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Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), dated as of
March __, 1998, by and between PALM BEACH BEDDING COMPANY, a Florida corporation
(the "Company"), and XXXXXXX X. XXXXX (the "Executive"), and joined in by
SLEEPMASTER L.L.C., a New Jersey limited liability company ("Sleepmaster"), and
by SLEEPMASTER HOLDINGS, L.L.C., a New Jersey limited liability company
("Holdings"), each for purposes of being bound by the covenants respectively
made by them in this Agreement.
W I T N E S S E T H:
WHEREAS, Sleepmaster Acquisition Corp. ("Sub"), a Florida corporation
and a wholly-owned subsidiary of Sleepmaster, has merged with and into the
Company, pursuant to the Agreement and Plan of Merger, dated as of March 2, 1998
(the "Merger Agreement"), whereupon the separate existence of Sub shall cease
and the Company shall continue as the surviving corporation and become a
wholly-owned subsidiary of Sleepmaster, upon the terms and conditions set forth
in the Merger Agreement (the "Merger"); and
WHEREAS, the Executive has heretofore been employed by the Company as
its President; and
WHEREAS, the Company desires to continue to employ the Executive after
the Merger and it is a condition precedent to the transactions contemplated by
the Merger Agreement that this Agreement be entered into, and the Executive
desires to accept such continued employment, upon the terms and conditions set
forth in this Agreement; and
WHEREAS, the Executive and the Company wish to set forth the terms of
the continued employment of the Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, of the foregoing recitals which are acknowledged by the
parties to be true and correct in all respects and which are incorporated into
this Agreement, and of other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, it is mutually covenanted and
agreed by and between the Executive and the Company, as follows:
1. Employment. Subject to the terms and conditions of this
Agreement, during the Employment Term (as defined in Section 2) the Company will
employ the Executive, and the Executive will be employed exclusively by the
Company. The Executive will hold the office of President and such additional
offices as the Board of Directors of the Company (the "Board") may from time to
time determine. The Executive will devote his entire business efforts to the
Company. The Executive's duties shall be full time and shall include all the
responsibilities of a chief executive officer of a bedding manufacturing and
sales company. In that connection, the Executive agrees to perform such duties
as the Board shall reasonably required, consistent with the services previously
furnished by the Executive to the Company as President during the period
commencing in calendar year 1992 through the date of this Agreement and
consistent with the employment status previously
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enjoyed by the Executive during the aforesaid period and subject to the terms of
this Agreement; provided, that the Board may require one or more signatures in
addition to the addition to the signature of the Executive on certain or all of
the Company's bank drafts and checks. Nothing in this Section 1, however, will
prevent the Executive from making and monitoring personal investments and
engaging in community affairs that are not inconsistent with the Executive's
duties under this Agreement, including his duties and obligations under Sections
8, 9 and 10. Sleepmaster will vote its shares of stock in the Company to cause
the Executive to be elected as a director of the Company during the Employment
Term of this Agreement and will encourage its own members to cause the Executive
to be elected to the Board of Advisors of Sleepmaster during the Employment
Term. Sleepmaster and the Company each agree and acknowledge that it is a
material term of this Agreement that during the Employment Term the Executive be
named and serve as a member of the Board of Advisors of Sleepmaster and
Holdings. The Executive will fulfill his duties as a director of the Company and
as a member of the Boards of Advisors of Sleepmaster and Holdings without
additional compensation.
2. Employment Term. As used in this Agreement, "Employment Term"
means the three-year period beginning on the date of this Agreement and ending
on the third anniversary of such date, projected to be on or about February 28,
2001 (the "Expiration Date"); provided, that if the Company terminates the
Executive's employment prior to the Expiration Date, or if the Executive
terminates his employment with the Company prior to the Expiration Date or if
the Executive's employment with the Company terminates by reason of the
Executive's death prior to the Expiration Date, "Employment Term" shall mean the
period commencing as of the date of this Agreement and ending on the date of
such termination. Notwithstanding that the Employment Term may end prior to the
Expiration Date as a result of events described in the preceding sentence, the
Company's continuing obligations to the Executive in each such instance are
described in Sections 5, 6 and 7 of this Agreement, and the Executive's
continuing obligations to the Company in each such instance are described in
Sections 9, 10, 11, and 12 of this Agreement.
3. Compensation.
(a) During the first twelve-month period within the
Employment Term, the Executive's base salary (the "Base Salary") shall be paid
at the rate of $290,000 per annum. Immediately following such twelve-month
period and thereafter during the Employment Term the Base Salary shall be
increased at twelve-month intervals by a percentage of increase consistent with
the increases granted to other members of senior management of the Company and
Sleepmaster relating to the same twelve-month period. The Base Salary for each
year of this Agreement shall be paid by the Company in equal regular
installments in accordance with the Company's general payroll practices, but no
less frequently than monthly, and shall be subject to customary federal
withholding with respect to wages.
(b) For each fiscal year during the Employment Term, the
Executive will be eligible to receive a bonus (the "Bonus Payment") based on the
Company's achievement of the Target EBITDA for such fiscal year as set forth on
the Company's EBITDA Plan attached as Schedule A hereto (the "EBITDA Plan").
