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EXHIBIT 10.14
OPTION AGREEMENT
This OPTION AGREEMENT is made as of November __, 1996, between
Sleepmaster Holdings L.L.C., a New Jersey limited liability company (the
"Company"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("Grantee"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in
Article I.
In order to advance the Company's best interests by providing
additional incentives to certain key employees of the Company and its
Subsidiaries, the Company wishes to grant options to purchase additional
ownership interests in the Company subject to the terms and conditions of this
Agreement.
Article I
Definitions
For purposes of this Agreement the following terms are defined
as follows:
"Achieved Result" means, with respect to any Vesting Date:
(1) the product of (x) the arithmetic average of Actual EBITDA for each of the
two previous Fiscal Years prior to such Vesting Date and (y) seven;
minus (2) the sum of (A) all outstanding Indebtedness of the Company and its
Subsidiaries as of the Vesting Date and, (B) the liquidation value of the
Preferred Interests outstanding on such Vesting Date.
"Actual EBITDA" means the Company's and Sleepmaster L.L.C.'s
("Sleepmaster's") consolidated EBITDA for a particular Fiscal Year as set forth
on the Company's audited consolidated financial statements for such Fiscal Year;
provided, that for purposes of calculating the Company's and Sleepmaster's
consolidated EBITDA for a particular Fiscal Year, the Company shall give effect
to any acquisition of all of the capital stock or all, or substantially all, of
the consolidated assets of an unaffiliated Person (an "Acquired Business") by
the Company or Sleepmaster (whether such Acquired Business was acquired by means
of a merger, consolidation, asset purchase, security purchase or otherwise) on
an actual basis, as though such acquisition had occurred on the first day of
such Fiscal Year.
"Board" means the Board of Advisors of the Company.
"Cause" means (i) a breach of Grantee's covenants under this
Agreement or any other agreement with the Company or its Subsidiaries and such
breach shall not have been cured within 30 days after written notice to Grantee,
(ii) the commission by Grantee 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) Grantee's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
"Class A Common" means the Company's Class A Common Interests,
or if the Class A Common is hereafter exchanged into or exchanged for different
units or securities of the Company, such other units or securities, all as
adjusted for any unit split, unit dividend, combination, exchange, conversion,
recapitalization, merger, consolidation or reorganization.
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"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate or, if for any reason the
Board has not designated such a committee, the Board. The Committee, if other
than the Board, shall be composed of two or more directors as appointed from
time to time by the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, or if the outstanding Common Interests are hereafter
changed into or exchanged for different interests or securities of the Company,
such other interests or securities.
"Disability" shall mean the inability, due to illness,
accident, injury, physical or mental incapacity or other disability, of Grantee
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.
"EBITDA" means, for any period determined on a consolidated
basis, (a) net income determined in conformity with United States generally
accepted accounting principles; plus, (b) to the extent deducted in determining
net income for such period (i) federal and state income taxes, (ii) interest
expenses , (iii) amortization, depreciation, and similar non-cash charges; and
minus (c) to the extent included in determining net income for such period,
extraordinary or nonrecurring gains as set forth on the Company's consolidated
audited financial statement for such period;
"Employment Agreement" means the Employment Agreement dated as
of November __, 1996 by and among the Company, Grantee, Sleepmaster L.L.C. and
Sleep Investor L.L.C.
"Expiration Date" means the close of business on November 1,
2006, subject to earlier expiration as provided in Section 5.
"Fair Market Value" per unit on any given date, means the fair
market value of such unit as shall be determined by the Committee or the Board
in its good faith business judgment.
"Family Group" means Grantee's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Grantee, Grantee's
spouse, and/or their descendants.
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"Fiscal Year" means, for the Company, a twelve month
accounting period ending on the last day of December in each year.
"Form" means those forms of the Internal Revenue Service used
by taxpayers to file federal income tax returns or reports required under the
Code or applicable Treasury Regulations promulgated thereunder.
"Indebtedness" shall mean all indebtedness of the Company or
any of its Subsidiaries including, without limitation (i) all obligations for
borrowed money or evidenced by bonds, debentures, notes, letters of credit or
other similar instruments, (ii) obligations as lessee under capital leases,
(iii) obligations to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of business, (iv) all
debt of other Persons guaranteed or otherwise supported by the Company or any of
its Subsidiaries, and (v) any interest, principal, prepayment penalty, fees or
expenses in respect of items listed in clauses (i) through (iv).
"Measurement Date" means the date on which any taxable income
resulting from the exercise of an Option is determined under applicable federal
income tax law.
"Option Shares" means (i) all units of Class A Common issued
or issuable upon the exercise of an Option, and (ii) all units of Class A Common
issued with respect to the Class A Common referred to in clause (i) above by way
of a unit dividend or unit split or in connection with any combination,
exchange, conversion, merger, consolidation, recapitalization, or other
reorganization affecting the Class A Common. Option Shares will continue to be
Option Shares in the hands of any holder other than Grantee (except for the
Company), and each such transferee thereof will succeed to the rights and
obligations of a holder of Option Shares hereunder.
