<PAGE>
===============================================================================
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
March 23, 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 001-10811
SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware No. 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4700 South Boyle Ave.
Los Angeles, California 90058
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (213) 589-1054
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____.
The registrant had 22,037,341 shares of common stock outstanding as of April 28,
1997.
Number of Sequentially Numbered Pages: 13
Exhibit Index at Page: 13
================================================================================
<PAGE>
- -------------------------------------------------------------------------------
SMART & FINAL INC.
INDEX
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 2
Unaudited Consolidated Statements of Income 3
Unaudited Consolidated Statements of Cash Flows 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
</TABLE>
PART II
OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
1
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 23, December 29,
1997 1996
ASSETS (Unaudited)
- ------ ----------- ------------
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 17,116 $ 16,795
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$2,775 in 1997 and $2,568 in 1996 66,156 67,695
Inventories 121,416 125,721
Prepaid expenses 5,848 4,346
Deferred tax asset 6,134 6,134
-------- --------
Total current assets 216,670 220,691
Property, plant and equipment:
Land 39,079 39,079
Buildings and improvements 34,364 34,364
Leasehold improvements 61,422 60,943
Fixtures and equipment 134,489 129,953
-------- --------
269,354 264,339
Less - Accumulated depreciation and amortization 81,969 77,156
-------- --------
Net property, plant and equipment 187,385 187,183
Assets under capital leases, net 509 671
Goodwill 10,090 10,162
Deferred tax asset 4,157 4,157
Other assets 19,403 18,560
-------- --------
Total Assets $438,214 $441,424
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long term debt $ 10,718 $ 10,356
Bank line of credit 15,000 17,000
Accounts payable 63,508 70,936
Payable to Parent and affiliates 8,849 8,759
Accrued salaries and wages 7,757 9,940
Workers' compensation reserve 2,600 2,600
Other accrued liabilities 25,752 21,855
-------- --------
Total current liabilities 134,184 141,446
Long term liabilities:
Notes payable, net of current maturities 36,081 37,063
Bank debt 45,000 45,000
Obligations under capital leases 542 581
Worker's compensation reserve, postretirement
and postemployment benefits 20,205 20,000
-------- --------
Total long term liabilities 101,828 102,644
Minority interest 1,785 1,679
Stockholders' equity:
Preferred stock, $1 par value (authorized-
10,000,000 shares; no shares issued) - -
Common stock, $.01 par value (authorized-
100,000,000 shares; 22,035,740 shares issued
and outstanding in 1997 and 21,976,406 in 1996) 220 220
Additional paid-in capital 141,253 140,371
Cumulative translation loss (835) (835)
Retained earnings 59,779 55,899
-------- --------
Total stockholders' equity 200,417 195,655
-------- --------
Total liabilities and stockholders' equity $438,214 $441,424
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
SMART & FINAL INC
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------------------
March 23, March 24,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Sales $ 306,984 $ 282,334
Cost of sales, buying and occupancy 262,397 241,904
----------- ------------
Gross margin 44,587 40,430
Operating and administrative expenses 34,827 32,597
------------ ------------
Income from operations 9,760 7,833
------------ ------------
Interest income and (expense):
Interest income 141 121
Interest expense (1,678) (723)
------------ ------------
(1,537) (602)
Income before provision for income taxes
and minority share of net income 8,223 7,231
Provision for income taxes 3,235 2,929
------------ ------------
4,988 4,302
Minority share of net income 106 107
------------ ------------
Income from consolidated subsidiaries 4,882 4,195
Equity earnings in unconsolidated subsidiary 100 0
------------ ------------
Net income $ 4,982 $ 4,195
============ ============
Earnings per common share $ 0.22 $ 0.20
============ ============
Dividend per common share $ 0.05 $ 0.05
============ ============
Weighted average common shares and
common share equivalents 22,822,384 21,068,317
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------------
March 23, March 24,
1997 1996
--------- -----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,982 $ 4,195
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on disposal of fixed assets (62) (5)
Depreciation and amortization 5,642 4,260
Minority share of net income 106 107
Equity (earnings) loss in unconsolidated subsidiary (100) -
(Increase) decrease in :
Trade notes and accounts receivable 1,539 (4,621)
Inventories 4,305 974
Prepaid expenses and other (1,502) (1,544)
Increase (decrease) in :
Accounts payable (6,878) 6,889
Payable to Parent and affiliates 90 (1,210)
Accrued liabilities (2,183) (103)
Other liabilities 4,164 (832)
-------- --------
Net cash provided by operating activities 10,103 8,110
-------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment (5,867) (8,682)
Proceeds from disposal of property, plant and
equipment 100 8
Proceeds from redemption of municipal bonds - 225
Other (1,074) (1,748)
-------- --------
Net cash used in investing activities (6,841) (10,197)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 736 101
Bank credit line (2,000) 3,325
Borrowings (payments) on notes payable (659) 179
Quarterly dividend paid (1,018) (1,013)
-------- --------
Net cash provided by financing activities (2,941) 2,592
-------- --------
Increase in cash and cash equivalents 321 505
Cash and cash equivalents at beginning of period 16,795 15,415
-------- --------
Cash and cash equivalents at end of period $ 17,116 $ 15,920
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Smart & Final Inc. (the "Company") is a Delaware corporation and is a
56.3 percent owned subsidiary of Casino USA, Inc. (the "Parent"), and Casino
Realty, Inc., a wholly owned subsidiary of Casino USA.