Except as otherwise provided in Section 7, if any portion of the Executive's
employment during the Employment Term is less than a full fiscal year of the
Company (a "Fiscal Year"), then with respect to each such shortened Fiscal Year
the Target EBITDA shall be prorated (on the basis of a 365-day year). The Bonus
Payment with respect to the Executive's
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services during such shortened period shall be calculated utilizing a "replaced"
Target EBITDA amount for purposes of calculating the Bonus Payment during that
shortened period, equal to an amount equal to the Target EBITDA with respect to
such Fiscal Year containing such shortened period, multiplied by a fraction the
numerator of which is the number of days during which the Executive was employed
under this Agreement within the such shortened period and the denominator of
which is 365.
(c) The Company will cause to be prepared, at its own
expense and within a reasonable period of time after the end of each Fiscal Yar
any part of which occurs during the Employment Term, financial statements
showing the Company's achieved EBITDA computed as provided above for any partial
Fiscal Year. Such financial statements must have been audited by the certified
public accounting firm regularly engaged at the time by the Company, which firm
must have expressed an opinion that these financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied.
(d) Once the Board has determined (which determination
shall be made within 30 days from the issuance of the Company's audited
financial statements) the achieved EBITDA for such Fiscal Year (or shortened
period) as compared to the Target EBITDA for such Fiscal Year (or shortened
period), (the "Achieved EBITDA Percentage"), then so long as the Achieved EBITDA
Percentage for such Fiscal Year (or shortened period) equals or exceeds 80%,
subject to the provisions of Sections 5 and 6, the Executive shall be entitled
to receive the Bonus Payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 20%
and (z) the Executive's Base Salary for such Fiscal Year. The Bonus Payment
shall be made within ten business days of the Board's determination.
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Achieved EBITDA Percentage Bonus Multiple
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80% 50%
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100% 100%
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110% 125%
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120% 150%
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(e) Each Bonus Multiple set forth above shall increase
linearly as the Achieved EBITDA Percentage increases; therefore, so long as the
Achieved EBITDA Percentage equals or exceeds 80%, if the actual Achieved EBITDA
falls between any of the target Achieved EBITDA Percentages set forth above, the
applicable Bonus Multiple shall be adjusted accordingly; provided, that in no
event shall the Bonus Multiple exceed 150%. For example: (1) if the actual
Achieved EBITDA Percentage is 90%, the Bonus Multiple shall be 75% or (2) the
actual Achieved EBITDA Percentage is 115%, the Bonus Multiple shall be 137.5%.
4. Executive Benefits.
(a) During the Employment Term, the Executive shall be
entitled to participate in such retirement, profit sharing and pension plans and
life and other insurance programs, as well as other benefits programs, which are
available to senior executive employees of Sleepmaster who are
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similarly situated, subject to the Company's policies with respect to all of
such benefits or insurance programs or plans; provided, that except as expressly
set forth herein, the Company shall not be obligated to institute or maintain
any particular benefit or insurance program or plan or aspect thereof.
(b) During the Employment Term, the Executive will be
entitled to four weeks' paid vacation each Fiscal Year in accordance with the
vacation policies of Sleepmaster in effect for its executive officers and the
executive officers of the Company from time to time. Vacation must be taken by
the Executive at such time or times as is mutually agreeable. During the
Employment Term, the Executive will also be entitled to the paid holidays and
other paid leave set forth in the Company's employment policies. Vacation days
and holidays during any Fiscal Year that are not used by the Executive during
such Fiscal Year may not be used in any subsequent Fiscal Year.
(c) During the Employment Term, the Company shall
reimburse the Executive or pay all reasonable travel and entertainment expenses,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities undertaken on behalf of the Company, in a manner
consistent with the Executive's current employment and status as the President
of the Company, subject to the Executive's submission of such documentation as
the Company shall require.
(d) During the Employment Term, the Company will furnish
the Executive office space, equipment, supplies, and such other facilities and
secretarial and other personnel as the Company deems necessary or appropriate
for the performance of the Executive's duties under this Agreement and
consistent with the current status of the Executive as the President of the
Company.
(e) During the Employment Term, the Company will provide
the Executive with an annual allowance of $3,000 for payment of dues in such
professional societies, organizations and social clubs as shall be determined by
the Executive to have a legitimate business purpose.
(f) During the Employment Term, the Company will provide
the Executive with an annual Nine Thousand Dollar ($9,000.00) automobile
allowance, payable in equal monthly installments, and the Executive will provide
his own automobile, and maintain and insure it at his own expense, for his
business use in connection with the Executive's employment under this Agreement.
5. Termination.
(a) The Company shall have the right, at its election, to
terminate the Executive's employment with the Company as follows:
(i) upon the death of the Executive, subject to
the terms of Section 6(a);
(ii) for Cause (as defined in and subject to the
terms of Section 5(b)), upon notice from the Company to the
Executive; and
(iii) without Cause, defined as any termination by
the Company of the Executive's employment relationship with
the Company for any reason or for no reason, other than upon
the death of the Executive or for "Cause" as defined in and
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subject to the terms of Section 5(b). The consequences of a
"without Cause" termination are described in Section 7 of this
Agreement.
(b) As used in this Agreement, "Cause" shall be defined
only as follows:
(i) the conviction of the Executive convicted of
a felony under state or federal criminal law where the felony
has a material adverse effect on the Company or brings the
Company into disrepute;
(ii) a judicial determination that the Executive
has engaged in fraud or embezzlement against the Company or
engaged in gross negligence or willful misconduct injurious to
the Company;
(iii) the material breach by the Executive of any
of the Executive's material covenants under this Agreement and
the failure of the Executive to cure such material breach in
the manner hereinafter described (the Company and the
Executive hereby agree that the Company's failure to achieve
performance targets shall not be deemed a breach by the
Executive under this Agreement). For purposes of this Section
5(b)(iii), "material" means a matter having substantial import
or consequences.
