Exhibit 10.5
EMPLOYMENT AGREEMENT
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AGREEMENT, dated as of the 20th day of November, 2003, by and among Michael
Foods, Inc., a Delaware corporation having its principal executive offices in
Minnetonka, Minnesota (the "Company"), James D. Clarkson (the "Executive"), and
for the purposes of Section 6 hereof, THL Food Products Holding Co., a Delaware
corporation and controlling entity of the Company ("Holdings").
WHEREAS, Executive currently serves as a senior executive officer of the
Company;
WHEREAS, the Company recognizes the Executive's substantial contribution to
the growth and success of the Company, desires to provide for the continued
employment of the Executive and to make certain changes in the Executive's
employment arrangements with the Company, which the Board has determined will
reinforce and encourage the continued attention and dedication to the Company of
the Executive as a member of the Company's senior management in the best
interests of the Company and its shareholders;
WHEREAS, the Executive is willing to continue to serve the Company on the
terms and conditions set forth below;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. Subject to the terms and conditions of this
Agreement, including Section 3, the Company hereby agrees to continue to employ
the Executive, and the Executive hereby agrees to continue in the employ of the
Company, for the period commencing on the date hereof (the "Effective Date") and
ending on the second anniversary of such Effective Date (the "Employment
Period"), provided, however, that commencing on the first anniversary of the
Effective Date and each subsequent anniversary thereafter, the Employment Period
shall automatically be extended for one additional year.
2. Terms of Employment.
a. Position and Duties.
i. During the Employment Period, the Executive shall serve as
Chief Operating Officer of the Company with the appropriate authority,
duties and responsibilities attendant to such positions.
ii. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time
during his 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.
b. Compensation.
i. Annual Base Salary. Effective immediately, and during the
Employment Period, the Executive shall receive an annual base salary
("Annual Base Salary") of at least $400,000, the competitiveness of
which shall be periodically reviewed and adjusted in accordance with
Company policy. 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. During the Employment Period, the Executive
shall participate in such bonus arrangements as may be approved by the
Compensation Committee of the Board (the "Compensation Committee")
(the aggregate of all payments made under such bonus arrangements
being herein referred to as the "Annual Bonus"). Executive's aggregate
bonus opportunity will be no less than 100% of Annual Base Salary and
the "Target Bonus" will be no less than 65% of Annual Base Salary or
greater as determined by the Compensation Committee. The Annual Bonus
shall be paid within two and one-half months of the end of the fiscal
year of the Company to which it relates. If a Change in Control
occurs, the Executive shall be paid at least the Target Bonus for the
year in which such Change in Control occurs and in each subsequent
year of continuing employment until the end of the Employment Period.
iii. Long-Term Incentive Plans. The Executive shall participate
in long-term incentive plans including all stock option plans and
other long-term incentive plans the Company may adopt from time to
time on a basis no less favorable than that provided to any other
executive officer of the Company.
iv. Other Employee Benefit Plans. During the Employment Period,
except as otherwise expressly provided herein, the Executive shall be
entitled to participate in all compensation, incentive, employee
benefit, welfare and other plans, practices, policies and programs and
fringe benefits on a basis no less favorable than that provided to any
other executive officer of the Company.
v. Other Benefits. During the Employment Period, the Company
shall reimburse the Executive for $1,500 per month for expenses
related to the lease, maintenance, taxes and upkeep of an automobile
of the Executive's choice.
3. 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
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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; provided that, in the event the
Executive has been unable to perform his job responsibilities as a result
of chronic illness, physical, mental or any other disability for 240 or
more days in any consecutive 12 month period or 270 or more days in any
consecutive 24 month period, then the Company shall be able to terminate
the Executive's employment without providing the written notice referred to
above (and the "Disability Effective Date" shall be the date of such
termination). For purposes of this Agreement, "Disability" shall mean a
determination by the Company in its sole discretion that Executive is
unable to perform his job responsibilities as a result of chronic illness,
physical, mental or any other disability for a period of six months or
more.
