<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the Quarterly Period Ended: September 26, 1999 Commission File Number: 1-13868
- -------------------------------------------------------------------------------------
CROWN VANTAGE INC.
- -------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1752384
- -------------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Lakeside Drive, Oakland, CA 94612-3592
- -------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(510) 874-3400
- -------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No________
---------
Number of shares of no par value common stock outstanding as of the close of
business on November 5, 1999:
10,576,000 Shares
----------------------------------
<PAGE>
INDEX
CROWN VANTAGE INC.
PART I: Financial Information
Item 1. Financial Statements
. Condensed Consolidated Balance Sheets -
September 26, 1999 and December 27, 1998.
. Condensed Consolidated Statements of Operations - Nine
months and third quarter ended September 26, 1999 and
September 27, 1998.
. Condensed Consolidated Statements of Cash Flows - Nine
months ended September 26, 1999 and September 27, 1998.
. Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I -- FINANCIAL INFORMATION
- ------
ITEM 1 -- FINANCIAL STATEMENTS
- ------
CROWN VANTAGE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
ASSETS September 26, 1999 December 27, 1998
------------------ -----------------
(Unaudited)
-----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,629 $ 9,806
Accounts receivable, net 41,085 41,022
Inventories 69,429 102,397
Prepaid expenses and other current assets 3,703 3,481
Deferred income taxes 9,093 15,067
--------- ---------
Total current assets 127,939 171,773
Property, plant and equipment, net 358,749 434,075
Other assets 41,815 43,839
Unamortized debt issue costs 10,134 11,808
Intangibles, net 27,056 27,852
--------- ---------
Total Assets $ 565,693 $ 689,347
========= =========
LIABILITIES AND DEFICIT
Current Liabilities:
Accounts payable $ 38,785 $ 40,916
Accrued liabilities 49,182 75,268
Current portion of long-term debt 836 1,000
--------- ---------
Total current liabilities 88,803 117,184
Long-term debt 583,188 555,241
Accrued postretirement benefits other than pensions 80,931 100,736
Other long-term liabilities 12,162 37,880
Deferred income taxes 10,390 16,406
--------- ---------
Total Liabilities 775,474 827,447
--------- ---------
Shareholders' Equity (Deficit):
Preferred Stock, no par value;
Authorized - 500,000 shares;
Issued and outstanding - None
Common Stock, no par value;
Authorized - 50,000,000 shares;
Issued and outstanding 10,576,378 and
9,876,842 shares at September 26, 1999
and December 27, 1998, respectively 48,589 47,887
Unearned ESOP shares and other (624) (974)
Other comprehensive Income (Loss):
Minimum Pension Liability (2,231) (2,231)
Cumulative foreign currency translation adjustment 1,355 1,562
Retained deficit (256,870) (184,344)
--------- ---------
(209,781) (138,100)
--------- ---------
Total Liabilities and Deficit $ 565,693 $ 689,347
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CROWN VANTAGE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months (39 weeks) and Third Quarter (13 weeks)
Ended September 26, 1999 and September 27, 1998
(in thousands of dollars, except per share)
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------------ -----------------------
1999 1998 1999 1998
--------- --------- -------- ---------
(Unaudited) (Unaudited )
<S> <C> <C> <C> <C>
Net sales $ 166,329 $ 211,768 $ 572,376 $ 648,987
Cost of goods sold 161,902 190,089 546,833 606,327
--------- --------- -------- ---------
Gross margin 4,427 21,679 25,543 42,660
Selling and administrative expenses (12,128) (15,784) (42,793) (45,573)
Property tax accrual reversal 8,957
Adjustment of assets held for sale
to net realizable value (16,175)
Other operating income, net 411 411
--------- --------- -------- ---------
Operating Income (Loss) (7,290) 5,895 (24,057) (2,913)
Interest expense (16,080) (16,619) (47,598) (49,095)
Other income, net 179 (33) 473 457
--------- --------- -------- ---------
Loss before income taxes (23,191) (10,757) (71,182) (51,551)
Provision (benefit) for income taxes 281 (3,765) 1,344 (18,044)
--------- --------- -------- ---------
NET LOSS $ (23,472) $ (6,992) $ (72,526) $ (33,507)
========= ========= ======== =========
Basic loss per share $ (2.24) $ (.73) $ (6.95) $ (3.58)
========= ========= ======== =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CROWN VANTAGE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months (39 weeks)
Ended September 26, 1999 and September 27, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months
---------------------------------
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash Provided by (Used for) Operating Activities:
Net loss (72,526) (33,507)
Items not affecting cash:
Depreciation and cost of timber harvested 46,004 62,902
Amortization of goodwill and other intangibles 844 844
Interest on Pay-in-Kind Notes and other non-cash interest 11,880 13,858
Other, net 1,050 4,664
Property tax accrual reversal (8,957)
Adjustment of assets held for sale to net realizable value 16,175
Changes in current assets and liabilities:
Accounts receivable (63) 421
Inventories 6,207 (1,882)
Other current assets (222) 4,271
Accounts payable (2,131) (11,146)
Other current liabilities (12,929) (6,003)
Deferred income taxes 167 (21,404)
Settlement of co-generation lease (16,251)
Other, net (7,542) (6,219)
----------- -----------
Cash Provided by (Used for) Operating Activities (38,294) 6,799
----------- -----------
Cash Provided by (Used for) Investing Activities:
Expenditures for property, plant and equipment (24,253) (34,218)
Proceeds from sale of property, plant and equipment
and other, net 43,120 106
----------- -----------
Cash Provided by (Used for) Investing Activities 18,867 (34,112)
----------- -----------
Cash Provided by (Used for) Financing Activities:
Proceeds from draw down of Revolving Credit 120,000 101,000
Repayments of Revolving Credit (90,000) (76,000)
Repayments of Term Loan (15,750) (750)
----------- -----------
Cash Provided by Financing Activities 14,250 24,250
----------- -----------
Decrease in cash and cash equivalents (5,177) (3,063)
Cash and cash equivalents at beginning of year 9,806 11,415
----------- -----------
Cash and cash equivalents at end of period $ 4,629 $ 8,352
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CROWN VANTAGE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
- ------
The accompanying unaudited condensed consolidated financial statements
include the consolidated operations, assets and liabilities of Crown Vantage
Inc. (the "Company" or the "Parent"), Crown Paper Co., and Crown Paper Co.'s
consolidated subsidiaries.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. The condensed consolidated balance sheet as of December
27, 1998 was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and nine months ended September
26, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 26, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in Crown
Vantage Inc.'s Annual Report to Shareholders and Form 10-K for the year ended
December 27, 1998.
NOTE 2 -- BASIC LOSS PER SHARE
- ------
The computations of basic loss per share are based on the weighted average
number of shares of common stock outstanding during the periods. The weighted
average number of shares outstanding for the periods presented are 10,497,000
and 9,560,000 for the quarters ended September 26, 1999 and September 27, 1998,
respectively, and 10,440,000 and 9,363,000 for the nine months ended September
26, 1999 and September 27, 1998, respectively.
NOTE 3 -- INCOME TAX
- ------
The income tax benefits for the quarter and nine months ended September 27,
1998 were provided based on the Company's estimated annual tax rate of 35.0%.
The tax provisions for the quarter and nine months ended September 26, 1999 are
for certain non-income based state taxes and foreign income taxes. During 1999
the Company has recorded a $ 26.7 million valuation allowance against the
deferred tax assets (of which approximately $ 9.2 million was recorded during
the third quarter of 1999) reducing the tax benefit of the 1999 net operating
loss to $0.
6
<PAGE>
NOTE 4 -- LONG TERM DEBT
- ------
Consolidated long-term debt consists of the following:
<TABLE>
<CAPTION>
September 26 December 27
1999 1998
------------ -----------
(in thousands of dollars)
<S> <C> <C>
CROWN PAPER CO.
Credit Facility:
Revolving credit, due 2002 $ 105,000 $ 75,000
Term Loan B, due 2003 80,425 96,175
--------- ---------
185,425 171,175
11% Senior Subordinated Notes, due 2005 250,000 250,000
Industrial Revenue Bonds, payable to 2026 39,095 39,074
--------- ---------
474,520 460,249
CROWN VANTAGE INC.
11.45% Senior Pay-in-Kind Notes, due 2007
less unamortized discount 109,504 95,992
--------- ---------
584,024 556,241
Less current portion 836 1,000
--------- ---------
$ 583,188 $ 555,241
========= =========
</TABLE>
Maturities of long-term debt, excluding the revolving credit, for the next
five fiscal year-ends are: 1999 - $.2 million remaining; 2000 - $1.0 million;
2001 - $.6 million; 2002 - $39.3 million and 2003 - $39.3 million.
NOTE 5 -- INVENTORIES
- ------
<TABLE>
<CAPTION>
September 26, 1999 December 27, 1998
------------------ -----------------
(in thousands of dollars)
<S> <C> <C>
Raw materials $ 19,185 $ 24,716
Work in process 5,413 6,757
Finished goods 32,153 46,469
Stores and supplies 21,428 34,142
---------- ----------
78,179 112,084
Reduction to state inventories at last-in, first-out cost (8,750) (9,687)
---------- ----------
$ 69,429 $ 102,397
========== ==========
</TABLE>
7
<PAGE>
NOTE 6 -- LITIGATION AND ENVIRONMENTAL MATTERS
- ------
The Company is a party to various legal proceedings generally incidental to
its business and is subject to a variety of environmental protection statutes
and regulations. As is the case with other companies in similar industries, the
Company faces exposure from actual or potential claims and legal proceedings
involving environmental matters. Although the ultimate disposition of legal
proceedings cannot be predicted with certainty, it is the present opinion of the
Company's management that the outcome of any claim that is pending or
threatened, either individually or on a combined basis, will not have a
materially adverse effect on the consolidated financial position of the Company
but could materially affect consolidated results of operations in a given year.
The Company has accrued $10.1 million at September 26, 1999 and $12.2
million at December 27, 1998 primarily for estimated landfill site restoration,
post-closure and monitoring costs. The 1998 liability included $2.4 million of
estimated liabilities that were included with the sale of Berlin-Gorham (see
Note 10). In addition, the Company has been identified as a potentially
responsible party ("PRP"), along with others, under the Comprehensive
Environmental Response, Compensation and Liability Act or similar federal and
state laws regarding the past disposal of wastes at 19 sites in the United
States. The Company has previously settled its remediation obligations at 12 of
those sites. At 6 other sites, the Company is one of many potentially
responsible parties and its alleged contribution to the site and remediation
obligation is not considered significant. At one other site, remedial
investigation is underway and a loss estimate for the potential remediation
effort costs is not yet possible. However, the Company's accrual for the
remediation investigation effort was $.3 million at September 26, 1999 and $.4
million at December 27, 1998. The liabilities can change substantially due to
such factors as the solvency of other potentially responsible parties, the
Company's share of responsibility, additional information on the nature or
extent of contamination, methods and associated costs of remediation required,
and other actions by governmental agencies or private parties. While it is not
feasible to predict the outcome of all environmental liabilities, based on its
most recent review, management estimates the Company's share of the costs of
investigation and remediation of the known sites will not have a material
adverse effect upon the consolidated financial condition of the Company.
Due to uncertainties associated with remediation activities, regulations,
technologies, and the allocation of costs among various other parties, actual
costs to be incurred at identified sites may vary from estimates. Therefore,
management is unable to determine if the ultimate disposition of all known
environmental liabilities will have a material adverse effect on the Company's
consolidated results of operations in a given year. As with most manufacturing
and many other entities, there can be no assurance that the Company will not be
named as a PRP or incur liabilities through other means at additional sites in
the future or that the costs associated with such additional sites would not be
material.
The Environmental Protection Agency signed final rules affecting pulp and
paper industry discharges of wastewater and gaseous emissions ("Cluster Rules")
which became effective on April 15, 1998. These Cluster Rules require changes in
the pulping, bleaching and/or wastewater treatment processes presently used in
some U.S. pulp and paper mills, including one of the Company's mills. Based on
management's understanding of the rules, the Company estimates that
approximately $16 million of additional capital expenditures may be required at
the St. Francisville facility to comply with the rules with compliance dates
beginning in 1999 and extending over the next two to five years. The Company has
incurred capital spending of $2.8 million during 1999 and $6.4 million since
inception to date to comply with the Cluster Rules at the St. Francisville
facility. There are risks and uncertainties associated with the Company's
estimate that could cause total capital expenditures and timing of such
expenditures to be materially different from current estimates, including
changes in technology, interpretation of the rules by government agencies that
is substantially different from the Company's interpretation, or other items.
8
<PAGE>
NOTE 7 - ASSET IMPAIRMENT ANALYSIS
- ------
The Company assesses the recoverability of its investments in long-lived
assets to be held and used in operations whenever events or circumstances
indicate that their carrying amounts may be impaired. Such assessment requires
that the future cash flows expected to result from use of the assets are
estimated and an impairment loss recognized when future cash flows are less than
the carrying value of such assets. Estimating future cash flows requires the
Company to estimate useful lives of its long-lived assets, future production
volumes and costs, future sales volumes, demand for the Company's product mix
and prices that reflect the use of its long-lived assets and market conditions.
