<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
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 0-19934
THE MORNINGSTAR GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2217488
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5956 SHERRY LANE, SUITE 1500
DALLAS, TEXAS 75225-6522
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 360-4777
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. Yes X , No .
--- ---
As of July 31, 1997, the number of shares outstanding of each class of
common stock was:
Common Stock, $.01 par value: 15,442,941 shares
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 2,167 $ 4,786
Receivables, net of allowance for doubtful accounts of $8,852 and $6,676 ....... 48,038 57,802
Inventories...................................................................... 25,689 25,400
Prepaids and other............................................................... 2,599 3,015
Deferred tax assets.............................................................. 7,339 7,339
Net assets held for sale......................................................... 630 676
------------- -------------
Total current assets.................................................... 86,462 99,018
PROPERTY, PLANT AND EQUIPMENT:
Land............................................................................. 12,551 7,843
Buildings ....................................................................... 35,131 29,507
Machinery and equipment.......................................................... 80,189 70,239
------------- -------------
Gross property, plant and equipment..................................... 127,871 107,589
Less: Accumulated depreciation.................................................. (27,163) (22,807)
------------- -------------
Net property, plant and equipment....................................... 100,708 84,782
INTANGIBLE AND OTHER ASSETS:
Identifiable intangible assets................................................... 71,808 73,146
Goodwill......................................................................... 90,189 96,175
Deferred financing costs......................................................... 2,495 2,731
Other assets..................................................................... 661 139
------------- -------------
Total intangible and other assets....................................... 165,153 172,191
------------- -------------
TOTAL ASSETS....................................................................... $ 352,323 $ 355,991
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE> 3
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 27,102 $ 32,968
Accrued liabilities.............................................................. 36,364 39,923
Current portion of long-term debt................................................ 11,500 8,000
------------- -------------
Total current liabilities................................................ 74,966 80,891
LONG-TERM DEBT (net of current maturities)......................................... 169,200 177,349
OTHER LONG-TERM LIABILITIES........................................................ 3,020 3,269
DEFERRED TAX LIABILITIES........................................................... 5,694 5,694
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized;
15,382,942 shares in 1997 and 15,261,061 shares issued in 1996................. 153 153
Additional paid-in capital....................................................... 73,873 73,179
Treasury stock, at cost (767,000 shares in 1997 and 1996)........................ (6,140) (6,140)
Retained earnings ............................................................... 31,557 21,596
------------- -------------
Total stockholders' equity............................................... 99,443 88,788
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $ 352,323 $ 355,991
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 4
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------
1997 1996 1997 1996
----------- ----------- ----------- ------
<S> <C> <C> <C> <C>
NET SALES................................................ $ 140,374 $ 85,693 $ 270,672 $ 167,417
Cost of goods sold..................................... 100,953 65,698 196,022 128,036
Selling, distribution, and general and administrative.. 26,337 14,239 51,223 28,737
----------- ----------- ----------- -----------
OPERATING INCOME......................................... 13,084 5,756 23,427 10,644
OTHER (INCOME) AND EXPENSES:
Interest expense....................................... 3,310 645 6,562 1,342
Amortization of deferred financing costs............... 116 95 236 190
Other income, net...................................... (131) (191) (249) (382)
----------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES............................... 9,789 5,207 16,878 9,494
Provision for income taxes............................. 4,012 1,744 6,917 3,200
----------- ----------- ----------- -----------
NET INCOME............................................... $ 5,777 $ 3,463 $ 9,961 $ 6,294
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE................................ $ .37 $ .23 $ .64 $ .42
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.......................... 15,716,000 14,724,000 15,644,000 14,778,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 5
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers......................................................... $ 280,622 $ 169,021
Interest received.................................................................... 35 127
Income tax refund.................................................................... - 156
Cash paid to suppliers and employees................................................. (245,771) (148,572)
Interest paid........................................................................ (7,415) (1,617)
Income taxes paid.................................................................... (7,773) (2,807)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................................. 19,698 16,308
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary:
Working capital..................................................................... (1,290) (125)
Property, plant and equipment....................................................... (1,559) (3,613)
Other assets........................................................................ (4,151) (3,315)
----------- ----------
Net cash used by acquisition of subsidiary...................................... (7,000) (7,053)
Capital expenditures................................................................ (10,121) (4,455)
Proceeds from sale of fixed assets.................................................. 19 -
Other............................................................................... (1,260) 1,173
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES.................................................. (18,362) (10,335)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................................... 694 118
Net payments under revolving credit facility......................................... (649) -
Payments on long-term debt........................................................... (4,000) (4,000)
Purchase of treasury stock........................................................... - (4,300)
----------- ----------
NET CASH USED BY FINANCING ACTIVITIES.................................................. (3,955) (8,182)
----------- ----------
NET DECREASE IN CASH................................................................... (2,619) (2,209)
CASH, BEGINNING OF PERIOD.............................................................. 4,786 5,811
----------- ----------
CASH, END OF PERIOD.................................................................... $ 2,167 $ 3,602
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 6
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
NET INCOME.............................................................................. $ 9,961 $ 6,294
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH FLOW FROM OPERATIONS:
Depreciation.......................................................................... 5,243 2,938
Amortization of intangibles........................................................... 2,988 1,350
Increase in deferred taxes............................................................ - 21
Change in assets and liabilities, net of effects from acquisition of
subsidiary:
Accounts receivable............................................................. 10,477 1,604
Inventories..................................................................... 398 (1,094)
Prepaids and other.............................................................. 416 (70)
Accounts payable................................................................ (5,866) 2,384
Accrued liabilities............................................................. (3,670) 3,018
Long-term liabilities........................................................... (249) (138)
----------- -----------
NET CASH PROVIDED BY OPERATIONS......................................................... $ 19,698 $ 16,308
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 7
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1997, and for the
six months then ended have been prepared by The Morningstar Group Inc.
(the "Company" or "Morningstar") without audit. In the opinion of
management, all necessary adjustments (which include only normal recurring
adjustments) to present fairly, in all material respects, the consolidated
financial position, results of operations and changes in cash flows at
June 30, 1997, and for the six months then ended, have been made. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the Company's 1996 financial statements contained in its
most recent Annual Report on Form 10-K. Certain prior year balances have
been reclassified to conform to the current year presentation.
On February 3, 1997, the Company completed the purchase of
substantially all of the assets of the frozen whipped toppings business of
Van de Kamp's, Inc. ("VDK"). VDK's sales for the year ended December 31,
1996 were approximately $13.1 million. VDK is a manufacturer and
distributor of frozen whipped toppings primarily supplying retail
customers throughout the United States. The Company paid approximately
$7.0 million in cash for the assets acquired, and assumed approximately
$.1 million in related liabilities. The source of funding was provided by
the Company's operations in conjunction with its revolving credit
facility.
During the first six months of 1997, the company received appraised
values on certain assets acquired in the Presto Food Products, Inc.
acquisition. As a result, the allocation of the purchase price was revised
resulting in a reclassification of $9.2 million from goodwill to property,
plant and equipment.
(2) INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
At At
June 30, December 31,
1997 1996
-------------- -----------
<S> <C> <C>
Raw materials and supplies................................................... $ 14,443 $ 11,767
Finished goods............................................................... 11,246 13,633
-------------- -------------
Total...................................................... $ 25,689 $ 25,400
============== =============
</TABLE>
Finished goods inventories include the costs of materials, labor and plant
overhead.
6
<PAGE> 8
(3) DEBT
The Company's outstanding long-term debt and average interest rates in
effect on June 30, 1997 were:
<TABLE>
<CAPTION>
Average
Amount of Interest
Debt Rate
-------------- ------------
(in thousands)
<S> <C> <C>
Senior term loan................................................... $ 156,000 7.130%
Revolving credit facility (a)...................................... 21,700 7.256%
Industrial development revenue bonds............................... 3,000 4.080%
---------------
Total....................................................... 180,700
Less: Current maturities.......................................... 11,500
--------------
Long-term debt, net of current maturities.......................... $ 169,200
==============
</TABLE>
-----------------
(a) As of June 30, 1997, approximately $21,700,000 was
outstanding under the revolving credit facility and letters
of credit totaling $7,974,000 were issued. As of June 30,
1997, the Company had $30,326,000 in additional borrowing
capacity under the terms of its revolving credit facility.
