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EMPLOYMENT AGREEMENT
This
EMPLOYMENT AGREEMENT
(the “
Agreement
”) is made as of the 10th day of November, 2006, among
SIMMONS BEDDING COMPANY
,
a Delaware corporation (the “
Company
”)
,
SIMMONS COMPANY,
a Delaware corporation (“
Holdings
”), and
GARY S. MATTHEWS
,
an individual resident of the State of Connecticut (the
“
Executive
”).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS,
the Company and Holdings desire that the Executive accept
employment as President of the Company as of the Effective Date;
and
WHEREAS,
the Company, Holdings and the Executive each desire to enter into
this Agreement and set forth in writing the terms and conditions of
the Executive’s employment with the Company;
NOW, THEREFORE,
in consideration of the premises and the mutual covenants and
agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1.
EMPLOYMENT
.
1.1.
Agreement
. The Company hereby agrees to employ the Executive as of the
Effective Date as its President, and the Executive hereby agrees to
serve the Company in such capacity, in each case subject to the
terms and conditions set forth herein.
1.2.
Term
.
The period of the Executive’s employment under this Agreement
shall commence on the first actual working day of employment of the
Executive
(the “
Effective Date
”)
, and shall continue thereafter for a continuously (on a daily
basis) renewing eighteen (18) month term, without any further
action by either the Company or the Executive, unless either the
Executive or the Company shall provide written notice to the other
parties hereto not to renew such term, specifying in such notice
the date of such non-renewal, in which case this Agreement shall
expire on the date that is eighteen (18) months after the date
specified in such non-renewal notice. Notwithstanding the
foregoing, this Agreement may be earlier terminated by the Company
or the Executive in accordance with the terms of Section 6
below.
The date on which termination or expiration of this Agreement is
effective pursuant to the provisions of this Section 1.2 or of
Section 6 shall be referred to herein as the “
Termination Date
”. For all purposes of this Agreement, references to the
“
Term
” of the Executive’s employment hereunder shall mean
the period commencing on the Effective Date and ending on the
Termination Date.
SECTION 2.
POSITION AND DUTIES
.
The Executive shall serve as President of the Company.
Executive’s duties and responsibilities as the President of
the Company shall include the day-to-day management and operation
of the business, as well as those duties customarily associated
with an officer with a similar title, and Executive shall be
accountable to, and shall have such additional powers, duties and
responsibilities as may from time to time be prescribed by, the
Chairman of the Board of Directors of the Company (the
“
Company Board
”) and Chief Executive Officer, the Company Board or the
Board of Directors of Holdings (the “
Holdings Board
”).
The Executive shall perform and discharge, faithfully, diligently,
competently and in good faith, such duties and responsibilities.
The Executive (a) shall devote all of his business time and
attention and his best efforts and ability to the business and
affairs of the Company and its Subsidiaries and (b) shall not
engage in other business activities whether or not compensated
during the Term without the prior written consent of the Holdings
Board (provided, however, that Executive may serve on the Board of
Directors of up to two (2) for profit enterprises which are not
engaged in a Competitive Business (currently, Molson Coors Brewing
Co. and Van Wagner, Inc.), and may devote a reasonable amount of
time and attention to the management of his personal affairs and
investments or serving as a director or officer of any charitable,
religious, civic, educational or trade organizations, so long as
such activities, individually or in the aggregate, do not interfere
with the performance of the Executive’s duties and
responsibilities under this Agreement). The services of the
Executive shall be based at the offices of the Company in the
Metropolitan Area;
provided
,
however
, that the Executive acknowledges that substantial travel will be
required because the Company conducts operations and maintains
facilities throughout the United States and elsewhere around the
world.
SECTION 3.
COMPENSATION
.
Subject to all of the terms and conditions hereof and to the
performance by the Executive of his duties and obligations to the
Company:
3.1.
Salary
. As compensation for services performed during the Term, the
Company shall pay the Executive a salary at a rate of $575,000 per
annum or such other amount as may from time to time be established
by the Holdings Board (such annual rate of salary in effect from
time to time referred to as the “
Salary
”),
payable at regular intervals in accordance with the Company’s
normal payroll practices now or hereafter in effect
. The Executive shall have an annual review and the Salary may be
increased, but not decreased, from time to time. Any and all
increases in the Executive’s Salary pursuant to this Section
3.1 shall cause the level of the Executive’s Salary hereunder
to be increased by the amount of each such increase for all
purposes of this Agreement, and the increased level of Salary as
provided in this Section 3.1 shall become the level of the
Executive’s Salary for the remainder of the Term unless and
until there is a further increase in Salary as provided herein.
