Exhibit 5
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JWC ACQUISITION I, INC.
c/o X.X. Childs Associates, L.P.
Xxx Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
November 27, 1996
Mr. G. Xxxx Xxxxxxxxxx
c/o Central Tractor
Farm & Country, Inc.
0000 Xxxxxxxx Xxxxxx
Xxx Xxxxxx, Xxxx 00000-0000
Dear Xxxx:
This letter agreement between us is being entered into contemporaneously
with the execution of an Agreement and Plan of Reorganization (the "Merger
Agreement") by and among Central Tractor Farm & Country, Inc. (the "Company"),
X.X. Childs Equity Partners, L.P., JWC Holdings I, Inc. ("Holdings"), and
JWC Acquisition I, Inc. ("Acquisition"). The Merger Agreement provides for the
merger (the "Merger") of Acquisition with and into the Company, with the
Company to become the surviving corporation. Upon consummation of the Merger,
the Company will be a wholly-owned subsidiary of Holdings. The agreements set
forth herein are subject to the condition subsequent that the "Closing" (as
defined in the Merger Agreement) shall have occurred, and the performance of
the parties hereunder is intended to commence at the "Effective Time" (as
defined in the Merger Agreement) of the Merger. This letter agreement is
entered into by the parties in contemplation of the Merger pursuant to which
the Company will succeed to and assume all the obligations of Acquisition
hereunder as a matter of law.
1. Duties, etc. From and after the Effective Time throughout and
subject to the terms of this agreement, you will be employed as Executive Vice
President - Finance of the Company (to be reviewed for promotion before
April 30, 1997). In your capacity as an officer and employee of the Company,
you will be accountable to, and will also have such powers, duties and
responsibilities as may from time to time be prescribed by the Board of
Directors of the Company, provided that such duties and responsibilities are
consistent with your executive position. You will perform and discharge your
duties and responsibilities faithfully, diligently, and to the best of your
ability. You will devote substantially all of your working time and efforts to
the business and affairs of the Company.
2. Base Salary. Your base salary will be paid at the rate of $250,000
per year through the end of the Company's next fiscal year. After October 31,
1997, you will be eligible for raises in your base salary in amounts to be
determined by the Board of Directors (it being understood that the Board of
Directors may delegate the authority to act under this agreement to the
Compensation Committee), which raises will increase your base salary by at
least the same percentage as the increase in the prior year's Consumer Price
Index (all urban consumers, U.S. city average). All payments under this
paragraph or any other paragraph of this agreement will be made in accordance
with the regular payroll practices of the Company, reduced by applicable
withholdings.
3. Bonuses. See Exhibit I attached.
4. Options. See Exhibit II attached.
5. Benefits. You will receive 5 weeks of paid vacation per fiscal year,
prorated for partial years. You will be eligible to participate in all benefit
plans made generally to executives of the Company, as in effect from time to
time, all subject to plan terms and generally applicable Company policies.
These benefit plans will include, without limitation, health insurance,
continuation of the Company's group life insurance coverage at current levels
(i.e. $500,000), disability insurance, the Company's 401(k) plan, etc. The
Company will pay for an annual physical examination for you by a medical doctor
of your choice. The Company will continue to pay monthly dues for membership
in a country club in which the Company currently owns a membership. In
addition, the Company will also pay you a $7,000 per year automobile allowance
and will reimburse you for automobile insurance and maintenance expense and
normal reimbursable business travel.
6. Nature of Employment; Severance. This agreement is not meant to
constitute a contract of employment for a stated term. This means that you
will retain the right to terminate your employment and officership duties at
any time, and that the Company retains a similar right. However, if (x) the
Company terminates your employment, other than because of your death, because
of your disability for 180 days in one fiscal year, or for cause (meaning
dishonesty, breach of fiduciary duty, material violation of law or negligent or
willful failure to perform your duties or responsibilities) as determined by
the Company in its reasonable judgment, or (y) you terminate your employment
because the Company removes or fails to re-elect you as Executive Vice
President - Finance (other than for any of the reasons described in clause (x)
above), the Company will, in lieu of all other payments or benefits hereunder
or otherwise, pay you severance payments for a period of 12 months from the
date of termination equal to your base salary at the rate in effect at the time
your employment is terminated.
7. Confidentiality. Without the written consent of the Board of
Directors, you will not, during or after the term of your employment with the
Company, disclose to any person or entity (other than a person or entity to
which disclosure is in your reasonable judgment necessary or appropriate in
connection with the performance of your duties as an executive officer of the
Company), any information obtained by you while in the employ of the Company
the disclosure of which may be adverse to the interests of the Company, or use
any such information to the detriment of the Company; provided, however, that
such restriction shall not apply to information generally known to the public
other than as a result of unauthorized disclosure by you.