"Permitted Transferee" means those persons to whom the Grantee
is authorized (1) pursuant to terms and conditions of the Securityholders
Agreement, to transfer Option Shares, or (2) pursuant to Section 5, to transfer
Options.
"Preferred Interests" means the Company's Series A Preferred
Interests, 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.
"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.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among Grantee, the Company, Sleep
Investor L.L.C. 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 Date" means the date upon which Grantee's
employment with the Company terminated including by reason of death or
Disability.
"Vesting Date" means either December 31, 1999 or December 31,
2001 as the context requires.
Article II
1. Grant of Option. The Company hereby grants to
Grantee, as of the date first above written, an option (the "Option") to
purchase 212 units of the Company's Class A Common (which number of units may be
adjusted as provided in Section 13 below) at the exercise price per unit of
$100, subject to the terms and conditions set forth herein. The Option is
intended to be a "nonqualified stock option" for purposes of the Code.
2. Vesting of Options.
(a) Except as provided in Section 2(b), no
portion of the Option shall vest prior to December 31, 1999. The Option shall
vest based upon the achievement by the Company of certain targets for the 24
month period preceding each Vesting Date as set forth below (each, a "Target"),
if as of each such date the Grantee is still employed by the Company or a
Subsidiary of the Company. On each Vesting Date 50% of the Option shall vest if
as of such
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Vesting Date the Achieved Result equals or exceeds the Target set forth opposite
such Vesting Date in the table below:
Percent of Option
Vesting Date Target Subject to Vesting
------------ ------------ ----------------------
12/31/99 $ 60,000,000 50% of original Option
12/31/01 $115,000,000 50% of original Option
provided, that if the Achieved Result at December 31, 1999 does not equal or
exceed the Target for such date, but at December 31, 2001 the Achieved Result
equals or exceeds $130,000,000, then 100% of the Option shall vest.
(b) (i) In the event of a Sale of the Company at
any time prior to December 31, 1999, if the aggregate cash consideration
received by the holders of the Company's Common Interests equals or exceeds
either the Target for December 31, 1999 or the Target for December 31, 2001,
then the applicable portion(s) of the Option shall vest upon the consummation of
such Sale of the Company, and (ii) in the event of a Sale of the Company after
December 31, 1999 but before December 31, 2001, if the aggregate cash
consideration received by the holders of the Company's Common Interests equals
or exceeds the Target for December 31, 2001, then 50% of the Option shall vest
upon the consummation of such Sale of the Company; provided, that if a Sale of
the Company does not occur prior to December 31, 2001, then this Section 2(b)
shall be of no further force or effect.
(c) If as of December 31, 2001 any portion of
the Option has not vested, such portion shall, at the option of the Company, be
automatically transferred to the Company without consideration and the Committee
(in its sole discretion) may regrant such portion of the Option.
3. Conditions to Exercise. Subject to the conditions set
forth in this Section 3 and in Section 4 of this Agreement, the Option may be
exercised by written notice to the Company's Secretary at any time and from time
to time but only to the extent it has become vested. An Option shall not be
exercisable, in any event, after the tenth anniversary of the date of grant.
Options are subject to cancellation as provided herein. The Option may not be
exercised by Grantee until the Company has received payment from the Executive
in an amount equal to the full purchase price for the units of Common Interests
being acquired hereunder. Payment of such exercise price may be made in cash
(including check, bank draft, or money order).
4. Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a
condition to the exercise of any Option that Grantee make appropriate payment or
other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the
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"Withholding Amount") shall be determined by the Treasurer or other appropriate
officer of the Company, and Grantee shall furnish such information and make such
representations as such officer requires to make such determination.