Upon any termination of the Executive's employment by the Company for
Cause, the Company shall pay to the Executive the accrued (but unpaid) Base
Salary then in effect prorated on a daily basis up to the date specified in such
termination notice and such Base Salary shall thereafter cease to be payable by
the Company to the Executive as of such specified date, and the Executive shall
not receive any Base Salary accruing thereafter or any Bonus Payment for the
Fiscal Year in which such termination occurs or for any subsequent period, or
any other benefit with respect to his employment with the Company, other than as
may be specified by state or federal law. In order for Cause to be a basis for
termination of the Employment Term under Section 5(b)(iii), the Company shall
first send a notice to the Executive setting forth in reasonable detail the
specified act or omission of the Executive which constitutes the material breach
of any of the Executive's material covenants under this Agreement and shall
specify a period of not less than 30 days during which the Executive shall have
an opportunity to cure such material breach. If after such cure period the
Company reasonably determines that the Executive has failed to cure such
material breach, the Company shall so notify the Executive, and the Executive's
employment under this Agreement shall terminate upon a date set forth therein.
During such cure period the Executive shall continue to have uninterrupted
access to the Company's places of business solely to discharge his duties under
this Agreement and to cure such material breach.
(c) The Executive shall have the right, at his election,
to terminate the Employment Term and the Executive's employment relationship
with the Company by notice to the Company within 30 days after the occurrence of
a Good Reason Event as defined below in this Section. As used in this Agreement,
a "Good Reason Event" means any of the following, after required notice and
permitted cure:
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(i) the Company's or Sleepmaster's material
breach of any material covenant of this Agreement, including,
but not limited to, the failure of the Executive to be elected
to the Board of the Company and to the Board of Advisors of
Sleepmaster and Holdings;
(ii) the assignment of the Executive without his
consent to a position, responsibilities or duties of a
materially lesser status or degree of responsibility than the
Executive's position, responsibilities or duties with the
Company as of January 1, 1997;
(iii) the relocation of the Company's principal
executive offices outside the metropolitan West Palm Beach,
Florida area without the Executive's consent; or
(iv) the requirement by the Company that the
Executive be based anywhere other than the Company's principal
executive offices without the Executive's consent.
In order for the occurrence of any Good Reason Event to be a basis for
termination of the Employment Term under Section 5(c), the Executive shall first
send a notice to the Company setting forth in reasonable detail the material
breach or specific act or omission of the Company which constitutes the Good
Reason Event and shall specify a period of not less than 30 days during which
the Company shall have an opportunity to cure such material breach or act or
omission if such act or omission is, in the good faith determination of the
Executive, curable within 30 days; provided, that if in good faith the Executive
has determined the material breach or act or omission not to be so curable, the
notice may further state that the Executive's employment under this Agreement
shall terminate upon a date set forth therein. If after such cure period the
Executive reasonably determines that the Company has failed to cure such
material breach or act or omission, the Executive shall so notify the Company,
and the Executive's employment under this Agreement shall terminate upon a date
set forth therein. During such cure period the Executive shall continue to have
uninterrupted access to the Company's places of business to discharge his duties
under this Agreement. Upon a termination of the Employment Term and the
Executive's employment relationship with the Company by the Executive as a
result of the occurrence of a Good Reason Event the Company shall be financially
obligated to the Executive in the manner and to the extent itemized in Section 7
of this Agreement.
(d) The Executive shall have the right, at his election
upon written notice to the Company, to terminate the Employment Term and the
Executive's employment relationship with the Company, immediately upon the
Executive's voluntary resignation other than upon the occurrence of a Good
Reason Event. Upon such voluntary resignation other than upon the occurrence of
a Good Reason Event, the Company will pay the Executive the accrued (but unpaid)
Base Salary then in effect, prorated on a daily basis up to the date of the
Executive's voluntary resignation but the Company shall have no obligation to
pay any additional compensation to the Executive under this Agreement, including
any additional Base Salary or any Bonus Payment due for the Fiscal Year in which
such voluntary resignation or termination by the Executive occurred or for any
subsequent Fiscal Year. Such voluntary resignation by the Executive other than
upon the occurrence of a Good Reason Event shall not be deemed a material breach
by the Executive of any material covenant under this Agreement and shall not
subject the Executive to any obligation, financial or otherwise, to the Company,
except with respect to the Executive's violations of the terms of Sections 9,
10, 11 and 12 of this Agreement.
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(e) Upon any termination of the Employment Term, whether
by the Company or the Executive, or upon the Expiration Date, the Executive
shall resign all offices and directorships and from any other offices (including
as a member of the Board of Advisors) held with the Company and its subsidiaries
and affiliates, including Sleepmaster and Holdings.
(f) Upon any termination of the Employment Term, whether
by the Company or the Executive, or upon the Expiration Date, the Company will
reimburse the Executive for all out-of-pocket expenses with respect to which
executive employees of the Company are generally entitled to reimbursement
through the date of termination of the Employment Term, and with respect to
which the Executive is entitled by virtue of Section 4, subject to the
Executive's submission of such documentation as the Company shall require. All
payments shall be made for purposes of this Section 5(f) at the time they would
have been made if this Agreement had not been terminated.