The consolidated balance sheet as of March 23, 1997, the consolidated
statements of income and cash flows for twelve weeks ended March 23, 1997 and
March 24, 1996 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K statement for the year ended December 29, 1996.
(2) EARNINGS PER COMMON SHARE
Earnings per common share is based on weighted average outstanding common
shares which include the common stock equivalents related to employee stock
options and a stock purchase agreement.
The Company will adopt SFAS No. 128, "Earnings per share", which is
effective for financial statements ending after December 15, 1997. Basic
earnings per common share were computed by dividing net income by the weighted
average number of shares outstanding during the year. The Pro forma below
illustrates the effects of financial reporting under the provisions of SFAS No.
128:
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------
March 23, March 24,
1997 1996
--------- ---------
<S> <C> <C>
Per Share Amounts
- -----------------
Primary EPS as reported $0.22 $0.20
Effect of SFAS No. 128 $0.01 $0.01
----- -----
Pro forma basic EPS $0.23 $0.21
===== =====
</TABLE>
(3) FISCAL YEARS
The Company's fiscal year ends on the Sunday closest to December 31. Each
fiscal year consists of twelve week periods in the first, second and fourth
quarters and a sixteen week period in the third quarter.
5
<PAGE>
(4) DIVIDEND
On February 21, 1997, the Company declared a dividend of $0.05 per
share to stockholders of record at April 4, 1997. The dividend was paid on
April 25, 1997.
(5) INCOME TAXES
Tax sharing payments for state income taxes made by the Company to the
Parent were $541,000 and $530,000 in the twelve weeks ended March 23, 1997 and
March 24, 1996, respectively. The Company paid $675,000 and $2,005,000 in
federal income taxes in the twelve week periods ended March 23, 1997 and March
24, 1996, respectively.
(6) LEGAL ACTIONS
The Company has been named as defendant in various legal actions arising in
the normal conduct of its business. In the opinion of management, after
consultation with counsel, none of these actions are expected to result in
significant liability to the Company.
(7) OCCUPANCY EXPENSE
Lease expense to third-party lessors is included in cost of sales and
buying and occupancy expense in the twelve week period ended March 23, 1997.
Previously disclosed lease expense to affiliates, for the twelve week period
ended March 24, 1996, has been reclassified to cost of sales and buying and
occupancy expense for comparability because the properties which had been owned
by affiliates were purchased by the Company on December 29, 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto and the
Company's Form 10-K statement for the year ended December 29, 1996.
SUMMARY
Smart & Final Inc. (the "Company") reported earnings of $5.0 million for
the twelve weeks ended March 23, 1997, an increase of $0.8 million, or 18.8%,
compared to the twelve weeks ended March 24, 1996. The 1997 quarter includes
pretax costs of $0.7 million related to reduced margins and marketing costs from
introduction of a reduced stores pricing program in the last month of the
quarter. Results for the first quarter of 1997 also included increased pretax
earnings of $0.7 million from the transaction in which 91 of the Company's
operating properties were acquired from the Company's majority shareholder late
in 1996 in exchange for 1,625,000 new shares of stock and $38 million of
unsecured notes. Earnings per share in the quarter increased approximately one
half of one cent as a result of this transaction.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, certain consolidated
income statement data, expressed as a percentage of total sales.
<TABLE>
<CAPTION>
Twelve Weeks Ended
----------------------
March 23, March 24,
1997 1996
-------- --------
<S> <C> <C>
Sales:
Store sales........................... 72.9% 74.8%
Foodservice distribution sales........ 27.1 25.2
----- -----
Total Sales..................................... 100.0 100.0
Cost of sales, buying and occupancy............. 85.5 85.7
----- -----
Gross Margin.................................... 14.5 14.3
Operating and administrative expenses........... 11.3 11.5
----- -----
Income from operations................ 3.2 2.8
Interest expense, net of interest income........ (0.5) (0.2)
----- -----
Income before provision for income taxes and
minority share of net income........... 2.7 2.6
Provision for income taxes....................... 1.1 1.0
----- -----
1.6 1.5
Minority share of net income..................... - -
----- -----
Net income....................................... 1.6% 1.5%
----- -----
</TABLE>
*Totals do not aggregate due to rounding.