(4) EARNINGS PER COMMON SHARE
The earnings per common share is computed based on the weighted average
number of shares of the Company's common stock and common stock
equivalents outstanding during the period. Common stock equivalents
represent the dilutive effect of the assumed exercise of certain
outstanding stock options.
The Company intends to adopt SFAS No. 128 "Earnings Per Share" "SFAS
128" effective December 15, 1997 and present December 31, 1997 and prior
periods earnings per share under SFAS 128. Early adoption of the new
statement is not permitted. The calculation of basic earnings per share
under SFAS 128 will have a favorable impact as it excludes potentially
dilutive options previously included in the calculation of primary
earnings per share.
(5) STOCK REPURCHASE PROGRAM
On June 21, 1995, the Company's Board of Directors announced that it
had approved a plan pursuant to which the Company may repurchase up to
$20.0 million of its common stock. The purchases will be effected through
open market transactions or negotiated transactions from time to time,
depending on the market price of the stock and other factors. As of
December 31, 1996, 767,000 shares had been repurchased by the Company at a
cost of $6.1 million. As of June 30, 1997, the Company had not purchased
any additional shares.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
Results of Operations - Second Quarter and Year - to - Date 1997 Compared with
Second Quarter and Year - to - Date 1996
Net sales are classified into three categories: (i) Branded products,
which include sales of the Company's seven nationally branded products
- --International Delight(R), a gourmet-flavored and non-flavored coffee creamer;
Second Nature(R), a refrigerated no-cholesterol egg substitute; Mocha Mix(R),
non-dairy coffee creamers; Naturally Yours(TM), fat-free and regular, real
dairy sour cream; Jon Donaire(R), cheesecakes and desserts; Wacky Willie(TM),
flavored shakes; and, in the western two-thirds of the United States,
Lactaid(R), lactose-free and lactose-reduced milks produced under license from
McNeil Consumer Products Company, a subsidiary of Johnson & Johnson; (ii)
Proprietary products, which include the Company's sales of yogurt, aerosol
toppings, bakery toppings and icings, and frozen pre-whipped toppings; and
(iii) Specialty products, which include all sales of the Company's specialty
foods business other than branded products and proprietary products.
Net sales for the second quarter of 1997 totaled $140.4 million, an
increase of $54.7 million from net sales for the same period in 1996. For the
six months ended June 30, 1997, net sales were $270.7 million, an increase of
$103.3 million from the same period in 1996. The following table reflects net
sales by product category from year to year (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------- ------------ -----------
Product Category
<S> <C> <C> <C> <C>
Branded products $ 54,757 $ 32,937 $ 108,687 $ 66,472
Proprietary products 41,111 16,735 73,210 30,993
Specialty products 44,506 36,021 88,775 69,952
----------- ------------ ----------- -----------
Net Sales $ 140,374 $ 85,693 $ 270,672 $ 167,417
=========== ============ =========== ===========
</TABLE>
Net sales of branded products increased by 66.2% and 63.5% for the second
quarter and first six months of 1997, respectively, when compared to similar
periods in 1996. This improvement was accomplished through increased sales of
International Delight, Naturally Yours, Wacky Willie and Lactaid. The
acquisition of Presto Food Products, Inc. ("Presto") accounted for
approximately $12.7 million and $23.8 million of branded sales during the
second quarter and first six months of 1997, respectively. Net sales of
proprietary products increased by 145.7% and 136.2%for the second quarter and
first six months of 1997, respectively, when compared to the same periods of
1996. This improvement was accomplished through increased sales of yogurt,
aerosol toppings and bakery toppings. The acquisition of Presto accounted for
approximately $20.9 million and $34.0 million of proprietary sales during the
second quarter and first six months of 1997, respectively. Net sales of
specialty products increased by 23.6% and 26.9% during the second quarter and
first six months as compared to 1996 primarily as a result of increased UHT and
cultured product sales.
Gross margin was 28.1% and 27.6% for the second quarter and first six
months of 1997, compared to 23.3% and 23.5% for the like periods of 1996. These
increases in gross margin resulted primarily from three main items: (i) higher
overall gross margins for Presto products, (ii) purchasing and manufacturing
synergies realized as a result of the acquisition of Presto and (iii) the
Company's selective exit from some of its lower margin business.
Operating expenses as a percentage of net sales were 18.8% and 18.9% for
the second quarter and first six months of 1997, respectively compared to 16.6%
and 17.2% for like periods in 1996. Distribution expense as a percent of sales
increased as compared to 1996 due primarily to the acquisition of Presto which
included a number of outside warehouses as well as several frozen products
which tend to be more costly to distribute than refrigerated products. Selling
expenses increased as a percent of sales as a result of increased marketing and
promotional activities and increased brokerage commissions related to the
increase in branded sales. General and administrative expenses as a percent of
sales decreased as compared to 1996 due to continuing efforts to eliminate
redundant overhead costs and inefficiencies as well as the fixed nature of a
majority of these costs.
8
<PAGE> 10
The Company's operating income during the second quarter of 1997 was
$13.1 million, an increase of 127.3% from operating income for the second
quarter of 1996 of approximately $5.8 million. For the first six months of
1997, operating income was $23.4 million, an increase of 120.1% from 1996
operating income of $10.6 million. The increase in operating income from like
periods in 1996 was primarily due to the increased sales of all three product
categories, and an increase in gross margin percentage offset in part by
increased operating costs.
For the second quarter, interest expense increased by 413.2% from $.6
million during 1996 to $3.3 million during 1997. For the first six months,
interest expense increased 389.0%. The increase in 1997 resulted from debt
incurred in connection with the Presto acquisition.
The Company recorded net income of $5.8 million and $10.0 million in the
second quarter and first six months of 1997, respectively compared to $3.5
million and $6.3 million for the comparable periods of 1996. The improved
profitability was primarily the result of higher sales and an increase in gross
margin percentage offset by increases in the Company's operating expenses,
interest expense and its provision for income taxes.
Liquidity and Capital Resources
Cash provided by operations was $19.7 million during the first six months
of 1997 compared to cash provided by operations of $16.3 million during the
first six months of 1996. The sources of cash during the first six months of
1997 were the $19.7 million provided by operations, $.7 million from the
exercise of stock options and the reduced cash balance of $2.6 million. The
cash was utilized to pay down debt of $4.6 million, to provide for capital and
other expenditures of $10.1 million and to provide for the purchase of VDK for
$7.0 million.
Capital expenditures during the first six months of 1997 were spent
primarily on equipment additions for increased operating efficiencies as well
as expansion of certain production lines. As of June 30, 1997, the Company was
in compliance with all covenants and financial ratios contained in its senior
credit agreement. Based upon the Company's projections for the remainder of
1997, management does not anticipate any violation of the financial covenants
contained in the senior credit agreement.
At June 30, 1997, the Company had approximately $30.3 million in unused
borrowing capacity under its revolving credit facility. The Company expects
that operating cash flows, together with borrowings under its revolving credit
facility, will be sufficient to fund the Company's requirements for working
capital, treasury stock purchases and capital expenditures for the foreseeable
future.
Financing
As of June 30, 1997, the Company's senior credit agreement consisted of a
$160.0 million term loan and a $60.0 million revolving credit facility. As of
June 30, 1997, approximately $21,700,000 was outstanding under the revolving
credit facility and approximately $7,974,000 million in letters of credit were
outstanding. As of June 30, 1997, the unpaid principal balance of the term loan
was $156.0 million.
The remaining amortization schedule for the term loan as of June 30,
1997, is as follows:
<TABLE>
<CAPTION>
Approximate
Quarterly payment dates Quarterly payment
-------------------------------------- -----------------
<S> <C>
September 30, 1997 - December 31, 1997 $ 2,000,000
March 31, 1998 - December 31, 1998 $ 3,750,000
March 31, 1999 - December 31, 1999 $ 5,000,000
March 31, 2000 - December 31, 2000 $ 7,500,000
March 31, 2001 - December 31, 2001 $ 8,750,000
March 31, 2002 - December 31, 2002 $ 13,000,000
</TABLE>
9
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
To the knowledge of the Company, there are no reportable suits or
proceedings pending or threatened against or affecting the Company other than
those encountered in the ordinary course of the Company's business and
described in the Company's most recent Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 10.1 Executive Retention Agreement, dated as of May 29, 1997 between
the Corporation and L. Hollis Jones.