Although the Company believes it has a reasonable basis for its estimates, it is
reasonably possible that the Company's estimate of future cash flows could
change from current estimates, which could result in recognizing, in future
periods, impairment losses on its long-lived assets.
NOTE 8 -- COMPREHENSIVE INCOME
- ------
Comprehensive income for the Company consists of net income, foreign
currency translation adjustments and minimum pension liability adjustments.
During the third quarter of 1999 and 1998, the Company's total comprehensive
loss was $22.1 million and $5.8 million, respectively, and for the nine months
ended September 26, 1999 and September 27, 1998 the Company's total
comprehensive loss was $72.7 million and $32.4 million, respectively.
NOTE 9 -- SETTLEMENT OF BERLIN PROPERTY TAX CASE
- ------
On February 1, 1999, the Company finalized an agreement with the City of
Berlin, N.H., concerning assessed values and taxability of factory machinery.
The Company reversed a property tax accrual, which was accrued at the higher
assessed values, of approximately $9 million in the first quarter of 1999, which
relates to amounts over accrued for previous tax years.
NOTE 10 -- BERLIN-GORHAM SALE
- -------
On July 9, 1999, Crown Vantage completed the sale of the Berlin-Gorham pulp
and paper mills ("Berlin-Gorham") to American Tissue Company ("ATC"). The sale
resulted in a charge of $16.2 million, which was recorded in the first quarter
of 1999 and consisted of the following elements:
<TABLE>
<S> <C>
(amounts in millions)
Fixed asset write-down $ 16.5
Transaction costs 2.5
Loss on curtailment of pension plans 3.4
Gain on curtailment/settlement of other benefit plans (6.2)
-------
Total Charge $ 16.2
=======
</TABLE>
Net proceeds from the sale of Berlin-Gorham were approximately $42.5
million of which $15 million was used to pay down Term Loan B, with the
remainder used to pay down the revolving credit facility. In connection with the
sale, the Company retained accounts payable and certain other short term
operating liabilities of approximately $15 million at July 9, 1999.
9
<PAGE>
NOTE 11-- SETTLEMENT OF CO-GENERATION LEASE
- -------
In the fourth quarter of 1998, management determined that the leased gas
turbine co-generation facility at the St. Francisville, La mill no longer
provided substantive use or benefit. Accordingly, a $16.9 million charge was
recognized in the fourth quarter of 1998 that represented discounted net future
lease payments.
On July 18, 1999 an explosion occurred at the St. Francisville mill with
damage limited primarily to the leased co-generation facility. As allowed under
the lease terms, the Company terminated the lease in exchange for a $16.3
million termination payment in the third quarter of 1999. The termination
payment, which approximated the net present value of future lease payments, was
charged against the reserve established in the fourth quarter of 1998. As a
result of the lease termination, the Company took title to the leased facility
and was released from a $24.7 million letter of credit. A $3.5 million gain
(included in "Other operating income, net") was recorded during the third
quarter of 1999 primarily from a partial payout of insurance proceeds as a
result of the explosion. The insurance proceeds were collected during October of
1999.
NOTE 12-- EXPENSE REDUCTION EFFORTS
- -------
During the third quarter of 1999, the Company announced the intended move
of its Oakland, Ca headquarters to Cincinnati, Ohio. A reserve for severance and
relocation costs (included in "Other operating income, net") was recorded during
the third quarter of 1999 totaling $3.1 million. On October 28, 1999 the Company
announced that, in addition to the relocation of the Oakland headquarters,
additional efforts to reduce general and administrative costs are underway
which are likely to result in further headcount reduction. Accruals for
severance and other costs associated with a headcount reduction will be recorded
once the plans are finalized and approved by management.
NOTE 13-- DEBT COVENANTS
- -------
In connection with the Credit Facility, Crown Paper Co. is required to
comply with certain financial covenants that include minimum quarterly cash flow
to debt and interest coverage ratios as well as minimum tangible net worth.
Crown Paper Co. was in compliance with the covenants contained in the Credit
Facility at the end of the 3rd quarter 1999. In November 1999, the Company
closed its books for the month of October 1999 and determined that Crown Paper
Co. no longer complied with the tangible net worth requirements. In addition,
the Company anticipates that Crown Paper Co. will not comply with the 4th
quarter 1999 and fiscal year end 2000 cash flow to debt ratio and interest
coverage ratio covenants contained in the Credit Facility.
Crown Paper Co. is currently seeking a waiver of the tangible net worth
violation from its senior secured lenders and expects to seek amendments to the
4th quarter cash flow to debt and interest coverage ratios during the 4th
quarter 1999. The Company also expects to address the 2000 covenants at its
annual senior secured lenders meeting in the 1st quarter of 2000.
Crown Paper Co. has amended its financial debt covenants each year for the
last three years as extended weakness in the paper markets prevented the Company
from achieving the original financial covenants established at the peak of the
paper market cycle in 1995. While Crown Paper Co. has successfully amended its
covenants in the past, there is no assurance that it will be successful in
obtaining a waiver of the tangible net worth violation. In addition, there is no
assurance that Crown Paper Co.'s senior secured lenders would be willing to
amend 4th quarter 1999 or fiscal year end 2000 covenants.
The violation of the tangible net worth requirement has resulted, and, if
there were to be a violation of the cash flow to debt and interest coverage
ratios, would result, in an event of default under the Credit Facility. Lenders
that are party to the Credit Facility have the right, as a result of the event
of default, to exercise certain remedies including accelerating the indebtedness
thereunder or denying requests for further advances under the revolving credit
facility. Should the lenders exercise their remedies by limiting advances, the
Company's principal source of liquidity would not be available, and in the event
that the lenders accelerated indebtedness under the Credit Facility, such action
may cause a cross acceleration under the Company's public debt and other debt
arrangements. If the Company is unsuccessful in obtaining a waiver, and the
senior secured lenders chose to take the actions described above, the Company's
financial condition would be materially adversely affected and the Company would
be required to restructure substantially all of its outstanding indebtedness.
There is no assurance that the Company would be successful in doing so.
10
<PAGE>
NOTE 14-- SEGMENT INFORMATION
- -------
The Company is organized around two segments based primarily on
similarities in products, the manufacturing process and customers. Berlin-Gorham
was previously presented as part of Printing and Publishing Papers. It is now
shown separately for purposes of presentation only.
<TABLE>
<CAPTION>
Nine Months Third Quarter
- -----------------------------------------------------------------------------------------------------------
(amounts in thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating income (loss):
Printing & Publishing Papers $ 3,396 $ 18,576 $ (309) $ 8,297
Specialty Papers (14,584) 2,773 (6,701) 492
Berlin-Gorham (12,869) (24,262) (280) (2,894)
- -----------------------------------------------------------------------------------------------------------
Total (24,057) $ (2,913) $ (7,290) $ 5,895
- -----------------------------------------------------------------------------------------------------------
EBITDA:
Printing & Publishing Papers $ 33,239 $ 46,697 $ 9,498 $ 15,862
Specialty Papers 1,514 20,970 (1,343) 8,279
Berlin-Gorham (4,272) (6,377) (280) 2,876
- -----------------------------------------------------------------------------------------------------------
Total $ 30,481 $ 61,290 $ 7,875 $ 27,017
- -----------------------------------------------------------------------------------------------------------
Net sales:
Printing & Publishing Papers $ 243,031 $ 266,450 $ 81,920 $ 87,337
Specialty Papers 244,742 261,502 80,531 84,869
Berlin-Gorham 84,603 121,035 3,878 39,562
- -----------------------------------------------------------------------------------------------------------
Total $ 572,376 $ 648,987 $ 166,329 $ 211,768
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Operating results for the first nine months of 1999 for Berlin-Gorham
include a $16.2 million charge for the adjustment of Berlin-Gorham to its net
realizable value (Note 10) and a $9.0 million property tax accrual reversal
(Note 9). EBITDA represents income before income taxes, interest expense and
depreciation and amortization. EBITDA for the first nine months of 1999 for
Berlin-Gorham excludes the effect of the $16.2 million charge and $9 million
property tax accrual reversal. Total assets for Printing and Publishing Papers
decreased by approximately $116.7 million during the first nine months of 1999
compared to December 27, 1998. The decrease in total assets of Printing and
Publishing Papers is primarily due to the sale of Berlin-Gorham, the $16.2
million charge discussed above, and depreciation expense exceeding capital
spending. Specialty Papers' total assets decreased by approximately $5.8 million
during the first nine months of 1999 primarily due to depreciation expense
exceeding capital spending.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- ------
FINANCIAL CONDITION
Crown Vantage Inc. and subsidiaries (the "Company" or "Crown Vantage") is a
major producer and marketer of value-added paper products for a diverse array of
end-uses. The Company operates in two segments: printing and publishing papers
and specialty papers. Printing and publishing papers are primarily for
applications such as special interest magazines, catalogs, books, custom
business forms, corporate communications and promotions (e.g. annual reports and
stationery) and other graphics applications. Specialty papers are principally
for food and retail packaging applications and conversion into such items as
coffee filters, labels, cups and plates.
The Company operates 9 facilities using 26 paper machines, and its paper
production was approximately 50% integrated with the Company's pulp operations.
The Company's largest facility is an integrated operation located in St.
Francisville, La. St. Francisville produces coated groundwood papers for
magazines and catalogs and uncoated specialty converting papers. The Company
also produces uncoated printing and publishing papers, primarily text, cover and
writing papers, at its non-integrated facilities in Adams, Mass.; Ypsilanti,
Mich., and Dalmore and Guardbridge, Scotland. In addition to its primary paper-
making operations, the Company operates a cast-coating facility in Richmond,
Va., that produces coated paper and board for graphics and packaging uses. The
Company's specialty papers are produced primarily at non-integrated specialty
packaging papers facilities in Port Huron and Parchment, Mich., and Milford,
N.J. and on the two uncoated specialty converting machines at St. Francisville.
On July 9, 1999, the Company completed the sale of its Berlin-Gorham pulp and
paper mills ("Berlin-Gorham") to American Tissue Holdings Inc. ("ATC") for $45
million. Net proceeds from the sale of Berlin-Gorham were used to fund certain
retained liabilities and pay down debt. Berlin-Gorham primarily produced
uncoated printing and publishing papers as well as market pulp.
Results Of Operations
- ---------------------
The Company's net sales for each business segment are as follows:
<TABLE>
<CAPTION>
Net Sales and Tonnage by Segment
for the Three Months Ended
September 26, 1999 September 27, 1998
-------------------------------------- -------------------------------------
Tons Sales Tons Sales
----------------- ---------------- ---------------- ----------------
(thousands) (thousands)
<S> <C> <C> <C> <C>
Printing and Publishing Papers
Coated groundwood 72,189 $ 49,925 74,042 $ 60,306
Uncoated and other 21,937 31,995 16,283 27,031
Specialty Papers 83,388 80,531 81,761 84,869
----------------- ---------------- ---------------- ----------------
Total excluding Berlin-Gorham 177,514 162,451 172,086 172,206
Berlin-Gorham 8,245 3,878 69,812 39,562
----------------- ---------------- ---------------- ----------------
185,759 $166,329 241,898 $211,768
================= ================ ================ ================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Net Sales and Tonnage by Segment
for the Nine Months Ended
September 26, 1999 September 27, 1998
-------------------------------------- -------------------------------------
Tons Sales Tons Sales
---------------- ----------------- --------------- -----------------
(thousands) (thousands)
<S> <C> <C> <C> <C>
Printing and Publishing Papers
Coated groundwood 216,582 $152,383 217,082 $177,841
Uncoated and other 59,724 90,648 52,828 88,609
Specialty Papers 251,706 244,742 246,693 261,502
---------------- ----------------- --------------- -----------------
Total excluding Berlin-Gorham 528,012 487,773 516,603 527,952
Berlin-Gorham 156,542 84,603 204,828 121,035
---------------- ----------------- --------------- -----------------
684,554 $572,376 721,431 $648,987
================ ================= =============== =================
</TABLE>
Net Sales
Net sales, excluding Berlin-Gorham, declined 7.6% in the first nine months
of 1999 compared to the first nine months of 1998. The decline in net sales is
primarily due to a 9.6% decline in average net selling price per ton during the
first nine months of 1999 compared to the first nine months of 1998. This was
partially offset by an increase in tons sold of approximately 2.2% during the
periods compared. Net sales, excluding Berlin-Gorham, for the third quarter of
1999 declined 5.7% when compared to the third quarter of 1998. The decline in
net sales is primarily due to an 8.5% decrease in average net selling price per
ton that was partially offset by a 3.2% increase in tons sold.