7
<PAGE>
BACKGROUND
The Company continued its expansion program in 1996 and 1997 as shown in
the following table:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 23, March 24, December 29,
1997 1996 1996
----------- ---------- ------------
<S> <C> <C> <C>
USA
Store count beginning 168 155 155
Store opened:
In new markets - 4 12
In mature markets 1 - 1
______ ______ ______
Total 169 4 13
Relocations - 2 6
Store relocated/closed (2) (2) (6)
------ ------ ------
Store count ending 167 159 168
MEXICO
Store count beginning 5 3 3
New stores opened - - 2
------ ------ ------
Store count ending 5 3 5
Grand Total 172 162 173
====== ====== ======
</TABLE>
Mexico operations are not consolidated and are reported on the equity
basis.
Although new stores are important to the Company's continued growth
and profitability, each new store opening initially penalizes earnings because
stores are not immediately profitable. In recent years new stores opened in
existing market areas generally have achieved break even (after full allocation
of all corporate expenses) within the first six to eighteen months and new
stores opened in new market areas, which mature more slowly, generally have
achieved break even in approximately three years.
Each of the Company's fiscal years consists of twelve week periods in
the first, second and fourth quarters of the fiscal year and a sixteen week
period in the third quarter.
COMPARISON OF TWELVE WEEKS ENDED MARCH 23, 1997 WITH TWELVE WEEKS ENDED MARCH
24, 1996.
Sales. First quarter 1997 sales were $307.0 million, up 8.7% from the
comparable 1996 period. Smart & Final Stores Corporation ("Smart & Final")
store sales increased 6.0%. Store sales increased as a result of the twenty-one
new stores, including relocations, opened in 1996 and the one new store opened
in the first quarter of 1997, and by a "Sliced Price Program" introduced late in
the first quarter of 1997. Comparable store sales for the first quarter of 1997
increased 1.9% over the prior year period, with an increase of 4.4% in the last
month of the quarter. Average comparable transaction size declined slightly, by
0.5% to $31.53 in the first quarter of 1997.
8
<PAGE>
Foodservice distribution sales increased significantly from $71.2 million
in the first quarter of 1996 to $83.2 million of sales in the current year first
quarter. Growth was primarily at Port Stockton Food Distributors ("Port
Stockton") where sales increased 62.7% over the prior year quarter. Sales at
Henry Lee Company ("Henry Lee") increased by 0.5%, constrained by lack of space
at its distribution facilities. Florida distribution facilities are being
expanded through a combination of additions to existing facilities and
leasing of new facilities.
Cost of Sales, Buying and Occupancy. These costs totaled $262.4 million in
the first quarter of 1997, up 8.5% from the first quarter of 1996. As a
percentage of sales, these costs declined from 85.7% in the first quarter of
1996 to 85.5% in the first quarter of 1997. The decline was primarily
due to results of the 1996 real estate transaction which reduced occupancy costs
by approximately $1.2 million. The decline was partially offset by the
introduction of the Sliced Price Program which reduced gross margin by
approximately $0.4 million in the first quarter of 1997. The Sliced Price
Program is expected to impact gross margins for the remainder of the year,
although at a lesser rate as planned promotional reductions are reduced or
eliminated.
Gross Margin. Gross margin increased 10.3% from $40.4 million in the
first quarter of 1996 to $44.6 million in the current year. As a percentage of
sales, gross margin increased from 14.3% to 14.5% of sales as a result of the
reduced occupancy costs and lowered pricing at Smart & Final stores.
Operating and Administrative Expenses. Operating and administrative
expenses for the first quarter of 1997 were $34.8 million, up $2.2 million or
6.8% from the first quarter of 1996. These expenses, as a percentage of sales,
decreased from 11.5% in the first quarter of 1996 to 11.3% in the first quarter
of 1997, despite increased marketing costs of $0.3 million related to the
introduction of the Sliced Price Program. The reduced expense levels were the
result of a number of factors including tight payroll controls, benefits from
continuing investment in technology, and improved distribution costs resulting
from integration of foodservice and stores distribution.
Income from Operations. Income from operations was $9.8 million for the
first quarter of 1997, up 24.6% from $7.8 million in the first quarter of 1996.
Sales and gross margin increased at higher rates than operating and
administrative expenses in the first quarter.
Other income and (expense). Net interest expense increased from $0.6
million in the first quarter of 1996 to $1.5 million in the first quarter of
1997 primarily as the result of $38.0 million of notes issued in connection with
the real estate acquisition late in 1996.
FINANCIAL CONDITION
Cash and cash equivalents were $16.8 million on December 29, 1996, and
$17.1 million at March 23, 1997. Cash provided by operating activities for the
twelve weeks ended March 23, 1997 was $10.1 million, and the net decrease in
debt was $2.7 million for the quarter. Investments in fixed asset and other
additions were $6.8 million and $1.0 million of dividends were paid.
Inventories declined by $4.3 million and accounts payable decreased by $7.4
million in the quarter.
Stockholders' equity increased by $4.7 million to $200.4 million at March
23, 1997 as a result of the $5.0 million earnings for the first quarter of 1997
and $0.7 proceeds from issuance of stock, less the quarterly cash dividend of
$1.0 million.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from operations.
