally in the first and fourth quarters of the year due to
increased demand during holiday periods. Generally, refrigerated distribution
operations experience higher net sales and operating profits in the fourth
quarter, coinciding with incremental consumer demand during the holiday season.
Net sales and operating profits from dairy operations typically are
significantly higher in the second and third quarters due to increased
consumption of ice milk and ice cream products during the summer months.
Operating profits from potato products are less seasonal, but tend to be higher
in the second half of the year coinciding with the potato harvest.
YEAR 2000
The Company's Year 2000 initiative is separated into several projects: legacy
systems, personal computer components, wide area network components, local area
network components, and non-computer components. The approach for each of these
projects includes an inventory of approximately 2000 components, an assessment
of Year 2000 compliance of each component, and identification and execution of
corrective actions for items that fail the assessment phase.
In 1995, the Company undertook implementation of the SAP Enterprise Resource
Planning system as a means to present a single interface with customers and to
have better information available for management to make more effective
decisions. The SAP system encompasses all significant processes and has been
certified Year 2000 compliant by an outside party. The SAP system will be
implemented for all but two of the operating companies prior to the end of 1999.
The legacy systems of the remaining two operating companies are certified as
Year 2000 compliant. Beyond the SAP project, several non-critical legacy systems
are being addressed throughout 1999. The costs to modify and test any remaining
legacy systems, if necessary, would not be material to the consolidated
financial position, liquidity or results of operations of the Company.
The Company has completed corrective actions for all personal computer hardware
and software, as well as the information technology systems for wide area
networking and local area networking. The Company's overall business risk from
these systems is not significant.
As of May 1999, the Company's non-computer components were assessed for Year
2000 compliance. Corrective actions to achieve Year 2000 compliance for these
components are nearly completed.
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
YEAR 2000, CONT.
The Year 2000 projects also include an evaluation of critical vendors,
suppliers, brokers and customers relative to their Year 2000 readiness.
Information is being solicited from these important business partners and will
be evaluated as it is received. Electronic data communications with customers
have been tested and are Year 2000 compliant.
Based upon the assessment completed at this time, the Company does not
anticipate any significant Year 2000 issues. All Year 2000 projects are
generally proceeding according to management's expectations. However, if there
are significant delays in their completion, or if major suppliers or customers
experience Year 2000 issues with their systems, such issues could adversely
affect the operations of the Company. After assessing the information received
from its business partners and evaluating the status of the Year 2000 projects,
the Company will develop an appropriate contingency plan, as required.
Achieving Year 2000 compliance for the Company will largely be a by-product of
the SAP system installation. The costs of achieving Year 2000 compliance for
software not affected by the SAP system, computer components, and non-computer
components is estimated to be less than $3,000,000, of which approximately
$2,750,000 has already been incurred and expensed through September 30, 1999.
FORWARD-LOOKING STATEMENTS
Certain items in this Form 10-Q are forward-looking statements, which are made
in reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to numerous
risks and uncertainties, including the possibility that capital projects and the
Year 2000 initiative may not be completed as rapidly as management expects.
Additional risks and uncertainties include variances in the demand for the
Company's products due to consumer developments and industry developments, as
well as variances in the costs to produce such products, including normal
volatility in egg and feed costs. The Company's actual financial results could
differ materially from the results estimated by, forecasted by, or implied by
the Company in such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the Company's market risk during the nine
month period ended September 30, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.70* Severance Plan For Eligible Employees of Michael Foods, Inc. and its
Subsidiaries, revised August 8, 1999
10.71* Employment Agreement with Gregg A. Ostrander dated as of July 15, 1999
10.72* Employment Agreement with Jeffrey M. Shapiro dated as of July 15, 1999
10.73* Employment Agreement with John D. Reedy dated as of July 15, 1999
</TABLE>
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K (cont.)
<TABLE>
<S> <C>
10.74* Employment Agreement with Bill L. Goucher dated as of August 6, 1999
10.75* Employment Agreement with James D. Clarkson dated as of August 6, 1999
10.76* Employment Agreement with Norman A. Rodriguez dated as of August 6, 1999
27.1 Financial Data Schedule
</TABLE>
[FN]
* Management Contract or Compensation Plan Arrangement
</FN>
(b) Reports on Form 8-K
The Company filed a Form 8-K on August 17, 1999 disclosing its decision to
retain investment bankers to assist in exploring strategic alternatives to
enhance shareholder value.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MICHAEL FOODS, INC.
------------------------------------------------
(Registrant)
Date: November 15, 1999 By: /s/ Gregg A. Ostrander
---------------------------------------
Gregg A. Ostrander
(President and Chief Executive Officer)
Date: November 15, 1999 By: /s/ John D. Reedy
---------------------------------------
John D. Reedy
(Vice President - Finance, Treasurer,
Chief Financial Officer and Principal
Accounting Officer)
<PAGE> 1
EXHIBIT 10.70
Rev. 8-9-99
SEVERANCE PLAN FOR ELIGIBLE EMPLOYEES
OF MICHAEL FOODS, INC.
AND ITS SUBSIDIARIES
WHEREAS, Michael Foods, Inc. (the "Company") considers the establishment
and maintenance of a sound and vital management team essential to protecting and
enhancing its best interest and those of its various subsidiaries and the
Company's shareholders; and
WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a Change in Control of the
Company exists and that such possibility and the uncertainty and questions which
it may raise among management and prospective management personnel may result in
the departure or distraction of such personnel or the inability to hire key
personnel to the detriment of the Company, its subsidiaries, and the Company's
shareholders; and
WHEREAS, accordingly, it has been determined that appropriate steps should
be taken to reinforce and encourage the continued attention and dedication of
the management personnel to their assigned duties without the distraction
arising from the possibility of a Change in Control.
NOW, THEREFORE, Michael Foods, Inc. hereby adopts the following
compensation plan (the "Plan"):
1. Definitions. The following definitions shall apply for purposes of
this plan:
a. "Cause" means (a) the willful and continued failure by Key Employee
to substantially perform Key Employee's duties with the Employer
(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 Key Employee by the Employer, which demand
specifically identifies the manner in which the Employer believes that
the Key Employee has not substantially performed Key Employee's
duties; or (b) the willful engaging by Key Employee in conduct which
is demonstrably and materially injurious to the Employer, monetarily
or otherwise. For purposes of this definition, no act or failure to
act on Key Employee's part shall be considered "willful" unless done
or omitted to be done by Key Employee not in good faith and without
reasonable belief that Key Employee's action or omission was in the
best interest of the Employer.
b. "Change in Control" means a Change in Control of the Company of a
nature that would be required to be reported in response to Item 1(a)
of the Company's Current Report on Form 8-K, as in effect on the
effective date of this Plan, pursuant to Section 13 of the Securities
Exchange Act of 1934 (the "Exchange Act"); provided that, without
limitation, such a Change in Control shall be deemed to have occurred
at such time as any "person" within the meaning of Section 14(d) of
the Exchange Act, other than the Company, a subsidiary of the Company
or any employee benefit plan sponsored by the Company or a subsidiary
of the Company, acquires (1) the power to elect, appoint or cause the
election of appointment of at least a majority of the members of the
Board of Directors of the Company through the acquisition, after the
effective date of this Plan, of beneficial ownership of capital stock
of the Company or otherwise, or (2) all, or substantially all, of the
properties and assets of the Company; provided, however, that a Change
in Control shall not be deemed to have occurred if (x) the acquisition
of such power or properties and assets is pursuant to a merger,
consolidation, or sale of properties and assets and (y) by reason of
such transaction no person, or related persons
<PAGE> 2
constituting a "group" for purposes of Section 13(d) of the Exchange
Act shall acquire the power to elect, appoint or cause the election or
appointment of a majority of the members of the Board of Directors of
such successor or transferee.
