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EXHIBIT 10.13
EXECUTION COPY
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is dated as of November __, 1996, by
and among Sleepmaster Holdings L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster L.L.C., a New Jersey limited liability company
("Sleepmaster"), Xxxxxxx Xxxxxx (the "Executive") and Sleep Investor L.L.C., a
Delaware limited liability company (the "Investor").
The Company, Sleepmaster and the Executive desire to enter
into an agreement regarding (i) the employment of the Executive as President and
Chief Executive Officer of Sleepmaster, and (ii) certain restrictions regarding
the Company's Class A Common Interests (the "Class A Common") acquired by the
Executive pursuant to the Recapitalization, Redemption and Repurchase Agreement
by and among the Executive, the Company and certain other parties thereto dated
as of October 31, 1996 (the "Recapitalization Agreement").
Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of advisors.
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
"Cause" means (i) a breach of the Executive's covenants under
this Agreement or any other agreements with the Company or its Subsidiaries and
such breach shall not have been cured within 30 days after written notice to the
Executive, (ii) the commission by the Executive of a felony, a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of the Company or any of its Subsidiaries, or (iii) the Executive's
repeated wilful failure to comply with the reasonable and lawful written
directives of the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, as adjusted for any unit split, unit dividend, or
other combination, exchange. conversion, recapitalization, merger, consolidation
or reorganization, or if such Common Interests are exchanged for different
interests or securities of the Company, such other interests or securities and
any other Common Interests of the Company hereinafter issued.
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"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of the Executive to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"Executive Securities" means the Class A Common acquired by
the Executive and will include units of the Company's Common Interests issued
with respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of the Company.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for the Company and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average
of the closing prices of the sales of the Company's membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the NMS or the over-the-counter market, the Fair Value of each unit of Class
A Common shall be the fair market value of such unit as determined by the Board
in its good faith judgment.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Company with the consent of
its independent public accountants, consistently applied.
"Good Reason Event" means (i) the failure of the Company or
Sleepmaster to make the payments described herein within 5 Business Days of the
applicable payment due date, (ii) the written request by the Board of Advisors
of either the Company or Sleepmaster that the Executive relocate his primary
residence or (iii) a written directive from the Board of Advisors of the Company
or Sleepmaster that results in a substantial reduction of the Executive's job
responsibilities.
"Original Cost" of the Vesting Executive Securities purchased
on the date hereof will be equal to $100.00 per unit.
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"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Interests" means the Company's Series A Preferred
Interests, as adjusted for any unit split, unit dividend or other combination,
exchange, conversion, recapitalization, merger, consolidation or reorganization,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other preferred interests of the Company hereinafter issued,
"Public Offering" means any sale of securities of the Company
in an underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among the Company, the Executive,
the Investor and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Year" means that fiscal year of the Company
during which the Employment Period ends pursuant to the terms of Section 2(d)
hereof.
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"Vesting Executive Securities" means the 400 units of Class A
Common subject to vesting and any securities issued in connection therewith, as
adjusted for any unit split, unit dividend, or other combination, exchange,
recapitalization, merger, consolidation or reorganization. Vesting Executive
Securities will cease to be Vesting Executive Securities when transferred
pursuant to a Qualified Public Offering or Sale of the Company. Vesting
Executive Securities will continue to be Vesting Executive Securities in the
hands of any holder other than the Executive, including all transferees of the
Executive (except for the Company and the Investor (or its designees)), and
except as otherwise provided herein, each such other holder of Vesting Executive
Securities will succeed to all rights and obligations attributable to the
Executive as a holder of Executive Securities hereunder.
2. Employment.
(a) Employment. Sleepmaster agrees to employ the
Executive, and the Executive hereby accepts employment with Sleepmaster, upon
the terms and conditions set forth in this Agreement for the period beginning on
the date hereof and ending as provided in Section 2(d) (the "Employment
Period"). During the Employment Period, the Executive shall be the senior
executive officer of the Company and Sleepmaster and, subject to the provisions
of the Company's Amended and Restated Limited Liability Company Operating
Agreement dated as of the date hereof, shall have final authority with respect
to any matter which directly affects the Serta trademarks or licenses.
