SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 29, 1996 Commission File Number 33-68958
Specialty Foods Acquisition Corporation
(Exact name of registrant as specified in its charter)
State of Delaware 75-2488183
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9399 W. Higgins Road, Suite 800, Rosemont, IL 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 685-1000
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock as of
August 12, 1996 was 63,484,491 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 29, December 30,
Assets 1996 1995
------------------------
(unaudited)
Current assets:
Cash $ 265 $ 18,229
Accounts receivable, net 59,384 54,987
Inventories 154,590 149,072
Other current assets 27,952 10,151
---------- -----------
Total current assets 242,191 232,439
Property, plant and equipment, net 349,440 369,430
Intangible assets, net 466,279 471,874
Other noncurrent assets 40,500 43,892
----------- -----------
Total assets $ 1,098,410 $ 1,117,635
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 4,175 $ 4,177
Accounts payable 168,390 148,550
Accrued expenses 107,539 120,586
----------- -----------
Total current liabilities 280,104 273,313
Long-term debt 1,161,325 1,139,556
Other noncurrent liabilities 58,339 57,828
----------- -----------
Total liabilities $ 1,499,768 $ 1,470,697
----------- -----------
Stockholders' equity (401,358) (353,062)
----------- -----------
Total liabilities and stockholders'
equity $ 1,098,410 $ 1,117,635
=========== ===========
See accompanying notes to financial statements.
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three months ended Six months ended
-----------------------------------------------
June 29, June 30, June 29, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales $ 504,156 $ 494,832 $ 979,073 $ 964,944
Cost of sales 351,765 338,699 688,671 668,930
--------- --------- --------- ---------
Gross profit 152,391 156,133 290,402 296,014
Operating expenses:
Selling, general and
administrative expenses 135,455 125,304 268,409 246,256
Amortization of
intangibles 3,570 5,077 7,192 10,181
--------- --------- --------- ---------
Total operating expenses 139,025 130,381 275,601 256,437
--------- --------- --------- ----------
Operating profit 13,366 25,752 14,801 39,577
Other:
Interest expense 34,130 32,484 67,334 65,348
Other (income) expense, net 2,549 1,698 (5,997) 3,527
--------- --------- ---------- ----------
Loss before income taxes
and extraordinary item (23,313) (8,430) (46,536) (29,298)
Provision for income taxes 253 700 1,032 1,249
--------- --------- --------- ---------
Loss before extraordinary
item (23,566) (9,130) (47,568) (30,547)
Extraordinary item - - - (2,323)
--------- --------- --------- ---------
Net loss $ (23,566) $ (9,130) $ (47,568) $ (32,870)
========= ========= ========= =========
Loss per share
Loss before
extraordinary item (.37) (.14) (.75) (.47)
Extraordinary item - - - (.04)
--------- --------- --------- ---------
Net loss $ (.37) $ (.14) $ (.75) $ (.51)
========= ========= ========= =========
Weighted average common
shares outstanding 63,478 63,560 63,795 63,648
========= ========= ========= =========
See accompanying notes to financial statements.
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six months ended
June 29, 1996 June 30, 1995
Cash flows from operating activities:
Net loss $ (47,568) $ (32,870)
Adjustments to reconcile net
loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 31,193 33,212
Debt issuance cost amortization 3,651 4,470
Accretion of interest on debentures 18,887 16,550
Changes in operating assets and
liabilities and other, net (26,247) (11,378)
---------- ----------
Net cash provided by (used in)
operating activities (20,084) 9,984
---------- ----------
Cash flows from investing activities:
Capital expenditures (31,463) (13,700)
Proceeds from insurance claim 15,000 -
Proceeds from sale-leaseback of
equipment 17,941 -
Acquisition of business, net of
cash acquired - (5,429)
Other 1,740 857
---------- ----------
Net cash provided by (used in)
investing activities 3,218 (18,272)
---------- ----------
Cash flows from financing activities:
Increase in revolving credit 6,600 2,000
Payments on long-term debt (1,713) (48,225)
Proceeds from long-term debt - 55,906
Other (5,985) (2,162)
---------- ----------
Net cash provided by (used in)
financing activities (1,098) 7,519
---------- ----------
Decrease in cash (17,964) (769)
Cash at beginning of period 18,229 1,762
---------- ----------
Cash at end of period $ 265 $ 993
========== ==========
See accompanying notes to financial statements.
NOTE 1 - Interim Financial Information
In the opinion of management, the accompanying unaudited interim condensed
financial information of Specialty Foods Acquisition Corporation ("SFAC")
and its subsidiaries (together with SFAC, the "Company") contains all
adjustments, consisting only of those of a recurring nature, necessary to
present fairly the Company's financial position and results of operations.
All significant intercompany accounts, transactions and profits have been
eliminated.
These financial statements are for interim periods and do not include all
information normally provided in annual financial statements and should be
read in conjunction with the financial statements of the Company for the
year ended December 30, 1995 included in the annual report filed on Form 10-
K. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the full year.
NOTE 2 - Inventories
The components of inventories are as follows:
June 29, December 30,
1996 1995
---------- ---------
Raw materials and packaging $ 31,358 $ 28,447
Work in process 58,501 55,119
Finished goods 64,731 65,506
--------- --------
$ 154,590 $ 149,072
Inventories are stated at the lower of cost or market. Cost is determined
principally by the first-in, first-out ("FIFO") method.
NOTE 3 - Product Grouping Information
All of the Company's operations fall within the food industry segment. Net
sales, gross profit and operating profit for the Company's major product
groupings are summarized below:
Three months ended June 29, 1996
---------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $230,403 $232,446 $41,307 - $504,156
Gross profit $110,669 $ 27,909 $13,813 - $152,391
Operating profit $ 9,279 $ 4,109 $ 2,304 $(2,326) $ 13,366
Three months ended June 30, 1995
---------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $231,461 $227,649 $35,722 - $494,832
Gross profit $113,958 $ 29,702 $12,473 - $156,133
Operating profit $ 15,119 $ 9,434 $ 2,258 $(1,059) $ 25,752
Six months ended June 29, 1996
---------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $443,518 $459,488 $76,067 - $979,073
Gross profit $210,477 $ 55,096 $24,829 - $290,402
Operating profit $ 11,186 $ 7,645 $ 2,930 $(6,960) $ 14,801
Six months ended June 30, 1995
---------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $437,686 $459,940 $67,318 - $964,944
Gross profit $213,016 $ 60,410 $22,588 - $296,014
Operating profit $ 22,004 $ 18,766 $ 2,874 $(4,067) $ 39,577
The Bakery Operation's products primarily consist of breads, buns, rolls,
sweet goods, cookies and sourdough French bread. These products are
distributed primarily through a company-owned DSD system throughout the
Midwestern United States, California and the Pacific Northwest.
The Cheese and Meat Operation's products primarily consist of specialty
Italian cheeses, other European-style specialty cheeses, basic Italian
cheeses and pre-cooked meat products. The cheese products are sold
throughout the United States, through retail grocers, to foodservice
accounts and to industrial food processors. The meat products are sold
primarily to national and regional restaurant chains and to prepared-food
producers.
Products in the Other Specialty Food Operations grouping include pickles,
peppers and spices sold through retail grocers in the greater New York
metropolitan area and bagel chips distributed nationally through brokers
and distributors to grocery stores, gourmet shops and club stores. The
Company also operates 33 cafe shops located in the San Francisco Bay area,
San Diego and the greater Chicago area.
NOTE 4 - Stella Fire
On January 5, 1996, a Stella Foods, Inc. ("Stella") cheese manufacturing
plant located in Lena, Wisconsin was substantially destroyed by fire. The
plant, which was responsible for approximately 20% of Stella's production,
produced mozzarella and ricotta cheeses sold primarily under the Frigo
trademark. The Company is rebuilding the plant and expects it to be
substantially operational by the end of September, 1996.
The Company has comprehensive insurance which provides replacement cost
coverage for all property damage, as well as reimbursement for extra
expense and lost operating profit for the period until the plant is fully
operational.
As of June 29, 1996, the Company has received $20 million from its
insurance carriers ($30 million received as of August 12.) In the
Company's statement of cash flows for the six-month period ended June 29,
1996, the insurance proceeds which relate to damaged property ($15 million)
have been classified with investing activities, while the remainder of the
proceeds ($5 million) have been classified with operating activities.
Additionally, the portion of the claim representing coverage for the lost
operating profit ($3.5 million) and the portion representing the excess of
replacement cost over book value of assets destroyed and written off ($13
million), have been recorded as other income in the statement of operations
for the six-month period ended June 29, 1996. The Company expects
settlement procedures with its insurance carriers to continue throughout
the remainder of 1996.
In order to accelerate the collection of amounts due to the Company under
its insurance claim, on May 21, 1996, the Company sold $10 million of the
insurance receivable to certain stockholders and affiliates of stockholders
of SFAC. The receivable was purchased by Acadia Partners, L.P., Keystone,
Inc., and Haas Wheat Advisory Partners Incorporated in the amount of $4.5
million, $4.5 million, and $1.0 million, respectively.
NOTE 5 - Sale-Leaseback Transaction
On April 25, 1996 the Company entered into several agreements for the sale
and leaseback of approximately $17.9 million of production equipment at
four bakeries and two cheese plants. The leases are classified as
operating leases and, accordingly, the book value of the equipment was
removed from the balance sheet. Losses of $2.2 million realized on the
sale of equipment at two facilities were recognized immediately and
recorded in other expense while gains of $5.0 million realized on the
equipment sales at the other four facilities are being deferred and
amortized to income as rent expense adjustments over the 6 1/2-year lease
term. Aggregate rentals under the leases approximate $3.5 million
annually.
NOTE 6 - Dispositions
On May 18, 1996, the Company sold its baking business in North Vancouver,
British Columbia for cash proceeds of $1.5 million. The assets sold
consisted primarily of accounts receivable, equipment and customer routes.
A loss of $4.5 million ($3.8 million after taxes), resulted from the
transaction and is recorded in other expense. The 1996 revenues of this
business through the date of sale approximated $9 million.
In a separate transaction, on August 2, 1996, the Company sold the building
and land associated with the above business for aggregate proceeds of $4.7
million, which approximates book value. The transaction will be reflected
in the Company's fiscal third quarter financial statements.
NOTE 7 - Debt Covenants
As of June 29, 1996, the Company was not in compliance with certain
financial covenants under the Amended Term Facility and Revolving Credit
Facility (together, the "Credit Facilities"). As a result, the Company
requested and received a waiver of such covenants for the second quarter of
fiscal 1996 from its lenders. In connection with the waiver, the Company's
loan agreements were amended to provide for an increase in the interest
rate paid for outstanding indebtedness under the Credit Facilities.
Effective August 2, 1996, the rate was increased from LIBOR plus 2 1/4% to
LIBOR plus 2 1/2%.
Based upon its current projections, the Company anticipates that additional
covenant relief will be requested in fiscal 1996. Management believes,
based on discussions with the Company's lenders, that it will be able to
obtain the appropriate covenant relief, although there can be no assurance
that such relief will be granted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEASONALITY
The Company's businesses are moderately seasonal with higher sales and
operating profit generally occurring in the third and fourth quarters of
the year. This seasonality is due primarily to higher bread sales in the
summer months and higher cheese sales in the fall and winter months.
COMMODITY INGREDIENTS
The Company is a significant purchaser of commodity ingredients,
particularly flour, milk and various meat products (primarily beef). These
commodities represent significant components of product costs in the
Company's Bakery, Cheese and Meat Operations. As a result, movement in the
price level of these commodities can have a significant impact on the
Company's production costs and, ultimately, its profitability.
The bulk of these commodities are purchased on the open market at current
rates. However, occasionally the Company makes advance purchases of these
products in order to lock in what is perceived to be favorable pricing and
to protect itself from market price fluctuations. This is particularly the
case with regard to the Company's purchases of flour for its Bakery
Operations.
The Company attempts to pass through increases in the costs of ingredients
to its customers where possible. The ability to do so is dependent
primarily upon competitive conditions in the various markets in which the
Company conducts business and upon consumer demand for products in
categories in which the Company competes. Generally, increases in
commodity costs adversely impact the Company. This is not the case,
however, as it relates to meat commodity costs. Due to the standard
formula pricing method used in the industry, lower meat costs negatively
impact the profitability of the Company's Meat Operations.
As further discussed below in "Results of Operations", sharp increases in
the price of flour and milk have significantly decreased the profits and
operating cash flows of the Company's Bakery Operations and Cheese
Operations in the first half of fiscal 1996. Management expects the
difficult commodity conditions to continue to impact its profitability and
operating cash flows in the second half of 1996, particularly in its Cheese
Operations. Given the further increase in milk costs since the end of the
second quarter, management anticipates that the difficult conditions
experienced by its Cheese Operations will continue in the second half of
1996. Although flour costs are anticipated to be at higher levels for the
second half of 1996 versus the comparable period in 1995, pricing actions
taken by the Company should mitigate the adverse impact of flour costs over
this period.
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER 1996 TO SECOND QUARTER 1995
Consolidated net sales for the quarter ended June 29, 1996 increased 2% to
$504 million compared to $495 million in 1995. Acquisition and disposition
activity had a negligible impact on the comparability of consolidated net
sales.
Net sales of the Bakery Operations were essentially flat compared to 1995
as price increases were offset by slightly lower volumes and the impact of
the disposition of the Company's Canadian bakery operations in May, 1996.
Net sales of the Cheese and Meat Operations, consisting of Stella and H&M
Food Systems Company, Inc. ("H&M"), respectively, increased $5 million (2%)
to $232 million. Net sales increased at Stella by $11 million (6%) and
declined $6 million (13%) at H&M. Stella's net increase in sales resulted
primarily from price increases, reflecting the significant increase in the
cost of milk in 1996, partially offset by decreased volume resulting from a
fire at its Lena, Wisconsin manufacturing plant in January, 1996. (See
Note 4 in Notes to Financial Statements for further discussion regarding
the fire and its impacts.) Excluding the negative impact on volumes due to
the fire, unit sales increased 3%. The decline at H&M was primarily due to
lower commodity prices and lower volume. Net sales of the Other Specialty
Food Operations increased $6 million (16%) primarily due to the incremental
sales contribution from the New York Style Bagel Chip Business, which was
acquired in September, 1995.
The Company's gross profit margin decreased to 30.2% from 31.6% in 1995
primarily due to a significant increase in the cost of flour and milk, the
key commodity ingredients in the Company's Bakery and Cheese Operations,
respectively, partially offset by price increases and continued
manufacturing cost reductions.
Consolidated operating profit in 1996 decreased 48.1% to $13.4 million
compared to $25.8 million in 1995. Operating profit in the Bakery
Operations decreased 38.6% to $9.3 million compared to $15.1 million in
1995. This decrease was principally due to the significant increase in the
cost of flour and increases in SG&A expenses, partially offset by price
increases, cost reductions and decreased amortization expense due to the
1995 goodwill writedown. The cost of flour increased 30% compared to 1995
and negatively impacted operating profit in the second quarter of 1996 by
approximately $5 million. SG&A expenses in the Bakery Operations increased
$4 million (4%) in 1996 principally due to inflation.
Operating profit in the Cheese and Meat Operations decreased 56.4% to $4.1
million compared to $9.4 million in 1995. Operating profit at Stella
decreased $5.5 million (75%) principally due to a significant increase in
the cost of milk, increased promotion and distribution expenses and volume
losses resulting from the fire, partially offset by price increases.
Operating profit at H&M increased slightly as the negative impacts of lower
volume and lower commodity prices were more than offset by cost reductions
and decreased amortization expense due to the 1995 goodwill writedown.
Operating profit in the Other Specialty Food Operations was essentially flat
compared to 1995.
Interest expense in 1996 increased 5% to $34.1 million from $32.5 million
in 1995 principally due to the additional indebtedness that results from
the accretion of interest on the Company's Senior Debentures and
Subordinated Debentures.
Other expense increased to $2.5 million in 1996 from $1.7 million in 1995.
The increase in 1996 results from a loss on the sale of the Company's
Canadian bakery operations and a loss on the sale and leaseback of certain
equipment substantially offset by the gain associated with the Company's
insurance recovery. These transactions are more fully described in the
Notes to Financial Statements.
The effective income tax rates in 1996 and 1995 differ from the Federal
statutory rate primarily due to the nondeductibility of the amortization of
certain intangible assets and tax benefits not currently recognizable for
financial statement purposes.
As a result of the above factors, net loss increased to $23.6 million in
1996 compared to $9.1 million in 1995.
Because of the highly-leveraged status of the Company, earnings before
interest, taxes, depreciation and amortization ("EBITDA") is an important
performance measure used by the Company and its stakeholders. The
Company's EBITDA in 1996, which also includes the portion of its insurance
claim that relates to lost operating profit, decreased to $30.2 million in
1996 from $42.5 million in the same quarter of 1995 for the reasons
described above.
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Consolidated net sales for the six months ended June 29, 1996 increased 1%
to $979 million compared to $965 million in 1995. Excluding the impact of
acquisitions and dispositions, net sales increased approximately $5
million.
Net sales of the Bakery Operations increased $6 million (1%) to $444
million. This increase was primarily due to price increases and the
acquisition in May, 1995 of two bakeries and the related routes, partially
offset by lower volumes. Net sales of the Cheese and Meat Operations,
consisting of Stella and H&M, respectively, were flat compared to 1995. Net
sales increased at Stella by $13 million (3%) and declined $13 million (15%)
at H&M. Stella's net increase in sales resulted primarily from price
increases, reflecting the significant increase in the cost of milk in 1996,
partially offset by decreased volume resulting from a fire at its Lena,
Wisconsin manufacturing plant in January, 1996. (See Note 4 in Notes to
Financial Statements for further discussion regarding the fire and its
impacts.) Excluding the negative impact on volumes due to the fire, unit
sales increased 3%. The decline at H&M was primarily due to lower commodity
prices and lower volume. Net sales of the Other Specialty Food Operations
increased $9 million (13%) primarily due to the incremental sales contribution
from the New York Style Bagel Chip Business, which was acquired in September,
1995.
The Company's gross profit margin decreased to 29.7% from 30.7% in 1995
primarily due to a significant increase in the cost of flour and milk, the
key commodity ingredients in the Company's Bakery and Cheese Operations,
respectively, partially offset by price increases and continued
manufacturing cost reductions.
