EMPLOYMENT AGREEMENT
AGREEMENT, dated as of August 15, 1999 (the "Effective Date"),
by and between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ (the "Executive") and ▇▇▇▇▇▇▇▇ Convertibles,
Inc., a Delaware corporation (the "Company").
WHEREAS, the Executive is currently serving as Chairman of the
Board of Directors of the Company (the "Board") and as Chief Executive Officer;
WHEREAS, the Board desires that the Company continue to employ
the Executive and the Executive desires to continue to furnish services to the
Company on the terms and conditions hereinafter set forth; and
WHEREAS, the parties desire to enter into this agreement
setting forth the terms and conditions of the continuing employment relationship
of the Executive with the Company;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements set forth below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to
employ Executive, and Executive hereby accepts such continuing employment, on
the terms and conditions hereinafter set forth.
2. EMPLOYMENT PERIOD. The term of the Agreement shall
commence on the Effective Date and terminate on the fifth anniversary of the
Effective Date; PROVIDED, HOWEVER, that on the third anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, the
term of the Agreement shall automatically be extended for one additional year,
unless, not later than six (6) months prior to such anniversary, the Company or
the Executive shall have given notice not to extend the term of the Agreement
(the term of this Agreement, together with any extensions thereon, the
"Employment Period"). The Employment Period shall end on the earlier to occur of
(i) the date on which the Employment Period expires following a notice by the
Company or the Executive not to extend the Employment Period and (ii) the
Executive's Date of Termination, as defined in Section 7(b) hereof.
3. POSITION AND DUTIES.
a. During the Employment Period, Executive shall serve as
the Chairman of the Board and Chief Executive Officer of the Company. The
Executive shall report directly to the Board and shall have those powers and
duties consistent with his positions and such other powers and duties as may be
prescribed by the Board, provided that such other powers and duties are
consistent with Executive's positions set forth herein.
b. Executive agrees to devote substantially his full
working time, attention and energies to the performance of his duties for the
Company. It shall not, however, be a violation of this Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) give speeches and make media appearances to discuss matters of public
interest and (iii) manage his personal investments, so long as the foregoing
activities do not interfere substantially with the performance of the
Executive's responsibilities in accordance with this Agreement.
4. PLACE OF PERFORMANCE. The principal place of performance
of the Executive's duties shall be at the Company's corporate offices in Long
Island, New York, subject to reasonable travel requirements on behalf of the
Company.
5. COMPENSATION AND RELATED MATTERS.
a. BASE SALARY. As compensation for the performance by
Executive of his obligations hereunder, during the Employment Period, the
Company shall pay Executive a base salary at a rate not less than $400,000 per
year (the base salary in effect from time to time, the "Base Salary"). On the
first business day following the end of the Exclusionary Period (as defined in
Section 5(d), below) and on each anniversary of the Effective Date thereafter
during the Employment Period, the Base Salary shall be increased at a rate equal
to the increase in the cost of living as determined by the Bureau of Labor
Statistics in its Consumer Price Index reports; PROVIDED, HOWEVER, that (i) on
the date of the first such increase (I.E., the first business day following the
end of the Exclusionary Period), the Base Salary shall be increased at a rate
equal to the cumulative increases in the cost of living during the Exclusionary
Period, as determined by the Bureau of Labor Statistics in its Consumer Price
Index reports and (ii) on the anniversary of the Effective Date that first
occurs following the end of the Exclusionary Period, the increase in the
Executive's Base Salary shall be in respect of the increase in the cost of
living between the end of the Exclusionary Period and such anniversary, as
determined by the Bureau of Labor Statistics in its Consumer Price Index
reports. Once increased, the Base Salary shall not be decreased.