10.2 Executive Retention Agreement, dated as of May 29, 1997 between
the Corporation and Darron K. Ash.
10.3 Executive Retention Agreement, dated as of May 29, 1997 between
the Corporation and Joseph B. Armes.
10.4 Amendment No. 1 to Employment Agreement, dated as of June 12,
1997 between the Corporation and C. Dean Metropoulos.
10.5 Amendment No. 1 to Employment Agreement, dated as of June 12,
1997 between the Corporation and Michael J. Cramer
27 Financial Data Schedule
99(A) Exhibits.
Calculation of weighted average shares outstanding.
(b) Not Applicable
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements 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.
THE MORNINGSTAR GROUP INC.
/s/ DARRON K. ASH
---------------------------------------
Darron K. Ash
(Authorized Officer)
Date: August 14, 1997
11
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Executive Retention Agreement, dated as of May 29, 1997 between
the Corporation and L. Hollis Jones.
10.2 Executive Retention Agreement, dated as of May 29, 1997 between
the Corporation and Darron K. Ash.
10.3 Executive Retention Agreement, dated as of May 29, 1997 between
the Corporation and Joseph B. Armes.
10.4 Amendment No. 1 to Employment Agreement, dated as of June 12,
1997 between the Corporation and C. Dean Metropoulos.
10.5 Amendment No. 1 to Employment Agreement, dated as of June 12,
1997 between the Corporation and Michael J. Cramer
27 Financial Data Schedule
99(A) Exhibits.
Calculation of weighted average shares outstanding.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE RETENTION AGREEMENT
THIS AGREEMENT is entered into this 29th day of May, 1997
("EFFECTIVE DATE"), by and between THE MORNINGSTAR GROUP INC., a Delaware
corporation ("COMPANY") and L. Hollis Jones ("EXECUTIVE").
A. The Board of Directors of the Company desires to
assure continuity and cooperation of management in the event of a change in
ownership and the continued attention of Executive to his duties without any
distraction arising out of the circumstances surrounding a change or potential
change in ownership.
B. The Company and Executive desire to enter into a
supplemental compensation arrangement in recognition of the additional efforts
of Executive to assist in and prepare for any potential change in ownership,
and to encourage Executive to diligently perform his duties and
responsibilities to ensure a smooth transition following any change in
ownership.
For good and valuable consideration, including the mutual
covenants herein, the parties hereto agree as follows:
1. Definitions. The following terms shall have the
following meanings for purposes of this Agreement.
"ANNUAL PAY" means the sum of (i) an amount equal to the
highest annual base salary rate payable to the Executive by the Company at any
time before or after a Change in Control plus (ii) an amount equal to the
target bonus established for the Executive for the Company's fiscal year in
which his termination of employment occurs or for the immediately preceding
fiscal year, whichever has the higher amount. The highest annual base salary
rate payable to the Executive up to the date hereof was $200,000.
"CAUSE" means the Executive's (i) willful and intentional
misconduct or gross negligence in the performance of, or willful neglect of,
the Executive's duties, which has caused demonstrable and serious injury
(monetary or otherwise) to the Company, or (ii) conviction of, or plea of nolo
contendere to, a felony; provided, however, that no act or omission shall
constitute "Cause" for purposes of this Agreement unless the Board of Directors
<PAGE> 2
of the Company provides to the Executive (a) written notice clearly and fully
describing the particular acts or omissions which the Board reasonably believes
in good faith constitutes "Cause" and (b) an opportunity, within 30 days
following his receipt of such notice, to meet in person with the Board of
Directors to explain or defend the alleged acts or omissions relied upon by the
Board and, to the extent practicable, to cure such acts or omissions. Further,
no act or omission shall be considered as "willful" or "intentional" if the
Executive reasonably believed such acts or omissions were in the best interests
of the Company. Executive shall have the right to contest a determination of
Cause by the Company by requesting arbitration in accordance with the terms of
Section 6.1 hereof.
"CHANGE IN CONTROL" means (1) any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), becomes the "beneficial owner" (as determined pursuant to
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities; or (2) during any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute the
members of the Company's Board of Directors (the "Board") and any new director,
whose election to the Board or nomination for election to the Board by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board; or (3)
the Company shall merge with or consolidate into any other corporation, other
than a merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
immediately thereafter securities representing more than seventy percent (70%)
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
(4) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets or such a plan is commenced.
2
<PAGE> 3
"CODE" means the Internal Revenue Code of 1986, as amended.
"GOOD REASON" means any of the following events occurring,
without Executive's prior written consent specifically referring to this
Agreement, within three (3) years following a Change in Control:
(1) (A) any reduction in the amount of Executive's annual
salary or aggregate incentive compensation opportunities, (B)
any significant reduction in the aggregate value of
Executive's benefits as in effect from time to time (unless
such reduction is pursuant to a general change in benefits
applicable to all similarly situated employees of the Company
and its affiliates) or (C) any material and willful breach by
the Company of any provision of this agreement or any written
employment agreement with Executive;
(2) (A) assignment to Executive of any duties
inconsistent with his status as President and Chief Operating
Officer of the Company, (B) the removal of Executive from his
position as President and Chief Operating Officer of the
Company or (C) any significant reduction in the nature or
status of Executive's duties or responsibilities;
(3) (A) transfer of Executive's principal place of
employment to a location more than 20 miles from Executive's
place of employment immediately prior to the Change in Control,
provided that the distance between the new principal place of
employment and Executive's primary residence is greater than 10
miles from the distance between the principal place of
employment prior to such transfer and Executive's primary
residence immediately prior to the Change in Control or (B)
Executive is required to travel outside of the continental
United States more than four times during any calendar year or
for more than 20 days in the aggregate in any calendar year; or
(4) failure by the Company to obtain the assumption agreement
referred to in Section 9 of this Agreement prior to the
effectiveness of any
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succession referred to therein, unless the purchaser,
successor or assignee referred to therein is bound to perform
this Agreement by operation of law.
Notwithstanding the above, the occurrence of any of the events described in (1)
through (4) above will not constitute Good Reason unless the Executive gives
the Company written notice, within 90 calendar days after the Executive knew or
should have known of the occurrence of any of the events described in (1)
through (4) above, that such event constitutes Good Reason, and the Company
thereafter fails to cure the event within thirty (30) days after receipt of
such notice.
2. Term. The term of this Agreement commences on the
Effective Date and expires (i) on the third anniversary thereof if no Change in
Control occurs before then. In the event of a Change in Control occurring
before the third anniversary of the Effective Date, this Agreement shall remain
in effect until all obligations and payments hereunder have been fully
satisfied.
3. Reserved.
4. Involuntary Termination Payment and Benefits
4.1 Involuntary Termination. In the event Executive's
employment with the Company or its successor is terminated by the Company
without Cause or by Executive for Good Reason (A) in contemplation of and
within 180 days preceding a Change in Control or (B) on or within three years
after a Change in Control, Executive shall be entitled to the following
payments and other benefits:
a. An amount equal to the sum of (i) Executive's accrued
and unpaid salary, vacation and personal days as of his date
of termination of employment, (ii) his accrued and unpaid
bonus, if any, for the Company's prior fiscal year, plus (iii)
his target annual bonus for the Company's fiscal year in which
his employment terminated, multiplied by a fraction, the
numerator of which is the number of days elapsed in such
fiscal year to the day his employment terminated, and the
denominator of which is 365. This amount shall be paid on the
date of Executive's termination of employment.
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b. An amount equal to one and one-half times Executive's
Annual Pay ("TERMINATION PAY"). Termination Pay shall be paid
in accordance with and subject to Sections 4.2 and 4.3 below.
c. Company shall reimburse Executive for the reasonable
costs of an office, secretarial assistance and executive
outplacement services, but the cost to the Company shall not
exceed $25,000.
d. Executive and his eligible dependents shall be
entitled for a period of eighteen (18) months following his
date of termination of employment to continued coverage, on
the same basis as similarly situated active employees, under
the Company's group health, dental, long-term disability and
life insurance plans as in effect from time to time (but not
any other welfare benefit plans or any retirement plans);
provided that coverage under any particular benefit plan shall
expire with respect to the period after Executive becomes
covered under another employer's plan providing for a similar
type of benefit. In the event the Company is unable to
provide such coverage on account of any limitations under the
terms of any applicable contract with an insurance carrier or
third party administrator, the Company shall pay Executive an
amount equal to the cost of such coverage.
e. Executive shall be permitted to retain the laptop
computer and home fax machine provided to the Executive by the
Company prior to Executive's termination.
f. An amount equal to the Executive's unvested account
balance under the Company's 401(k) Plan.