c. "Company" means Michael Foods, Inc., a Minnesota corporation.
d. "Date of Termination" means: (a) If Key Employee's employment is
terminated by Employee for Good Reason, the date specified in the
Notice of Termination; and (b) if Key Employee's employment is
terminated for any other reason, the date on which a Notice of
Termination is given.
e. "Employer" means Michael Foods, Inc. and any direct or indirect
subsidiary thereof.
f. "Good Reason" means, after any Change in Control and without Key
Employee's express written consent:
(i) the assignment to Key Employee of any duties inconsistent
with Key Employee's positions, duties, responsibilities and
status with the Employer immediately prior to a Change in
Control, or a change in Key Employee's reporting
responsibilities, titles or offices as in effect immediately
prior to a Change in Control, or any removal of Key Employee
from, or any failure to re-elect Key Employee to, any of such
positions, except in connection with the termination of Key
Employee's employment for Cause, permanent disability,
retirement, or by Key Employee other than for Good Reason, or as
a result of Key Employee's death;
(ii) a reduction in Key Employee's base salary in effect
immediately prior to any Change in Control; or the failure by the
Employer 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;
(iii) the Employer requiring Key Employee to be based anywhere
other than the geographic location at which Key Employee was
based immediately preceding the Change in Control except for
required travel on business to an extent substantially consistent
with the business travel obligations Key Employee experienced
immediately preceding a Change in Control;
(iv) the failure by the Employer to continue in effect benefit
and compensation plans substantially equivalent to the benefit or
compensation plans or arrangements in which Key Employee was
participating immediately preceding any Change in Control; the
taking of any action by the Employer not required by law which
would adversely affect Key Employee's participation in or
materially reduce Key Employee's benefits under any of such plans
or deprive Key Employee of any material fringe benefit enjoyed by
Key Employee at the time of the Change in Control, but this
provision shall not apply to any stock option plan maintained by
the Company prior to the Change in Control; or the failure by the
Employer to provide Key Employee with the number of paid vacation
days, holidays and personal days to which Key Employee was
<PAGE> 3
then entitled in accordance with the Employer's normal leave
policy in effect immediately preceding a Change in Control; or
(v) any purported termination of Key Employee's employment by the
Employer which is not effected pursuant to a Notice of
Termination defined herein. Key Employee's continued employment
shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
g. "Key Employee" means an employee of the Employer who has been
selected for participation in this Plan by the Chief Executive Officer
of the Company with the advice and consent of the Compensation
Committee of the Board of Directors of the Company.
h. "Notice of Termination" means a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth, in reasonable detail, the facts and circumstances claimed
to provide a basis for termination of Key Employee's employment under
the provision so indicated.
i. "Total Annual Compensation" means the Key Employee's highest annual
rate of salary with the Employer (excluding bonuses, benefits,
allowances, etc.) within the three calendar year periods prior to the
date of termination of employment; provided, that if the Key Employee
has been employed by the Employer or a predecessor for less than three
years, Total Annual Compensation shall mean the highest annualized
salary during the period of employment.
j. "Year of Service" means the number of years Key Employee has been
employed by the Employer as of the date of termination including any
fraction of a year as a whole year.
2. Eligibility. A Key Employee shall be an employee entitled to the
severance benefits provided herein if within 24 months following a Change in
Control his or her employment is terminated, unless such termination was due to:
a. Death;
b. Permanent disability;
c. Retirement;
d. By the Employer for Cause; or
e. By the Key Employee other than for Good Reason.
3. Compensation and Benefits Payable. A Key Employee who becomes eligible
to receive severance benefits under Section 2 hereof shall receive the following
compensation and benefits:
a. His or her base salary to the date of termination and all other
benefits or compensation to which the Key Employee is entitled through
the date of termination.
b. A lump sum payment equal to one year's Total Annual Compensation
for each Key Employee; provided, however, that the following officers
shall receive a lump sum payment equal to two (2) times such Total
Annual Compensation:
James J. Kohler
Mark D. Witmer
Ronald W. Bergman
James Mohr
<PAGE> 4
Dean Sprinkle
Arthur N. Papetti
c. Health insurance coverage provided by the Company shall be
maintained at the cost in effect at termination until the earlier of
the date the Key Employee becomes eligible to participate in a health
insurance plan of another employer or eighteen (18) months following
Key Employee's termination of employment; and
d. All benefits of Key Employee under the 401(k) plan of the Company
shall become immediately and fully vested.
Notwithstanding anything in this Section to the contrary, if any of the
payments provided for in this Plan, together with any other payments which the
Key Employee has the right to receive from the Company, the Employer or any
corporation which is a member of an "affiliated group" (as defined in Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code") without
regard to Section 1504(b) of the Code) of which the Company is a member, would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code),
the payment pursuant to this Plan shall be reduced to the largest amount as will
result in no portion of such payments being subject to the excise tax imposed by
Section 4999 of the Code; provided, however, that the determination as to
whether any reduction in the payments under the Plan pursuant to this provision
is necessary shall be made by the Company in good faith, and such determination
shall be conclusive and binding on the Key Employee and the Company with respect
to treatment of the payment for tax reporting purposes.
4. Fees and Expenses. In the event Employer denies a claim made by Key
Employee for benefits under this Plan, the Employer shall pay all reasonable
legal and accounting fees and related expenses incurred by the Key Employee in
seeking to obtain or enforce any right or benefit provided by this Plan after a
Change in Control, including any such fees and expenses incurred in seeking
advice with respect to the last paragraph of Section 3; provided, however, that
the Key Employee shall be required to repay any such amounts to the Employer to
the extent that an arbitrator issues a final and non-appealable order setting
forth the determination that the position taken by the Key Employee was
frivolous or advanced by him in bad faith.
5. Agreement with Eligible Employees. The Company, and each subsidiary as
the case may be, shall enter into a written agreement with each Key Employee in
the form attached as Exhibit A hereto and the Company shall cause each
subsidiary to take such action as is necessary to carry out the Plan.
6. Withholding. The Employer shall have the right to deduct from all
severance payments hereunder any taxes required by law to be withheld therefrom.
7. No Right to Employment. Nothing in this Plan shall be construed as
giving any person the right to be retained in the employment of the Employer,
nor shall it affect the right of the Employer to dismiss an employee without any
liability except as provided in the Plan or by law.
8. Termination of Plan. This Plan shall continue in effect for a period of
one year from the effective date unless the Plan is renewed by action of the
Board of Directors of the Company prior to that date and any such extension or
renewal thereof shall be on a year to year basis. The Board of Directors of the
Company reserves the right to amend or terminate the Plan at any time prior to a
Change in Control. After a Change in Control, this Plan shall remain in effect
for twenty-four (24) months unless otherwise terminated by the Board of
Directors with the consent of 80% of the Key Employees who were Key Employees at
the time of the Change in Control.
<PAGE> 5
9. Arbitration. Any dispute or controversy arising under or in connection
with this Plan shall be settled exclusively by arbitration in Minneapolis,
Minnesota by three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that the
Key Employee shall be entitled to seek specific performance of his right to be
paid during the pendency of any dispute or controversy arising under or in
connection with this Plan. The Company shall bear all costs and expenses arising
in connection with any arbitration proceeding pursuant to this Section 9.