b. ANNUAL BONUS. As compensation for services rendered
during the Employment Period, Executive shall be entitled to the following
annual cash incentive awards (collectively, the "Annual Bonus"); PROVIDED,
2
HOWEVER, that (x) the requirement that the Company pay an Annual Bonus in
accordance with this Section 5(b) shall not limit the Company's discretionary
ability to make additional bonus payments from time to time during the
Employment Period and (y) in no event shall the portion of the Annual Bonus
otherwise earned pursuant to Section 5(b)(i) below be paid unless the Company
has positive cash flow in accordance with generally accepted accounting
principles, adjusted for borrowing either for the growth of the Company or for
settlement expenditures related to current derivative litigation:
i. a lump sum cash payment, payable on or around
January 10 following the end of each fiscal year during the Employment
Period, equal to 2.5% of EBITDA (defined to mean net income before
interest, taxes, depreciation and amortization expense, as determined
(A) by the Company's auditors in accordance with generally accepted
accounting principles and (B) prior to payment of the Annual Bonus) in
respect of such fiscal year; and
ii. a lump sum cash payment, payable on or around
January 10 following the end of each fiscal year during the Employment
Period, equal to the product of (A) the excess, if any, of (1) the
aggregate revenues in respect of such fiscal year of (a) the Company,
(b) any partnership in which the Company is the general partner, (c)
any licensee of the Company and (d) ▇▇▇▇ Enterprises (the "Private
Company"), over (2) $142 million (such amount being the aggregate
revenues of the entities listed in clause (a) through (d), above, for
the fiscal year ended August 29, 1998), and (B) 0.001. For purposes of
clarification, the amount payable in accordance with this clause (ii)
shall equal $1,000 for each $1,000,000 in revenue of the entities
listed herein in excess of $142,000,000.
c. COMPENSATION PLANS; STOCK OPTIONS. During the
Employment Period, Executive shall be eligible to participate in all
compensation plans and programs, including, but not limited to, equity based
award plans and incentive programs made available generally to employees or to
senior executives of the Company; PROVIDED, HOWEVER, that for the period (the
"Exclusionary Period") commencing on the Effective Date and ending on the third
anniversary of the effective date of the settlement of the "Derivative Actions"
(as that term is defined in the Memorandum of Understanding by and among the
parties to the derivative actions pending in the United States District Court
for the Eastern District of New York, bearing case numbers 94-5694, 95-0080 and
95-3162), in no event shall Executive be granted options to acquire the common
stock, par value $0.01 per share, of the Company ("Options"). During the
remainder of the Employment Period following the Exclusionary Period, Executive
shall be eligible to receive Options at such times and in such amounts as may be
determined from time to time by the Option Committee of the Board.
3
d. RETIREMENT AND WELFARE BENEFITS. During the Employment
Period, Executive shall participate in all defined contribution and defined
benefit retirement plans, and employee welfare benefit plans and programs
(including medical, hospitalization, dental, accident and disability insurance)
that were in effect for the benefit of the Executive immediately prior to the
Effective Date or that may be in effect during the Employment Period; PROVIDED,
HOWEVER, that this Section 5(d) shall not prevent the Company from administering
such plans and programs in accordance with their terms. Notwithstanding the
foregoing, the Company shall provide, at its sole expense, a split-dollar life
insurance policy for the benefit of the Executive with a face amount equal to $6
million.
e. EXPENSES. The Company shall reimburse Executive for
all reasonable business expenses incurred by the Executive; PROVIDED, HOWEVER,
that the Executive shall be required to provide itemized statements only to the
extent such expenses exceed $15,000 in any given year.
f. VACATION. The Executive shall be entitled to at least
three (3) weeks paid vacation per year (with a maximum of three (3) weeks unused
vacation carrying forward in any given year), in accordance with the Company's
vacation policy applicable to senior executives.
g. FRINGE BENEFITS AND PERQUISITES. During the Employment
Period, the Company shall provide to the Executive all the fringe benefits and
perquisites that were in effect for the benefit of the Executive immediately
prior to the Effective Date (including but not limited to the use of a Company
automobile for business and personal travel and the reimbursement for all
automobile-related expenses).