(b) Position and Duties.
(i) Commencing on the date hereof and continuing
during the Employment Period, the Executive shall serve as President and Chief
Executive Officer of Sleepmaster under the supervision and direction of the
Company's and Sleepmaster's respective hoards of advisors.
(ii) The Executive shall devote his best efforts
and his full business time and attention (except for permitted vacation periods
and reasonable periods of illness other than Disability) to the business and
affairs of the Company, Sleepmaster and their Subsidiaries. The Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(iii) So long as the Executive is the duly
appointed and acting Chief Executive Officer and President, the Executive shall
serve as a member of the Board of Advisors of each of the Company and
Sleepmaster.
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period,
Executive's base salary shall be $163,000 per annum through fiscal year 1996 and
will increase as of January 1, 1997 to $171,000 per annum (the "Base Salary"),
which salary shall be paid by Sleepmaster in regular installments in accordance
with Sleepmaster's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year
during the Employment Period, the Executive will be eligible to receive a bonus
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
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A hereto (the "EBITDA Plan"). In the event the Company or Sleepmaster
consummates an acquisition of another Person prior to December 31, 2001, the
EBITDA Plan will be adjusted in good faith by senior management and approved by
the Board, and such adjusted and approved plan shall, once approved, be deemed
the EBITDA Plan for all purposes hereunder.
(A) Once the Board has determined
(which determination shall be made within thirty (30) days from the issuance of
the Company's audited financial statements) the percentage of EBITDA achieved
for such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, the Executive shall be entitled to
receive a bonus payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 21.5%
and (z) the Executive's Base Salary for such fiscal year. The bonus payment
shall be made within five (5) days of the Board's determination.
Achieved EBITDA Percentage Bonus Multiple
80% 50%
100% 100%
110% 125%
120% 150%
(B) 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%, in the event
the actual Achieved EBITDA Percentage 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) in the event the actual Achieved EBITDA Percentage is
90%, the Bonus Multiple shall be 75% or (2) in the event the actual Achieved
EBITDA Percentage is 115%, the Bonus Multiple shall be 137.5%.
(C) With respect to fiscal year 1996,
the Executive shall be entitled to receive a bonus as follows: (1) the Executive
will be entitled to receive a portion of the bonus earned by the Executive under
that certain Employment Agreement dated January 2, 1995 between Sleepmaster and
the Executive (the "Previous Agreement") determined based on the portion of
fiscal year 1996 prior to the date hereof and (2) the Executive will be entitled
to receive a portion of the bonus earned by the Executive under this Agreement
determined based on the portion of the fiscal year after the date hereof.
(iii) Benefits. In addition to the Base Salary and
any bonuses payable to the Executive pursuant to Section 2(c)(ii), the Executive
shall be entitled, during the Employment Period, to all benefits set forth on
Schedule B hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's and its Subsidiaries' policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject to the
requirements of the Company and its Subsidiaries with respect to reporting and
documentation of such expenses.
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(d) Term. The Employment Period shall end on November 1,
2001, subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or
before November 1, 2001:
(A) pursuant to Section 2(d)(y) above,
by the Company other than for Cause, the Executive shall be entitled to receive
(1) the stated Base Salary through the period ending on the earlier of November
1, 2001 and the later of (x) January 2, 2000 and (y) the second anniversary of
the date of termination, and (2) a portion of the bonus payment earned by the
Executive during the Termination Year pro rated based on the number of days of
the Termination Year prior to the date of termination, which such payment will
be made when the bonus payments for such Termination Year are otherwise due.
(B) as a result of the Executive's
death or Disability, the Executive or the Executive's estate, as applicable,
shall be entitled to all previously earned and accrued but unpaid Base Salary up
to the date of such termination but shall not be entitled to any further Base
Salary, bonus payments or Benefits for that year or any future year, or to any
other severance compensation of any kind, nature or amount.
(C) as a result of the Executive's
voluntary resignation other than after a Good Reason Event, or by the Company
for Cause, the Executive shall be entitled to all previously earned and accrued
but unpaid Base Salary up to the date of such termination but shall not be
entitled to any further Base Salary, bonus payments or Benefits for that year or
any future year, or to any other severance compensation of any kind, nature or
amount.