Cash provided by operating activities was $10.1 million in the first quarter of
1997, up from $8.1 million in the comparable 1996 period. At March 23, 1997 the
Company had cash of $17.1 million, compared to $16.8 million at December 29,
1996. The Company had $107.3 million of debt and shareholders' equity of $200.4
million at March 23, 1997.
From time to time Smart & Final may publish forward-looking statements
about anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that such forward-looking
statements are based upon internal estimates which are subject to change because
they reflect preliminary information and management assumptions, and that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The factors which could cause
actual results or outcomes to differ from such expectation include the extent of
the company's success in (i) changing market conditions (ii) unforeseen costs
and expenses (iii) ability to attract new customers and retain existing
customers (iv) gain or losses from sales along with the uncertainties and other
factors, including unusually adverse weather conditions, described from time to
time in the company's SEC filing and reports. This report includes "forward-
looking statements" including, without limitation, statements as to the
Company's liquidity and availability of capital resources.
The Company expects to be able to fund future acquisitions and other cash
requirements by a combination of available cash, cash from operations, lease
financings and other borrowings and proceeds from the issuance of equity
securities. The amount budgeted for capital expenditures is approximately $30.0
million for fiscal 1997.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
10.29 Employment Agreement between the Company and
Mr. Lynch*
27 Financial Data Schedule
(b) Reports on Form 8-K
None
* Management contracts and compensatory plans, contracts and arrangements of the
Company.
11
<PAGE>
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.
SMART & FINAL INC.
By:
Date: April 28, 1997 /s/ MARTIN A. LYNCH
__________________________________
Martin A. Lynch
Executive Vice President,
Principal Financial Officer, and
Principal Accounting Officer
of the Company
12
<PAGE>
SMART & FINAL INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ------------
<S> <C> <C>
10.29 Employment Agreement between the Company
and Mr. Lynch*
27 Financial Data Schedule
</TABLE>
* Management contracts and compensatory plans, contracts and arrangements of the
Company
13
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
first day of April, 1997 (hereinafter referred to as the "Effective Date"), by
and between Smart & Final Inc. (hereinafter referred to as the "Company"), a
Delaware corporation having its principal offices at Los Angeles, California and
Martin A. Lynch (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity
of Executive Vice President and Chief Financial Officer and as a member of the
Board of Directors of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three (3) years,
commencing as of the Effective Date of this Agreement, as indicated above;
subject, however, to earlier termination as expressly provided in Section 6
herein.
The initial three (3) year period of employment automatically shall be
extended for one (1) additional year at the end of the first year, and then
again after each successive year thereafter. However, either party may elect not
to have the then term of this Agreement extended by giving the other party
written notice of its election not to extend delivered at least ninety (90)
calendar days prior to the end of any calendar year, in which event the then
term shall expire in accordance with its terms.
1
<PAGE>
However, upon the effective date of the expiration, the Company shall provide
to the Executive a continuation of his Base Salary (at the rate then in effect,
as provided in Paragraph 4.1 herein) for a period of twenty-four (24) months,
paid in equal installments in accordance with the normal payroll practices of
the Company. The Company shall also promptly pay to the Executive an amount
equal to twice the average Bonus paid to the Executive relative to the three
fiscal years ending with the date of the expiration of the term, plus, if the
expiration is at the end of the first year of this Agreement, an additional
$100,000, and, if the expiration is at the end of the second year of this
Agreement, an additional $50,000. The Company also shall provide to the
Executive all benefits to which the Executive has a vested right to at that time
including, but not limited to, the retirement benefits described in Paragraph
4.4 herein, and the retiree medical insurance benefits described in Paragraph
4.6 herein.
SECTION 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as Executive
Vice President and Chief Financial Officer of the Company. In his capacity as
Chief Financial Officer of the Company, the Executive shall report directly to
the Chief Executive Director, and shall maintain the level of duties and
responsibilities as in effect as of the Effective Date, or such higher level of
duties and responsibilities as he may be assigned during the term of this
Agreement. The Executive shall have the same status, privileges, and
responsibilities normally inherent in such capacities in corporations of similar
size and character. The Executive acknowledges that such duties shall include
serving as an officer and/or director of affiliates of the Company from time to
time without the payment of additional compensation for doing so.
SECTION 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote
substantially his full time, attention, and energies to the Company's business
and shall not be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage.
However, subject to Section 8 herein, the Executive may serve as a director of
other companies so long as such service is not injurious to the Company. The
Executive covenants, warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of
conduct in the performance of his duties.
2
<PAGE>
This Section 3 shall not be construed as preventing the Executive from
investing assets in such form or manner as will not require his services in the
daily operations of the affairs of the companies in which such investments are
made.
SECTION 4. COMPENSATION
As remuneration for all services to be rendered by the Executive during the
term of this Agreement, and as consideration for complying with the covenants
herein, the Company shall pay and provide to the Executive the following:
4.1. BASE SALARY. The Company shall pay the Executive a Base Salary in an
amount which shall be established from time to time by the Board of Directors of
the Company or the Board's designee provided, however, that such Base Salary
shall not be less than $280,000 per year. Once increased, such Base Salary shall
not thereafter be decreased during the term of this Agreement. This Base Salary
shall be paid to the Executive in equal installments throughout the year,
consistent with the normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased. If so increased, the Base Salary as stated above shall,
likewise, be increased for all purposes of this Agreement.