10. Governing Law. The Plan and any agreement entered into pursuant thereto
shall be governed by, and construed in accordance with, the laws of the State of
Minnesota.
11. Effective Date. The Plan shall be effective as of July 1, 1990.
<PAGE> 6
Exhibit A
MICHAEL FOODS, INC.
PARTICIPANTS IN SEVERANCE PLAN
APPROVED FOR JULY 1, 1999 TO JULY 1, 2000
<TABLE>
<CAPTION>
COMPANY EMPLOYED POSITION EMPLOYEE
- ---------------- -------- --------
<S> <C> <C>
Michael Foods, Inc.................................Assistant Treasurer...............................Mark D. Witmer*
Michael Foods, Inc.......................................C.I.O......................................Thomas C. Kelly
Michael Foods, Inc. ...........................V.P. - Human Resources.............................Ronald W. Bergman*
Michael Foods, Inc. - Distribution..................V.P. Distribution....................................James Mohr*
Michael Foods, Inc. - Sales....................E.V.P. Michael Foods Sales.............................Dean Sprinkle*
MICHAEL FOODS, INC. - SALES..................V.P. U.S. BUSINESS DEVELOPMENT............................PRES COLWELL
MICHAEL FOODS, INC. - SALES.........................V.P. FIELD SALES......................................RICH LICH
MICHAEL FOODS, INC. - SALES.........................V.P. FIELD SALES.....................................TOM NYKAMP
MICHAEL FOODS, INC. - SALES.........................V.P. FIELD SALES....................................MIKE LAWSON
MICHAEL FOODS, INC. - SALES.....................V.P. NATIONAL ACCOUNTS............................ DEBORAH NAISMITH
M.G. Waldbaum Co.......................................V.P. R&D...............................Hershell R. Ball, Jr.
M.G. Waldbaum Co.........................................C.F.O......................................Bradley L. Cook
M.G. Waldbaum Co....................................V.P. Operations......................................Ken Neishi
M.G. Waldbaum Co....................................V.P. Procurement....................................Terry Baker
M.G. Waldbaum Co..................................V.P. Live Production....................................Tim Bebee
M.G. Waldbaum Co..............................V.P. Industrial/Export Sales.......................Thomas Rechsteiner
Northern Star Co.........................................C.F.O.........................................Max Hoffmann
Crystal Farms RDC.................................Vice President, Wisco............................Russell P. Roedl
Crystal Farms RDC........................................C.F.O..........................................James Grosh
Crystal Farms RDC......................................V.P. Sales....................................Jeffrey Thomas
Kohler Mix Specialties, Inc........................V.P. Administration..............................Craig V. Miller
Kohler Mix Specialties, Inc.............................President.....................................James Kohler*
Kohler Mix Specialties, Inc..........................V.P. Operations....................................Erich Fritz
Kohler Mix Specialties, Inc.....................V.P. Business Development..............................Mark Johnson
Papetti's Hygrade....................................V.P. Controller..................................Mark Westphal
Papetti's Hygrade.......................................President................................Arthur N. Papetti*
Papetti's Hygrade...............................Executive Vice President...............................A.J. Papetti
Papetti's Hygrade...............................Executive Vice President............................Stephen Papetti
Papetti's Hygrade.......................V.P. Regional Sales and National Accounts........................Vicky Wass
Papetti's Hygrade....................................V.P. Operations.................................Toby Catherman
Papetti's Hygrade.................................V.P. Industrial Sales................................John Brommer
</TABLE>
[FN]
* two year level
</FN>
AS OF AUGUST 9, 1999
<PAGE> 1
EXHIBIT 10.71
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 15 day of July, 1999, between Michael Foods,
Inc., a Minnesota corporation having its principal executive offices in
Minneapolis, Minnesota (the"Company"), and Gregg A. Ostrander (the "Executive").
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. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue in the employ of the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the date hereof (the "Effective Date") and ending on June 30, 2001
(the "Employment Period"), provided, however, that commencing on June 30, 2000
and each June 30 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
President and Chief Executive Officer of the Company with the appropriate
authority, duties and responsibilities attendant to such position.
Executive shall also serve, at the request of the Company, as a Director of
the Company and each of its subsidiaries.
<PAGE> 2
(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 $506,000, 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 the Michael Foods, Inc. 1994 Executive Incentive Plan (and
successor plans) (the "IP") and such other 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 any extraordinary event, such as a
reorganization, recapitalization, spinoff, stock split, stock dividend,
merger of the Company, or sale of substantially all of the assets of the
Company, occurs in any fiscal year, the Company shall equitably adjust the
terms of the award under the IP. 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.
-2-
<PAGE> 3
(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 (collectively, "Employee Benefit Plans") 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 notice in accordance with
Section 9(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
-3-
<PAGE> 4
(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.
(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 that 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 a Divisional President; 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
-4-
<PAGE> 5
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 8(c)
of this Agreement;
(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; or
(vii) any failure of the Executive to be elected to, or to remain a
member of, the Company's Board of Directors; provided, however, that after
a Change in Control, failure of the Executive to be nominated to the Board
of Directors of a successor that is a publicly traded company shall not
constitute Good Reason.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive. Without limiting the generality of the
foregoing, the Executive shall for all purposes of this Agreement be deemed to
have terminated his employment for Good Reason if he voluntarily terminates his
employment within sixty (60) days of the date six months following the
occurrence of a Change in Control.
-5-
<PAGE> 6
(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 9(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 Termination shall be 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, the Date of
Termination shall be 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 occurrence of any one
of the following events:
(i) individuals who, on the date hereof, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to the date hereof, whose election or nomination for election
was approved by a vote of at least two-thirds of the Incumbent Directors
then on the Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an
Incumbent Director; provided, however, that no individual initially elected
or nominated as a director of the Company as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Securities Exchange Act of 1934 (the "Act")) ("Election Contest") or other
actual or threatened solicitation of proxies or consents by or on behalf of
any "person"
-6-
<PAGE> 7
(as such term is defined in Section 3(a)(9) of the Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy
Contest"), including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest, shall be deemed an Incumbent
Director;
(ii) any person is or becomes a "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of the Board (the
"Company Voting Securities"); provided, however, that the event described
in this paragraph (ii) shall not be deemed to be a Change in Control of the
Company by virtue of any of the following acquisitions: (A) by the Company
or any subsidiary, (B) by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary, (C) by any
underwriter temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction (as defined in
paragraph (iii)), or (E) pursuant to any acquisition by the Executive or
any group of persons including the Executive (or any entity controlled by
the Executive or any group of persons including the Executive);
(iii) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Company or
any of its subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of securities in
the transaction (a "Reorganization"), or sale or other disposition of all
or substantially all of the Company's assets to an entity that is not an
affiliate of the Company (a "Sale"), unless immediately following such
Reorganization or Sale: (A) more than 60% of the total voting power of (x)
the corporation resulting from such Reorganization or the corporation which
has acquired all or substantially all of the assets of the Company (in
either case, the "Surviving Corporation"), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of
the Surviving Corporation (the "Parent Corporation"), is represented by
Company Voting Securities that were outstanding immediately prior to such
Reorganization or Sale (or, if applicable, is represented by shares into
which such Company Voting Securities were converted pursuant to such
Reorganization or Sale), and such voting power among the holders thereof is
in substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the
Reorganization or Sale, (B) no person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Surviving Corporation or
the Parent Corporation), is or becomes the
-7-
<PAGE> 8
beneficial owner, directly or indirectly, of 20% or more of the total
voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation) and (C) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Reorganization or Sale (any Reorganization or Sale which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be a
"Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death or Disability. If, during the Employment Period (other than any
portion of the Employment Period occurring within six months following a Change
in Control), the Executive's employment shall terminate on account of death or
Disability:
(i) the Company shall pay to the Executive or his estate 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");
-8-
<PAGE> 9
(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 or contract or agreement of 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");
(iii) the Company shall pay to the Executive or his estate 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, and
(iv) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other awards
shall vest and become immediately payable.