6. TERMINATION. The Executive's employment hereunder may be
terminated under the following circumstances, in each case subject to the
provisions of this Agreement.
a. DEATH. The Executive's employment hereunder shall
terminate upon his death.
b. DISABILITY. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties hereunder on a full-time basis (i) for a period of six
consecutive months or (ii) for shorter periods aggregating six months during any
twelve month period, and, in either case, within thirty (30) days after written
Notice of Termination (as described in Section 7(a) hereof) is given the
4
Executive shall not have returned to the performance of his duties hereunder on
a full-time basis, the Company may terminate the Executive's employment
hereunder for "Disability."
c. CAUSE. The Company may terminate the Executive's
employment hereunder for Cause. "Cause" for termination by the Company of the
Executive's employment hereunder shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's duties with
the Company (other than any such failure resulting from the Executive's
Disability or anticipated failure after the issuance of a Notice of Termination
for Good Reason by the Executive pursuant to Section 6(d) hereof) after a
written demand for substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties or (ii) the Executive's conviction for the commission of a felony. For
purposes of clause (i) of this definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the Company and
(y) in the event of a dispute concerning the application of this provision, no
claim by the Company that Cause exists shall be given effect unless the Board
establishes, by clear and convincing evidence, that Cause exists.
d. GOOD REASON. The Executive may terminate his
employment hereunder for "Good Reason" in the event of a material breach by the
Company of its obligations under this Agreement, which breach has not been cured
within ten (10) days after written notice thereof has been given by Executive to
the Company specifying the acts or omissions of the Company alleged to give rise
to "Good Reason".
e. OTHER TERMINATIONS. The Company may terminate the
Executive's employment hereunder (other than for Cause or Disability), and the
Executive may terminate his employment (other than for Good Reason) in each case
subject to the provisions of this Agreement.
7. TERMINATION PROCEDURE.
a. NOTICE OF TERMINATION. Any termination of the
Executive's employment by the Company or by the Executive (other than
termination pursuant to Section 6(a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 11.
5
b. DATE OF TERMINATION. "Date of Termination" shall mean
(i) if the Executive's employment is terminated by his death, the date of his
death, (ii) if the Executive's employment is terminated pursuant to Section
6(b), thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period), (iii) if the Executive's
employment is terminated pursuant to Section 6(c), the Date of Termination shall
be the date set forth in the Notice of Termination (provided that, if the
Executive's employment is terminated pursuant to Section 6(c)(i), the Date of
Termination shall not be earlier than thirty (30) days after delivery of the
Notice of Termination) and (iv) if the Executive's employment is terminated for
any other reason, the date on which a Notice of Termination is given or any
later date (within 30 days) set forth in such Notice of Termination; PROVIDED,
HOWEVER, in each case, that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or by a binding and final arbitration
award in accordance with Section 18 hereof.
8. COMPENSATION UPON TERMINATION.
a. DEATH OR DISABILITY. If the Executive's employment is
terminated by reason of his death or Disability, the Company shall pay to the
Executive (or his legal representatives or estate or as may be directed by the
legal representatives of his estate, as the case may be) the following:
i. a lump sum cash payment, within five (5) days
following the Date of Termination, equal to any earned but unpaid Base
Salary or Annual Bonus due to the Executive (the "Accrued Amounts");
ii. salary continuation (equal to the Base Salary
in effect on the Date of Termination) for the 12-month period following
the Date of Termination;
iii. a lump sum cash payment, as soon as
practicable following the end of the fiscal year in which the Date of
Termination occurs (but in no event later than January 10 following the
end of such fiscal year), equal to a pro rata portion (through the Date
of Termination) of the Annual Bonus, calculated in respect of the
fiscal year in which the Date of Termination occurs, based upon the
Company's actual performance during such fiscal year (the "Pro Rata
Bonus"); and
6
iv. any other death or disability benefits
generally available in accordance with the terms and conditions of the
various death or disability plans or programs in which the Executive
was participating as of the Date of Termination.