6. Death and Disability.
(a) Death. The Employment Term shall immediately
terminate upon the Executive's death. If the Executive dies prior to the
Expiration Date, the Company will pay the Executive's legal representatives, as
set forth below, in full and complete satisfaction of all of the Company's
obligations under this Agreement, (i) the accrued (but unpaid) Base Salary then
in effect prorated on a daily basis up to the date of the Executive's death;
(ii) the remaining (and unaccrued) Base Salary in effect at the time of his
death that would have been paid to the Executive through the Expiration Date.
Payments in satisfaction of the Company's obligations to the Executive pursuant
to this Section 6(a) shall be made to the legal representative of the Executive
in regular installments in accordance with the Company's general payroll
practices, at the times such payments would have been made to the Executive had
he not died; provided, that at such time as the Company receives (as named
beneficiary thereunder) proceeds of any insurance policy on the life of the
Executive, the Company will promptly pay to the Executive's legal representative
within ten days of its receipt of such proceeds, a lump sum payment equal to (i)
the accrued (but unpaid) Base Salary then in effect prorated on a daily basis up
to the date of the Executive's death and (ii) the remaining (and unaccrued) Base
Salary then in effect at the time of his death that would have been paid to the
Executive through the Expiration Date (to the extent of such proceeds), but only
if and to the extent not previously paid. Any such lump sum payment of life
insurance proceeds shall be applied in the inverse order of payment obligations
of the Company, from the Expiration Date back towards the date of the
Executive's death, with any unsatisfied obligations of the Company due to the
insufficiency of the receipted life insurance proceeds being satisfied
periodically as if the Company had not received life insurance proceeds as a
result of the death of the Executive; and (iii) any Bonus Payment due for the
Fiscal Year in which the Executive's death occurred, prorated to reflect only
that portion of the Fiscal Year prior to the death of the Executive, payable at
the time such Bonus Payment would have been made to the Executive had he not
died.
(b) Disability. If during the Employment Term the
Executive suffers from a "disability" as defined and determined in Section 6(d):
(i) the Base Salary otherwise payable during the Disability Period (as herein
defined) shall nevertheless be payable on the terms set forth herein to the
Executive as a disability benefit ("Disability Benefit") but shall be reduced by
disability insurance proceeds paid to the Executive pursuant to any benefit plan
of the Company; (ii) any Bonus
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Payment for the calendar year in which the Disability occurred shall be prorated
to reflect only that portion of the fiscal year during which the Executive
performed services if the Disability equals or exceed 120 days of such year but
otherwise shall not be subject to proration in the event of Disability; and
(iii) the Company shall not have the right to terminate this Agreement due to
such Disability. If the Executive dies at any time prior to the Expiration Date,
the provisions of Section 6(a) shall apply and the Company will pay the
Executive's legal representatives, within 10 days of their appointment, the
remaining (and unaccrued) Base Salary in effect at the time of his death that
would have been paid to the Executive through the Expiration Date in the same
manner and under the same conditions as stipulated in Section 6(a) above.
(c) Determination of Disability. For purposes of this
Section, the Executive will be deemed to have a "disability" if, for physical or
mental reasons, the Executive is unable to perform the essential functions of
the Executive's duties under this Agreement for 120 consecutive days, or 180
days during any twelve month period, as determined in accordance with this
Section 6(d). The disability of the Executive will be determined by a medical
doctor selected by written agreement of the Company and the Executive upon the
request of either party by notice to the other. If the Company and the Executive
cannot agree on the selection of a medical doctor, each of them will select a
medical doctor and the two medical doctors will select a third medical doctor
who will determine whether the Executive has a disability. The determination of
the medical doctor selected under this Section will be binding on both parties.
The Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section and the
Executive hereby authorizes the disclosure and release to the Company of such
determination and all supporting medical records. If the Executive is not
legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section 6(d), for
the purposes of submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section.
7. Termination by Company without Cause or by the Executive for
Good Reason. If the Executive terminates the Employment Term upon the occurrence
of a Good Reason Event, as provided in Section 5(c), or if the Company
terminates the Employment Term "without Cause" as provided in Section 5(a)(iii),
the Executive's Base Salary in effect at the time of the event for the period
from the date of termination through the Expiration Date shall be paid by the
Company to the Executive, in a lump sum, not later than the effective date
specified in the termination notice (or, if there is no date specified in the
termination notice, the date which is five business days after the date of the
notice). In addition thereto, on the same date, the Executive shall receive in
lieu of and in total satisfaction of any Bonus Payment due or to become due
under this Agreement an amount equal to Two Thousand Three Hundred Dollars
($2,300.00) multiplied by the number of months in the period beginning with the
end of the most recently completed Fiscal Year prior to the date of termination
and ending on the Expiration Date (the "Stub Period"), and the Executive shall
also receive, together with the foregoing, the Company's assumption of COBRA
payments made with respect to the Executive, to maintain in place medical
insurance coverage provided to the Executive under Section 4(a) through the
Expiration Date and (payable on the same date as the lump sum Base Salary
payment), the Company's good faith estimate of the monetary equivalent of the
benefits payable under Section 4(a), through the Expiration Date (including the
premium cost of obtaining and maintaining the same health insurance benefits
enjoyed by the Executive if the Company's COBRA coverage for the Executive
cannot remain in effect from the date of such termination through the Expiration
Date). In addition the Executive shall receive,
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together with the foregoing (payable on the same date as the lump sum Base
Salary payment), the Company's good faith estimate of the monetary equivalent of
the benefits payable under Sections 4(e) and 4(f), through the Expiration Date
(valued at the Executive's replacement cost) which the Executive would have
received during the Stub Period. The provisions of this Section 7 are also the
exclusive provisions that will apply if a court or arbitrator should determine
that the Company's termination of the Executive's employment was "without Cause"
or was by reason of a material breach by the Company of any of its obligations
under this Agreement or was upon the occurrence of a Good Reason Event (although
the payment of such benefits by virtue of this Section 7 are not conditioned on
such judicial or arbitration determination), but shall not preclude or limit any
action by the Executive based on any alleged gross negligence, recklessness or
tortious conduct by the Company in connection with such termination. The
Executive hereby agrees that, subject to and upon the satisfaction by the
Company of each of its obligations to the Executive pursuant to Sections 5, 6
and 7, no severance compensation of any kind, nature or amount shall be payable
to the Executive and, except as expressly provided in Sections 5, 6 and 7 of
this Agreement, the Executive hereby irrevocably waives any claim for severance
compensation.