Net sales of coated groundwood paper (which is used principally in the
production of magazines and catalogs) for the nine-month period ended September
26, 1999 decreased 14.3% compared to the same period in 1998. Sales volume was
virtually the same for the first nine months of 1999 compared to the same period
in 1998, while average net sales price per ton decreased 14.1% from the first
nine months of 1998 to the first nine months of 1999. Third quarter 1999 net
sales declined 17.2% as compared to the third quarter of 1998, primarily due to
a 15.1% decrease in average net sales price per ton and a 2.5% decrease in tons
sold. The decrease in tons sold for the quarter is primarily due to minor
mechanical failures that reduced coated groundwood production and thereby
availability of tons for sale.
Net sales of uncoated and other papers within printing and publishing
papers in the first nine months of 1999 increased 2.3% to $90.6 million from the
first nine months of 1998. The increase in net sales from the first nine months
1998 to the first nine months 1999 is primarily due to an increase in tons sold
of 6,896 or 13.1% that was partially offset by a decline in average net sales
price per ton of 9.5%. The increase in tons sold and net sales is primarily due
to the inclusion of approximately 4,100 tons sold (approximately $4.6 million in
sales) under a Strategic Alliance Agreement with ATC. Under the Strategic
Alliance Agreement the Company markets certain grades of text and cover papers
manufactured at Berlin-Gorham for an agreed upon fee. Net sales during the third
quarter of 1999 increased by $5.0 million or 18.4% primarily due to the
inclusion of the tons sold under the Strategic Alliance Agreement discussed
above.
Specialty Papers' net sales decreased $16.8 million during the nine months
ended September 26, 1999 as compared to the same period in 1998. The 6.4%
decrease in net sales is primarily the result of an 8.3% decrease in average net
sales price per ton during the nine months ended September 26, 1999 compared to
the nine months ended September 27, 1998, which was partially offset by a 2.0%
increase in tons sold. Net sales of specialty papers declined 5.1% during the
third quarter of 1999 compared to the third quarter of 1998, primarily due to a
7.0% decrease in average net sales price per ton that was partially offset by a
2.0% increase in tons sold.
13
<PAGE>
Operating Income
Operating Income (Loss) for each business segment is as follows:
<TABLE>
<CAPTION>
Operating Results by Segment Operating Results by Segment
for the Quarter Ended for the Nine Months Ended
---------------------------------- -----------------------------------
Sept. 26, 1999 Sept. 27, 1998 Sept. 26, 1999 Sept. 27, 1998
-------------- -------------- -------------- --------------
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
Printing and Publishing Papers $ (309) $ 8,297 $ 3,396 $ 18,576
Specialty Papers (6,701) 492 (14,584) 2,773
Total excluding Berlin-Gorham (7,010) 8,789 (11,188) 21,349
Berlin-Gorham (280) (2,894) (12,869) (24,262)
-------- --------- --------- ---------
$ (7,290) $ 5,895 $ (24,057) $ (2,913)
======== ========= ========= =========
</TABLE>
Operating results for the first nine months of 1999 decreased primarily due
to a charge of $16.2 million that adjusts Berlin-Gorham's net book value to its
estimated net realizable value. This charge was partially offset by a $9 million
reversal of a property tax accrual that resulted from the settlement of an
ongoing dispute with the City of Berlin. Operating results also decreased due to
the decline in average net sales price per ton discussed above that was
partially offset by reduced costs per ton for the nine months ended September
26, 1999 as compared to the nine months ended September 27, 1998. The reduction
in costs for this period is primarily due to lower pulp costs and improved
operating efficiencies. Operating results for the third quarter of 1999 as
compared to the third quarter of 1998 decreased by approximately $13.2 million
primarily due to unfavorable price variances and partially due to increases in
pulp and wood fiber costs. The higher pulp costs are attributed to both price
increases in pulp during the third quarter of 1999 and increased usage of this
higher priced pulp at the Company's integrated mill due to a temporary minor
mechanical failure at its kraft pulp mill. Also impacting costs were higher
personnel and maintenance costs associated with this mechanical failure, and
one-time pension expense associated with two closed facilities. During the third
quarter of 1999 a gain of $3.5 million was recorded primarily for insurance
proceeds from the explosion of St. Francisville's leased co-generation facility
(see "Settlement of Co-Generation Lease"). This was partially offset by an
accrual of $3.1 million for severance and relocation expenses associated with
moving the Company's headquarters from Oakland California, to Cincinnati Ohio
(see "Expense Reduction Effort").
Operating results for Printing and Publishing Papers decreased by $15.2
million during the first nine months of 1999 compared to the same period in
1998. The decrease in operating results was primarily due to the decline in
average net sales price per ton discussed above. This was partially offset by
favorable cost and volume variances of $16.3 million. Lower costs were primarily
due to successful headcount reduction efforts initiated in1998, lower wood and
pulp costs and improved operating efficiencies. Operating results decreased by
approximately $8.6 million during the third quarter of 1999 compared to the
third quarter of 1998. The decrease is primarily due to the decline in average
net sales price per ton discussed above and increases in pulp costs. Third
quarter of 1999 operating results include $1.1 million in income from
miscellaneous asset sales and certain cost reimbursements.
Specialty Papers operating results decreased $17.4 million to an operating
loss of $14.6 million for the first nine months of 1999 compared to operating
income of $2.8 million for the first nine months of 1998. The decline in
operating results is primarily attributable to an 8.3% decline in average net
sales price per ton discussed above that was partially offset by a favorable
cost variance. Operating results for the third quarter of 1999 declined by $7.2
million compared to the third quarter of 1998. The decline in third quarter of
1999 results is primarily due to a 7.0% decrease in average net sales price per
ton and unfavorable cost variances that was partially offset by the increase in
tons sold.
Berlin-Gorham operating results improved by $11.4 million during the nine
months ended September 26, 1999 as compared to the nine months ended September
27, 1999. Operating results improved primarily due to Berlin-Gorham being
included in operating results for 6 months and 11 days in 1999 versus nine
14
<PAGE>
months in 1998, a $16.2 million decrease in depreciation expense in 1999
compared to 1998 due to the asset impairment charge recorded in the fourth
quarter of 1998 and a $9 million reversal of a property tax accrual (discussed
above). The items discussed above were partially offset by an 8.5% decrease in
average net selling price per ton in 1999 compared to 1998 and the $16.2 million
adjustment of Berlin-Gorham's net book value to its estimated net realizable
value recorded in the first quarter of 1999. Operating results for the third
quarter of 1999 improved by $2.6 million as compared to the third quarter of
1998. The improved operating results are primarily due to Berlin-Gorham only
operating for 11 days during the quarter.
Selling and administrative expenses decreased $2.8 million for the first
nine months of 1999 compared to the same period in 1998. The decrease is
primarily due to commission income and expense reimbursement under various
agreements with ATC. Selling and administrative expenses decreased by $3.7
million during the third quarter of 1999 compared to the third quarter of 1998
primarily for the reason stated above.
Interest Expense
- ----------------
Interest expense for the nine-month period of 1999 decreased $1.5 million
compared to the same period in 1998. Interest expense for the third quarter of
1999 decreased $.5 million when compared to the same period in 1998. The
decrease in interest expense for the periods presented is primarily due to the
settlement with Fort James Corporation of certain disputes that resulted in the
return of $33 million in Senior Pay-in-Kind Notes in the fourth quarter of 1998.
Liquidity and Sources of Capital
- --------------------------------
In connection with a spin-off in August of 1995, the Company obtained $250
million in financing through a public offering of Senior Subordinated Notes and
$253 million initial borrowings under a $350 million credit facility
(collectively, the "Financing"). The net proceeds from the Financing were paid
to James River Corporation of Virginia, now known as Fort James Corporation
("Fort James"), together with $100 million Senior Pay-in-Kind Notes as a return
of James River's capital investment.
Under the credit facility, the revolving credit available is in the
aggregate amount of $150 million with a $75 million sublimit for letters of
credit (of which $7.9 million has been used at September 26, 1999) and can be
used for general corporate purposes, working capital needs and permitted
investments. At September 26, 1999, $105.0 million of the revolving credit was
outstanding and $37.1 million of the aggregate line was available if needed.
Cash flows used by operating activities were $38.3 million for the nine
months ended September 26, 1999 compared to cash flows provided by operations of
$6.8 million for the nine months ended September 27, 1998. The decline in
operating cash flows is primarily due to the average net sales price per ton
decrease discussed in Net Sales and the $16.3 million lease termination payment.
Earnings before interest, taxes, depreciation and amortization (EBITDA), the
Berlin-Gorham charge and property tax accrual reversal were $30.5 million for
the first nine months of 1999 as compared to $61.3 million for the comparable
period in 1998.
The Company's business is capital intensive. Pulp and paper mills generally
consist of an extensive network of buildings, machinery, and equipment, which
require continual upgrades, replacement, modernization and improvement. The
Company's capital expenditures for the nine months ended September 26, 1999 were
$24.3 million compared to $34.2 million in the same period in 1998. 1999 and
1998 expenditures primarily represented capital maintenance projects that are
substantially focused on projects with the quickest returns on investment. The
Company's capital spending plan is approximately $32 million for 1999. These
capital expenditures are primarily for capital maintenance projects and are
expected to be financed by cash flows from operations and available financing
sources.
15
<PAGE>
Settlement of Berlin Property Tax Case
- --------------------------------------
On February 1, 1999, the Company finalized an agreement with the City of
Berlin, N.H., concerning assessed values and taxability of factory machinery.
The Company reversed a property tax accrual, which was accrued at higher
assessed values, of approximately $9 million in the first quarter of 1999, which
relates to amounts over-accrued for previous tax years.
Berlin-Gorham Sale
- ------------------
On July 9, 1999, Crown Vantage completed the sale of the Berlin-Gorham pulp
and paper mills ("Berlin-Gorham") to American Tissue Company ("ATC"). The sale
resulted in a charge of $16.2 million, which was recorded in the first quarter
of 1999 and consisted of the following elements:
<TABLE>
<S> <C>
(amounts in millions)
Fixed asset write-down $ 16.5
Transaction costs 2.5
Loss on curtailment of pension plans 3.4
Gain on curtailment/settlement of other benefit plans (6.2)
-------
Total Charge $ 16.2
=======
</TABLE>
Net proceeds from the sale of Berlin-Gorham were approximately $42.5
million of which $15 million was used to pay down Term Loan B, with the
remainder used to pay down the revolving credit facility. In connection with the
sale, the Company retained accounts payable and certain other short term
operating liabilities of approximately $15.0 million at July 9, 1999.
Settlement of Co-Generation Lease
- ---------------------------------
In the fourth quarter of 1998, management determined that the leased gas
turbine co-generation facility at the St. Francisville, La mill no longer
provided substantive use or benefit. Accordingly, a $16.9 million charge was
recognized in the fourth quarter of 1998 that represented discounted net future
lease payments.
On July 18, 1999 an explosion occurred at the St. Francisville mill with
damage limited primarily to the leased co-generation facility. As allowed under
the lease terms, the Company terminated the lease in exchange for a $16.3
million termination payment in the third quarter of 1999. The termination
payment, which approximated the net present value of future lease payments, was
charged against the reserve established in the fourth quarter of 1998. As a
result of the lease termination, the Company took title to the leased facility
and was released from a $24.7 million letter of credit. A $3.5 million gain
(included in "Other operating income, net") was recorded during the third
quarter of 1999 primarily from a partial payout of insurance proceeds as a
result of the explosion. The insurance proceeds were collected during October of
1999.
Expense Reduction Efforts
- -------------------------
During the third quarter of 1999, the Company announced the intended move
of its Oakland, Ca headquarters to Cincinnati, Ohio. A reserve for severance and
relocation costs (included in "Other operating income, net") was recorded during
the third quarter of 1999 totaling $3.1 million. On October 28, 1999 the Company
announced that, in addition to the relocation of the Oakland headquarters,
additional efforts to reduce general and administrative costs are underway
which are likely to result in further headcount reduction. Accruals for
severance and other costs associated with a headcount reduction will be recorded
once the plans are finalized and approved by management.
16
<PAGE>
Year 2000
- ---------
The Year 2000 issue concerns the potential inability of computer
applications, information technology systems, and certain software-based
"embedded" control systems to properly recognize and process date-sensitive
information as the Year 2000 approaches and beyond. The Company could suffer
material adverse impacts on its operations and financial results if the
applications and systems used by the Company, or by third parties with whom the
Company does business, do not accurately or adequately process or manage dates
or other information as a result of the Year 2000 issue.
The Company has completed its review, remediation and testing for all its
systems including its financial accounting system, business information systems,
accounting subsystems, process control systems and related software,
communication devices, and networking and other operating systems. Management
believes the Company is Year 2000 ready. However, due to the complex nature of
the issue and the reliance upon third party representations, including third
parties that were used to test and verify our Year 2000 readiness, there can be
no assurance that all Year 2000 issues related to these systems have been
adequately addressed.
