-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HVgsunMQYaW4V+rbETdZfK0lbA5NDSnDa72XE2fn+vaEz2w43kdav9Hb2LoZ2d/3 Bh7LWnn8SAqyOLHoK72ycA== 0000950128-02-000780.txt : 20021112 0000950128-02-000780.hdr.sgml : 20021111 20021112153659 ACCESSION NUMBER: 0000950128-02-000780 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020929 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYLVAN INC CENTRAL INDEX KEY: 0000861291 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 251603408 STATE OF INCORPORATION: NV FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18339 FILM NUMBER: 02817129 BUSINESS ADDRESS: STREET 1: 333 MAIN STREET STREET 2: P.O. BOX 249 CITY: SAXONBURG STATE: PA ZIP: 16056-0249 BUSINESS PHONE: 724-352-75 MAIL ADDRESS: STREET 1: 333 MAIN STREET STREET 2: P.O. BOX 249 CITY: SAXONBURG STATE: PA ZIP: 16056-0249 FORMER COMPANY: FORMER CONFORMED NAME: SYLVAN FOODS HOLDINGS INC DATE OF NAME CHANGE: 19930328 10-Q 1 j9708301e10vq.txt 10-Q FOR PERIOD ENDED 9/29/2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18339 SYLVAN INC. (Exact name of registrant as specified in its charter) NEVADA 25-1603408 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA 16056-0249 (Address of principal executive offices) (Zip Code) (724) 352-7520 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No____ Number of shares of common stock outstanding as of October 30, 2002...5,441,131 SYLVAN INC. AND SUBSIDIARIES INDEX Page No. --------
PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets, September 29, 2002 and December 30, 2001........................................................3 Condensed Consolidated Statements of Income, Three Months Ended September 29, 2002 and September 30, 2001.................................................5 Condensed Consolidated Statements of Income, Nine Months Ended September 29, 2002 and September 30, 2001.................................................6 Condensed Consolidated Statements of Cash Flows, Nine Months Ended September 29, 2002 and September 30, 2001.................................................7 Notes to Condensed Consolidated Financial Statements, September 29, 2002..............................................................................8 Item 2. Management's Discussion and Analysis...........................................................13 Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................19 Item 4. Controls and Procedures........................................................................19 PART II - OTHER INFORMATION Item 1. Legal Proceedings.............................................................................19 Item 6. Exhibits and Reports on Form 8-K..............................................................20 Signatures..............................................................................................21 Certifications..........................................................................................22 Index to Exhibits.......................................................................................25 Exhibits................................................................................................27
PART I - FINANCIAL INFORMATION Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS Sylvan Inc. and Subsidiaries (In thousands)
September 29, 2002 December 30, 2001 ------------------ ----------------- (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents $ 5,338 $ 5,072 Trade accounts receivable, net of allowance for doubtful accounts of $541 and $440, respectively 13,524 13,133 Inventories 11,199 10,119 Prepaid income taxes and other expenses 1,819 1,437 Other current assets 1,728 4,206 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 33,608 33,967 Property, plant and equipment, net 57,064 54,276 Intangible assets, net of accumulated amortization of $4,464 and $4,078, respectively 11,822 11,036 Other assets, net of accumulated amortization of $566 and $491, respectively 7,865 7,811 - ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 110,359 $ 107,090 =========================================================================================================================
The accompanying notes are an integral part of these financial statements. 3 CONDENSED CONSOLIDATED BALANCE SHEETS Sylvan Inc. and Subsidiaries (In thousands except share data)
September 29, 2002 December 30, 2001 ------------------ ----------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current portion of long-term debt $ 232 $ 2,430 Accounts payable - trade 3,993 3,833 Accrued salaries, wages and employee benefits 3,048 2,635 Other accrued liabilities 1,922 905 Income taxes payable 1,423 942 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 10,618 10,745 - ------------------------------------------------------------------------------------------------------------------------- Long-term and revolving-term debt 35,007 37,255 - ------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities: Other 1,943 1,362 Deferred income taxes 4,914 5,162 - ------------------------------------------------------------------------------------------------------------------------- Total other long-term liabilities 6,857 6,524 - ------------------------------------------------------------------------------------------------------------------------- Minority interest 1,687 1,680 SHAREHOLDERS' EQUITY: Common stock, voting, par value $0.001, 10,000,000 shares authorized, 6,728,405 and 6,694,272 shares issued at September 29, 2002 and December 30, 2001, respectively 7 7 Additional paid-in capital 17,390 17,055 Retained earnings 63,604 60,296 Less: Treasury stock, at cost, 1,287,274 and 1,263,953 shares at September 29, 2002 and December 30, 2001, respectively (13,407) (13,136) -------- -------- 67,594 64,222 Accumulated other comprehensive deficit (11,404) (13,336) - ------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 56,190 50,886 - ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 110,359 $ 107,090 =========================================================================================================================
The accompanying notes are an integral part of these financial statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF INCOME Sylvan Inc. and Subsidiaries (Unaudited, in thousands except share data)
-------------Three Months Ended-------------- September 29, 2002 September 30, 2001 ------------------ ------------------ NET SALES $ 22,275 $ 21,848 - ------------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 13,612 12,893 Selling, administration, research and development 4,990 4,703 Depreciation 1,453 1,370 - ------------------------------------------------------------------------------------------------------------------------- 20,055 18,966 - ------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 2,220 2,882 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 490 604 OTHER INCOME (EXPENSE) (3) (90) - ------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,727 2,188 PROVISION FOR INCOME TAXES 579 656 - ------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 1,148 1,532 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 39 24 - ------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 1,109 $ 1,508 ========================================================================================================================= NET INCOME PER SHARE - BASIC $ 0.20 $ 0.27 ========================================================================================================================= NET INCOME PER SHARE - DILUTED $ 0.20 $ 0.27 ========================================================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES 5,439,697 5,523,618 ========================================================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 5,502,408 5,584,890 =========================================================================================================================
The accompanying notes are an integral part of these financial statements. 5 CONDENSED CONSOLIDATED STATEMENTS OF INCOME Sylvan Inc. and Subsidiaries (Unaudited, in thousands except share data)
------------Nine Months Ended-------- September 29, 2002 September 30, 2001 ------------------ ------------------ NET SALES $ 64,582 $ 63,803 - ------------------------------------------------------------------------------------------------------------------ OPERATING COSTS AND EXPENSES: Cost of sales 38,244 36,999 Selling, administration, research and development 15,732 14,877 Depreciation 4,268 4,056 - ------------------------------------------------------------------------------------------------------------------ 58,244 55,932 - ------------------------------------------------------------------------------------------------------------------ OPERATING INCOME 6,338 7,871 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 1,366 1,847 OTHER INCOME (EXPENSE) 60 (96) - ------------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 5,032 5,928 PROVISION FOR INCOME TAXES 1,661 1,778 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 3,371 4,150 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 63 94 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $ 3,308 $ 4,056 ====================================================================================================================== NET INCOME PER SHARE - BASIC $ 0.60 $ 0.73 ====================================================================================================================== NET INCOME PER SHARE - DILUTED $ 0.60 $ 0.73 ====================================================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 5,435,607 5,521,115 ====================================================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 5,494,988 5,576,493 ======================================================================================================================
The accompanying notes are an integral part of these financial statements. 6 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Sylvan Inc. and Subsidiaries (Unaudited, in thousands)
------------Nine Months Ended---------- September 29, 2002 September 30, 2001 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,308 $ 4,056 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,428 4,610 Employee benefits 689 (316) Trade accounts receivable 210 (198) Inventories (591) (53) Prepaid expenses and other assets 2,267 (366) Accounts payable and accrued liabilities 1,332 429 Other (970) (219) - -------------------------------------------------------------------------------------------------- Net cash provided by operating activities 10,673 7,943 - -------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (4,772) (7,557) Proceeds from sale of fixed assets - 93 - -------------------------------------------------------------------------------------------------- Net cash used in investing activities (4,772) (7,464) - -------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (2,343) (202) Proceeds from long-term debt borrowings - 49 Net (repayments) borrowings under revolving credit line (3,492) 289 Proceeds from exercise of stock options 312 112 Purchase of treasury shares (271) (245) - -------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (5,794) 3 - -------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATES ON CASH 159 (391) - -------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS 266 91 CASH AND CASH EQUIVALENTS, beginning of period 5,072 5,371 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of period $ 5,338 $ 5,462 ================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 1,483 $ 1,726 Income taxes paid 1,557 1,853
The accompanying notes are an integral part of these financial statements. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SYLVAN INC. AND SUBSIDIARIES SEPTEMBER 29, 2002 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: GENERAL These condensed consolidated financial statements of Sylvan Inc. are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period. These statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the company's Annual Report to Shareholders and its Form 10-K for the year ended December 30, 2001. The consolidated balance sheet of December 30, 2001 was derived from the audited balance sheet included in the most recent Form 10-K. CASH As of December 30, 2001, the company maintained a French-franc denominated cash balance of approximately FF16.2 million ($2.2 million) with a U.S. bank in support of a loan advanced by a European bank. This balance was reported under Other Current Assets as of December 30, 2001. The loan was repaid in January 2002 and the cash balance was applied to a principal reduction of debt. INVENTORIES Inventories at September 29, 2002 and December 30, 2001 consisted of the following:
(in thousands) September 29, 2002 December 30, 2001 ------------------ ----------------- Growing crops and compost material $ 5,012 $ 5,466 Stores and other supplies 2,125 1,493 Finished products 4,062 3,160 ------- --------- $11,199 $10,119 ======= =======
EARNINGS PER COMMON SHARE Earnings per share were calculated using the weighted average number of shares outstanding during the period, including the effect of stock options outstanding. Pursuant to the company's 1990 and 1993 stock option plans, options for a total of 1,384,749 shares of the company's common stock have been granted and options for a total of 583,612 of these shares have been exercised as of September 29, 2002. 8 The following tables reconcile the number of shares utilized in the earnings per share calculations for the three and nine months ended September 29, 2002 and September 30, 2001.