(D) as a result of the Executive's
voluntary resignation within 5 days of a Good Reason Event, the Executive shall
be entitled to receive (1) the stated Base Salary through the period ending on
the earlier of November 1, 2001 and the later of (x) January 2, 2000 and (y) the
second anniversary of the date of termination, and (2) a portion of the bonus
payment earned by the Executive during the Termination Year pro rated based on
the number of days of the Termination Year prior to the date of determination,
which such payment will be made when the bonus payments for such Termination
Year are otherwise due.
(ii) Following the termination of the Employment
Period:
(A) the Executive agrees that: (1) the
Executive shall be entitled to the payments provided for in Sections 2(d)(i)(A)
or (D), if any, if and only if Executive has not breached as of the date of
termination of the Employment Period the provisions of Sections 3, 4 and 5
hereof and does not breach such sections at any time during the period for which
such payments are to be made and (2) the Company's obligation to make such
payments will terminate upon the occurrence of any such breach during any such
severance period.
(B) any payments pursuant to Sections
2(d)(i)(A)(1) or 2(d)(i)(D)(1) shall be paid by Sleepmaster in regular
installments in accordance with Sleepmaster's general payroll practices and
shall be subject to customary withholding, and following such payments
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none of the Company, or any of its Subsidiaries shall have any further
obligation to the Executive pursuant to this Section 2(d) except as provided by
law.
(iii) The Executive hereby agrees that except as
expressly provided herein. no severance compensation of any kind, nature or
amount shall be payable to the Executive and except as expressly provided
herein, the Executive hereby irrevocably waives any claim for severance
compensation.
(iv) All of the Executive's rights to Benefits
hereunder (if any) shall cease upon the termination of the Employment Period.
(v) Subject to the restrictive covenant
contained in Section 5, the Executive acknowledges an obligation to seek or
obtain other engagements or employment in a similar position to mitigate any
damages to which the Executive may be entitled by reason of any termination of
this Agreement pursuant to Sections 2(d)(i)(A) or (D). If the Employee does
obtain other engagements or employment of any nature and in any location, the
total compensation actually earned by the Executive from such other employment
or engagements during the period that he is to receive payments, if any,
pursuant to Sections 2(d)(i)(A) or (D) shall reduce any amounts which the
Company would otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, the Executive agrees that, except as required by law
or court order, he shall not disclose to any unauthorized person or use for his
own account any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
the Executive's acts or omissions to act. The Executive shall deliver to the
Company at the termination of such Executive's employment, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information, Work Product (as defined below) and the business
of the Company or any Subsidiary which he may then possess or have under his
control.
4. Inventions and Patents. The Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's or any of its Subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by the Executive while employed by the Company or
any of its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary. The Executive will promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
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5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his
employment with the Company and its Subsidiaries he has become familiar, and he
will become familiar, with the Company's and its Subsidiaries' trade secrets and
with other Confidential Information and that his services have been and will be
of special, unique and extraordinary value to the Company and its Subsidiaries.
Therefore, the Executive agrees that, during the time he is employed by the
Company and its Subsidiaries and during any applicable Post-Termination Period
(the "Noncompete Period"), he shall not directly or indirectly own, operate,
manage, control, participate in, consult with, advise, provide services for, or
in any manner engage in any business (including by himself or in association
with any person, firm, corporate or other business organization or through any
other entity) in competition with, or potential competition with, the businesses
of the Company or its Subsidiaries as such businesses exist or are in process on
the date of the termination of the Executive's employment, within any
geographical area in which the Company or any of its Subsidiaries engages or
plans to engage in such businesses. Nothing herein shall prohibit the Executive
from being a passive owner of not more than 2% of the outstanding stock of a
corporation which is publicly traded, so long as the Executive has no active
participation in the business of such corporation. For purposes of this Section
5, "Post-Termination Period" means, as applicable: (i) if the Executive is
entitled to receive payments pursuant to Sections 2(d)(i)(A)(1) or
2(d)(i)(D)(1), then for the period through the later of (x) January 2, 2000 and
(y) the second anniversary of the date of termination, (ii) if the Employment
Period ends on November 1, 2001 and not less than 30 days prior to such date
either the Company or Sleepmaster offers the Executive employment on terms
substantially similar to the terms set forth herein and the Executive refuses
such offer, the period of eighteen (18) months (following the Employment Period)
ending on May 1, 2003 or (iii) if the Employment Period is terminated by the
Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, the period of eighteen (18) months following the date of
termination.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any Subsidiary to leave the employ of the Company
or such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, including without
limitation, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company or its
Subsidiaries, (ii) hire any person who was an employee of the Company or any
Subsidiary at any time during the Executive's employment period, or (iii) induce
or attempt to induce any customer, supplier, distributor, franchisee, licensee
or other business relation of the Company or any Subsidiary to cease doing
business with the Company or such Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Company or any Subsidiary.