b. With or Without Cause. The Company may terminate the Executive's
employment during the Employment Period with or without Cause. For purposes
of this Agreement, "Cause" shall mean:
i. the continued failure of the Executive to perform
substantially 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), after a written demand for substantial
performance is delivered to the Executive by the Board which
specifically identifies the manner in which the Board believes that
the Executive has not substantially performed the Executive's duties,
or
ii. the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company, or
iii. conviction of a felony or guilty or nolo contendere plea by
the Executive with respect thereto.
iv. For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer (while the
Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive shall not
be deemed to be for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than 75% of the entire membership of the
Board (excluding the Executive) at a meeting of the Board called and
held for
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such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be
heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in
subparagraph (i), (ii) or (iii) above, and specifying the particulars
thereof in detail.
c. Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean in the absence of a written consent of the Executive:
i. the assignment to the Executive of any duties inconsistent
with the Executive's title and position (including status, offices and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 2(a)(i) of this Agreement, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; provided that it is specifically
understood that within six months of a Change in Control the Company
shall have the flexibility to appoint the Executive to a reporting
relationship different from that which existed prior to the Change in
Control, to make an immaterial change in Executive's duties, or to
change the Executive's title provided that Executive shall not have a
stature less than that of Chief Operating Officer of a business unit
of the size of the Company, and it is understood that equivalent
positions may have different titles;
ii. any failure by the Company to comply with any of the
provisions of Section 2(b) of this Agreement or the failure by the
Company to increase such base salary each year after a Change in
Control by an amount which at least equals on a percentage basis, the
mean average percentage increase in base salary for all employees
similarly situated during the two (2) full calendar years immediately
preceding a Change in Control, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
iii. the failure of the Company upon a Change in Control to (A)
continue in effect any employee benefit plan, compensation plan,
welfare benefit plan or material fringe benefit plan in which
Executive is participating immediately prior to such Change in Control
or the taking of any action by the Company which would adversely
affect Executive's participation in or reduce Executive's benefits
under any such plan, unless Executive is permitted to participate in
other plans providing Executive with substantially equivalent
benefits, or (B) provide Executive with paid vacation in accordance
with the most favorable past practice of the Company as in effect for
Executive immediately prior to such Change in Control;
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iv. any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement for
Cause, death or Disability;
v. any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
vi. any requirement that the Executive (A) be based anywhere
more than fifty (50) miles from the office where the Executive is
currently located or (B) travel on Company business to an extent
substantially greater than the Executive's current travel obligations.
d. Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by 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 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 Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
e. Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company other than for
Disability, the date of receipt of the Notice of Termination or any later
date specified therein within 30 days of such notice, (ii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the
case may be, and (iii) if the Executive's employment is terminated by the
Executive, thirty days after the giving of such notice by the Executive
provided that the Company may elect to place the Executive on paid leave
for all or any part of such 30-day period.
f. Change in Control. "Change in Control" means the consummation of
a transaction, whether in a single transaction or in a series of related
transactions that are consummated contemporaneously (or consummated
pursuant to contemporaneous agreements), with any other party or parties on
an arm's-length basis, pursuant to which (a) such party or parties,
directly or indirectly, acquire (whether by merger, stock purchase,
recapitalization, reorganization, redemption, issuance of capital stock or
otherwise) more than 50% of the voting stock of the Company, (b) such party
or parties, directly or indirectly, acquire assets constituting all or
substantially all of the assets of the Company and its subsidiaries on a
consolidated basis, or (c) prior to an initial public
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offering of the Company Common Stock pursuant to an offering registered
under the 1933 Act, Thomas H. Lee Equity Fund V, L.P., a Delaware limited
partnership, and its affiliates cease to have the ability to elect,
directly or indirectly, a majority of the Board of Directors of the
Company.