The Company has certain key relationships with customers, vendors and
outside service providers. Failure by the Company's key customers, vendors and
outside service providers to adequately address the Year 2000 issue could have a
material adverse impact on the Company's operations and financial results. The
Company continues to assess the Year 2000 readiness of these key customers,
vendors and outside service providers and, at this time, it appears that there
will be no significant interruption of business between the Company and these
outside parties. This assessment includes but is not limited to soliciting
responses from each of these parties concerning their Year 2000 readiness and
review of public documents filed by many of these parties. Management continues
to assess key customers, vendors and outside service providers and is
continually updating contingency plans as needed. The Company is primarily
relying upon the voluntary disclosures from third parties for this review of
their Year 2000 readiness.
The Company is also developing contingency plans regarding the Year 2000
issue for its internal systems. Many of the identified risks from key customers,
vendors and outside service providers are both general and speculative in
nature, such as possible power or telecommunication failures, breakdowns in
transportation systems, inability to process financial transactions, and similar
events affecting general business services. As the Company completes its
assessment of Year 2000 readiness of key customers, vendors and outside service
providers, management intends to develop contingency plans to mitigate material
known detrimental effects that may be caused by their Year 2000 noncompliance.
However, it is unlikely that any contingency plan would mitigate the adverse
impact to the financial condition or operations of the Company of any
catastrophic event due to the Year 2000 issue that leads to a prolonged
disruption of essential services.
Year 2000 costs were approximately $3.5 million. The costs associated with
this effort were in addition to the Company's regular information technology
budget. In addition to the costs mentioned above, the Company's capital spending
for planned upgrading of certain information systems to enhance the capabilities
of those systems was accelerated in part due to the Year 2000 issue. The total
capitalized cost of accelerated capital spending for these systems was
approximately $2.5 million. The Company does not anticipate any additional
material expenditures relating to our Year 2000 readiness. However, new
developments may occur that could increase the Company's costs for Year 2000
readiness. These potential developments include but are not limited to the
Company's ability to have located and corrected all relevant computer codes and
equipment, and any unanticipated Year 2000 problems from key customers, vendors,
and outside service providers.
17
<PAGE>
Debt Covenants
- --------------
In connection with the Credit Facility, Crown Paper Co. (a wholly owned
subsidiary of Crown Vantage) is required to comply with certain financial
covenants that include minimum quarterly cash flow to debt and interest coverage
ratios as well as minimum tangible net worth. Crown Paper Co. was in compliance
with the covenants contained in the Credit Facility at the end of the 3rd
quarter 1999. In November 1999, the Company closed its books for the month of
October 1999 and determined that Crown Paper Co. no longer complied with the
tangible net worth requirements. In addition, the Company anticipates that Crown
Paper Co. will not comply with the 4th quarter 1999 and fiscal year end 2000
cash flow to debt ratio and interest coverage ratio covenants contained in the
Credit Facility.
Crown Paper Co. is currently seeking a waiver of the tangible net worth
violation from its senior secured lenders and expects to seek amendments to the
4th quarter cash flow to debt and interest coverage ratios during the 4th
quarter 1999. The Company also expects to address the 2000 covenants at its
annual senior secured lenders meeting in the 1st quarter of 2000.
Crown Paper Co. has amended its financial debt covenants each year for the
last three years as extended weakness in the paper markets prevented the Company
from achieving the original financial covenants established at the peak of the
paper market cycle in 1995. While Crown Paper Co. has successfully amended its
covenants in the past, there is no assurance that it will be successful in
obtaining a waiver of the tangible net worth violation. In addition, there is no
assurance that Crown Paper Co.'s senior secured lenders would be willing to
amend 4th quarter 1999 or fiscal year end 2000 covenants.
The violation of the tangible net worth requirement has resulted, and, if
there were to be a violation of the cash flow to debt and interest coverage
ratios, would result, in an event of default under the Credit Facility. Lenders
that are party to the Credit Facility have the right, as a result of the event
of default, to exercise certain remedies including accelerating the indebtedness
thereunder or denying requests for further advances under the revolving credit
facility. Should the lenders exercise their remedies by limiting advances, the
Company's principal source of liquidity would not be available, and in the event
that the lenders accelerated indebtedness under the Credit Facility, such action
may cause a cross acceleration under the Company's public debt and other debt
arrangements. If the Company is unsuccessful in obtaining a waiver, and the
senior secured lenders chose to take the actions described above, the Company's
financial condition would be materially adversely affected and the Company would
be required to restructure substantially all of its outstanding indebtedness.
There is no assurance that the Company would be successful in doing so.
Forward Looking Statements
- --------------------------
Certain statements within Management's Discussion and Analysis and
elsewhere are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to various risks and
uncertainties that could cause the actual results to be materially different
from the Company's current expectations. These forward-looking statements can be
identified by use of language such as plans, expects, estimates, anticipates,
believes, possible and other similar words or phrases. In addition to the
factors discussed above, there are other factors that could cause the actual
results to differ materially. These other factors include but are not limited to
business conditions and the general economy, both global and domestic; prices
for the Company's products; competitive factors; maintaining good labor
relations; the Company's ability to successfully implement its Year 2000 plans;
the Company's ability to revise debt covenants, and maintaining good customer
relations.
18
<PAGE>
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Ex.10.1 Employment Agreement with Chief Executive Officer, (a management
contract)
Ex.10.2 Employment Agreement with Chief Financial Officer, (a management
contract)
Ex.10.3 Amendment No. 2 Form of Agreement (severance) (a management
contract)
Ex.10.4 Separation and General Release Agreement with Christopher M.
McLain (severance) (a management contract)
Ex.10.5 Employment Agreement with Senior Vice President, Administration
and General Counsel, (a management Contract)
Ex.10.6 Employment Agreement with Senior Vice President, Printing and
Publishing Papers, (a management contract)
Ex.10.7 Separation and General Release Agreement with Antoinette S.
Gabriel (severance) (a management contract)
Ex.10.8 Separation and General Release Agreement with Katie Cutler
(severance) (a management contract)
Ex.27 Financial Data Schedule (Electronic Filing Only)
(b) Reports on Form 8-K -
N/A
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crown Vantage Inc.
(Registrant)
/s/ R. Neil Stuart /s/ Michael J. Hunter
- -------------------------------- -------------------------------
R. Neil Stuart Michael J. Hunter
Executive Vice President, Senior Vice President,
Chief Financial Officer Chief Accounting Officer
(Duly Authorized Officer) (Duly Authorized
Chief Accounting Officer)
November 10, 1999
20
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Crown Vantage Inc., a Virginia corporation (the
"Company") and Robert A. Olah (the "Executive"), dated as of the 1st day of
September, 1999.
1. Effective Date. The "Effective Date" of this Agreement shall be September
--------------
1, 1999.
2. Employment Period. The Company hereby agrees to continue the Executive in
-----------------
its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on December 31, 2001
(the "Employment Period"). Should the Executive remain employed by the
Company following the expiration of the Employment Period, it shall not be
according to, or governed by, the terms of this Agreement in any respect.
Unless the Executive's employment is pursuant to another Agreement, the
Executive shall be employed "at will," according to terms and conditions,
and with compensation and benefits, as are offered by the Company and
accepted by the Executive.
3. Terms of Employment.
-------------------
(a) Position and Duties. During the Employment Period, the Executive shall
-------------------
be employed as President and Chief Executive Officer of the Company
and shall have such duties, responsibilities and authority as shall be
consistent therewith.
During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. The Executive shall receive an annual base salary
-----------
("Annual Base Salary") of $375,000 during the Employment Period.
The Annual Base Salary
<PAGE>
shall be paid in equal monthly installments or more frequently.
During the Employment Period, the Annual Base Salary shall be
reviewed at least every 12 months. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation
to the Executive under this Agreement. Annual Base Salary shall
not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") pursuant
to the Company's annual incentive plans, pro rated in the case
of a bonus for any year during which the Executive was employed
for less than 12 months. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and
programs applicable generally to other peer executives of the
Company and its affiliated companies. As used in this Agreement,
the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the
Company.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs
in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable
business expenses incurred by the Executive.
(vi) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits at the discretion of the
Company, including, without
2
<PAGE>
limitation, tax and financial planning services, payment of club
dues, and an automobile of his or her choice and payment of
related expenses.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to 6 weeks of paid vacation per year.
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of this
Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
-----
Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the continued failure of the Executive to perform the
Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to
physical or mental illness) to the satisfaction of the President
and CEO, after a written notification is delivered to the
Executive which identifies the manner in which the Executive has
not performed to the satisfaction of the President and CEO; or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct which is injurious to the Company; or
(iii) failure to obey the lawful direction of the President and CEO,
not cured within five days following written notice from the
President and CEO; or
(iv) any act(s) that has a substantial and adverse effect on the
Company's business or reputation.
(c) Notice of Termination. Any termination by the Company for Cause shall
---------------------
be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets
3
<PAGE>
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). The failure by the
Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause shall not waive
any right of the Company hereunder or preclude the Company from
asserting such fact or circumstance in enforcing the Company's rights
or defending against any claim of the Executive hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, and (iii) if the
Executive's employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Termination Other Than for Cause, Death or Disability if Employee
-----------------------------------------------------------------
Agrees to Cancellation of Change of Control Agreement. If, during the
-----------------------------------------------------
Employment Period, the Company shall terminate the Executive's
employment other than for Cause or death or Disability, and, subject
to (i) the execution by the Executive of the Release attached as
Exhibit A hereto, and (ii) the automatic cancellation of any right the
Executive might otherwise have under the Change of Control Agreement
previously entered into between the Executive and the Company, a copy
of which is attached as Exhibit B, the Executive shall be entitled to
all of the following:
(i) the Company shall pay to the Executive in a lump sum in cash
within 15 calendar days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Minimum Bonus
and (II) the Annual Bonus paid or payable, including any
bonus or portion thereof, which has been earned but deferred
(and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was
employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365,
and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in
4
<PAGE>
each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. an amount equal to the product of (1) three and (2) the
highest amount actually paid to the Executive in cash
compensation (that is, Annual Base Salary plus bonus(es)
actually paid) in any one of the previous three calendar
years; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit (utilizing actuarial assumptions
no less favorable to the Executive than those in effect
under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") and immediately prior to the
Effective Date under the Retirement Plan, and any excess or
supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for
three years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the
three years is that required by Section 3(b)(i) and Section
3(b)(ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of
Termination;
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as
the case may be, and stock options shall be exercisable for
three years thereafter;
(iii) for the Continuation Period (as defined below), the Company
shall continue to pay the premium for benefits to the Executive
and/or the Executive's dependents equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 3(b)(iv)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-
provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other
plan during such applicable period of eligibility, and provided
further that the Executive and the Executive's dependents
otherwise are and remain eligible for coverage under the federal
law COBRA. The Continuation Period shall be three years. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on
the last day of such period;
5
<PAGE>
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with reasonable outplacement services the scope and
provider of which shall be selected by the Executive in his sole
discretion; and
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits, other than (x) severance benefits and (y) any
benefits or payments under the Change of Control Agreement
(Exhibit B), all rights to which the Executive shall have
relinquished as partial consideration for the payments and
benefits under this Section 5(a), that are required to be paid
or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other
(b) Termination Other than for Cause, Death or Disability if the Executive
----------------------------------------------------------------------
Does Not Agree to Cancellation of Change of Control Agreement. If,
-------------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, and
the Executive elects to maintain in effect the Change of Control
Agreement previously entered into between the Executive and the
Company, a copy of which is attached as Exhibit B, this Agreement
shall terminate without further obligations on the part of the Company
to the Executive other than obligation to pay to the Executive (x) his
or her Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid.
(c) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations, the Severance Amount (as defined below) and the
timely payment or provision of Other Benefits. The "Severance Amount"
equals the sum of (x) one times the Annual Base Salary, and (y) one
times the Target Bonus, and (z) the pro rata share of the annual bonus
plan for the year in which death occurred. Accrued Obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 calendar days of the Date of Termination.
With respect to the provision of Other Benefits after the Effective
Date, the term Other Benefits as utilized in this Section 5(c) shall
include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or
the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to other peer executives of the Company
and its affiliated companies and their beneficiaries.
6
<PAGE>
(d) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations, the
Severance Amount and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 calendar days of the Date of Termination. With
respect to the provision of Other Benefits after the Effective Date,
the term Other Benefits as utilized in this Section 5(d) shall
include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company
and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their
families.