8. Key-Man Insurance. The Company shall have the right to obtain
a life insurance policy or policies on the life of Executive, in amounts
determined by the Board of Directors of the Company (but in no event in excess
of One Million Dollars ($1,000,000)), and Executive agrees to make himself
available for such physical examinations and will execute such applications and
other documents and otherwise cooperate with the Company, as may be necessary to
facilitate the issuance of such policy or policies. If the Company obtains an
insurance policy (the "Policy") on the life of Executive, all proceeds payable
in respect thereof shall be the property solely of the Company. If Executive's
employment terminates for any reason other than Executive's Death, Executive may
request that the Policy be assigned to Executive by giving written notice to the
Company to that effect, and subject to obtaining any requisite consent from the
insurer, the Company shall, if Executive has so requested, assign the Policy to
Executive, subject to Executive's reimbursement to the Company of any premiums
paid by the Company which relate to any period following the date of termination
of Executive's employment, and the cash value, if any, of the Policy.
9. Repurchase Option on Executive Interests. If the Executive
ceases to be employed by the Company for any reason, including, but not limited
to, the failure or inability of the Company and the Executive to elect to
continue the Executive's employment with the Company after the Expiration Date,
the membership interests of Holdings being acquired by the Executive as of the
date of this Agreement (referred to as the "Executive Securities") (whether held
by the Executive or by one or more of the Executive's transferees) will be
subject to repurchase by Holdings and Sleep Investor, L.L.C. (the "Investor")
(or its designee) pursuant to the terms and conditions set forth in this Section
(the "Repurchase Option").
(a) The purchase price for each Executive Security will
be the Fair Value for such unit (as defined on Schedule B). Notwithstanding the
foregoing, (i) if the termination of the Employment Term is by the Company for
Cause, then the purchase price for each of the Executive Securities will be the
Executive's original cost thereof plus interest thereon accrued from the date of
this Agreement through the date of payment for such Executive Security,
calculated at a rate per annum equal to the latest published rate for United
States Treasury Notes with a five-year maturity, as published in the "Treasury
Bonds, Notes & Bills" column of The Wall Street Journal; and (ii) if the
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termination of the Employment Term is by the voluntary resignation of the
Executive without a Good Reason Event, then the purchase price for each
Executive Security will be the Executive's original cost thereof.
(b) The Board of Advisors of Holdings may elect to cause
Holdings to purchase all, but not less than all of the Executive Securities by
delivering written notice (the "Repurchase Notice") to the holder or holders
thereof within 90 days after the termination of the Executive's employment with
the Company. The Repurchase Notice will set forth the aggregate consideration to
be paid for the Executive Securities, as determined in Section 9(a) above, and
the time and place for the closing of the transaction.
(c) If for any reason Holdings does not elect to purchase
all of the Executive Securities that are subject to the Repurchase Option,
pursuant to such Repurchase Option, the Investor (or its designees) shall be
entitled to exercise the Repurchase Option for the Executive Securities which
Holdings has not elected to purchase; provided, however, that if Holdings and
the Investor fail to purchase all of the Executive Securities, that are subject
to the Repurchase Option, no acquisition of any of the Executive Securities will
be concluded.
(d) The closing of the purchase of the Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by Holdings in the Repurchase Notice, which date shall not be later
than the 30th day after the delivery of the later of such notices to be
delivered (or, if later, the 15th day after the Fair Value is finally
determined) nor earlier than the fifth day after such delivery. Holdings and/or
the Investor (or its designee) will pay for the Executive Securities, purchased
pursuant to the Repurchase Option by delivery of a certified or cashier's check
or wire transfer of good federal funds in an amount equal to the purchase price
therefor times the number of all the Executive Securities. The purchasers of
Executive Securities hereunder will be entitled to receive customary
representations and warranties from the sellers as to title, authority and
capacity to sell.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Executive Securities by Holdings or the
Investor shall be subject to applicable legal restrictions. If any such
restrictions prohibit the repurchase of Executive Securities hereunder which
Holdings is otherwise entitled to make, Holdings may make such repurchases as
soon as it is permitted to do so under such restrictions.
(f) If a "Sale of Holdings" (as hereinafter defined)
shall be consummated within six months of the consummation of the repurchase of
Executive Securities pursuant to this Section, then with respect to each
Executive Security sold by the Executive pursuant to this Section, the Executive
shall be entitled to receive an amount equal to the difference, if any, (i)
between the per unit consideration received by Holdings or the Investor in
connection with the Sale of Holdings and (ii) the repurchase price of the
Executive Securities, per unit paid to the Executive; provided, that if the
termination of the Executive's employment with the Company is by the Company for
Cause or as a result of the voluntary resignation of the Executive without a
Good Reason Event, this Section shall not apply. For purposes of this Agreement
the term "Sale of Holdings" means (i) the sale of Holdings, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of Holdings) pursuant to which such third party proposes to acquire
all or substantially all of the
- 10 -
11
outstanding Common Interests (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding Common Interests
or otherwise) or (ii) the sale of all or substantially all of the consolidated
assets of Holding or Sleepmaster. For purposes of this Agreement the term
"Affiliate" of Holdings means any entity that directly or indirectly controls,
or is controlled by, or is under common control with Holdings.