4. Obligations of the Company upon Termination.
a. Death or Disability. If, during the Employment Period, the
Executive's employment shall terminate on account of death or Disability:
i. the Company shall pay to the Executive or his estate or
beneficiaries in a lump sum in cash within 30 days after the Date of
Termination the sum of (x) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, and (y)
the product of (1) the Target Bonus and (2) a fraction, the numerator
of which is the number of whole and partial months in the fiscal year
in which the Date of Termination occurs through the Date of
Termination and the denominator of which is 12, to the extent not
theretofore paid (the sum of the amounts described in clauses (x) and
(y) shall be hereinafter referred to as the "Accrued Obligations");
ii. to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive or his estate or
beneficiaries any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under any plan,
program, policy or practice of or contract or agreement with the
Company and its affiliated companies through the Date of Termination
(such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits"); and
iii. the Company shall pay to the Executive or his estate or
beneficiaries in a lump sum in cash within 30 days after the Date of
Termination an amount equal to the product of (x) two (2) and (y) the
sum of the Executive's current Annual Base Salary and Target Bonus.
b. By the Company for Cause; By the Executive Other than for Good
Reason. If the Executive's employment is terminated for Cause or the
Executive terminates his employment without Good Reason during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (i) his Annual Base Salary through the Date of Termination to the
extent theretofore unpaid and (ii) the Other Benefits.
c. By the Company Other than for Cause, Death or Disability; By the
Executive for Good Reason. If, during the Employment Period, the Executive's
employment is terminated by the Executive for Good Reason or by the Company
other than for Cause and other than on account of death or Disability:
i. the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the sum of:
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1. the Accrued Obligations; and
2. the amount equal to the product of (x) two (2) and (y) the sum of
the Executive's current Annual Base Salary and Target Bonus;
ii. the Company shall provide the Executive with the Other Benefits;
and
d. Welfare Benefits. In the event of a termination described in
Section 4(a) or 4(c), for a period of two (2) years following Executive's Date
of Termination the Company shall continue to provide medical, dental and life
insurance benefits to the Executive, his spouse and children under age 25 on the
same basis, including without limitation employee contributions, as such
benefits are then currently provided to the Executive ("Welfare Benefits");
provided that the provision of such Welfare Benefits shall cease in the event
Executive becomes eligible to receive comparable benefits from another employer
(either because he becomes employed by, or becomes an independent contractor
with respect to such employer).
5. Noncompetition and Nonsolicitation. Executive acknowledges that in the
course of his employment with the Company he will become familiar with the
Company's and its subsidiaries' trade secrets and other confidential information
concerning the Company and such subsidiaries and that his services will be of
special, unique and extraordinary value to the Company and its subsidiaries.
Therefore, Executive agrees that:
a. Noncompetition. During the period commencing on the Effective
Date and ending on the second anniversary of the date Executive's
employment with the Company terminates (such period the "Restricted
Period"), Executive shall not, for himself or on behalf of any other
person, firm, partnership, corporation, or other entity, engage, directly
or indirectly, as an executive, agent, representative, consultant, partner,
shareholder or holder of any other financial interest, in any business that
competes with the Company in the business of the production, distribution
or sales of eggs or egg products, refrigerated potato products or branded
cheese products (a "Competing Business"), it being understood and agreed
that Executive shall not be in violation of this restriction where
Executive is employed by a person, firm, partnership, corporation, or other
entity engaged in a variety of activities, including the Competing
Business, so long as Executive is not engaged in or responsible for the
Competing Business of such entity. Nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding publicly
traded stock of any class of a Competing Business so long as Executive has
no active participation in the business of such entity, except to the
extent permitted above. Executive acknowledges that this Agreement, and
specifically, this Section 5 does not preclude Executive from earning a
livelihood, nor does it unreasonably impose limitations on Executive's
ability to earn a living. In addition, Executive agrees and acknowledges
that the potential harm to the Company of its non-enforcement outweighs any
harm to Executive of its enforcement by injunction or otherwise.
b. Nonsolicitation. During the Restricted Period, Executive shall
not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or its subsidiaries to leave the employ
of the Company or its subsidiaries, or in
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any way interfere with the relationship between the Company or any of its
subsidiaries and any employee thereof, (ii) knowingly hire any person who
was an employee of the Company or any of its subsidiaries within 180 days
prior to the time such employee was hired by Executive, (iii) induce or
attempt to induce any customer, supplier, licensee or other business
relation of the Company or any of its subsidiaries to cease doing business
with the Company or its subsidiaries or in any way interfere with the
relationship between any such customer, supplier, licensee or business
relation and the Company or any subsidiary or (iv) directly or indirectly
acquire or attempt to acquire an interest in any business relating to the
business of the Company or any of its subsidiaries and with which the
Company or any of its subsidiaries has entertained discussions or has
requested and received information relating to the acquisition of such
business by the Company or its subsidiaries in the one-year period
immediately preceding Executive's termination of employment with the
Company.