Three Months Ended Nine Months Ended (in thousands) Sept. 29, 2002 Sept. 30, 2001 Sept. 29, 2002 Sept. 30, 2001 -------------- -------------- -------------- -------------- Net income $ 1,109 $ 1,508 $ 3,308 $ 4,056 ========== ========== ========== ========== Earnings per common share - basic $ 0.20 $ 0.27 $ 0.60 $ 0.73 ========== ========== ========== ========== Earnings per common share - diluted $ 0.20 $ 0.27 $ 0.60 $ 0.73 ========== ========== ========== ========== Common shares - basic 5,439,697 5,523,618 5,435,607 5,521,115 Effect of dilutive securities: Stock options 62,711 61,272 59,381 55,378 ---------- ---------- ---------- ---------- Common shares - diluted 5,502,408 5,584,890 5,494,988 5,576,493 ========== ========== ========== ==========
Options to purchase approximately 298,000 shares of common stock in the three and nine months ended September 29, 2002, and 305,000 shares of common stock in the three and nine months ended September 30, 2001, were outstanding, but were not included in the computation of diluted earnings per share because the exercise prices of these options were greater than the average market prices of the company's common shares for the respective periods. RECENT PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 142 (Goodwill and Other Intangible Assets). SFAS No. 142 eliminates amortization of goodwill and amortization of indefinitely lived intangible assets and provides for an impairment test to be performed at least annually. Sylvan adopted this pronouncement on December 31, 2001, which was the first day of Sylvan's 2002 fiscal year. During the quarter ended March 31, 2002, a professional services firm retained by the company conducted an assessment to test for transitional goodwill impairment. No initial impairment loss resulted. The company plans to complete its annual assessment to test for transitional goodwill impairment during the fourth quarter of 2002. Sylvan's intangible assets, which relate solely to its Spawn Products Segment, are as follows:
Gross Carrying Amount Accumulated Amortization Cultures Cultures (in thousands) Goodwill and Other Goodwill and Other Net --------- --------- ----------- ----------- -------- December 30, 2001 $ 14,107 $ 1,007 $ (3,776) $ (302) $ 11,036 Additions - 7 - (96) (89) Impairment - - - - - Disposals - - - - Currency Translation 1,165 - (290) - 875 -------- -------- -------- -------- -------- September 29, 2002 $ 15,272 $ 1,014 $ (4,066) $ (398) $ 11,822 ======== ======== ======== ======== ========
In connection with the adoption of SFAS No. 142 (Goodwill and Other Intangible Assets), Sylvan reassessed the useful lives and the classification of its identifiable intangible assets and determined that they continue to be appropriate. The remaining useful lives of the cultures range from eight to eleven years and the other intangible assets range from three to six years. 9 Amortization expense for intangible assets was $32,000 and $96,000 for the three and nine months ended September 29, 2002, respectively. Estimated amortization expense for the remainder of 2002 and the five succeeding years is as follows: (in thousands) 2002 (remainder) $ 32 2003 127 2004 122 2005 67 2006 67 2007 65 Actual results of operations for the three and nine months ended September 29, 2002 and the pro forma results for the three and nine months ended September 30, 2001, had Sylvan applied the non-amortization provisions of SFAS No. 142 (Goodwill and Other Intangible Assets) in 2001, are as follows:
Three Months Ended Nine Months Ended (in thousands except per share data) Sept. 29, 2002 Sept. 30, 2001 Sept. 29, 2002 Sept. 30, 2001 -------------- -------------- -------------- -------------- Reported net income $ 1,109 $ 1,508 $ 3,308 $ 4,056 Add back: Goodwill amortization, net of tax - 84 - 251 --------- ---------- ---------- --------- Adjusted net income $ 1,109 $ 1,592 $ 3,308 $ 4,307 ======== ======== ======== ======== Basic earnings per share: Reported net income $ 0.20 $ 0.27 $ 0.60 $ 0.73 Add back: Goodwill amortization - 0.02 - 0.05 --------- ---------- ---------- --------- Adjusted net income $ 0.20 $ 0.29 $ 0.60 $ 0.78 ========= ========= ========= ========= Diluted earnings per share: Reported net income $ 0.20 $ 0.27 $ 0.60 $ 0.73 Add back: Goodwill amortization - 0.02 - 0.04 --------- ---------- ---------- --------- Adjusted net income $ 0.20 $ 0.29 $ 0.60 $ 0.77 ========= ========== ========== =========
2. LONG-TERM DEBT AND BORROWING ARRANGEMENTS: The company has a Revolving Credit Agreement with two commercial banks, dated August 6, 1998. It provides for revolving credit loans on which the aggregate outstanding balance available to the company may not initially exceed $55.0 million. The maximum aggregate outstanding balance will decline over the life of the agreement as follows: Maximum Aggregate Period Beginning Outstanding Balance ---------------- ------------------- August 6, 2003 $50.0 million August 6, 2004 45.0 million Outstanding borrowings under the agreement bear interest at either the Prime Rate or LIBOR (plus an applicable margin) at the company's option. On September 29, 2002, the company had outstanding borrowings under the agreement of $33.9 million. The revolving credit loans mature on August 5, 2005. The agreement provides for the maintenance of various financial covenants and includes limitations as to incurring additional indebtedness and the granting of security interests to third parties. Obligations under the agreement are guaranteed by certain wholly owned subsidiaries of the company. 10 As of December 30, 2001, the company had a French-franc denominated loan of FF16.2 million ($2.2 million) that was repaid in January 2002. The company's majority-owned Dutch subsidiary has a long-term plant and equipment and overdraft facility with a Dutch bank. At September 29, 2002, a term loan amounting to 0.8 million euros ($0.8 million) was outstanding under this agreement. 3. COMPREHENSIVE INCOME: Comprehensive income consisted of the following:
Three Months Ended Nine Months Ended (in thousands) Sept. 29, 2002 Sept. 30, 2001 Sept. 29, 2002 Sept. 30, 2001 -------------- -------------- -------------- -------------- Net income $ 1,109 $ 1,508 $ 3,308 $ 4,056 Other comprehensive income: Foreign currency translation adjustment (275) 1,002 2,472 (2,715) Unrealized income (losses) on derivatives and qualified cash flow hedges, net of tax (390) (460) (540) (554) ------- ------- ------- ------- Total comprehensive income $ 444 $ 2,050 $ 5,240 $ 787 ======= ======= ======= =======
The components of accumulated other comprehensive deficit consist of the following:
(in thousands) SEPTEMBER 29, 2002 DECEMBER 30, 2001 ------------------ ----------------- Unrealized losses on derivatives and qualified cash flow hedges, net of tax $ (876) $ (336) Foreign currency translation adjustments (10,528) (13,000) -------- -------- Total accumulated other comprehensive deficit $(11,404) $(13,336) ======== ========
Floating-to-fixed interest rate swap agreements, designated as cash flow hedges, hedge the company's floating rate debt and mature at various times through August 2007. The fair value of these contracts is recorded in the balance sheet, with the offset to Accumulated Other Comprehensive Deficit, net of tax. Based on interest rates at September 29, 2002, the company expects to expense $36,000 in the next 12 months related to derivative instruments. 4. BUSINESS SEGMENT INFORMATION: Sylvan is a worldwide producer and distributor of products for the mushroom industry, specializing in spawn (the equivalent of seed for mushrooms) and spawn-related products and services, and is a major grower of fresh mushrooms in the United States. The company has two reportable business segments: Spawn Products, which includes spawn-related products, services and bioproducts; and Fresh Mushrooms. Spawn-related products include casing inoculum, nutritional supplements and disease-control agents. During the quarter and nine months ended September 29, 2002, the company made no changes in the basis of segmentation or in the basis of measurement of segment profit or loss from that reported in the December 30, 2001 financial statements. 11
Three Spawn Fresh Total Months Products Mushrooms Reportable (in thousands) Ended Segment Segment Segments ----- ------- ------- -------- Total revenues 2002 $16,404 $ 6,204 $22,608 2001 16,069 6,097 22,166 Intersegment revenues 2002 333 - 333 2001 318 - 318 Operating income 2002 2,718 436 3,154 2001 3,047 561 3,608 Nine Spawn Fresh Total Months Products Mushrooms Reportable (in thousands) Ended Segment Segment Segments ----- ------- ------- -------- Total revenues 2002 $46,812 $18,759 $65,571 2001 47,059 17,690 64,749 Intersegment revenues 2002 989 - 989 2001 946 - 946 Operating income 2002 7,674 2,001 9,675 2001 8,625 1,905 10,530
RECONCILIATION TO CONSOLIDATED FINANCIAL DATA:
Three Months Ended Nine Months Ended (in thousands) Sept. 29, 2002 Sept. 30, 2001 Sept. 29, 2002 Sept. 30, 2001 -------------- -------------- -------------- -------------- Total revenues for reportable segments $ 22,608 $ 22,166 $ 65,571 $ 64,749 Elimination of intersegment revenues (333) (318) (989) (946) -------- -------- -------- -------- Total consolidated revenues $ 22,275 $ 21,848 $ 64,582 $ 63,803 ======== ======== ======== ======== Total operating income for reportable segments $ 3,154 $ 3,608 $ 9,675 $ 10,530 Unallocated corporate expenses (934) (726) (3,337) (2,659) Interest expense, net (490) (604) (1,366) (1,847) Other income (expense) (3) (90) 60 (96) -------- -------- -------- -------- Consolidated income before income taxes $ 1,727 $ 2,188 $ 5,032 $ 5,928 ======== ======== ======== ========
5. COMMITMENTS: In March 2002, the company committed approximately $250,000 per year, over a four-year period, to sponsor research projects at a European facility. 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS SYLVAN INC. AND SUBSIDIARIES GENERAL During the second quarter of 2002, the company announced that it had retained an investment banking firm to evaluate strategic plans and business alternatives designed to enhance Sylvan's shareholder value. The action was recommended by a special committee of the board of directors that was composed of the board's outside members and was organized for the purpose of selecting an advisor. On October 15, 2002, as a result of Sylvan's evaluation of strategic alternatives, the company announced that it intends to repurchase up to 1.3 million shares of its common stock over a 36-month period. RESULTS OF OPERATIONS (Three Months Ended September 29, 2002 and September 30, 2001) CONSOLIDATED REVIEW NET SALES (in thousands) 2002 2001 % CHANGE ---- ---- -------- Net sales $ 22,275 $ 21,848 2 Net sales increased 2% to $22.3 million, when compared with $21.8 million for the corresponding 2001 quarter. Net sales of the Fresh Mushrooms Segment increased $0.1 million and net sales of the Spawn Products Segment increased $0.3 million. The U.S. dollar was approximately 10% weaker, when measured against the company's applicable foreign currencies, than for the third quarter of 2001. This weakening resulted in increased sales of approximately $1.1 million and increased operating income of $0.1 million during the 2002 quarter, when compared with the third quarter of 2001. International sales, as a percentage of net sales, were 50% in the third quarter of 2002 and 48% in the corresponding quarter of 2001. OPERATING COSTS AND EXPENSES (in thousands) 2002 2001 % CHANGE ---- ---- -------- Cost of sales $ 13,612 $ 12,893 6 Selling, administration, research and development 4,990 4,703 6 Depreciation 1,453 1,370 6 The company's cost of sales, expressed as a percentage of net sales, was 61.1% for the third quarter of 2002, as compared with 59.0% for the third quarter of 2001. The cost of sales percentage increased in both the Fresh Mushrooms Segment and the Spawn Products Segment. Selling, administration, research and development expenses increased 6% to $5.0 million, when compared with the $4.7 million reported for the third quarter of 2001. This increase consisted of the following: Increased professional fees and insurance $ 0.2 million Decreased periodic pension benefit (detailed below) 0.1 million Weaker U.S. dollar 0.1 million Decreased amortization expense (detailed below) (0.1) million The company recorded $37,500 and $151,000 of net periodic benefit income during the quarters ended September 29, 2002 and September 30, 2001, respectively, from a pension plan of a former subsidiary. This decrease related to plan asset performance in 2001. The company expects additional decreases in the net 13 periodic benefit income in 2003 due to weak plan asset performance in 2002. Pension plan contributions will be required if plan asset performance continues to decline. The company adopted the provisions of SFAS No. 142 (Goodwill and Other Intangible Assets) at the beginning of the current fiscal year. No goodwill amortization was recorded during the quarter ended September 29, 2002. During the quarter ended September 30, 2001, the company recorded goodwill amortization of approximately $125,000. INTEREST EXPENSE Net interest expense for the third quarter of 2002 decreased 19% to $490,000, from $604,000 for the third quarter of 2001. The effective interest rate for the third quarter of 2002 was 5.7%, as compared with 5.9% for the third quarter of 2001. The company recorded interest expense of $43,000 in the third quarter of 2002 and a benefit of $45,000 in the third quarter of 2001 related to SFAS No. 133 (Accounting for Derivative Instruments and Hedging Activities). INCOME TAX EXPENSE The effective income tax rate was 33% for the third quarter of 2002, as compared with 30% for the corresponding 2001 quarter. This higher effective tax rate for 2002 was the result of a larger portion of the company's taxable income being derived from higher-tax-rate jurisdictions. BUSINESS SEGMENTS SPAWN PRODUCTS (in thousands) 2002 2001 % CHANGE ---- ---- -------- Sales, including intersegment $ 16,404 $ 16,069 2 Operating expenses 13,686 13,022 5 Operating income 2,718 3,047 (11) Net sales of spawn and spawn-related products increased 2% to $16.4 million, when compared with the $16.1 million reported for the third quarter of 2001. However, after adjusting for the weaker U.S. dollar, which increased net sales by $1.1 million on a quarter-over-quarter comparison, net sales decreased by 5%. Spawn product sales volume decreased 4%, with a 9% decrease in the Americas and a 1% decrease in overseas markets. Most of the volume decrease in the Americas was associated with a reduction in the amount of Agaricus growing area planted and increased competition in the United States. Sales of disease-control agents and nutritional supplements increased 8% and accounted for 18% of Sylvan's consolidated net sales for the third quarter of 2002. The overseas U.S. dollar equivalent selling price increased 7% during the third quarter of 2002, as compared with the corresponding quarter of 2001, primarily due to the weakening of the U.S. dollar. After adjusting for the weaker U.S. dollar, the overseas selling price decreased 3% due to lower volumes sold in the UK and Irish markets, which are higher-priced territories. This 3% decrease in average selling price had the effect of reducing operating income by $325,000. The selling price in the Americas increased 2%. The company intends to implement price reductions for some of its products during the fourth quarter of 2002, in order to meet competitive pressures and preserve its share of its spawn products markets. The company believes that the changes could reduce Sylvan's Spawn Products Segment sales and operating income. Operating expenses increased 5% to $13.7 million for the third quarter of 2002. Most of the increase was due to the weaker U.S. dollar that had the effect of increasing operating expenses by $0.6 million. Within operating expenses, cost of sales was 55.5% of net sales, as compared with 53.6% for the corresponding 2001 quarter. Sales volumes decreased on Sylvan's more profitable spawn and CI and increased on its less profitable disease-control agents and nutritional supplements. The overall discard rate for spawn production was 5.9% for the third quarter of 2002, as compared with 4.9% for the corresponding quarter of 2001. 14 Operating income decreased 11% to $2.7 million, as compared with $3.0 million for the corresponding 2001 quarter. The decrease is directly attributable to the change in product mix which was detailed earlier. Operating income, as a percentage of net sales, was 17% for the third quarter of 2002, as compared with 19% for the third quarter of 2001. Operating income increased $0.1 million due to the weakening of the U.S. dollar. The operating income of the company's bioproducts division, a component of the Spawn Products Segment, increased $80,000 due to a reduction in overhead costs that was initiated during the first six months of 2002. FRESH MUSHROOMS (in thousands) 2002 2001 % CHANGE ---- ---- -------- Sales $6,204 $6,097 2 Operating expenses 5,768 5,536 4 Operating income 436 561 (22) Net sales of fresh mushrooms and compost, for the third quarter of 2002 increased 2% to $6.2 million. The number of pounds sold and the average selling price per pound were virtually unchanged from the prior-year third quarter. Sylvan's first two satellite farms, which commenced operations during the second quarter of 2001, purchased $0.4 million of ready-to-grow mushroom trays from Quincy, $0.1 million more than in the corresponding 2001 quarter, and sold approximately $0.7 million of mushrooms to Quincy for immediate resale to its third-party wholesaler. Operating expenses for the third quarter of 2002 increased $0.2 million to $5.8 million, when compared with the $5.5 million for the third quarter of 2001. Within operating expenses, cost of sales, as a percentage of net sales, for the third quarter of 2002 was 72.6%, as compared with 70.2% for the 2001 third quarter. Quincy's return per square foot, for the third quarter of 2002, did not meet expectations due to lower yields at the main farm, a lower average selling price for cannery product, and an increase in harvesting costs and related overhead expenses. The Fresh Mushrooms Segment operating income for the third quarter was 7% of net sales, as compared with 9% for the third quarter of 2001. RESULTS OF OPERATIONS (Nine Months Ended September 29, 2002 and September 30, 2001) CONSOLIDATED REVIEW NET SALES (in thousands) 2002 2001 % CHANGE ---- ---- -------- Net sales $ 64,582 $ 63,803 1 Net sales for the nine months ended September 29, 2002 increased 1% to $64.6 million, as compared with $63.8 million for the corresponding 2001 period. Net sales of the Fresh Mushrooms Segment increased $1.1 million, while net sales of the Spawn Products Segment decreased $0.2 million. On average, for the first nine months of 2002, the U.S. dollar was approximately 3% weaker, when measured against the company's applicable foreign currencies, than for the first nine months of 2001. This weakening resulted in increased sales of approximately $0.9 million and increased operating income of $45,000 during the 2002 period, when compared with the corresponding 2001 period. International sales, as a percentage of net sales, were 48% in both the nine months ended September 29, 2002 and September 30, 2001. 