(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 but prior to a
Change in Control, 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
(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.
-9-
<PAGE> 10
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other awards
shall vest and become immediately payable.
(d) After a Change in Control By the Company Other than for Cause, By the
Executive for Good Reason or Due to Death or Disability. If the Executive's
employment shall be terminated by the Company other than for Cause or the
executive terminates his employment for Good Reason within two (2) years
following a Change in Control, or the executive's employment terminates due to
death or Disability within six (6) months following a Change in Control:
(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;
(B) the amount equal to the product of (x) three (3) and (y) the
sum of the Executive's current Annual Base Salary and Target Bonus;
and
(C) any compensation previously deferred by Executive other than
pursuant to a tax-qualified plan (together with any earnings and
interest thereon).
(ii) for a period of three (3) 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 such Welfare Benefits shall be secondary to any
other medical coverage obtained by the Executive.
(iii) the Company shall provide the Executive with the Other Benefits.
(iv) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other awards
shall vest and become immediately payable.
-10-
<PAGE> 11
5. 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, practice or
program or 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.
6. 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.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(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 7) (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
-11-
<PAGE> 12
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
7(a), if it shall be determined that the 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 7(c), all determinations required
to be made under this Section 7, 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 7,
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 7(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
-12-
<PAGE> 13
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,
(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 7(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 sue 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 sue 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
-13-
<PAGE> 14
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 7(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 7(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.
8. SUCCESSORS.
(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.
9. 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.
-14-
<PAGE> 15
(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:
Gregg A. Ostrander
21520 Fairview Street
Greenwood, Minnesota 55331
If to the Company:
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
Telecopy Number: (612) 546-3711
Attention: Secretary
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) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(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.
-15-
<PAGE> 16
(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.
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.
/s/ Gregg A. Ostrander
------------------------------
MICHAEL FOODS, INC.
By /s/ John Reedy
------------------------------
Title: Chief Financial Officer
-16-
<PAGE> 1
Exhibit 10.72
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 15 day of July, 1999, between Michael
Foods, Inc., a Minnesota corporation having its principal executive offices in
Minneapolis, Minnesota (the"Company"), and Jeffrey M. Shapiro (the "Executive").
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. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof (the "Effective Date") and ending on
June 30, 2001 (the "Employment Period"), provided, however, that commencing on
June 30, 2000 and each June 30 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 Executive Vice President and Secretary of the Company with the
appropriate authority, duties and responsibilities attendant to such
position. Executive shall also serve, at the request of the Company, as a
Director of the Company and each of its subsidiaries.
<PAGE> 2
(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 $270,000, 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 the Michael Foods, Inc. 1994 Executive
Incentive Plan (and successor plans) (the "IP") and such other 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 any extraordinary event,
such as a reorganization, recapitalization, spinoff, stock split, stock
dividend, merger of the Company, or sale of substantially all of the assets
of the Company, occurs in any fiscal year, the Company shall equitably
adjust the terms of the award under the IP. 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.
-2-
<PAGE> 3
(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 (collectively, "Employee Benefit Plans") 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 notice in accordance with
Section 9(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
-3-
<PAGE> 4
(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.
(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 that 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 Executive Vice
President; 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
-4-
<PAGE> 5
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 8(c) of this Agreement; or
(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.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive. Without limiting the generality of the
foregoing, the Executive shall for all purposes of this Agreement be deemed to
have terminated his employment for Good Reason if he voluntarily terminates his
employment within sixty (60) days of the date six months following the
occurrence of a Change in Control.
(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 9(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,
-5-
<PAGE> 6
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 Termination shall be
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,
the Date of Termination shall be 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 occurrence
of any one of the following events:
(i) individuals who, on the date hereof, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof, whose election or nomination for election
was approved by a vote of at least two-thirds of the Incumbent Directors
then on the Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an
Incumbent Director; provided, however, that no individual initially elected
or nominated as a director of the Company as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Securities Exchange Act of 1934 (the "Act")) ("Election Contest") or other
actual or threatened solicitation of proxies or consents by or on behalf of
any "person" (as such term is defined in Section 3(a)(9) of the Act and as
used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board
("Proxy Contest"), including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest, shall be deemed an
Incumbent Director;
-6-
<PAGE> 7
(ii) any person is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the election of
the Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a Change
in Control of the Company by virtue of any of the following acquisitions:
(A) by the Company or any subsidiary, (B) by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary,
(C) by any underwriter temporarily holding securities pursuant to an
offering of such securities, (D) pursuant to a Non-Qualifying Transaction
(as defined in paragraph (iii)), or (E) pursuant to any acquisition by the
Executive or any group of persons including the Executive (or any entity
controlled by the Executive or any group of persons including the
Executive);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the
Company or any of its subsidiaries that requires the approval of the
Company's stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Reorganization"), or sale or other
disposition of all or substantially all of the Company's assets to an
entity that is not an affiliate of the Company (a "Sale"), unless
immediately following such Reorganization or Sale: (A) more than 60% of the
total voting power of (x) the corporation resulting from such
Reorganization or the corporation which has acquired all or substantially
all of the assets of the Company (in either case, the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation (the
"Parent Corporation"), is represented by Company Voting Securities that
were outstanding immediately prior to such Reorganization or Sale (or, if
applicable, is represented by shares into which such Company Voting
Securities were converted pursuant to such Reorganization or Sale), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale, (B) no
person (other than any employee benefit plan (or related trust) sponsored
or maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or more of
the total voting power of the outstanding voting securities eligible to
elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least a majority of the
members of the board of directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation)
-7-
<PAGE> 8
following the consummation of the Reorganization or Sale were Incumbent
Directors at the time of the Board's approval of the execution of the
initial agreement providing for such Reorganization or Sale (any
Reorganization or Sale which satisfies all of the criteria specified
in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death or Disability. If, during the Employment
Period (other than any portion of the Employment Period occurring six months
following a Change in Control), the Executive's employment shall terminate on
account of death or Disability:
(i) the Company shall pay to the Executive or his estate 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 or contract or agreement of 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");
-8-
<PAGE> 9
(iii) the Company shall pay to the Executive or his estate
in a lump sum in cash within 30 days after the Date of Termination an
amount equal to the product of (x) one and one-half (1.5) and (y) the sum
of the Executive's current Annual Base Salary and Target Bonus, and
(iv) all stock options shall vest and remain exercisable for
the remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
(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 but prior to
a Change in Control, 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
(B) the amount equal to the product of (x) one and
one-half (1.5) 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.