c. Enforcement. The parties to this Agreement hereby agree and
stipulate that (i) the restrictions contained in this Agreement are
reasonable and necessary in order to protect the Company's and its
subsidiaries' legitimate business interests and (ii) in the event of any
breach or violation of this Agreement or of any provision hereof by
Executive, the Company and its subsidiaries will have no adequate remedy at
law and will suffer irreparable loss and damage thereby. The parties hereby
further agree and stipulate that in the event of any such breach or
violation, either threatened or actual, the Company's and its subsidiaries'
rights shall include, in addition to any and all other rights available to
the Company and its subsidiaries at law or in equity, the right to seek and
obtain any and all injunctive relief or restraining orders available to it
in courts of proper jurisdiction, so as to prohibit, bar, and restrain any
and all such breaches or violations by Executive. The prevailing party to
any legal action, arbitration or other proceeding commenced in connection
with enforcing any provision of this Section 5, including without
limitation, obtaining the injunctive relief provided by this Section 5
shall be entitled to recover all court costs, reasonable attorneys' fees,
and related expenses incurred by such party. Executive further agrees that
no bond need be filed in connection with any request by the Company and its
subsidiaries for a temporary restraining order or for temporary or
preliminary injunctive relief.
d. Additional Acknowledgments. Executive acknowledges that the
provisions of this Section 5 are in consideration of: (i) employment with
the Company, (ii) the issuance by THL-MF Investors, LLC, a Delaware limited
liability company ("Investors"), to Executive of Investors' Class A Units,
Investors' Class B Units and Investors' Class C Units pursuant to the terms
of that certain Management Unit Subscription Agreement, dated as of the
date hereof, by and between Investors and Executive (the "Management Unit
Subscription Agreement"), and (iii) additional good and valuable
consideration as set forth in this Agreement. In addition, Executive
acknowledges (i) that the business of the Company and its subsidiaries is
national in scope and without geographical limitation and (ii)
notwithstanding the state of incorporation or principal office of the
Company or any of its subsidiaries, or any of their respective executives
or employees (including the Executive), it is expected that the Company
will have business activities and have valuable business relationships
within its
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industry throughout the United States. Executive acknowledges that he has
carefully read this Agreement and has given careful consideration to the
restraints imposed upon Executive by this Agreement, and is in full accord
as to their necessity for the reasonable and proper protection of
confidential and proprietary information of the Company and its
subsidiaries now existing or to be developed in the future. Executive
expressly acknowledges and agrees that each and every restraint imposed by
this Agreement is reasonable with respect to subject matter, time period
and geographical area.
6. Deferral of Certain Compensation. The Company will defer certain
amounts payable to the Executive in accordance with and pursuant to a Deferred
Compensation Plan in the form attached hereto as Exhibit A, and an election form
attached thereto.
7. 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,
program, contract or agreement except as explicitly modified by this Agreement;
provided that the Executive shall not be eligible for severance benefits under
any other program or policy of the Company.
8. 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) pursued or defended against in
good faith by the Executive regarding 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 Code.