Consolidated operating profit in 1996 decreased 62.6% to $14.8 million
compared to $39.6 million in 1995. Operating profit in the Bakery
Operations decreased 49.2% to $11.2 million compared to $22.0 million in
1995. This decrease was principally due to the significant increase in the
cost of flour and increases in SG&A expenses, partially offset by price
increases, cost reductions and decreased amortization expense due to the
1995 goodwill writedown. The price of flour increased over 25% compared to
1995 and negatively impacted operating profit in the first six months of
1996 by approximately $9 million. SG&A expenses in the Bakery Operations
increased $10 million (6%) in 1996 principally due to inflationary increases
impacting the Bakery Operations in general and increases in marketing and
promotion expenses primarily relating to the Company's cookie business.
Operating profit in the Cheese and Meat Operations decreased 59.3% to $7.6
million compared to $18.8 million in 1995. Operating profit at Stella
decreased $11.4 million (77%) principally due to a significant increase in
the cost of milk, increased promotion and distribution expenses and volume
losses resulting from the fire, partially offset by price increases.
Operating profit at H&M increased slightly as the negative impacts of lower
volume and lower commodity prices were more than offset by cost reductions
and decreased amortization expense due to the 1995 goodwill writedown.
Operating profit in the Other Specialty Food Operations was essentially
flat compared to 1995.
Corporate expenses increased to $6.9 million in 1996 compared to $4.1
million in 1995 primarily due to termination costs associated with the
resignation of the Company's President and Chief Executive Officer on
January 12, 1996.
Other (income) expense, net was $6.0 million income in 1996 compared to
expense of $3.5 million in 1995. The net other income in 1996 results
primarily from the Company's insurance recovery, partially offset by a loss
incurred in connection with the disposition of the Company's Canadian
bakery operations and a loss on the sale and leaseback of certain
equipment. These transactions are more fully described in the Notes to
Financial Statements.
Interest expense in 1996 increased 3% to $67.3 million from $65.3 million
in 1995 principally due to the additional indebtedness that results from
the accretion of interest on the Company's Senior Debentures and
Subordinated Debentures.
The effective income tax rates in 1996 and 1995 differ from the Federal
statutory rate primarily due to the nondeductibility of the amortization of
certain intangible assets and tax benefits not currently recognizable for
financial statement purposes.
As a result of the above factors, net loss increased to $47.6 million in
1996 compared to $32.9 million in 1995.
Because of the highly-leveraged status of the Company, EBITDA is an important
performance measure used by the Company and its stakeholders. The
Company's EBITDA in 1996, which also includes the portion of its insurance
claim that relates to lost operating profit, decreased to $49.5 million from
$72.8 million in 1995 for the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $20.1 in 1996 compared to net
cash provided by operating activities of $10.0 million in 1995. The
difference is principally due to significantly lower operating profit in
1996 and net increases in the Company's working capital accounts.
In connection with the acquisition of the Company in August, 1993, the
Company recorded estimated liabilities of $59 million for the expected cash
cost to consolidate facilities and streamline operations. These costs,
which are included in Accrued Expenses, consist of severance and related
termination benefits, lease terminations and other related costs. Cash
expenditures associated with these liabilities were $8 million and $9 million
for the six months ended June 29, 1996 and June 30, 1995, respectively.
Net cash provided by investing activities was $3.2 million in 1996 compared
to net cash used in investing activities of $18.3 million in 1995.
Investing activities in 1996 includes proceeds of $15.0 million from the
Stella fire insurance claim and $17.9 million from the Company's second
quarter sale-leaseback transaction involving equipment at certain plants
within its Bakery and Cheese Operations. Capital expenditures were $31.5
million in 1996 and $13.7 million in 1995. The increase in capital
spending in 1996 is primarily due to spending required to rebuild the
Stella plant which was destroyed by fire. Excluding spending for the plant
rebuild, which will be funded by the Company's insurance claim, capital
expenditures in 1996 are expected to approximate $40 million and will be
funded from internal sources and from available borrowing capacity under
the Revolving Credit Facility. The planned level of capital expenditures
is needed primarily to maintain the Company's existing level of operations
and enhance its production efficiencies.
Net cash used in financing activities was $1.1 million in 1996 compared to
net cash provided by financing activities of $7.5 million in 1995. In
1996, limited additional borrowings were required principally due to the
cash on hand at the end of 1995. The Revolving Credit Facility provides
for borrowing of up to $125 million. At June 29, 1996, $79.2 million was
outstanding under the Revolving Credit Facility and the Company had $23.7
million of outstanding letters of credit. The letters of credit reduce the
availability of the facility and, as a result, $22.1 million was available
for borrowing at June 29, 1996.
As of June 29, 1996, the Company was not in compliance with certain
financial covenants under the Amended Term Facility and Revolving Credit
Facility (together, the "Credit Facilities"). As a result, the Company
requested and received a waiver of such covenants for the second quarter of
fiscal 1996 from its lenders. In connection with the waiver, the Company's
loan agreements were amended to provide for an increase in the interest
rate paid for outstanding indebtedness under the Credit Facilities.
Effective August 2, 1996, the rate was increased from LIBOR plus 2 1/4% to
LIBOR plus 2 1/2%.
Based upon its current projections, the Company anticipates that additional
covenant relief will be requested in fiscal 1996. Management believes,
based on discussions with the Company's lenders, that it will be able to
obtain the appropriate covenant relief, although there can be no assurance
that such relief will be granted.
The Company remains highly leveraged and, as a result, a significant
portion of its operating cash flow is required for debt service and to
fund seasonal working capital requirements. Debt service requirements are
particularly high over the next three months as the Company's semi-annual
interest payments associated with its Senior Notes and its Senior
Subordinated Notes are due on August 15 ($23 million) and October 1 ($8
million). Nonetheless, management believes that cash flows from
operations, certain asset dispositions, available borrowing capacity under
the Revolving Credit Facility, and financing opportunities which are
available under the Company's debt agreements, provide sufficient liquidity
to enable the Company to meet its debt service obligations in the short term,
although there can be no assurances that cash flow will be adequate
to meet such obligations. Based upon current levels of operations and
anticipated growth, the Company expects that it will be required to
refinance a portion of its indebtedness beginning in the year 2000. The
Company currently has no specific plans for the implementation of such
financing.
OTHER MATTERS
In a press release dated June 6, 1996, the Company announced that it had
retained an investment bank to advise it in connection with the potential
sale of certain of its non-core businesses. The companies targeted for
potential sale are Mother's Cake & Cookie Co., Bloch & Guggenheimer, Inc.,
Burns & Ricker, Inc. and San Francisco French Bread Company. The analysis
of the potential divestitures will occur over the next several months and
is scheduled to conclude by year-end. The companies targeted for potential
sale together accounted for less than 20 percent of the Company's revenues
in 1995 and 1996.
As described above, certain of the Company's businesses continue to face
extremely difficult commodity conditions which negatively impacted the
Company's operations in 1996. The Company believes that the difficult
commodity conditions experienced in 1996 are temporary in nature and,
consequently, management expects the Company's performance to improve
significantly when commodity prices return to levels expected in 1996.
Should commodity conditions remain difficult over the long term, the
Company may be required to record further writedowns of its goodwill to
reflect the impaired value of such goodwill.
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on May 15, 1996
in Deerfield, Illinois. The stockholders took the following actions at the
meeting:
1. The stockholders elected the following directors of the Company to serve
for the term expiring on the date of the next annual meeting or until their
respective successors are duly elected and qualified:
Messrs. Robert B. Haas, J. Taylor Crandall, Raymond Debbane, Charles J.
Delaney, Daniel C. Doctoroff, Paul J. Liska, Andrew J. Nathanson, David G.
Offensend, Anthony P. Scotto and Douglas D. Wheat. An aggregate of
42,534,609 shares were cast in favor of the election of each of these
directors; none were cast against.
2. The stockholders ratified the appointment of KPMG Peat Marwick, LLP as the
Company's independent auditors for the Company's 1996 fiscal year. An
aggregate of 42,534,609 shares were cast in favor of such action; none
were cast against.
Item 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) The Company did not file a report on Form 8-K during the second quarter of
1996.
SIGNATURE
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.
SPECIALTY FOODS ACQUISITION CORPORATION
(Registrant)
By: /s/ Paul J. Liska
Paul J. Liska
President and Chief Executive Officer
Date: August 13, 1996
EXHIBIT INDEX
Exhibit
Number Description of Document
10.64* Second Amendment and Waiver to Term Loan Agreement, dated as of
August 2, 1996, among SFC, certain of its subsidiaries, certain
lenders and The Chase Manhatten Bank (formerly Chemical Bank), as
Administrative Agent.
10.65* Amended and Restated Executive Employment Agreement, dated as of
May 30, 1996, among SFAC, SFC, and Paul J. Liska.
10.66* Executive Employment Agreement, dated as of May 31, 1996, among SFAC,
SFC, and Robert L. Fishbune.
27* Financial Data Schedule
* Filed Herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-29-1996
<CASH> 265
<SECURITIES> 0
<RECEIVABLES> 61,940
<ALLOWANCES> 2,556
<INVENTORY> 154,590
<CURRENT-ASSETS> 242,191
<PP&E> 506,817
<DEPRECIATION> 157,377
<TOTAL-ASSETS> 1,098,410
<CURRENT-LIABILITIES> 280,104
<BONDS> 894,248
0
0
<COMMON> 646
<OTHER-SE> (402,004)
<TOTAL-LIABILITY-AND-EQUITY> 1,098,410
<SALES> 979,073
<TOTAL-REVENUES> 979,073
<CGS> 688,671
<TOTAL-COSTS> 275,601
<OTHER-EXPENSES> (5,997)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,334
<INCOME-PRETAX> (46,536)
<INCOME-TAX> 1,032
<INCOME-CONTINUING> (47,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,568)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
SECOND AMENDMENT AND WAIVER, dated as of August 2, 1996
(this "Amendment and Waiver"), to:
(a) the Term Loan Agreement, dated as of July 17,
1995, as amended (the "Existing Term Loan Agreement" and, as
amended hereby and as from time to time further amended,
supplemented or otherwise modified, the "Term Loan
Agreement") among SPECIALTY FOODS CORPORATION, a Delaware
corporation (the "Term Loan Borrower"), the several banks
and other financial institutions from time to time parties
thereto (the "Term Loan Lenders"), and THE CHASE MANHATTAN
BANK (formerly, Chemical Bank), a New York banking
corporation, as administrative agent for the Term Loan
Lenders (the "Administrative Agent"); and
(b) the Revolving Credit Agreement dated as of
August 16, 1993 and amended and restated as of July 17,
1995, as amended (the "Existing Revolving Credit Agreement"
and, as amended hereby and as from time to time further
amended, supplemented or otherwise modified, the "Revolving
Credit Agreement"), among each of the subsidiaries of
SPECIALTY FOODS CORPORATION signatory thereto (collectively,
the "Revolving Credit Borrowers"), the several banks and
other financial institutions from time to time parties
thereto (collectively, the "Revolving Credit Lenders") and
the Administrative Agent.
W I T N E S S E T H :
WHEREAS, the Term Loan Borrower, the
Administrative Agent and the Term Loan Lenders wish to amend
and waive certain terms of the Existing Term Loan Agreement
in the manner provided for herein; and
WHEREAS, the Revolving Credit Borrowers, the
Administrative Agent and the Revolving Credit Lenders wish
to amend and waive certain terms of the Existing Revolving
Credit Agreement in the manner provided for herein;
NOW THEREFORE, in consideration of the premises
contained herein, the parties hereto agree as follows:
SECTION I. Definitions.
1. Defined Terms. Unless otherwise defined in
this Amendment and Waiver, terms which are defined in the
Existing Term Loan Agreement and Existing Revolving Credit
Agreement and used herein are so used as so defined. Unless
otherwise indicated, all Section, subsection and Schedule
references are to the Existing Term Loan Agreement.
SECTION II. Amendment and Waiver of Certain Terms in
Existing Term Loan Agreement.
1. Amendments to Subsection 1.1. (a) The
definition of the term "Applicable Margin" contained in
subsection 1.1 of the Existing Term Loan Agreement is hereby
amended to read in its entirety as follows:
"'Applicable Margin': for each Type of Term
Loan, (a) until the Second Amendment Effective Date, the
rate per annum set forth under the relevant
column heading below:
ABR Loans Eurodollar Loans
1-1/4% 2-1/4%
and (b) from and including the Second Amendment
Effective Date, the rate per annum set forth
under the relevant column heading below:
ABR Loans Eurodollar Loans
1-1/2% 2-1/2%
(b) Subsection 1.1 of the Existing Term Loan
Agreement is hereby amended by adding thereto the following
definitions, each in its proper alphabetical order:
"'Second Amendment and Waiver': the Second
Amendment and Waiver, dated as of August 2, 1996, to
this Agreement and the Revolving Credit Agreement."
"'Second Amendment Effective Date': as
defined in the Second Amendment and Waiver."
2. Waiver of Subsection 6.1(a) (Consolidated
Total Indebtedness to Consolidated EBITDA). The
Administrative Agent and the Term Loan Lenders hereby waive
compliance by the Term Loan Borrower with subsection 6.1(a)
of the Existing Term Loan Agreement for the 2nd Fiscal
Quarter in Fiscal Year 1996.
3. Waiver of Subsection 6.1(b) (Interest
Coverage). The Administrative Agent and the Term Loan
Lenders hereby waive compliance by the Term Loan Borrower
with subsection 6.1(b) of the Existing Term Loan Agreement
for the 2nd Fiscal Quarter in Fiscal Year 1996.
4. Waiver of Subsection 6.1(c) (Fixed Charge
Coverage). The Administrative Agent and the Term Loan
Lenders hereby waive compliance by the Term Loan Borrower
with subsection 6.1(c) of the Existing Term Loan Agreement
for the 2nd Fiscal Quarter in Fiscal Year 1996.
SECTION III. Amendments to Existing Revolving Credit
Agreement.
1. Amendment to Subsection 1.1. The definition
of the term "Applicable Margin" contained in subsection 1.1
of the Existing Revolving Credit Agreement is hereby amended
to read in its entirety as follows:
"'Applicable Margin': (a) for each Type of
Revolving Credit Loan and Swing Loan, until the Second
Amendment Effective Date, the rate per annum set forth
under the relevant column heading below:
ABR Loans Eurodollar Loans
Revolving Credit Loan 1-1/4% 2-1/4%
Swing Line Loan 1-1/4% N/A
(b) from and including the Second Amendment Effective
Date, the rate per annum set forth under the relevant
column heading below:
ABR Loans Eurodollar Loans
Revolving Credit Loan 1-1/2% 2-1/2%
Swing Line Loan 1-1/2% N/A
2. Amendments to Term Loan Agreement. In
accordance with subsection 9.1 of the Existing Term Loan
Agreement and subsection 9.1 of the Existing Revolving
Credit Agreement, each of the Revolving Credit Borrowers and
the Lenders parties to this Amendment and Waiver consents
and agrees to the amendment and waiver of terms of the Term
Loan Agreement pursuant to this Amendment and Waiver, and
each of the Revolving Credit Borrowers agrees to comply with
the provisions of Section 6 of the Revolving Credit
Agreement, with the references therein to the Term Loan
Agreement being deemed to be references to the Term Loan
Agreement as amended hereby.
SECTION IV. Miscellaneous Provisions.
1. Consent to Amendment and Waiver. Each
Required Lender hereby consents to the execution, delivery
and performance of this Amendment and Waiver.
2. Conditions Precedent. (a) This Amendment and
Waiver shall, become effective on and as of August 2, 1996
(the "Second Amendment Effective Date"), provided that each
of the conditions precedent set forth below shall have been
waived by or fulfilled to the satisfaction of the
Administrative Agent on or prior to such date:
(i) Amendment and Waiver. The Administrative
Agent shall have received counterparts of this Amendment
and Waiver, duly executed by the Term Loan Borrower, the
Revolving Credit Borrowers and the Administrative Agent, and
consented to by the Required Lenders.
(ii) Corporate Proceedings of the Borrower. The
Administrative Agent shall have received a copy of the
resolutions, in form and substance reasonably satisfactory
to the Administrative Agent, of the Board of Directors of
the Term Loan Borrower authorizing or confirming the
execution, delivery and performance of this Amendment and
Waiver certified by the Secretary or an Assistant Secretary
of the Borrower as of the Second Amendment Effective
Date and each such certificate shall state that the
resolutions thereby certified have not been amended,
modified, revoked, or rescinded as of the date of such
certificate.
(iii) Consents to Security Documents and
Guarantees. The Administrative Agent shall have
received, with a counterpart for each Term Loan Lender, a
Consent, in form and substance reasonably satisfactory to
the Administrative Agent, of each party to any Security
Document acknowledging and consenting to the execution,
delivery and performance of this Amendment and Waiver and
the transactions contemplated hereby, in each case,
executed and delivered by a duly authorized officer of such
party.
(iv) No Default or Event of Default. On and as
of the Second Amendment Effective Date and after giving
effect to this Amendment and Waiver, no Default or Event
of Default shall have occurred and be continuing except to
the extent and only to the extent waived herein.
(v) Representations and Warranties. The
representations and warranties made by the Term Loan
Borrower in the Term Loan Agreement after giving effect to
this Amendment and Waiver and the transactions
contemplated hereby shall be true and correct in all
material respects on and as of the Second Amendment
Effective Date as if made on such date, except where
such representations and warranties relate to an earlier
date in which case such representations and warranties
shall be true and correct in all material respects as of
such earlier date and except to the extent and only to the
extent waived herein; provided that all references to the
Term Loan Agreement in such representations and warranties
shall be and are deemed to mean this Amendment and
Waiver as well as the Term Loan Agreement as amended hereby.
(vi) Certificate. The Administrative Agent shall
have received a Certificate of a Responsible Officer of
the Term Loan Borrower certifying the matters referred to in
paragraphs (iv) and (v) above.
(vii) Other. The Administrative Agent shall have
received copies of opinions, certificates, or agreements as
shall reasonably be requested by the Administrative Agent
or the Required Lenders.
3. Continuing Effect; No Other Amendments.
Except as expressly amended and waived hereby, all of the
terms and provisions of the Term Loan Agreement and the
Revolving Credit Agreement are and shall remain in full
force and effect.
