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EXHIBIT 10.10
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 Xxxxxxxxxx (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 $290,000 per annum through fiscal year 1996 and will
increase as of January 1, 1997 to $305,000 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) 23% 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) 360 units of the Class A
Common and (ii) 514.28 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
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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 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 (ii) 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: Xx. Xxxxxxx Xxxxxxxxxx
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 Xxxxxxxxxx
-------------------------------
XXXXXXX XXXXXXXXXX
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 $1,000,000
Supplemental Disability--Monthly Disability Benefit $5,000
Entertainment Expenses
Car Allowance; $9,000 per annum
Car Expenses
Permitted Vacation: 4 weeks per year
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