Except as provided in Section 4.2 below, the foregoing
payments and benefits shall be in addition to and not in lieu of any payments
or benefits to which Executive and his dependents may otherwise be entitled to
under the Company's compensation and employee benefit plans, policies or
practices. Nothing herein shall be deemed to restrict the right of the Company
from amending or terminating any such plan in a manner generally applicable to
similarly
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situated active employees of the Company and its affiliates, in which event
Executive shall be entitled to participate on the same basis (including payment
of applicable contributions) as similarly situated active executives of the
Company and its affiliates.
4.2. Offset for Other Severance Pay. There shall be no
duplication of severance pay in any manner. In this regard, Executive shall
not be entitled to Termination Pay hereunder for more than one position with
the Company and its affiliates. Further, Termination Pay shall be in lieu of
any other payments or benefits in the nature of severance pay or benefits to
which Executive has received or will receive from the Company or any of its
affiliates. Any other arrangement providing severance benefits shall be deemed
to be amended to eliminate any obligation for benefits to be provided
thereunder. If Executive is entitled to any notice or payment in lieu of any
notice of termination of employment required by Federal, state or local law,
including but not limited to the Worker Adjustment and Retraining Notification
Act, the Severance Compensation to which the Executive would otherwise be
entitled under this Agreement shall be reduced by the amount of any such
payment, in lieu of notice.
4.3. Mutual Release. Termination Pay described in paragraph
(b) of Section 4.1 shall be conditioned upon the execution by Executive and the
Company of a valid mutual release, to be prepared by the Company, in which
Executive and Company shall mutually release the other, to the maximum extent
permitted by law, from any and all claims either party may have against the
other party that relate to or arise out of Executive's employment or
termination of employment, except such claims arising under this Agreement, any
employee benefit plan or any other written plan or agreement ("Mutual
Release").
The full amount of Termination Pay shall be paid in a lump sum
in cash to Executive within ten (10) days following receipt by the Company of a
Mutual Release which is properly executed by Executive and is not revoked by
Executive before the eighth day following its receipt by the Company.
4.4. No Mitigation. The Executive shall not be obligated
to secure new employment, but shall be obligated to report promptly to the
Company any actual employment obtained during the period for which employee
benefits continue pursuant to Section 4.1.
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5. Excise Taxes.
a. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of 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 5) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by 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 Executive shall be entitled to receive
an additional payment ("Gross-Up Payment") in an amount such that after payment
by 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, Executive retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this paragraph "a", if it is determined that Executive
is entitled to a Gross-Up Payment, but that Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net
after-tax benefit of at least $10,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
b. Subject to the provisions of paragraph "c" of this
Section 5, all determinations required to be made under this Section 5,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be used in arriving at such
determination, shall be made by a certified public accounting firm selected by
the Company and reasonably
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acceptable to Executive (the "Accounting Firm"), which shall be retained to
provide detailed supporting calculations both to the Company and Executive
within 15 business days of the receipt of notice from Executive that there has
been a Payment, or such earlier time as is requested by the Company. If the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be paid
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and 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. If the Company exhausts its remedies pursuant to paragraph "c"
of this Section 5 and 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 Executive.
c. 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 (10) business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid or appealed. 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 Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
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(a) give the Company any information reasonable requested
by the Company relating to such claim,
(b) take such action in connection with contesting such
claims 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,
(c) cooperate with the Company in good faith in order to
effective contest such claim, and
(d) 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 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 paragraph "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 Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
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
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taxable year of 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 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 Executive of an amount
advanced by the Company pursuant to paragraph "c" of this Section 5, Executive
becomes entitled to receive any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of paragraph
"c" of this Section 5) 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 Executive of an amount advanced by the
Company pursuant to paragraph "c" of this Section 5, a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to 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.
6. Claims.
6.1 Arbitration of Claims. Executive shall settle by
arbitration any dispute or controversy arising in connection with this
Agreement, whether or not such dispute involves a plan subject to the Employee
Retirement Income Security of 1974, as amended ("ERISA"). Such arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association before a panel of three arbitrators sitting in Dallas, Texas. The
award of the arbitrators shall be final and nonappealable, and judgment may be
entered on the award of the arbitrators in any court having proper
jurisdiction. All expenses of such arbitration shall be borne by the Company
in accordance with Section 6.2 hereof.
6.2 Payment of Legal Fees and Costs. The Company agrees
to pay as incurred, to the full extent permitted by law, all legal fees and
expenses which
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Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, Executive or others of any action taken
pursuant to the terms of this Agreement, or of 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 Executive about
the amount of 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.
6.3 Agent for Service of Legal Process. Service of legal
process with respect to a claim under this Agreement shall be made upon the
General Counsel of the Company.
7. Tax Withholding. All payments to the Executive under
this Agreement will be subject to the withholding of all applicable employment
and income taxes.
8. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
9. Successors. This Agreement shall be binding upon and
incur to the benefit of the Company and any successor of the Company. The
Company will require any successor to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no succession had taken place.
10. Entire Agreement. This Agreement and that certain letter
agreement dated August 5, 1996 constitute the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be modified in any manner except by a written instrument signed by both the
Company and the Executive.
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11. Notices. Any notice required under this Agreement shall
be in writing and shall be delivered by certified mail return receipt requested
to each of the parties as follows:
To the Executive:
L. Hollis Jones
3433 Southwestern
Dallas, Texas 75225
To the Company:
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1500
Dallas, Texas 75225
Attn: General Counsel
12. Governing Law. The provisions of this Agreement
shall be construed in accordance of the laws of the state of Texas, except to
the extent preempted by ERISA.
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date and year first above written.
THE MORNINGSTAR GROUP INC.
/s/ MICHAEL J. CRAMER
-----------------------------------
Name: Michael J. Cramer
Title: Vice President and Secretary
/s/ L. HOLLIS JONES
-----------------------------------
L. Hollis Jones
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EXHIBIT 10.2
EXECUTIVE RETENTION AGREEMENT
THIS AGREEMENT is entered into this 29th day of May, 1997
("EFFECTIVE DATE"), by and between THE MORNINGSTAR GROUP INC., a Delaware
corporation ("COMPANY") and Darron K. Ash ("EXECUTIVE").
A. The Board of Directors of the Company desires to
assure continuity and cooperation of management in the event of a change in
ownership and the continued attention of Executive to his duties without any
distraction arising out of the circumstances surrounding a change or potential
change in ownership.
B. The Company and Executive desire to enter into a
supplemental compensation arrangement in recognition of the additional efforts
of Executive to assist in and prepare for any potential change in ownership,
and to encourage Executive to diligently perform his duties and
responsibilities to ensure a smooth transition following any change in
ownership.
For good and valuable consideration, including the mutual
covenants herein, the parties hereto agree as follows:
1. Definitions. The following terms shall have the
following meanings for purposes of this Agreement.
"ANNUAL PAY" means the sum of (i) an amount equal to the
highest annual base salary rate payable to the Executive by the Company at any
time before or after a Change in Control plus (ii) an amount equal to the
target bonus established for the Executive for the Company's fiscal year in
which his termination of employment occurs or for the immediately preceding
fiscal year, whichever has the higher amount. The highest annual base salary
rate payable to the Executive up to the date hereof was $125,000.
"CAUSE" means the Executive's (i) willful and intentional
misconduct or gross negligence in the performance of, or willful neglect of,
the Executive's duties, which has caused demonstrable and serious injury
(monetary or otherwise) to the Company, or (ii) conviction of, or plea of nolo
contendere to, a felony; provided, however, that no act or omission shall
constitute "Cause" for purposes of this Agreement unless the Board of Directors
of the Company provides to the Executive (a) written notice
<PAGE> 2
clearly and fully describing the particular acts or omissions which the Board
reasonably believes in good faith constitutes "Cause" and (b) an opportunity,
within 30 days following his receipt of such notice, to meet in person with the
Board of Directors to explain or defend the alleged acts or omissions relied
upon by the Board and, to the extent practicable, to cure such acts or
omissions. Further, no act or omission shall be considered as "willful" or
"intentional" if the Executive reasonably believed such acts or omissions were
in the best interests of the Company. Executive shall have the right to
contest a determination of Cause by the Company by requesting arbitration in
accordance with the terms of Section 6.1 hereof.