(b) Withholding Procedure. If the Company
determines that withholding tax is required with respect to any Option exercise,
the Company shall notify Grantee of the Withholding Amount, and Grantee shall
pay to the Company an amount not less than the Withholding Amount. In lieu of
making such payment, the Grantee may pay the Withholding Amount by either (i)
delivering to the Company a number of units of Class A Common having an
aggregate Fair Market Value as of the Measurement Date not less than the
Withholding Amount, or (ii) directing the Company to withhold and not deliver or
issue to the Grantee a number of units of Class A Common, otherwise issuable
upon the exercise of the Option, having an aggregate Fair Market Value as of the
Measurement Date not less than the Withholding Amount. In addition, if the
Committee approves, the Grantee may elect pursuant to the prior sentence to
deliver or direct the withholding of units of Class A Common having an aggregate
Fair Market Value in excess of the minimum Withholding Amount but not in excess
of the Grantee's applicable highest marginal combined federal income and state
income tax rate, as estimated in good faith by such Grantee. Any fractional
interests resulting from the delivery or withholding of units of Class A Common
to meet withholding tax requirements shall be settled in cash. All amounts paid
to or withheld by the Company and the value of all units of Class A Common
delivered to or withheld by the Company pursuant to this Section 4 shall be
deposited in accordance with applicable law by the Company as withholding tax
for Grantee's account. If the Treasurer or other appropriate officer of the
Company determines that no withholding tax is required with respect to the
exercise of any Option, but it is determined subsequently that the exercise
resulted in taxable income as to which withholding is required (as a result of a
disposition of the Option Shares or otherwise), Grantee shall promptly, upon
being notified of the withholding requirement, pay to the Company (by means
acceptable to the Company) the amount required to be withheld, and the Company
may, at its election, condition any transfer of Option Shares issued upon
exercise of the Option upon receipt of such payment.
(c) Notification of Inquiries and Agreements.
Grantee and each Permitted Transferee shall notify the Company in writing within
10 days after the date Grantee or any such Permitted Transferee (i) first
obtains knowledge of any Internal Revenue Service inquiry, audit, assertion,
determination, investigation, or question relating in any manner to the value of
Options granted hereunder; (ii) includes or agrees (including, without
limitation, in any settlement, closing, or other similar agreement) to include
in gross income with respect to any Option granted under this Agreement (A) any
amount in excess of the amount reported on Form 1099 or Form W-2 to the Grantee
by the Company, or (B) if the Grantee received no such Form, any amount; or
(iii) sells, disposes, or otherwise transfers Option Shares acquired pursuant to
this Agreement. Upon request, Grantee or any such Permitted Transferee shall
provide to the Company any information or document relating to any event
described in the preceding sentence which the Company (in its sole discretion)
requires in order to calculate and substantiate any change in the Company's tax
liability as a result of such event.
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5. Expiration of Options. Any part of any Option that
was not vested and exercisable on Grantee's Termination Date shall expire and be
forfeited on such date, and any part of any Option that was vested and
exercisable on Grantee's Termination Date shall also expire and be forfeited;
provided, however, that if Grantee (i) dies or becomes subject to any
Disability, the part of the Option that is vested and exercisable shall expire
180 days from the date of death or Disability, but in no event after the
Expiration Date, (ii) retires (with the approval of the Committee), the part of
the Option that is vested and exercisable shall expire 90 days from the date of
retirement, and (iii) is discharged other than for Cause, the part of the Option
that is vested and exercisable shall expire 30 days from the date of discharge,
but in no event after the Expiration Date. In the event of the death of Grantee,
Options that are not vested and exercisable on the date of death shall terminate
and Options that are vested as of the date of death may be exercised by only the
executor or administrator of Grantee's estate or the person or persons to whom
Grantee's rights under the Options pass by will or by the laws of descent and
distribution. In the event that Grantee (or Grantee's executor, administrator or
permitted successor as described in the immediately preceding sentence)
exercises any vested Option following Grantee's Termination Date, the repurchase
right of the Company and Sleep Investor L.L.C. set forth in Section 8 of the
Employment Agreement shall be extended for a period of sixty (60) days.
6. Right to Repurchase Option Shares Upon Termination of
Employment. In the event Grantee's employment with the Company is terminated for
any reason (including death or Disability), the Option Shares actually issued
(whether held by Grantee or one or more Permitted Transferees and including any
Option Shares acquired subsequent to such termination of employment) will be
subject to repurchase by the Company pursuant to the terms and conditions of
Section 8 of Grantee's Employment Agreement and shall be deemed "Vested
Interests" for all purposes thereunder (including, without limitation, Section
8(f) of the Employment Agreement).
7. Restrictions on Transfer of Option. This Option may
not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed
of by Grantee, except by will or by the laws of descent and distribution and is
exercisable during Grantee's lifetime only by Grantee (or, if Grantee is
incapacitated, by Grantee's legal guardian or legal representative). If Grantee
or anyone claiming under or through Grantee attempts to violate this Paragraph
7, such attempted violation shall be null, void, and without effect, and the
Company's obligation hereunder shall terminate.
8. Restrictions on Transfer of Option Shares. Except as
provided in the Securityholders Agreement and subject to Section 16 hereof, the
Grantee may not sell, pledge, or otherwise transfer any interest in any Option
Shares.
9. Administration. Any action taken or decision made by
the Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction,
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administration, interpretation or effect of this Agreement shall lie within its
sole and absolute discretion, as the case may be, and shall be final,
conclusive, and binding on Grantee and all persons claiming under or through
Grantee. By accepting this grant, Grantee and each person claiming under or
through Grantee shall be conclusively deemed to have indicated acceptance and
ratification of, and consent to, any action taken by the Company, the Board, or
the Committee or its delegates with respect to this Agreement.