(e) Termination for Cause or by Resignation of Employee. If the
---------------------------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) his or her Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive breaches this Agreement by
voluntarily terminating employment during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment
or provision of Other Benefits, and the Company shall have any and all
legal and equitable rights for breach of contract that it may have
under applicable law. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. Upon a termination of the Executive's employment for
Cause or by the Executive by resignation, the Executive shall forfeit
all stock options and restricted stock that are not vested on the Date
of Termination.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
-------------------------
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program
of or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the
7
<PAGE>
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment. The Company agrees to pay as
incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others
of the validity or enforceability of, or liability under, any provision of
this Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
8. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8 (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) , including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive,
after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $25,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the
aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young, L.L.P., or such other certified public
accounting firm as may be designated by the Executive (the "Accounting
Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt
of notice from the
8
<PAGE>
Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 8, shall be paid by
the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section 8(c)
and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with
9
<PAGE>
such contest and shall indemnify and hold the Executive harmless, on
an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 8(c), the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(a) or 8(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 8(c)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
8(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Executive shall hold in a fiduciary capacity
------------------------
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information,
10
<PAGE>
knowledge or data to anyone other than the Company and those designated by
it. In no event shall an asserted violation of the provisions of this
Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
10. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles
of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Crown Vantage Inc.
Cincinnati, Ohio
Attention: Robert A. Olah, President and CEO
11
<PAGE>
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder shall
not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
CROWN VANTAGE INC.
By Date 9/2/99
----------------------------------- ----------------------------------
R. Neil Stuart
Executive Vice President and CFO
"The Executive"
By Date 8/31/99
----------------------------------- ----------------------------------
Robert A. Olah
12
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Crown Vantage Inc., a Virginia corporation (the
"Company") and R. Neil Stuart (the "Executive"), dated as of the 1st day of
September, 1999.
1. Effective Date. The "Effective Date" of this Agreement shall be September
--------------
1, 1999.
2. Employment Period. The Company hereby agrees to continue the Executive in
-----------------
its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on December 31, 2001
(the "Employment Period"). Should the Executive remain employed by the
Company following the expiration of the Employment Period, it shall not be
according to, or governed by, the terms of this Agreement in any respect.
Unless the Executive's employment is pursuant to another Agreement, the
Executive shall be employed "at will," according to terms and conditions,
and with compensation and benefits, as are offered by the Company and
accepted by the Executive.
3. Terms of Employment.
-------------------
(a) Position and Duties. During the Employment Period, the Executive
-------------------
shall be employed as Executive Vice President and Chief Financial
Officer of the Company and shall have such duties, responsibilities
and authority as shall be consistent therewith.
During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
------------
<PAGE>
(i) Base Salary. The Executive shall receive an annual base salary
-----------
("Annual Base Salary") of $310,000 during the Employment Period.
The Annual Base Salary shall be paid in equal monthly
installments or more frequently. During the Employment Period,
the Annual Base Salary shall be reviewed at least every 12
months. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") pursuant
to the Company's annual incentive plans, pro rated in the case
of a bonus for any year during which the Executive was employed
for less than 12 months. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and
programs applicable generally to other peer executives of the
Company and its affiliated companies. As used in this Agreement,
the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the
Company.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs
in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable
business expenses incurred by the Executive.
2
<PAGE>
(vi) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits at the discretion of the
Company, including, without limitation, tax and financial
planning services, payment of club dues, and an automobile of
his or her choice and payment of related expenses.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to 4 weeks of paid vacation per year.
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of this
Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the continued failure of the Executive to perform the
Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to
physical or mental illness) to the satisfaction of the President
and CEO, after a written notification is delivered to the
Executive which identifies the manner in which the Executive has
not performed to the satisfaction of the President and CEO; or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct which is injurious to the Company; or
(iii) failure to obey the lawful direction of the President and CEO,
not cured within five days following written notice from the
President and CEO; or
(iv) any act(s) that has a substantial and adverse effect on the
Company's business or reputation.
(c) Notice of Termination. Any termination by the Company for Cause shall
---------------------
be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a
3
<PAGE>
"Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than thirty days after the giving of such notice).
The failure by the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Cause shall
not waive any right of the Company hereunder or preclude the Company
from asserting such fact or circumstance in enforcing the Company's
rights or defending against any claim of the Executive hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, and (iii) if the
Executive's employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Termination Other Than for Cause, Death or Disability if Employee
-----------------------------------------------------------------
Agrees to Cancellation of Change of Control Agreement. If, during the
-----------------------------------------------------
Employment Period, the Company shall terminate the Executive's
employment other than for Cause or death or Disability, and, subject
to (i) the execution by the Executive of the Release attached as
Exhibit A hereto, and (ii) the automatic cancellation of any right the
Executive might otherwise have under the Change of Control Agreement
previously entered into between the Executive and the Company, a copy
of which is attached as Exhibit B, the Executive shall be entitled to
all of the following:
(i) the Company shall pay to the Executive in a lump sum in cash
within 15 calendar days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Minimum Bonus
and (II) the Annual Bonus paid or payable, including any
bonus or portion thereof, which has been earned but deferred
(and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was
employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365,
and (3) any
4
<PAGE>
compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. an amount equal to the product of (1) three and (2) the
highest amount actually paid to the Executive in cash
compensation (that is, Annual Base Salary plus bonus(es)
actually paid) in any one of the previous three calendar
years; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit (utilizing actuarial assumptions
no less favorable to the Executive than those in effect
under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") and immediately prior to the
Effective Date under the Retirement Plan, and any excess or
supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for
three years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the
three years is that required by Section 3(b)(i) and Section
3(b)(ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of
Termination;
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as
the case may be, and stock options shall be exercisable for
three years thereafter;
(iii) for the Continuation Period (as defined below), the Company
shall continue to pay the premium for benefits to the Executive
and/or the Executive's dependents equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 3(b)(iv)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-
provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other
plan during such applicable period of eligibility, and provided
further that the Executive and the Executive's dependents
otherwise are and remain eligible for coverage under the federal
law COBRA. The Continuation Period shall be three years. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be
5
<PAGE>
considered to have remained employed until three years after the
Date of Termination and to have retired on the last day of such
period;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with reasonable outplacement services the scope and
provider of which shall be selected by the Executive in his sole
discretion; and
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits, other than (x) severance benefits and (y) any
benefits or payments under the Change of Control Agreement
(Exhibit B), all rights to which the Executive shall have
relinquished as partial consideration for the payments and
benefits under this Section 5(a), that are required to be paid
or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Termination Other than for Cause, Death or Disability if the Executive
----------------------------------------------------------------------
Does Not Agree to Cancellation of Change of Control Agreement. If,
---------------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, and
the Executive elects to maintain in effect the Change of Control
Agreement previously entered into between the Executive and the
Company, a copy of which is attached as Exhibit B, this Agreement
shall terminate without further obligations on the part of the Company
to the Executive other than obligation to pay to the Executive (x) his
or her Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid.
(c) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations, the Severance Amount (as defined below) and the
timely payment or provision of Other Benefits. The "Severance Amount"
equals the sum of (x) one times the Annual Base Salary, and (y) one
times the Target Bonus, and (z) the pro rata share of the annual bonus
plan for the year in which death occurred. Accrued Obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 calendar days of the Date of Termination.
With respect to the provision of Other Benefits after the Effective
Date, the term Other Benefits as utilized in this Section 5(c) shall
include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or
the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect
6
<PAGE>
to other peer executives of the Company and its affiliated companies
and their beneficiaries.
(d) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations, the
Severance Amount and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 calendar days of the Date of Termination. With
respect to the provision of Other Benefits after the Effective Date,
the term Other Benefits as utilized in this Section 5(d) shall
include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company
and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their
families.
(e) Termination for Cause or by Resignation of Employee. If the
---------------------------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) his or her Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive breaches this Agreement by
voluntarily terminating employment during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment
or provision of Other Benefits, and the Company shall have any and all
legal and equitable rights for breach of contract that it may have
under applicable law. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. Upon a termination of the Executive's employment for
Cause or by the Executive by resignation, the Executive shall forfeit
all stock options and restricted stock that are not vested on the Date
of Termination.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
-------------------------
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program
of or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7
<PAGE>
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or
any guarantee of performance thereof (including as a result of any contest
by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8 (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) , including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive,
after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $25,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the
aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young, L.L.P., or such other
8
<PAGE>
certified public accounting firm as may be designated by the Executive
(the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm
to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section
8, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
9
<PAGE>
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(a) or 8(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 8(c)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
8(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Executive shall hold in a fiduciary capacity
------------------------
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment with the Company, the
10
<PAGE>
Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge
any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
10. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles
of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Crown Vantage Inc.
Cincinnati, Ohio
11
<PAGE>
Attention: Robert A. Olah, President and CEO
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder shall
not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
CROWN VANTAGE INC.
By Date 9/2/99
---------------------------------- ---------------------------------
Robert A. Olah, President and CEO
"The Executive"
By Date 9/1/99
---------------------------------- ---------------------------------
R. Neil Stuart
12
<PAGE>
Exhibit 10.3
NOTICE OF NON-RENEWAL
OF
CHANGE OF CONTROL AGREEMENT
Notice of non-renewal was adopted for all participating members of the executive
management group.
WHEREAS Crown Vantage Inc. (the "Company") and ____________ ("Executive") are
Parties to an Agreement dated as of the ____ day of _____________, 19___, which
Agreement is commonly referred to as the "Change of Control" Agreement, and
WHEREAS Section 1(b) of the Change of Control Agreement provides that the
"Change of Control Period" shall mean a three-year period from the date of the
Agreement, as extended, year to year at the Renewal Date, unless at least 60
days prior to the Renewal Date, notice is given that the Change of Control
Period shall not be so extended, and
WHEREAS Section 1(a) of the Change of Control Agreement defines the Effective
Date of that Agreement, and
WHEREAS the Effective Date has not yet come to pass, and
WHEREAS the Board of Directors of the Company (the "Board") has determined that
it is in the best interest of the Company and its shareholders to not extend the
Change of Control Period,
NOW THEREFORE, pursuant to Section 1(b) of the Change of Control Agreement, the
Board hereby gives written notice to Executive that as of the date hereof, the
Change of Control Agreement shall not be extended at the next Renewal Date.
Date: August 30, 1999 Crown Vantage Inc.
By: _________________________________
Robert A. Olah
President and Chief Executive Officer
<PAGE>
Exhibit 10.4
SEPARATION AND GENERAL RELEASE AGREEMENT
----------------------------------------
The Parties to this Separation and General Release Agreement ("Agreement")
are Christopher M. Mclain ("Executive") and Crown Vantage, Inc. ("the Company").
AGREEMENTS
1. Effective September 1, 1999, ("Effective Date") Executive's employment with
the Company will terminate as a result of the Company's executive office
relocation to Cincinnati, Ohio and Executive's decision not to relocate. This
also acknowledges the Executive's resignation from any and all officerships and
directorships of Crown Vantage Inc. and any of its affiliates as of the date of
severance. At the time of termination, Executive will receive all accrued
salary and all unused vacation pay. Separate and apart from these payments, and
as consideration to support this Agreement, Executive shall receive the
following additional Separation Benefits following execution of this Agreement:
(a) Additional Separation Pay. Fifty-two (52) weeks of base salary
--------------------------
continuation, excluding bonus eligibility or entitlement, at Executive's
final base salary rate less required deductions and withholdings.
(b) Additional Health, Dental, and Life Insurance Coverage. Company-paid
------------------------------------------------------
premiums for continued health, dental, employee life, and group life
insurance coverage for Executive and Executive's covered dependents at the
same rate and to the same extent Executive and his or her dependents are
covered by such plans on the Effective Date for the fifty-two (52) weeks of
Executive's salary continuation period, provided however that such coverage
will cease if the Executive becomes reemployed with another employer and is
eligible to receive health, dental of life insurance under an employer-
provided plan, or if Executive and Executive's dependents cease being
eligible for COBRA-continuation coverage under the Company's plans for any
other reason.
(c) Company-Provided Automobile. On the Effective Date, the Company will
----------------------------
cease providing Executive with an automobile at Company expense. However,
at the Executive's option, Executive may either assume the lease obligation
on the same terms and at the same rate as the Company was leasing the
automobile on the Effective Date, or may purchase the automobile on the
same terms and at the same rate as if the lease had expired.
(d) Restricted Stock. All Restricted Stock in effect on the Effective
-----------------
Date shall become immediately vested.
<PAGE>
(e) Stock Options. All Stock Options in effect on the Effective Date
--------------
shall become immediately vested in accordance with the terms of the Stock
Option Plan provided that such options must be exercised within 3 months of
the Effective Date during which time there shall be no further vesting.
2. As partial consideration for the promises contained in this Agreement,
Executive hereby waives, releases, and discharges the Company and its
affiliates, parents and subsidiaries, and its or their current or former
officers, board members, employees, attorneys, and/or agents from any
complaints, claims, charges, claims for relief, demands, suits, actions and/or
causes of action which Executive asserts, has asserted or could assert arising
from or in any way connected with Executive's employment relationship with the
Company and/or the termination of that employment. This includes, but is not
limited to, any "wrongful discharge" claims; all claims relating to any contract
of employment (express or implied); any covenant of good faith and fair dealing
(express or implied); any and all tort claims; any claims brought under any
federal, state, or municipal law, regulation or ordinance; any claims under
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act, the Older Workers' Benefit Protection Act, the
Worker Adjustment and Retraining Notification Act, the Employee Retirement
Income Security Act, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, any labor and civil codes of the State of California
or any other state, and any and all claims for attorney fees and costs. This
waiver and release is intended to be full and complete, except for those
obligations that are created by this Agreement.