10. Return of Property and Nondisclosure. Upon termination or
expiration of the Executive's employment pursuant to this Agreement, the
Executive will promptly deliver to the Company all data, lists, information,
memoranda, documents and all other property belonging to the Company or
containing "Confidential Information" or "Trade Secrets" of the Company or
Sleepmaster (both as defined below), including, among other things, that which
relates to services performed by the Executive for the Company, or was created
or obtained by the Executive while performing services for the Company or by
virtue of the Executive's relationship with the Company. Except as required in
order to perform his obligations under this Agreement during the Employment Term
and except for disclosure required by law or to permit enforcement of this
Agreement, the Executive shall not, without the express prior written consent of
the Company, disclose or divulge to any other person or entity, or use or modify
for use, directly or indirectly, in any way, for any person or entity any of the
Company's Confidential Information or Trade Secrets at any time (during or after
the Executive's employment) during which data or information continues to
constitute Confidential Information or a Trade Secret. For purposes of this
Agreement, "Confidential Information" of the Company or Sleepmaster shall mean
any valuable, competitively sensitive data or information related to the
business of the Company or Sleepmaster (other than Trade Secrets) that are not
generally known by or readily available to the competitors of the Company or
Sleepmaster. "Trade Secrets" shall mean information or data of the Company or
Sleepmaster including, but not limited to, technical or nontechnical data,
financial information, programs, devices, methods, techniques, drawings,
processes, financial plans, product plans, or lists of actual or potential
customers or suppliers, that: (a) derive economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from their disclosure or
use; and (b) are the subject of efforts that are reasonable under the
circumstances to maintain their secrecy. To the extent that the foregoing
definition is inconsistent with a definition of "trade secret" mandated under
applicable law, the latter definition shall govern for purposes of interpreting
the Executive's obligation under this Agreement. None of the foregoing
obligations and restrictions applies to any part of the Confidential Information
or Trade Secrets that the Executive demonstrates was or became generally
available to the public other than as a result of a nonpermitted disclosure by
the Executive. Except for disclosure required by law or to permit enforcement of
this Agreement, the terms of this Agreement shall be deemed Confidential
Information of the Company or Sleepmaster and shall not be discussed or
disclosed by Executive with any person other than Executive's spouse, attorney
or accountant.
11. Noncompetition. The Executive acknowledges that he has
substantial experience and expertise in the mattress business and that, as such,
the services to be performed by him are of a special, unique, unusual and
extraordinary character. The Executive further acknowledges that the nature of
the services, position and expertise of the Executive are such that he is
capable of competing with the Company. In consideration of this Employment
Agreement and the remuneration payable to the Executive under this Employment
Agreement, the Executive covenants and agrees that the Executive shall not,
without the prior written consent of the Board, during the "Restricted Period"
(a)
- 11 -
12
directly or indirectly enter into the employ of or render any advice or
services, whether or not for compensation, to any "Person" engaged in any
"Competitive Business," (b) directly or indirectly engage in any Competitive
Business, (c) directly or indirectly become interested, whether or not for
compensation, in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity or, in the case of
any such company whose securities are traded on a national securities exchange
in the United States or otherwise or in the over-the-counter market, acquire,
directly or indirectly, an interest in excess of one percent (1%) of the
outstanding capital stock of such company. For purposes of this Section,
"Restricted Period" shall mean the period commencing as of the Effective Date of
this Agreement and ending on the Expiration Date. For purposes of this Section,
any "Competitive Business" shall mean any business which is principally engaged
in the manufacturing and sales of mattresses and other bedding products and
which is located within the marketing area of Sleepmaster, the Company or any
other subsidiary of Sleepmaster as of such time. For purposes of this Section,
"Person" shall mean any corporation, partnership, trust, individual or any other
entity. In the event that any provision of this Section is considered by a court
of competent jurisdiction to be excessive in its duration, in the area to which
it applies or in any other respect, it shall be considered modified and valid
for such duration, for such area and in such other respects as such court may
determine reasonable under the circumstances.
12. Nonsolicitation. While he is employed by the Company, and for
a period of three years thereafter, the Executive will not, directly or
indirectly, without the prior written consent of the Company, solicit or attempt
to solicit any employee, consultant, contractor or other personnel of the
Company (other than Xxxxxx X. Xxxxxx, Xxxx Xxxx Xxxxxx and Xxxxxx Xxxxxxx) to
terminate, alter or lessen that party's affiliation with the Company or to
violate the terms of any agreement or understanding with the Company. At any
time the Executive may engage the services of the foregoing three individuals
(or their respective professional service firms) in any matter in which the
Executive's interest may be adverse to that of the Company, and the Company
agrees in such case not to assert the existence of a conflict of interest so as
to disqualify any of such individuals (or their respective professional service
firms) from representing the Executive.