(iii) all stock options shall vest and remain exercisable
for the remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
(d) After a Change in Control By the Company Other than for
Cause, By the Executive for Good Reason or Due to Death or Disability. If the
Executive's employment shall be terminated by the Company other than for Cause
or the
-9-
<PAGE> 10
executive terminates his employment for Good Reason within two (2) years
following a Change in Control, or the Executive's employment terminates due to
death or Disability within six (6) months following a Change in Control:
(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;
(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; and
(C) any compensation previously deferred by Executive
other than pursuant to a tax-qualified plan (together with any
earnings and interest thereon).
(ii) 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 such Welfare Benefits shall
be secondary to any other medical coverage obtained by the Executive.
(iii) the Company shall provide the Executive with the Other
Benefits.
(iv) all stock options shall vest and remain exercisable for
the remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
5. 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,
-10-
<PAGE> 11
policy, practice or program or 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.
6. 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.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(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 7) (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 7(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
120% of the
-11-
<PAGE> 12
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 7(c), all
determinations required to be made under this Section 7, 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 7, 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 7(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,
-12-
<PAGE> 13
(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,
(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 7(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 sue 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 sue 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 7(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
-13-
<PAGE> 14
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(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.
8. SUCCESSORS.
(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.
9. 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:
Jeffrey M. Shapiro
-14-
<PAGE> 15
2500 West Lake of the Isles Parkway
Minneapolis, MN 55405
If to the Company:
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
Telecopy Number: (612) 546-3711
Attention: Secretary
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) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(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.
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
-15-
<PAGE> 16
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Jeffery M. Shapiro
-------------------------------------
MICHAEL FOODS, INC.
By Gregg A. Ostrander
-------------------------------------
Title: President/CEO
-16-
<PAGE> 1
Exhibit 10.73
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 15 day of July, 1999, between Michael
Foods, Inc., a Minnesota corporation having its principal executive offices in
Minneapolis, Minnesota (the "Company"), and John D. Reedy (the "Executive").
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. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof (the "Effective Date") and ending on
June 30, 2001 (the "Employment Period"), provided, however, that commencing on
June 30, 2000 and each June 30 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 position. Executive shall also serve, at the request of
the Company, as a Director of the Company and each of its subsidiaries.
<PAGE> 2
(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 $260,000, 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 the Michael Foods, Inc. 1994 Executive
Incentive Plan (and successor plans) (the "IP") and such other 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 any extraordinary event,
such as a reorganization, recapitalization, spinoff, stock split, stock
dividend, merger of the Company, or sale of substantially all of the assets
of the Company, occurs in any fiscal year, the Company shall equitably
adjust the terms of the award under the IP. 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.
-2-
<PAGE> 3
(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 (collectively, "Employee Benefit Plans") 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 notice in accordance with
Section 9(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
-3-
<PAGE> 4
(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.
(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 that 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 an Executive Vice
President; 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
-4-
<PAGE> 5
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 8(c) of this Agreement; or
(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.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive. Without limiting the generality of the
foregoing, the Executive shall for all purposes of this Agreement be deemed to
have terminated his employment for Good Reason if he voluntarily terminates his
employment within sixty (60) days of the date six months following the
occurrence of a Change in Control.
(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 9(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,
-5-
<PAGE> 6
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 Termination shall be
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,
the Date of Termination shall be 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 occurrence
of any one of the following events:
(i) individuals who, on the date hereof, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof, whose election or nomination for election
was approved by a vote of at least two-thirds of the Incumbent Directors
then on the Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an
Incumbent Director; provided, however, that no individual initially elected
or nominated as a director of the Company as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Securities Exchange Act of 1934 (the "Act")) ("Election Contest") or other
actual or threatened solicitation of proxies or consents by or on behalf of
any "person" (as such term is defined in Section 3(a)(9) of the Act and as
used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board
("Proxy Contest"), including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest, shall be deemed an
Incumbent Director;
-6-
<PAGE> 7
(ii) any person is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the election of
the Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a Change
in Control of the Company by virtue of any of the following acquisitions:
(A) by the Company or any subsidiary, (B) by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary,
(C) by any underwriter temporarily holding securities pursuant to an
offering of such securities, (D) pursuant to a Non-Qualifying Transaction
(as defined in paragraph (iii)), or (E) pursuant to any acquisition by the
Executive or any group of persons including the Executive (or any entity
controlled by the Executive or any group of persons including the
Executive);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the
Company or any of its subsidiaries that requires the approval of the
Company's stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Reorganization"), or sale or other
disposition of all or substantially all of the Company's assets to an
entity that is not an affiliate of the Company (a "Sale"), unless
immediately following such Reorganization or Sale: (A) more than 60% of the
total voting power of (x) the corporation resulting from such
Reorganization or the corporation which has acquired all or substantially
all of the assets of the Company (in either case, the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation (the
"Parent Corporation"), is represented by Company Voting Securities that
were outstanding immediately prior to such Reorganization or Sale (or, if
applicable, is represented by shares into which such Company Voting
Securities were converted pursuant to such Reorganization or Sale), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale, (B) no
person (other than any employee benefit plan (or related trust) sponsored
or maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or more of
the total voting power of the outstanding voting securities eligible to
elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least a majority of the
members of the board of directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation)
-7-
<PAGE> 8
following the consummation of the Reorganization or Sale were Incumbent
Directors at the time of the Board's approval of the execution of the
initial agreement providing for such Reorganization or Sale (any
Reorganization or Sale which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death or Disability. If, during the Employment Period
(other than any portion of the Employment Period occurring six months following
a Change in Control), the Executive's employment shall terminate on account of
death or Disability:
(i) the Company shall pay to the Executive or his estate 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 or contract or agreement of 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");
-8-
<PAGE> 9
(iii) the Company shall pay to the Executive or his estate
in a lump sum in cash within 30 days after the Date of Termination an
amount equal to the product of (x) one and one-half (1.5) and (y) the sum
of the Executive's current Annual Base Salary and Target Bonus, and
(iv) all stock options shall vest and remain exercisable for
the remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
(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 but prior to a
Change in Control, 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
(B) the amount equal to the product of (x) one and
one-half (1.5) 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.
(iii) all stock options shall vest and remain exercisable
for the remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
(d) After a Change in Control By the Company Other than for
Cause, By the Executive for Good Reason or Due to Death or Disability. If the
Executive's employment shall be terminated by the Company other than for Cause
or the
-9-
<PAGE> 10
executive terminates his employment for Good Reason within two (2) years
following a Change in Control, or the Executive's employment terminates due to
death or Disability within six (6) months following a Change in Control:
(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;
(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; and
(C) any compensation previously deferred by Executive
other than pursuant to a tax-qualified plan (together with any
earnings and interest thereon).
(ii) 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 such Welfare Benefits shall
be secondary to any other medical coverage obtained by the Executive.
(iii) the Company shall provide the Executive with the Other
Benefits.
(iv) all stock options shall vest and remain exercisable for
the remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
5. 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,
-10-
<PAGE> 11
policy, practice or program or 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.
6. 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.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(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 7) (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
7(a), if it shall be determined that the Executive is entitled to a Gross-Up
Payment, but that the Payments do not exceed 120% of the
-11-
<PAGE> 12
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 7(c), all
determinations required to be made under this Section 7, 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 7, 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 7(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,
-12-
<PAGE> 13
(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,
(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 7(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 sue 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 sue 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 7(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
-13-
<PAGE> 14
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(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.
8. SUCCESSORS.
(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.