8. Restricted Activities. You agree that, during the term of your
employment with the Company and for a period of one year thereafter, (a) you
will not, directly or indirectly, be connected as an officer, employee,
consultant, owner or otherwise with any business which competes with any
business of the Company or its subsidiaries in any area where such business is
then being conducted by the Company or a subsidiary, and (b) you will not, and
you will not assist any other person or entity to hire or otherwise seek to
induce employees of the Company or any of its subsidiaries to terminate their
employment.
9. Company Stock Purchase. It is agreed that Acquisition will purchase,
and you will sell to Acquisition, 64,489 shares of Company Common Stock owned
by you on the date hereof. The purchase price for such shares will be $14 per
share, for an aggregate price of $902,846, which will be paid on the later to
occur of (i) January 2, 1997 or (ii) the same time as the closing by
Acquisition of its purchase of all of the shares of Company Common Stock owned
by all of the entities affiliated with Xxxxxx Capital Corporation pursuant to a
purchase agreement of even date herewith. At the time of such purchase, you
will deliver to Acquisition your stock certificates for such shares identified
above together with stock powers duly endorsed in blank, against payment of the
full purchase price therefor in immediately available funds by wire transfer or
certified or bank check. Such shares must be free of all liens and claims of
third parties. It is also agreed that in the Merger, at the Closing thereof,
you will be entitled to, and you agree to, exchange 71,429 shares of Company
Common Stock for such number of shares of Holdings Common Stock having a value
at the date of the Merger Closing (based on the same per share valuation as the
common equity investment being made by X.X. Childs Equity Partners, L.P. and
affiliates in connection with the Merger and related transactions) of
$1,000,006. The stock of JWC Holdings I, Inc. issued to you in exchange for
Company Common Stock hereunder will be subject to restrictions on the
underlying shares of Common Stock of Holdings to be contained in a Stockholders
Agreement to be executed by all holders of such Common Stock and securities
exchangeable or convertible into shares of such Common Stock. Key provisions
of such a stockholders agreement are attached hereto as Exhibit III.
Acquisition's agreement to purchase shares of Company Common Stock and
Holdings' agreement to permit you to exchange stock pursuant to this section
are made as an inducement to you to enter into this letter agreement, and any
failure by you to sell your shares and exchange your stock as herein
contemplated and agreed shall render all other provisions of this letter
agreement, including, without limitation, provisions governing your employment,
compensation and benefits, void and of no effect.
10. Miscellaneous. The headings in this agreement are for convenience
only and shall not affect the meaning hereof. This agreement constitutes the
entire agreement between the parties, and supersedes any prior communications,
agreements and understandings, written or oral, with respect to your employment
and compensation and all matters pertaining thereto. If any provision in this
agreement should, for any reason, be held invalid or unenforceable in any
respect, it shall be construed by limiting it so as to be enforceable to the
maximum extent compatible with applicable law. This agreement shall be
governed by and construed in accordance with the substantive laws of the State
of Iowa. All determinations by the Board of Directors hereunder may be made by
them in their sole discretion.
11. Acceptance. In accepting and entering into this agreement, you
represent that you have not relied on any agreement or representation, oral or
written, express or implied, that is not set forth expressly in this agreement.
If the terms of this agreement are acceptable to you, please sign and return a
copy to the undersigned for delivery by the close of business on November 25,
1996 whereupon it shall become a binding agreement between us on the terms
provided herein.
12. Table 1. A number of provisions in the Exhibits hereto contemplate
achievement of certain objectives by the Company. Those objectives are set
forth in Table 1 attached hereto.
JWC ACQUISITION I, INC.
By: /s/ Xxxxxx X. Xxxxx
President
Agreed to and Accepted
/s/ G. Xxxx Xxxxxxxxxx
G. Xxxx Xxxxxxxxxx
Attachments: Table 1
Exhibit I
Exhibit II
Exhibit III
TABLE 1
ANNUAL OPERATING CASH FLOW TARGETS
Outlined below are the Operating Cash Flow Targets for vesting
incentive options and for earning bonuses.
Operating Cash Flow for any fiscal year equals earnings before
interest, taxes, depreciation and amortization ("EBITDA") less the amount by
which actual capital expenditures exceed the corresponding target amounts in
the table below:
Target Capital Target Operating
($000s) Expenditures Cash Flow
F.Y.E. 1997 $5,250 $25,896
F.Y.E. 1998 9,023 29,930
F.Y.E. 1999 9,421 34,574
F.Y.E. 2000 9,820 39,229
F.Y.E. 2001 10,218 44,392
Cumulative $43,732 $174,021
(Assumes Company maintains its current fiscal year.)
Adjustments. In the event of an acquisition or disposition of a
significant business or assets (determined in a manner comparable to the
determination of a significant subsidiary under Article 1-02(v) of
Regulation S-X of the Securities and Exchange Commission), financial and other
quantitative targets specified in or determined pursuant hereto shall be
appropriately adjusted by the Board of Directors in good faith based on the
expected contribution to the target amount in question of the assets or
business acquired or disposed.
EXHIBIT I
CASH BONUS
For each fiscal year, a cash bonus will be paid to the executive if
the Company achieves (based upon the Company's audit) between more than 90% and
100% or less of the Annual Operating Cash Flow Targets for such year set forth
in Table 1. Such cash bonus will equal five percent (5%) of executive's base
salary for such fiscal year for each one percent (1%) by which the Company
exceeds 90% of the Annual Operating Cash Flow Targets and will increase on a
linear basis as illustrated by the following:
Percentage
Achievement of
Bonus as Percent Annual Operating
of Base Salary Cash Flow Targets
0% 90%
5% 91%
15% 93%
20% 94%
25% 95%
30% 96%
35% 97%
40% 98%
45% 99%
50% 100%
In the event that, in any fiscal year, the Company achieves (based
upon the Company's audit) more than 100% of the Annual Operating Cash Flow
Targets, executive's cash bonus for such year shall equal one percent (1%)
of his base salary for each percentage point by which the Company's results
exceed 100% of the Annual Operating Cash Flow Targets. The cash bonus
payable pursuant to this paragraph shall not be subject to any cap or maximum
amount.
EXHIBIT II
NON-QUALIFIED STOCK OPTIONS
KEY PROVISIONS
1. Options subject to Vesting at Achievement of 100% of Annual Operating
Cash Flow Targets.
Effective at or shortly after the Effective Date of the Merger,
Holdings and the Company will establish a stock option plan pursuant to which
the management group will be granted non-qualified options to acquire, at
"founder's price", an aggregate number of shares of common stock of
Holdings equal to four and one-half percent (4.5%) of the outstanding common
stock and common stock equivalents of Holdings, on a fully diluted basis.
The management group which will be entitled to participate in this
option plan will be identified by the Chief Executive Officer, and the
allocation of options among the members of the group will be initially
determined by the Chief Executive Officer, subject to review and ratification
by the Board of Directors.
A. Vesting.
Options granted pursuant to the above plan will vest over a five-year
period based on the Company's achievement of the Annual Operating Cash Flow
Targets set forth in Table 1. An option shall vest and be exercisable with
respect to twenty percent (20%) of the underlying shares for each fiscal year
in which the Company achieves (based on the Company's audit) 100% or more of
the Annual Operating Cash Flow Targets for such year. Unvested portions of
outstanding options will be carried forward and will vest at the conclusion of
the fifth fiscal year set forth in Table 1 if (i) the Company has achieved for
the five-year period specified in Table 1 the cumulative EBITDA target set
forth therein and (ii) the Company's actual EBITDA achievement for F.Y.E. 2001
is greater than that achieved in F.Y.E. 2000. Additionally, the options
granted pursuant to the above plan will vest if the bonus option outlined in
paragraph 3 below is awarded in accordance with its terms.
B. Other Provisions.
Each option shall expire, unless earlier exercised or terminated, ten
years from the date of grant.
In the case of termination of an option holder's employment for cause
or resignation without good reason, to be defined in the option plan, each
option shall terminate at the time of termination of employment.
In the case of termination of an option holder's employment without
cause or his resignation for good reason, again as to be defined in the option
plan, options which have vested at the time of termination/resignation shall
terminate on the 91st day after the date of employment termination or
resignation, and options which have not vested shall terminate immediately.
If the option holder's employment is terminated due to death or
disability, options which have vested at the time of termination/resignation
shall terminate on the 181st day after the date of employment termination or
death and may be exercised during such period by the holder or his legal
representative or estate, as the case may be, and options which have not vested
shall terminate immediately.
2. Options subject to Vesting at Achievement of 115% of Annual Operating
Cash Flow Targets.
In addition to, or as part of, the option plan outlined in paragraph 1
of this Exhibit II, the management group (to be selected as outlined above)
will also be granted non-qualified options to acquire, again at "founder's
price", an aggregate number of shares of common stock of Holdings equal to
three and two-tenths percent (3.2%) of the outstanding common stock and common
stock equivalents of Holdings, on a fully diluted basis (after taking into
account, without limitation, all options granted pursuant to paragraph 1
above). Such options will be allocated among the management group as outlined
in paragraph 1 above
An option granted pursuant to this paragraph 2 shall vest and be
exercisable with respect to twenty percent (20%) of the underlying shares for
each fiscal year set forth in Table 1 in which the Company achieves (based on
the Company's audit) 115% or more of the Annual Operating Cash Flow Targets for
such year.
Other provisions of the options granted pursuant to this paragraph
will be substantially the same as those granted pursuant to paragraph 1 above.
3. Bonus Options
In the event that within six years after the Effective Time of the
Merger the realized value of the common equity investment of the
original investment group in Holdings should equal or exceed ten times the
value of such common equity investment at the Effective Time of the Merger, you
will be awarded an option to acquire, again at "founder's price", an aggregate
number of shares of common stock of Holdings which shall equal 0.75% of the
total outstanding common stock and common stock equivalents of Holdings on a
fully diluted basis (after taking into account, without limitation, all options
vested pursuant to paragraphs 1 and 2 above).
The options described in this paragraph 3 shall terminate if not
exercised prior to the termination of the executive's employment with the
Company for any reason.
____________________
[FN]
I.e., the price per share, as adjusted to reflect subsequent changes in
capitalization, as the initial common equity investment in Holdings made by
X.X. Childs Equity Partners, L.P. and its affiliates for purposes of effecting
the Merger and related transactions.
For purposes hereof, "realized value" will mean, in general, the cash
or the market value of registered, publicly traded and tradeable, securities
not subject to transfer or Rule 144 restrictions received by the original
investment group in Holdings in the case of the sale of the business of the
Company to any person, firm, entity or group which, together with its
affiliates, prior to such transaction, did not own, directly or indirectly,
more than 50% of the outstanding common equity of the Company.
EXHIBIT III
STOCKHOLDERS AGREEMENT
KEY PROVISIONS
I. Right of First Refusal.
Transfer of management group shares of common stock, and options to
acquire the same, shall be subject to a right of first refusal in favor of
Holdings and/or certain persons designated by Holdings. The exercise price of
such right shall be the price offered by a bona fide third-party offeree.
II. Call Option; Put Option; Exercise Price.
If a member of the management group's employment is terminated for any
reason before Holdings has completed a qualified public offering, Holdings
and/or certain persons designated by Holdings will have the option to purchase
his common stock and vested options. The exercise price shall be the greater
of fair market value (determined as [EBITDA x 7 -Debt]/Outstanding Shares
(fully diluted)) or cost in all circumstances of termination other than the
manager's termination for cause or his resignation without good reason, in
which instances the exercise price shall be cost.
If the manager's employment is terminated without cause or if the
manager resigns for good reason, in either case before Holdings has completed a
qualified public offering, he shall have the right to put his common stock and
vested options to Holdings and Holdings shall be obligated to purchase the same
(which right and obligation Holdings may assign to certain designated persons)
at a price per share equal to the following formula: [(EBITDA x 6) - Debt]/
Outstanding Shares (fully diluted).
The purchase price of vested options shall, in all instances, be
reduced by the exercise price thereof.
In the case of any call or put exercise, Holdings shall pay the
purchase price in cash if and to the extent that (i) funds are legally
available therefor, (ii) such cash purchase is permitted by the agreements
governing Holdings and the Company's third-party indebtedness, and (iii) and
the Board of Directors in good faith determines that sufficient cash is
available therefor. Any portion of the purchase price not paid in cash shall
be paid by a subordinated promissory note of Holdings, bearing an interest rate
equal to the rate on the Company's senior bank indebtedness and having a
maturity of ten (10) years (subject to (a) mandatory prepayment when and if all
of the conditions in the first sentence of this paragraph are satisfied and (b)
mandatory extension if required by the terms of the agreements governing
Holdings' third-party indebtedness).
Generally, "puts" and "calls" and other transfer restrictions will be
lifted upon consummation by Holdings of a qualifying public offering.
III. "Tag Along" and "Drag Along".
Management's shares and options shall be subject to "tag along"
provisions whereby in the case of any proposed sale (including a "secondary"
public offering) by X.X. Childs Equity Partners, L.P. (together with certain
transferees and coinvestors) of more than ten percent (10%) of its common stock
equivalents, the seller must offer other members of such founding/management
group the right proportionately to participate in such sale.
If any holder or group holding more than fifty percent (50%) of the
outstanding common stock equivalents proposes to sell 50% or more of such
holding or cause Holdings to enter a change of control transaction, then the
remaining shareholders shall be obligated to sell their shares/options or, as
applicable, consent to such change of control transactions provided that such
sale or transaction provides that all shareholders of Holdings are to receive
the same form of, proportion and per share consideration in connection
therewith.