3. As further consideration for this Agreement, Executive hereby waives and
releases any and all rights under section 1542 of the California Civil Code.
California Civil Code section 1542 reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Executive agrees that this Agreement shall extend and apply to all unknown,
unsuspected and unanticipated injuries and damages as well as those of which
Executive is now aware, which arose before the signing of this Agreement.
4. As further consideration for this Agreement, the Parties agree that the
"Change of Control" Agreement entered into between Executive and the Company on
December 5, 1995 will be, and hereby is, made null and void.
5. If a Change of Control (as defined in Section 6 below) occurs during
Executive's fifty-two week salary continuation period, Executive, in addition to
the Separation Benefits defined in Section 1 of this Agreement, will receive the
following benefits:
(a) The sum of $553,120 and
2
<PAGE>
(b) For the Continuation Period (as defined below), Executive will again
be eligible for Company-paid health, dental, employee life, and group life
insurance benefits for Executive and Executive's dependents as and to the
extent those coverages were in effect on the Effective Date, or, if more
favorable to Executive, as are in effect generally immediately before the
Change of Control Date with respect to other peer executives of the Company
and their families, provided, however, that if Executive has become or
becomes reemployed with another employer and is eligible to receive health,
dental, or life insurance benefits under another employer-provided plan,
the life insurance benefits shall cease and the health and dental insurance
benefits shall be secondary to those provided under such other plan during
such applicable period of eligibility, and provided further that Executive
and Executive's dependents otherwise are and remain eligible for coverage
under the federal law COBRA. The Continuation Period shall be three years.
For purposes of determining eligibility (but not the time of commencement
of benefits) of Executive for retiree benefits pursuant to such insurance
plans, Executive shall be considered to have remained employed for three
years after the Change of Control Date and to have retired on the last date
of such period.
6. For the purpose of this Agreement, a Change of Control shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(a)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or
more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by the Company, (ii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iii) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii), and (iii) of subsection (c) of this Section 6; or
(b) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors of other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
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<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
and its subsidiaries (a "Business Combination"), in each case, unless
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company and its subsidiaries.
7. (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 7 (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) , including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of
this Section 7(a), if it shall be
4
<PAGE>
determined that the Executive is entitled to a Gross-Up Payment, but that
the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $25,000
(taking into account both income taxes and any Excise Tax) as compared to
the net after-tax proceeds to the Executive resulting from an elimination
of the Gross-Up Payment and a reduction of the Payments, in the aggregate,
to an amount (the "Reduced Amount") such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations required
to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young, L.L.P., or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 7, shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section 7(c) and
the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
5
<PAGE>
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(a) or 7(c), the Executive becomes entitled to
6
<PAGE>
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
8. Executive represents that Executive does not have any lawsuits, charges,
administrative proceedings or any other action currently on file, lodged or
pending against the Company or its affiliates, parents, or subsidiaries or any
of its or their current or former officers, board members, employees, attorneys,
and/or agents, and further agrees that Executive will not file any lawsuit or
administrative charge or complaint against the Company or its affiliates,
parents, or subsidiaries or any of its or their current or former officers,
employees, board members, attorneys, and/or agents for actions occurring before
the execution of this Agreement. Executive shall cooperate with the Company in
the defense of any action brought against the Company or any agent of the
Company that relates in any way to Executive's acts or omissions or
responsibilities while employed by the Company. Notwithstanding any contrary
provision in this Agreement, to the extent and in accordance with that which is
permitted by the By-laws of the Company, the Company shall indemnify and hold
Executive harmless for any and all costs, liabilities, or obligations, including
attorneys fees, which Executive may incur as a result of litigation brought by
any third party against the Company and/or Executive.
9. The Parties understand and agree that this Agreement shall bind and benefit
their heirs, employees, officers, board members, agents, attorneys,
representatives, successors, predecessors and assigns.
10. Executive affirms and acknowledges that Executive has read and understands
this Agreement, that Executive may have at least 45 days to consider this
Agreement (although Executive may voluntarily elect to waive any of this
consideration period), and that Executive is hereby advised to consult with an
attorney regarding the terms of this Agreement. Executive accepts this
Agreement freely and voluntarily and with full knowledge of its effect.
11. This Agreement shall not become effective until 7 days after Executive has
signed this Agreement. This 7-day revocation period cannot be waived. In order
to be effective, a notice of revocation must be received by the Company before
expiration of the 7-day revocation period. Such notice shall be directed to:
Mr. Robert A. Olah, President and CEO
Crown Vantage, Inc.
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<PAGE>
4555 Lake Forest Drive, Suite 630
Cincinnati, OH 45242
12. Executive acknowledges that, as of the Effective Date, she hereby resigns
all officerships and directorships of Crown Vantage Inc. and/or any of its
affiliates.
13. This Agreement constitutes the complete understanding between the Parties
and supersedes all prior or contemporaneous written or oral agreements between
the parties concerning its subject matter. Any modification of this Agreement
will be effective only if it is in writing and signed by the Parties to this
Agreement. If any provision of this Agreement is held invalid or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
14. Any and all disputes concerning this Agreement shall be resolved by binding
arbitration according to the Employment Dispute Resolution rules and procedures
of the American Arbitration Association. California substantive law shall
apply, and the Agreement shall be interpreted as though it were mutually drafted
by both Parties.
15. The Parties indicate their knowing and voluntary acceptance of this
Agreement by their signatures below.
Dated: August 31, 1999 ____________________________________
Executive's Signature
Executive's Mailing Address:
____________________________________
____________________________________
____________________________________
CROWN VANTAGE, INC.
Dated: August 24, 1999 By _______________________________
Robert A. Olah, President & CEO
8
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Crown Vantage Inc., a Virginia corporation (the
"Company") and Evan C. Davis (the "Executive"), dated as of the 1st day of
September, 1999.
1. Effective Date. The "Effective Date" of this Agreement shall be September
--------------
1, 1999.
2. Employment Period. The Company hereby agrees to continue the Executive in
-----------------
its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on December 31, 2001
(the "Employment Period"). Should the Executive remain employed by the
Company following the expiration of the Employment Period, it shall not be
according to, or governed by, the terms of this Agreement in any respect.
Unless the Executive's employment is pursuant to another Agreement, the
Executive shall be employed "at will," according to terms and conditions,
and with compensation and benefits, as are offered by the Company and
accepted by the Executive.
3. Terms of Employment.
-------------------
(a) Position and Duties. During the Employment Period, the Executive shall
-------------------
be employed as Senior Vice President, Administration and General
Counsel of the Company and shall have such duties, responsibilities
and authority as shall be consistent therewith.
During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
------------
<PAGE>
(i) Base Salary. The Executive shall receive an annual base salary
-----------
("Annual Base Salary") of $200,000 during the Employment
Period. The Annual Base Salary shall be paid in equal monthly
installments or more frequently. During the Employment Period,
the Annual Base Salary shall be reviewed at least every 12
months. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus")
pursuant to the Company's annual incentive plans, pro rated in
the case of a bonus for any year during which the Executive was
employed for less than 12 months. Each such Annual Bonus shall
be paid no later than the end of the third month of the fiscal
year next following the fiscal year for which the Annual Bonus
is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of
the Company and its affiliated companies. As used in this
Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with
the Company.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may
be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated
companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in
no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable
business expenses incurred by the Executive.
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<PAGE>
(vi) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits at the discretion of the
Company, including, without limitation, tax and financial
planning services, payment of club dues, and an automobile of
his or her choice and payment of related expenses.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to 5 weeks of paid vacation per year.
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of this
Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the continued failure of the Executive to perform the
Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to
physical or mental illness) to the satisfaction of the
President and CEO, after a written notification is delivered to
the Executive which identifies the manner in which the
Executive has not performed to the satisfaction of the
President and CEO; or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct which is injurious to the Company; or
(iii) failure to obey the lawful direction of the President and CEO,
not cured within five days following written notice from the
President and CEO; or
(iv) any act(s) that has a substantial and adverse effect on the
Company's business or reputation.
(c) Notice of Termination. Any termination by the Company for Cause shall
---------------------
be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a
3
<PAGE>
"Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than thirty days after the giving of such notice).
The failure by the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Cause shall
not waive any right of the Company hereunder or preclude the Company
from asserting such fact or circumstance in enforcing the Company's
rights or defending against any claim of the Executive hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, and (iii) if the
Executive's employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Termination Other Than for Cause, Death or Disability if Employee
-----------------------------------------------------------------
Agrees to Cancellation of Change of Control Agreement. If, during the
-----------------------------------------------------
Employment Period, the Company shall terminate the Executive's
employment other than for Cause or death or Disability, and, subject
to (i) the execution by the Executive of the Release attached as
Exhibit A hereto, and (ii) the automatic cancellation of any right the
Executive might otherwise have under the Change of Control Agreement
previously entered into between the Executive and the Company, a copy
of which is attached as Exhibit B, the Executive shall be entitled to
all of the following:
(i) the Company shall pay to the Executive in a lump sum in cash
within 15 calendar days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Minimum Bonus
and (II) the Annual Bonus paid or payable, including any
bonus or portion thereof, which has been earned but deferred
(and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was
employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365,
and (3) any
4
<PAGE>
compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon)
and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. an amount equal to the product of (1) two and (2) the
highest amount actually paid to the Executive in cash
compensation (that is, Annual Base Salary plus bonus(es)
actually paid) in any one of the previous three calendar
years; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit (utilizing actuarial assumptions
no less favorable to the Executive than those in effect
under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") and immediately prior to the
Effective Date under the Retirement Plan, and any excess
or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for
two years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the
two years is that required by Section 3(b)(i) and Section
3(b)(ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any,
under the Retirement Plan and the SERP as of the Date of
Termination;
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as
the case may be, and stock options shall be exercisable for two
years thereafter;
(iii) for the Continuation Period (as defined below), the Company
shall continue to pay the premium for benefits to the Executive
and/or the Executive's dependents equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 3(b)(iv)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility,
and provided further that the Executive and the Executive's
dependents otherwise are and remain eligible for coverage under
the federal law COBRA. The Continuation Period shall be two
years. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be
5
<PAGE>
considered to have remained employed until two years after the
Date of Termination and to have retired on the last day of such
period;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with reasonable outplacement services the scope and
provider of which shall be selected by the Executive in his
sole discretion; and
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits, other than (x) severance benefits and (y) any
benefits or payments under the Change of Control Agreement
(Exhibit B), all rights to which the Executive shall have
relinquished as partial consideration for the payments and
benefits under this Section 5(a), that are required to be paid
or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Termination Other than for Cause, Death or Disability if the Executive
----------------------------------------------------------------------
Does Not Agree to Cancellation of Change of Control Agreement. If,
--------------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, and
the Executive elects to maintain in effect the Change of Control
Agreement previously entered into between the Executive and the
Company, a copy of which is attached as Exhibit B, this Agreement
shall terminate without further obligations on the part of the Company
to the Executive other than obligation to pay to the Executive (x) his
or her Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid.
(c) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations, the Severance Amount (as defined below) and the
timely payment or provision of Other Benefits. The "Severance Amount"
equals the sum of (x) one times the Annual Base Salary, and (y) one
times the Target Bonus, and (z) the pro rata share of the annual bonus
plan for the year in which death occurred. Accrued Obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 calendar days of the Date of Termination.
With respect to the provision of Other Benefits after the Effective
Date, the term Other Benefits as utilized in this Section 5(c) shall
include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or
the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect
6
<PAGE>
to other peer executives of the Company and its affiliated companies
and their beneficiaries.
(d) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations, the
Severance Amount and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 calendar days of the Date of Termination. With
respect to the provision of Other Benefits after the Effective Date,
the term Other Benefits as utilized in this Section 5(d) shall
include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company
and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their
families.
(e) Termination for Cause or by Resignation of Employee. If the
---------------------------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) his or her Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive breaches this Agreement by
voluntarily terminating employment during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment
or provision of Other Benefits, and the Company shall have any and all
legal and equitable rights for breach of contract that it may have
under applicable law. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. Upon a termination of the Executive's employment for
Cause or by the Executive by resignation, the Executive shall forfeit
all stock options and restricted stock that are not vested on the Date
of Termination.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
-------------------------
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program
of or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7
<PAGE>
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or
any guarantee of performance thereof (including as a result of any contest
by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8 (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive,
after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $25,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the
aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young, L.L.P., or such other
8
<PAGE>
certified public accounting firm as may be designated by the Executive
(the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm
to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section
8, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
9
<PAGE>
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(a) or 8(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 8(c)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
8(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Executive shall hold in a fiduciary capacity
------------------------
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment with the Company, the
10
<PAGE>
Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge
any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
10. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles
of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Crown Vantage Inc.
Cincinnati, Ohio
11
<PAGE>
Attention: Robert A. Olah, President and CEO
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder shall
not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
CROWN VANTAGE INC.