Except as otherwise provided in this Agreement, the Salary shall be
prorated for any period of less than a full fiscal
year.
3.2.
Annual Bonus
. As additional compensation for services hereunder, the Executive
shall be eligible for a bonus for each Bonus Year. The amount of
any such bonus shall be determined based upon the achievement of
specified levels of operating performance by the Company for such
Bonus Year measured by the business plan approved by the Board for
such fiscal year (the “
EBITDA
Performance
”). The target bonus payable for any Bonus Year with respect
to the EBITDA Performance shall equal 70% of the Salary. The actual
bonus payable for any Bonus Year with respect to the EBITDA
Performance shall be computed as set forth on
Exhibit A
attached hereto and incorporated herein by this reference;
provided, however, that the actual bonus payable, if any, in for
the fiscal year of termination shall be determined in accordance
with the provisions in Section 7. Any bonus payable under this
Section 3.2 is referred to herein as an “
Annual Bonus
”. For the purpose of calculating Executive’s Annual
Bonus for each fiscal year pursuant to this Section 3.2, the target
bonus payable with respect to such fiscal year shall equal 70% of
Executive’s actual salary earned by the Executive from the
Company for such year (excluding any special bonuses paid pursuant
to Section 3.4 below).
3.3.
Restricted Stock Agreement; Stock Options, Class A
Stock
. (a) If the Executive makes the investment described in Section
3.3(b) below, the Executive shall be included as a participant in
the Simmons Company Equity Incentive Plan, as amended from time to
time (the “
Plan
”), pursuant to which Holdings will issue Executive on the
Effective Date (i) 40,000 shares of the Class B Common Stock of
Holdings (“
Class B Shares
”), subject to vesting and terms and conditions as provided
in the restricted stock agreement between Holdings and the
Executive dated as of the Effective Date (the “Restricted
Stock Agreement”) and (ii) options to purchase 30,000 shares
of the Class B Common Stock of Holdings (“
Stock Options
”), subject to vesting and terms and conditions as provided
in the stock option agreement between Holdings and the Executive
dated as of the date of issuance (the “Stock Option
Agreement”). The Class B Shares will be subject to the
securityholders agreement between Holdings and Executive dated as
of the same date (“
Securityholders Agreement
”) and the registration rights agreement between Holdings and
Executive dated as of the same date (“
Registration Rights Agreement
”). Executive will pay $0.01 per Class B Share as well as the
taxes due on the difference between the then current Fair Market
Value (as defined in the Restricted Stock Agreement) as of the date
of issuance and the $0.01 per share paid. The Stock Options will
have a strike price equal to the Fair Market Value (as defined in
the Stock Option Agreement) as of the Effective Date.
(b)
The Executive will invest $250,000 of his personal funds in Class A
Common Stock of Holdings (“Class A Shares”) as of the
Effective Date. The Class A Shares will be held pursuant to the
terms of the Securityholders Agreement and the Registration Rights
Agreement. Executive will pay Fair Market Value (as defined in the
Securityholders Agreement) as of the Effective Date.
3.4
Signing Bonus
. The Company will pay Executive a one-time bonus in an amount of
$600,000 on the Effective Date.
3.5.
Business Expenses
. During the Term, the Executive shall be entitled to receive
prompt reimbursement by the Company for all reasonable business
expenses incurred by him on behalf of the Company or any of its
Subsidiaries or Affiliates in performing services hereunder;
provided
,
however
, that the Executive shall properly account therefor in accordance
with requirements for federal income tax deductibility and the
Company’s and/or Company Board’s policies and
procedures. The Company shall pay the Executive’s legal
expenses incurred in connection with the preparation, negotiation
and execution of this Agreement and the related Agreements
referenced herein, up to a maximum of $25,000.
3.6.