4.2. ANNUAL BONUS. The Company shall provide the Executive with the
opportunity to earn an annual cash bonus, at a level which is commensurate with
the opportunity typically offered to executives having the same or similar
duties and responsibilities as the Executive at companies similar in size and
character to the Company. The Company shall, however, provide the Executive with
a minimum target annual bonus opportunity equal to sixty percent (60%) of the
Executive's annual Base Salary.
Nothing in this paragraph shall be construed as obligating the Company to pay
the Executive an Annual Bonus or to refrain from changing and/or amending the
annual bonus/incentive plan so long as such changes are similarly applicable to
all executives generally.
4.3. LONG-TERM INCENTIVES. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is
commensurate with the opportunity typically offered to executives having the
same or similar duties and responsibilities as the Executive at companies
similar in size and in character to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the long-term incentive plan, so long as
such changes are similarly applicable to all executives generally.
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4.4. RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, including, but not limited to, the 401(k) savings plan,
subject to the eligibility and participation requirements of such plans. The
Executive shall be entitled to benefits provided under the Deferred Compensation
Agreement currently in effect.
4.5. Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, comprehensive health and major medical insurance, and
short-term and long-term disability.
The Executive shall be entitled to paid vacation of a minimum of five (5)
weeks per calendar year, in accordance with the standard written policy of the
Company with regard to vacations of employees.
The Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6. RETIREE MEDICAL INSURANCE. The Company shall provide the Executive, and
the Executive's surviving spouse, if any, full retiree medical insurance
coverage (as defined under the Company's retiree medical insurance arrangement)
for the remainder of their lives in the event of the Executive's termination of
employment hereunder, due to the Executive's Death (as provided in Paragraph 6.2
herein), due to Retirement (as provided in Paragraph 6.1 herein), due to
Disability (as provided in Paragraph 6.3 herein), due to an involuntary
termination by the Company without Cause (as provided in Paragraph 6.5 herein),
due to a termination by the Executive for Good Reason (as provided in Paragraph
6.7 herein), or in the event this Agreement is not renewed by the Company (as
provided in Section 1 herein).
Retiree medical insurance coverage will not be provided to the Executive in
the event his employment hereunder is terminated voluntarily by the Executive
(as provided in Paragraph 6.4 herein), or in the event of a for Cause
termination (as provided in Paragraph 6.6 herein).
4.7. PERQUISITES. The Company shall provide to the Executive, at the
Company's cost, all perquisites currently being afforded the Executive as well
as all other perquisites to which other executives of the Company are entitled
to receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.8. RIGHT TO CHANGE PLANS. By reason of Paragraphs 4.5, 4.6, and 4.7
herein, the Company shall not be obligated to institute, maintain, or refrain
from changing, amending, or discontinuing
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any benefit plan, program, or perquisite, so long as such changes are similarly
applicable to executive employees generally.
SECTION 5. EXPENSES
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
SECTION 6. EMPLOYMENT TERMINATIONS
6.1. TERMINATION DUE TO RETIREMENT. In the event the Executive's employment
is terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay
and provide to the Executive Base Salary, Annual Bonus, and Long-Term Incentives
(as provided in Paragraphs 4.1, 4.2, and 4.3 herein, respectively), shall
immediately expire. However, the Executive shall receive all rights and benefits
that he is vested in, pursuant to other plans and programs of the Company
including, but not limited to, the retirement benefits as described in Paragraph
4.4 herein, and the retiree medical insurance coverage as described in Paragraph
4.6 herein.
6.2. TERMINATION DUE TO DEATH. In the event of the death of the Executive
during the term of this Agreement, or during any period of Disability during
which he is receiving compensation pursuant to Paragraph 6.3 herein, the Company
shall pay to the Executive's surviving spouse, or other beneficiary as so
designated by the Executive during his lifetime, or to the Executive's estate,
as appropriate, all benefits to which the Executive had a vested right to
pursuant to this Agreement.
The Company also shall provide to the Executive's surviving spouse medical
insurance coverage for the remainder of her life, as further provided in
Paragraph 4.6 herein.
6.3. TERMINATION DUE TO DISABILITY. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement.
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However, the Board shall deliver written notice to the Executive of the
Company's intent to terminate for Disability at least thirty (30) calendar days
prior to the effective date of such termination.
A termination for Disability shall become effective upon the end of the
thirty (30) day notice period. Upon such effective date, the Company's
obligation to pay and provide to the Executive Base Salary, Annual Bonus, and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3,
respectively), shall immediately expire. However, the Executive shall receive
all rights and benefits that he is vested in, pursuant to other plans and
programs of the Company, including, but not limited to, short- and long-term
disability benefits, retirement benefits as described in Paragraph 4.4 herein,
and retiree medical insurance coverage as described in Paragraph 4.6 herein.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Company upon receipt and in reliance on
competent medical advice from one or more individuals, selected by the Board,
who are qualified to give such professional medical advice.