(c) The Executive agrees that: (i) the covenants set
forth in this Section 5 are reasonable in geographical and temporal scope and in
all other respects, (ii) the Company would not have entered into this Agreement
but for the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 5, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing,
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the parties agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law.
(e) The Executive recognizes and affirms that in the
event of his breach of any provision of this Section 5, money damages would be
inadequate and the Company and the Investor would have no adequate remedy at
law. Accordingly, the Executive agrees that in the event of a breach or a
threatened breach by the Executive of any of the provisions of this Section 5,
the Company, in addition and supplementary to other rights and remedies existing
in its favor, may apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security).
6. Executive Securities.
(a) With respect to the Vesting Executive Securities,
within 30 days from the date hereof, the Executive will make an effective
election with the Internal Revenue Service under Section 83(b) of the Internal
Revenue Code and the regulations promulgated thereunder in the form of Exhibit A
attached hereto.
(b) In connection with the acquisition of the Executive
Securities, the Executive represents and warrants to the Company that:
(i) The Executive Securities to be acquired by
the Executive pursuant to this Agreement will be acquired for the Executive's
own account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) No commission, fee or other remuneration is
to be paid or given, directly or indirectly, to any Person for soliciting the
Executive to purchase the Executive Securities.
(iii) The Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Executive Securities and has determined
that such investment in the Executive Securities is suitable for the Executive,
based upon the Executive's financial situation and needs, as well as the
Executive's other securities holdings.
(iv) The Executive qualifies an "accredited
investor" within the meaning of Rule 501 (a) of Regulation D under the
Securities Act.
(v) The Executive is able to bear the economic
risk of the Executive's investment in the Executive Securities for an indefinite
period of time and the Executive understands that the Executive Securities have
not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
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(vi) The Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Executive Securities and has had full access to such other
information concerning the Company as the Executive has requested. The Executive
has reviewed, or has had an opportunity to review, the following documents: (A)
the Recapitalization Agreement; (B) the organization documents of the Company
and Sleepmaster; (C) the loan agreements, notes and related documents with the
Company's senior lenders; (D) the loan agreement, notes and related documents
with the Company's senior subordinated lender; and (E) all of the materials
provided by the Company to any Person providing financing to the Company,
including, but not limited to, the Company's pro forma balance sheet, as well as
financial projections, estimates, forecasts, budgets, summaries, reports and
other related documents.
(vii) This Agreement constitutes the legal, valid
and binding obligation of the Executive, enforceable in accordance with its
terms, and the execution, delivery and performance of this Agreement by the
Executive does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which the Executive is a party or any
judgment, order or decree to which the Executive is subject.
(c) As an inducement to the Company to issue the
Executive Securities to the Executive, and as a condition thereto, the Executive
acknowledges and agrees that neither the issuance of the Executive Securities to
the Executive nor any provision contained herein shall entitle the Executive to
remain in the employment of the Company and its Subsidiaries or affect the right
of the Company to terminate the Executive's employment at any time for any
reason.
7. Vesting of Executive Securities. (a) (i) 180 units of the
Class A Common and (ii) 257.14 units of Preferred Interests evidenced by
certificates issued in connection therewith are fully vested as of the date
hereof and are not subject to the terms of Section 4 below. The Vesting
Executive Securities originally acquired by the Executive will become vested in
accordance with the following schedule if, as of each such date, the Executive
is still employed by the Company or its Subsidiaries;
Cumulative Percentage of Units
of Vesting Executive
Date Date Securities Which Will Vest
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First anniversary of the date hereof ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
provided, that all Vesting Executive Securities shall automatically vest in
connection with a Sale of the Company.
