EXHIBIT 10.10
[EXECUTION COPY]
MICHAEL FOODS, INC.
SEVERANCE AND
DEFERRED COMPENSATION
AGREEMENT
AGREEMENT, made effective April 10, 2001, by and among Michael Foods,
Inc., a Minnesota corporation (the "Company"), Harold D. Sprinkle ("Employee")
and, for purposes of Section 4 hereof, M-Foods Holdings, Inc., a Delaware
corporation ("Holdings").
Preliminary Statements:
1. The Company considers the establishment and maintenance of a sound and vital
management team essential to protecting and enhancing its best interest and
the best interests of the Company's shareholders.
2. In this connection, the Company recognizes that the possibility of a change
in control of the Company exists and that such possibility and the
uncertainty and questions which it may raise among management personnel, may
result in the departure or distraction of such personnel to the detriment of
the Company and the Company's shareholders.
3. Accordingly, the Company has adopted a Severance Plan for Eligible Employees
of Michael Foods, Inc. and its subsidiaries, as amended (the "Plan"), and
the Board of Directors of the Company ("Board") has directed management of
the Company to implement such Plan.
4. In addition, the Company recognizes the Employee's substantial contribution
to the growth and success of the Company and for this reason has decided to
make certain changes in the Employee's compensation arrangements, which the
Board has determined will reinforce and encourage the continued attention
and dedication to the Company of the Employee as a member of the Company's
senior management in the best interests of the Company and its shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and in order to induce Employee to remain in the Company's
employ, the parties hereto hereby agree as follows:
1. PARTICIPATION IN PLAN. Employee is hereby designated a "Key Employee" for
purposes of the Plan and is eligible for the severance benefits provided
therein. Such benefits shall be in lieu of any further salary payments to
Employee for periods subsequent to termination of employment, to the extent
Employee becomes eligible for such severance payments by reason of
termination of employment.
2. TERM. This Agreement shall commence on the date hereof and shall continue in
effect until the Plan has been terminated. From and after the date hereof,
this Agreement shall supersede any other agreement between the parties
hereto with respect to the subject matter hereof.
3. PLAN. This Agreement hereby incorporates by reference the terms(1) and
conditions of the Plan which shall be binding upon Employee.
4. DEFERRAL OF CERTAIN COMPENSATION In connection with the Employee's agreement
to cancel all of his options to acquire Company Common Stock pursuant to the
terms of that certain Option Cancellation Agreement, dated as of the date
hereof, by and between the Employee and the Company, the Company shall (a)
pay to Employee an amount equal to $15,757.50 (the "Cancellation Payment")
and (b) rollover an amount equal to $384,000 (the "Deferred Amount") to an
unfunded, unsecured nonqualified deferred compensation arrangement
established for this purpose (the "Deferred Account"). Each of the Employee,
the Company and Holdings agrees that Holdings, through an intercompany
transfer, shall assume all obligations associated with the Deferred Amount.
The Cancellation Payment shall be paid by the Company to the Employee on the
Effective Date, or as soon as reasonably practicable thereafter.
With respect to the Deferred Account, the Deferred Amount shall be deemed to
be invested (i.e., an actual investment will not be made), as of the
Effective Date, in (A) 3,840 Class A Units (the "Investors A Units") of
M-Foods Investors, LLC, a Delaware limited liability company ("Investors")
and (B) 3,840 Class A Units (the "Dairy A Units") of M-Foods Dairy Holdings,
LLC, a Delaware limited liability company ("Dairy Holdings"). Holdings shall
credit Employee's Deferred Account with certain of the distributions that
would be received by the Deferred Account if such Deferred Account were
actually invested in the manner set forth in the preceding sentence in
Investors A Units and Dairy A Units, the extent of such crediting to be in
accordance with the calculations set forth in the following two paragraphs.
All amounts in the Employee's Deferred Account shall be subject to the
claims of the creditors of Holdings.
With respect to the Investors A Units, Holdings shall credit Employee's
Deferred Account with any distributions made in respect of such Investors A
Units pursuant to or in accordance with Sections 4.4(a)(i) and 4.4(a)(ii) of
the Investors' Amended and Restated Limited Liability Company Agreement,
dated April 10, 2001 (the "Investors LLC Agreement"). In the event Investors
distributes non-cash property to holders of Investors A Units pursuant to
Sections 4.4(a)(i) or 4.4(a)(ii) of the Investors LLC Agreement, Holdings
shall credit Employee's Deferred Account in an amount equal to the fair
market value of such property, as determined by the Management Committee of
Investors. Employee's Deferred Account shall not be credited with any
distributions made in respect of Investors A Units pursuant to or in
accordance with any subsections of Section 4.4 of the Investors LLC
Agreement other than Sections 4.4(a)(i) and 4.4(a)(ii) thereof. In the event
that Investors A Units are sold by
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(1) All definitions contained herein will be conformed to substantially
mirror, as appropriate, the definitions contained in (the "Management Stock
Purchase and Unit Subscription Agreement").
