Exhibit 10.7
[Execution Copy]
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 10th day of April, 2001, by
and among MICHAEL FOODS, INC., a Minnesota corporation (the "Company") JAMES D.
CLARKSON (the "Executive") and for the purposes of Section 8 hereof, M-Foods
Holdings, Inc., a Delaware corporation and controlling entity of the Company
("Holdings").
WHEREAS, Executive has served as President of an operating company
subsidiary of Michael Foods, Inc.; and
WHEREAS, Company and Executive have agreed to enter into this Agreement
effective as of the date hereof.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
1. Employment and Duties. Company shall employ Executive to serve as
President of Northern Star Company and President of Kohler Mix Specialties, Inc.
and in such capacities Executive shall perform such duties as the bylaws provide
and as the CEO of the Company may from time to time determine.
2. Term. This Agreement shall be effective as of the date hereof (the
"Effective Date") and shall continue until the second anniversary of a Change in
Control (as defined below), unless earlier terminated as provided herein (the
"Employment Period"). The Employment Period may be extended thereafter upon the
written agreement of the parties hereto.
3. Annual Base Salary. For all services by Executive, the Company agrees
to pay to Executive an annual base salary of at least $250,000 (the "Annual Base
Salary").
4. Additional Benefits and Working Facilities.
a. 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 62.5% 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.
b. Other Benefits. Executive shall be entitled to participate in all
compensation, incentive, employee benefit, welfare and other plans,
practices, policies and programs and
fringe benefits, including vacation policy (collectively, "Employee
Benefit Plans") on a basis no less favorable than that provided to any
other executive officer of the Company.
c. Expenses. The Company shall reimburse Executive for all
reasonable expenses incurred by Executive in connection with the Company's
business, including but not limited to, expenses of travel and
entertainment, upon presentation of itemized statements therefor.
5. 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 12 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 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.
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
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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 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) upon, or in anticipation of, a Change in Control, 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 1 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 after 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 an
operating company President, 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 3 of this Agreement or the failure by the
Company to increase such Annual 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 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
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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;
(iv) after, or in anticipation of, a Change in Control, 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 11(c) of this Agreement; or
(vi) after, or in anticipation of, a Change in Control, any
requirement that the Executive (A) be based anywhere more than 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 12(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 provisions 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 30 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, 30 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.
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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 offering of the
Company Common Stock pursuant to an offering registered under the 1933
Act, Vestar Capital Partners IV, 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.
6. 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 Executive's current Annual Base
Salary.
b. By the Company for Cause; By the Executive Other than for Good
Reason.
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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, but prior to
a Change in Control, 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:
(A) the amount of Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid;
and
(B) an amount equal to the Executive's current Annual
Base Salary; and
(ii) the Company shall provide the Executive with the Other
Benefits.
d. After, or in Anticipation of a Change in Control By the Company
Other than for Cause or By the Executive for Good Reason. If the
Executive's employment shall be terminated by the Company other than for
Cause or the Executive terminates his employment for Good Reason in
anticipation of or within two years following a Change in Control:
(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:
(A) the Accrued Obligations; and
(B) an amount equal to the product of (x) two and (y)
Executive's current Annual Base Salary; and
(ii) the Company shall provide the Executive with the Other
Benefits.
7. 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:
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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 refrigerated potato products or specialty dairy
products and mixes (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 7, 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 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
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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 7, including without limitation, obtaining the injunctive relief
provided by this Section 7 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 7 are in consideration of: (i) employment with
the Company, (ii) the issuance by M-Foods Investors, LLC, a Delaware
corporation and affiliate of the Company ("Investors"), to Executive of
Investors' Class B Units (the "Class B Units") and Investors' Class C
Units pursuant to the terms of that certain Management Stock Purchase and
Unit Subscription Agreement, dated as of the date hereof, by and between
Investors and Executive (the "Management Stock Purchase and 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 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.
8. Deferral of Certain Compensation. In connection with the Executive'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 Executive and the Company, the Company shall (a) pay
to Executive an amount equal to $64,448.50 (the "Cancellation Payment") and (b)
rollover an amount equal to $1,152,000 (the "Deferred Amount") to an unfunded,
unsecured nonqualified deferred compensation arrangement established for this
purpose (the "Deferred Account"). Each of the Executive, 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 Executive on the Effective Date, or as soon
as reasonably practicable thereafter.
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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) 11,520 Class A Units of Investors (the "Investors A
Units") and (B) 11,520 Class A Units (the "Dairy A Units") of M-Foods Dairy
Holdings, LLC, a Delaware limited liability company ("Dairy Holdings"). Holdings
shall credit Executive'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
Executive's Deferred Account shall be subject to the claims of the creditors of
Holdings.
With respect to the Investors A Units, Holdings shall credit Executive'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 Executive's
Deferred Account in an amount equal to the fair market value of such property,
as determined by the Management Committee of Investors. Executive'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 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 Executive'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 Executive's 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 Executive'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
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Holdings LLC Agreement, Holdings shall credit Executive's Deferred Account in an
amount equal to the fair market value of such property, as determined by the
Management Committee of Dairy Holdings. Executive'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 Executive'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 Executive (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.
Executive 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, Executive shall receive a total distribution of
the amount then deemed held in the Deferred Account; (ii) upon the tenth
anniversary of the date hereof, Executive shall receive a total distribution of
the amount then deemed held in the Deferred Account; (iii) upon the purchase by
Investors of any of Executive's Class B Units pursuant to Section 7.2 of the
Executive's Management Stock Purchase and Unit Subscription Agreement, Executive
shall receive a distribution from the Deferred Account equal to the result of
(x) the percentage of Executive'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
Executive'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 Executive's Class B Units pursuant to Section 7.2 of
the Executive's Dairy Unit Subscription Agreement, Executive shall receive a
distribution from the Deferred Account equal to the result of (x) the percentage
of Executive'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
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(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 Executive'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 Executive'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 Executive 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.
9. 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.
10. 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
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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.
11. 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.
12. 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
18783 The Pines
Eden Prairie, MN 55441
If to the Company:
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Michael Foods, Inc.
5353 Wayzata Boulevard
324 Park National Bank Building
Minneapolis, Minnesota 55416
Attention: Secretary
with a copy to:
Vestar Capital Partners IV, L.P.
245 Park Avenue
41st Floor
New York, NY 10167
Attention: General Counsel
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 5(c) 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.
g. Subject to the provisions of Section 5(d), there shall be no
limitation on the ability of the Company to terminate the Executive at any
time with or without Cause.
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* * * * *
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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.
_______________________________________
James D. Clarkson
MICHAEL FOODS, INC.
By: ___________________________________
Title:_________________________________
M-FOODS HOLDINGS, INC.
By: ___________________________________
Title: ________________________________