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(b) Units of Vesting Executive Securities which have
become vested are referred to herein as "Vested Interests," and all other units
of Vesting Executive Securities are referred to herein as "Unvested Interests."
8. Repurchase Option on Vesting Executive Interests. In the event
the Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), the Vesting Executive Securities (whether held by
the Executive or one or more of the Executive's transferees) will be subject to
repurchase by the Company and the Investor (or its designees) pursuant to the
terms and conditions set forth in this Section 8 (the "Repurchase Option").
(a) (i) The purchase price for each Unvested Interest of
Vesting Executive Securities will be the Executive's Original Cost for such unit
plus interest thereon calculated at a rate per annum equal to the latest
published rate for United States Treasury Bills with a five year maturity as
published in the "Treasury Bonds, Notes & Bills" column of the Wall Street
Journal; (ii) the purchase price for each Vested interest of Vesting Executive
Securities will be the Fair Value for such unit; and (iii) notwithstanding the
foregoing, if the termination of the Employment Period is by the Company for
Cause or by the voluntary resignation of the Executive without a Good Reason
Event, then the purchase price for each Vested Securities and each Unvested
Securities will be the Executive's Original Cost.
(b) The Board may elect to cause the Company to purchase
(i) all or a portion of the Unvested Interests and/or, (ii) all or a portion of
the Vested Interests by delivering written notice (the "Repurchase Notice") to
the holder or holders of the Vesting Executive Securities within 90 days after
the Termination. The Repurchase Notice will set forth the number of Unvested
Interests and Vested Interests to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Vesting Executive Securities
to be repurchased by the Company shall first be satisfied to the extent possible
from the Vesting Executive Securities held by the Executive at the time of
delivery of the Repurchase Notice. If the number of Vesting Interests then held
by the Executive is less than the total number of units of Vesting Executive
Securities the Company has elected to purchase the Company shall purchase the
remaining Vesting Executive Securities elected to be purchased from the other
holder(s) of Executive Securities, pro rata according to the amount of such
Vesting Executive Securities held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share). The number of Unvested Interests and Vested Interests to be
repurchased hereunder will be allocated among the Executive and the other
holders of Vesting Executive Securities (if any) pro rata according to the
number of units of Vesting Executive Securities to be purchased from such
Persons.
(c) If for any reason the Company does not elect to
purchase all of the units of Vesting 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 Vesting
Executive Securities the Company has not elected to purchase (the "Available
Securities"). Of the Available Securities, the Vested Interests are referred to
herein as "Available Vested Interests" and Unvested Interests are referred to
herein as "Available Unvested Interests". As soon as practicable after the
Company has determined that there will be Available Securities, but in an event
within 150 days after the Termination, the Company shall give written notice
(the "Option Notice") to the Investor (or its designees) setting forth the
number of Available Vested Interests, Available Unvested Interests, and the
purchase price for each of such Available Securities. The Investor (or its
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designees) may elect to purchase all or a portion of (i) Available Vested
Interests, and/or (ii) all or a portion of the Available Unvested Interests by
giving written notice to the Company within 45 days after the Option Notice has
been given by the Company. As soon as practicable, and in any event within ten
days after the expiration of the 45-day period set forth above, the Company
shall notify each holder of Vesting Executive Securities as to the number of
Vested Interests or Unvested Interests being purchased from such holder by the
Investor (or its designees) (the "Supplemental Repurchase Notice"). At the time
the Company delivers the Supplemental Repurchase Notice to the holder(s) of such
Vesting Executive Securities, the Company shall also deliver written notice to
the Investor (or its designees) setting forth the number of Vested Interests and
Unvested Interests which the Investor (or its designees) is entitled to
purchase, the aggregate purchase price and the time and place of the closing of
the transaction.