9. 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:
John D. Reedy
-14-
<PAGE> 15
7262 Gordon Drive
Eden Prairie, Minnesota 55346
If to the Company:
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
Telecopy Number: (612) 546-3711
Attention: Secretary
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) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(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.
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
-15-
<PAGE> 16
caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ John Reedy
-------------------------------------
MICHAEL FOODS, INC.
By Gregg A. Ostrander
-------------------------------------
Title: President/CEO
-16-
<PAGE> 1
Exhibit 10.74
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 6th day of August, 1999, by
and between MICHAEL FOODS, INC., a Minnesota corporation (the "Company") and
BILL L. GOUCHER (the "Executive").
WHEREAS, Executive has served as President of an operating company
subsidiary of Michael Foods, Inc.; and
WHEREAS, Company and Executive have agreed to enter into this Agreement
effective as of January 1, 1999.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties agree that this Agreement is effective as of January 1,
1999 as follows:
1. EMPLOYMENT AND DUTIES. Company shall employ Executive to serve as
President of M.G. Waldbaum Company and in such capacity Executive shall perform
such duties as the Bylaws provide and as the CEO of the Company may from time to
time determine.
2. TERM. This Agreement shall be effective as of January 1, 1999 and shall
continue through December 31, 2000, unless earlier terminated as provided herein
(the "Employment Period"). The Employment Period may be extended thereafter upon
the written agreement of the parties hereto.
3. ANNUAL BASE SALARY. For all services by Executive, the Company agrees to
pay to Executive an Annual Base Salary for each of the calendar years of this
Agreement from January 1, 1999 through December 31, 2000 of at least $230,000.
4. ADDITIONAL BENEFITS AND WORKING FACILITIES.
a. Annual Bonus. For each calendar year during the term of this
Agreement, Executive shall participate in the Michael Foods, Inc. 1994
Executive Incentive Plan (and successor plans) (the "IP") and such other
bonus arrangements as may be approved by the Compensation Committee of the
Board of Directors (the "Compensation Committee") (the aggregate of all
payments made under such bonus arrangements being herein referred to as the
"Annual Bonus").
b. Other Benefits. Executive shall be entitled to participate in all
compensation, incentive, employee benefit, welfare and other plans,
practices, policies and programs and fringe benefits, including vacation
policy (collectively, "Employee Benefit Plans") on a basis no less
favorable than that provided to any other executive officer of the Company.
c. Expenses. The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in connection with the Company's business,
including but not
<PAGE> 2
limited to, expenses of travel and entertainment, upon presentation of
itemized statements therefor.
5. 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 notice in
accordance with Section 11 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
-2-
<PAGE> 3
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.
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) upon, or in anticipation of, a Change in Control, 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 1 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 after 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 an operating company President; 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 3 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 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;
-3-
<PAGE> 4
(iv) after, or in anticipation of, a Change in Control, 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
(vi) after, or in anticipation of, a Change in Control, any
requirement that the Executive (A) be based anywhere more than 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.
For purposes of this Section, any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
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 provisions 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 30 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 Termination shall be 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, the Date of Termination shall be
30 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 occurrence of any
one of the following events:
(i) individuals who, on the date hereof, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a
director subsequent to the date
-4-
<PAGE> 5
hereof, whose election or nomination for election was approved by a
vote of at least two-thirds of the Incumbent Directors then on the
Board (either by a specific vote or by approval of the proxy statement
of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an
Incumbent Director; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an
actual or threatened election contest (as described in Rule 14a-11
under the Securities Exchange Act of 1934 (the "Act")) ("Election
Contest") or other actual or threatened solicitation of proxies or
consents by or on behalf of any "person" (as such term if defined in
Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and
14(d)(2) of the Act) other than the Board ("Proxy Contest"), including
by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of
the Company's then outstanding securities eligible to vote for the
election of the Board (the "Company Voting Securities"); provided,
however, that the event described in paragraph (ii) shall not be
deemed to be a Change in Control of the Company by virtue of any of
the following acquisitions: (A) by the Company or any subsidiary, (B)
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary, (C) by any underwriter
temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction (as defined
in paragraph (iii)), or (E) pursuant to any acquisition by the
Executive or any group of persons including the Executive (or any
entity controlled by the Executive or any group of persons including
the Executive);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the
Company or any of its subsidiaries that requires the approval of the
Company's stockholders, whether for such transaction or the issuance
of securities in the transaction (a "Reorganization"), or sale or
other disposition of all or substantially all of the Company's assets
to an entity that is not an affiliate of the Company (a "Sale"),
unless immediately following such Reorganization or Sale: (A) more
than 60% of the total voting power of (x) the corporation resulting
from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the
"Surviving Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of
100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by
Company Voting Securities that were outstanding immediately prior to
such Reorganization or Sale (or, if applicable, is represented by
shares into which such Company Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power among
the holders thereof is in substantially the same proportion as
-5-
<PAGE> 6
the voting power of such Company Voting Securities among the holders
thereof immediately prior to the Reorganization or Sale, (B) no person
(other than any employee benefit plan (or related trust) sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Reorganization or Sale
were Incumbent Directors at the time of the Board's approval of the
execution of the initial agreement providing for such Reorganization
or Sale (any Reorganization or Sale which satisfies all of the
criteria specified in (A), (B) and (C) above shall be deemed to be a
"Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not
be deemed to occur solely because any person acquires beneficial ownership
of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after
such acquisition by the Company such person becomes the beneficial owners
of additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
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 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 or contract or
-6-
<PAGE> 7
agreement of 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");
(iii) the Company shall pay to the Executive or his estate in a
lump sum in cash within 30 days after the Date of Termination an
amount equal to the Executive's current Annual Base Salary, and
(iv) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
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. If,
during the Employment Period but prior to a Change in Control, the
Executive's employment is terminated by the Company other than for Cause,
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 amount of Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; and
(B) an amount equal to the Executive's current Annual Base
Salary.
(ii) the Company shall provide the Executive with the Other
Benefits.
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards shall vest and
become immediately payable.
d. After, or in Anticipation of a Change in Control By the Company
Other than for Cause or By the Executive for Good Reason. If the
Executive's employment shall be terminated by the Company other than for
Cause or the Executive terminates his employment for Good Reason in
anticipation of or within two years following a Change in Control:
(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:
-7-
<PAGE> 8
(A) the Accrued Obligations;
(B) an amount equal to the product of (x) two (2) and (y)
the sum of (1) the Executive's current Annual Base Salary; and
(C) any compensation previously deferred by Executive other
than pursuant to a tax-qualified plan (together with any earnings
and interest thereon).
(ii) the Company shall provide the Executive with the Other
Benefits.
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
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, practice or
program or 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.
-8-
<PAGE> 9
9. SUCCESSORS.
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.
10. 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:
MR. BILL L. GOUCHER
3060 Quinwood Lane
Plymouth, MN 55441
If to the Company:
Michael Foods, Inc.
5353 Wayzata Boulevard
324 Park National Bank Building
Minneapolis, Minnesota 55416
-9-
<PAGE> 10
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. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
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 5(c) 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 5(d), there shall be no limitation on
the ability of the Company to terminate the Executive at any time with or
without Cause.
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.
/s/ Bill L. Goucher
--------------------------------------
MICHAEL FOODS, INC.
By: Gregg A. Ostrander
----------------------------------
Title: President/CEO
-10-
<PAGE> 1
Exhibit 10.75
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 6th day of August, 1999, by
and between MICHAEL FOODS, INC., a Minnesota corporation (the "Company") and
JAMES D. CLARKSON (the "Executive").