4. Expenses. The Term Loan Borrower and the
Revolving Credit Borrowers agree to reimburse the
Administrative Agent for all its reasonable costs and out-of-
pocket expenses incurred in connection with the preparation
and delivery of this Amendment and Waiver, including,
without limitation, the reasonable fees and disbursements
of counsel to such Administrative Agent.
5. Counterparts. This Amendment and Waiver may
be executed in any number of counterparts by the parties
hereto, each of which counterparts when so executed shall
be an original, but all counterparts taken together shall
constitute one and the same instrument.
6. GOVERNING LAW. THIS AMENDMENT AND WAIVER
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment and Waiver to be executed and delivered by
their respective duly authorized officers as of the date
first above written.
SPECIALTY FOODS CORPORATION,
as Term Loan Borrower
By: /s/ SPECIALTY FOODS CORPORATION
Name:
Title:
B & G - DSD HOLDINGS, INC.,
as Revolving Credit Borrower
By: /s/ B & G - DSD HOLDINGS, INC.
Name:
Title:
BELSEA HOLDINGS INC.,
as Revolving Credit Borrower
By: /s/ BELSEA HOLDINGS INC.
Name:
Title:
BURNS & RICKER, INC.,
as Revolving Credit Borrower
By: /s/ BURNS & RICKER, INC.
Name:
Title:
H & M FOOD SYSTEMS COMPANY, INC.,
as Revolving Credit Borrower
By: /s/ H & M FOOD SYSTEMS COMPANY, INC.
Name:
Title:
METZ HOLDINGS, INC.,
as Revolving Credit Borrower
By: /s/ METZ HOLDINGS, INC.
Name:
Title:
MOTHER'S CAKE AND COOKIE CO.,
as Revolving Credit Borrower
By: /s/ MOTHER'S CAKE AND COOKIE CO.
Name:
Title:
SFFB HOLDINGS, INC.,
as Revolving Credit Borrower
By: /s/ SFFB HOLDINGS, INC.
Name:
Title:
STELLA HOLDINGS, INC.,
formerly known as Stella Foods, Inc.,
as Revolving Credit Borrower
By: /s/ STELLA HOLDINGS, INC.
Name:
Title:
THE BAGEL PLACE, INC.,
as Revolving Credit Borrower
By: /s/ THE BAGEL PLACE, INC.
Name:
Title:
THE CHASE MANHATTAN BANK
(formerly, Chemical Bank),
as Administrative Agent and as a Lender
By: /s/ THE CHASE MANHATTAN BANK
Name:
Title:
CONSENTED TO:
ABN AMRO Bank N.V.
By: ABN AMRO North America, Inc.,
as agent
By: /s/ ABN AMRO Bank N.V.
Name:
Title:
By: /s/ ABN AMRO Bank N.V.
Name:
Title:
BANK OF AMERICA ILLINOIS
By: /s/ BANK OF AMERICA ILLINOIS
Name:
Title:
THE BANK OF NEW YORK
By: /s/ THE BANK OF NEW YORK
Name:
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By: /s/ BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
Name:
Title:
By: /s/ BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
Name:
Title:
BANQUE PARIBAS
By: /s/ BANQUE PARIBAS
Name:
Title:
By: /s/ BANQUE PARIBAS
Name:
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
AGRICOLE
By: /s/ CAISSE NATIONALE DE CREDIT
AGROCOLE
Name:
Title:
CERES FINANCE LTD
By: Chancellor Senior Secured Management,Inc.
as Financial Manager
By: /s/ CERES FINANCE LTD
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By: /s/ COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
Name:
Title:
By: : /s/ COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ FIRST INTERSTATE BANK OF TEXAS, N.A
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ THE FIRST NATIONAL BANK OF BOSTON
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: /s/ MERRILL LYNCH PRIME RATE PORTFOLIO
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/ MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
Name:
Title:
NATIONSBANK OF TEXAS N.A.
By: /s/ NATIONSBANK OF TEXAS N.A
Name:
Title:
COOPERATIVE CENTRALE RAIFFISEN - BOERENLEENBANK
B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH.
By: /s/ COOPERATIVE CENTRALE RAIFFISEN -
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
Name:
Title:
By: /s/ COOPERATIVE CENTRALE RAIFFISEN -
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
Name:
Title:
SENIOR HIGH INCOME PORTOFLIO, INC.
By: /s/ SENIOR HIGH INCOME PORTOFLIO, INC.
Name:
Title:
SENIOR HIGH INCOME PORTOFLIO II, INC.
By: /s/ SENIOR HIGH INCOME PORTOFLIO II, INC.
Name:
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ SOCIETE GENERALE, SOUTHWEST AGENCY
Name:
Title:
STRATA FUNDING LTD.
By: Chancellor Senior Secured Management, Inc.
as Financial Manager
By: /s/ STRATA FUNDING LTD.
Name:
Title:
WELLS FARGO BANK, N.A.
By: /s/ WELLS FARGO BANK, N.A.
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: /s/ SENIOR DEBT PORTFOLIO
Name:
Title:
EATON VANCE PRIME RATE RESERVE
By: Boston Management and Research
as Investment Advisor
By: /s/ EATON VANCE PRIME RATE RESERVE
Name:
Title:
Execution Copy
- 25 -
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"),
effective as of January 1, 1996, among SPECIALTY FOODS
ACQUISITION CORPORATION, a Delaware corporation ("SFAC"),
SPECIALTY FOODS CORPORATION, a Delaware corporation ("SFC"), and
PAUL J. LISKA (the "Executive"). SFAC and SFC are each sometimes
herein referred to individually as an "Employer" and are
sometimes referred to collectively as the "Employers."
The Employers wish to employ the Executive, and the
Executive wishes to accept such employment, on the terms and
conditions set forth in this Agreement.
Accordingly, the Employers and the Executive hereby agree as
follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 Employment Duties. The Employers hereby employ
the Executive for the Term (as defined in Section 2), to render
exclusive and full-time services to the Employers, as President
and Chief Executive Officer of each of SFAC and SFC and as a
member of the Board of Directors of each Employer, and to perform
such other duties (consistent with the customary duties of a
corporate officer) as may be assigned to the Executive by the
Board of Directors of either Employer (collectively, the
"Boards").
1.2 Acceptance. The Executive hereby accepts such
employment and agrees to render the services described above.
During the Term, the Executive agrees to devote the Executive's
entire business time, energy and skill to such employment, and to
use the Executive's best efforts, skill and ability to promote
the Employers' interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an
officer or director of any subsidiary of either Employer, without
any compensation therefor other than that specified in this
Agreement, if elected to any such position by the shareholders of
either Employer, the Boards or the shareholders or Board of
Directors of any such subsidiary, as the case may be.
2. TERMS OF EMPLOYMENT.
2.1 The Term. The term of the Executive's employment
under this Agreement (the "Term") shall commence as of January 1,
1994 (the "Effective Date") and shall, unless sooner terminated
pursuant to Section 2.3 hereof, end on December 31, 1998 or on
such later December 31 to which the Term is extended pursuant to
Section 2.2.
2.2 Extension. On June 30 of each calendar year
starting with June 30, 1998, the then scheduled expiration date
of the Term shall automatically be extended, without any action
required of either the Executive or the Employers, for twelve
additional months, unless the Executive, on the one hand, or the
Employers, on the other hand, shall have given written notice of
non-extension to the other no later than such June 30. If such
written notice of non-extension is given, the Term shall end on
the then-scheduled termination date (taking into account any
previous extensions pursuant to this Section 2.2). By way of
example, unless written notice of non-extension is given by June
30, 1998, the otherwise scheduled expiration date of December 31,
1998 shall be extended to December 31, 1999.
2.3 Early Termination. The Term shall end earlier
than the December 31 termination date scheduled in accordance
with the foregoing provisions of this Article 2, if sooner
terminated pursuant to Article 4.
3. COMPENSATION; BENEFITS.
3.1 Salary. As compensation for all services to be
rendered pursuant to this Agreement, the Employers agree to pay
the Executive during the 12 months of the Term ending on December
31, 1996, a base salary at an annual rate of $560,000 (the "Base
Salary"). The annual Base Salary rate may be increased from time
to time, in the sole discretion of the Boards.
3.2 Bonus. In addition to the amounts to be paid to
the Executive pursuant to Section 3.1, the Executive will be
eligible to receive with respect to each fiscal year of the
Employers commencing with their fiscal year ending December 31,
1994, an incentive bonus (the "Incentive Bonus") equal to a
percentage of Base Salary for such fiscal year based on the
achievement of the Employers of performance targets ("Performance
Targets") to be set in the beginning of such fiscal year by the
compensation committee of the Boards, such that if the minimum
Performance Target is not achieved, the Incentive Bonus shall be
zero; if the intermediate Performance Target is achieved, the
Incentive Bonus shall be equal to 75% of Base Salary; and if the
maximum Performance Target is achieved, the Incentive Bonus shall
be equal to 150% of Base Salary (provisions for pro rata
Incentive Bonus amounts for achievements between the minimum
Performance Target and the intermediate Performance Target or
between the intermediate Performance Target and the maximum
Performance Target, as the case may be, shall also be
established). The Incentive Bonus for each fiscal year shall be
paid to the Executive within 30 days of the receipt by the
Employers of their audited financial statements for such fiscal
year. If, in a given fiscal year, the Employers achieve
Performance Targets such that an Incentive Bonus exceeding 50% of
Base Salary is to be paid to the Executive for such year, the
Executive may, in his sole discretion, elect to receive the
amount (the "Excess Amount") by which such Incentive Bonus
exceeds 50% of the Base Salary for such year either: (i) in
cash, or (ii) in a combination of 11% Senior Subordinated
Discount Debentures due 2006 of SFAC ("Subordinated Debentures")
and common stock, par value $0.01 per share, of SFAC ("Common
Stock"). Such combination shall consist of Subordinated
Debentures with a then accreted value (calculated assuming an 11%
annual implied rate of return) (the "Accreted Value") equal to
63% of the Excess Amount and shares of Common Stock with a then
Fair Market Value (as defined in Article 11 hereof) equal to 37%
of the Excess Amount. At Executive's request, the Employers will
inform the Executive of such Fair Market Value reasonably in
advance of the time the Executive must make such election. All
Subordinated Debentures and Common Stock issued to the Executive
as part of an Incentive Bonus under this Section 3.2 shall
hereafter be referred to as "Bonus Securities." Bonus Securities
shall vest immediately upon issuance and accordingly shall for
all purposes under this Agreement be treated as and included in
the definition of Vested Securities (as defined below in Section
3.5.2).
3.3 Business Expenses. The Employers shall pay or
reimburse the Executive for all reasonable expenses actually
incurred or paid by the Executive during the Term in the
performance of the Executive's services under this Agreement,
upon presentation of expense statements or vouchers or such other
supporting information as the Employers customarily require of
their other senior executives.
3.4 Vacation. During the Term, the Executive shall be
entitled to a paid vacation period or periods taken in accordance
with the vacation policy of the Employers during each year of the
Term; provided, that the Executive shall be entitled to not less
than four (4) weeks paid vacation for each year of the Term.
3.5 Fringe Benefits; Securities Investment; Stock
Options.
3.5.1 Benefits. During the Term, the
Executive shall be entitled to all benefits for which the
Executive shall be eligible under any long term incentive plan,
qualified pension plan, 401(k) plan, annuity plan, group
insurance plan or other so-called "fringe" benefit plan which
SFAC or SFC provides to its executive officers generally,
including, without limitation, the SFC Executive Retirement
Annuity Plan. In addition, the Employers shall (i) pay dues and
normal operating assessments relating to the Executive's
membership at a Chicagoland Country Club (it being understood
that initiation fees have already been paid) and reimburse the
Executive for any business entertainment and meeting fees
incurred by the Executive at such club, (ii) pay for a full
comprehensive annual physical examination of the Executive, (iii)
pay the reasonable fees in connection with personal financial
counseling on behalf of the Executive, including fees relating to
tax return preparation, and (iv) pay all charges in connection
with the use of an AT&T calling card (the use of which shall be
restricted to the Executive and the Executive's spouse).
3.5.2 Securities Investment. Pursuant to an
Executive Securities Purchase Agreement to be dated as of
February 11, 1994 (the "Closing Date"), between the Executive and
certain holders (collectively, the "Selling Holders") of the 11%
Senior Subordinated Discount Debentures of SFAC due 2006 (the
"Subordinated Debentures") and common stock, par value $0.01 per
share, of SFAC (the "Common Stock"), the Executive shall purchase
from the Selling Holders on the Closing Date a combination of
Subordinated Debentures and Common Stock, for an aggregate
purchase price of $150,000, such investment to be allocated as
follows: (i) $94,320, in consideration for $210,545.11 principal
amount of Subordinated Debentures, and (ii) $55,680 in
consideration for 76,620 shares of Common Stock.
The Subordinated Debentures and Common Stock purchased pursuant
to this Section 3.5.2 (the "Initial Securities") shall be
considered vested securities ("Vested Securities") as follows:
(i) 25% of the Initial Securities shall become Vested Securities
on the Closing Date, (ii) an additional 25% of such Initial
Securities shall become Vested Securities on the 181st day
following the Closing Date, (iii) an additional 25% of the
Initial Securities shall become Vested Securities on the first
anniversary of the Closing Date, and (iv) the remaining 25% of
such Initial Securities shall become Vested Securities on the
181st day following the first anniversary of the Closing Date;
each such 25% block of Initial Securities to be comprised of 25%
of the Subordinated Debentures sold to the Executive under this
Section 3.5.2 and 25% of the shares of Common Stock sold to the
Executive under this Section 3.5.2. Vested Securities shall be
transferable by the Executive, subject only to restrictions
("Transfer Restrictions") on the transfer of Initial Securities
set forth in (i) the Stockholders Agreement, dated as of August
16, 1993, among SFAC and its principal stockholders, as amended
(the "Principal Stockholders Agreement"), (ii) the Stockholders
Agreement, dated as of August 16, 1993, among SFAC and all of its
stockholders, as amended (the "Investors Stockholders
Agreement"), and (iii) the Securities Purchase Agreement, dated
as of August 16, 1993, among SFAC, its principal Stockholders and
all holders of the Subordinated Debentures, as amended (the
"Securities Purchase Agreement"); provided, that any Vested
Securities transferred pursuant to an exemption from Transfer
Restrictions for transfer to Affiliates provided for in Section
2.1(a)(ii) of the Principal Stockholders Agreement or Section
6.4(a) of the Securities Purchase Agreement shall remain subject
to the Employers' repurchase rights, and shall be benefited by
the Executive's (or his Beneficiary's) right to require
repurchase, under Article 4 hereof. Initial Securities not yet
vested shall not be transferable; except, that the Executive may
transfer such Initial Securities (i) in connection with the
Executive's exercise of rights as an Other Stockholder (as
defined in the Principal Stockholders Agreement) under Section
2.1(b) of the Principal Stockholders Agreement or as an Other
Holder (as defined in the Securities Purchase Agreement) under
Section 6.4(a) of the Securities Purchase Agreement, so long as
the Executive has previously transferred all of his Vested
Securities as a "Transferor" or an "Other Stockholder" under
Section 2.1(b) of the "Principal Stockholders" Agreement, as a
"Transferor" or "Other Holder" under Section 6.4(a) of the
Securities Purchase Agreement or in a registered public offering;
or (ii) to the Executive's spouse or children or a trust
established for their benefit (so long as such trust is
controlled by the Executive or his estate), which Initial
Securities, notwithstanding such transfer to the Executive's
spouse or children or to such trust, shall remain subject to the
Employers' repurchase rights, and shall be benefited by the
Executive's (or his Beneficiary's) right to require repurchase,
under Article 4 hereof; (iii) in a registered public offering in
which the Executive has a right to participate pursuant to
Article 1 of Exhibit A to the Principal Stockholders Agreement,
so long as the Executive is not an "Initiating Holder" (as
defined herein); provided, that this clause (iii) shall apply
only if the Executive has previously transferred all Vested
Securities in the manner described in clause (i) above or will
transfer all of such Vested Securities in connection with such
public offering; or (iv) in order to comply with the requirements
of Section 2.2 of the Principal Stockholders Agreement.
3.5.3 Management Option and Bonus. The
Executive shall participate in the management stock option plan
(the "Option Plan") and the Long-Term Incentive Plan (the "LTIP
Plan") of the Employers. The number of stock options ("Options")
to be initially granted to the Executive under the Option Plan
shall be 150,000.
3.5.4 Tax Equalization Amounts. If in any
calendar year (the "Exercise Year"), the Executive exercises one
or more Options, the Employers shall make a payment to the
Executive equal to the Tax Equalization Amount, computed in the
manner set forth below. Except as provided in paragraph (d)
below, the Tax Equalization Amount shall be paid no later than
April 15 of the year following the Exercise year.
(a) The Tax Equalization Amount shall equal
the lesser of (i) the Employers' Tax Benefit Amount, or (ii) the
Executive Tax Rate Differential Amount.
(b) The Employers' Tax Benefit Amount shall
equal the excess, if any, of (i) the amount of consolidated
Federal income tax liabilities that the Employers would have had
for the taxable year of the Employers that includes the last day
of the Exercise Year (the "Applicable Employer Taxable Year"),
without taking into account any deduction to which the Employers
are entitled directly by reason of the exercise of such Options,
over (ii) the amount of consolidated Federal income tax liability
of the Employers for the Applicable Employer Taxable Year, taking
into account any deduction to which the Employers are entitled
directly by reason of the exercise of such Options. The amount
of the Employers' Tax Benefit Amount shall be determined by the
Accounting Firm (as defined in Section 3.9).
(c) The Executive's Tax Rate Differential
Amount shall equal the amount obtained by dividing "x" by "y",
where "x" equals the excess, if any, of (i) the Executive's
Federal income tax liability for the Exercise Year, over (ii) the
amount of Federal income tax liability that the Executive would
have had for the Exercise Year if income recognized directly by
reason of the exercise of the Options exercised in the Exercise
Year ("Option Income") had been treated as long-term capital
gain, and "y" equals the number obtained by subtracting the
Executive's marginal Federal income tax rate for ordinary
compensation income under Subtitle A and Section 3101 of the Code
(expressed by a decimal) (the "Income Tax Rate") from one; such
that, by way of example, if the Executive's Option Income for the
Exercise Year were $100,000 and the Income Tax Rate were 40% and
the Federal tax rate applicable to long-term capital gains were
28%, the Tax Rate Differential Amount would equal $20,000,
calculated as follows: The amount described in clause (i) above
would, in such case, be $40,000 and the amount described in
clause (ii) above would, in such case, be $28,000, and therefore
the excess of the clause (i) amount over the clause (ii) amount
would, in such case, be $12,000 --- $12,000 divided by 0.6 equals
$20,000 ($12,000/1-0.4 = $20,000). The amount of the Executive's
Tax Rate Differential Amount shall be determined by the
Accounting Firm.