15 OPERATING COSTS AND EXPENSES (in thousands) 2002 2001 % CHANGE ---- ---- -------- Cost of sales $38,244 $36,999 3 Selling, administration, research and development 15,732 14,877 6 Depreciation 4,268 4,056 5 The company's cost of sales, expressed as a percentage of net sales, was 59.2% for the first nine months of 2002, as compared with 58.0% for the corresponding 2001 period. The cost of sales percentage increased in both the Fresh Mushrooms Segment and the Spawn Products Segment. Selling, administration, research and development expenses increased $0.9 million to $15.7 million. This increase consisted primarily of the following: Increased professional fees $ 0.3 million Decreased periodic pension benefit (detailed below) 0.3 million Increased bad debt and warranty reserves 0.2 million Severance charges 0.2 million Increased insurance expense 0.2 million Weaker U.S. dollar 0.1 million Decreased amortization expense (detailed below) (0.4) million The company recorded approximately $115,000 and $450,000 of net periodic benefit income during the first nine months of 2002 and 2001, respectively, from a pension plan of a former subsidiary. This decrease related to plan asset performance in 2001. The company expects additional decreases in the net periodic benefit income in 2003 due to weak plan asset performance in 2002. Pension plan contributions will be required if plan asset performance continues to decline. The company adopted the provisions of SFAS No. 142 (Goodwill and Other Intangible Assets) at the beginning of the current fiscal year. No goodwill amortization was recorded during the nine months ended September 29, 2002. During the first nine months of 2001, the company recorded goodwill amortization of approximately $375,000. INTEREST EXPENSE Net interest expense for the nine months ended September 29, 2002 decreased 26% to $1,366,000. The effective interest rate for the first nine months of 2002 was 5.2%, as compared with 6.6% for the corresponding 2001 period. The company recorded interest expense of $16,000 in the first nine months of 2002 and $22,000 in the first nine months of 2001 related to SFAS No. 133 (Accounting for Derivative Instruments and Hedging Activities). INCOME TAX EXPENSE The effective income tax rate was 33% for the nine months ended September 29, 2002, as compared with 30% for the corresponding 2001 period. This higher effective tax rate for 2002 was the result of a larger portion of the company's taxable income being derived from higher-tax-rate jurisdictions. 16 BUSINESS SEGMENTS SPAWN PRODUCTS (in thousands) 2002 2001 % CHANGE ---- ---- -------- Sales, including intersegment $ 46,812 $ 47,059 (1) Operating expenses 39,138 38,434 2 Operating income 7,674 8,625 (11) Net sales of spawn and spawn-related products were $46.8 million for the nine months ended September 29, 2002, as compared with $47.1 million for the corresponding 2001 period. The weaker U.S. dollar had the effect of increasing sales on a period-over-period comparison by $0.9 million. Spawn product sales volume decreased 2%, with a 7% decrease in the Americas and a 1% increase in overseas markets. Most of the volume decrease in the Americas was associated with a reduction in the amount of Agaricus growing area planted and increased competition in the United States. Sales of disease-control agents and nutritional supplements increased 6% and accounted for 17% of Sylvan's consolidated net sales for the first nine months of 2002. The overseas U.S. dollar equivalent selling price increased 1% during the first nine months of 2002, as compared with the corresponding 2001 period, primarily due to the weakening of the U.S. dollar. After adjusting for the weaker U.S. dollar, the overseas selling price decreased 2%, primarily due to lower volumes sold in the UK and Irish markets, which are higher-priced territories. This 2% decrease in average selling price had the effect of reducing operating income by $450,000. The selling price in the Americas was virtually unchanged. The company intends to implement price reductions for some of its products during the fourth quarter of 2002, in order to meet competitive pressures and preserve its share of its spawn products markets. The company believes that the changes could reduce Sylvan's Spawn Products Segment sales and operating income. Operating expenses increased 2% to $39.1 million for the first nine months of 2002. Most of the increase was due to the weaker U.S. dollar that had the effect of increasing operating expenses by $0.5 million. Within operating expenses, cost of sales was 54.0% of net sales, as compared with 53.2% for the corresponding 2001 period. Sales volumes decreased on Sylvan's more profitable spawn and CI and increased on its less profitable disease-control agents and nutritional supplements. The overall discard rate for spawn production was 4.9% for the nine months ended September 29, 2002, as compared with 5.1% for the corresponding period of 2001. Operating income for the first nine months of 2002 was $7.7 million, as compared with $8.6 million for the corresponding 2001 period. Operating income, as a percentage of net sales, was 16% for the 2002 period, as compared with 18% for the first nine months of 2001. Operating income increased $45,000 due to the weakening of the U.S. dollar. The operating income of the company's bioproducts division, a component of the Spawn Products Segment, decreased $280,000 primarily due to a reduction in its sales of a specialized variety of mushroom. FRESH MUSHROOMS (in thousands) 2002 2001 % CHANGE ---- ---- -------- Sales $ 18,759 $ 17,690 6 Operating expenses 16,758 15,785 6 Operating income 2,001 1,905 5 Net sales of fresh mushrooms and compost, for the nine months ended September 29, 2002, increased 6% to $18.8 million. The number of pounds sold increased 4% and the average selling price per pound decreased 1%. Sylvan's first two satellite farms, which commenced operations during the second quarter of 2001, purchased $0.9 million of ready-to-grow mushroom trays from Quincy and sold approximately $1.9 million of mushrooms to Quincy for immediate resale to its third-party wholesaler. 17 Operating expenses for the first nine months of 2002 increased $1.0 million to $16.8 million, when compared with the $15.8 million for the first nine months of 2001. Within operating expenses, cost of sales, as a percentage of net sales, for the first nine months of 2002 was 69.0%, as compared with 67.5% for the corresponding 2001 period. The Fresh Mushrooms Segment operating income was $2.0 million, or 11% of net sales, for the first nine months of 2002 and $1.9 million, or 11%, for the first nine months of 2001. Quincy's return per square foot, for the first nine months of 2002, did not meet expectations due to lower yields at the main farm and an average lower selling price for cannery product. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the nine months ended September 29, 2002 was $10.7 million, as compared with $7.9 million for the corresponding nine months of 2001. In January of 2002, the company reduced Other Current Assets approximately $2.2 million due to the release of cash, which was collateralized to support a loan from a European bank. This loan was repaid in January of 2002. Cash used by investing activities was $4.7 million for the nine months ended September 29, 2002, as compared with $7.5 million during the corresponding period of 2001. During the first nine months of 2002, approximately $1.9 million was expended on growth opportunities, primarily for the Canadian spawn production facility and satellite growing facilities at Quincy. The remaining $2.8 million was for maintenance capital expenditures. By comparison, during the first nine months of 2001, approximately $4.0 million was for growth opportunities and $3.5 million was for maintenance capital expenditures. Capital expenditures in 2002 are expected to total between $6.0 million and $7.0 million for existing operations, $3.0 million to $4.0 million of which is allocated for maintenance capital, with additional expenditures as required for any acquisitions or new initiatives. The company routinely assesses its requirements for additional capital investments and believes that it has sufficient cash resources from current cash balances, internally generated funds and available bank credit facilities to meet its ongoing capital needs. Available credit under the company's revolving credit arrangement was $21.1 million as of September 29, 2002. Term and revolving credit decreased $5.8 million during the nine months ended September 29, 2002, as compared with an increase of $0.1 million during the corresponding period of 2001. Approximately $2.2 million of this change related to the repayment of a European bank loan supported by the cash deposit mentioned earlier and positive cash flow in excess of expenditures for property, plant and equipment. During the first nine months of 2002, the company purchased 23,321 shares of Sylvan common stock at an average price of $11.60 per share. By comparison, 22,071 shares were purchased during the first nine months of 2001 at an average price of $11.10 per share. Management suspended Sylvan's share purchase program during the exploration of strategic alternatives mentioned earlier. On October 15, 2002, the company announced that it intends to repurchase up to 1.3 million shares of its common stock over a 36-month period. 18 FORWARD-LOOKING AND CAUTIONARY STATEMENTS References are made in this report to expectations regarding capital expenditures, share repurchases, net periodic pension benefit income, future cash availability and the future performance of the company, in general. These "forward-looking statements" are based on currently available competitive, financial and economic data and the company's operating plans, but they are inherently uncertain. Events could turn out to be significantly different from what is expected, depending upon such factors as mushroom growing process inconsistencies, spawn pricing or product initiatives of the company's competitors, competitive conditions in the mushroom market, changes in currency and exchange risks, the loss of a major customer, changes in a specific country's or region's political or economic conditions, or the variability of the U.S. public equity and bond markets. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information presented under this item in the company's Form 10-K for the fiscal year ended December 30, 2001 has not changed materially. Information relating to the sensitivity to foreign currency exchange rate changes of the company's firmly committed sales transactions is omitted because it is an immaterial portion of total sales. Item 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Sylvan's Chief Executive Officer and Chief Financial Officer have evaluated the company's disclosure controls and procedures as of October 31, 2002, and they concluded that these controls and procedures are effective. (b) Changes in Internal Controls There are no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to October 31, 2002. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS There are no material pending legal proceedings to which Sylvan or any of its subsidiaries is a party, or to which any of their property is subject, other than ordinary, routine litigation incidental to their respective businesses. 19 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K 3.3 Articles of Incorporation of S.F. Nevada, Inc. - previously filed on November 12, 1999 with the company's Form 10-Q quarterly report for the period ended October 3, 1999 and incorporated herein by reference 3.4 Articles of Merger of S.F. Nevada, Inc. and Sylvan Foods Holdings, Inc. with exhibit - previously filed on November 12, 1999 with the company's Form 10-Q quarterly report for the period ended October 3, 1999 and incorporated herein by reference 3.5 Bylaws - previously filed on November 12, 1999 with the company's Form 10-Q quarterly report for the period ended October 3, 1999 and incorporated herein by reference 10.1.2 Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan, previously filed as Exhibit 3.3.2 on April 2, 1993 with the company's Form 10-K annual report for the fiscal year ended January 3, 1993 and incorporated herein by reference 10.1.3 Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for Nonemployee Directors, previously filed on April 1, 1994 with the company's Form 10-K annual report for the fiscal year ended January 2, 1994 and incorporated herein by reference 10.12 Sylvan Inc. 1990 Stock Option Plan (amended and restated), previously filed on November 12, 1999 with the company's Form 10-Q quarterly report for the period ended October 3, 1999 and incorporated herein by reference 10.2.1 Revolving Credit Agreement, dated as of August 6, 1998, by and among Sylvan Inc., a Nevada corporation, Sylvan Foods (Netherlands) B.V., a Dutch corporation, as Borrowers, the Banks party thereto from time to time and Mellon Bank, N.A., a national banking association, as issuing bank and as agent for the Banks thereunder, together with various annexes, exhibits and schedules and various related documents, previously filed as Exhibits 10.1 through 10.10 on November 10, 1998 with Sylvan's Form 10-Q quarterly report for the period ended September 27, 1998 and incorporated herein by reference 10.2.11 Index of Other Exhibits to the Revolving Credit Agreement, previously filed as Exhibit 10.11 on November 10, 1998 with Sylvan's Form 10-Q quarterly report for the period ended September 27, 1998 and incorporated herein by reference 10.5.1 Agreement, dated January 14, 2000, by and between C And C Carriage Mushroom Co., t/a Modern Sales Company, and Quincy Corporation, previously filed on March 27, 2000 with the company's Form 10-K annual report for the fiscal year ended January 2, 2000 and incorporated herein by reference 10.5.2 Index of Exhibits to the C And C Agreement referenced above, previously filed on March 27, 2000 with the company's Form 10-K annual report for the fiscal year ended January 2, 2000 and incorporated herein by reference 10.40 Collective Bargaining Agreement, dated January 21, 2001, between Quincy Corporation and the United Farm Workers of America, AFL-CIO, previously filed on March 23, 2001 with the company's Form 10-K annual report for the fiscal year ended December 31, 2000 and incorporated herein by reference 20 10.41 Notification letter, dated October 12, 2001, regarding Mellon Bank's transfer to Citizens Financial Group, Inc. of its right, title and interest in the Revolving Credit Agreement, dated August 6, 1998, previously filed on March 20, 2002 with the company's Form 10-K annual report for the fiscal year ended December 30, 2001 and incorporated herein by reference 10.43 Employment Continuation Agreement with Dennis C. Zensen, dated September 24, 2002, filed herewith 10.44 Employment Continuation Agreement with Monir K. Elzalaki, dated September 21, 2002, filed herewith 10.45 Employment Continuation Agreement with Donald A. Smith, dated September 19, 2002, filed herewith 10.46 Employment Continuation Agreement with Gary D. Walker, dated September 24, 2002, filed herewith 10.47 Manager's Service Agreement with Michael A. Walton, dated April 17, 1988, filed herewith (b) Reports on Form 8-K None Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 12, 2002 SYLVAN INC. ----------------------------- By: /s/ Donald A. Smith ---------------------------------- Donald A. Smith Chief Financial Officer By: /s/ Fred Y. Bennitt ---------------------------------- Fred Y. Bennitt Secretary/Treasurer 21 CERTIFICATIONS Pursuant to 18 U.S.C. Section 1350, the undersigned officers of Sylvan Inc. hereby certify that the company's quarterly report on Form 10-Q for the quarter ended September 29, 2002, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the company. Dated: November 12, 2002 By: /s/ Dennis C. Zensen --------------------- -------------------------------------- Dennis C. Zensen Chairman, President and Chief Executive Officer Dated: November 12, 2002 By: /s/ Donald A. Smith --------------------- -------------------------------------- Donald A. Smith Chief Financial Officer 22 I, Dennis C. Zensen, Chairman of the Board, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sylvan Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 12, 2002 /s/ Dennis C. Zensen -------------------------------------------- Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) 23 I, Donald A. Smith, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sylvan Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 12, 2002 /s/ Donald A. Smith -------------------------------------------- Chief Financial Officer (Principal Financial Officer) 24 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- -------- 3.3 Articles of Incorporation of S. F. Nevada, Inc. (a) 3.4 Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods Holdings, Inc. with exhibit (a) 3.5 Bylaws (a) 10.1.2 Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan (b) 10.1.3 Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for Nonemployee Directors (c) 10.12 Sylvan Inc. 1990 Stock Option Plan, as amended and restated (a) 10.2.1 Revolving Credit Agreement, dated as of August 6, 1998, by and among Sylvan Inc., a Nevada corporation, and Sylvan Foods (Netherlands) B.V., a Dutch corporation, as Borrowers; the Banks party thereto from time to time and Mellon Bank, N.A., a national banking association, as issuing bank and as agent for the Banks thereunder, together with various annexes, exhibits, and schedules (d) 10.2.11 Index of Other Exhibits to the Revolving Credit Agreement referenced in Exhibit 10.2.1 (d)