It is expressly understood that the Disability of the Executive for a period
of ninety (90) calendar days or less in the aggregate during any period of
twelve (12) consecutive months, in the absence of any reasonable expectation
that his Disability will exist for more than such a period of time, shall not
constitute a failure by him to perform his duties hereunder and shall not be
deemed a breach or default and the Executive shall receive full compensation for
any such period of Disability or for any other temporary illness or incapacity
during the term of this Agreement.
6.4. VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may terminate
this Agreement at any time by giving the Company written notice of intent to
terminate, delivered at least ninety (90) calendar days prior to the effective
date of such termination (such period not to include vacation). The termination
automatically shall become effective upon the expiration of the notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, and a pro rata
bonus payment based upon the level of achievement of preestablished performance
goals up through and including the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the retirement benefits described in Paragraph 4.4 herein. With the
exception of the covenants contained in Section 8 herein (which shall survive
such termination), the Company and the Executive thereafter shall have no
further obligations under this Agreement.
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6.5. TERMINATION BY THE COMPANY WITHOUT CAUSE. At all times prior to six (6)
full calendar months before the effective date of a Change in Control, or at any
time more than two (2) years after the effective date of a Change in Control,
the Company may terminate the Executive's employment, as provided under this
Agreement, at any time, for reasons other than death, Disability, Retirement, or
for Cause, by notifying the Executive in writing of the Company's intent to
terminate, at least thirty (30) calendar days prior the effective date of such
termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall continue to pay to the
Executive in equal monthly installments the greater of: (a) the Base Salary then
in effect and Bonus, equal to the average of bonuses paid in the prior three (3)
years, plus $2,080 per month if termination occurs prior to April 1, 1998, and
$1,040 per month if termination occurs on or subsequent to April 1, 1998 but
prior to April 1, 1999, for the remaining term of this Agreement (assuming no
additional extensions of this Agreement's term beyond that in effect as of the
effective date of termination), together with continuation of health and welfare
benefits for the remaining term of this Agreement; or (b) two (2) full years of
his Base Salary in effect and Bonus, equal to the average of bonuses paid in the
prior three (3) years, plus $2,080 per month if termination occurs prior to
April 1, 1998, and $1,040 per month if termination occurs on or subsequent to
April 1, 1998 but prior to April 1, 1999, as of the effective date of
termination, plus a two (2) year continuation of health and welfare benefits.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. The Company and the Executive thereafter shall have
no further obligations under this Agreement.
6.6. TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent the Company from terminating the Executive's employment under this
Agreement for "Cause." In the event the Company determines that Cause exists,
the Company shall deliver written notice to the Executive of the facts and
circumstances leading to the Company's determination. Upon receipt of this
written notification, all provisions of this Agreement shall terminate, except
for the noncompete provisions of Section 8 herein (which shall survive such
termination).
"Cause" shall be determined by the Company in the exercise of good faith and
reasonable judgment; and shall mean and be limited to the consistent willful
misconduct, fraud, conviction of a felony, consistent gross neglect of duties,
or consistent wanton negligence by the Executive in the performance of his
duties hereunder, or the material breach by the Executive of the terms of this
Agreement.
In the event this Agreement is terminated by the Company for Cause, the
Company shall pay to the Executive his Base Salary, at the rate then in effect,
as provided in Paragraph 4.1 herein, through the effective date of the
employment termination and the Executive shall immediately thereafter forfeit
all rights and benefits (other than vested benefits) he would
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otherwise have been entitled to receive under this Agreement. The Company and
the Executive thereafter shall have no further obligations under this Agreement.
6.7. TERMINATION FOR GOOD REASON. At any time during the term of this
Agreement, the Executive may terminate this Agreement for Good Reason (as
defined below) by giving the Company thirty (30) calendar days written notice of
intent to terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in this Section 6.7 (or, in the event of
termination for Good Reason within the six (6) full calendar month period prior
to the effective date of a Change in Control, or within twenty-four (24)
calendar months following the effective date of a Change in Control, the
benefits set forth in Section 7.1 herein).
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with
the Executive's authorities, duties, responsibilities, and status
(including offices, titles, and reporting requirements) as an officer
of the Company, or a reduction or alteration in the nature or status
of the Executive's authorities, duties, or responsibilities from those
in effect during the immediately preceding fiscal year;
(b) Without the Executive's consent, the Company's requiring the Executive
to be based at a location which is at least ninety (90) miles further
from the Executive's current primary residence than is such residence
from the Company's current headquarters, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's business obligations as of the Effective Date;
(c) A material reduction in the Executive's level of participation in any
of the Company's short- and/or long-term incentive compensation plans,
or employee benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the Effective
Date; provided, however, that reductions in the levels of
participation in any such plans shall not be deemed to be "Good
Reason" if the Executive's reduced level of participation in each such
program remains substantially consistent with the average level of
participation of other executives who have positions commensurate with
the Executive's position; or
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(d) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 10.1 herein.