WHEREAS, Executive has served as President of an operating company
subsidiary of Michael Foods, Inc.; and
WHEREAS, Company and Executive have agreed to enter into this Agreement
effective as of January 1, 1999.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties agree that this Agreement is effective as of January 1,
1999 as follows:
1. EMPLOYMENT AND DUTIES. Company shall employ Executive to serve as
President of Northern Star Company and in such capacity Executive shall perform
such duties as the Bylaws provide and as the CEO of the Company may from time to
time determine.
2. TERM. This Agreement shall be effective as of January 1, 1999 and shall
continue through December 31, 2000, unless earlier terminated as provided herein
(the "Employment Period"). The Employment Period may be extended thereafter upon
the written agreement of the parties hereto.
3. ANNUAL BASE SALARY. For all services by Executive, the Company agrees to
pay to Executive an Annual Base Salary for each of the calendar years of this
Agreement from January 1, 1999 through December 31, 2000 of at least $194,000.
4. ADDITIONAL BENEFITS AND WORKING FACILITIES.
a. Annual Bonus. For each calendar year during the term of this
Agreement, Executive shall participate in the Michael Foods, Inc. 1994
Executive Incentive Plan (and successor plans) (the "IP") and such other
bonus arrangements as may be approved by the Compensation Committee of the
Board of Directors (the "Compensation Committee") (the aggregate of all
payments made under such bonus arrangements being herein referred to as the
"Annual Bonus").
b. Other Benefits. Executive shall be entitled to participate in all
compensation, incentive, employee benefit, welfare and other plans,
practices, policies and programs and fringe benefits, including vacation
policy (collectively, "Employee Benefit Plans") on a basis no less
favorable than that provided to any other executive officer of the Company.
c. Expenses. The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in connection with the Company's business,
including but not limited to, expenses of travel and entertainment, upon
presentation of itemized statements therefor.
<PAGE> 2
5. 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 notice in
accordance with Section 11 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
-2-
<PAGE> 3
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.
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) upon, or in anticipation of, a Change in Control, 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 1 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 after 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 an operating company President; 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 3 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 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) after, or in anticipation of, a Change in Control, any
purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement for Cause,
death or Disability;
-3-
<PAGE> 4
(v) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement; or
(vi) after, or in anticipation of, a Change in Control, any
requirement that the Executive (A) be based anywhere more than 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.
For purposes of this Section, any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
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 provisions 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 30 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 Termination shall be 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, the Date of Termination shall be
30 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 occurrence of any
one of the following events:
(i) individuals who, on the date hereof, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof, whose election or nomination
for election was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that no
individual initially
-4-
<PAGE> 5
elected or nominated as a director of the Company as a result of an
actual or threatened election contest (as described in Rule 14a-11
under the Securities Exchange Act of 1934 (the "Act")) ("Election
Contest") or other actual or threatened solicitation of proxies or
consents by or on behalf of any "person" (as such term if defined in
Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and
14(d)(2) of the Act) other than the Board ("Proxy Contest"), including
by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of
the Company's then outstanding securities eligible to vote for the
election of the Board (the "Company Voting Securities"); provided,
however, that the event described in paragraph (ii) shall not be
deemed to be a Change in Control of the Company by virtue of any of
the following acquisitions: (A) by the Company or any subsidiary, (B)
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary, (C) by any underwriter
temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction (as defined
in paragraph (iii)), or (E) pursuant to any acquisition by the
Executive or any group of persons including the Executive (or any
entity controlled by the Executive or any group of persons including
the Executive);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the
Company or any of its subsidiaries that requires the approval of the
Company's stockholders, whether for such transaction or the issuance
of securities in the transaction (a "Reorganization"), or sale or
other disposition of all or substantially all of the Company's assets
to an entity that is not an affiliate of the Company (a "Sale"),
unless immediately following such Reorganization or Sale: (A) more
than 60% of the total voting power of (x) the corporation resulting
from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the
"Surviving Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of
100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by
Company Voting Securities that were outstanding immediately prior to
such Reorganization or Sale (or, if applicable, is represented by
shares into which such Company Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power among
the holders thereof is in substantially the same proportion as the
voting power of such Company Voting Securities among the holders
thereof immediately prior to the Reorganization or Sale, (B) no person
(other than any employee benefit plan (or related trust) sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of
-5-
<PAGE> 6
the members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Reorganization or Sale were
Incumbent Directors at the time of the Board's approval of the
execution of the initial agreement providing for such Reorganization
or Sale (any Reorganization or Sale which satisfies all of the
criteria specified in (A), (B) and (C) above shall be deemed to be a
"Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not
be deemed to occur solely because any person acquires beneficial ownership
of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after
such acquisition by the Company such person becomes the beneficial owners
of additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
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 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 or contract or agreement of 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");
(iii) the Company shall pay to the Executive or his estate in a
lump sum in cash within 30 days after the Date of Termination an
amount equal to the Executive's current Annual Base Salary, and
-6-
<PAGE> 7
(iv) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
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. If,
during the Employment Period but prior to a Change in Control, the
Executive's employment is terminated by the Company other than for Cause,
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 amount of Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; and
(B) an amount equal to the Executive's current Annual Base
Salary.
(ii) the Company shall provide the Executive with the Other
Benefits.
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards shall vest and
become immediately payable.
d. After, or in Anticipation of a Change in Control By the Company
Other than for Cause or By the Executive for Good Reason. If the
Executive's employment shall be terminated by the Company other than for
Cause or the Executive terminates his employment for Good Reason in
anticipation of or within two years following a Change in Control:
(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;
(B) an amount equal to the product of (x) two (2) and (y)
the sum of (1) the Executive's current Annual Base Salary; and
(C) any compensation previously deferred by Executive other
than pursuant to a tax-qualified plan (together with any earnings
and interest thereon).
-7-
<PAGE> 8
(ii) the Company shall provide the Executive with the Other
Benefits.
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
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, practice or
program or 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. SUCCESSORS.
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
-8-
<PAGE> 9
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.
10. 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:
JAMES D. CLARKSON
18783 The Pines
Eden Prairie, MN 55347
If to the Company:
Michael Foods, Inc.
5353 Wayzata Boulevard
324 Park National Bank Building
Minneapolis, Minnesota 55416
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. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
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 5(c) 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.
-9-
<PAGE> 10
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 5(d), there shall be no limitation on
the ability of the Company to terminate the Executive at any time with or
without Cause.
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.
/s/ J.D. Clarkson
--------------------------------------
MICHAEL FOODS, INC.
By: Gregg A. Ostrander
----------------------------------
Title: President/CEO
-10-
<PAGE> 1
Exhibit 10.76
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 6th day of August, 1999, by
and between MICHAEL FOODS, INC., a Minnesota corporation (the "Company") and
NORMAN A. RODRIGUEZ (the "Executive").
WHEREAS, Executive has served as President of an operating company
subsidiary of Michael Foods, Inc.; and
WHEREAS, Company and Executive have agreed to enter into this Agreement
effective as of January 1, 1999.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties agree that this Agreement is effective as of January 1,
1999 as follows:
1. EMPLOYMENT AND DUTIES. Company shall employ Executive to serve as
President of Crystal Farms Refrigerated Distribution Company and in such
capacity Executive shall perform such duties as the Bylaws provide and as the
CEO of the Company may from time to time determine.