(d) If (i) for any Exercise Year, the
Employers' Tax Benefit Amount is less than the Executive's Tax
Rate Differential Amount (a "Shortfall"), and (ii) in any of the
seven following taxable years of the Employer immediately
following the Applicable Employer Taxable Year (a "Subsequent
Year"), there is a Subsequent Year Employers' Tax Benefit Amount
(as defined below) attributable to such Exercise Year, then the
Employers shall make a payment to the Executive no later than
April 15 of the year following such Subsequent Year equal to the
lesser of (A) the Subsequent Year Employers' Tax Benefit Amount
with respect to such Exercise Year, or (B) the excess, if any, of
(I) the Shortfall with respect to such Exercise Year, over (II)
any amounts previously paid to the Executive pursuant to this
Section 3.5.5(d) with respect to such Exercise Year. For
purposes of this Section 3.5.5(d), the Subsequent Year Employers'
Tax Benefit Amount with respect to a particular Exercise Year and
Subsequent Year shall equal the excess, if any, of (x) the amount
of Federal income tax liability that the Employers would have had
for the Subsequent Year (the "Applicable Employer Subsequent
Taxable Year"), without taking into account any deduction to
which the Employers are entitled directly by reason of the
exercise of Options by the Executive during the Exercise Year or
any subsequent taxable year of the Executive (including by way of
a net operating loss carryover), over (y) the amount of Federal
income tax liability of the Employers for the Applicable Employer
Subsequent Taxable Year taking into account any deduction to
which the Employers are entitled (in any year) directly by reason
of the exercise of Options exercised by the Executive in the
Exercise Year but not in any subsequent taxable year of the
Executive (including by way of a net operating loss carryover).
The amount of the Subsequent Year Employers' Tax Benefit Amount
shall be determined by the Accounting Firm.
(e) For purposes of this Section 3.5.5, the
Federal income tax liability of any person shall mean all
liabilities of such person under Subtitle A and Section 3101 of
the Code.
3.6 Automobile. In addition, the Executive will
receive an automobile allowance of $1,100.00 per month during the
term of this Agreement.
3.7 Withholding. All compensation of the Executive by
the Employers provided for in this Agreement, whether in the form
of cash, securities or "fringe" benefits, shall be subject to
such deductions or amounts to be withheld as required by
applicable law and regulations. Whenever compensation provided
for under this Agreement is to be delivered to the Executive in a
form other than cash, the Employers may require as a condition of
delivery that the Executive remit to the Employers an amount
sufficient to satisfy all federal, state and other governmental
withholding tax requirements related thereto. If the
compensation referred to in the preceding sentence is in the form
of securities (whether by the vesting of securities or
otherwise), the Employers shall, if the Executive so requests and
the Employers consent (such consent not to be withheld
unreasonably), satisfy the requirements of the preceding
sentence, to the extent permitted by applicable law, by deducting
from the number of securities otherwise deliverable to the
Executive, a number of securities having a fair market value
equal to the amount required to satisfy all federal, state and
other governmental withholding tax requirements related thereto.
3.8 Source of Payment; Nature of Certain Payments.
Any amounts payable to or on behalf of the Executive under this
Agreement may be paid by either Employer, as determined by the
Employers in their exclusive discretion. No payment made to the
Executive pursuant to Section 3.5.4 or 3.9 shall be deemed, for
any purpose, a payment of purchase price for Common Stock or
Subordinated Debentures.
3.9 Certain Additional Payments by the Employers.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that (i) a Section 280G Change (as
defined below) occurs and (ii) any payment, distribution, other
compensation or benefit by either Employer to (or for the benefit
of) the Executive pursuant to the terms of this Agreement, as now
in effect or as amended from time to time (hereinafter, a
"Payment"), is determined (as hereinafter provided) to 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 Employers
shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Total Payments (as
defined below) and any federal, state and local income tax and
Excise Tax upon the additional amount provided for by this
paragraph (a), shall be equal to the Total Payments; provided,
however, that the aggregate payments required to be paid to or
for the benefit of the Executive pursuant to this Section 3.9
shall not exceed (x) $3 million, if such payments result from a
Section 280G Change that occurs prior to the earlier of (I) a
Public Offering, or (II) December 31, 1998, or (y) $5 million, if
such Payments resulted from a Section 280G Change that occurs at
any other time, plus, in either case, an amount equal to the
interest and penalties, if any, attributable to the portion of
the Excise Tax for which the Gross-Up Payment, as limited by this
proviso, reimburses the Executive. Thus, by way of example, if a
Gross Up Payment equal to $10 million would be due, but for the
proviso set forth in the preceding sentence, with respect to a
Section 280G Change that occurs in 1996, the Employers'
obligation with respect to interest and penalties imposed on the
Executive with respect to the Excise Tax shall be limited to an
amount equal to 50% of such Interest and penalties.
(b) Subject to the provisions of Section 3.9(c),
all determinations required to be made under this Section 3.9
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and, subject to the provisions
below, the assumptions to be utilized in arriving at such
determination, shall be made by KPMG Peat Marwick (or other
independent auditor of the Employers at the time) (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Employers and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment with respect to which a Gross-Up Payment
is owing, or such earlier time as is requested by the Employers.
All fees and expenses of the Accounting Firm shall be paid solely
by the Employers. Any Gross-Up Payment, as determined pursuant
to this Section 3.9, shall be paid by the Employers to the
Executive within five business days of the receipt of the
Accounting Firm's determination. The parties acknowledge that
unless the Accounting Firm is able to provide the Executive with
the opinion described in the third following sentence with
respect to such Payment, the Accounting Firm shall determine the
amount of the Gross-Up Payment that is due at the time of any
Payment. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a
written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result
in the imposition of the negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the
Employers and the Executive. The parties hereto acknowledge
that, as a result of uncertainty in the application of Section
4999 of the Code, it is possible that Gross-Up Payments will not
have been made by the Employers that should have been made
(hereinafter, an "Underpayment"), consistent with the provisions
of this Section 3.9. In the event that the Executive 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 Employers to
or for the benefit of the Executive, unless the Executive has
failed to comply with Section 3.9(c) and such failure has
materially deprived the Employers of the right to contest any
claim by the Internal Revenue Service with respect to such
payments.
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 for the calendar year in which the Gross-Up Payment is
to be made and the applicable state and local taxes at the
highest marginal rate of taxation for the calendar year in which
the Gross-Up Payments is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction of
such state and local taxes.
(c) The Executive shall notify the Employers in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Employers of a Gross-
Up Payment. Such notification shall be given as soon as
practicable but, in any event, no later than ten business days
after the Executive is informed in writing of such claim and
shall apprise the Employers of the nature of such claim and the
date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which he gives such notice to the
Employers (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Employers notify the Executive in writing prior to the expiration
of such period that they desire to contest such claim, and if the
Employers acknowledge in writing their liability, subject to the
limitations set forth in Section 3.9(a), to the Executive
pursuant to this Section 3.9 with respect to any amounts payable
in connection with such claim, the Executive shall:
(i) give the Employers any information
reasonably requested by the Employers and reasonably
available to the Executive relating to such claim;
(ii) take all such actions in connection
with contesting such claim as the Employers shall
reasonably request in writing from time to time,
including, without limitation, accepting legal
representation with respect to such claim by an
attorney selected by the Employers and agreeing to
extend the statute of limitations as requested by the
Employers;
(iii) cooperate with the Employers
in good faith in order to effectively contest such
claim; and
(iv) permit the Employers to participate
in any proceeding relating to such claim;
provided, however, that the Employers shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation of the foregoing provisions of this Section 3.9(c),
the Employers shall control all proceedings taken in connection
with such contest and, at their sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at their sole option, either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Employers shall determine; provided, however, that
if the Employers direct the Executive to pay such claim and sue
for a refund, the Employers shall advance the amount of such
payment to the Executive, on an interest-free, after-tax basis.
Furthermore, the Employers' control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Employers pursuant to Section 3.9(c), the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Employers'
complying with the requirements of Section 3.9(c)), promptly pay
to the Employers the amount of such refund (together with any
interest received or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 3.9(c), a
determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Employers do not
notify the Executive in writing of their intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then to the extent of the Gross-Up Payment such
advance shall be forgiven and shall not be required to be repaid
and shall, to such extent, offset the amount of Gross-Up Payment
required to be paid, and the remaining portion of such advance
shall forthwith become due and payable.
(e) For purposes of this Agreement:
A "Section 280G Change" shall mean a "change
. . . in the ownership or effective control" of either Employer
or a "change . . . in the ownership of a substantial portion of
the assets" of either Employer, in each case within the meaning
of Section 280G(b)(2)(A)(i) of the Code.
A "Public Offering" shall mean an initial
public offering of stock of either Employer if at any time
thereafter stock of either Employer is "readily tradable on an
established securities market or otherwise" (within the meaning
of Section 280G(b)(5)(A)(ii) of the Code).
"Total Payments" shall mean any payments or
benefits received or to be received by the Executive under this
Agreement or the plans discussed in Section 3.5.3, as now in
effect or as amended from time to time.
(f) Benefits granted the Executive under that
certain Stock Purchase Agreement dated as of June 15, 1995 by and
among the Executive and the Employers (the "Stock Purchase
Agreement") shall be deemed to be benefits under this Agreement
for purposes of this Section 3.9.
3.10 Performance Based Compensation. It is the
intention of the parties that, if Section 162(m) of the Code is
or will be applicable with respect to one or more payments
hereunder, the Executive will consider in good faith any requests
by the Employers to take actions to cause such payments to meet
the requirements of Section 162(m)(4)(B) or (C) of the Code, and
thus to be excluded from the definition of "applicable employee
remuneration" within the meaning of Section 162(m)(4) of the
Code.
4. TERMINATION.
4.1 Death. If the Executive shall die during the
Term, upon the date of the Executive's death:
(a) the Term shall terminate and no further
amounts or benefits shall be payable hereunder, except that the
Employers shall be obligated to pay to the Beneficiary (as
defined below), within 60 days of the date of the Executive's
death, (i) all unpaid Base Salary accrued through and including
the date of the Executive's death, (ii) a lump sum amount equal
to Base Salary for 18 months, at the rate in effect on the date
of the Executive's death (the "Annual Base Salary Upon Death"),
and (iii) an additional lump sum bonus amount equal to the sum of
(x) 75% of 1.5 x Annual Base Salary Upon Death and (y) 75% of
Annual Base Salary Upon Death pro rated for the period commencing
on the first day of the fiscal year during which the Executive's
death occurred and ending on the date of Executive's death; it
being understood that such 75% bonus level has been agreed to
because it is impossible to determine the performance of the
Employers for future periods. The "Beneficiary" shall be (i) the
beneficiary designated by the Executive on a form prescribed for
such purpose by the Employers, or (ii) in the absence of such
designation, the Executive's executor or legal representative, in
such capacity;
(b) for the 180 days following such date, the
Employers shall have the right to purchase (i) all but not less
than all of the Vested Securities and of the Vested Acquired
Securities (as defined in that certain Securities Purchase
Agreement dated as of August 1, 1995 (the "August Purchase
Agreement"), at a price equal to the Full Value (as defined
below) thereof on the date of the Executive's death, and/or (ii)
all but not less than all other Initial Securities and Initial
Acquired Securities (as defined in the August Purchase Agreement)
, at cost, plus, in the case of the Subordinated Debentures,
accreted discount thereon through and including the date of such
purchase; provided, that Initial Securities and Initial Acquired
Securities that would have vested within the six-month period
following the date of the Executive's death shall be treated, for
all purposes under this Section 4.1, as Vested Securities or as
Vested Acquired Securities, as the case may be. "Full Value"
means (i) in the case of the Subordinated Debentures, the then
accreted value thereof (calculated assuming an 11% annual implied
rate of return), and (ii) in the case of the Common Stock, the
Fair Market Value (as defined in Section 10.2 hereof) thereof;
(c) for the 180 days following such date, the
Beneficiary shall have the right to require the Employers to
purchase (subject to Section 4.6 hereof) all but not less than
all of the Vested Securities and the Vested Acquired Securities,
at a price equal to the Full Value thereof on the date of the
Executive's death, together with all but not less than all of the
other Initial Securities, at cost, plus, in the case of the
Subordinated Debentures included among such other Initial
Securities and the Initial Acquired Securities, accreted discount
thereon through and including the date of such purchase, and
(d) for the 180 days following such date, the
Employers shall have the right to repurchase all but not less
than all of the Purchased Shares, as defined in the Stock
Purchase Agreement, at a price equal to the Fair Market Value
thereof as of the date of the Executive's death, provided, that
the proceeds shall first be used to pay any outstanding principal
of and interest accrued but not paid under the Note (as defined
in the Stock Purchase Agreement).
4.2 Disability.
4.2.1 If during the Term the Executive shall
become physically or mentally disabled, whether totally or
partially, such that the Executive is unable to perform the
Executive's services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six
months during any twelve month period, the Employers may on any
day (the "Disability Termination Date") after the last day of the
six consecutive months of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of
six months (but, in each case, before the Executive has recovered
from such disability), by written notice to the Executive,
terminate the Term (a "Disability Termination") and no further
amounts or benefits shall be payable hereunder, except that the
Employers shall be obligated to pay to the Executive within 60
days of the Disability Termination Date, (i) all unpaid Base
Salary accrued through and including the Disability Termination
Date, (ii) a lump sum amount equal to Base Salary for 18 months,
at the rate in effect on the Disability Termination Date (the
"Annual Base Salary Upon Disability"), and (iii) an additional
lump sum bonus amount equal to the sum of (x) 75% of 1.5 x Annual
Base Salary Upon Disability and (y) 75% of Annual Base Salary
Upon Disability prorated for the period commencing on the first
day of the fiscal year during which the Disability Termination
occurred and ending on the Disability Termination Date; it being
understood that such 75% bonus level has been agreed to because
it is impossible to determine the performance of the Employers
for future periods. If the Executive shall die before receiving
all amounts required to be paid by the Employers in accordance
with the foregoing, such amounts shall be paid to the
Beneficiary.
4.2.2 In the event of a Disability
Termination:
(a) for the 180 days following the
Disability Termination Date, the Employers shall have the right
to purchase (i) all but not less than all of the Vested
Securities and the Vested Acquired Securities, at a price equal
to the Full Value thereof on the Disability Termination Date,
and/or (ii) all but not less than all other Initial Securities
and Initial Acquired Securities, at cost, plus, in the case of
the Subordinated Debentures, accreted discount thereon through
and including the date of such purchase; provided, that Initial
Securities and Initial Acquired Securities that would have vested
within the six-month period following the Disability Termination
Date shall be treated, for all purposes under this Section 4.2.2,
as Vested Securities or as Vested Securities, as the case may be;
(b) for the 180 days following the
Disability Termination Date, the Executive shall have the right
to require the Employers to purchase (subject to Section 4.6
hereof) all but not less than all of the Vested Securities and
the Vested Acquired Securities, at a price equal to the Full
Value thereof on the Disability Termination Date, together with
all but not less than all of the other Initial Securities and
Initial Acquired Securities, at cost, plus, in the case of the
Subordinated Debentures included among such other Initial
Securities, accreted discount thereon through and including the
date of such purchase;
(c) for the 180 days following the
Disability Termination Date, the Employers shall have the right
to repurchase all but not less than all of the Purchased Shares
at a price equal to the Fair Market Value thereof on the
Disability Termination Date; provided, that the proceeds shall
first be used to pay any outstanding principal of and interest
accrued but not paid under the Note; and
(d) for the 180 days following the
Disability Termination Date, the Executive shall have the right
to require the Employers to repurchase all but not less than all
of the Purchased Shares (subject to Section 4.6 hereof), at a
price equal to the Fair Market Value thereof on the Disability
Termination Date; provided, that the proceeds shall first be used
to pay any outstanding principal of and interest accrued but not
paid under the Note.
4.3 Cause; Voluntary Termination.
4.3.1 In the event of the conviction of the
Executive of any felony involving intentional conduct on the part
of the Executive, the conviction of the Executive of any lesser
crime or offense involving the illegal use or conversion of
property of the Employers or any of their subsidiaries or
affiliates, the willful misconduct by the Executive in connection
with the performance of the Executive's duties hereunder (which
shall not be deemed to include an action by the Executive taken
in good faith in the best interest of the Employers) or the
continued breach by the Executive of any material provision of
this Agreement after notice of such breach has been actually
received by the Executive from the Employers (the "deemed
receipt" provisions of Article 8 hereof being inapplicable to
this Section 4.3.1), the Employers may at any time, by written
notice to the Executive, terminate the Term (a "Termination For
Cause") and, upon such Termination For Cause, the Term shall
terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder; provided, that the
Employers shall be obligated to pay to the Executive in exchange
for a release in form and substance acceptable to the Employers
acting reasonably, within 60 days of the date of termination, all
unpaid Base Salary accrued, and provide the Executive with all
benefits and expense reimbursement to which the Executive would
otherwise be entitled, through and including the date of
termination.
4.3.2. Upon a voluntary termination of the term
by the Executive (a "Voluntary Termination") without Good Reason
(as defined in Section 4.4.2), the Term shall terminate and the
Executive shall be entitled to receive no further amounts or
benefits hereunder; provided, that the Employers shall be
obligated to pay to the Executive in exchange for a release in
form and substance acceptable to the Employers acting reasonably,
within 60 days of the date of termination, all unpaid Base Salary
accrued, and provide the Executive with all benefits and expense
reimbursement to which the Executive would otherwise be entitled,
through and including the date of termination.