25 10.5.1 Agreement, dated January 14, 2000, by and between C And C Carriage Mushroom Co., t/a Modern Sales Company and Quincy Corporation (e) 10.5.2 Index of Exhibits to the Agreement referenced in Exhibit 10.5.1 (e) 10.40 Collective Bargaining Agreement, dated January 21, 2001, between Quincy Corporation and the United Farm Workers of America, AFL-CIO (f) 10.41 Notification letter, dated October 12, 2001, regarding Mellon Bank's transfer to Citizens Financial Group, Inc. of its right, title and interest in the Revolving Credit Agreement, dated August 6, 1998 (g) 10.43 Employment Continuation Agreement with Dennis C. Zensen, dated September 24, 2002 27 10.44 Employment Continuation Agreement with Monir K. Elzalaki, dated September 21, 2002 38 10.45 Employment Continuation Agreement with Donald A. Smith, dated September 19, 2002 49 10.46 Employment Continuation Agreement with Gary D. Walker, dated September 24, 2002 60 10.47 Manager's Service Agreement with Michael A. Walton, dated April 17, 1988 71
- ------------------ (a) This exhibit was previously filed on November 12, 1999 with the company's Form 10-Q quarterly report for the period ended October 3, 1999 and is incorporated herein by reference. (b) This exhibit was previously filed on April 2, 1993 with the company's Form 10-K annual report for the fiscal year ended January 3, 1993 and is incorporated herein by reference. (c) This exhibit was previously filed on April 1, 1994 with the company's Form 10-K annual report for the fiscal year ended January 2, 1994 and is incorporated herein by reference. (d) This exhibit was previously filed on November 10, 1998 as one of Exhibits 10.1 through 10.11 with the company's Form 10-Q quarterly report for the period ended September 27, 1998 and is incorporated herein by reference. (e) This exhibit was previously filed on March 27, 2000 with the company's Form 10-K annual report for the fiscal year ended January 2, 2000 and is incorporated herein by reference. (f) This exhibit was previously filed on March 23, 2001 with the company's Form 10-K annual report for the fiscal year ended December 31, 2001 and is incorporated herein by reference. (g) This exhibit was previously filed on March 20, 2002 with the company's Form 10-K annual report for the fiscal year ended December 30, 2001 and is incorporated herein by reference. 26 EX-10.43 3 j9708301exv10w43.txt EMPLOYMENT CONTINUATION AGREEMENT Exhibit 10.43 EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Sylvan Inc., a Nevada corporation (the "Company"), and Dennis C. Zensen (the "Executive"), dated as of this 24th day of September, 2002. W I T N E S S E T H: WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of shareholders; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive with certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. OPERATION OF AGREEMENT. (a) EFFECTIVE DATE. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) TERMINATION OF EMPLOYMENT FOLLOWING A POTENTIAL CHANGE OF CONTROL. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company or an Affiliate without Cause (as defined in Section 6[c]) or by the Executive with Good Reason (as defined in Section 6[d]) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control that arises out of such Potential Change of Control occurs within 24 months of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 27 2. DEFINITIONS. (a) CHANGE OF CONTROL. For the purposes of this Agreement, a "Change of Control" shall mean: (i) the acquisition by any individual, entity or group (within the meaning of Section 13[d][3] or 14[d][2] of the Securities Exchange Act of 1934, as amended [the "Exchange Act"] or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities or interests of the Company entitling such Person to 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of such company (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 62% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition of beneficial ownership of securities of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or by any Affiliate; or (ii) completion of a tender offer to acquire securities of the Company entitling the holders thereof to 51% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) either a successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 39% or more of the members of the Board made by any Person other than the Company or less than 62% of the members of the Board shall be Continuing Directors; or (iv) the occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company and, as a result of which, the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power (A) in the case of a merger or consolidation, in the surviving or resulting company, (B) in the case of a share exchange, in the acquiring company, or (C) in the case of a division or a sale or other disposition of assets, in each surviving, resulting or acquiring company which, immediately following the transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) any other transaction or series of transactions that the Board, in its sole discretion, determines is a Change of Control with respect to the Employee. (b) BOARD. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (c) POTENTIAL CHANGE OF CONTROL. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 51% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or 28 (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control. (d) CONTINUING DIRECTORS. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). (e) AFFILIATE. For purposes of this Agreement, "Affiliate" or "Affiliates" shall mean any company or business which, by reason of stock ownership or otherwise, is controlled, directly or indirectly, by the Company. 3. EMPLOYMENT PERIOD. Commencing on the Effective Date and subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its or an Affiliate's employ, and the Executive agrees to remain in the employ of the Company or the Affiliate. 4. POSITION AND DUTIES. (a) NO REDUCTION IN POSITION. Commencing on the Effective Date, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 10(b) of this Agreement. Unless the Executive willingly elects otherwise, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 50 miles from such location. (b) BUSINESS TIME. Commencing on the Effective Date, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. 5. COMPENSATION. (a) BASE SALARY. Commencing on the Effective Date, the Executive shall receive a base salary at a monthly rate of $50,000, or, if higher, the monthly salary paid to the Executive by the Company and its Affiliates immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board of the Company or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be 29 increased from time to time, shall hereafter be referred to as "Base Salary." Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) ANNUAL BONUS. Commencing on the Effective Date, in addition to the Base Salary, for each fiscal year of the Company ending after the Effective Date and for each partial fiscal year ending after the Effective Date, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions substantially no less favorable, in the aggregate, to the Executive (taking into account reasonable changes in the Company's goals and objectives and the consequences of the Change of Control upon the Company's goals, objectives and performance measures) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) LONG-TERM INCENTIVE COMPENSATION PROGRAMS. Commencing on the Effective Date and to the extent that such programs and plans exist subsequent to the Effective Date, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option plans, at a level that is commensurate with the Executive's opportunity to participate in such plans of the Company immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) BENEFIT PLANS. Commencing on the Effective Date and to the extent that such plans and programs exist subsequent to the Effective Date, the Executive shall be entitled to participate in or be covered under all retirement, target benefit annuity, medical, disability, group life, and group accidental death and dismemberment insurance plans and programs of the Company and its Affiliates at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. All payments by the Company or an Affiliate hereunder excepting payments for Accrued Obligations (as defined in Section 7[a]) shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company or an Affiliate. (e) VACATION AND FRINGE BENEFITS. Commencing on the Effective Date and to the extent that such programs exist subsequent to the Effective Date, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (f) SUCCESS BONUS. Provided that either (i) the Executive continues his employment with the Company or an Affiliate during the Retention Period and remains employed by the Company or an Affiliate on the last day of the Retention Period, (ii) the Executive's employment is involuntarily terminated by the Company or the Affiliate during the Retention Period for reasons other than for death, disability, retirement under any retirement plan of the Company or an Affiliate, or Cause, as defined in Section 6(c), or (iii) the Executive's employment is voluntarily terminated by the Executive during the Retention Period for Good Reason, as defined in Section 6(d), then the Company shall pay the Executive a success bonus 30 in an amount equal to $100,000. The success bonus shall be paid in a lump sum to the Executive as soon as practicable following the earlier of the events set forth in clause (i), (ii) or (iii) of the foregoing sentence, but in no event later than the first regular pay period following the last day of the Retention Period of the Company or the Affiliate employing the Executive. Nothing herein shall entitle the Executive to payment of any success bonus if the Executive's employment is terminated during the Retention Period by reason of death, disability, retirement under any retirement plan or voluntary termination (other than for Good Reason) or for Cause. The success bonus to be provided to the Executive under this Section 5(f) shall be in addition to, and not in lieu of, continuation of the Executive's Base Salary, participation in the Company's or an Affiliate's health, life, disability and other employee benefit plans, programs and arrangements, in accordance with the terms of such plans, programs and arrangements, and other perquisites of employment, as provided to him at the beginning of the Retention Period or as the same may be increased thereafter. For purposes of this Agreement, the Retention Period shall mean the period: (i) beginning on the date on which a Potential Change of Control occurs; and (ii) ending on the date on which a Change of Control occurs. 6. TERMINATION. (a) DEATH, DISABILITY OR RETIREMENT. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) VOLUNTARY TERMINATION. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) CAUSE. The Company or an Affiliate may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of NOLO CONTENDERE to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in Section 6(d), below) after a written demand for substantial performance is delivered to the Executive by the Company, which demand specifically identifies the manner in which the Company believes that the Executive has not substantially performed the required duties. (d) GOOD REASON. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express 31 written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company or an Affiliate which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's or an Affiliate's requiring the Executive to be based at any office or location more than 50 miles from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's or an Affiliate's requiring the Executive to travel on business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) NOTICE OF TERMINATION. For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 30 days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) 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 termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) DATE OF TERMINATION. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates on or after the Effective Date. 32 7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH OR DISABILITY. If the Executive's employment is terminated on or after the Effective Date by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owed to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) CAUSE AND VOLUNTARY TERMINATION. If, on or after the Effective Date, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE AND TERMINATION BY THE EXECUTIVE FOR GOOD REASON. (i) LUMP SUM PAYMENTS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) One million dollars ($1,000,000) (the "Severance Amount") and (C) the Accrued Obligations. The Earned Salary and the Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. The Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) CONTINUATION OF BENEFITS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (x) the twenty-four month anniversary of the Date of Termination (the "End Date") and (y) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation 33 in all of the employee and executive welfare and fringe benefit plans of the Company or of the Affiliate employing the Executive (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company or the Affiliate through the End Date. (iii) CONSULTING ARRANGEMENT. It is acknowledged that the continued association of the Executive with the Company's business and operations is of considerable value. Therefore, if, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive shall nevertheless be retained as a consultant commencing on the Date of Termination and continuing through the twenty-four month anniversary of the Date of Termination. The consulting services provided shall in form and substance commensurate with the type of duties exercised by the executive immediately prior to the Effective Date and in accordance with the following terms and conditions: (A) such consultation shall be upon reasonable notice and at such times and places as are mutually convenient, not to exceed, on average, two weeks per month; (B) the Company shall pay the Executive a consulting fee of $480,000 in cash (the "Consulting Fee") in monthly installments of $20,000, payable the first day of each month in arrears; (C) the Company shall reimburse the Executive for all reasonable business expenses incurred in connection with the Executive's performance of his responsibilities under this Section 7(c)(iii), which reimbursements shall comply with the Company's normal policies; and (D) the Executive shall furnish such consulting services in the capacity of an independent contractor. (d) TAX GROSS-UP AMOUNT. In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), then the Company will reimburse the Executive in an amount equal to the "Tax Gross-Up Amount" (as defined in the next sentence). The Tax Gross-Up Amount means an amount equal to the sum of the Excise Tax, any other similar federal tax and the amount of any other additional federal tax, including any additional income tax, arising as a result of any payment pursuant to this Section 7(d), which sum may be due and payable by the Executive or withheld by the Company (collectively, the "Total Taxes") so that the Executive receives actual payments or benefits, after payment or withholding, in an amount no less than that which would have been received by him or her if no obligation for Total Taxes had arisen. 8. LEGAL FEES AND EXPENSES. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement and if the Executive is the prevailing party in such contest, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, 34 reasonable attorneys' fees and expenses, as determined by the arbitrators selected pursuant to Section 11(b) hereof to resolve such contest. 9. CONFIDENTIAL INFORMATION; COMPANY PROPERTY; NON-COMPETE. For and in consideration of the salary and benefits to be provided by the Company hereunder, the Executive agrees that: (a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliates, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any Affiliate and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) COMPANY PROPERTY. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. (c) NON-COMPETE. (i) Commencing on the Effective Date and continuing for as long as the Executive is paid a Base Salary, all or part of a Severance Amount or a Consulting Fee, the Executive shall not engage directly or indirectly in any competing business. (ii) Commencing on the Effective Date and continuing for as long as the Executive is paid either a Base Salary or all or a portion of a Severance Amount or a Consulting Fee, the Executive shall not, directly or indirectly, (A) use any information obtained in the course of the Executive's employment by the Company or an Affiliate for the purpose of notifying individuals of the termination of such employment, or of the Executive's willingness to provide services after such termination, (B) otherwise solicit any person who is, or at any time during the term of the Executive's employment by the Company or an Affiliate was, a customer of the Company or an Affiliate, or (C) solicit or induce, or attempt to solicit or induce, any employee of the Company or an Affiliate to terminate such employment for any reason whatsoever or hire any employee of the Company or an Affiliate. (iii) The Executive may request from the Company a waiver of the application to the Executive of all or parts of Section 9(c)(i) and (ii), above, and the Company shall not unreasonably deny such a request. (d) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material 35 violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 11. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent that it is inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) AMENDMENTS. 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. (d) ENTIRE AGREEMENT. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. (e) TAX WITHHOLDING. The Company shall withhold from any amounts payable under this Agreement such federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (f) SEVERABILITY. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 36 (g) EFFECT OF AGREEMENT ON RIGHTS OF EXECUTIVE. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by the Executive or by the Company or an Affiliate, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (h) WAIVER. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. (i) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (j) CAPTIONS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf all as of the day and year first above written. SYLVAN INC. By: /s/ VIRGIL JURGENSMEYER Chairman, Compensation Committee EXECUTIVE /s/ DENNIS C. ZENSEN Dennis C. Zensen 37 EX-10.44 4 j9708301exv10w44.txt EMPLOYMENT CONTINUATION AGREEMENT Exhibit 10.44 EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Sylvan Inc., a Nevada corporation (the "Company"), and Monir K. Elzalaki (the "Executive"), dated as of this 21st day of September, 2002. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of shareholders; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive with certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. OPERATION OF AGREEMENT. (a) EFFECTIVE DATE. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) TERMINATION OF EMPLOYMENT FOLLOWING A POTENTIAL CHANGE OF CONTROL. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company or an Affiliate without Cause (as defined in Section 6[c]) or by the Executive with Good Reason (as defined in Section 6[d]) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control that arises out of such Potential Change of Control occurs within 24 months of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 38 2. DEFINITIONS. (a) CHANGE OF CONTROL. For the purposes of this Agreement, a "Change of Control" shall mean: (i) the acquisition by any individual, entity or group (within the meaning of Section 13[d][3] or 14[d][2] of the Securities Exchange Act of 1934, as amended [the "Exchange Act"] or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities or interests of the Company entitling such Person to 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of such company (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 62% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition of beneficial ownership of securities of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or by any Affiliate; or (ii) completion of a tender offer to acquire securities of the Company entitling the holders thereof to 51% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) either a successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 39% or more of the members of the Board made by any Person other than the Company or less than 62% of the members of the Board shall be Continuing Directors; or (iv) the occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company and, as a result of which, the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power (A) in the case of a merger or consolidation, in the surviving or resulting company, (B) in the case of a share exchange, in the acquiring company, or (C) in the case of a division or a sale or other disposition of assets, in each surviving, resulting or acquiring company which, immediately following the transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) any other transaction or series of transactions that the Board, in its sole discretion, determines is a Change of Control with respect to the Employee. (b) BOARD. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (c) POTENTIAL CHANGE OF CONTROL. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 51% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or 39 (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control. (d) CONTINUING DIRECTORS. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). (e) AFFILIATE. For purposes of this Agreement, "Affiliate" or "Affiliates" shall mean any company or business which, by reason of stock ownership or otherwise, is controlled, directly or indirectly, by the Company. 3. EMPLOYMENT PERIOD. Commencing on the Effective Date and subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its or an Affiliate's employ, and the Executive agrees to remain in the employ of the Company or the Affiliate. 4. POSITION AND DUTIES. (a) NO REDUCTION IN POSITION. Commencing on the Effective Date, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 10(b) of this Agreement. Unless the Executive willingly elects otherwise, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 50 miles from such location. (b) BUSINESS TIME. Commencing on the Effective Date, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. 5. COMPENSATION. (a) BASE SALARY. Commencing on the Effective Date, the Executive shall receive a base salary at a monthly rate of $25,000, or, if higher, the monthly salary paid to the Executive by the Company and its Affiliates immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board of the Company or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be 40 increased from time to time, shall hereafter be referred to as "Base Salary." Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) ANNUAL BONUS. Commencing on the Effective Date, in addition to the Base Salary, for each fiscal year of the Company ending after the Effective Date and for each partial fiscal year ending after the Effective Date, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions substantially no less favorable, in the aggregate, to the Executive (taking into account reasonable changes in the Company's goals and objectives and the consequences of the Change of Control upon the Company's goals, objectives and performance measures) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) LONG-TERM INCENTIVE COMPENSATION PROGRAMS. Commencing on the Effective Date and to the extent that such programs and plans exist subsequent to the Effective Date, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option plans, at a level that is commensurate with the Executive's opportunity to participate in such plans of the Company immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) BENEFIT PLANS. Commencing on the Effective Date and to the extent that such plans and programs exist subsequent to the Effective Date, the Executive shall be entitled to participate in or be covered under all retirement, target benefit annuity, medical, disability, group life, and group accidental death and dismemberment insurance plans and programs of the Company and its Affiliates at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. All payments by the Company or an Affiliate hereunder excepting payments for Accrued Obligations (as defined in Section 7[a]) shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company or an Affiliate. (e) VACATION AND FRINGE BENEFITS. Commencing on the Effective Date and to the extent that such programs exist subsequent to the Effective Date, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (f) SUCCESS BONUS. Provided that either (i) the Executive continues his employment with the Company or an Affiliate during the Retention Period and remains employed by the Company or an Affiliate on the last day of the Retention Period, (ii) the Executive's employment is involuntarily terminated by the Company or the Affiliate during the Retention Period for reasons other than for death, disability, retirement under any retirement plan of the Company or an Affiliate, or Cause, as defined in Section 6(c), or (iii) the Executive's employment is voluntarily terminated by the Executive during the Retention Period for Good Reason, as defined in Section 6(d), then the Company shall pay the Executive a success bonus 41 in an amount equal to $50,000. The success bonus shall be paid in a lump sum to the Executive as soon as practicable following the earlier of the events set forth in clause (i), (ii) or (iii) of the foregoing sentence, but in no event later than the first regular pay period following the last day of the Retention Period of the Company or the Affiliate employing the Executive. Nothing herein shall entitle the Executive to payment of any success bonus if the Executive's employment is terminated during the Retention Period by reason of death, disability, retirement under any retirement plan or voluntary termination (other than for Good Reason) or for Cause. The success bonus to be provided to the Executive under this Section 5(f) shall be in addition to, and not in lieu of, continuation of the Executive's Base Salary, participation in the Company's or an Affiliate's health, life, disability and other employee benefit plans, programs and arrangements, in accordance with the terms of such plans, programs and arrangements, and other perquisites of employment, as provided to him at the beginning of the Retention Period or as the same may be increased thereafter. For purposes of this Agreement, the Retention Period shall mean the period: (i) beginning on the date on which a Potential Change of Control occurs; and (ii) ending on the date on which a Change of Control occurs. 6. TERMINATION. (a) DEATH, DISABILITY OR RETIREMENT. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) VOLUNTARY TERMINATION. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) CAUSE. The Company or an Affiliate may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of NOLO CONTENDERE to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in Section 6(d), below) after a written demand for substantial performance is delivered to the Executive by the Company, which demand specifically identifies the manner in which the Company believes that the Executive has not substantially performed the required duties. (d) GOOD REASON. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express 42 written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company or an Affiliate which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's or an Affiliate's requiring the Executive to be based at any office or location more than 50 miles from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's or an Affiliate's requiring the Executive to travel on business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) NOTICE OF TERMINATION. For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 30 days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) 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 termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) DATE OF TERMINATION. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates on or after the Effective Date. 43 7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH OR DISABILITY. If the Executive's employment is terminated on or after the Effective Date by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owed to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) CAUSE AND VOLUNTARY TERMINATION. If, on or after the Effective Date, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE AND TERMINATION BY THE EXECUTIVE FOR GOOD REASON. (i) LUMP SUM PAYMENTS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount") equal to two times the Executive's annual Base Salary; and (C) the Accrued Obligations. The Earned Salary and one-half of the Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. The remaining one-half of the Severance Amount shall be paid in cash in four semi-annual installments commencing on the first business day of the seventh month following the Date of Termination. The Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) CONTINUATION OF BENEFITS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the 44 Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (A) the twelve month anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the employee and executive welfare and fringe benefit plans of the Company or of the Affiliate employing the Executive (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company or the Affiliate through the End Date. (d) TAX GROSS-UP AMOUNT. In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), then the Company will reimburse the Executive in an amount equal to the "Tax Gross-Up Amount" (as defined in the next sentence). The Tax Gross-Up Amount means an amount equal to the sum of the Excise Tax, any other similar federal tax and the amount of any other additional federal tax, including any additional income tax, arising as a result of any payment pursuant to this Section 7(d), which sum may be due and payable by the Executive or withheld by the Company (collectively, the "Total Taxes") so that the Executive receives actual payments or benefits, after payment or withholding, in an amount no less than that which would have been received by him or her if no obligation for Total Taxes had arisen. 8. LEGAL FEES AND EXPENSES. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement and if the Executive is the prevailing party in such contest, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, reasonable attorneys' fees and expenses, as determined by the arbitrators selected pursuant to Section 11(b) hereof to resolve such contest. 9. CONFIDENTIAL INFORMATION; COMPANY PROPERTY; NON-COMPETE. For and in consideration of the salary and benefits to be provided by the Company hereunder, the Executive agrees that: (a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliates, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any Affiliate and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) COMPANY PROPERTY. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. 45 (c) NON-COMPETE. (i) Commencing on the Effective Date and continuing for two years after the Effective Date, the Executive shall not engage directly or indirectly in any competing business. (ii) Commencing on the Effective Date and continuing for two years after the Effective Date, the Executive shall not, directly or indirectly, (A) use any information obtained in the course of the Executive's employment by the Company or an Affiliate for the purpose of notifying individuals of the termination of such employment, or of the Executive's willingness to provide services after such termination, (B) otherwise solicit any person who is, or at any time during the term of the Executive's employment by the Company or an Affiliate was, a customer of the Company or an Affiliate, or (C) solicit or induce, or attempt to solicit or induce, any employee of the Company or an Affiliate to terminate such employment for any reason whatsoever or hire any employee of the Company or an Affiliate. (iii) The Executive may request from the Company a waiver of the application to the Executive of all or parts of Sections 9(c)(i) and (ii), above, and the Company shall not unreasonably deny such a request. (d) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 46 11. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent that it is inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) AMENDMENTS. 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. (d) ENTIRE AGREEMENT. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. (e) TAX WITHHOLDING. The Company shall withhold from any amounts payable under this Agreement such federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (f) SEVERABILITY. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. (g) EFFECT OF AGREEMENT ON RIGHTS OF EXECUTIVE. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by the Executive or by the Company or an Affiliate, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (h) WAIVER. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. (i) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (j) CAPTIONS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 47 IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf all as of the day and year first above written. SYLVAN INC. By: /s/ VIRGIL JURGENSMEYER Chairman, Compensation Committee EXECUTIVE /s/ MONIR K. ELZALAKI Monir K. Elzalaki 48 EX-10.45 5 j9708301exv10w45.txt EMPLOYMENT CONTINUATION AGREEMENT Exhibit 10.45 EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Sylvan Inc., a Nevada corporation (the "Company"), and Donald A. Smith (the "Executive"), dated as of this 19th day of September, 2002. W I T N E S S E T H: WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of shareholders; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive with certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. OPERATION OF AGREEMENT. (a) EFFECTIVE DATE. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) TERMINATION OF EMPLOYMENT FOLLOWING A POTENTIAL CHANGE OF CONTROL. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company or an Affiliate without Cause (as defined in Section 6[c]) or by the Executive with Good Reason (as defined in Section 6[d]) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control that arises out of such Potential Change of Control occurs within 24 months of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 49 2. DEFINITIONS. (a) CHANGE OF CONTROL. For the purposes of this Agreement, a "Change of Control" shall mean: (i) the acquisition by any individual, entity or group (within the meaning of Section 13[d][3] or 14[d][2] of the Securities Exchange Act of 1934, as amended [the "Exchange Act"] or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities or interests of the Company entitling such Person to 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of such company (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 62% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition of beneficial ownership of securities of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or by any Affiliate; or (ii) completion of a tender offer to acquire securities of the Company entitling the holders thereof to 51% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) either a successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 39% or more of the members of the Board made by any Person other than the Company or less than 62% of the members of the Board shall be Continuing Directors; or (iv) the occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company and, as a result of which, the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power (A) in the case of a merger or consolidation, in the surviving or resulting company, (B) in the case of a share exchange, in the acquiring company, or (C) in the case of a division or a sale or other disposition of assets, in each surviving, resulting or acquiring company which, immediately following the transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) any other transaction or series of transactions that the Board, in its sole discretion, determines is a Change of Control with respect to the Employee. (b) BOARD. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (c) POTENTIAL CHANGE OF CONTROL. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 51% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or 50 (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control. (d) CONTINUING DIRECTORS. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). (e) AFFILIATE. For purposes of this Agreement, "Affiliate" or "Affiliates" shall mean any company or business which, by reason of stock ownership or otherwise, is controlled, directly or indirectly, by the Company. 3. EMPLOYMENT PERIOD. Commencing on the Effective Date and subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its or an Affiliate's employ, and the Executive agrees to remain in the employ of the Company or the Affiliate. 4. POSITION AND DUTIES. (a) NO REDUCTION IN POSITION. Commencing on the Effective Date, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 10(b) of this Agreement. Unless the Executive willingly elects otherwise, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 50 miles from such location. (b) BUSINESS TIME. Commencing on the Effective Date, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. 5. COMPENSATION. (a) BASE SALARY. Commencing on the Effective Date, the Executive shall receive a base salary at a monthly rate of $18,333, or, if higher, the monthly salary paid to the Executive by the Company and its Affiliates immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board of the Company or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be 51 increased from time to time, shall hereafter be referred to as "Base Salary." Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) ANNUAL BONUS. Commencing on the Effective Date, in addition to the Base Salary, for each fiscal year of the Company ending after the Effective Date and for each partial fiscal year ending after the Effective Date, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions substantially no less favorable, in the aggregate, to the Executive (taking into account reasonable changes in the Company's goals and objectives and the consequences of the Change of Control upon the Company's goals, objectives and performance measures) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) LONG-TERM INCENTIVE COMPENSATION PROGRAMS. Commencing on the Effective Date and to the extent that such programs and plans exist subsequent to the Effective Date, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option plans, at a level that is commensurate with the Executive's opportunity to participate in such plans of the Company immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) BENEFIT PLANS. Commencing on the Effective Date and to the extent that such plans and programs exist subsequent to the Effective Date, the Executive shall be entitled to participate in or be covered under all retirement, target benefit annuity, medical, disability, group life, and group accidental death and dismemberment insurance plans and programs of the Company and its Affiliates at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. All payments by the Company or an Affiliate hereunder excepting payments for Accrued Obligations (as defined in Section 7[a]) shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company or an Affiliate. (e) VACATION AND FRINGE BENEFITS. Commencing on the Effective Date and to the extent that such programs exist subsequent to the Effective Date, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (f) SUCCESS BONUS. Provided that either (i) the Executive continues his employment with the Company or an Affiliate during the Retention Period and remains employed by the Company or an Affiliate on the last day of the Retention Period, (ii) the Executive's employment is involuntarily terminated by the Company or the Affiliate during the Retention Period for reasons other than for death, disability, retirement under any retirement plan of the Company or an Affiliate, or Cause, as defined in Section 6(c), or (iii) the Executive's employment is voluntarily terminated by the Executive during the Retention Period for Good Reason, as defined in Section 6(d), then the Company shall pay the Executive a success bonus 52 in an amount equal to $50,000. The success bonus shall be paid in a lump sum to the Executive as soon as practicable following the earlier of the events set forth in clause (i), (ii) or (iii) of the foregoing sentence, but in no event later than the first regular pay period following the last day of the Retention Period of the Company or the Affiliate employing the Executive. Nothing herein shall entitle the Executive to payment of any success bonus if the Executive's employment is terminated during the Retention Period by reason of death, disability, retirement under any retirement plan or voluntary termination (other than for Good Reason) or for Cause. The success bonus to be provided to the Executive under this Section 5(f) shall be in addition to, and not in lieu of, continuation of the Executive's Base Salary, participation in the Company's or an Affiliate's health, life, disability and other employee benefit plans, programs and arrangements, in accordance with the terms of such plans, programs and arrangements, and other perquisites of employment, as provided to him at the beginning of the Retention Period or as the same may be increased thereafter. For purposes of this Agreement, the Retention Period shall mean the period: (i) beginning on the date on which a Potential Change of Control occurs; and (ii) ending on the date on which a Change of Control occurs. 6. TERMINATION. (a) DEATH, DISABILITY OR RETIREMENT. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) VOLUNTARY TERMINATION. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) CAUSE. The Company or an Affiliate may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of NOLO CONTENDERE to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in Section 6(d), below) after a written demand for substantial performance is delivered to the Executive by the Company, which demand specifically identifies the manner in which the Company believes that the Executive has not substantially performed the required duties. (d) GOOD REASON. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express 53 written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company or an Affiliate which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's or an Affiliate's requiring the Executive to be based at any office or location more than 50 miles from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's or an Affiliate's requiring the Executive to travel on business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) NOTICE OF TERMINATION. For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 30 days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) 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 termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) DATE OF TERMINATION. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates on or after the Effective Date. 54 7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH OR DISABILITY. If the Executive's employment is terminated on or after the Effective Date by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owed to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) CAUSE AND VOLUNTARY TERMINATION. If, on or after the Effective Date, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE AND TERMINATION BY THE EXECUTIVE FOR GOOD REASON. (i) LUMP SUM PAYMENTS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount") equal to two times the Executive's annual Base Salary; and (C) the Accrued Obligations. The Earned Salary and one-half of the Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. The remaining one-half of the Severance Amount shall be paid in cash in four semi-annual installments commencing on the first business day of the seventh month following the Date of Termination. The Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) CONTINUATION OF BENEFITS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the 55 Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (A) the twelve month anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the employee and executive welfare and fringe benefit plans of the Company or of the Affiliate employing the Executive (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company or the Affiliate through the End Date. (d) TAX GROSS-UP AMOUNT. In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), then the Company will reimburse the Executive in an amount equal to the "Tax Gross-Up Amount" (as defined in the next sentence). The Tax Gross-Up Amount means an amount equal to the sum of the Excise Tax, any other similar federal tax and the amount of any other additional federal tax, including any additional income tax, arising as a result of any payment pursuant to this Section 7(d), which sum may be due and payable by the Executive or withheld by the Company (collectively, the "Total Taxes") so that the Executive receives actual payments or benefits, after payment or withholding, in an amount no less than that which would have been received by him or her if no obligation for Total Taxes had arisen. 8. LEGAL FEES AND EXPENSES. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement and if the Executive is the prevailing party in such contest, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, reasonable attorneys' fees and expenses, as determined by the arbitrators selected pursuant to Section 11(b) hereof to resolve such contest. 9. CONFIDENTIAL INFORMATION; COMPANY PROPERTY; NON-COMPETE. For and in consideration of the salary and benefits to be provided by the Company hereunder, the Executive agrees that: (a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliates, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any Affiliate and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) COMPANY PROPERTY. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. 56 (c) NON-COMPETE. (i) Commencing on the Effective Date and continuing for two years after the Effective Date, the Executive shall not engage directly or indirectly in any competing business. (ii) Commencing on the Effective Date and continuing for two years after the Effective Date, the Executive shall not, directly or indirectly, (A) use any information obtained in the course of the Executive's employment by the Company or an Affiliate for the purpose of notifying individuals of the termination of such employment, or of the Executive's willingness to provide services after such termination, (B) otherwise solicit any person who is, or at any time during the term of the Executive's employment by the Company or an Affiliate was, a customer of the Company or an Affiliate, or (C) solicit or induce, or attempt to solicit or induce, any employee of the Company or an Affiliate to terminate such employment for any reason whatsoever or hire any employee of the Company or an Affiliate. (iii) The Executive may request from the Company a waiver of the application to the Executive of all or parts of Sections 9(c)(i) and (ii), above, and the Company shall not unreasonably deny such a request. (d) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 57 11. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent that it is inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) AMENDMENTS. 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. (d) ENTIRE AGREEMENT. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. (e) TAX WITHHOLDING. The Company shall withhold from any amounts payable under this Agreement such federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (f) SEVERABILITY. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. (g) EFFECT OF AGREEMENT ON RIGHTS OF EXECUTIVE. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by the Executive or by the Company or an Affiliate, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (h) WAIVER. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. (i) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (j) CAPTIONS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 58 IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf all as of the day and year first above written. SYLVAN INC. By: /s/ VIRGIL JURGENSMEYER Chairman, Compensation Committee EXECUTIVE /s/ DONALD A. SMITH Donald A. Smith 59 EX-10.46 6 j9708301exv10w46.txt EMPLOYMENT CONTINUATION AGREEMENT Exhibit 10.46 EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between Sylvan Inc., a Nevada corporation (the "Company"), and Gary D. Walker (the "Executive"), dated as of this 24th day of September, 2002. W I T N E S S E T H: WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of shareholders; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive with certain financial assurances to enable the Executive to perform the responsibilities of the position without undue distraction and to exercise judgment without bias due to personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and intending to be legally bound, it is hereby agreed by and between the Company and the Executive as follows: 1. OPERATION OF AGREEMENT. (a) EFFECTIVE DATE. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) TERMINATION OF EMPLOYMENT FOLLOWING A POTENTIAL CHANGE OF CONTROL. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company or an Affiliate without Cause (as defined in Section 6[c]) or by the Executive with Good Reason (as defined in Section 6[d]) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control that arises out of such Potential Change of Control occurs within 24 months of such termination, the Executive shall be deemed, solely for purposes of determining the Executive's rights under this Agreement, to have remained employed until the Effective Date and to have been terminated by the Company without Cause immediately after this Agreement becomes effective. 60 2. DEFINITIONS. (a) CHANGE OF CONTROL. For the purposes of this Agreement, a "Change of Control" shall mean: (i) the acquisition by any individual, entity or group (within the meaning of Section 13[d][3] or 14[d][2] of the Securities Exchange Act of 1934, as amended [the "Exchange Act"] or any successor rule thereto) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor rule thereto) of securities or interests of the Company entitling such Person to 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of such company (the "Voting Power"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute or cause a Change in Control: (A) any acquisition directly from the Company following which the members of the Board continue to be comprised of at least 62% of Continuing Directors, (B) any acquisition by the Company, or (C) any acquisition of beneficial ownership of securities of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or by any Affiliate; or (ii) completion of a tender offer to acquire securities of the Company entitling the holders thereof to 51% or more of the Voting Power of the Company, excepting any acquisitions specified in subsection (i), above, that do not constitute a Change of Control; or (iii) either a successful solicitation subject to Rule 14a-11 under the Exchange Act relating to the election or removal of 39% or more of the members of the Board made by any Person other than the Company or less than 62% of the members of the Board shall be Continuing Directors; or (iv) the occurrence of a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company and, as a result of which, the shareholders of the Company immediately prior to such transaction do not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power (A) in the case of a merger or consolidation, in the surviving or resulting company, (B) in the case of a share exchange, in the acquiring company, or (C) in the case of a division or a sale or other disposition of assets, in each surviving, resulting or acquiring company which, immediately following the transaction, holds more than 30% of the consolidated assets of the Company immediately prior to the transaction; or (v) any other transaction or series of transactions that the Board, in its sole discretion, determines is a Change of Control with respect to the Employee. (b) BOARD. For purposes of this Agreement, "Board" shall mean the Board of Directors of the Company. (c) POTENTIAL CHANGE OF CONTROL. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 51% of the Voting Power of the Company's securities or announces or otherwise makes known a bona fide intent to commence such a tender offer, excepting any offers that, if completed, would result in an acquisition not constituting a Change of Control; or 61 (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; or (iii) there is commenced a solicitation of proxies for the election of directors of the Company by anyone other than the Company which solicitation, if successful, would effect a Change of Control. (d) CONTINUING DIRECTORS. For purposes of this Agreement, "Continuing Directors" shall mean a director of the Company who either (i) was a director of the Company immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the Exchange Act). (e) AFFILIATE. For purposes of this Agreement, "Affiliate" or "Affiliates" shall mean any company or business which, by reason of stock ownership or otherwise, is controlled, directly or indirectly, by the Company. 