b. TERMINATION BY COMPANY OTHER THAN FOR DISABILITY OR
CAUSE OR BY EXECUTIVE FOR GOOD REASON. If the Executive's employment is
terminated by the Company other than for Disability or Cause or by the Executive
for Good Reason, the Company shall pay or provide to the Executive the
following:
i. a lump sum cash payment, within five (5) days
following the Date of Termination, equal to the Accrued Amounts;
ii. a lump sum cash payment, as soon as
practicable following the end of the fiscal year in which the Date of
Termination occurs (but in no event later than January 10 following the
end of such fiscal year), equal to the Pro Rata Bonus;
iii. a lump sum cash payment, within five (5) days
following the Date of Termination, equal to three (3) times the sum of
the Executive's Base Salary and the highest Annual Bonus earned by the
Executive during the Employment Period (or, if no Annual Bonus shall
have been earned by the Executive as of the Date of Termination, (A) a
lump sum cash payment, within five (5) days following the Date of
Termination, equal to three (3) times the Executive's Base Salary and
(B) a lump sum cash payment, as soon as practicable following the end
of the fiscal year in which the Date of Termination occurs (but in no
event later than January 10 following the end of such fiscal year),
equal to three (3) times the Annual Bonus that would have been payable
to the Executive for the fiscal year in which the Date of Termination
occurs, based upon the Company's actual performance during such fiscal
year);
iv. for three (3) years following the Date of
Termination, continuing coverage under all employee welfare benefit
plans and programs in which the Executive was entitled to participate
immediately prior to the Date of Termination (provided that the
Executive's continued participation is possible under the general terms
and provisions of such plans and programs); PROVIDED, HOWEVER, that in
the event that the Executive's participation in any such plan or
program is barred, the Company shall arrange to provide the Executive
7
and his dependents with benefits substantially similar to those which
the Executive and his dependents would otherwise have been entitled to
receive under such plans and programs; and
v. for three (3) years following the Date of
Termination, the various fringe benefits and perquisites described in
Section 5(g) hereof.
c. CAUSE OR BY EXECUTIVE OTHER THAN FOR GOOD REASON. If
the Executive's employment shall be terminated by the Company for Cause or by
the Executive (other than for Good Reason), then the Company shall pay the
Executive, within five (5) days following such Date of Termination, in a lump
sum cash payment, the Accrued Amounts.
9. MITIGATION. The Executive shall not be required to
mitigate amounts payable pursuant to this Agreement by seeking other employment
or otherwise, nor shall such payments be reduced on account of any remuneration
earned by the Executive attributable to employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
10. SUCCESSORS; BINDING AGREEMENT.
a. SUCCESSORS. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of its businesses and/or assets to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, the "Company" shall mean the Company as
hereinbefore defined and any successor to the business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
10 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
b. EXECUTIVE'S SUCCESSORS. This Agreement shall not be
assignable by the Executive. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
8
designee or, if there be no such designee, to the Executive's estate.
11. NOTICE. For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇. ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
If to the Company:
▇▇▇▇▇▇▇▇ Convertibles, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇ ▇▇▇▇▇▇▇, Executive Vice President
with a copy to:
Squadron Ellenoff ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and an authorized officer of the
Company. No waiver by any party hereto at any time of any breach by the other
parties hereto of, or compliance with, any condition or provision of this
9
Agreement to be performed by any such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York without
regard to its conflicts of law principles. Any termination of the Executive's
employment or of this Agreement shall have no effect on any continuing
obligations arising under this agreement, including without limitation, the
right of the Executive to receive payments and/or benefits pursuant to Section 8
hereof and the obligations described in Sections 15 and 16 hereof.
13. VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
14. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
15. INDEMNIFICATION. To the fullest extent permitted by law,
the Company shall indemnify the Executive (including the advancement of
expenses) for any judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred by the Executive in connection
with the defense of any lawsuit or other claim to which he is made a party by
reason of being an officer, director or employee of the Company or any of its
subsidiaries. During the Employment Period and for at least three (3) years
thereafter, the Company shall make every reasonable effort to maintain customary
director and officer liability insurance covering the Executive for acts and
omissions prior to and during the Employment Period.
16. CONFIDENTIALITY; NON-COMPETITION, ETC.
a. CONFIDENTIAL INFORMATION. The Executive shall hold
in a fiduciary capacity for the benefit of the Company all trade secrets,
confidential information, and knowledge or data relating to the Company and its
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company and its subsidiaries and which shall not
have been or hereafter become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
The Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such trade secrets, information, knowledge or data to anyone other than the
Company and those designated by the Company. Any termination of the Executive's
10
employment or of this Agreement shall have no effect on the continuing operation
of this Section 13(a). Executive agrees to return all confidential information,
including all photocopies and summaries thereof, and any such information stored
electronically on tapes, computer disks or in any other manner to the Company at
any time upon request by the Company and upon the termination of his employment
hereunder for any reason.
b. NON-COMPETITION. During the Employment Period and,
in the event of a termination by the Company for Cause or by the Executive other
than for Good Reason, for the one-year period commencing upon the Date of
Termination (such periods, collectively, the "Non-Competition Period"), the
Executive shall not engage in Competition, as defined below; PROVIDED, HOWEVER,
that it shall not be a violation of this Section 16(b) for the Executive to
become the registered or beneficial owner of up to two percent (2%) of any class
of the capital stock of a competing corporation registered under the Securities
Exchange Act of 1934, as amended, provided that the Executive does not actively
participate in the business of such corporation until such time as this covenant
expires. For purposes of this Agreement, "Competition" by the Executive shall
mean the Executive's engaging in, or otherwise directly or indirectly being
employed by or acting as a consultant or lender to, or being a director,
officer, employee, principal, agent, stockholder, member, owner or partner of,
or permitting his name to be used in connection with the activities of any other
business or organization that competes, directly or indirectly, in the sofabed
and/or leather specialty retailing business within the geographical areas in
which the Company conducts its business as of the Date of Termination.
c. NON-DISPARAGEMENT. The Executive agrees that, during
the Non-Competition Period, he will not make or publish any statement which is,
or may reasonably be considered to be, disparaging of the Company, its
subsidiaries or affiliates, or directors, officers, employees or the operations,
products or services of the Company or any of its subsidiaries or affiliates,
except in connection with the performance of his services hereunder to the
extent the Executive makes the statement to employees of the Company or its
affiliates in good faith furtherance of the Company's business.
d. REMEDIES. In the event of a breach or threatened
breach of this Section 16, the Executive agrees that the Company shall be
entitled to apply for injunctive relief in a court of appropriate jurisdiction
to remedy any such breach or threatened breach, the Executive acknowledging that
damages would be inadequate and insufficient.
17. LEGAL FEES. The Company shall pay to the Executive all
legal fees and expenses incurred by the Executive in connection with the
negotiation and execution of this Agreement and in disputing in good faith any
issue hereunder relating to the termination of the Executive's employment or in
11
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
18. ARBITRATION. Except as otherwise provided herein, all
controversies, claims or disputes arising out of or related to this Agreement
shall be settled in New York City, New York, under the rules of the American
Arbitration Association then in effect, and judgment upon such award rendered by
the arbitrator(s) may be entered in any court of competent jurisdiction. All
costs of the arbitration shall be borne by the Company.
19. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect to the subject matter contained herein.
20. WITHHOLDINGS. All payments to the Executive under this
Agreement shall be reduced by all applicable withholding required by federal,
state or local law.
12
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
▇▇▇▇▇▇▇▇ CONVERTIBLES, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Its: Chief Executive Officer and
Chairman of the Board
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
13