4.3.3 Upon either a Termination For Cause or a
Voluntary Termination without Good Reason, for the 180 days
following the date of termination, the Employers shall have the
right to purchase (i) all but not less than all of the Vested
Securities, at a price equal to the Full Value thereof on the
date of termination, and/or (ii) all but not less than all other
Initial Securities, at cost, plus, in the case of the
Subordinated Debentures, accreted discount thereon through and
including the date of such purchase, and/or (iii) all but not
less than all of the Vested Purchased Shares, at a price equal to
the Fair Market Value thereof on the date of termination, and/or
(iv) all but not less than all other Purchased Shares which are
unvested on the date of such termination, at cost, provided, that
the proceeds shall first be used to pay any outstanding principal
of and interest accrued but not paid under the Note. The
Executive shall not have the right to require the Employer to
repurchase such Vested Securities, Initial Securities, Vested
Purchased Shares and Initial Purchased Shares.
4.4 Termination by Employers Without Cause;
Termination by the Executive for Good Reason.
4.4.1 Upon a Termination Without Cause (as
defined below) or a Voluntary Termination with Good Reason (as
defined below):
(a) the Employers shall pay to the
Executive, within 60 days of the date of termination, all unpaid
Base Salary accrued, and provide the Executive with all benefits
and expense reimbursement to which the Executive would otherwise
be entitled, through and including the date of termination;
(b) subject to Sections 4.4.4 and 4.4.6, the
Employers shall pay the following to the Executive:
(i) the Employers shall continue
payments of Base Salary to the Executive (the
"Continued Salary"), at the rate and at such times as
are in effect on the date of termination (the "Base
Salary Upon Termination"), for the 18 month period
following the date of termination (the "Payment
Period"), except as provided in Section 4.4.4,
(ii) the Employers shall continue
health and life insurance benefits during the Payment
Period (the "Continued Benefits"), and
(iii) the Employers shall pay
to the Executive, at the end of the Payment Period, a
bonus (the "Continued Bonus," and together with the
Continued Salary and the Continued Benefits, the
"Continued Payments") in an amount equal to 75% of the
aggregate base salary paid to the Executive during the
period commencing on the day after the last day of the
last fiscal year completed prior to the date of
termination and ending on the last day of the Payment
Period; it being understood that such 75% bonus level
has been agreed to because it is impossible to
determine the performance of the Employers for future
periods;
(c) for the 180 days following the date of
termination, the Employers shall have the right to purchase (i)
all but not less than all of the Vested Securities and the Vested
Acquired Securities, at a price equal to the Full Value thereof
on the date of termination, and/or (ii) all but not less than all
other Initial Securities and Initial Acquired Securities, at
cost, plus, in the case of the Subordinated Debentures, accreted
discount thereon through and including the date of such purchase;
(d) for the 180 days following the date of
termination, the Executive shall have the right to require the
Employers to purchase (subject to Section 4.6 hereof) all but not
less than all of the Vested Securities and the Vested Acquired
Securities, at a price equal to the Full Value thereof on the
date of termination, together with all but not less than all of
the other Initial Securities and Initial Acquired Securities, at
cost, plus, in the case of the Subordinated Debentures included
among such other Initial Securities, accreted discount thereon
through and including the date of such purchase;
(e) within 180 days of the date of
termination, the Employers shall have the right to repurchase all
but not less than all of the Purchased Shares at a price equal to
the Fair Market Value thereof on the date of termination;
provided, that the proceeds shall first be used to pay any
outstanding principal of and interest accrued but not paid under
the Note; and
(f) for the 180 days following the date of
termination, the Executive shall have the right to require the
Employers to repurchase (subject to Section 4.6 hereof) all but
not less than all of the Purchased Shares at a price equal to the
Fair Market Value thereof on the date of termination; provided,
that the proceeds shall first be used to pay any outstanding
principal of and interest accrued but not paid under the note.
4.4.2 Definitions:
(a) "Termination Without Cause" means the
termination of the Term by the Employers for reasons other than
those described in Sections 4.1, 4.2 or 4.3.
(b) "Good Reason" means the continuation of
any of the following (without the Executive's express prior
consent) after written notice provided by the Executive and the
failure by the Employers to remedy such event within thirty (30)
days after receipt of such notice:
(i) a reduction in the Executive's
Base Salary, as in effect at the date hereof pursuant
to Section 2.2 or as in effect pursuant to increases
from time to time made during the Term;
(ii) failure by the Employers to
pay to the Executive an Incentive Bonus, as provided
for in this Agreement;
(iii) a failure by the
Employers to provide any benefit or compensation plan
(including any pension, profit sharing, annuity, life
insurance, health, accidental death or dismemberment or
disability plan), or any substantially similar benefit
or compensation plan, which has been made available to
other comparable executives of the Employers on terms
no less favorable to the Executive than the terms
offered to such other executives; provided, however,
that nothing in this clause (iii) shall be construed to
mean that the Employers shall be constrained from
amending or eliminating any benefit or compensation
plan as such is applied to the Executive and to other
comparable executives of the Employers; provided,
further, that a failure by the Employers to include the
Executive in any stock option plan or bonus plan shall
not constitute Good Reason hereunder;
(iv) the assignment to the
Executive of any duties materially inconsistent with
the Executive's position as President and Chief
Executive Officer of the Employers;
(v) a materially adverse change in
the Executive's title or the line of authority through
which the Executive is required to report, it being
understood that the Executive shall at all times report
to the Boards;
(vi) failure by the Employers to
obtain the written agreement of any successor in
interest to the business of the Employers to assume and
perform the obligations of the Employers under this
Agreement;
(vii) a relocation of the
corporate headquarters of the Employers requiring the
Executive to relocate to a place other than the greater
Chicago, Illinois metropolitan area; or
(viii) any material breach of
this Agreement by the Employers.
4.4.3 In the event of a Termination Without
Cause or a Voluntary Termination for Good Reason, the Executive
shall not be required to mitigate his damages hereunder;
provided, however, that, notwithstanding the foregoing, if there
are any damages hereunder by reason of the events of termination
described above which are "contingent on" a Section 280G Change
within the meaning of Section 280G(b)(2)(A) of the Code after a
Public Offering (i) the Executive shall be required to mitigate
such damages hereunder, including any such damages theretofore
paid, but not in excess of the extent, if any, necessary to
prevent the Employers from losing any tax deductions to which
they would otherwise be entitled in connection with such damages
if they were not so "contingent on" a Section 280G Change
(provided, that, the parties agree that this clause (i) shall not
require the Executive to violate Section 5.2 hereof) and (ii) in
addition to any obligation under the preceding clause (i), and
without duplication of any amounts required to be paid to the
Employers thereunder, if any such termination occurs and the
Executive, whether or not required to mitigate his damages under
clause (i) above, thereafter obtains other employment, the total
compensation received in connection with such other employment,
whether paid to the Executive or deferred for his benefit, for
services prior to the end of the Modified Payment Period (as
defined below) (up to the aggregate amount of damages described
in Section 4.4.1(b)) shall be paid over to the Employers as
received with respect to such period. Notwithstanding the
provisions of this Section 4.4.3, the Employers shall not have
the right to enforce their rights under this Section 4.4.3 by set
off against or by otherwise withholding any amounts receivable by
the Executive (or payable on the Executive's behalf) under this
Agreement upon or following the time at which they are required
to be paid under this Agreement.
4.4.4 In the event that any amounts or other
benefit payable pursuant to Section 4.4 or 4.5 (other than
Section 4.4.6) (including, but not limited to, the Continued
Payments, the receipt of any security upon the exercise of any
Option, or the lapse of any direct or indirect restriction on the
ability to transfer any such security for the fair market value
thereof) would be deemed "contingent on" a Section 280G Change
(within the meaning of Section 280G(b)(2)(A) of the Code) that
occurs subsequent to a Public Offering:
(a) the Continued Salary shall be paid, the
Continued Bonus shall be calculated by reference to and the
Continued Benefits shall be provided for the shorter of (i) 18
months following the date of termination, and (ii) the remainder
of the Term (even if such remaining period is less than twelve
months) (the "Modified Payment Period"), and
(b) the Continued Salary and the Continued
Bonus (as modified in clause (a) of this Section 4.4.4) shall be
paid to the Executive by the Employers, within 60 days of the
date of termination, in a lump sum, which lump sum shall be
discounted to the present value, on the date of payment, of the
Continued Salary (as if paid at the times the Base Salary would
have been paid to the Executive under Section 2.2 if the
Executive had been employed by the Employers during the Modified
Payment Period) and the Continued Bonus (as if paid on the last
day of the Modified Payment Period) at the Discount Rate.
"Discount Rate" shall mean the discount rate described in Section
280G(d)(4) of the Code. The parties hereby elect, to the extent
permitted for purposes of such Section 280G(d)(4), to base the
Discount Rate on the applicable federal rate in effect on the
date hereof.
4.4.5 It is the intention of the parties that,
if there has been a Public Offering and a Section 280G Change
occurs, payments to be made to the Executive in the event of a
Termination Without Cause or a Voluntary Termination for Good
Reason qualify as "reasonable compensation for personal services
to be rendered on or after the date of the change" within the
meaning of Section 280G(b)(4)(A) of the Code and Q&A 42(b) of
Proposed Regulation Section 1.280G-1 thereunder (as amended from
time to time), and the provisions of this Agreement shall, in the
event of any ambiguity, be interpreted in a manner consistent
with the foregoing.
4.4.6 Upon a Termination Without Cause or a
Voluntary Termination with Good Reason that occurs both (i) prior
to a Public Offering, and (ii) following a Change of Control (as
defined below) all unvested Initial Securities shall become
Vested Securities. A "Change of Control" shall, for the purposes
of this Section 4.4.6, be deemed to have occurred upon the date,
if any, at which a person or group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) other than Acadia Partners, L.P., Keystone, Inc., HWP
Partners, L.P. and their respective Affiliates (as defined in
Section 2.1(a) of the Principal Stockholders Agreement) has the
collective ability to directly or indirectly designate a majority
of the members of the SFAC Board (whether by contract or
otherwise).
4.5 Termination by Non-Extension of Term. Upon a
termination of the Term by reason of the non-extension of the
Term pursuant to Section 2.2:
(a) without regard to whether notice of such
termination is given by the Employers or the Executive, the Term
shall terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder; provided, that the
Employers shall be obligated to pay to the Executive all unpaid
Base Salary accrued, and provide the Executive with all benefits,
bonuses and expense reimbursement to which the Executive would
otherwise be entitled, through and including the date of
termination of the Term;
(b) if such termination occurs by reason of the
giving by any party of a notice of non-extension, for the 180
days following the date of termination of the Term, the Employers
shall have the right to repurchase all but not less than all of
the Vested Securities, at a price equal to the Full Value thereof
on the date of termination of the Term; and
(c) in addition to the provisions of clauses (a)
and (b) above, if the Employers give notice of non-extension
pursuant to Section 2.2:
(i) unless the notice of non-extension
would be deemed "contingent on" a Section 280G Change
(within the meaning of Section 280G(b)(2)(A) of the
Code) that occurs subsequent to a Public Offering, the
Employers shall continue payments of Base Salary to the
Executive, at the rate and at such times as are in
effect on the date of the termination of the Term, for
the 18 month period following the date of termination,
and
(ii) for the 180 days following the date
of termination of the Term, the Executive shall have
the right to require the Employers to purchase (subject
to Section 4.6 hereof) (i) all but not less than all of
the Vested Securities and the Vested Initial
Securities, at a price equal to the Fair Market Value
thereof on the date of termination of the Term, and
(ii) all but not less than all of the Purchased Shares
at a price equal to the Fair Market Value thereof on
the date of termination of the Term; provided, that any
proceeds from any such purchase and sale shall first be
used to pay any outstanding principal of and interest
accrued but not paid under the note.
4.6 Certain Provisions Regarding Repurchase
Obligations. The rights of the Executive (or the Beneficiary, as
the case may be) to require the Employers to purchase Securities
from the Executive pursuant to Article 4 hereof ("Put Rights")
shall be limited by this Section 4.6. The Executive (or the
Beneficiary) shall not have the right to require the Employers to
purchase any securities pursuant to Article 4 to the extent that
such purchase (i) would constitute or cause a breach or violation
of or a default (whether immediately or with notice or lapse of
time or both) under any debt agreement of either Employer or of
any of their subsidiaries (whether currently in existence or
entered into subsequent to the date hereof) or (ii) would violate
any law applicable to the Employers. If the Employers can buy
some but not all of the securities that the Executive (or the
Beneficiary) have requested the Employers to purchase (the "Put
Securities"), the Employers shall purchase as many Put Securities
as can be purchased without causing such breach, default or
violation. Thereafter, at the time it becomes possible for the
Employers to repurchase all (but not less than all) remaining Put
Securities without causing such breach, default or violation, the
Employers shall promptly purchase all such remaining Put
Securities. In the event that either the Term Loan Agreement,
dated as of August 16, 1993, among SFC, certain lenders listed
therein and Chemical Bank, as administrative agent, or the
Revolving Credit Agreement dated as of August 16, 1993, among the
Revolving Credit Borrowers signatory thereto, the lenders named
therein and Chemical Bank, as administrative agent, imposes
restrictions on the Employers' ability to satisfy the Executive's
Put Rights, the Employers shall, at the time such Put Rights are
required to be satisfied, use all commercially reasonable efforts
to obtain amendments to or waivers from such agreements that have
the effect of removing such restrictions.
5. PROTECTION OF CONFIDENTIAL INFORMATION: NON-
COMPETITION; NO SOLICITATION.
5.1 In view of the fact that the Executive's work for
the Employers will bring the Executive into close contact with
many confidential affairs of the Employers not readily available
to the public, and plans for future developments, the Executive
agrees:
5.1.1 To keep and retain in the strictest
confidence all confidential matters of the Employers, including,
without limitation, to the extent the following are confidential,
trade "know how," secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions
and research projects, and other business affairs of the
Employers, learned by the Executive heretofore or hereafter, and
not to disclose them to anyone outside of the Employers, either
during or after the Executive's employment with the Employers,
except in the course of performing the Executive's duties
hereunder or with the Employers' express written consent; and
5.1.2 To deliver promptly to the Employers on
termination of the Executive's employment by the Employers, or at
any time the Employers may so request, all memoranda, notes,
records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Employers'
business and all property associated therewith, which the
Executive may then possess or have under the Executive's control
unless such information is necessary to enable the Executive to
file any federal or state tax return or make any other report or
filing or take any other action required by any law, regulation
or order of any court or regulatory commission, department or
agency.
Notwithstanding the foregoing, nothing contained
in this Section 5.1 shall restrict the Executive from using,
disclosing or retaining any information (i) which is in the
public domain or could readily be known or determined without
being employed by the Employers or which enters the public domain
through no breach of the Executive's obligations to the
Employers, (ii) which the Executive acquired prior to his
employment by the Employers, (iii) which the Executive properly
acquired or acquires from parties independent of the Employers,
(iv) which the Executive is required to disclose by law,
regulation, order or legal process, (v) which is desirable to
establish the Executive's claim or defense in any litigation
between the parties, provided that the Executive uses his best
efforts to ensure that confidential treatment will be afforded
such information.
5.2 During the term of the Executive's employment by
the Employers and, in the event of the termination of the
Executive's employment for any reason, for the 180-day period
immediately following the date of termination, the Executive
shall not, directly or indirectly, enter the employ of, or render
any services to, any person, firm or corporation engaged in any
business competitive with the business of the Employers or of any
of their subsidiaries; in any state in which any such business is
conducted or in which the Employers have specific plans to
conduct business at the time of such termination, the Executive
shall not engage in such business on the Executive's own account;
and the Executive shall not become interested in any such
business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee,
trustee, consultant, or in any other relationship or capacity;
provided, however, that nothing contained in this Section 5.2
shall be deemed to prohibit the Executive from acquiring, solely
as an investment, up to one percent (1%) of the outstanding
shares of capital stock of any public corporation. The Executive
shall not be deemed to be in breach of this Section 5.2 because
(i) a public corporation of which he owns more than 1% of the
outstanding capital stock begins to engage in any such prohibited
activities or (ii) his ownership interest in a public corporation
engaged in such activities increases to more than 1% of such
corporation's issued and outstanding capital stock in either case
without any volitional act on the part of the Executive, if, in
the case of either clause (i) or (ii) above, within sixty (60)
days of learning of such event, the Executive disposes of the
amount of capital stock necessary to cause his ownership to be
less than 1% of the amount of such capital stock issued and
outstanding.
5.3 When the Executive's employment by the Employers
terminates for any reason whatsoever, then during the period
commencing on the date of such termination and ending on the
second anniversary thereof, the Executive shall not without the
express written consent of SFAC, directly or indirectly, (i)
solicit any employee of the Employers or of any of their
subsidiaries to terminate his employment with the Employers or
with such subsidiary or (ii) hire any such employee.
5.4 If the Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 5.1, 5.2 or
5.3 hereof, the Employers shall have, in addition to any other
remedies they may have, the following rights and remedies:
5.4.1 The right and remedy to have the
provisions of this Agreement specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that
any such breach or threatened breach will cause irreparable
injury to the Employers and that money damages will not provide
an adequate remedy to the Employers; and
5.4.2 The right and remedy to require the
Executive to account for and pay over to the Employers all
compensation, profits, monies, accruals, increments or other
benefits (collectively "Benefits") derived or received by the
Executive as the result of any transactions constituting a breach
of any of the provisions of the preceding paragraph, and the
Executive hereby agrees to account for and pay over such Benefits
to the Employers.
5.4.3 Each of the rights and remedies
enumerated above shall be independent of the other, and shall be
severally enforceable, and all of such rights and remedies shall
be in addition to, and not in lieu of, any other rights and
remedies available to the Employers under law or in equity.
5.5 If any of the covenants contained in Section 5.1,
5.2 or 5.3, or any part thereof, hereafter is construed to be
invalid or unenforceable, the same shall not affect the remainder
of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
5.6 If any of the covenants contained in Section 5.1,
5.2 or 5.3, or any part thereof, is held to be unenforceable
because of the duration of such provision or the area covered
thereby, the parties agree that the court making such
determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision
shall then be enforceable.
5.7 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1,
5.2 and 5.3 upon the courts of any state within the geographical
scope of such covenants where the Executive is engaged in
activities in violation of such covenants or the Employers are
damaged or harmed in any way by the Executive's violation of such
covenants. In the event that the courts of any one or more of
such states shall hold such covenants wholly unenforceable by
reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar
or in any way affect the Employers' right to the relief provided
above in the courts of any other states within the geographical
scope of such covenants as to breaches of such covenants in such
other respective jurisdictions, the above covenants as they
relate to each state being for this purpose severable into
diverse and independent covenants.