By Date 8/25/99
----------------------------------- -------------------------------
Robert A. Olah, President and CEO
"The Executive"
By Date 8/25/99
----------------------------------- -------------------------------
Evan C. Davis
12
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Crown Vantage Inc., a Virginia corporation (the
"Company") and Charles E. Whitaker (the "Executive"), dated as of the 1st day of
September, 1999.
1. Effective Date. The "Effective Date" of this Agreement shall be September
--------------
1, 1999.
2. Employment Period. The Company hereby agrees to continue the Executive in
-----------------
its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on December 31, 2001
(the "Employment Period"). Should the Executive remain employed by the
Company following the expiration of the Employment Period, it shall not be
according to, or governed by, the terms of this Agreement in any respect.
Unless the Executive's employment is pursuant to another Agreement, the
Executive shall be employed "at will," according to terms and conditions,
and with compensation and benefits, as are offered by the Company and
accepted by the Executive.
3. Terms of Employment.
-------------------
(a) Position and Duties. During the Employment Period, the Executive
-------------------
shall be employed as Senior Vice President - Printing and Publishing
Papers of the Company and shall have such duties, responsibilities and
authority as shall be consistent therewith.
During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
------------
<PAGE>
(i) Base Salary. The Executive shall receive an annual base salary
-----------
("Annual Base Salary") of $200,000 during the Employment
Period. The Annual Base Salary shall be paid in equal monthly
installments or more frequently. During the Employment Period,
the Annual Base Salary shall be reviewed at least every 12
months. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus")
pursuant to the Company's annual incentive plans, pro rated in
the case of a bonus for any year during which the Executive was
employed for less than 12 months. Each such Annual Bonus shall
be paid no later than the end of the third month of the fiscal
year next following the fiscal year for which the Annual Bonus
is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of
the Company and its affiliated companies. As used in this
Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with
the Company.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's dependents, as the case may
be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated
companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in
no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable
business expenses incurred by the Executive.
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<PAGE>
(vi) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits at the discretion of the
Company, including, without limitation, tax and financial
planning services, payment of club dues, and an automobile of
his or her choice and payment of related expenses.
(vii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to 4 weeks of paid vacation per year.
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of this
Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
-----
Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the continued failure of the Executive to perform the
Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to
physical or mental illness) to the satisfaction of the
President and CEO, after a written notification is delivered to
the Executive which identifies the manner in which the
Executive has not performed to the satisfaction of the
President and CEO; or
(ii) the engaging by the Executive in illegal conduct or gross
misconduct which is injurious to the Company; or
(iii) failure to obey the lawful direction of the President and CEO,
not cured within five days following written notice from the
President and CEO; or
(iv) any act(s) that has a substantial and adverse effect on the
Company's business or reputation.
(c) Notice of Termination. Any termination by the Company for Cause shall
---------------------
be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a
3
<PAGE>
"Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than thirty days after the giving of such notice).
The failure by the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Cause shall
not waive any right of the Company hereunder or preclude the Company
from asserting such fact or circumstance in enforcing the Company's
rights or defending against any claim of the Executive hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, and (iii) if the
Executive's employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Termination Other Than for Cause, Death or Disability if Employee
-----------------------------------------------------------------
Agrees to Cancellation of Change of Control Agreement. If, during the
-----------------------------------------------------
Employment Period, the Company shall terminate the Executive's
employment other than for Cause or death or Disability, and, subject
to (i) the execution by the Executive of the Release attached as
Exhibit A hereto, and (ii) the automatic cancellation of any right the
Executive might otherwise have under the Change of Control Agreement
previously entered into between the Executive and the Company, a copy
of which is attached as Exhibit B, the Executive shall be entitled to
all of the following:
(i) the Company shall pay to the Executive in a lump sum in cash
within 15 calendar days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Minimum
Bonus and (II) the Annual Bonus paid or payable, including
any bonus or portion thereof, which has been earned but
deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive
was employed for less than twelve full months), for the
most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the
denominator of which is 365, and (3) any
4
<PAGE>
compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon)
and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. an amount equal to the product of (1) two and (2) the
highest amount actually paid to the Executive in cash
compensation (that is, Annual Base Salary plus bonus(es)
actually paid) in any one of the previous three calendar
years; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit (utilizing actuarial assumptions
no less favorable to the Executive than those in effect
under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") and immediately prior to the
Effective Date under the Retirement Plan, and any excess
or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for
two years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the
two years is that required by Section 3(b)(i) and Section
3(b)(ii), over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any,
under the Retirement Plan and the SERP as of the Date of
Termination;
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as
the case may be, and stock options shall be exercisable for two
years thereafter;
(iii) for the Continuation Period (as defined below), the Company
shall continue to pay the premium for benefits to the Executive
and/or the Executive's dependents equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 3(b)(iv)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility,
and provided further that the Executive and the Executive's
dependents otherwise are and remain eligible for coverage under
the federal law COBRA. The Continuation Period shall be two
years. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be
5
<PAGE>
considered to have remained employed until two years after the
Date of Termination and to have retired on the last day of such
period;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with reasonable outplacement services the scope and
provider of which shall be selected by the Executive in his
sole discretion; and
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits, other than (x) severance benefits and (y) any
benefits or payments under the Change of Control Agreement
(Exhibit B), all rights to which the Executive shall have
relinquished as partial consideration for the payments and
benefits under this Section 5(a), that are required to be paid
or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Termination Other than for Cause, Death or Disability if the Executive
----------------------------------------------------------------------
Does Not Agree to Cancellation of Change of Control Agreement. If,
---------------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, and
the Executive elects to maintain in effect the Change of Control
Agreement previously entered into between the Executive and the
Company, a copy of which is attached as Exhibit B, this Agreement
shall terminate without further obligations on the part of the Company
to the Executive other than obligation to pay to the Executive (x) his
or her Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore unpaid.
(c) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations, the Severance Amount (as defined below) and the
timely payment or provision of Other Benefits. The "Severance Amount"
equals the sum of (x) one times the Annual Base Salary, and (y) one
times the Target Bonus, and (z) the pro rata share of the annual bonus
plan for the year in which death occurred. Accrued Obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 calendar days of the Date of Termination.
With respect to the provision of Other Benefits after the Effective
Date, the term Other Benefits as utilized in this Section 5(c) shall
include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or
the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect
6
<PAGE>
to other peer executives of the Company and its affiliated companies
and their beneficiaries.
(d) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations, the
Severance Amount and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 calendar days of the Date of Termination. With
respect to the provision of Other Benefits after the Effective Date,
the term Other Benefits as utilized in this Section 5(d) shall
include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company
and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their
families.
(e) Termination for Cause or by Resignation of Employee. If the
---------------------------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) his or her Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive breaches this Agreement by
voluntarily terminating employment during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment
or provision of Other Benefits, and the Company shall have any and all
legal and equitable rights for breach of contract that it may have
under applicable law. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. Upon a termination of the Executive's employment for
Cause or by the Executive by resignation, the Executive shall forfeit
all stock options and restricted stock that are not vested on the Date
of Termination.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
-------------------------
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program
of or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7
<PAGE>
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or
any guarantee of performance thereof (including as a result of any contest
by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8 (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive,
after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $25,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the
aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young, L.L.P., or such other
8
<PAGE>
certified public accounting firm as may be designated by the Executive
(the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm
to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section
8, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
9
<PAGE>
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(a) or 8(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 8(c)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
8(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Executive shall hold in a fiduciary capacity
------------------------
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment with the Company, the
10
<PAGE>
Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge
any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
10. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles
of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Crown Vantage Inc.
Cincinnati, Ohio
11
<PAGE>
Attention: Robert A. Olah, President and CEO
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder shall
not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
CROWN VANTAGE INC.
By Date 8/31/99
------------------------------------- -------------------------------
Robert A. Olah, President and CEO
"The Executive"
By Date 8/31/99
------------------------------------- -------------------------------
Charles E. Whitaker
12
<PAGE>
Exhibit 10.7
SEPARATION AND GENERAL RELEASE AGREEMENT
----------------------------------------
The Parties to this Separation and General Release Agreement ("Agreement")
are Antoinette S. Gabriel ("Executive") and Crown Vantage, Inc. ("the Company").
AGREEMENTS
1. Effective September 1, 1999, ("Effective Date") Executive's employment with
the Company will terminate as a result of the Company's executive office
relocation to Cincinnati, Ohio and Executive's decision not to relocate. This
also acknowledges the Executive's resignation from any and all officerships and
directorships of Crown Vantage Inc. and any of its affiliates as of the date of
severance. At the time of termination, Executive will receive all accrued
salary and all unused vacation pay. Separate and apart from these payments, and
as consideration to support this Agreement, Executive shall receive the
following additional Separation Benefits following execution of this Agreement:
(a) Additional Separation Pay. Fifty-two (52) weeks of base salary
--------------------------
continuation, excluding bonus eligibility or entitlement, at Executive's
final base salary rate less required deductions and withholdings.
(b) Additional Health, Dental, and Life Insurance Coverage. Company-paid
------------------------------------------------------
premiums for continued health, dental, employee life, and group life
insurance coverage for Executive and Executive's covered dependents at the
same rate and to the same extent Executive and his or her dependents are
covered by such plans on the Effective Date for the fifty-two (52) weeks of
Executive's salary continuation period, provided however that such coverage
will cease if the Executive becomes reemployed with another employer and is
eligible to receive health, dental of life insurance under an employer-
provided plan, or if Executive and Executive's dependents cease being
eligible for COBRA-continuation coverage under the Company's plans for any
other reason.
(c) Company-Provided Automobile. On the Effective Date, the Company will
----------------------------
cease providing Executive with an automobile at Company expense. However,
at the Executive's option, Executive may either assume the lease obligation
on the same terms and at the same rate as the Company was leasing the
automobile on the Effective Date, or may purchase the automobile on the
same terms and at the same rate as if the lease had expired.
(d) Restricted Stock. All Restricted Stock in effect on the Effective
-----------------
Date shall become immediately vested.
<PAGE>
(e) Stock Options. All Stock Options in effect on the Effective Date
--------------
shall become immediately vested in accordance with the terms of the Stock
Option Plan provided that such options must be exercised within 3 months of
the Effective Date during which time there shall be no further vesting.
2. As partial consideration for the promises contained in this Agreement,
Executive hereby waives, releases, and discharges the Company and its
affiliates, parents and subsidiaries, and its or their current or former
officers, board members, employees, attorneys, and/or agents from any
complaints, claims, charges, claims for relief, demands, suits, actions and/or
causes of action which Executive asserts, has asserted or could assert arising
from or in any way connected with Executive's employment relationship with the
Company and/or the termination of that employment. This includes, but is not
limited to, any "wrongful discharge" claims; all claims relating to any contract
of employment (express or implied); any covenant of good faith and fair dealing
(express or implied); any and all tort claims; any claims brought under any
federal, state, or municipal law, regulation or ordinance; any claims under
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act, the Older Workers' Benefit Protection Act, the
Worker Adjustment and Retraining Notification Act, the Employee Retirement
Income Security Act, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, any labor and civil codes of the State of California
or any other state, and any and all claims for attorney fees and costs. This
waiver and release is intended to be full and complete, except for those
obligations that are created by this Agreement.
3. As further consideration for this Agreement, Executive hereby waives and
releases any and all rights under section 1542 of the California Civil Code.
California Civil Code section 1542 reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Executive agrees that this Agreement shall extend and apply to all unknown,
unsuspected and unanticipated injuries and damages as well as those of which
Executive is now aware, which arose before the signing of this Agreement.
4. As further consideration for this Agreement, the Parties agree that the
"Change of Control" Agreement entered into between Executive and the Company on
December 5, 1995 will be, and hereby is, made null and void.
5. If a Change of Control (as defined in Section 6 below) occurs during
Executive's fifty-two week salary continuation period, Executive, in addition to
the Separation Benefits defined in Section 1 of this Agreement, will receive the
following benefits:
(a) The sum of $456,850, and
2
<PAGE>
(b) For the Continuation Period (as defined below), Executive will again
be eligible for Company-paid health, dental, employee life, and group life
insurance benefits for Executive and Executive's dependents as and to the
extent those coverages were in effect on the Effective Date, or, if more
favorable to Executive, as are in effect generally immediately before the
Change of Control Date with respect to other peer executives of the Company
and their families, provided, however, that if Executive has become or
becomes reemployed with another employer and is eligible to receive health,
dental, or life insurance benefits under another employer-provided plan,
the life insurance benefits shall cease and the health and dental insurance
benefits shall be secondary to those provided under such other plan during
such applicable period of eligibility, and provided further that Executive
and Executive's dependents otherwise are and remain eligible for coverage
under the federal law COBRA. The Continuation Period shall be three years.
For purposes of determining eligibility (but not the time of commencement
of benefits) of Executive for retiree benefits pursuant to such insurance
plans, Executive shall be considered to have remained employed for three
years after the Change of Control Date and to have retired on the last date
of such period.