3. EMPLOYMENT PERIOD. Commencing on the Effective Date and subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its or an Affiliate's employ, and the Executive agrees to remain in the employ of the Company or the Affiliate. 4. POSITION AND DUTIES. (a) NO REDUCTION IN POSITION. Commencing on the Effective Date, the Executive's position (including titles), authority, responsibilities and status shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority, responsibilities and status shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 10(b) of this Agreement. Unless the Executive willingly elects otherwise, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location within 50 miles from such location. (b) BUSINESS TIME. Commencing on the Effective Date, the Executive agrees to devote full attention during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to the Executive hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which the Executive is entitled. 5. COMPENSATION. (a) BASE SALARY. Commencing on the Effective Date, the Executive shall receive a base salary at a monthly rate of $16,667, or, if higher, the monthly salary paid to the Executive by the Company and its Affiliates immediately prior to the Effective Date. The base salary may be increased (but not decreased) at any time and from time to time by action of the Board of the Company or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be 62 increased from time to time, shall hereafter be referred to as "Base Salary." Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) ANNUAL BONUS. Commencing on the Effective Date, in addition to the Base Salary, for each fiscal year of the Company ending after the Effective Date and for each partial fiscal year ending after the Effective Date, the Executive shall be afforded the opportunity to receive an annual bonus or partial bonus, as applicable, on terms and conditions substantially no less favorable, in the aggregate, to the Executive (taking into account reasonable changes in the Company's goals and objectives and the consequences of the Change of Control upon the Company's goals, objectives and performance measures) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) LONG-TERM INCENTIVE COMPENSATION PROGRAMS. Commencing on the Effective Date and to the extent that such programs and plans exist subsequent to the Effective Date, the Executive shall participate in all long-term incentive compensation programs for key executives, including stock option plans, at a level that is commensurate with the Executive's opportunity to participate in such plans of the Company immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) BENEFIT PLANS. Commencing on the Effective Date and to the extent that such plans and programs exist subsequent to the Effective Date, the Executive shall be entitled to participate in or be covered under all retirement, target benefit annuity, medical, disability, group life, and group accidental death and dismemberment insurance plans and programs of the Company and its Affiliates at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. All payments by the Company or an Affiliate hereunder excepting payments for Accrued Obligations (as defined in Section 7[a]) shall be taken into account (to the extent permitted by, and consistent with, law and the terms of the applicable plan document) in determining the amount of contributions to be made by or on behalf of the Executive under any tax-qualified defined contribution plan of the Company or an Affiliate. (e) VACATION AND FRINGE BENEFITS. Commencing on the Effective Date and to the extent that such programs exist subsequent to the Effective Date, the Executive shall be entitled to paid vacation and fringe benefits at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (f) SUCCESS BONUS. Provided that either (i) the Executive continues his employment with the Company or an Affiliate during the Retention Period and remains employed by the Company or an Affiliate on the last day of the Retention Period, (ii) the Executive's employment is involuntarily terminated by the Company or the Affiliate during the Retention Period for reasons other than for death, disability, retirement under any retirement plan of the Company or an Affiliate, or Cause, as defined in Section 6(c), or (iii) the Executive's employment is voluntarily terminated by the Executive during the Retention Period for Good Reason, as defined in Section 6(d), then the Company shall pay the Executive a success bonus 63 in an amount equal to $50,000. The success bonus shall be paid in a lump sum to the Executive as soon as practicable following the earlier of the events set forth in clause (i), (ii) or (iii) of the foregoing sentence, but in no event later than the first regular pay period following the last day of the Retention Period of the Company or the Affiliate employing the Executive. Nothing herein shall entitle the Executive to payment of any success bonus if the Executive's employment is terminated during the Retention Period by reason of death, disability, retirement under any retirement plan or voluntary termination (other than for Good Reason) or for Cause. The success bonus to be provided to the Executive under this Section 5(f) shall be in addition to, and not in lieu of, continuation of the Executive's Base Salary, participation in the Company's or an Affiliate's health, life, disability and other employee benefit plans, programs and arrangements, in accordance with the terms of such plans, programs and arrangements, and other perquisites of employment, as provided to him at the beginning of the Retention Period or as the same may be increased thereafter. For purposes of this Agreement, the Retention Period shall mean the period: (i) beginning on the date on which a Potential Change of Control occurs; and (ii) ending on the date on which a Change of Control occurs. 6. TERMINATION. (a) DEATH, DISABILITY OR RETIREMENT. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to permanent and total disability ("Disability") within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), or successor provision, or voluntary retirement under any of the Company's retirement plans as in effect from time to time. (b) VOLUNTARY TERMINATION. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) CAUSE. The Company or an Affiliate may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of, or plea of NOLO CONTENDERE to, a felony; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) the willful and continued failure by Executive to substantially perform the required duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or Disability or any actual or anticipated failure after the termination by Executive for Good Reason as defined in Section 6(d), below) after a written demand for substantial performance is delivered to the Executive by the Company, which demand specifically identifies the manner in which the Company believes that the Executive has not substantially performed the required duties. (d) GOOD REASON. Following the occurrence of a Change of Control or Potential Change of Control, the Executive may terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express 64 written consent of the Executive, after the occurrence of a Change of Control or Potential Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority, responsibilities or status as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, responsibilities, authority or status, or any removal of the Executive from or any failure to re-elect the Executive to any position, except in connection with the termination of the Executive's employment due to Cause, Disability, retirement, death or voluntary termination for reasons other than those set forth in this Section 6(d); (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination of the employment of the Executive by the Company or an Affiliate which is not due to the Executive's Disability, death, retirement, for Cause in accordance with Section 6(c) or voluntary termination for reasons other than those set forth in this Section 6(d); (iv) the Company's or an Affiliate's requiring the Executive to be based at any office or location more than 50 miles from that location at which the Executive performed services specified under the provisions of Section 4 immediately prior to the Change of Control, or the Company's or an Affiliate's requiring the Executive to travel on business to a substantially greater extent than required immediately prior to the Effective Date; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) NOTICE OF TERMINATION. For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 30 days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) 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 termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) DATE OF TERMINATION. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates on or after the Effective Date. 65 7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH OR DISABILITY. If the Executive's employment is terminated on or after the Effective Date by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or the Executive's beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owed to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) CAUSE AND VOLUNTARY TERMINATION. If, on or after the Effective Date, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE AND TERMINATION BY THE EXECUTIVE FOR GOOD REASON. (i) LUMP SUM PAYMENTS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount") equal to two times the Executive's annual Base Salary; and (C) the Accrued Obligations. The Earned Salary and one-half of the Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. The remaining one-half of the Severance Amount shall be paid in cash in four semi-annual installments commencing on the first business day of the seventh month following the Date of Termination. The Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) CONTINUATION OF BENEFITS. If, on or after the Effective Date, the Company terminates the Executive's employment other than for Cause, or the Executive terminates employment for Good Reason, the Executive (and, to the extent applicable, the 66 Executive's dependents) shall be entitled, after the Date of Termination until the earlier of (A) the twelve month anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the employee and executive welfare and fringe benefit plans of the Company or of the Affiliate employing the Executive (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company or the Affiliate through the End Date. (d) TAX GROSS-UP AMOUNT. In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), then the Company will reimburse the Executive in an amount equal to the "Tax Gross-Up Amount" (as defined in the next sentence). The Tax Gross-Up Amount means an amount equal to the sum of the Excise Tax, any other similar federal tax and the amount of any other additional federal tax, including any additional income tax, arising as a result of any payment pursuant to this Section 7(d), which sum may be due and payable by the Executive or withheld by the Company (collectively, the "Total Taxes") so that the Executive receives actual payments or benefits, after payment or withholding, in an amount no less than that which would have been received by him or her if no obligation for Total Taxes had arisen. 8. LEGAL FEES AND EXPENSES. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement and if the Executive is the prevailing party in such contest, the Company shall pay the Executive's costs (or cause such costs to be paid) in so asserting, including, without limitation, reasonable attorneys' fees and expenses, as determined by the arbitrators selected pursuant to Section 11(b) hereof to resolve such contest. 9. CONFIDENTIAL INFORMATION; COMPANY PROPERTY; NON-COMPETE. For and in consideration of the salary and benefits to be provided by the Company hereunder, the Executive agrees that: (a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliates, and their respective businesses, (i) obtained by the Executive during the Executive's employment by the Company or any Affiliate and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) COMPANY PROPERTY. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under the Executive's control. 67 (c) NON-COMPETE. (i) Commencing on the Effective Date and continuing for two years after the Effective Date, the Executive shall not engage directly or indirectly in any competing business. (ii) Commencing on the Effective Date and continuing for two years after the Effective Date, the Executive shall not, directly or indirectly, (A) use any information obtained in the course of the Executive's employment by the Company or an Affiliate for the purpose of notifying individuals of the termination of such employment, or of the Executive's willingness to provide services after such termination, (B) otherwise solicit any person who is, or at any time during the term of the Executive's employment by the Company or an Affiliate was, a customer of the Company or an Affiliate, or (C) solicit or induce, or attempt to solicit or induce, any employee of the Company or an Affiliate to terminate such employment for any reason whatsoever or hire any employee of the Company or an Affiliate. (iii) The Executive may request from the Company a waiver of the application to the Executive of all or parts of Sections 9(c)(i) and (ii), above, and the Company shall not unreasonably deny such a request. (d) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall (i) be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9 and (ii) have no further obligation to make any payments to the Executive hereunder following any finding by a court or an arbitrator that the Executive has engaged in a material violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives, including by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 68 11. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws. (b) ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the City of Pittsburgh, Commonwealth of Pennsylvania, and except to the extent that it is inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration, and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) AMENDMENTS. 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. (d) ENTIRE AGREEMENT. Excepting any plans, agreements or arrangements specifically referred to in this Agreement, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. (e) TAX WITHHOLDING. The Company shall withhold from any amounts payable under this Agreement such federal, state, foreign, or local taxes or levies as shall be required to be withheld pursuant to any applicable law or regulation. (f) SEVERABILITY. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. (g) EFFECT OF AGREEMENT ON RIGHTS OF EXECUTIVE. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by the Executive or by the Company or an Affiliate, in which case the Executive shall have no further rights under this Agreement except in circumstances relating to a Potential Change of Control as provided for herein. (h) WAIVER. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. (i) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (j) CAPTIONS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 69 IN WITNESS WHEREOF, the Executive has hereunder set his hand and the Company has caused this Agreement to be executed in its name on its behalf all as of the day and year first above written. SYLVAN INC. By: /s/ VIRGIL JURGENSMEYER Chairman, Compensation Committee EXECUTIVE /s/ GARY D. WALKER Gary D. Walker 70 EX-10.47 7 j9708301exv10w47.txt EMPLOYMENT CONTINUATION AGREEMENT Exhibit 10.47 M A N A G E R ' S S E R V I C E A G R E E M E N T T H I S A G R E E M E N T is made the seventeenth day of April, One thousand nine hundred and eighty-eight B E T W E E N : (1) WHITE QUEEN LIMITED whose registered office is situate at 13 Christopher Street, London EC2 (hereinafter called "the Company") of the one part; and (2) MICHAEL A. WALTON of 15 Hyholmes, Bretton, Peterborough (hereinafter called "the Manager") of the other part. W H E R E A S : (1) The Manager has been employed by the Company since the fourth day of August 1975 and his date of continuous employment for the purposes of the employment Protection (Consolidation) Act 1978 commenced on the fourth day of August 1975. (2) The parties hereto desire to express in writing the terms of the continued engagement of the Manager as general manager of the Company in the manner hereinafter appearing. N O W IT IS HEREBY AGREED AND DECLARED by and between the parties hereto as follows: 1. In this Agreement: "Subsidiary" shall mean any subsidiary now or in the future of the Company or of any holding company of which the Company is a subsidiary and "holding company" and "subsidiary" shall have the meanings ascribed by Section 736 of the Companies Act 1985 "Group" shall mean the Company and all Subsidiaries and any holding company of the Company for the time being "Group Company" shall mean any Subsidiary and holding company "Board" shall mean the board of directors of the Company "letters patent" or "patent" shall mean and include letters patent, brevet d' invention, petty patent, gebrauschmuster, utility model, design registration or any other form of protection for any invention, discovery or improvement that can be obtained in the United Kingdom or any British Dominion Colony or Dependency or in any foreign country 2. The Manager holds and shall continue to hold the office of General Manager of the Company for a period of three years from the date hereof and continuing thereafter until such employment shall be determined by not less than three years' notice in writing given by the Company to the Manager at any time after the first anniversary of the date hereof or one year's notice in writing given by the Manager to the Company at any time after the first anniversary of the date hereof 71 3. (1) During the continuance of this Agreement the Manager shall subject as herein mentioned devote the whole of his time and attention during normal business hours to the business of the Company and such of any Group Company as the Board may require and shall at all times use his best endeavours to promote the interest and welfare of the Group (2) The Manager shall exercise and perform such powers and