6. INVENTIONS AND PATENTS. The Executive agrees that all
processes, technologies and inventions (collectively
"Inventions"), including new contributions, improvements, ideas
and discoveries, whether patentable or not, conceived, developed,
invented or made by him while employed by the Employers shall
belong to the Employers, provided that such Inventions grew out
of the Executive's work with the Employers or any of their
subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Employers or any of
their subsidiaries or affiliates or are conceived or made on the
Employers' time or with the use of the Employers' facilities or
materials. The Executive shall further: (a) promptly disclose
such Inventions to the Employers; (b) assign to the Employers,
without additional compensation, all patent and other rights to
such Inventions for the United States and foreign countries; (c)
sign all papers necessary to carry out the foregoing; and (d)
give testimony in support of the Executive's inventorship.
7. INTELLECTUAL PROPERTY. The Employers shall be the
exclusive owners of all the products and proceeds of the
Executive's services with the Employers, including, but not
limited to, all materials, ideas, concepts, formats, suggestions,
developments, arrangements, packages, programs and other
intellectual properties that the Executive may acquire, obtain,
develop or create in connection with and during the Executive's
employment by the Employers, free and clear of any claims by the
Executive (or anyone claiming under the Executive) of any kind or
character whatsoever (other than the Executive's right to receive
payments hereunder). The Executive shall, at the request of the
Employers, execute such assignments, certificates or other
instruments as the Employers may from time to time deem necessary
or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend their right, title or interest in or to any
such properties.
8. NOTICES. All notices, requests, consents and other
communications required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given if
delivered personally, sent by overnight courier or mailed first-
class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed) or
sent by telecopier, as follows (or to such other address as
either party shall designate by notice in writing to the other in
accordance herewith):
If to the Employers, to:
Specialty Foods Acquisition Corporation
Specialty Foods Corporation
9399 West Higgins Road, Suite 800
Rosemont, Illinois 60018
Telecopier: 847/685-1010
Attention: General Counsel
with copies to:
Haas Wheat & Partners Incorporated
300 Crescent Court, Suite 1700
Dallas, Texas 75201
Telecopier: 214/871-8317
Attention: Robert B. Haas and Douglas D. Wheat
and:
Keystone, Inc.
201 Main Street, Suite 3100
Forth Worth, Texas 76102
Telecopier: 817/338-2064
Attention: J. Taylor Crandall
and:
Oak Hill Partners, Inc.
Park Avenue Tower
65 East 55th Street, 32nd Floor
New York, New York 10022
Telecopier: 212/826-6245
Attention; Daniel L. Doctoroff
If to the Executive, to:
Mr. Paul J. Liska
1048 Ashland
River Forest, Illinois 60305
9. GENERAL.
9.1 This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Illinois
applicable to agreements made and to be performed entirely in
Illinois; provided, that all provisions of this Agreement
governing the issuance and rights in respect of securities of
SFAC, including, without limitation, Initial Securities and
Vested Securities, shall be governed by and construed in
accordance with the laws of the State of Delaware.
9.2 The section headings contained herein are for
reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
9.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, relating to the subject matter
hereof. No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and
neither party shall be bound by or liable for any alleged
representation, promise of inducement not so set forth.
9.4 This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The
Employers may assign their rights, together with their
obligations, hereunder (i) to any subsidiary of or successor-in-
interest to any of them, or (ii) to third parties in connection
with any sale, transfer or other disposition of all or
substantially all of the business or assets of any of them; in
any event the obligations of the Employers hereunder shall be
binding on their successors or permitted assigns, whether by
merger, consolidation or acquisition of all or substantially all
of either of their businesses or assets.
9.5 This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or
covenants hereof may be waived, only by a written instrument
executed by the parties hereto, or in the case of a waiver, by
the party waiving compliance. The failure of a party at any time
or times to require performance of any provision hereof shall in
no manner affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in
this Agreement.
9.6 This Agreement or any amendment hereto may be
signed in any number of counterparts, each of which shall be an
original, but all of which taken together shall constitute one
agreement (or amendment as the case may be).
9.7 This Agreement shall be of no force or effect
until it has been approved by, the Compensation Committees of the
Boards.
10. CERTAIN DEFINITIONS.
10.1 As used herein the term "subsidiary" shall mean
any corporation or other business entity controlled directly or
indirectly by the corporation or other business entity in
question, and the term "affiliate" shall mean and include any
corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the
corporation or other business entity in question.
10.2 As used herein, the "Fair Market Value" of the
Common Stock shall mean the fair market value of the Common Stock
determined by the SFAC Board in good faith on a going concern
basis without regard to any minority discount (the "Initial
Value"), which determination shall be evidenced by a resolution
of the SFAC Board and the Initial Value shall be the Fair Market
Value of the Common Stock for all purposes; provided, that
following the termination of the Executive's employment by the
Employers, for any reason, pursuant to Article 4 hereof, if the
Executive or the Beneficiary disagrees with the SFAC Board's
determination that the Initial Value is the fair market value of
the Common Stock and delivers written notice of such disagreement
to the Employers within 30 days after the date on which the SFAC
Board's determination of the Initial Value is communicated to the
Executive or the Beneficiary, the Fair Market Value of the Common
Stock shall be determined in a binding arbitration proceeding,
the arbitrator for which shall be a nationally recognized
investment banking firm selected jointly by the Employers and the
Executive (or the Beneficiary, as the case may be); provided,
that if the Employers and the Executive (or the Beneficiary, as
the case may be) cannot agree on an arbitrator, an arbitrator
shall be selected in accordance with the rules of the American
Arbitration Association. Notwithstanding the foregoing, (i) if
the Fair Market Value, as determined by the Arbitrator (the
"Arbitration Value"), does not deviate from the Initial Value by
an amount equal to more than 10% of the Initial Value then the
Fair Market Value shall equal the Initial Value for all purposes,
and (ii) if the Arbitration Value deviates from the Initial Value
by an amount equal to more than 10% of the Initial Value (whether
such deviation is higher or lower than the Initial Value) then
the Fair Market Value shall equal the Arbitration Value for all
purposes. If, following an arbitration proceeding, the
Arbitration Value exceeds an amount equal to the sum of (x) the
Initial Value plus (y) an amount equal to 10% of the Initial
Value, the Employers shall pay all costs associated with the
arbitration; in all other cases, the Executive (or the
Beneficiary, as the case may be) shall pay all of such costs.
10.3 Survival. The provisions of Sections 5, 6 and 7
shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of May 30, 1996.
SPECIALTY FOODS ACQUISITION CORPORATION
By: /s/ John E. Kelly
Name: John E. Kelly
Title: Vice President
By: /s/ John R. Reisenberg
Name: John R. Reisenberg
Title: Vice President
SPECIALTY FOODS CORPORATION
By: /s/ John R. Reisenberg
Name: John R. Reisenberg
Title: Vice President
By: /s/ John E. Kelly
Name: John E. Kelly
Title: Vice President
/s/ Paul J. Liska
PAUL J. LISKA
Execution Copy
- 21 -
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), effective as of May
13, 1996, among SPECIALTY FOODS ACQUISITION CORPORATION, a
Delaware corporation ("SFAC"), SPECIALTY FOODS CORPORATION, a
Delaware corporation ("SFC"), and ROBERT L. FISHBUNE (the
"Executive"). SFAC and SFC are each sometimes herein referred to
individually as an "Employer" and are sometimes referred to
collectively as the "Employers."
The Employers wish to employ the Executive, and the
Executive wishes to accept such employment, on the terms and
conditions set forth in this Agreement.
Accordingly, the Employers and the Executive hereby agree as
follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 Employment Duties. The Employers hereby employ
the Executive for the Term (as defined in Section 2), to render
exclusive and full-time services to the Employers, as Vice
President and Chief Financial Officer of each of SFAC and SFC,
and to perform such other duties (consistent with the customary
duties of a corporate officer) as may be assigned to the
Executive by the Board of Directors (collectively, the "Boards"),
Chief Executive Officer or Chief Operating Officer of either
Employer.
1.2 Acceptance. The Executive hereby accepts such
employment and agrees to render the services described above.
During the Term, the Executive agrees to devote the Executive's
entire business time, energy and skill to such employment, and to
use the Executive's best efforts, skill and ability to promote
the Employers' interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an
officer or director of any subsidiary of either Employer, without
any compensation therefor other than that specified in this
Agreement, if elected to any such position by the shareholders of
either Employer, the Boards or the shareholders or Board of
Directors of any such subsidiary, as the case may be.
2. TERMS OF EMPLOYMENT.
2.1 The Term. The term of the Executive's employment
under this Agreement (the "Term") shall commence on May 13, 1996
(the "Effective Date") and shall, unless sooner terminated
pursuant to Section 2.3 hereof, end on December 31, 1998 or on
such later December 31 to which the Term is extended pursuant to
Section 2.2.
2.2 Extension. On June 30 of 1998, the then scheduled
expiration date of the Term shall automatically be extended,
without any action required of either the Executive or the
Employers, for twelve additional months, unless the Executive, on
the one hand, or the Employers, on the other hand, shall have
given written notice of non-extension to the other no later than
such June 30. If such written notice of non-extension is given,
the Term shall end on the then-scheduled termination date (taking
into account any previous extensions pursuant to this Section
2.2). By way of example, unless written notice of non-extension
is given by June 30, 1998, the otherwise scheduled expiration
date of December 31, 1998 shall be extended to December 31, 1999.
If the Executive remains employed by the Employers after December
31, 1999, then the Term shall be deemed to be ended and the
Executive's employment shall be employment at will unless the
parties otherwise agree in writing.
2.3 Early Termination. The Term shall end earlier
than the December 31 termination date scheduled in accordance
with the foregoing provisions of this Article 2, if sooner
terminated pursuant to Article 4.
3. COMPENSATION; BENEFITS.
3.1 Salary. As compensation for all services to be
rendered pursuant to this Agreement, the Employers agree to pay
the Executive during the 12 months of the Term ending on December
31, 1996, a base salary at an annual rate of $300,000 (the "Base
Salary"); provided, that payment of Base Salary shall commence as
of May 13, 1996 and shall not be payable in respect of any period
prior to such date. The annual Base Salary rate may be increased
from time to time, in the sole discretion of the Boards.
3.2 Bonus. In addition to the amounts to be paid to
the Executive pursuant to Section 3.1, the Executive will be
eligible to receive with respect to each fiscal year of the
Employers commencing with their fiscal year ending December 31,
1996, an incentive bonus (the "Incentive Bonus") equal to a
percentage of Base Salary for such fiscal year based on the
achievement of the Employers of performance targets ("Performance
Targets") to be set in the beginning of such fiscal year by the
compensation committee of the Boards, such that if the minimum
Performance Target is not achieved, the Incentive Bonus shall be
zero; if the intermediate Performance Target is achieved, the
Incentive Bonus shall be equal to 50% of Base Salary; and if the
maximum Performance Target is achieved, the Incentive Bonus shall
be equal to 100% of Base Salary (provisions for pro rata
Incentive Bonus amounts for achievements between the minimum
Performance Target and the intermediate Performance Target or
between the intermediate Performance Target and the maximum
Performance Target, as the case may be, shall also be
established). The Incentive Bonus for each fiscal year shall be
paid to the Executive within 30 days of the receipt by the
Employers of their audited financial statements for such fiscal
year. Notwithstanding anything herein to the contrary, Executive
shall, subject to the Employers meeting required performance
objectives, receive a bonus for the year ended December 31, 1996
calculated in a manner as if the Executive had been employed by
the Employers beginning on January 1, 1996.
3.3 Business Expenses. The Employers shall pay or
reimburse the Executive for all reasonable expenses actually
incurred or paid by the Executive during the Term in the
performance of the Executive's services under this Agreement,
upon presentation of expense statements or vouchers or such other
supporting information as the Employers customarily require of
their other senior executives.
3.4 Vacation. During the Term, the Executive shall be
entitled to a paid vacation period or periods taken in accordance
with the vacation policy of the Employers during each year of the
Term; provided, that the Executive shall be entitled to not less
than four (4) weeks paid vacation for each year of the Term.
3.5 Fringe Benefits; Securities Investment; Stock
Options.
3.5.1 Benefits. During the Term, the
Executive shall be entitled to all benefits for which the
Executive shall be eligible under any long term incentive plan,
qualified pension plan, 401(k) plan, annuity plan, group
insurance plan or other so-called "fringe" benefit plan which
SFAC or SFC provides to its executive officers generally,
including, without limitation, the SFC Executive Retirement
Annuity Plan. In addition, the Employers shall pay the
reasonable fees in connection with personal financial counseling
on behalf of the Executive, including fees relating to tax return
preparation beginning for the 1996 tax year. The Employers shall
also pay for the relocation of the Executive from Ada, Michigan
to a location in the greater Chicagoland area pursuant to the SFC
Executive Relocation Policy.
3.5.2 Securities Investment.
(a) Pursuant to an Executive Securities
Purchase Agreement, between the Executive and SFAC in
substantially the same form as the agreements entered into by
other SFAC executives in connection with their purchase of
securities, the Executive shall purchase from SFAC on or before
August 15, 1996, but in any event no later than May 30, 1996 (the
"Closing Date"), a combination of 11% Senior Subordinated
Discount Debenture of SFAC Due 2006 (the "Subordinated
Debentures") and Common Stock (par value $0.01 per share, of SFAC
(the "Common Stock"), for an aggregate purchase price of
$150,000, such investment to be allocated as follows: 75% to the
Subordinated Debentures and 25% to the Common Stock. The
Subordinated Debentures and Common Stock purchased pursuant to
this Section 3.5.2 (the "Initial Securities") shall be considered
vested securities ("Vested Securities") as follows: (i) 25% of
the Initial Securities shall become Vested Securities on the
Closing Date, (ii) an additional 25% of such Initial Securities
shall become Vested Securities on the 181st day following the
Closing Date, (iii) an additional 25% of the Initial Securities
shall become Vested Securities on the first anniversary of the
Closing Date, and (iv) the remaining 25% of such Initial
Securities shall become Vested Securities on the 181st day
following the first anniversary of the Closing Date; each such
25% block of Initial Securities to be comprised of 25% of the
Subordinated Debentures sold to the Executive under this Section
3.5.2 and 25% of the shares of Common Stock sold to the Executive
under this Section 3.5.2. Vested Securities shall be
transferable by the Executive, subject only to restrictions
("Transfer Restrictions") on the transfer of Initial Securities
set forth in (i) the Stockholders Agreement, dated as of August
16, 1993, among SFAC and its principal stockholders, as amended
(the "Principal Stockholders Agreement"), (ii) the Stockholders
Agreement, dated as of August 16, 1993, among SFAC and all of its
stockholders, as amended (the "Investors Stockholders
Agreement"), and (iii) the Securities Purchase Agreement, dated
as of August 16, 1993, among SFAC, its principal Stockholders and
all holders of the Subordinated Debentures, as amended (the
"Securities Purchase Agreement"); provided, that any Vested
Securities transferred pursuant to an exemption from Transfer
Restrictions for transfer to Affiliates provided for in Section
2.1(a)(ii) of the Principal Stockholders Agreement or Section
6.4(a) of the Securities Purchase Agreement shall remain subject
to the Employers' repurchase rights, and shall be benefited by
the Executive's (or his Beneficiary's) right to require
repurchase, under Article 4 hereof. Initial Securities not yet
vested shall not be transferable; except, that the Executive may
transfer such Initial Securities (i) in connection with the
Executive's exercise of rights as an Other Stockholder (as
defined in the Principal Stockholders Agreement) under Section
2.1(b) of the Principal Stockholders Agreement or as an Other
Holder (as defined in the Securities Purchase Agreement) under
Section 6.4(a) of the Securities Purchase Agreement, so long as
the Executive has previously transferred all of his Vested
Securities as a "Transferor" or an "Other Stockholder" under
Section 2.1(b) of the "Principal Stockholders" Agreement, as a
"Transferor" or "Other Holder" under Section 6.4(a) of the
Securities Purchase Agreement or in a registered public offering;
or (ii) to the Executive's spouse or children or a trust
established for their benefit (so long as such trust is
controlled by the Executive or his estate), which Initial
Securities, notwithstanding such transfer to the Executive's
spouse or children or to such trust, shall remain subject to the
Employers' repurchase rights, and shall be benefited by the
Executive's (or his Beneficiary's) right to require repurchase,
under Article 4 hereof; (iii) in a registered public offering in
which the Executive has a right to participate pursuant to
Article 1 of Exhibit A to the Principal Stockholders Agreement,
so long as the Executive is not an "Initiating Holder" (as
defined herein); provided, that this clause (iii) shall apply
only if the Executive has previously transferred all Vested
Securities in the manner described in clause (i) above or will
transfer all of such Vested Securities in connection with such
public offering; or (iv) in order to comply with the requirements
of Section 2.2 of the Principal Stockholders Agreement.
(b) Pursuant to a Stock Purchase Agreement
between the Executive and SFAC in substantially the same form as
the agreements entered into by other SFAC executives in
connection with their purchase of Common Stock, the Executive
shall purchase from SFAC on the Closing Date 100,000 shares of
Common Stock in exchange for a Limited Recourse Promissory Note.
The Common Stock shall vest and be subject to certain transfer
restrictions in accordance with terms and conditions contained in
the Stock Purchase Agreement, which terms and conditions shall be
similar in all material respects to the vesting criteria and
transfer restrictions found in the Stock Purchase Agreements
entered into by other SFAC executives.
3.5.3 Management Option and Bonus. The
Executive shall participate in the management stock option plan
(the "Option Plan") of the Employers. The number of stock
options to be granted to the Executive under the Option Plan
shall be 100,000.
3.6 Automobile. In addition, the Executive will
receive an automobile allowance of $1,100.00 per month during the
term of this Agreement.