"CHANGE IN CONTROL" means (1) any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), becomes the "beneficial owner" (as determined pursuant to
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities; or (2) during any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute the
members of the Company's Board of Directors (the "Board") and any new director,
whose election to the Board or nomination for election to the Board by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board; or (3)
the Company shall merge with or consolidate into any other corporation, other
than a merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
immediately thereafter securities representing more than seventy percent (70%)
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
(4) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets or such a plan is commenced.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"GOOD REASON" means any of the following events occurring,
without Executive's prior written consent specifically referring to this
Agreement, within three (3) years following a Change in Control:
(1) (A) any reduction in the amount of Executive's annual
salary or aggregate incentive compensation opportunities, (B)
any significant reduction in the aggregate value of
Executive's benefits as in effect from time to time (unless
such reduction is pursuant to a general change in benefits
applicable to all similarly situated employees of the Company
and its affiliates) or (C) any material and willful breach by
the Company of any provision of this agreement or any written
employment agreement with Executive;
(2) (A) assignment to Executive of any duties
inconsistent with his status as Vice President and Chief
Financial Officer of the Company, (B) the removal of Executive
from his position as Vice President and Chief Financial
Officer of the Company or (C) any significant reduction in the
nature or status of Executive's duties or responsibilities;
(3) (A) transfer of Executive's principal place of
employment to a location more than 20 miles from Executive's
place of employment immediately prior to the Change in
Control, provided that the distance between the new principal
place of employment and Executive's primary residence is
greater than 10 miles from the distance between the principal
place of employment prior to such transfer and Executive's
primary residence immediately prior to the Change in Control
or (B) Executive is required to travel outside of the
continental United States more than four times during any
calendar year or for more than 20 days in the aggregate in any
calendar year; or
(4) failure by the Company to obtain the assumption agreement
referred to in Section 9 of this Agreement prior to the
effectiveness of any succession referred to therein, unless
the purchaser, successor or assignee referred to therein is
bound to perform this Agreement by operation of law.
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Notwithstanding the above, the occurrence of any of the events described in (1)
through (4) above will not constitute Good Reason unless the Executive gives
the Company written notice, within 90 calendar days after the Executive knew or
should have known of the occurrence of any of the events described in (1)
through (4) above, that such event constitutes Good Reason, and the Company
thereafter fails to cure the event within thirty (30) days after receipt of
such notice.
2. Term. The term of this Agreement commences on the
Effective Date and expires on the third anniversary thereof if no Change in
Control occurs before then. In the event of a Change in Control occurring
before the third anniversary of the Effective Date, this Agreement shall remain
in effect until all obligations and payments hereunder have been fully
satisfied.
3. Retention Bonus. To compensate Executive for his
assistance, good faith cooperation and additional efforts beyond his regular
duties with respect to the period prior to a Change in Control, and to induce
Executive to continue his employment with the Company through a Change in
Control, the Company shall pay to Executive no later than three days following
a Change in Control a cash lump sum equal to his Annual Pay if Executive
remains employed by the Company on the date of a Change in Control or is
terminated by the Company without Cause in contemplation of and within 180 days
preceding a Change in Control; provided, however, that the Company's
obligations under this Section 3 shall terminate and be null and void if no
Change in Control occurs on or prior to September 30, 1998.
4. Involuntary Termination Payment and Benefits
4.1 Involuntary Termination. In the event Executive's
employment with the Company or its successor is terminated by the Company
without Cause or by Executive for Good Reason (A) in contemplation of and
within 180 days preceding a Change in Control or (B) on or within three years
after a Change in Control, Executive shall be entitled to the following
payments and other benefits:
a. An amount equal to the sum of (i) Executive's accrued
and unpaid salary, vacation and personal days as of his date
of termination of employment, (ii) his accrued and unpaid
bonus, if any, for the Company's prior fiscal year, plus (iii)
his target annual bonus for the Company's fiscal year in
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which his employment terminated, multiplied by a fraction, the
numerator of which is the number of days elapsed in such
fiscal year to the day his employment terminated, and the
denominator of which is 365. This amount shall be paid on the
date of Executive's termination of employment.
b. An amount equal to one and one-half times Executive's
Annual Pay ("TERMINATION PAY"). Termination Pay shall be paid
in accordance with and subject to Sections 4.2 and 4.3 below.
c. Company shall reimburse Executive for the reasonable
costs of an office, secretarial assistance and executive
outplacement services, but the cost to the Company shall not
exceed $25,000.
d. Executive and his eligible dependents shall be
entitled for a period of eighteen (18) months following his
date of termination of employment to continued coverage, on
the same basis as similarly situated active employees, under
the Company's group health, dental, long-term disability and
life insurance plans as in effect from time to time (but not
any other welfare benefit plans or any retirement plans);
provided that coverage under any particular benefit plan shall
expire with respect to the period after Executive becomes
covered under another employer's plan providing for a similar
type of benefit. In the event the Company is unable to
provide such coverage on account of any limitations under the
terms of any applicable contract with an insurance carrier or
third party administrator, the Company shall pay Executive an
amount equal to the cost of such coverage.
e. Executive shall be permitted to retain the laptop
computer and home fax machine provided to the Executive by the
Company prior to Executive's termination.
f. An amount equal to the Executive's unvested account
balance under the Company's 401(k) Plan.
Except as provided in Section 4.2 below, the foregoing
payments and benefits shall be in addition to and not in lieu of any payments
or benefits to which Executive
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and his dependents may otherwise be entitled to under the Company's
compensation and employee benefit plans, policies or practices. Nothing herein
shall be deemed to restrict the right of the Company from amending or
terminating any such plan in a manner generally applicable to similarly
situated active employees of the Company and its affiliates, in which event
Executive shall be entitled to participate on the same basis (including payment
of applicable contributions) as similarly situated active executives of the
Company and its affiliates.
4.2. Offset for Other Severance Pay. There shall be no
duplication of severance pay in any manner. In this regard, Executive shall
not be entitled to Termination Pay hereunder for more than one position with
the Company and its affiliates. Further, Termination Pay shall be in lieu of
any other payments or benefits in the nature of severance pay or benefits to
which Executive has received or will receive from the Company or any of its
affiliates. Any other arrangement providing severance benefits shall be deemed
to be amended to eliminate any obligation for benefits to be provided
thereunder. If Executive is entitled to any notice or payment in lieu of any
notice of termination of employment required by Federal, state or local law,
including but not limited to the Worker Adjustment and Retraining Notification
Act, the Severance Compensation to which the Executive would otherwise be
entitled under this Agreement shall be reduced by the amount of any such
payment, in lieu of notice.
4.3. Mutual Release. Termination Pay described in paragraph
(b) of Section 4.1 shall be conditioned upon the execution by Executive and the
Company of a valid mutual release, to be prepared by the Company, in which
Executive and Company shall mutually release the other, to the maximum extent
permitted by law, from any and all claims either party may have against the
other party that relate to or arise out of Executive's employment or
termination of employment, except such claims arising under this Agreement, any
employee benefit plan or any other written plan or agreement ("Mutual
Release").
The full amount of Termination Pay shall be paid in a lump sum
in cash to Executive within ten (10) days following receipt by the Company of a
Mutual Release which is properly executed by Executive and is not revoked by
Executive before the eighth day following its receipt by the Company.
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4.4. No Mitigation. The Executive shall not be obligated
to secure new employment, but shall be obligated to report promptly to the
Company any actual employment obtained during the period for which employee
benefits continue pursuant to Section 4.1.
5. Excise Taxes.
a. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of 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 5) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by 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 Executive shall be entitled to receive
an additional payment ("Gross-Up Payment") in an amount such that after payment
by 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, Executive retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this paragraph "a", if it is determined that Executive
is entitled to a Gross-Up Payment, but that Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net
after-tax benefit of at least $10,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
b. Subject to the provisions of paragraph "c" of this
Section 5, all determinations required to be made under this Section 5,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be used in arriving at such
determination, shall be made by a certified public
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accounting firm selected by the Company and reasonably acceptable to Executive
(the "Accounting Firm"), which shall be retained to provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that there has been a Payment, or such earlier
time as is requested by the Company. If the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be paid solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 5, shall be paid by the Company
to Executive within five (5) days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and 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. If the Company
exhausts its remedies pursuant to paragraph "c" of this Section 5 and 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
Executive.
c. 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 (10) business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid or appealed. 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 Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
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(a) give the Company any information reasonable requested
by the Company relating to such claim,
(b) take such action in connection with contesting such
claims 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,
(c) cooperate with the Company in good faith in order to
effective contest such claim, and
(d) 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 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 paragraph "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 Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
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 Executive with respect to
which such contested amount is claimed to be due is limited solely to
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<PAGE> 10
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 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 Executive of an amount
advanced by the Company pursuant to paragraph "c" of this Section 5, Executive
becomes entitled to receive any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of paragraph
"c" of this Section 5) 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 Executive of an amount advanced by the
Company pursuant to paragraph "c" of this Section 5, a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to 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.
6. Claims.
6.1 Arbitration of Claims. Executive shall settle by
arbitration any dispute or controversy arising in connection with this
Agreement, whether or not such dispute involves a plan subject to the Employee
Retirement Income Security of 1974, as amended ("ERISA"). Such arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association before a panel of three arbitrators sitting in Dallas, Texas. The
award of the arbitrators shall be final and nonappealable, and judgment may be
entered on the award of the arbitrators in any court having proper
jurisdiction. All expenses of such arbitration shall be borne by the Company
in accordance with Section 6.2 hereof.
6.2 Payment of Legal Fees and Costs. The Company agrees
to pay as incurred, to the full extent permitted by law, all legal fees and
expenses which Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, Executive or others of any
action taken pursuant to the terms of this Agreement, or of the validity or
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enforceability of, or liability under, any provision of this Agreement, or any
guarantee of performance thereof (including as a result of any contest by
Executive about the amount of 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.
6.3 Agent for Service of Legal Process. Service of legal
process with respect to a claim under this Agreement shall be made upon the
General Counsel of the Company.
7. Tax Withholding. All payments to the Executive under
this Agreement will be subject to the withholding of all applicable employment
and income taxes.
8. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
9. Successors. This Agreement shall be binding upon and
incur to the benefit of the Company and any successor of the Company. The
Company will require any successor to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no succession had taken place.
10. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified in any manner except by a written
instrument signed by both the Company and the Executive.
11. Notices. Any notice required under this Agreement
shall be in writing and shall be delivered by certified mail return receipt
requested to each of the parties as follows:
To the Executive:
Darron K. Ash
122 Ridgewood
Coppell, Texas 75019
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To the Company:
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1500
Dallas, Texas 75225
Attn: General Counsel
12. Governing Law. The provisions of this Agreement
shall be construed in accordance of the laws of the state of Texas, except to
the extent preempted by ERISA.
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IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date and year first above written.
THE MORNINGSTAR GROUP INC.
/s/ MICHAEL J. CRAMER
---------------------------------------
Name: Michael J. Cramer
Title: Vice President and Secretary
/s/ DARRON K. ASH
---------------------------------------
Darron K. Ash
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EXHIBIT 10.3
EXECUTIVE RETENTION AGREEMENT
THIS AGREEMENT is entered into this 29th day of May, 1997
("EFFECTIVE DATE"), by and between THE MORNINGSTAR GROUP INC., a Delaware
corporation ("COMPANY") and Joseph B. Armes ("EXECUTIVE").
A. The Board of Directors of the Company desires to
assure continuity and cooperation of management in the event of a change in
ownership and the continued attention of Executive to his duties without any
distraction arising out of the circumstances surrounding a change or potential
change in ownership.
B. The Company and Executive desire to enter into a
supplemental compensation arrangement in recognition of the additional efforts
of Executive to assist in and prepare for any potential change in ownership,
and to encourage Executive to diligently perform his duties and
responsibilities to ensure a smooth transition following any change in
ownership.
For good and valuable consideration, including the mutual
covenants herein, the parties hereto agree as follows:
1. Definitions. The following terms shall have the
following meanings for purposes of this Agreement.
"ANNUAL PAY" means the sum of (i) an amount equal to the
highest annual base salary rate payable to the Executive by the Company at any
time before or after a Change in Control plus (ii) an amount equal to the
target bonus established for the Executive for the Company's fiscal year in
which his termination of employment occurs or for the immediately preceding
fiscal year, whichever has the higher amount. The highest annual base salary
rate payable to the Executive up to the date hereof was $145,000.
"CAUSE" means the Executive's (i) willful and intentional
misconduct or gross negligence in the performance of, or willful neglect of,
the Executive's duties, which has caused demonstrable and serious injury
(monetary or otherwise) to the Company, or (ii) conviction of, or plea of nolo
contendere to, a felony; provided, however, that no act or omission shall
constitute "Cause" for purposes of this Agreement unless the Board of Directors
of the Company provides to the Executive (a) written notice
<PAGE> 2
clearly and fully describing the particular acts or omissions which the Board
reasonably believes in good faith constitutes "Cause" and (b) an opportunity,
within 30 days following his receipt of such notice, to meet in person with the
Board of Directors to explain or defend the alleged acts or omissions relied
upon by the Board and, to the extent practicable, to cure such acts or
omissions. Further, no act or omission shall be considered as "willful" or
"intentional" if the Executive reasonably believed such acts or omissions were
in the best interests of the Company. Executive shall have the right to
contest a determination of Cause by the Company by requesting arbitration in
accordance with the terms of Section 6.1 hereof.
"CHANGE IN CONTROL" means (1) any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), becomes the "beneficial owner" (as determined pursuant to
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities; or (2) during any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute the
members of the Company's Board of Directors (the "Board") and any new director,
whose election to the Board or nomination for election to the Board by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board; or (3)
the Company shall merge with or consolidate into any other corporation, other
than a merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
immediately thereafter securities representing more than seventy percent (70%)
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
(4) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets or such a plan is commenced.
"CODE" means the Internal Revenue Code of 1986, as amended.
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<PAGE> 3
"GOOD REASON" means any of the following events occurring,
without Executive's prior written consent specifically referring to this
Agreement, within three (3) years following a Change in Control:
(1) (A) any reduction in the amount of Executive's annual
salary or aggregate incentive compensation opportunities, (B)
any significant reduction in the aggregate value of
Executive's benefits as in effect from time to time (unless
such reduction is pursuant to a general change in benefits
applicable to all similarly situated employees of the Company
and its affiliates) or (C) any material and willful breach by
the Company of any provision of this agreement or any written
employment agreement with Executive;
(2) (A) assignment to Executive of any duties
inconsistent with his status as Vice President and General
Counsel of the Company, (B) the removal of Executive from his
position as Vice President and General Counsel of the Company
or (C) any significant reduction in the nature or status of
Executive's duties or responsibilities;
(3) (A) transfer of Executive's principal place of employment
to a location more than 20 miles from Executive's place of
employment immediately prior to the Change in Control,
provided that the distance between the new principal place of
employment and Executive's primary residence is greater than
10 miles from the distance between the principal place of
employment prior to such transfer and Executive's primary
residence immediately prior to the Change in Control or (B)
Executive is required to travel outside of the continental
United States more than four times during any calendar year or
for more than 20 days in the aggregate in any calendar year;
or
(4) failure by the Company to obtain the assumption agreement
referred to in Section 9 of this Agreement prior to the
effectiveness of any succession referred to therein, unless
the purchaser, successor or assignee referred to therein is
bound to perform this Agreement by operation of law.
Notwithstanding the above, the occurrence of any of the events described in (1)
through (4) above will not
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constitute Good Reason unless the Executive gives the Company written notice,
within 90 calendar days after the Executive knew or should have known of the
occurrence of any of the events described in (1) through (4) above, that such
event constitutes Good Reason, and the Company thereafter fails to cure the
event within thirty (30) days after receipt of such notice.
2. Term. The term of this Agreement commences on the
Effective Date and expires on the third anniversary thereof if no Change in
Control occurs before then. In the event of a Change in Control occurring
before the third anniversary of the Effective Date, this Agreement shall remain
in effect until all obligations and payments hereunder have been fully
satisfied.
