Exhibit 10.9
[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"), James Mohr ("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 $129,990 (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: _____________________________________
Its: ____________________________________
M-FOODS HOLDINGS, INC.
By: _____________________________________
Its: ____________________________________
_________________________________________
James Mohr