3.7 Withholding. All compensation of the Executive by
the Employers provided for in this Agreement, whether in the form
of cash, securities or "fringe" benefits, shall be subject to
such deductions or amounts to be withheld as required by
applicable law and regulations. Whenever compensation provided
for under this Agreement is to be delivered to the Executive in a
form other than cash, the Employers may require as a condition of
delivery that the Executive remit to the Employers an amount
sufficient to satisfy all federal, state and other governmental
withholding tax requirements related thereto. If the
compensation referred to in the preceding sentence is in the form
of securities (whether by the vesting of securities or
otherwise), the Employers shall, if the Executive so requests and
the Employers consent (such consent not to be withheld
unreasonably), satisfy the requirements of the preceding
sentence, to the extent permitted by applicable law, by deducting
from the number of securities otherwise deliverable to the
Executive, a number of securities having a fair market value
equal to the amount required to satisfy all federal, state and
other governmental withholding tax requirements related thereto.
3.8 Source of Payment; Nature of Certain Payments.
Any amounts payable to or on behalf of the Executive under this
Agreement may be paid by either Employer, as determined by the
Employers in their exclusive discretion. No payment made to the
Executive pursuant to Section 3.9 shall be deemed, for any
purpose, a payment of purchase price for Common Stock or
Subordinated Debentures.
3.9 Certain Additional Payments by the Employers.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that (i) a Section 280G Change (as
defined below) occurs and (ii) any payment, distribution, other
compensation or benefit by either Employer to (or for the benefit
of) the Executive pursuant to the terms of this Agreement, as now
in effect or as amended from time to time (hereinafter, a
"Payment"), is determined (as hereinafter provided) to 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 Employers
shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Total Payments (as
defined below) and any federal, state and local income tax and
Excise Tax upon the additional amount provided for by this
paragraph (a), shall be equal to the Total Payments; provided,
however, that the aggregate payments required to be paid to or
for the benefit of the Executive pursuant to this Section 3.9
shall not exceed 400% of the Base Salary in effect pursuant to
Section 3.1 in the year in which the Section 280G Change occurs,
plus an amount equal to the interest and penalties, if any,
attributable to the portion of the Excise Tax for which the Gross-
Up Payment, as limited by this provision, reimburses the
Executive.
(b) Subject to the provisions of Section 3.9(c),
all determinations required to be made under this Section 3.9
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and, subject to the provisions
below, the assumptions to be utilized in arriving at such
determination, shall be made by KPMG Peat Marwick (or other
independent auditor of the Employers at the time) (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Employers and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment with respect to which a Gross-Up Payment
is owing, or such earlier time as is requested by the Employers.
All fees and expenses of the Accounting Firm shall be paid solely
by the Employers. Any Gross-Up Payment, as determined pursuant
to this Section 3.9, shall be paid by the Employers to the
Executive within five business days of the receipt of the
Accounting Firm's determination. The parties acknowledge that
unless the Accounting Firm is able to provide the Executive with
the opinion described in the third following sentence with
respect to such Payment, the Accounting Firm shall determine the
amount of the Gross-Up Payment that is due at the time of any
Payment. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a
written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result
in the imposition of the negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the
Employers and the Executive. The parties hereto acknowledge
that, as a result of uncertainty in the application of Section
4999 of the Code, it is possible that Gross-Up Payments will not
have been made by the Employers that should have been made
(hereinafter, an "Underpayment"), consistent with the provisions
of this Section 3.9. In the event that the Executive 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 Employers to
or for the benefit of the Executive, unless the Executive has
failed to comply with Section 3.9(c) and such failure has
materially deprived the Employers of the right to contest any
claim by the Internal Revenue Service with respect to such
payments.
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 for the calendar year in which the Gross-Up Payment is
to be made and the applicable state and local taxes at the
highest marginal rate of taxation for the calendar year in which
the Gross-Up Payments is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction of
such state and local taxes.
(c) The Executive shall notify the Employers in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Employers of a Gross-
Up Payment. Such notification shall be given as soon as
practicable but, in any event, no later than ten business days
after the Executive is informed in writing of such claim and
shall apprise the Employers of the nature of such claim and the
date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which he gives such notice to the
Employers (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Employers notify the Executive in writing prior to the expiration
of such period that they desire to contest such claim, and if the
Employers acknowledge in writing their liability, subject to the
limitations set forth in Section 3.9(a), to the Executive
pursuant to this Section 3.9 with respect to any amounts payable
in connection with such claim, the Executive shall:
(i) give the Employers any information
reasonably requested by the Employers and reasonably
available to the Executive relating to such claim;
(ii) take all such actions in connection
with contesting such claim as the Employers shall
reasonably request in writing from time to time,
including, without limitation, accepting legal
representation with respect to such claim by an
attorney selected by the Employers and agreeing to
extend the statute of limitations as requested by the
Employers;
(iii) cooperate with the Employers
in good faith in order to effectively contest such
claim; and
(iv) permit the Employers to participate
in any proceeding relating to such claim,
provided, however, that the Employers shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation of the foregoing provisions of this Section 3.9(c),
the Employers shall control all proceedings taken in connection
with such contest and, at their sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at their sole option, either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Employers shall determine; provided, however, that
if the Employers direct the Executive to pay such claim and sue
for a refund, the Employers shall advance the amount of such
payment to the Executive, on an interest-free, after-tax basis.
Furthermore, the Employers' control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Employers pursuant to Section 3.9(c), the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Employers'
complying with the requirements of Section 3.9(c)), promptly pay
to the Employers the amount of such refund (together with any
interest received or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 3.9(c), a
determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Employers do not
notify the Executive in writing of their intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then to the extent of the Gross-Up Payment such
advance shall be forgiven and shall not be required to be repaid
and shall, to such extent, offset the amount of Gross-Up Payment
required to be paid, and the remaining portion of such advance
shall forthwith become due and payable.
(e) For purposes of this Agreement:
A "Section 280G Change" shall mean a "change
. . . in the ownership or effective control" of either Employer
or a "change . . . in the ownership of a substantial portion of
the assets" of either Employer, in each case within the meaning
of Section 280G(b)(2)(A)(i) of the Code.
A "Public Offering" shall mean an initial
public offering of stock of either Employer if at any time
thereafter stock of either Employer is "readily tradable on an
established securities market or otherwise" (within the meaning
of Section 280G(b)(5)(A)(ii) of the Code).
"Total Payments" shall mean any payments or
benefits received or to be received by the Executive under this
Agreement or the plans discussed in Section 3.5.3, as now in
effect or as amended from time to time.
3.10 Performance Based Compensation. It is the
intention of the parties that, if Section 162(m) of the Code is
or will be applicable with respect to one or more payments
hereunder, the Executive will consider in good faith any requests
by the Employers to take actions to cause such payments to meet
the requirements of Section 162(m)(4)(B) or (C) of the Code, and
thus to be excluded from the definition of "applicable employee
remuneration" within the meaning of Section 162(m)(4) of the
Code.
4. TERMINATION.
4.1 Death. If the Executive shall die during the
Term, upon the date of the Executive's death:
(a) the Term shall terminate and no further
amounts or benefits shall be payable hereunder, except that the
Employers shall be obligated to pay to the Beneficiary (as
defined below) in exchange for a release in form and substance
acceptable to the Employers acting reasonably, within 60 days of
the date of the Executive's death, (i) all unpaid Base Salary
accrued through and including the date of the Executive's death,
(ii) a lump sum amount equal to Base Salary for one year, at the
rate in effect on the date of the Executive's death (the "Annual
Base Salary Upon Death"), and (iii) an additional lump sum bonus
amount equal to the sum of (x) 50% of Annual Base Salary Upon
Death and (y) 50% of Annual Base Salary Upon Death pro rated for
the period commencing on the first day of the fiscal year during
which the Executive's death occurred and ending on the date of
Executive's death; it being understood that such 50% bonus level
has been agreed to because it is impossible to determine the
performance of the Employers for future periods. The
"Beneficiary" shall be (i) the beneficiary designated by the
Executive on a form prescribed for such purpose by the Employers,
or (ii) in the absence of such designation, the Executive's
executor or legal representative, in such capacity;
(b) for the 180 days following such date, the
Employers shall have the right to purchase (i) all but not less
than all of the Vested Securities, at a price equal to the Full
Value (as defined below) thereof on the date of the Executive's
death, and/or (ii) all but not less than all other Initial
Securities, at cost, plus, in the case of the Subordinated
Debentures, accreted discount thereon through and including the
date of such purchase; provided, that Initial Securities that
would have vested within the six-month period following the date
of the Executive's death shall be treated, for all purposes under
this Section 4.1, as Vested Securities. "Full Value" means (i)
in the case of the Subordinated Debentures, the then accreted
value thereof (calculated assuming an 11% annual implied rate of
return), and (ii) in the case of the Common Stock, the Fair
Market Value (as defined in Section 10.2 hereof) thereof; and
(c) for the 180 days following such date, the
Beneficiary shall have the right to require the Employers to
purchase (subject to Section 4.6 hereof) all but not less than
all of the Vested Securities, at a price equal to the Full Value
thereof on the date of the Executive's death, together with all
but not less than all of the other Initial Securities, at cost,
plus, in the case of the Subordinated Debentures included among
such other Initial Securities, accreted discount thereon through
and including the date of such purchase.
4.2 Disability.
4.2.1 If during the Term the Executive shall
become physically or mentally disabled, whether totally or
partially, such that the Executive is unable to perform the
Executive's services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six
months during any twelve month period, the Employers may on any
day (the "Disability Termination Date") after the last day of the
six consecutive months of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of
six months (but, in each case, before the Executive has recovered
from such disability), by written notice to the Executive,
terminate the Term (a "Disability Termination") and no further
amounts or benefits shall be payable hereunder, except that the
Employers shall be obligated to pay to the Executive in exchange
for a release in form and substance acceptable to the Employers
acting reasonably, within 60 days of the Disability Termination
Date, (i) all unpaid Base Salary accrued through and including
the Disability Termination Date, (ii) a lump sum amount equal to
Base Salary for one year, at the rate in effect on the Disability
Termination Date (the "Annual Base Salary Upon Disability"), and
(iii) an additional lump sum bonus amount equal to the sum of (x)
50% of Annual Base Salary Upon Disability and (y) 50% of Annual
Base Salary Upon Disability prorated for the period commencing on
the first day of the fiscal year during which the Disability
Termination occurred and ending on the Disability Termination
Date; it being understood that such 50% bonus level has been
agreed to because it is impossible to determine the performance
of the Employers for future periods. If the Executive shall die
before receiving all amounts required to be paid by the Employers
in accordance with the foregoing, such amounts shall be paid to
the Beneficiary.
4.2.2 In the event of a Disability
Termination:
(a) for the 180 days following the
Disability Termination Date, the Employers shall have the right
to purchase (i) all but not less than all of the Vested
Securities, at a price equal to the Full Value thereof on the
Disability Termination Date, and/or (ii) all but not less than
all other Initial Securities, at cost, plus, in the case of the
Subordinated Debentures, accreted discount thereon through and
including the date of such purchase; provided, that Initial
Securities that would have vested within the six-month period
following the Disability Termination Date shall be treated, for
all purposes under this Section 4.2.2, as Vested Securities; and
(b) for the 180 days following the
Disability Termination Date, the Executive shall have the right
to require the Employers to purchase (subject to Section 4.6
hereof) all but not less than all of the Vested Securities, at a
price equal to the Full Value thereof on the Disability
Termination Date, together with all but not less than all of the
other Initial Securities, at cost, plus, in the case of the
Subordinated Debentures included among such other Initial
Securities, accreted discount thereon through and including the
date of such purchase.
4.3 Cause; Voluntary Termination.
4.3.1 In the event of the conviction of the
Executive of any felony involving intentional conduct on the part
of the Executive, the conviction of the Executive of any lesser
crime or offense involving the illegal use or conversion of
property of the Employers or any of their subsidiaries or
affiliates, the willful misconduct by the Executive in connection
with the performance of the Executive's duties hereunder (which
shall not be deemed to include an action by the Executive taken
in good faith in the best interest of the Employers) or the
continued breach by the Executive of any material provision of
this Agreement after notice of such breach has been actually
received by the Executive from the Employers (the "deemed
receipt" provisions of Article 8 hereof being inapplicable to
this Section 4.3.1), the Employers may at any time, by written
notice to the Executive, terminate the Term (a "Termination For
Cause") and, upon such Termination For Cause, the Term shall
terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder; provided, that the
Employers shall be obligated to pay to the Executive in exchange
for a release in form and substance acceptable to the Employers
acting reasonably, within 60 days of the date of termination, all
unpaid Base Salary accrued, and provide the Executive with all
benefits and expense reimbursement to which the Executive would
otherwise be entitled, through and including the date of
termination.
4.3.2. Upon a voluntary termination of the term
by the Executive (a "Voluntary Termination") without Good Reason
(as defined in Section 4.4.2), the Term shall terminate and the
Executive shall be entitled to receive no further amounts or
benefits hereunder; provided, that the Employers shall be
obligated to pay to the Executive in exchange for a release in
form and substance acceptable to the Employers acting reasonably,
within 60 days of the date of termination, all unpaid Base Salary
accrued, and provide the Executive with all benefits and expense
reimbursement to which the Executive would otherwise be entitled,
through and including the date of termination.
4.3.3 Upon either a Termination For Cause or a
Voluntary Termination without Good Reason, for the 180 days
following the date of termination, the Employers shall have the
right to purchase (i) all but not less than all of the Vested
Securities, at a price equal to the Full Value thereof on the
date of termination, and/or (ii) all but not less than all other
Initial Securities, at cost, plus, in the case of the
Subordinated Debentures, accreted discount thereon through and
including the date of such purchase; the Executive shall not have
the right to require the Employer to repurchase such Vested
Securities or other Initial Securities.
4.4 Termination by Employers Without Cause;
Termination by the Executive for Good Reason.
4.4.1 Upon a Termination Without Cause (as
defined below) or a Voluntary Termination with Good Reason (as
defined below):
(a) the Employers shall pay to the
Executive, within 60 days of the date of termination, all unpaid
Base Salary accrued, and provide the Executive with all benefits
and expense reimbursement to which the Executive would otherwise
be entitled, through and including the date of termination,
(b) subject to Sections 4.4.4 and 4.4.6, the
Employers shall, in exchange for a release in form and substance
acceptable to the Employers acting reasonably, pay the following
to the Executive:
(i) the Employers shall continue
payments of Base Salary to the Executive (the
"Continued Salary"), at the rate and at such times as
are in effect on the date of termination (the "Base
Salary Upon Termination"), for the 12 month period
following the date of termination (the "Payment
Period"), except as provided in Section 4.4.4,
(ii) the Employers shall continue
health and life insurance benefits during the Payment
Period (the "Continued Benefits"), and
(iii) the Employers shall pay
to the Executive, at the end of the Payment Period, a
bonus (the "Continued Bonus," and together with the
Continued Salary and the Continued Benefits, the
"Continued Payments") in an amount equal to 50% of the
aggregate base salary paid to the Executive during the
period commencing on the day after the last day of the
last fiscal year completed prior to the date of
termination and ending on the last day of the Payment
Period; it being understood that such 50% bonus level
has been agreed to because it is impossible to
determine the performance of the Employers for future
periods,
(c) for the 180 days following the date of
termination, the Employers shall have the right to purchase (i)
all but not less than all of the Vested Securities, at a price
equal to the Full Value thereof on the date of termination,
and/or (ii) all but not less than all other Initial Securities,
at cost, plus, in the case of the Subordinated Debentures,
accreted discount thereon through and including the date of such
purchase, and
(d) for the 180 days following the date of
termination, the Executive shall have the right to require the
Employers to purchase (subject to Section 4.6 hereof) all but not
less than all of the Vested Securities, at a price equal to the
Full Value thereof on the date of termination, together with all
but not less than all of the other Initial Securities, at cost,
plus, in the case of the Subordinated Debentures included among
such other Initial Securities, accreted discount thereon through
and including the date of such purchase.
4.4.2 Definitions:
(a) "Termination Without Cause" means the
termination of the Term by the Employers for reasons other than
those described in Sections 4.1, 4.2 or 4.3.
(b) "Good Reason" means the continuation of
any of the following (without the Executive's express prior
consent) after written notice provided by the Executive and the
failure by the Employers to remedy such event within thirty (30)
days after receipt of such notice:
(i) a reduction in the Executive's
Base Salary, as in effect at the date hereof pursuant
to Section 2.2 or as in effect pursuant to increases
from time to time made during the Term;
(ii) failure by the Employers to
pay to the Executive an Incentive Bonus, as provided
for in this Agreement;
(iii) a failure by the
Employers to provide any benefit or compensation plan
(including any pension, profit sharing, annuity, life
insurance, health, accidental death or dismemberment or
disability plan), or any substantially similar benefit
or compensation plan, which has been made available to
other comparable executives of the Employers on terms
no less favorable to the Executive than the terms
offered to such other executives; provided, however,
that nothing in this clause (iii) shall be construed to
mean that the Employers shall be constrained from
amending or eliminating any benefit or compensation
plan as such is applied to the Executive and to other
comparable executives of the Employers; provided,
further, that a failure by the Employers to include the
Executive in any stock option plan or bonus plan shall
not constitute Good Reason hereunder;
(iv) the assignment to the
Executive of any duties materially inconsistent with
the Executive's position as Vice President and Chief
Financial Officer of the Employers;
(v) a materially adverse change in
the Executive's title or the line of authority through
which the Executive is required to report, it being
understood that the Executive shall at all times report
to either the Chief Executive Officer or the Chief
Operating Officer of the Employers;
(vi) failure by the Employers to
obtain the written agreement of any successor in
interest to the business of the Employers to assume and
perform the obligations of the Employers under this
Agreement;
(vii) a relocation of the
corporate headquarters of the Employers requiring the
Executive to relocate to a place other than the greater
Chicago, Illinois metropolitan area; or
(viii) any material breach of
this Agreement by the Employers.