duties in relation to the Company or any Group Company as the Board may from time to time direct subject to such restrictions as the Board may from time to time impose (which the Manager shall duly and faithfully perform and observe) and in particular his duties shall be to manage the day to day operations of the Company and E. Hauser Limited and to oversee and manage all aspects of finance administration development and sales in the United Kingdom and Ireland of the Company and E. Hauser Limited 4. (1) The Manager shall be entitled by way of remuneration for his services to the Company to a salary at the rate of TWENTY FOUR THOUSAND POUNDS (L24,000) per annum payable monthly on or about the fifteenth day of every month (2) (a) The Company shall provide the Manager as long as he is legally entitled to drive with a suitable car appropriate to the Manager's status for his exclusive use and shall pay for the licensing, insurance, maintenance, repair and servicing of such car and, when necessary, replacement thereof and for the cost of petrol and oil not required for its private use by the Manager (b) The Manager shall on the termination of his employment hereunder promptly return or account for any such car and failure to do so shall entitle the Company to withhold any outstanding moneys due from the Company to the Manager up to the value of the car. In the event that the Manager does not for any reason work during any notice period prior to termination of his employment hereunder he shall not be entitled to continued use of the car during that unworked period (3) In addition to his said remuneration the Manager shall be entitled to be reimbursed by the Company all out of pocket expenses wholly and exclusively and properly incurred in the performance of his duties hereunder and the Manager shall on being so required provide the Company with vouchers or other evidence of actual payment of such expenses (4) In the event of the Manager performing services for any Group Company payment of the said remuneration and expenses shall be apportioned between the Company and any such other Group Company or Companies and be paid by them respectively in such proportions that the Board shall from time to time determine having regard to the services performed by the Manager for each of such companies (5) The salary payable to the Manager under sub-clause (1) of this Clause shall be reviewed with effect from the First day of January in each year by the Board, provided always that such increase in salary shall not be less than the percentage increase in the Retail Price Index in the twelve months immediately preceding the relevant Review Date unless such an increase would be precluded by statutory restrictions in force at the relevant Review Date, in which case the increase shall be the maximum permitted under such restrictions (6) For the purposes of the preceding sub-clause of this Clause "the Retail Price Index" shall mean the Index of Retail Prices published by the Department of Employment (or by any Government Department upon which duties in connection with such Index shall have devolved) provided always that 72 (a) In the event of any change after the date hereof in the reference based used to compile the said Index the figure taken to be shown in the said Index after such change shall be the figure which would have been shown in the said Index if the reference base current at the date of execution hereof had been retained and (b) In the event of it becoming impossible by reason of any change after the date hereof in the methods used to compile the said Index or for any other reason whatsoever to calculate the salary by reference to the said Index or if any dispute or question whatsoever shall arise between the parties hereto with respect to the construction or effect of this Clause the determination of the salary or other matter in difference shall be determined by an independent Chartered Accountant to be nominated by the President for the time being of the Institute of Chartered Accountants in England and Wales who shall act as an expert and not an arbitrator and who shall have full power to determine on such dates as he shall deem apposite what would have been the increase in the said Index had it continued on the original basis and giving the information assumed to be available for the operation of this Clause (7) The Manager or his personal representatives shall be entitled to a rateable (on a time apportionment basis) proportion of the Manager's salary for any broken portion of a financial year of the Company during which the Manager's engagement hereunder subsists (8) For the avoidance of doubt it is hereby provided that the Manager has no contractual entitlement to any bonus or commission payment, any such payment being made at the absolute discretion of the Board 5. The Manager shall in addition to statutory and other public holiday be entitled to take five weeks holiday is each calendar year (of which not more than three weeks may be consecutive) at such time or times as he may agree with the Board and he may also take such additional or special holidays (if any) as the Board may from time to time approve 6. (1) In the case of illness of the Manager (verified by a registered medical practitioner) or other cause incapacitating him from duly attending to his duties the Company shall continue to pay his said remuneration until the expiry of a consecutive period of 90 days and thereafter the payment of his said remuneration shall be at the discretion of the Board, provided always that in case of such illness or other cause incapacitating the Manager from duly attending to his duties for a period exceeding in all 90 days (whether consecutive or otherwise) in any consecutive period of 360 days the Company may by notice in writing given to the Manager at any time during or within thirty days after the end of such period forthwith determine the Manager's employment as general manager and executive director of the Company hereunder and at such date the Manager's employment hereunder shall absolutely cease and determine without prejudice to his rights of salary up to such date (subject as aforesaid) and to all arrears of salary (2) The Company shall set off the Manager's remuneration paid in accordance with this Clause against the liability of the Company to pay statutory sick pay to the Manager pursuant to the statutory Sick Pay Scheme introduced on 6th April 1983 under the provisions of the Social Security and Housing Benefits Act 1982 and the Company may also deduct from the Manager's remuneration the amount of any State benefits to which the Manager shall be entitled and the Manager shall inform the Company concerning such payments (3) If any incapacity shall be or appear to be occasioned by actionable negligence of a third party in respect of which damages are or may be recoverable the Manager shall forthwith notify the Board of that fact and of any claim compromise settlement or judgment made or awarded in connection therewith and shall give to the Board all such particulars of such matters as the 73 Board may reasonably require and shall if so required by the Board refund to the Company such sum (not exceeding the amount of damages recovered by him under such compromise settlement or judgment less any costs in or in connection with or under such claim compromise settlement or judgment borne by the Manager and not exceeding the aggregate of the remuneration paid to him by way of salary (net of income tax borne thereon) in respect of the period of the incapacity) as the Board may determine (4) The Company undertakes that it will maintain the Manager's membership of the Private Patients Plan at corporate health plan Band C benefit levels for the Manager 7. (1) The Manager has joined the Company's retirement benefits scheme ("the Scheme") in accordance with its Rules and the Company shall during the period of employment of the Manager hereunder continue to make contributions in respect of him of 6 per cent of his annual salary to and in accordance with the Scheme, which sum shall be reviewed with effect from the First day of January in each year by the Board. Full details of the Scheme may be obtained from the Company Secretary on request 8. (1) The Manager shall not at any time either while employed hereunder or for a period of one year after termination of his employment whether on his own account or for any other person firm or company whether directly or indirectly approach canvass solicit or endeavour to entice away from the Company or any other Group Company with a view to doing business of a like nature to that which the Company or any such Group Company carries on or has carried on at any time during the course of this Agreement any person firm or company who has been a customer or supplier of the Company or any other Group Company and (in the case of the enforcement of this Clause after the termination of the Manager's employment) a person firm or company shall be deemed to be a customer or supplier who was such at any time during the period of twelve months ending with the date of the determination of the Manager's employment hereunder and with whom the Manager dealt while employed hereunder (2) The manager shall not after the termination of his employment without the prior written consent of the Company at any time or for any purpose use the name of the Company or of any Group Company in connection with his own or any other name in any way calculated to suggest that he continues to be connected with the business of the Company or any Group Company or in any way hold himself out as having such connection (3) The Manager shall not for a period of one year after termination of his employment hereunder whether on his own account or for any other person firm or company whether directly or indirectly approach canvass, solicit or endeavour to entice away any person who shall be an employee of the Company or any Group Company at the date of the termination of the Manager's employment hereunder with a view to such employee being employed by any person firm or company carrying on business in competition with the business carried on by the Company or any Group Company at any time during the course of this Agreement 9. (1) The Manager shall not at any time while employed by the Company without the prior written consent of the Board be a director of any company other than a Group Company or be engaged or employed concerned or in any other way interested in any other business whatsoever provided that this shall not prevent him (together with any person with whom he is connected as defined in Section 346(4) of the Companies Act 1985) holding an interest as an investment amounting to not more than 5% of the share capital of any company whose shares are quoted on any recognised stock exchange (2) The Manager shall not for a period of one year after the date of termination of his employment hereunder be engaged, concerned or interested directly or indirectly and either 74 on his own behalf or on behalf of or in association with any other person, firm or company and whether as an employee or in any other capacity in carrying on business within the United Kingdom in competition with the business carried on at the date of termination of his employment hereunder by the Company or any Group Company for whom he has performed duties in accordance with Clause 3 above provided that nothing in this sub-clause shall prevent the Manager (together with persons connected with him as defined by Section 346 of the Companies Act 1985) from holding an interest as an investment amounting to not more than 5% of the share capital of any company whose shares are quoted on any recognised stock exchange 10. The Manager shall not either during the continuance of his employment (otherwise than in the proper performance of his duties) or after the termination thereof disclose or divulge to any person firm or company and shall use his best endeavours to prevent the publication or disclosure of any trade secret, manufacturing process, technical data, software specifications, copyrights, industrial or registered designs or any other know how, information relating to patents and inventions or property of the Company in the nature of intellectual property details of which are not in the public domain and customer and supplier lists, price lists, details of contracts with customers or any other confidential information concerning the business or finances of the Group or any of its dealings transactions or affairs which may come to his knowledge while acting as an employee of the Company and upon the expiration or termination of this Agreement for whatsoever cause the Manager shall forthwith deliver up to the Company or its authorized representative all statistics, documents, account records or papers which may be in his possession, custody or control and which relate in any way to the business or affairs of the Company or any Group Company and no copies of the same or any part thereof shall be retained by him and he shall then (if required by the Company or any such Group Company) make a statutory declaration that the whole of the provisions of this Clause have been complied with 11. Each of the undertakings contained in Clauses 8, 9 and 10 above is and shall be a separate and independent undertaking by the Manager and in the event that any restraint comprised in any such undertaking shall be found to be void or unenforceable because it is too broad as to the area or time or subject covered, the said area or time or subject may be reduced to whatever extent necessary to make the restraint valid and effective and such undertaking shall apply as so modified and the Manager acknowledges that in view of his position and responsibility to the Company and the Group it is reasonable for him to give the undertakings referred to above 12. The Company shall have the right to determine this Agreement at any time by summary notice in the event of the Manager: (a) Becoming of unsound mind (b) Committing an act of bankruptcy (c) Being convicted of any criminal offence other than a minor offence under the Road Traffic Acts (d) Persistently and willfully neglecting or becoming incapable of efficiently performing his duties under this Agreement (e) Refusing to carry out instructions of the Board, provided that such duties are such that by the nature of his office he may reasonably and properly be expected to perform them (f) Doing any action manifestly prejudicial to the interest of the Company or Group Company or 75 (g) Being guilty of any serious misconduct or any breach or non-observance of the provisions of this Agreement and the Manager shall have no claim against the Company in respect of the determination of his employment by the Company pursuant to this Clause provided always that if any such act of misconduct or such breach or non-observance is capable of being remedied the Manager shall first be offered a reasonable opportunity to remedy the same prior to termination as aforesaid and if and when so remedied, the employment of the Manager hereunder shall continue without interruption 13. If before the expiration of this Agreement the employment of the Manager hereunder shall be determined by reason of the liquidation of the Company for the purpose of amalgamation or reconstruction or as any part of any arrangement for the amalgamation of the undertaking of the Company not involving liquidation and the Manager shall be offered employment with the amalgamating or reconstructed company for a period not less than the unexpired term of this Agreement and on terms not less favourable than the terms of this Agreement the Manager shall have no claim against the Company in respect of the determination of his employment by the Company hereunder 14. The Manager hereby agrees that he will at the request and expense of any other Group Company enter into a direct agreement with such other Group Company whereby he will accept provisions corresponding to the provisions set forth in Clauses 3, 8, 9, 10, 11 and 13 hereof (or such of them as may be applicable to the circumstances) in such terms as the Group Company may reasonably require for the protection of its interests 15. There are no unusual disciplinary rules relating to the Manager's employment hereunder 16. If the Manager wishes redress of any grievance relating to his employment he should apply in writing setting out the details and nature of any such grievance to the Board 17. For the purpose of the Employment Protection (Consolidation) Act 1978 this Agreement shall be deemed to constitute the contract of employment between the Company and the Manager and the following shall be the particulars of employment for the purpose of Section 1 of the said Act: Title of Employment See Clause 2 Date of Commencement of Employment hereunder See Clause 2 Date of Commencement of Continuous Employment See Recital (1) Remuneration See Clause 4 Hours of Work See Clause 3 Holidays See Clause 5 Sickness or incapacity See Clause 6 Pension See Clause 7 Notice See Clauses 2 and 12 Redress of Grievances See Clause 16 76 18. This Agreement is in substitution for and wholly replaces with effect from the date hereof such other contracts of employment (whether written or oral or implied by law) which have heretofore subsisted between the parties hereto and the Manager hereby acknowledges that he has no claim outstanding against the Company for salary or in respect of any other matter whatsoever (apart from unpaid commission) arising prior to the date hereof 19. The provisions of this Agreement and all matters arising thereout shall be interpreted and construed in accordance and subject to the laws of England and the parties submit to the jurisdiction of the English Courts I N W I T N E S S whereof the Common Seal of the Company has been hereunto affixed and the Manager has hereunto set his hand and seal the day and year first above written THE COMMON SEAL of WHITE ) QUEEN LIMITED was hereunto ) affixed in the presence of: ) Director /s/ U. Hauser Secretary /s/ M.A. Walton SIGNED SEALED and DELIVERED ) by the said MICHAEL A. WALTON ) in the presence of: ) Im Hasenbuel CH 8625 Gossau Switzerland Company Director & Chairman /s/ U. Hauser 77 -----END PRIVACY-ENHANCED MESSAGE-----