(d) The closing of the purchase of the Vesting Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by the Company in the Repurchase Notice or Supplemental 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. The Company and/or the Investor (or its designee) will pay for the
Vesting Executive Securities to be purchased pursuant to the Repurchase Option
by delivery of a certified or cashier's check or wire transfer of funds. The
purchasers of Vesting Executive Securities hereunder will be entitled to receive
customary presentations 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 Vesting Executive Securities by the Company
shall be subject to applicable legal restrictions. If any such restrictions
prohibit the repurchase of Vesting Executive Securities hereunder which the
Company is otherwise entitled to make, the Company may make such repurchases as
soon as it is permitted to do so under such restrictions.
(f) If a Sale of the Company shall be consummated within
six months of the consummation of the repurchase of Vesting Executive Securities
pursuant to this Section 8, then with respect to each unit of Vested Interests
sold by the Executive pursuant to this Section 8, the Executive shall be
entitled to receive an amount equal to the difference, if any, (i) between the
per unit consideration (with respect to the Common Interests) received by the
Investor in connection with the Sale of the Company and (11) the repurchase
price per unit paid to the Executive; provided, that if the Termination is by
the Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, this Section 8(f) shall not apply.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS
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CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS
AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THE
SIGNATORY THERETO DATED AS OF NOVEMBER __, 1996. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer
or dispose of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an opinion of counsel (reasonably acceptable in form and substance to
the Company) that neither registration nor qualification under the Securities
Act and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to
effect any sale or distribution of any Executive Securities or other equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for any of the Company's equity securities, during the seven days
prior to and the 120 days (or, subject to the requirements of the underwriters,
up to 180 days) after the effectiveness of any underwritten public offering,
except as part of such underwritten public offering or if otherwise permitted by
the Company.
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient with telephonic confirmation by the sending party.
Such notices, demands and other communications will be sent to the address
indicated below:
To the Company or Sleepmaster:
c/o Sleepmaster L.L.C.
0000 Xxxxx Xxxx
Xxxxxx, XX 00000
Attention: President
Telecopy No.: (000) 000-0000
With a copy to:
Citicorp Venture Capital, Ltd.
000 Xxxx Xxxxxx
x0xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Mr. Xxxx Xxxxx
Telecopy No.: (000) 000-0000
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To the Executive:
c/o Sleepmaster L.L.C.
0000 Xxxxx Xxxx
Xxxxxx, XX 00000
Attention: Mr. Xxxxxxx Xxxxxx
Telecopy No.: (000) 000-0000
To the Investor:
c/o Citicorp Venture Capital, Ltd.
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Mr. Xxxx Xxxxx
Telecopy No.: (000) 000-0000
With a copy to:
Xxxxxxxx & Xxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Telecopy No.: (000) 000-0000
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or
attempted transfer of any Executive Securities in violation of any provision of
this Agreement shall be null and void. and the Company shall not record such
transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the
Securityholders Agreement, and the Recapitalization Agreement embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the
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parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of the Executive under this Agreement shall not be
assignable except in connection with a permitted transfer of Executive
Securities hereunder.
(f) Third Party Beneficiary. This Agreement is intended
for the benefit of, and will be enforceable by, the Investor.
(G) GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING
INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE
GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
(h) Remedies. Each of the parties to this Agreement
(including the Investor) will be entitled to enforce its rights under this
Agreement specifically, to recover damages and costs (including reasonable
attorneys' fees) caused by any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Company, the Executive and the Investor.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: Xxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Executive Vice President
SLEEPMASTER L.L.C.
By: Xxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Executive Vice President
/s/ Xxxxxxx Xxxxxx
--------------------------------------------
XXXXXXX XXXXXX
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: Xxxx X. Xxxxx
--------------------------------------------
Name: Xxxx X. Xxxxx
Title: Member
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SCHEDULE A
EBITDA PLAN
FISCAL YEAR EBITDA TARGET
----------------- -------------------
1996 $ 8,590,000
1997 $10,525,000
1998 $12,323,000
1999 $13,608,000
2000 $15,453,000
2001 $16,137,000
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SCHEDULE B
EMPLOYEE BENEFITS
Executive Medical Plan --100% reimbursable medical expenses
Personal Term Life Insurance --coverage $265,793
Entertainment Expenses
Car Allowance; $6,120 per annum
Permitted Vacation: 3 weeks per year
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