13. Specific Remedies. In the event of the violation or threatened
violation by the Executive of any of the covenants or provisions of Sections 10,
11, or 12, the Company or any holder of greater than 20% of the capital stock of
the Company on behalf of the Company, shall have (i) the right and remedy of
specific enforcement and performance of Sections 10, 11 and 12, including
injunctive relief, it being acknowledged and agreed that any such violation or
threatened violation will cause irreparable injury to the Company and that
monetary damages will not provide an adequate remedy to the Company, and (ii)
rights to any and all damages available as a matter of law.
14. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
delivered in person, if mailed by certified mail, return receipt requested,
postage prepaid, if delivered by confirmed telefax or if sent by a nationally
recognized overnight courier, delivery prepaid, addressed as follows:
- 12 -
13
Executive:
Xxxxxxx X. Xxxxx
0000 Xxxxxx Xxxx Xxxx
Xxxx Xxxxx Xxxxxx, Xxxxxxx 00000
with copies to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx X. Xxxxxx, P.A.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx 00000
Company:
Sleepmaster L.L.C.
0000 Xxxxx Xxxx
Xxxxxx, Xxx Xxxxxx 00000-0000
with copies to:
Greenberg, Traurig, Hoffman, Lipoff, Xxxxx
& Quentel
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax No.: (000) 000-0000
All such written notices and communications delivered as aforesaid shall be
deemed given for purposes of this Agreement on the day such notice or
communication is received if delivered personally or by telefax, or, if
delivered by certified mail, as aforesaid, on the date that is four business
days after deposit in the mail or, if delivered by nationally recognized
overnight courier, two days after it has been so sent.
15. General.
(a) This Agreement and all transactions contemplated by
this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Florida, without regard to principles of
conflicts of laws. The Company, Sleepmaster and the Executive acknowledge that a
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other federal
or state courts, each of the Company, Sleepmaster and the Executive irrevocably
and unconditionally: (a) agrees that any suit, action or legal proceeding
arising out of or relating to this Agreement may be brought in the courts of
record of the State of Florida in Palm Beach County or the District Court of the
United States, Southern District of Florida; (b) consents to the jurisdiction of
each such court in any suit, action or proceeding; (c) waives
- 13 -
14
any objection which it may have to the laying of venue of any such suit, action
or proceeding in any of such courts; and (d) agrees that service of any court
paper may be effected on such party by mail, as provided in this Agreement, or
in such other manner as may be provided under applicable laws or court rules in
said state.
(b) This Agreement contains the entire understanding of
the Company, Sleepmaster and the Executive with respect to its subject matter
and supersedes all previous written and oral agreements between the parties with
respect to the subject matter set forth herein. There are no representations,
promises, warranties, covenants or undertakings other than as expressly set
forth herein or therein. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(c) This Agreement may not be modified or amended except
by a writing signed by both of the Company and the Executive.
(d) Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction. If the covenant should be deemed invalid, illegal or unenforceable
because its scope is considered excessive, such covenant should be modified so
that the scope of the covenant is reduced only to the minimum extent necessary
to render the modified covenant valid, legal and enforceable.
(e) All of the covenants contained in this Agreement
shall survive its expiration or termination for any reason, for the applicable
statutory period of limitations.
(f) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
(g) The headings and titles to the sections of this
Agreement are inserted for convenience only and shall not be deemed a part of or
affect the construction or interpretation of any provisions hereof.
- 14 -
15
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
COMPANY:
PALM BEACH BEDDING COMPANY
By: /s/ Xxxxxxx Xxxxxxxxxx
---------------------------------
Name: Xxxxxxx Xxxxxxxxxx
-------------------------------
Title: Chairman of the Board
------------------------------
EXECUTIVE:
/s/ Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxx X. Xxxxx
- 15 -
16
And joined by Sleepmaster and Holdings for the purpose of being bound to perform
the covenants made by Sleepmaster and Holdings in this Agreement.
SLEEPMASTER L.L.C.
By: /s/ Xxxxxxx Xxxxxxxxxx
---------------------------------
Name: Xxxxxxx Xxxxxxxxxx
-------------------------------
Title: Manager
------------------------------
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
-------------------------------
Title: Manager
------------------------------
SLEEPMASTER HOLDINGS, L.L.C.
By: /s/ Xxxxxxx Xxxxxxxxxx
---------------------------------
Name: Xxxxxxx Xxxxxxxxxx
-------------------------------
Title: Manager
------------------------------
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
-------------------------------
Title: Manager
------------------------------
- 16 -
17
SCHEDULE A
EBITDA Plan
Fiscal Year EBITDA Target
----------------- -------------------
1998 $ 6,100,000
1999 7,087,000
2000 8,213,000
2001 9,495,000
2002 10,575,000
- 17 -
18
SCHEDULE B
The Board of Advisors of Holdings (the "Board") will initially
determine the Fair Value of the Executive's Executive Securities as follows: (i)
with reference to Preferred Units of Holdings owned by the Executive, the Fair
Value of each unit shall be the amount per Unit that would be paid to the
Executive if Holdings were dissolved and liquidated as of the date of the
exercise of the Repurchase Option and (ii) with respect to Common Units of
Holdings owned by the Executive, the Fair Value of each such unit shall be the
Board's good faith estimate of the fair market value of Holding's common equity
divided by the number of Common Units of Holdings outstanding on a fully diluted
basis. Upon making its determination, the Board will notify the Executive of the
Fair Value to be paid. Not later than 30 days following his receipt of the
Board's determination, the Executive may notify Holdings that he does not agree
with the Board's determination and, in the absence of such notice, the Board
shall be entitled to presume that the Executive agrees with its determination.