10. Rights as Securityholder. Unless and until a
certificate or certificates representing the Option Shares shall have been
issued to Grantee, Grantee shall not be a securityholder or have any of the
rights or privileges of a securityholder of the Company with respect to units of
Common Interests acquired upon exercise of the Option. Once a certificate or
certificates representing the Option Shares have been issued to Grantee, the
securities underlying such certificate or certificates shall be (i) "Executive
Interests" for all purposes of the Securityholders Agreement and (ii) "Executive
Securities" for all purposes of Grantee's Employment Agreement, and with respect
to such securities, Grantee shall have all of the rights and obligations
thereunder.
11. Investment Representation. Grantee hereby
acknowledges that the Option Shares that Grantee may acquire by exercising the
Option shall be acquired for investment without a view to distribution, within
the meaning of the Securities Act, and shall not be sold, transferred, assigned,
pledged, or hypothecated in the absence of an effective registration statement
for the Option Shares under the Securities Act and applicable state securities
laws or an applicable exemption from the registration requirements of the Act
and any applicable state securities laws. Grantee also agrees that the Option
Shares that Grantee may acquire by exercising the Option will not be sold or
otherwise disposed of in any manner that would constitute a violation of any
applicable federal or state securities laws.
12. Listing, Registration, and Legal Compliance. If at
any time the Committee, in its discretion, determines that the listing,
registration, or qualification of the Option Shares upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent, or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of Options or the
purchase or issuance of Option Shares thereunder, no Options may be granted or
exercised, in whole or in part, unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Grantee agrees to supply the
Company with such certificates, representations, and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent, or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may impose, at any time, any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without Grantee's consent,
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so reduce such period on not less than 15 days' written notice to the holders
thereof.
13. Adjustments. In the event of a reorganization,
recapitalization, unit dividend, unit split, or such other combination or other
change in the units of Class A Common, the Board or the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options, and
as such Board or Committee determines in good faith to be appropriate, adjust
(1) the number and type of units as to which options may be granted under the
Plan, (2) the number and type of units covered by outstanding Options, (3) the
exercise price specified herein, and (4) other provisions of this Agreement
specifying a number or percentage of units.
14. Rights of Grantee. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate Grantee's employment at any time (with or without Cause), or to confer
upon Grantee any right to continue in the employ of the Company or any
Subsidiary for any period of time, or to continue to receive Grantee's current
(or other) rate of compensation.
15. Amendment of Outstanding Options. The Committee may
amend or modify any Option; provided, however, that except as expressly
contemplated elsewhere herein, no amendment or modification shall impair the
rights of Grantee without the consent of Grantee unless the holders of 80% of
all Options (based upon the number of Option Shares to be obtained upon
exercise) granted by the Company pursuant to the Option Agreements consent to
such amendment in writing and such amendment affects all Grantees under the
Option Agreements similarly. No amendment or modification to this Option
Agreement shall be valid without the prior written consent of Sleep Investor
L.L.C.
16. Restricted Securities. All Class A Common issued
pursuant to the terms of this Agreement shall constitute "restricted
securities," as that term is defined in Rule 144 promulgated by the Securities
and Exchange Commission pursuant to the Securities Act, and may not be
transferred except in compliance with the registration requirements of the
Securities Act or an exemption therefrom. In connection with any such transfer,
the Company may require the transferor to provide a written opinion of counsel
to the effect that such transfer complies with the Securities Act and other
applicable securities laws. If the units are certificated, certificates
representing the Option Shares shall bear the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE
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ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN
REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN OPTION GRANT MADE BY THE COMPANY, A COPY OF WHICH MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE."
In addition, Grantee agrees by acceptance of the Option not to
effect any public sale or distribution of any equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180 days after the
effectiveness of any underwritten registration, except as part of such
underwritten registration if otherwise permitted.
17. Notices. Any notice hereunder to the Company shall be
addressed to the attention of the president of the Company, and any notice
hereunder to Grantee shall be addressed to Grantee at Grantee's last address on
the records of the Company, subject to the right of the Company or Grantee to
designate at any time hereafter in writing some other address. Any notice shall
be deemed to have been duly given when delivered personally, one day following
dispatch if sent by reputable overnight courier, fees prepaid, or three days
following mailing if sent by registered mail, return receipt requested, postage
prepaid and addressed as set forth above.
18. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of any successors to the Company and all persons
lawfully claiming under Grantee.
19. 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.
* * * * *
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IN WITNESS WHEREOF, the Company and Grantee have executed this
Option Agreement as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
Name:
Title:
GRANTEE
Employee's Signature
Name of Employee (Print)
Accepted and agreed
solely for purposes
of Section 15 hereof
SLEEP INVESTOR L.L.C.
By:__________________________
Name:
Title: