FOAMEX INTERNATIONAL INC.
CHANGE IN CONTROL PROTECTION AGREEMENT
This Change in Control Protection Agreement (this "Agreement"), effective
as of December 20, 2002 (the "Effective Date"), is entered into between Foamex
International Inc., a Delaware Corporation (the "Company"), and Xxxxxxxx X.
Xxxxx ("Executive").
WHEREAS, the Company desires to provide Executive with additional
employment security in the event that the Company undergoes a change in control,
as described herein, and Executive desires to receive such additional security;
and
WHEREAS, Executive and the Company desire to set forth the terms and
conditions of such additional employment security in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, Executive and the Company hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change in 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")) (a "Person") of "beneficial ownership"
(as defined below) of 25% or more of either (A) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this clause
(i) the following acquisitions shall not constitute a Change in Control: (1) any
acquisition directly from the Company; (2) any acquisition by the Company or any
corporation controlled by the Company; (3) any acquisition by any corporation
pursuant to a transaction which complies with (A), (B) and (C) of clause (iii)
of this Section 1(b);
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
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respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;
(iii) The consummation of a recapitalization, restructuring,
exchange of equity for debt or debt for equity or a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Transaction"), in each case, unless,
following such Business Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners (as defined below),
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Transaction beneficially
own, directly or indirectly, 50% or more of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Transaction
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in substantially the same
proportion as their ownership immediately prior to such Business Transaction of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be; (B) no Person beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Transaction or the combined voting
power of the then outstanding voting securities of such corporation, except to
the extent that such ownership existed prior to the Business Transaction; and
(C) at least a majority of the members of the board of directors of the
corporation resulting from such Business Transaction were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such Business Transaction; or
(iv) The approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
For purposes of this Section 1(b), "beneficial ownership" or
"beneficial owner" shall have the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any Person, such Person shall be deemed to have beneficial
ownership of all securities that such Person has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition; provided, however, that such Person shall not be deemed to have
beneficial ownership of securities subject to a stock purchase agreement, a
merger agreement, or similar agreement, until the consummation of the
transaction contemplated by such agreement.
(c) "Cause" shall mean (i) the substantial and continued willful
failure by Executive to perform his duties to the Company which results, or
could reasonably be expected to result, in material harm to the business or
reputation of the Company, which failure is not cured (if curable) by Executive
within 30 days after written notice of such failure is delivered to Executive by
the Company; (ii) an act of
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gross misconduct by Executive involving the Company including, without
limitation, embezzlement, fraud, or misappropriation; or (iii) Executive's
conviction of, or pleading guilty or no contest to, a felony.
(d) "Disability" means a physical or mental condition which has
prevented Executive from performing satisfactorily his duties to the Company for
a period of at least 90 consecutive days in any 365 day period or 120
non-consecutive days within any 365 day period.
(e) "Good Reason" shall mean the occurrence of any of the following
events without the consent of Executive (i) the Company and any subsidiaries
sell, lease or otherwise transfer all or substantially all of their assets to an
entity which has not assumed the Company's obligations under this Agreement;
(ii) a material diminution in the duties or responsibilities of Executive and
such diminution is not cured within 15 days after written notice of the same is
received by the Company; (iii) the Company's failure to pay any compensation
then due to Executive and such failure is not cured within 15 days after written
notice of the same is received by the Company; (iv) the principal executive
offices of the Company are moved to a location more than fifty (50) miles from
either Linwood, Pennsylvania or, if the Company's principal executive office has
been moved (prior to the Operative Date) from Linwood, Pennsylvania to some
other location, such location; (v) a liquidation or dissolution of the Company
occurs; or (vi) Executive is removed from the position of Chairman of the Board
of the Company.
(f) "Operative Date" means the first date on which a Change in Control
shall have occurred.
2. Term of this Agreement. The term of this Agreement (the "Term") shall
commence on the Effective Date and shall continue until the first date on or
following the first anniversary of the Operative Date on which the Company and
Executive have fully satisfied their respective obligations under this
Agreement.
3. Stock Options. In the event that Executive is employed on the Operative
Date, all stock options previously granted to Executive by the Company, whether
pursuant to any plan or program of the Company or otherwise, whether or not
vested or exercisable, shall become fully vested and exercisable effective
immediately prior to the Operative Date.
4. Termination following a Change in Control.
(a) If Executive's employment is terminated during the twelve (12)
month period following the Operative Date by the Company without Cause (other
than as a result of the death or Disability of Executive) or by Executive with
Good Reason (any such termination, a "Qualifying Termination"), the Company
shall, (i) pay to Executive his accrued but unpaid base salary through the date
of the Qualifying Termination; (ii) pay to Executive an amount, payable at the
Executive's election either as a lump sum payment or in thirty-six equal monthly
installments in accordance with the Company's regular payroll policies, equal to
three times the sum of (A) the greater of (x)
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Executive's annual base salary in effect immediately prior to the Operative
Date, and (y) Executive's annual base salary as of the date of such Qualifying
Termination, and (B) Executive's annual bonus, calculated as though the Company
and Executive had attained 100% of the performance targets for the applicable
fiscal year of the Company during which the Qualifying Termination occurs; and
(iii) continue Executive's participation in the health, medical and life
insurance benefits and/or coverage provided to Executive either (1) immediately
prior to the Operative Date, or (2) as of the date of such Qualifying
Termination, whichever is more favorable to Executive; provided, however, that
(a) such benefit continuation is subject to the terms and conditions of such
plans, (b) group life insurance continuation is subject to a limit of three
years following such Qualifying Termination, and (c) Executive shall cease to be
covered by medical and/or dental plans of the Company at such time Executive
becomes covered by like plans of another company.
(b) Notwithstanding Section 4(a), if (i) any Payment (as defined in
Section 6(a)) would be subject to an Excise Tax (as defined in Section 6(a)),
and (ii) the aggregate value of all Payments (the "Contingent Payments") which
are described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986,
as amended (the "Code"), does not exceed the product of (x) 1.10, multiplied by
(y) the amount of Executive's "includible compensation" for purposes of Section
280G of the Code, multiplied by (z) 2.99, then the Company shall reduce the
amount of any Contingent Payments otherwise due to Executive to the extent
necessary such that the total aggregate value of Contingent Payments shall be
equal to the product of clauses (y) and (z) above. In the event that any
Contingent Payments are required to be reduced by the Company pursuant to this
Section 4(b), Executive may direct in writing to the Company the Contingent
Payments to be so reduced, subject to the consent of the Company, not to be
unreasonably withheld.
5. Special Circumstances. Notwithstanding any provision of this Agreement
to the contrary, if (i) Executive's employment is terminated prior to the
Operative Date under circumstances that would have constituted a Qualifying
Termination if such circumstances occurred after the Operative Date; (ii) such
termination (or event constituting Good Reason for such termination) was at the
request of a third party who had indicated an intention or taken steps
reasonably calculated to effect a Change in Control or was otherwise in
anticipation of a Change in Control; and (iii) a Change in Control involving
such third party (or a party competing with such third party to effectuate a
Change in Control) or such anticipated Change in Control does occur, then for
purposes of this Agreement, the date immediately prior to the date of such
termination of employment shall be treated as the Operative Date and such
termination shall be treated as a Qualifying Termination.
6. Gross-Up Payment. Any determination pursuant to this Section 6 shall be
made only after giving effect to Section 4(b).
(a) If it is determined (as hereafter provided) that any payment
(other than the Gross-Up Payment provided for in this Section 6) or distribution
by the Company to or for the benefit of Executive, whether paid or payable or
distributed or
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distributable pursuant to the terms of this Agreement or otherwise pursuant to
or by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any restriction on or the vesting
or exercisability of any of the foregoing (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Code, or to any similar tax imposed by
state or local law, or any interest or penalties with respect to such excise tax
(such tax or taxes, together with any such interest and penalties, are hereafter
collectively referred to as the "Excise Tax"), then Executive will be entitled
to receive an additional payment or payments (a "Gross-Up Payment") in an amount
such that, after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax, imposed
upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 6(f) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by Executive and the amount of such Excise Tax and whether
a Gross-Up Payment is required and the amount of such Gross-Up Payment, will be
made by a nationally recognized firm of certified public accountants (the
"Accounting Firm") selected by the Company, which may be the Company's regular
outside auditors. The Company will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Company and
Executive within 30 calendar days after the date of the Change in Control or the
date of Executive's termination of employment, if applicable, and any other such
time or times as may be requested by the Company or Executive. If the Accounting
Firm determines that any Excise Tax is payable by Executive, the Company will
pay the required Gross-Up Payment to Executive no later than five calendar days
prior to the due date for the Executive's income tax return on which the Excise
Tax is included. If the Accounting Firm determines that no Excise Tax is payable
by Executive, it will, at the same time as it makes such determination, furnish
Executive with an opinion that he has substantial authority not to report any
Excise Tax on his federal, state, local income or other tax return. Any
determination by the Accounting Firm as to the amount of the Gross-Up Payment
will be binding upon the Company and Executive. As a result of the uncertainty
in the application of Section 4999 of the Code and the possibility of similar
uncertainty regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event that the Company exhausts or fails to pursue its remedies pursuant
to Section 6(f) hereof and Executive thereafter is required to make a payment of
any Excise Tax, Executive shall so notify the Company, which will direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to both the
Company and Executive as promptly as possible. Any such Underpayment will be
promptly paid by the Company to, or for the benefit of, Executive within five
business days after receipt of such determination and calculations.
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(c) The Company and Executive will each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the Company or Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determination contemplated by Section
6(b) hereof.
(d) The federal, state and local income or other tax returns filed by
Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
Executive. Executive will make proper payment of the amount of any Excise Tax,
and at the request of the Company, provide to the Company true and correct
copies (with any amendments) of his federal income tax return as filed with the
Internal Revenue Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If prior
to the filing of Executive's federal income tax return, or corresponding state
or local tax return, if relevant, the Accounting Firm determines that the amount
of the Gross-Up Payment should be reduced, Executive will within five business
days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Sections
6(b) and (d) hereof will be borne by the Company. If such fees and expenses are
initially advanced by Executive, the Company will reimburse Executive the full
amount of such fees and expenses within five business days after receipt from
Executive of a statement therefor and reasonable evidence of his payment
thereof.
(f) Executive will notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification will be given as promptly as
practicable but no later than ten (10) business days after Executive actually
receives notice of such claim and Executive will further apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid (in each case, to the extent known by Executive). Executive will not pay
such claim prior to the earlier of (i) the expiration of the 30-calendar-day
period following the date on which he gives such notice to the Company and (ii)
the date that any payment of an amount with respect to such claim is due. If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive will:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting such
claim as the Company will reasonably request in writing from time to
time, including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless Executive, on an after-tax basis,
for and against any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing provisions of this Section
6(f), the Company will control all proceedings taken in connection with the
contest of any claim contemplated by this Section 6(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided
that Executive may participate therein at his own cost and expense) and may, at
its option, either direct Executive to pay the tax claimed and xxx for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company will determine; provided, however, that if the Company directs Executive
to pay the tax claimed and xxx for a refund, the Company will advance the amount
of such payment to Executive on an interest-free basis and will indemnify and
hold Executive harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto, imposed with respect
to such advance; and provided further, however, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive will be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(g) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 6(f) hereof, Executive receives any refund with
respect to such claim, Executive will (subject to the Company's complying with
the requirements of Section 6(f) hereof) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 6(f) hereof, a determination is made
that Executive will not be entitled to any refund with respect to such claim and
the Company does not notify Executive in writing of its intent to contest such
denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required to be
repaid and the amount of such advance will offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid pursuant to this Section 6. If,
after the receipt by Executive of a Gross-Up Payment but before the payment by
the Executive of the Excise Tax, it is determined by the Accounting Firm that
the Excise Tax payable by Executive is less than the amount originally computed
by the Accounting Firm and consequently that the
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amount of the Gross-Up Payment is larger than that required by this Section 6,
the Executive shall promptly refund to the Company the amount by which the
Gross-Up Payment initially made to Executive exceeds the Gross-Up Payment
required under this Section 6.
7. Confidentiality. Executive agrees that he will not, whether before or
after the Operative Date, make use of or divulge to any other person, firm or
corporation any trade or business secret, process, method or means, or any other
confidential information concerning the business or policies of the Company,
which he may have learned in connection with his employment. For purposes of
this Agreement, a "trade or business secret, process, method or means, or any
other confidential information" shall mean and include written information
reasonably treated as confidential or as a trade secret by the Company.
Executive's obligation under this Section 7 shall not apply to any information
which (i) is known publicly; (ii) is in the public domain or hereafter enters
the public domain without the fault of Executive; (iii) was known to Executive
prior to his receipt of such information from the Company, as evidenced by
written records of Executive; or (iv) is hereafter disclosed to Executive by a
third party not under an obligation of confidence to the Company. Executive
agrees not to remove from the premises of the Company, except as an employee of
the Company in pursuit of the business of the Company or except as specifically
permitted in writing by the Company, any document or other object containing or
reflecting any such confidential information. Executive recognizes that all such
documents and objects, whether developed by him or by someone else, will be the
sole exclusive property of the Company. Upon termination of his employment
hereunder, Executive shall forthwith deliver to the Company all such
confidential information, including without limitation all lists of customers,
correspondence, accounts, records and any other documents or property made or
held by him or under his control in relation to the business or affairs of the
Company, and no copy of any such confidential information shall be retained by
him.
8. Entire Agreement. This Agreement constitutes the complete and full
agreement between Executive and the Company concerning the subject matters
hereof and, in the event that Executive becomes entitled to any payment or
payments hereunder, Executive shall have no right to receive any additional
payment from the Company or any of its affiliates that is in the nature of
severance.
9. No Mitigation. Executive shall not be obligated to seek other employment
by way of mitigation of the amounts payable to Executive under any provision of
this Agreement.
10. Arbitration. Any dispute between the parties hereto in connection with
or arising out of this Agreement or any of its terms and provisions shall be
submitted to arbitration in New York, New York, before a panel of three neutral
arbitrators in accordance with the Commercial Rules of the American Arbitration
Association then in effect, and the arbitration determination resulting from any
such submission shall be final and binding upon the parties hereto. Judgment
upon any arbitration award may be entered in any court of competent
jurisdiction.
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11. Successors.
(a) This Agreement is personal to Executive and, without the prior
written consent of the Company, shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors.
12. Miscellaneous.
(a) Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, applied without reference
to principles of conflicts of laws.
(b) Notices. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Executive:
Xxxxxxxx X. Xxxxx
Foamex International Inc.
00 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
If to the Company:
Foamex International Inc.
Attention: General Counsel
0000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) Tax Withholding. The Company may withhold from any amounts payable
under this Agreement such Federal, State or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
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IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has
caused this Agreement to be executed in its name and on its behalf, as of the
day and year first above written.
FOAMEX INTERNATIONAL INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------
Xxxxxxx X. Xxxxxxxxx
Executive Vice President
& General Counsel
/s/ Xxxxxxxx X. Xxxxx 4/24/03
-------------------------------
Xxxxxxxx X. Xxxxx