one or more holders of Investors A Units to a buyer unrelated on the date
hereof to the holders of Investors A Units, Holdings shall credit Employee's
Deferred Account with an amount equal to the result of (x) the percentage of
outstanding Investors A Units being purchased by an unrelated buyer
(including, for purposes of this percentage calculation, the number of
Investors A Units deemed held by the Deferred Account and any other
unfunded, unsecured nonqualified deferred compensation arrangements
similarly established to be deemed to hold Investors A Units) multiplied by
(y) the number of Investors A Units deemed held in the Deferred Account
multiplied by (z) the lesser of (i) the amount of cash or fair market value
of any property, as determined by the Management Committee of Investors,
received by holders of Investors A Units in exchange for an Investors A Unit
and (ii) the sum of the Unreturned Capital and Unpaid Preferred Return (as
such terms are defined in the Investors LLC Agreement) of an Investors A
Unit (assuming such Investors A Unit was issued on the Closing Date, as such
term is defined in the Employee's Management Stock Purchase and Unit
Subscription Agreement, dated as of the date hereof, by and between the
Employee and Investors (the "Management Stock Purchase and Unit Subscription
Agreement")); it being understood and agreed that any distribution made
pursuant to this sentence shall, with respect to future distributions,
reduce the number of Investors A Units deemed held by the Deferred Account
by the percentage described in subclause (x) of this sentence.
With respect to the Dairy A Units, Holdings shall credit Employee's Deferred
Account with any distributions made in respect of such Dairy A Units
pursuant to or in accordance with Sections 4.4(a)(ii) and 4.4(a)(iii) of the
Limited Liability Company Agreement of Dairy Holdings, dated April 10, 2001
(the "Dairy Holdings LLC Agreement"). In the event Dairy Holdings
distributes non-cash property to holders of Dairy A Units pursuant to
Sections 4.4(a)(ii) or 4.4(a)(iii) of the Dairy Holdings LLC Agreement,
Holdings shall credit Employee's Deferred Account in an amount equal to the
fair market value of such property, as determined by the Management
Committee of Dairy Holdings. Employee's Deferred Account shall not be
credited with any distributions made in respect of Dairy A Units pursuant to
or in accordance with any subsections of Section 4.4 of the Dairy Holdings
LLC Agreement other than Sections 4.4(a)(ii) and 4.4(a)(iii) thereof. In the
event that Dairy A Units are sold by one or more holders of Dairy A Units to
a buyer unrelated on the date hereof to the holders of Dairy A Units,
Holdings shall credit Employee's Deferred Account with an amount equal to
the result of (x) the percentage of outstanding Dairy A Units being
purchased by an unrelated buyer (including, for purposes of this percentage
calculation, the number of Dairy A Units deemed held by the Deferred Account
and any other unfunded, unsecured nonqualified deferred compensation
arrangements similarly established to be deemed to hold Dairy A Units)
multiplied by (y) the number of Dairy A Units deemed held in the Deferred
Account multiplied by (z) the lesser of (i) the amount of cash or fair
market value of any property, as determined by the Management Committee of
Dairy Holdings, received by holders of Dairy A Units in exchange for a Dairy
A Unit and (ii) the sum of the Unreturned Capital and Unpaid Preferred
Return (as such terms are defined in the Dairy Holdings LLC Agreement) of a
Dairy A Unit (assuming such Dairy A Unit was issued on the Closing Date, as
such term is defined in the Dairy Unit Subscription Agreement, dated as of
the date hereof, between Dairy Holdings and the Employee (the "Dairy Unit
Subscription
Agreement")); it being understood and agreed that any distribution made
pursuant to this sentence shall, with respect to future distributions,
reduce the number of Dairy A Units deemed held by the Deferred Account by
the percentage described in subclause (x) of this sentence.