3. Retention Bonus. To compensate Executive for his
assistance, good faith cooperation and additional efforts beyond his regular
duties with respect to the period prior to a Change in Control, and to induce
Executive to continue his employment with the Company through a Change in
Control, the Company shall pay to Executive no later than three days following
a Change in Control a cash lump sum equal to his Annual Pay if Executive
remains employed by the Company on the date of a Change in Control or is
terminated by the Company without Cause in contemplation of and within 180 days
preceding a Change in Control; provided, however, that the Company's
obligations under this Section 3 shall terminate and be null and void if no
Change in Control occurs on or prior to October 15, 1998.
4. Involuntary Termination Payment and Benefits
4.1 Involuntary Termination. In the event Executive's
employment with the Company or its successor is terminated by the Company
without Cause or by Executive for Good Reason (A) in contemplation of and
within 180 days preceding a Change in Control or (B) on or within three years
after a Change in Control, Executive shall be entitled to the following
payments and other benefits:
a. An amount equal to the sum of (i) Executive's accrued
and unpaid salary, vacation and personal days as of his date
of termination of employment, (ii) his accrued and unpaid
bonus, if any, for the Company's prior fiscal year, plus (iii)
his target annual bonus for the Company's fiscal year in which
his employment terminated, multiplied by a fraction, the
numerator of which is the number of days elapsed in such
fiscal year to the day his
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employment terminated, and the denominator of which is 365.
This amount shall be paid on the date of Executive's
termination of employment.
b. An amount equal to one and one-half times Executive's
Annual Pay ("TERMINATION PAY"). Termination Pay shall be paid
in accordance with and subject to Sections 4.2 and 4.3 below.
c. Company shall reimburse Executive for the reasonable
costs of an office, secretarial assistance and executive
outplacement services, but the cost to the Company shall not
exceed $25,000.
d. Executive and his eligible dependents shall be
entitled for a period of eighteen (18) months following his
date of termination of employment to continued coverage, on
the same basis as similarly situated active employees, under
the Company's group health, dental, long-term disability and
life insurance plans as in effect from time to time (but not
any other welfare benefit plans or any retirement plans);
provided that coverage under any particular benefit plan shall
expire with respect to the period after Executive becomes
covered under another employer's plan providing for a similar
type of benefit. In the event the Company is unable to
provide such coverage on account of any limitations under the
terms of any applicable contract with an insurance carrier or
third party administrator, the Company shall pay Executive an
amount equal to the cost of such coverage.
e. Executive shall be permitted to retain the laptop
computer and home fax machine provided to the Executive by the
Company prior to Executive's termination.
f. An amount equal to the Executive's unvested account
balance under the Company's 401(k) Plan.
Except as provided in Section 4.2 below, the foregoing
payments and benefits shall be in addition to and not in lieu of any payments
or benefits to which Executive and his dependents may otherwise be entitled to
under the Company's compensation and employee benefit plans, policies or
practices. Nothing herein shall be deemed to restrict the right of the Company
from amending or terminating any
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<PAGE> 6
such plan in a manner generally applicable to similarly situated active
employees of the Company and its affiliates, in which event Executive shall be
entitled to participate on the same basis (including payment of applicable
contributions) as similarly situated active executives of the Company and its
affiliates.
4.2. Offset for Other Severance Pay. There shall be no
duplication of severance pay in any manner. In this regard, Executive shall
not be entitled to Termination Pay hereunder for more than one position with
the Company and its affiliates. Further, Termination Pay shall be in lieu of
any other payments or benefits in the nature of severance pay or benefits to
which Executive has received or will receive from the Company or any of its
affiliates. Any other arrangement providing severance benefits shall be deemed
to be amended to eliminate any obligation for benefits to be provided
thereunder. If Executive is entitled to any notice or payment in lieu of any
notice of termination of employment required by Federal, state or local law,
including but not limited to the Worker Adjustment and Retraining Notification
Act, the Severance Compensation to which the Executive would otherwise be
entitled under this Agreement shall be reduced by the amount of any such
payment, in lieu of notice.
4.3. Mutual Release. Termination Pay described in paragraph
(b) of Section 4.1 shall be conditioned upon the execution by Executive and the
Company of a valid mutual release, to be prepared by the Company, in which
Executive and Company shall mutually release the other, to the maximum extent
permitted by law, from any and all claims either party may have against the
other party that relate to or arise out of Executive's employment or
termination of employment, except such claims arising under this Agreement, any
employee benefit plan or any other written plan or agreement ("Mutual
Release").
The full amount of Termination Pay shall be paid in a lump sum
in cash to Executive within ten (10) days following receipt by the Company of a
Mutual Release which is properly executed by Executive and is not revoked by
Executive before the eighth day following its receipt by the Company.
4.4. No Mitigation. The Executive shall not be obligated
to secure new employment, but shall be obligated to report promptly to the
Company any actual employment obtained during the period for which employee
benefits continue pursuant to Section 4.1.
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5. Excise Taxes.
a. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of 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 5) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by 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 Executive shall be entitled to receive
an additional payment ("Gross-Up Payment") in an amount such that after payment
by 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, Executive retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this paragraph "a", if it is determined that Executive
is entitled to a Gross-Up Payment, but that Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net
after-tax benefit of at least $10,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
b. Subject to the provisions of paragraph "c" of this
Section 5, all determinations required to be made under this Section 5,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be used in arriving at such
determination, shall be made by a certified public accounting firm selected by
the Company and reasonably acceptable to Executive (the "Accounting Firm"),
which shall be retained to provide detailed supporting calculations both to the
Company and Executive within 15 business days of the receipt of notice from
Executive that there has been a Payment, or such earlier time as is requested
by the Company. If the Accounting Firm is serving as accountant or
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<PAGE> 8
auditor for the individual, entity or group effecting the Change in Control,
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be paid solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 5, shall be paid by the Company to
Executive within five (5) days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and 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. If the Company
exhausts its remedies pursuant to paragraph "c" of this Section 5 and 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
Executive.
c. 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 (10) business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid or appealed. 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 Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
(a) give the Company any information reasonable requested
by the Company relating to such claim,
(b) take such action in connection with contesting such
claims as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect
8
<PAGE> 9
to such claim by an attorney reasonably selected by
the Company,
(c) cooperate with the Company in good faith in order to
effective contest such claim, and
(d) 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 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 paragraph "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 Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
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 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 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 Executive of an amount
advanced by the Company pursuant to paragraph "c" of this Section 5, Executive
becomes entitled to receive any
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refund with respect to such claim, Executive shall (subject to the Company's
complying with the requirements of paragraph "c" of this Section 5) 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
Executive of an amount advanced by the Company pursuant to paragraph "c" of
this Section 5, a determination is made that Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify Executive
in writing of its intent to 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.
6. Claims.
6.1 Arbitration of Claims. Executive shall settle by
arbitration any dispute or controversy arising in connection with this
Agreement, whether or not such dispute involves a plan subject to the Employee
Retirement Income Security of 1974, as amended ("ERISA"). Such arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association before a panel of three arbitrators sitting in Dallas, Texas. The
award of the arbitrators shall be final and nonappealable, and judgment may be
entered on the award of the arbitrators in any court having proper
jurisdiction. All expenses of such arbitration shall be borne by the Company
in accordance with Section 6.2 hereof.
6.2 Payment of Legal Fees and Costs. The Company agrees
to pay as incurred, to the full extent permitted by law, all legal fees and
expenses which Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, Executive or others of any
action taken pursuant to the terms of this Agreement, or of 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
Executive about the amount of 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.
6.3 Agent for Service of Legal Process. Service of legal
process with respect to a claim under this Agreement shall be made upon the
General Counsel of the Company.
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7. Tax Withholding. All payments to the Executive under
this Agreement will be subject to the withholding of all applicable employment
and income taxes.
8. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
9. Successors. This Agreement shall be binding upon and
incur to the benefit of the Company and any successor of the Company. The
Company will require any successor to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no succession had taken place.
10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified in any manner except by a written instrument
signed by both the Company and the Executive.
11. Notices. Any notice required under this Agreement shall
be in writing and shall be delivered by certified mail return receipt requested
to each of the parties as follows:
To the Executive:
Joseph B. Armes
7519 Bradford Pear Drive
Irving, Texas 75063
To the Company:
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1500
Dallas, Texas 75225
Attn: General Counsel
12. Governing Law. The provisions of this Agreement
shall be construed in accordance of the laws of the state of Texas, except to
the extent preempted by ERISA.
11
<PAGE> 12
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date and year first above written.
THE MORNINGSTAR GROUP INC.