If the Executive notifies Holdings that he disagrees within the required time
period, the Executive and Holdings shall promptly negotiate in good faith to
resolve the issue or issues which form the basis for such disagreement and will
revise the Fair Value accordingly. If the Executive and Holdings are unable to
resolve their disagreement within 30 days after the Executive has sent his
notice disagreeing with the Board's determination, the Executive and Holdings
will refer such dispute to a professional appraiser with experience in valuing
businesses of the approximate size of Holdings on a going concern basis mutually
acceptable to the Executive and Holdings (the "Outside Appraiser") to determine
the Fair Value of Holding's equity. If Executive and Holdings are unable to
agree on the choice of an Outside Appraiser, they will select an investment
banking firm with demonstrated expertise in mid-market mergers and acquisitions
transactions in the southeastern United States as the Outside Appraiser. The
determination of any Outside Appraiser firm so selected will be set forth in
writing and will be conclusive and binding upon Holdings and the Executive.
Holdings and the Executive will each pay one half of the fees, expenses and
costs of the Outside Appraiser for the services described herein. In no event
shall any determination of Fair Value, whether by the Board or the Outside
Appraiser, apply a discount to the value of the Executive Securities for lack of
marketability or minority interest.
-18-
19
DRAFT: 2/24/98
SLEEPMASTER HOLDINGS L.L.C. CAPITALIZATION CHART - POST PBBC ACQUISITION
------------------- ----------------------------- ------------------ --------------------------- -------------------- --------------
COMMON UNITS/%
SLEEPMASTER COMMON UNITS/%
% OF COMMON OPTIONS ONLY PBBC OPTIONS ONLY
COMMON INTERESTS ISSUED AND ISSUED & % OF PREFERRED WITHOUT EXERCISE WITHOUT EXERCISE OF
MEMBER OUTSTANDING OUTSTANDING PREFERRED UNITS INTEREST OF WARRANT WARRANT
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Management 2,366 27.95% 1,542.84 15.04% 2,896/32.19% 2,475/28.86%
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxxxxxxx 720 8.51 514.28 5.01 932/10.36 720/8.40
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxxxx 360 4.25 257.14 2.51 466/5.18 360/4.20
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
DuPont 360 4.25 257.14 2.51 466/5.18 360/4.20
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxxx 360 4.25 257.14 2.51 466/5.18 360/4.20
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxxx 50 0.59 -- -- 50/0.55 50/0.6
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxxxxx 50 0.59 -- -- 50/0.55 50/0.6
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxx 466 5.51 257.14 2.51 466/5.18 466/5.43
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
PBBC Mngt -- -- -- -- -- 109/1.27
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
PMI* 1,000 11.81 1,428.56 13.93 1,000/11.12 1,000/11.66
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
CVC* 760.71 voting 45.5 5,547.88 54.09 3,852.3/42.82 3,852.3/44.93
3,091.59 nonvoting
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
CCT* 133.76 voting 8 975.68 9.51 677.46/7.53 677.46/7.9
543.7 nonvoting
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Coinvestors* 99.9 voting 5.98 728.57 7.10 505.89/5.62 505.89/5.9
405.99 nonvoting
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Xxxxx* 45.6 voting 0.76 33.58 0.33 64.31/0.72 64.31/0.75
18.71 nonvoting
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
TOTAL: 8,465.96 100% 10,257.11 100% 8,995.96/100% 8,574.96/100%
------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
COMMON UNITS/% PBBC COMMON UNITS/% UPON
AND SLEEPMASTER EXERCISE OF WARRANTS COMMON UNITS/%
OPTIONS WITHOUT WITHOUT MANAGEMENT ON A FULLY
MEMBER EXERCISE OF WARRANT OPTIONS DILUTED BASIS
------------------ ------------------- -------------------- --------------
Management 3,005/33% 2,366/21.77% 3,005/26.11%
------------------ ------------------- -------------------- --------------
Xxxxxxxxxx 932/10.23 720/6.63 932/8.10
------------------ ------------------- -------------------- --------------
Xxxxxxx 466/5.12 360/3.31 466/4.05
------------------ ------------------- -------------------- --------------
DuPont 466/5.12 360/3.31 466/4.05
------------------ ------------------- -------------------- --------------
Xxxxxx 466/5.12 360/3.31 466/4.05
------------------ ------------------- -------------------- --------------
Xxxxxx 50/0.55 50/0.46 50/0.43
------------------ ------------------- -------------------- --------------
Xxxxxxxx 50/0.55 50/0.46 50/0.43
------------------ ------------------- -------------------- --------------
Xxxxx 466/5.12 466/4.29 466/4.05
------------------ ------------------- -------------------- --------------
PBBC Mngt 109/1.19 -- 109/0.95
------------------ ------------------- -------------------- --------------
PMI* 1,000/10.98 3,403/31.31 3,403/29.57
------------------ ------------------- -------------------- --------------
CVC* 3,852.3/42.31 3,852.30/35.44 3,852.3/33.47
------------------ ------------------- -------------------- --------------
CCT* 677.46/7.44 677.46/6.23 677.46/5.89
------------------ ------------------- -------------------- --------------
Coinvestors* 505.89/5.56 505.89/4.66 505.89/4.40
------------------ ------------------- -------------------- --------------
Xxxxx* 64.31/0.71 64.31/0.59 64.31/0.56
------------------ ------------------- -------------------- --------------
TOTAL: 9,104.96/100% 10,868.96/100% 11,508.15/100%
------------------ ------------------- -------------------- --------------
* Interests are held indirectly through Sleep Investor LLC