6. For the purpose of this Agreement, a Change of Control shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(a)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or
more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by the Company, (ii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iii) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii), and (iii) of subsection (c) of this Section 6; or
(b) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors of other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
3
<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
and its subsidiaries (a "Business Combination"), in each case, unless
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company and its subsidiaries.
7. (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 7 (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) , including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of
this Section 7(a), if it shall be
4
<PAGE>
determined that the Executive is entitled to a Gross-Up Payment, but that
the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $25,000
(taking into account both income taxes and any Excise Tax) as compared to
the net after-tax proceeds to the Executive resulting from an elimination
of the Gross-Up Payment and a reduction of the Payments, in the aggregate,
to an amount (the "Reduced Amount") such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations required
to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young, L.L.P., or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 7, shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section 7(c) and
the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
5
<PAGE>
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(a) or 7(c), the Executive becomes entitled to
6
<PAGE>
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
8. Executive represents that Executive does not have any lawsuits, charges,
administrative proceedings or any other action currently on file, lodged or
pending against the Company or its affiliates, parents, or subsidiaries or any
of its or their current or former officers, board members, employees, attorneys,
and/or agents, and further agrees that Executive will not file any lawsuit or
administrative charge or complaint against the Company or its affiliates,
parents, or subsidiaries or any of its or their current or former officers,
employees, board members, attorneys, and/or agents for actions occurring before
the execution of this Agreement. Executive shall cooperate with the Company in
the defense of any action brought against the Company or any agent of the
Company that relates in any way to Executive's acts or omissions or
responsibilities while employed by the Company. Notwithstanding any contrary
provision in this Agreement, to the extent and in accordance with that which is
permitted by the By-laws of the Company, the Company shall indemnify and hold
Executive harmless for any and all costs, liabilities, or obligations, including
attorneys fees, which Executive may incur as a result of litigation brought by
any third party against the Company and/or Executive.
9. The Parties understand and agree that this Agreement shall bind and benefit
their heirs, employees, officers, board members, agents, attorneys,
representatives, successors, predecessors and assigns.
10. Executive affirms and acknowledges that Executive has read and understands
this Agreement, that Executive may have at least 45 days to consider this
Agreement (although Executive may voluntarily elect to waive any of this
consideration period), and that Executive is hereby advised to consult with an
attorney regarding the terms of this Agreement. Executive accepts this
Agreement freely and voluntarily and with full knowledge of its effect.
11. This Agreement shall not become effective until 7 days after Executive has
signed this Agreement. This 7-day revocation period cannot be waived. In order
to be effective, a notice of revocation must be received by the Company before
expiration of the 7-day revocation period. Such notice shall be directed to:
Mr. Robert A. Olah, President and CEO
Crown Vantage, Inc.
7
<PAGE>
4555 Lake Forest Drive, Suite 630
Cincinnati, OH 45242
12. Executive acknowledges that, as of the Effective Date, she hereby resigns
all officerships and directorships of Crown Vantage Inc. and/or any of its
affiliates.
13. This Agreement constitutes the complete understanding between the Parties
and supersedes all prior or contemporaneous written or oral agreements between
the parties concerning its subject matter. Any modification of this Agreement
will be effective only if it is in writing and signed by the Parties to this
Agreement. If any provision of this Agreement is held invalid or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
14. Any and all disputes concerning this Agreement shall be resolved by binding
arbitration according to the Employment Dispute Resolution rules and procedures
of the American Arbitration Association. California substantive law shall
apply, and the Agreement shall be interpreted as though it were mutually drafted
by both Parties.
15. The Parties indicate their knowing and voluntary acceptance of this
Agreement by their signatures below.
Dated: August ____, 1999 ____________________________________
Executive's Signature
Executive's Mailing Address:
____________________________________
____________________________________
____________________________________
CROWN VANTAGE, INC.
Dated: August ____, 1999 By _______________________________
Robert A. Olah, President & CEO
8
<PAGE>
Exhibit 10.8
SEPARATION AND GENERAL RELEASE AGREEMENT
----------------------------------------
The Parties to this Separation and General Release Agreement ("Agreement")
are Katie Cutler ("Executive") and Crown Vantage, Inc. ("the Company").
AGREEMENTS
1. Effective September 1, 1999, ("Effective Date") Executive's employment with
the Company will terminate as a result of the Company's executive office
relocation to Cincinnati, Ohio and Executive's decision not to relocate. This
also acknowledges the Executive's resignation from any and all officerships and
directorships of Crown Vantage Inc. and any of its affiliates as of the date of
severance. At the time of termination, Executive will receive all accrued
salary and all unused vacation pay. Separate and apart from these payments, and
as consideration to support this Agreement, Executive shall receive the
following additional Separation Benefits following execution of this Agreement:
(a) Additional Separation Pay. Fifty-two (52) weeks of base salary
--------------------------
continuation, excluding bonus eligibility or entitlement, at Executive's
final base salary rate less required deductions and withholdings.
(b) Additional Health, Dental, and Life Insurance Coverage. Company-paid
------------------------------------------------------
premiums for continued health, dental, employee life, and group life
insurance coverage for Executive and Executive's covered dependents at the
same rate and to the same extent Executive and his or her dependents are
covered by such plans on the Effective Date for the fifty-two (52) weeks of
Executive's salary continuation period, provided however that such coverage
will cease if the Executive becomes reemployed with another employer and is
eligible to receive health, dental of life insurance under an employer-
provided plan, or if Executive and Executive's dependents cease being
eligible for COBRA-continuation coverage under the Company's plans for any
other reason.
(c) Company-Provided Automobile. On the Effective Date, the Company will
----------------------------
cease providing Executive with an automobile at Company expense. However,
at the Executive's option, Executive may either assume the lease obligation
on the same terms and at the same rate as the Company was leasing the
automobile on the Effective Date, or may purchase the automobile on the
same terms and at the same rate as if the lease had expired.
(d) Restricted Stock. All Restricted Stock in effect on the Effective
-----------------
Date shall become immediately vested.
<PAGE>
(e) Stock Options. All Stock Options in effect on the Effective Date
--------------
shall become immediately vested in accordance with the terms of the Stock
Option Plan provided that such options must be exercised within 3 months of
the Effective Date during which time there shall be no further vesting.
2. As partial consideration for the promises contained in this Agreement,
Executive hereby waives, releases, and discharges the Company and its
affiliates, parents and subsidiaries, and its or their current or former
officers, board members, employees, attorneys, and/or agents from any
complaints, claims, charges, claims for relief, demands, suits, actions and/or
causes of action which Executive asserts, has asserted or could assert arising
from or in any way connected with Executive's employment relationship with the
Company and/or the termination of that employment. This includes, but is not
limited to, any "wrongful discharge" claims; all claims relating to any contract
of employment (express or implied); any covenant of good faith and fair dealing
(express or implied); any and all tort claims; any claims brought under any
federal, state, or municipal law, regulation or ordinance; any claims under
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act, the Older Workers' Benefit Protection Act, the
Worker Adjustment and Retraining Notification Act, the Employee Retirement
Income Security Act, the Americans with Disabilities Act, the California Fair
Employment and Housing Act, any labor and civil codes of the State of California
or any other state, and any and all claims for attorney fees and costs. This
waiver and release is intended to be full and complete, except for those
obligations that are created by this Agreement.
3. As further consideration for this Agreement, Executive hereby waives and
releases any and all rights under section 1542 of the California Civil Code.
California Civil Code section 1542 reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Executive agrees that this Agreement shall extend and apply to all unknown,
unsuspected and unanticipated injuries and damages as well as those of which
Executive is now aware, which arose before the signing of this Agreement.
4. As further consideration for this Agreement, the Parties agree that the
"Change of Control" Agreement entered into between Executive and the Company on
December 5, 1995 will be, and hereby is, made null and void.
5. If a Change of Control (as defined in Section 6 below) occurs during
Executive's fifty-two week salary continuation period, Executive, in addition to
the Separation Benefits defined in Section 1 of this Agreement, will receive the
following benefits:
(a) The sum of $276,280, and
2
<PAGE>
(b) For the Continuation Period (as defined below), Executive will again
be eligible for Company-paid health, dental, employee life, and group life
insurance benefits for Executive and Executive's dependents as and to the
extent those coverages were in effect on the Effective Date, or, if more
favorable to Executive, as are in effect generally immediately before the
Change of Control Date with respect to other peer executives of the Company
and their families, provided, however, that if Executive has become or
becomes reemployed with another employer and is eligible to receive health,
dental, or life insurance benefits under another employer-provided plan,
the life insurance benefits shall cease and the health and dental insurance
benefits shall be secondary to those provided under such other plan during
such applicable period of eligibility, and provided further that Executive
and Executive's dependents otherwise are and remain eligible for coverage
under the federal law COBRA. The Continuation Period shall be three years.
For purposes of determining eligibility (but not the time of commencement
of benefits) of Executive for retiree benefits pursuant to such insurance
plans, Executive shall be considered to have remained employed for three
years after the Change of Control Date and to have retired on the last date
of such period.
6. For the purpose of this Agreement, a Change of Control shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(a)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or
more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by the Company, (ii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iii) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii), and (iii) of subsection (c) of this Section 6; or
(b) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors of other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
3
<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
and its subsidiaries (a "Business Combination"), in each case, unless
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company and its subsidiaries.
7. (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 7 (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) , including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of
this Section 7(a), if it shall be
4
<PAGE>
determined that the Executive is entitled to a Gross-Up Payment, but that
the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $25,000
(taking into account both income taxes and any Excise Tax) as compared to
the net after-tax proceeds to the Executive resulting from an elimination
of the Gross-Up Payment and a reduction of the Payments, in the aggregate,
to an amount (the "Reduced Amount") such that the receipt of Payments would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations required
to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young, L.L.P., or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 7, shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section 7(c) and
the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
5
<PAGE>
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(a) or 7(c), the Executive becomes entitled to
6
<PAGE>
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
8. Executive represents that Executive does not have any lawsuits, charges,
administrative proceedings or any other action currently on file, lodged or
pending against the Company or its affiliates, parents, or subsidiaries or any
of its or their current or former officers, board members, employees, attorneys,
and/or agents, and further agrees that Executive will not file any lawsuit or
administrative charge or complaint against the Company or its affiliates,
parents, or subsidiaries or any of its or their current or former officers,
employees, board members, attorneys, and/or agents for actions occurring before
the execution of this Agreement. Executive shall cooperate with the Company in
the defense of any action brought against the Company or any agent of the
Company that relates in any way to Executive's acts or omissions or
responsibilities while employed by the Company. Notwithstanding any contrary
provision in this Agreement, to the extent and in accordance with that which is
permitted by the By-laws of the Company, the Company shall indemnify and hold
Executive harmless for any and all costs, liabilities, or obligations, including
attorneys fees, which Executive may incur as a result of litigation brought by
any third party against the Company and/or Executive.
9. The Parties understand and agree that this Agreement shall bind and benefit
their heirs, employees, officers, board members, agents, attorneys,
representatives, successors, predecessors and assigns.
10. Executive affirms and acknowledges that Executive has read and understands
this Agreement, that Executive may have at least 45 days to consider this
Agreement (although Executive may voluntarily elect to waive any of this
consideration period), and that Executive is hereby advised to consult with an
attorney regarding the terms of this Agreement. Executive accepts this
Agreement freely and voluntarily and with full knowledge of its effect.
11. This Agreement shall not become effective until 7 days after Executive has
signed this Agreement. This 7-day revocation period cannot be waived. In order
to be effective, a notice of revocation must be received by the Company before
expiration of the 7-day revocation period. Such notice shall be directed to:
Mr. Robert A. Olah, President and CEO
Crown Vantage, Inc.
7
<PAGE>
4555 Lake Forest Drive, Suite 630
Cincinnati, OH 45242
12. Executive acknowledges that, as of the Effective Date, she hereby resigns
all officerships and directorships of Crown Vantage Inc. and/or any of its
affiliates.
13. This Agreement constitutes the complete understanding between the Parties
and supersedes all prior or contemporaneous written or oral agreements between
the parties concerning its subject matter. Any modification of this Agreement
will be effective only if it is in writing and signed by the Parties to this
Agreement. If any provision of this Agreement is held invalid or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
14. Any and all disputes concerning this Agreement shall be resolved by binding
arbitration according to the Employment Dispute Resolution rules and procedures
of the American Arbitration Association. California substantive law shall
apply, and the Agreement shall be interpreted as though it were mutually drafted
by both Parties.
15. The Parties indicate their knowing and voluntary acceptance of this
Agreement by their signatures below.
Dated: August 29, 1999 ____________________________________
Executive's Signature
Executive's Mailing Address:
____________________________________
____________________________________
____________________________________
CROWN VANTAGE, INC.
Dated: August 24, 1999 By _______________________________
Robert A. Olah, President & CEO
8
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<PAGE>
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0
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