Upon a termination of the Executive's employment for Good Reason at any time
other than the six (6) full calendar month period prior to the effective date of
a Change in Control, or the twenty-four (24) month period following the
effective date of a Change in Control, the Executive shall be entitled to
receive the same payments and benefits as he is entitled to receive following an
involuntary termination of his employment by the Company without Cause, as
specified in Section 6.4 herein. The payment of Base Salary and pro rata Bonus
shall be made to the Executive within thirty (30) calendar days following the
effective date of employment termination. Upon a termination for Good Reason
within the six (6) full calendar month period prior to the effective date of a
Change in Control, or within the twenty-four (24) months following the effective
date of a Change in Control, the Executive shall be entitled to receive the
payments and benefits set forth in Section 7.1 herein in lieu of those set forth
in this Section 6.7. The Executive's right to terminate employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason herein.
SECTION 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive and provide
him with the following severance benefits (hereinafter referred to as the
"Severance Benefits"):
(a) An amount equal to three (3) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including
the effective date of termination;
(b) An amount equal to three (3) times the Executive's average annual
bonus earned over the three (3) fiscal years prior to the Change in
Control (whether or not deferred), plus whichever of the following
applies: (i) $150,000 if such termination occurs prior to April 1,
1998, (ii) $100,000 if such termination occurs on or subsequent to
April 1, 1998 but prior to April 1, 1999, (iii) $50,000 if such
termination occurs on or subsequent to April 1, 1999 but prior to
April 1, 2000;
(c) An amount equal to the Executive's unpaid Base Salary and accrued
vacation pay through the effective date of termination (for purposes
of this Agreement there
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will be no limit on the amount of vacation which may be accrued
notwithstanding Company policies to the contrary);
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date
of termination occurs, adjusted for the Company's performance through
the date of termination, multiplied by a fraction, the numerator of
which is the number of completed days in the then-existing fiscal year
through the effective date of termination, and the denominator of
which is three hundred sixty-five (365);
(e) A continuation of the welfare benefits in effect for three (3) full
years after the effective date of termination. These benefits shall be
provided to the Executive at the same premium cost, and at the same
coverage level, as in effect as of the Executive's effective date of
termination.
However, in the event the premium cost and/or level of coverage shall
change for all employees of the Company, the cost and/or coverage level,
likewise, shall change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to the
end of the three (3) year period in the event the Executive has available
substantially similar benefits from a subsequent employer, as determined by the
Company's Board of Directors or the Board's designee;
(f) A lump-sum cash payment of the actuarial present value equivalent of
the aggregate benefits accrued by the Executive as of the effective
date of termination under the terms of any and all supplemental
retirement plans in which the Executive participates. For this
purpose, such benefits shall be calculated under the assumption that
the Executive's employment continued following the effective date of
termination for three (3) full years (i.e., three (3) additional years
of age and service credits shall be added); provided, however, that
for purposes of determining "final average pay" under such programs,
the Executive's actual pay history as of the effective date of
termination shall be used;
(g) A lump-sum cash payment of the entire balance of the Executive's
compensation which has been deferred under the Company's nonqualified
deferred compensation plan(s) together with all interest that has been
credited with respect to such deferred compensation balance;
(h) A lump-sum cash payment of all amounts owed to the Employee under the
Deferred Compensation Plan computed as if the Employee had continued
to
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participate in the Deferred Compensation Plan and received a deemed
credit thereunder for an additional period equal to the greater of (A)
the number of full and partial years remaining under the term of this
Agreement or (B) three (3) years, within five (5) days of the Date of
Termination.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment OTHER THAN: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; provided that a
termination which qualifies as a Retirement and which occurs within the thirty
(30) day period described in subparagraph (3) of this Section 7.1 will be deemed
to be a Qualifying Termination); or (3) by the Executive without Good Reason (as
provided in Section 6.7 herein, but specifically excluding voluntary
terminations within the period beginning on the first anniversary of the
effective date of the Change in Control and ending thirty (30) days after such
date, any voluntary termination by the Executive within such period shall be
deemed to be a Qualifying Termination).
7.2 DEFINITION OF "CHANGE IN CONTROL." A Change in Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (other than the
Company; any trustee or other fiduciary holding securities under an
employee benefit plan of the Company; any Company-owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company) is or
becomes the "beneficial owner" (as defend in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates)
representing thirty-five percent (35%) or more of the combined voting
power of the Company's then outstanding securities;
(b) During any period of two consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause
(a), (c), or (d) of this paragraph) whose election by the Board or
nomination for election 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 of
whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof;
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(c) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the ownership
of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, at least sixty-five percent (65%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no
person acquires more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities; or
(d) 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 the Company's assets.