4.4.3 In the event of a Termination Without
Cause or a Voluntary Termination for Good Reason, the Executive
shall not be required to mitigate his damages hereunder;
provided, however, that, notwithstanding the foregoing, if there
are any damages hereunder by reason of the events of termination
described above which are "contingent on" a Section 280G Change
within the meaning of Section 280G(b)(2)(A) of the Code after a
Public Offering (i) the Executive shall be required to mitigate
such damages hereunder, including any such damages theretofore
paid, but not in excess of the extent, if any, necessary to
prevent the Employers from losing any tax deductions to which
they would otherwise be entitled in connection with such damages
if they were not so "contingent on" a Section 280G Change
(provided, that, the parties agree that this clause (i) shall not
require the Executive to violate Section 5.2 hereof) and (ii) in
addition to any obligation under the preceding clause (i), and
without duplication of any amounts required to be paid to the
Employers thereunder, if any such termination occurs and the
Executive, whether or not required to mitigate his damages under
clause (i) above, thereafter obtains other employment, the total
compensation received in connection with such other employment,
whether paid to the Executive or deferred for his benefit, for
services prior to the end of the Modified Payment Period (as
defined below) (up to the aggregate amount of damages described
in Section 4.4.1(b)) shall be paid over to the Employers as
received with respect to such period. Notwithstanding the
provisions of this Section 4.4.3, the Employers shall not have
the right to enforce their rights under this Section 4.4.3 by set
off against or by otherwise withholding any amounts receivable by
the Executive (or payable on the Executive's behalf) under this
Agreement upon or following the time at which they are required
to be paid under this Agreement.
4.4.4 In the event that any amounts or other
benefit payable pursuant to Section 4.4 or 4.5 (other than
Section 4.4.6) (including, but not limited to, the Continued
Payments, the receipt of any security upon the exercise of any
Option, or the lapse of any direct or indirect restriction on the
ability to transfer any such security for the fair market value
thereof) would be deemed "contingent on" a Section 280G Change
(within the meaning of Section 280G(b)(2)(A) of the Code) that
occurs subsequent to a Public Offering:
(a) the Continued Salary shall be paid, the
Continued Bonus shall be calculated by reference to and the
Continued Benefits shall be provided for the shorter of (i) 12
months following the date of termination, and (ii) the remainder
of the Term (even if such remaining period is less than twelve
months) (the "Modified Payment Period"), and
(b) the Continued Salary and the Continued
Bonus (as modified in clause (a) of this Section 4.4.4) shall be
paid to the Executive by the Employers, within 60 days of the
date of termination, in a lump sum, which lump sum shall be
discounted to the present value, on the date of payment, of the
Continued Salary (as if paid at the times the Base Salary would
have been paid to the Executive under Section 2.2 if the
Executive had been employed by the Employers during the Modified
Payment Period) and the Continued Bonus (as if paid on the last
day of the Modified Payment Period) at the Discount Rate.
"Discount Rate" shall mean the discount rate described in Section
280G(d)(4) of the Code. The parties hereby elect, to the extent
permitted for purposes of such Section 280G(d)(4), to base the
Discount Rate on the applicable federal rate in effect on the
date hereof.
4.4.5 It is the intention of the parties that,
if there has been a Public Offering and a Section 280G Change
occurs, payments to be made to the Executive in the event of a
Termination Without Cause or a Voluntary Termination for Good
Reason qualify as "reasonable compensation for personal services
to be rendered on or after the date of the change" within the
meaning of Section 280G(b)(4)(A) of the Code and Q&A 42(b) of
Proposed Regulation Section 1.280G-1 thereunder (as amended from
time to time), and the provisions of this Agreement shall, in the
event of any ambiguity, be interpreted in a manner consistent
with the foregoing.
4.4.6 Upon a Termination Without Cause or a
Voluntary Termination with Good Reason that occurs both (i) prior
to a Public Offering, and (ii) following a Change of Control (as
defined below) all unvested Initial Securities shall become
Vested Securities. A "Change of Control" shall, for the purposes
of this Section 4.4.6, be deemed to have occurred upon the date,
if any, at which a person or group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) other than Acadia Partners, L.P., Keystone, Inc., HWP
Partners, L.P. and their respective Affiliates (as defined in
Section 2.1(a) of the Principal Stockholders Agreement) has the
collective ability to directly or indirectly designate a majority
of the members of the SFAC Board (whether by contract or
otherwise).
4.5 Termination by Non-Extension of Term. Upon a
termination of the Term by reason of Section 2.2:
(a) without regard to whether such termination of
the Term occurs by reason of a notice of non-extension or by the
expiration of the Term on December 31, 1999, the Term shall
terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder; provided, that the
Employers shall be obligated to pay to the Executive all unpaid
Base Salary accrued, and provide the Executive with all benefits,
bonuses and expense reimbursement to which the Executive would
otherwise be entitled, through and including the date of
termination of the Term;
(b) if such termination occurs by reason of the
giving by any party of a notice of non-extension, for the 180
days following the date of termination of the Term, the Employers
shall have the right to repurchase all but not less than all of
the Vested Securities, at a price equal to the Full Value thereof
on the date of termination of the Term; and
(c) in addition to the provisions of clauses (a)
and (b) above, if the Employers give notice of non-extension
pursuant to Section 2.2:
(i) unless the notice of non-extension
would be deemed "contingent on" a Section 280G Change
(within the meaning of Section 280G(b)(2)(A) of the
Code) that occurs subsequent to a Public Offering, the
Employers shall, in exchange for a release in form and
substance acceptable to the Employers acting
reasonably, continue payments of Base Salary to the
Executive, at the rate and at such times as are in
effect on the date of the termination of the Term, for
the 180 day period following the date of termination,
and
(ii) for the 180 days following the date
of termination of the Term, the Executive shall have
the right to require the Employers to purchase (subject
to Section 4.6 hereof) all but not less than all of the
Vested Securities, at a price equal to the Full Value
thereof on the date of termination of the Term.
4.6 Certain Provisions Regarding Repurchase
Obligations. The rights of the Executive (or the Beneficiary, as
the case may be) to require the Employers to purchase Initial
Securities from the Executive pursuant to Article 4 hereof ("Put
Rights") shall be limited by this Section 4.6. The Executive (or
the Beneficiary) shall not have the right to require the
Employers to purchase any securities pursuant to Article 4 to the
extent that such purchase (i) would constitute or cause a breach
or violation of or a default (whether immediately or with notice
or lapse of time or both) under any debt agreement of either
Employer or of any of their subsidiaries (whether currently in
existence or entered into subsequent to the date hereof) or (ii)
would violate any law applicable to the Employers. If the
Employers can buy some but not all of the securities that the
Executive (or the Beneficiary) have requested the Employers to
purchase (the "Put Securities"), the Employers shall purchase as
many Put Securities as can be purchased without causing such
breach, default or violation. Thereafter, at the time it becomes
possible for the Employers to repurchase all (but not less than
all) remaining Put Securities without causing such breach,
default or violation, the Employers shall promptly purchase all
such remaining Put Securities. In the event that either the Term
Loan Agreement, dated as of August 16, 1993, among SFC, certain
lenders listed therein and Chemical Bank, as administrative
agent, or the Revolving Credit Agreement dated as of August 16,
1993, among the Revolving Credit Borrowers signatory thereto, the
lenders named therein and Chemical Bank, as administrative agent,
imposes restrictions on the Employers' ability to satisfy the
Executive's Put Rights, the Employers shall, at the time such Put
Rights are required to be satisfied, use all commercially
reasonable efforts to obtain amendments to or waivers from such
agreements that have the effect of removing such restrictions.
5. PROTECTION OF CONFIDENTIAL INFORMATION: NON-
COMPETITION; NO SOLICITATION.
5.1 In view of the fact that the Executive's work for
the Employers will bring the Executive into close contact with
many confidential affairs of the Employers not readily available
to the public, and plans for future developments, the Executive
agrees:
5.1.1 To keep and retain in the strictest
confidence all confidential matters of the Employers, including,
without limitation, to the extent the following are confidential,
trade "know how," secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions
and research projects, and other business affairs of the
Employers, learned by the Executive heretofore or hereafter, and
not to disclose them to anyone outside of the Employers, either
during or after the Executive's employment with the Employers,
except in the course of performing the Executive's duties
hereunder or with the Employers' express written consent; and
5.1.2 To deliver promptly to the Employers on
termination of the Executive's employment by the Employers, or at
any time the Employers may so request, all memoranda, notes,
records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Employers'
business and all property associated therewith, which the
Executive may then possess or have under the Executive's control
unless such information is necessary to enable the Executive to
file any federal or state tax return or make any other report or
filing or take any other action required by any law, regulation
or order of any court or regulatory commission, department or
agency.
Notwithstanding the foregoing, nothing contained
in this Section 5.1 shall restrict the Executive from using,
disclosing or retaining any information (i) which is in the
public domain or could readily be known or determined without
being employed by the Employers or which enters the public domain
through no breach of the Executive's obligations to the
Employers, (ii) which the Executive acquired prior to his
employment by the Employers, (iii) which the Executive properly
acquired or acquires from parties independent of the Employers,
(iv) which the Executive is required to disclose by law,
regulation, order or legal process, (v) which is desirable to
establish the Executive's claim or defense in any litigation
between the parties, provided that the Executive uses his best
efforts to ensure that confidential treatment will be afforded
such information.
5.2 During the term of the Executive's employment by
the Employers and, in the event of the termination of the
Executive's employment for any reason, for the 180-day period
immediately following the date of termination, the Executive
shall not, directly or indirectly, enter the employ of, or render
any services to, any person, firm or corporation engaged in any
business competitive with the business of the Employers or of any
of their subsidiaries; in any state in which any such business is
conducted or in which the Employers have specific plans to
conduct business at the time of such termination, the Executive
shall not engage in such business on the Executive's own account;
and the Executive shall not become interested in any such
business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee,
trustee, consultant, or in any other relationship or capacity;
provided, however, that nothing contained in this Section 5.2
shall be deemed to prohibit the Executive from acquiring, solely
as an investment, up to one percent (1%) of the outstanding
shares of capital stock of any public corporation. The Executive
shall not be deemed to be in breach of this Section 5.2 because
(i) a public corporation of which he owns more than 1% of the
outstanding capital stock begins to engage in any such prohibited
activities or (ii) his ownership interest in a public corporation
engaged in such activities increases to more than 1% of such
corporation's issued and outstanding capital stock in either case
without any volitional act on the part of the Executive, if, in
the case of either clause (i) or (ii) above, within sixty (60)
days of learning of such event, the Executive disposes of the
amount of capital stock necessary to cause his ownership to be
less than 1% of the amount of such capital stock issued and
outstanding.
5.3 When the Executive's employment by the Employers
terminates for any reason whatsoever, then during the period
commencing on the date of such termination and ending on the
second anniversary thereof, the Executive shall not without the
express written consent of SFAC, directly or indirectly, (i)
solicit any employee of the Employers or of any of their
subsidiaries to terminate his employment with the Employers or
with such subsidiary or (ii) hire any such employee.
5.4 If the Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 5.1, 5.2 or
5.3 hereof, the Employers shall have, in addition to any other
remedies they may have, the following rights and remedies:
5.4.1 The right and remedy to have the
provisions of this Agreement specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that
any such breach or threatened breach will cause irreparable
injury to the Employers and that money damages will not provide
an adequate remedy to the Employers; and
5.4.2 The right and remedy to require the
Executive to account for and pay over to the Employers all
compensation, profits, monies, accruals, increments or other
benefits (collectively "Benefits") derived or received by the
Executive as the result of any transactions constituting a breach
of any of the provisions of the preceding paragraph, and the
Executive hereby agrees to account for and pay over such Benefits
to the Employers.
5.4.3 Each of the rights and remedies
enumerated above shall be independent of the other, and shall be
severally enforceable, and all of such rights and remedies shall
be in addition to, and not in lieu of, any other rights and
remedies available to the Employers under law or in equity.
5.5 If any of the covenants contained in Section 5.1,
5.2 or 5.3, or any part thereof, hereafter is construed to be
invalid or unenforceable, the same shall not affect the remainder
of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
5.6 If any of the covenants contained in Section 5.1,
5.2 or 5.3, or any part thereof, is held to be unenforceable
because of the duration of such provision or the area covered
thereby, the parties agree that the court making such
determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision
shall then be enforceable.
5.7 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1,
5.2 and 5.3 upon the courts of any state within the geographical
scope of such covenants where the Executive is engaged in
activities in violation of such covenants or the Employers are
damaged or harmed in any way by the Executive's violation of such
covenants. In the event that the courts of any one or more of
such states shall hold such covenants wholly unenforceable by
reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar
or in any way affect the Employers' right to the relief provided
above in the courts of any other states within the geographical
scope of such covenants as to breaches of such covenants in such
other respective jurisdictions, the above covenants as they
relate to each state being for this purpose severable into
diverse and independent covenants.
6. INVENTIONS AND PATENTS. The Executive agrees that all
processes, technologies and inventions (collectively
"Inventions"), including new contributions, improvements, ideas
and discoveries, whether patentable or not, conceived, developed,
invented or made by him while employed by the Employers shall
belong to the Employers, provided that such Inventions grew out
of the Executive's work with the Employers or any of their
subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Employers or any of
their subsidiaries or affiliates or are conceived or made on the
Employers' time or with the use of the Employers' facilities or
materials. The Executive shall further: (a) promptly disclose
such Inventions to the Employers; (b) assign to the Employers,
without additional compensation, all patent and other rights to
such Inventions for the United States and foreign countries; (c)
sign all papers necessary to carry out the foregoing; and (d)
give testimony in support of the Executive's inventorship.
7. INTELLECTUAL PROPERTY. The Employers shall be the
exclusive owners of all the products and proceeds of the
Executive's services with the Employers, including, but not
limited to, all materials, ideas, concepts, formats, suggestions,
developments, arrangements, packages, programs and other
intellectual properties that the Executive may acquire, obtain,
develop or create in connection with and during the Executive's
employment by the Employers, free and clear of any claims by the
Executive (or anyone claiming under the Executive) of any kind or
character whatsoever (other than the Executive's right to receive
payments hereunder). The Executive shall, at the request of the
Employers, execute such assignments, certificates or other
instruments as the Employers may from time to time deem necessary
or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend their right, title or interest in or to any
such properties.
8. NOTICES. All notices, requests, consents and other
communications required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given if
delivered personally, sent by overnight courier or mailed first-
class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed) or
sent by telecopier, as follows (or to such other address as
either party shall designate by notice in writing to the other in
accordance herewith):
If to the Employers, to:
Specialty Foods Acquisition Corporation
Specialty Foods Corporation
9399 West Higgins Road, Suite 800
Rosemont, Illinois 60018
Telecopier: 847/685-1010
Attention: Chief Executive Officer
If to the Executive, to:
Mr. Robert Fishbune
1162 Autumn Ridge
Ada, Michigan 49301
9. GENERAL.
9.1 This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Illinois
applicable to agreements made and to be performed entirely in
Illinois; provided, that all provisions of this Agreement
governing the issuance and rights in respect of securities of
SFAC, including, without limitation, Initial Securities and
Vested Securities, shall be governed by and construed in
accordance with the laws of the State of Delaware.
9.2 The section headings contained herein are for
reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
9.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, relating to the subject matter
hereof. No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and
neither party shall be bound by or liable for any alleged
representation, promise of inducement not so set forth.
9.4 This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The
Employers may assign their rights, together with their
obligations, hereunder (i) to any subsidiary of or successor-in-
interest to any of them, or (ii) to third parties in connection
with any sale, transfer or other disposition of all or
substantially all of the business or assets of any of them; in
any event the obligations of the Employers hereunder shall be
binding on their successors or permitted assigns, whether by
merger, consolidation or acquisition of all or substantially all
of either of their businesses or assets.
9.5 This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or
covenants hereof may be waived, only by a written instrument
executed by the parties hereto, or in the case of a waiver, by
the party waiving compliance. The failure of a party at any time
or times to require performance of any provision hereof shall in
no manner affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in
this Agreement.
9.6 This Agreement or any amendment hereto may be
signed in any number of counterparts, each of which shall be an
original, but all of which taken together shall constitute one
agreement (or amendment as the case may be).
9.7 This Agreement shall be of no force or effect
until it has been approved by the Boards.
10. CERTAIN DEFINITIONS.
10.1 As used herein the term "subsidiary" shall mean
any corporation or other business entity controlled directly or
indirectly by the corporation or other business entity in
question, and the term "affiliate" shall mean and include any
corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the
corporation or other business entity in question.
10.2 As used herein, the "Fair Market Value" of the
Common Stock shall mean the fair market value of the Common Stock
determined by the SFAC Board in good faith on a going concern
basis without regard to any minority discount (the "Initial
Value"), which determination shall be evidenced by a resolution
of the SFAC Board and the Initial Value shall be the Fair Market
Value of the Common Stock for all purposes; provided, that
following the termination of the Executive's employment by the
Employers, for any reason, pursuant to Article 4 hereof, if the
Executive or the Beneficiary disagrees with the SFAC Board's
determination that the Initial Value is the fair market value of
the Common Stock and delivers written notice of such disagreement
to the Employers within 30 days after the date on which the SFAC
Board's determination of the Initial Value is communicated to the
Executive or the Beneficiary, the Fair Market Value of the Common
Stock shall be determined in a binding arbitration proceeding,
the arbitrator for which shall be a nationally recognized
investment banking firm selected jointly by the Employers and the
Executive (or the Beneficiary, as the case may be); provided,
that if the Employers and the Executive (or the Beneficiary, as
the case may be) cannot agree on an arbitrator, an arbitrator
shall be selected in accordance with the rules of the American
Arbitration Association. Notwithstanding the foregoing, (i) if
the Fair Market Value, as determined by the Arbitrator (the
"Arbitration Value"), does not deviate from the Initial Value by
an amount equal to more than 10% of the Initial Value then the
Fair Market Value shall equal the Initial Value for all purposes,
and (ii) if the Arbitration Value deviates from the Initial Value
by an amount equal to more than 10% of the Initial Value (whether
such deviation is higher or lower than the Initial Value) then
the Fair Market Value shall equal the Arbitration Value for all
purposes. If, following an arbitration proceeding, the
Arbitration Value exceeds an amount equal to the sum of (x) the
Initial Value plus (y) an amount equal to 10% of the Initial
Value, the Employers shall pay all costs associated with the
arbitration; in all other cases, the Executive (or the
Beneficiary, as the case may be) shall pay all of such costs.
10.3 Survival. The provisions of Sections 5, 6 and 7
shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of May 31, 1996.
SPECIALTY FOODS ACQUISITION
CORPORATION
By: /s/ John R. Reisenberg
Name: John R. Reisenberg
Title: Vice President
SPECIALTY FOODS CORPORATION
By: /s/ John E. Kelly
Name: John E. Kelly
Title: Vice President
/s/ Robert L. Fishbune
ROBERT L. FISHBUNE