Employee shall receive from Holdings distributions from his Deferred
Account, in the amount indicated, upon the occurrence of the following
events: (i) upon a Change in Control, Employee shall receive a total
distribution of the amount then deemed held in the Deferred Account; (ii)
upon the tenth anniversary of the date hereof, Employee shall receive a
total distribution of the amount then deemed held in the Deferred Account;
(iii) upon the purchase by Investors of any of Employee's Class B Units
pursuant to Section 7.2 of the Employee's Management Stock Purchase and Unit
Subscription Agreement, Employee shall receive a distribution from the
Deferred Account equal to the result of (x) the percentage of Employee's
Class B Units being purchased by Investors multiplied by (y) the number of
Investors A Units deemed held in the Deferred Account multiplied by (z) the
lesser of (A) the fair market value of an Investors A Unit, as determined by
the Management Committee of Investors and (B) the sum of the Unreturned
Capital and Unpaid Preferred Return (as such terms are defined in the
Investors LLC Agreement) of an Investors A Unit (assuming such Investors A
Unit was issued on the Closing Date, as such term is defined in the
Employee's Management Stock Purchase and Unit Subscription Agreement); it
being understood and agreed that any distribution made pursuant to clause
(iii) of this sentence shall, with respect to future distributions, reduce
the number of Investors A Units deemed held by the Deferred Account by the
percentage described in subclause (x) of such clause (iii); and (iv) upon
the purchase by Dairy Holdings of any of Employee's Class B Units pursuant
to Section 7.2 of the Employee's Dairy Unit Subscription Agreement, Employee
shall receive a distribution from the Deferred Account equal to the result
of (x) the percentage of Employee's Class B Units being purchased by Dairy
Holdings multiplied by (y) the number of Dairy A Units deemed held in the
Deferred Account multiplied by (z) the lesser of (A) the fair market value
of a Diary A Unit, as determined by the Management Committee of Dairy
Holdings and (B) the sum of the Unreturned Capital and Unpaid Preferred
Return (as such terms are defined in the Dairy Holdings LLC Agreement) of a
Dairy A Unit (assuming such Dairy A Unit was issued on the Closing Date, as
such term is defined in the Employee's Dairy Unit Subscription Agreement);
it being understood and agreed that any distribution made pursuant to clause
(iv) of this sentence shall, with respect to future distributions, reduce
the number of Dairy A Units deemed held by the Deferred Account by the
percentage described in subclause (x) of such clause (iv). The form of
payment made with respect to any of the foregoing distributions shall be a
cash payment except that (1) in the event of a Change in Control in which
the consideration effecting such Change in Control is non-cash
consideration, such distribution may be made in the form of such non-cash
consideration, the fair market value of which shall be determined by the
Management Committee of Investors, and (2) in the event of a distribution of
the type described in clause (iii) or (iv) above, if, with respect to
Holdings, any of the Cash Deferral Conditions (as such term is defined in
the Employee's Management Stock Purchase and Unit Subscription Agreement)
exists, the portion of the cash payment so affected may be made by the
delivery of Holdings' unfunded and unsecured promise to pay Employee the
portion of the cash payment so affected in cash,
together with interest, at the first date on which the Cash Deferral
Conditions no longer exist. The interest on such delayed cash payment will
accrue annually at the "prime rate" published by The Wall Street Journal on
the date Holdings delivers its unfunded and unsecured promise.
5. BINDING AGREEMENT. This Agreement shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. If
the Employee should die while any amounts would still be payable to the
Employee hereunder if the Employee had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the Employee's devisee, legatee, or other designee or,
if there be no such designee, to the Employee's estate.
6. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed
to have been duly given when personally delivered, telecopied (with
confirmation of receipt), one day after deposit with a reputable overnight
delivery service (charges prepaid) and three days after deposit in the U.S.
Mail (postage prepaid and return receipt requested) to, if to the Company,
the address then- provided by the Company as its corporate headquarters and,
if to the Employee, the address shown on the unit register of Investors.
7. EMPLOYEE AT WILL. Nothing in this Agreement or in the Plan shall be
construed as to make the Employee anything other than an Employee at Will of
the Company. The Company may terminate the Employee's employment with or
without cause, however defined, either before or after a Change in Control
as defined in the Plan.
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be authorized by
the Board. No waiver by either party hereto, at any time of any breach by
the other party hereto of or compliance with any condition or provision of
this Agreement to be performed by such other party, shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same, or at any
prior or subsequent, time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. It is intended that the benefits payable hereunder shall be
considered paid to the Employee for the Employee's past services to the
Company and continuing services from the date hereof.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
The validity of this Agreement and the interpretation thereof shall be
governed by and construed in accordance with the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first written above.
MICHAEL FOODS, INC.
By: /s/ John D. Reedy
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Its: Executive Vice President
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M-FOODS HOLDINGS, INC.
By: /s/ J. Christopher Henderson
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Its: Vice President
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/s/ Harold D. Sprinkle
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Harold D. Sprinkle