Notwithstanding the foregoing, a Change in Control shall not include (A)
any event, circumstance, or transaction that results from the action of any
entity or group that includes, is affiliated with, or is wholly or partly
controlled by the Employee (e.g., a management-led buyout) or (B) the repurchase
by the Company or the redemption, directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this
Agreement, or under any other agreement with or plan of the Company (in the
aggregate, the "Total Payments"), if any of the Total Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
similar tax that may hereafter be imposed), the Company shall pay to the
Executive in cash an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon the
Total Payments and any Federal, state and local income tax and Excise Tax upon
the Gross-Up Payment provided for by this Section 7.3 (including FICA and FUTA),
shall be equal to the Total Payments. Such payment shall be made by the Company
to the Executive as soon as practical following the effective date of
termination, but in no event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the
Executive in connection with a Change in Control of the Company or the
Executive's
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termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement, or agreement with the
Company, or with any person (which shall have the meaning set forth in
Section 3(a)(9) of the Securities Exchange Act of 1934, including a
"group" as defined in Section 13(d) therein) whose actions result in a
Change in Control of the Company or any person affiliated with the
Company or such persons) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of tax
counsel as supported by the Company's independent auditors and
acceptable to the Executive, such other payments or benefits (in whole
or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of: (i) the total amount
of the Total Payments; or (ii) the amount of excess parachute payments
within the meaning of Section 280G(b)(1) (after applying clause (a)
above); and
(c) The value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the
Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay Federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in Federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 7.4 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
SECTION 8. NONCOMPETITION
8.1 PROHIBITION ON COMPETITION. Without the prior written consent of the
Company, during the term of this Agreement, and for the greater of twelve (12)
months following the expiration of this Agreement, or any other period in which
amounts are paid hereunder, the
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Executive shall not, as an employee or an officer, engage directly or indirectly
in any business or enterprise which is "in competition" with the Company or its
successors or assigns.
8.2 DISCLOSURE OF INFORMATION. The Executive recognizes that he has access
to and knowledge of certain confidential and proprietary information of the
Company which is essential to the performance of his duties under this
Agreement. The Executive will not, during or after the term of his employment by
the Company, in whole or in part, disclose such information to any person, firm,
corporation, association, or other entity for any reason or purpose whatsoever,
nor shall he make use of any such information for his own purposes.
8.3 COVENANTS REGARDING OTHER EMPLOYEES. During the term of this Agreement,
and for a period of twenty four (24) months following the expiration of this
Agreement, the Executive agrees not to attempt to induce any employee of the
Company to terminate his or her employment with the Company, accept employment
with any competitor of the Company, or to interfere in a similar manner with the
business of the Company.
SECTION 9. INDEMNIFICATION
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
SECTION 10. ASSIGNMENT
10.1. ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein. Except as
herein provided, this Agreement may not otherwise be assigned by the Company.
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10.2. ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, and administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive should die while any amounts payable to the Executive
hereunder remain outstanding, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, in the absence of such
designee, to the Executive's estate.
SECTION 11. DISPUTE RESOLUTION AND NOTICE
11.1. DISPUTE RESOLUTION. Any dispute arising under or in connection with
this Agreement shall be settled exclusively by arbitration.
Such proceeding shall be conducted before a panel of three (3) arbitrators
sitting in a location selected by the Executive within fifty (50) miles from the
location of his principal place of employment, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the award of the arbitrator in any court having jurisdiction.
All expenses of such arbitration, including the reasonable fees and expenses
of the legal representation, and necessary costs and disbursements incurred as a
result of such dispute, and any prejudgment interest, shall be borne by the
unsuccessful party.
11.2. NOTICE. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
SECTION 12. MISCELLANEOUS
12.1. ENTIRE AGREEMENT. This Agreement supersedes the prior Employment
Agreement between the Company and the Executive dated August 1, 1993 (provided
that the Executive shall continue to be entitled to receive all amounts and
benefits accrued thereunder through the Effective Date) as well as all
negotiations or understandings, oral or written, between the Executive and the
Company, with respect to the subject matter hereof and constitutes the entire
Agreement of the parties with respect thereto. The parties acknowledge, however,
that there are various other prior agreements between them, which shall remain
unmodified and in full force and effect.
12.2. MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
15
<PAGE>
12.3. 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.
12.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.5. TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Agreement all Federal, state, city, or other taxes as may be required
pursuant to any law or govern-mental regulation or ruling.
12.6. BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
12.7. GOVERNING LAW. To the extent not preempted by federal law, the
provisions of this Agreement shall be construed and enforced in accordance with
the laws of the state of California.
16
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a
resolution adopted at a duly constituted meeting of its Board of Directors) have
executed this Agreement, as of the day and year first above written.
EXECUTIVE: COMPANY:
SMART & FINAL INC.
/s/ Martin A. Lynch By: /s/ Roger M. Laverty III
- -------------------------- --------------------------
Martin A. Lynch Roger M. Laverty III
President and Chief Executive Officer
17
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-04-1998
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-23-1997
<CASH> 17,116
<SECURITIES> 0
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<CURRENT-ASSETS> 216,670
<PP&E> 269,354
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0
0
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