/s/ MICHAEL J. CRAMER
---------------------------------------
Name: Michael J. Cramer
Title: Vice President and Secretary
/s/ JOSEPH B. ARMES
---------------------------------------
Joseph B. Armes
12
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this
"Amendment") is entered into this 12th day of June, 1997 ("EFFECTIVE DATE"), by
and between THE MORNINGSTAR GROUP INC., a Delaware corporation ("COMPANY") and
C. Dean Metropoulos ("EXECUTIVE").
A. The Company has previously entered into an Employment
Agreement with the Executive dated as of October 1, 1996 (the "Agreement").
B. The Company and Executive desire to amend the
Agreement in certain respects in recognition of the additional efforts of
Executive to assist in and prepare for any potential change in ownership, and
to encourage Executive to diligently perform his duties and responsibilities to
ensure a smooth transition following any change in ownership.
For good and valuable consideration, including the mutual
covenants herein, the parties hereto agree as follows:
1. Capitalized terms defined in the Agreement and used
but not otherwise defined herein are used herein as so defined.
2. Section VIII of the Agreement is hereby amended by
adding the following subsection (F):
"F. Excise Taxes.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of 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 Subsection VIII (F) (a "Payment") would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") , or any interest or penalties are incurred by
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 Executive shall be entitled to receive an additional
payment ("Gross-Up Payment") in an amount such that after payment by 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, Executive retains an amount of the Gross-up Payment equal to
the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this paragraph "a", if it is determined that Executive is
entitled to a Gross-Up Payment, but that Executive, after taking into account
the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax)
1
<PAGE> 2
as compared to the net after-tax proceeds to Executive resulting from an
elimination of the Gross-Up Payment and a reduction of the payments, in the
aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
b. Subject to the provisions of paragraph "c" of this
Subsection VIII (F), all determinations required to be made under this
Subsection VIII (F), including whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment and the assumptions to be used in
arriving at such determination, shall be made by a certified public accounting
firm selected by the Company and reasonably acceptable to Executive (the
"Accounting Firm"), which shall be retained to provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that there has been a Payment, or such earlier
time as is requested by the Company. If the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be paid solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Subsection VIII (F), shall be paid by
the Company to Executive within five (5) days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and 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. If the Company exhausts its remedies pursuant to paragraph "c" of
this Subsection VIII (F) and 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 Executive.
c. 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 (10) business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid or appealed. 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 Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
(1) give the Company any information reasonable requested
by the Company relating to such claim,
2
<PAGE> 3
(2) take such action in connection with contesting such
claims 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,
(3) cooperate with the Company in good faith in order to
effective contest such claim, and
(4) 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 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 paragraph "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 Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
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 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 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 Executive of an amount
advanced by the Company pursuant to paragraph "c" of this Subsection VIII (F),
Executive becomes entitled to receive any refund with respect to such claim,
Executive shall (subject to the Company's complying with the requirements of
paragraph "c" of this Subsection VIII (F) 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 Executive of an
amount advanced by the Company pursuant to paragraph "c" of this Subsection
VIII (F), a determination is made that Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify Executive in
3
<PAGE> 4
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."
3. Except as expressly amended by this Amendment, the
Agreement shall continue in full force and effect in the form in which it
existed immediately prior to the execution and delivery of this Amendment.
4. This Amendment may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same document.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE> 5
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date and year first above written.
THE MORNINGSTAR GROUP INC.
/s/ MICHAEL J. CRAMER
-----------------------------------------
Name: Michael J. Cramer
Title: Vice President and Secretary
EXECUTIVE:
/s/ C. DEAN METROPOULOS
-----------------------------------------
C. Dean Metropoulos
5
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this
"Amendment") is entered into this 12th day of June, 1997 ("EFFECTIVE DATE"), by
and between THE MORNINGSTAR GROUP INC., a Delaware corporation ("COMPANY") and
Michael J. Cramer ("EXECUTIVE").
A. The Company has previously entered into an Employment
Agreement with the Executive dated as of October 1, 1995 (the "Agreement").
B. The Company and Executive desire to amend the
Agreement in certain respects in recognition of the additional efforts of
Executive to assist in and prepare for any potential change in ownership, and
to encourage Executive to diligently perform his duties and responsibilities to
ensure a smooth transition following any change in ownership.
For good and valuable consideration, including the mutual
covenants herein, the parties hereto agree as follows:
1. Capitalized terms defined in the Agreement and used
but not otherwise defined herein are used herein as so defined.
2. Section 4 of the Agreement is hereby amended by
adding the following paragraphs:
"(c) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of 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 Subsection 4 (c) (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") , or any interest or penalties are incurred by 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 Executive shall be entitled to receive an additional payment
("Gross-Up Payment") in an amount such that after payment by 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,
Executive retains an amount of the Gross-up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
paragraph "c", if it is determined that Executive is entitled to a Gross-Up
Payment, but that Executive, after taking into account the Payments and the
Gross-Up Payment, would not receive a net after-tax benefit of at least $10,000
(taking into account both income taxes and any Excise Tax) as compared to the
net after-tax proceeds to Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the payments, in the aggregate, to an
amount
1
<PAGE> 2
(the "Reduced Amount") such that the receipt of Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be made to Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
d. Subject to the provisions of paragraph "e" of this
Section 4, all determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be used in arriving at such
determination, shall be made by a certified public accounting firm selected by
the Company and reasonably acceptable to Executive (the "Accounting Firm"),
which shall be retained to provide detailed supporting calculations both to the
Company and Executive within 15 business days of the receipt of notice from
Executive that there has been a Payment, or such earlier time as is requested
by the Company. If the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be paid solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 4, shall be paid by the Company to Executive within
five (5) days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
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. If the Company exhausts its
remedies pursuant to paragraph "e" of this Section 4 and 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
Executive.
e. 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 (10) business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid or appealed. 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 Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
(1) give the Company any information reasonable requested
by the Company relating to such claim,
(2) take such action in connection with contesting such
claims as the Company shall reasonably request in
writing from time to time,
2
<PAGE> 3
including, without limitation, accepting legal
representation with respect to such claim by an
attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order to
effective contest such claim, and
(4) 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 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 paragraph "e", 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 Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
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 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 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.
f. If, after the receipt by Executive of an amount
advanced by the Company pursuant to paragraph "e" of this Section 4, Executive
becomes entitled to receive any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of paragraph
"e" of this Section 4 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 Executive of an amount advanced by the
Company pursuant to paragraph "e" of this Section 4, a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to 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
3
<PAGE> 4
repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid."
3. Except as expressly amended by this Amendment, the
Agreement shall continue in full force and effect in the form in which it
existed immediately prior to the execution and delivery of this Amendment.
4. This Amendment may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same document.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE> 5
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date and year first above written.
THE MORNINGSTAR GROUP INC.
/s/ JOSEPH B. ARMES
----------------------------------------
Name: Joseph B. Armes
Title: Vice President and General Counsel
EXECUTIVE:
/s/ MICHAEL J. CRAMER
-----------------------------------------
Michael J. Cramer
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,167
<SECURITIES> 0
<RECEIVABLES> 56,890
<ALLOWANCES> 8,852
<INVENTORY> 25,689
<CURRENT-ASSETS> 86,462
<PP&E> 127,871
<DEPRECIATION> 27,163
<TOTAL-ASSETS> 352,323
<CURRENT-LIABILITIES> 74,966
<BONDS> 0
0
0
<COMMON> 99,443
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 352,323
<SALES> 270,672
<TOTAL-REVENUES> 270,672
<CGS> 196,022
<TOTAL-COSTS> 196,022
<OTHER-EXPENSES> 51,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,798
<INCOME-PRETAX> 16,878
<INCOME-TAX> 6,917
<INCOME-CONTINUING> 9,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,961
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
<PAGE> 1
EXHIBIT 99(A)
Calculation of weighted average shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended June 30,
---------------------------- -------------------------
1997 1996 1997 1996
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Weighted average shares outstanding during period 15,349,554 14,258,012 15,329,498 15,248,228
Treasury stock (767,494) (767,494) (767,494) (710,203)
Dilutive effect of stock options,
(using the treasury stock method) 1,133,940 1,233,482 1,081,996 239,975
------------ ------------ ------------ -------------
Weighted Average Common and Common Equivalent
Shares Outstanding 15,716,000 14,724,000 15,644,000 14,778,000
============ ============ ============ =============
</TABLE>