9. Certain Additional Payments by the Company.
a. Anything in this Agreement to the contrary notwithstanding and
except as set forth below, 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 9) (a "Payment")
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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; provided,
however, that, (i) with respect to the transaction contemplated by that
certain Agreement and Plan of Merger dated October 10, 2003 by and among
THL Food Products Co., M-Foods Holdings, Inc., as amended, and the
Shareholders of M-Foods Holdings, Inc., the Company shall in no event be
required to make any Gross-Up Payment to any employee of the Company or its
Subsidiaries with respect to such transaction, to the extent that, when
taken together with all Gross-Up Payments made to all employees in respect
of such transaction, the Gross-Up Payments would exceed $6,300,000 in the
aggregate and (ii) with respect to any transaction (or series of related
transactions giving rise to such Excise Tax) other than the one described
in clause (i), the Company shall in no event be required to make any
Gross-Up Payment to any employee of the Company or its Subsidiaries with
respect to any such transaction, to the extent that, when taken together
with all Gross-Up Payments made to all other employees in respect of such
transaction, the Gross-up Payments would exceed $16,300,000 in the
aggregate; provided further that in the event the aggregate amount of
Gross-Up Payments required to be made by the Company in connection with any
transaction, together with any Gross-Up Payments made in respect of all
previous transactions occurring on or after the date hereof, exceeds the
applicable limitation set forth in the preceding sentence, the Executive
shall be entitled to receive the lesser of (i) the actual amount of
Gross-Up Payment payable to the Executive as calculated above or (ii) a pro
rata portion of the aggregate Gross-Up Payments paid by the Company to all
employees (such pro rata portion to be determined based upon the ratio of
(A) the full Gross-Up Payment the Executive would be otherwise entitled to
receive hereunder but for such limitation, to (B) the full aggregate
Gross-Up Payments to be paid to all employees but for such limitation). For
purposes of this Agreement, the term "Reduced Amount" shall mean the
greatest amount that could be paid to the Executive such that the receipt
of Payments would not give rise to any Excise Tax. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined that
the Executive is entitled to a Gross-Up Payment, but that the Payments do
not exceed 120% of the Reduced Amount, 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 9(c), all determinations
required to be made under this Section 9, 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 the Company's independent auditors or such other certified public
accounting firm reasonably acceptable to the Executive as may be designated
by the Company (the "Accounting Firm") which shall provide detailed
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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. 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 9,
shall be paid by the Company to the Executive not later than the due date
for the payment of any Excise Tax. 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 9(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 to
effectively 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
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the foregoing provisions of this Section 9(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 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall 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 9(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.
e. Notwithstanding anything contained herein to the contrary, in
connection with any transaction or series of transactions occurring after
the date hereof, the Executive shall not be entitled to any Gross-Up
Payment unless the Executive shall have provided to the Company such
documentation as the Company may reasonably request to permit the Company
to claim that a portion of the Payments do not constitute "parachute
payments" under Section 280G of the Code. The Executive shall only be
required to deliver such documentation with respect to an amount of the
Payments in excess of the Reduced Amount.
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
12
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.
11. Miscellaneous.
a. This Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota, 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:
James D. Clarkson
-----------------------
-----------------------
If to the Company:
Michael Foods, Inc.
301 Carlson Parkway
Suite 400
Minnetonka, MN 55305
Telecopy Number: (612) 546-3711
Attention: Secretary
with a copy to:
Thomas H. Lee Equity Fund V, L.P.
c/o Thomas H. Lee Partners, L.P.
13
75 State Street
Boston, MA 02109
Attention: Anthony J. DiNovi
Kent Weldon
Todd Abbrecht
and a copy to:
Weil, Gotshal & Manges LLP
100 Federal Street
34th Floor
Boston, MA 02110
Attention: James Westra, Esq.
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. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
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, including,
without limitation, the right of the Executive to terminate employment for
Good Reason pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
f. From and after the Effective Date this Agreement shall supersede
any other employment agreement between the parties with respect to the
subject matter hereof. Without limiting the foregoing, the parties hereby
acknowledge that certain Employment Agreement dated as of April 10, 2001
between the Company, Holdings and the Executive is hereby terminated in all
respects and shall have no further force or effect.
g. Subject to the provisions of Section 3(d), there shall be no
limitation on the ability of the Company to terminate the Executive at any
time with or without Cause.
***Remainder Of Page Intentionally Left Blank***
14
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.
/s/ James D. Clarkson
----------------------------------------
James D. Clarkson
MICHAEL FOODS, INC.
By: /s/ John D. Reedy
-------------------------------------
Title:
----------------------------------
THL FOOD PRODUCTS HOLDING CO.
By: /s/ John D. Reedy
-------------------------------------
Title:
----------------------------------
15