2. TERM. This Agreement shall be effective as of January 1, 1999 and shall
continue through December 31, 2000, unless earlier terminated as provided herein
(the "Employment Period"). The Employment Period may be extended thereafter upon
the written agreement of the parties hereto.
3. ANNUAL BASE SALARY. For all services by Executive, the Company agrees to
pay to Executive an Annual Base Salary for each of the calendar years of this
Agreement from January 1, 1999 through December 31, 2000 of at least $203,000.
4. ADDITIONAL BENEFITS AND WORKING FACILITIES.
a. Annual Bonus. For each calendar year during the term of this
Agreement, Executive shall participate in the Michael Foods, Inc. 1994
Executive Incentive Plan (and successor plans) (the "IP") and such other
bonus arrangements as may be approved by the Compensation Committee of the
Board of Directors (the "Compensation Committee") (the aggregate of all
payments made under such bonus arrangements being herein referred to as the
"Annual Bonus").
b. Other Benefits. Executive shall be entitled to participate in all
compensation, incentive, employee benefit, welfare and other plans,
practices, policies and programs and fringe benefits, including vacation
policy (collectively, "Employee Benefit Plans") on a basis no less
favorable than that provided to any other executive officer of the Company.
c. Expenses. The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in connection with the Company's business,
including
<PAGE> 2
but not limited to, expenses of travel and entertainment, upon presentation
of itemized statements therefor.
5. 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 notice in
accordance with Section 11 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
-2-
<PAGE> 3
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.
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) upon, or in anticipation of, a Change in Control, 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 1 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 after 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 an operating company President; 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 3 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 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;
-3-
<PAGE> 4
(iv) after, or in anticipation of, a Change in Control, 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
(vi) after, or in anticipation of, a Change in Control, any
requirement that the Executive (A) be based anywhere more than 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.
For purposes of this Section, any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
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 provisions 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 30 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 Termination shall be 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, the Date of Termination shall be
30 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 occurrence of any
one of the following events:
(i) individuals who, on the date hereof, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof, whose election or nomination
for election was approved by a vote of at
-4-
<PAGE> 5
least two-thirds of the Incumbent Directors then on the Board (either
by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected or
nominated as a director of the Company as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the
Securities Exchange Act of 1934 (the "Act")) ("Election Contest") or
other actual or threatened solicitation of proxies or consents by or
on behalf of any "person" (as such term if defined in Section 3(a)(9)
of the Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act)
other than the Board ("Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy
Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of
the Company's then outstanding securities eligible to vote for the
election of the Board (the "Company Voting Securities"); provided,
however, that the event described in paragraph (ii) shall not be
deemed to be a Change in Control of the Company by virtue of any of
the following acquisitions: (A) by the Company or any subsidiary, (B)
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary, (C) by any underwriter
temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction (as defined
in paragraph (iii)), or (E) pursuant to any acquisition by the
Executive or any group of persons including the Executive (or any
entity controlled by the Executive or any group of persons including
the Executive);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the
Company or any of its subsidiaries that requires the approval of the
Company's stockholders, whether for such transaction or the issuance
of securities in the transaction (a "Reorganization"), or sale or
other disposition of all or substantially all of the Company's assets
to an entity that is not an affiliate of the Company (a "Sale"),
unless immediately following such Reorganization or Sale: (A) more
than 60% of the total voting power of (x) the corporation resulting
from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the
"Surviving Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of
100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by
Company Voting Securities that were outstanding immediately prior to
such Reorganization or Sale (or, if applicable, is represented by
shares into which such Company Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power among
the holders thereof is in substantially the same proportion as the
voting power of such Company Voting Securities among the holders
thereof immediately prior to the Reorganization or Sale, (B) no person
(other than any employee benefit plan (or related trust) sponsored or
maintained by the Surviving
-5-
<PAGE> 6
Corporation or the Parent Corporation), is or becomes the beneficial
owner, directly or indirectly, of 20% or more of the total voting
power of the outstanding voting securities eligible to elect directors
of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) following the
consummation of the Reorganization or Sale were Incumbent Directors at
the time of the Board's approval of the execution of the initial
agreement providing for such Reorganization or Sale (any
Reorganization or Sale which satisfies all of the criteria specified
in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not
be deemed to occur solely because any person acquires beneficial ownership
of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after
such acquisition by the Company such person becomes the beneficial owners
of additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
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 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 or contract or agreement of 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");
-6-
<PAGE> 7
(iii) the Company shall pay to the Executive or his estate in a
lump sum in cash within 30 days after the Date of Termination an
amount equal to the Executive's current Annual Base Salary, and
(iv) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
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. If,
during the Employment Period but prior to a Change in Control, the
Executive's employment is terminated by the Company other than for Cause,
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 amount of Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid; and
(B) an amount equal to the Executive's current Annual Base
Salary.
(ii) the Company shall provide the Executive with the Other
Benefits.
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards shall vest and
become immediately payable.
d. After, or in Anticipation of a Change in Control By the Company
Other than for Cause or By the Executive for Good Reason. If the
Executive's employment shall be terminated by the Company other than for
Cause or the Executive terminates his employment for Good Reason in
anticipation of or within two years following a Change in Control:
(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;
(B) an amount equal to the product of (x) two (2) and (y)
the sum of (1) the Executive's current Annual Base Salary; and
-7-
<PAGE> 8
(C) any compensation previously deferred by Executive other
than pursuant to a tax-qualified plan (together with any earnings
and interest thereon).
(ii) the Company shall provide the Executive with the Other
Benefits.
(iii) all stock options shall vest and remain exercisable for the
remainder of their term and all restricted stock awards and other
awards shall vest and become immediately payable.
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, practice or
program or 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. SUCCESSORS.
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.
-8-
<PAGE> 9
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.
10. 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:
NORMAN A. RODRIGUEZ
3626 France Avenue So.
St. Louis Park, MN 55416
If to the Company:
Michael Foods, Inc.
5353 Wayzata Boulevard
324 Park National Bank Building
Minneapolis, Minnesota 55416
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. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
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
-9-
<PAGE> 10
the Company may have hereunder, including, without limitation, the right of
the Executive to terminate employment for Good Reason pursuant to Section
5(c) 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 5(d), there shall be no limitation on
the ability of the Company to terminate the Executive at any time with or
without Cause.
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.
/s/ Norman A. Rodriguez
--------------------------------------
MICHAEL FOODS, INC.
By: Gregg A. Ostrander
----------------------------------
Title: President/CEO
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS INCLUDED
HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,685
<SECURITIES> 0
<RECEIVABLES> 94,769
<ALLOWANCES> 2,277
<INVENTORY> 74,998
<CURRENT-ASSETS> 184,475
<PP&E> 484,729
<DEPRECIATION> 202,763
<TOTAL-ASSETS> 607,282
<CURRENT-LIABILITIES> 117,225
<BONDS> 196,393
0
0
<COMMON> 202
<OTHER-SE> 253,141
<TOTAL-LIABILITY-AND-EQUITY> 607,282
<SALES> 781,320
<TOTAL-REVENUES> 781,320
<CGS> 642,301
<TOTAL-COSTS> 642,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 152
<INTEREST-EXPENSE> 8,862
<INCOME-PRETAX> 52,326
<INCOME-TAX> 21,450
<INCOME-CONTINUING> 30,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,876
<EPS-BASIC> 1.50
<EPS-DILUTED> 1.48
</TABLE>