Fringe Benefits
. At the election of the Executive and during the Term, the
Executive shall be entitled to participate in or receive benefits
under any life insurance, health and accident plans, retirement
plans and other similar fringe benefit arrangements made generally
available by the Company to its executives and key management
employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and
arrangements. These benefits include an annual executive physical,
financial planning, an additional long term disability insurance
policy provided at no cost to Executive, and a $1.0 million term
life insurance policy, convertible to whole life, which can be
assumed by the Executive. Notwithstanding any other arrangements
that the Company may make available from time to time to its other
executives or key management employees, the Salary, the bonuses
payable under this Agreement and participation in the Plan
as provided in Section 3.3 of this Agreement shall be in lieu of
the Executive’s participation in any other bonus, equity
incentive or equity-type incentive plans established by the
Company, except that the Executive shall be entitled to participate
in any supplemental executive retirement plans, “401(k)
plans” and profit sharing plans.
3.7.
Vacations
. During the Term, the Executive shall be entitled to four (4)
weeks paid vacation in each year and shall also be entitled to all
paid holidays given by the Company to its employees. The paid
vacation days shall be prorated for any period of service hereunder
less than a full year. The Executive shall not be entitled to cash
compensation for any vacation time not taken during the Term and
shall not be entitled to accrue unused vacation.
3.8.
Transportation Stipend
. During the Term, the Executive shall be entitled to a stipend of
$1,000.00 each month to cover expenses associated with
transportation, including leasing or owning an automobile;
provided
,
however
, that the Executive shall properly account therefor on his federal
and applicable state tax returns and related documentation in
accordance with the requirements for federal income tax
deductibility and the Company’s policies and
procedures.
3.9.
Relocation and Interim Housing
. The Executive shall be entitled to participate in the
Company’s Level 1 Relocation Package, eligibility for which
shall continue for eighteen (18) months following the Effective
Date. In addition, the Company will reimburse the Executive for
interim housing and weekend travel expenses between the
Metropolitan Area and Executive’s current residence, to a
maximum amount of $5,000.00 per month, until such time as the
Executive has relocated to the Metropolitan Area;
provided
,
however
, that reimbursement is subject to the Executive submitting
documentation substantiating such expenditures. The Executive
agrees that he shall establish his primary residence in the
Metropolitan Area within eighteen (18) months of the Effective
Date. Payments pursuant to this Section 3.9 shall be net of any tax
or other amounts required to be withheld by the Company under any
applicable law or legal requirement.
SECTION 4.
OFFICES; SUBSIDIARIES AND AFFILIATES;
INDEMNIFICATION
.
4.1.
Generally
. The Executive agrees to serve during the Term, if elected or
appointed thereto, in one or more positions as an officer or
director of the Company or any of its Subsidiaries or Affiliates,
or as an officer, trustee, director or other fiduciary of any
pension or other employee benefit plan of the Company or any of its
Subsidiaries or Affiliates. Service in such additional positions
will be without additional compensation except for reimbursement of
reasonably related business expenses on the same terms as provided
elsewhere in this Agreement.
4.2.
Indemnification
. The Company agrees that in connection with the Executive’s
service in additional positions as provided under Section 4.1, the
Executive shall be entitled to the benefit of any indemnification
provisions in the charter and by-laws of the Company and any of its
Subsidiaries and Affiliates for which the Executive serves in such
an additional position and any director and officer liability
insurance coverage carried by the Company and any of its
Subsidiaries and Affiliates for which the Executive serves as an
officer or director;
provided,
however,
that this Section 4.2 shall not impose on the Company or any of its
Subsidiaries or Affiliates any obligation to include any such
indemnification provisions in its charter or by-laws or to maintain
any such insurance coverage.
SECTION 5.
RESTRICTED ACTIVITIES
.
(A)
Executive acknowledges that (1) the Company has separately
bargained and paid additional consideration for the restrictive
covenants herein; and (2) the Company will provide certain benefits
to Executive hereunder in reliance on such covenants in view of the
unique and essential nature of the services Executive will perform
on behalf of the Company and its Subsidiaries and Affiliates and
the great, immediate and irreparable injury that would befall the
Company, its Subsidiaries and Affiliates should Executive breach
such covenants.
(B)
Executive further acknowledges that his services are of a special,
unique and extraordinary character and that his position with the
Company will place him in a position of confidence and trust with
employees of the Company and its Subsidiaries and Affiliates and
with the Company’s other constituencies and will bring him
into close contact with many of the Company’s, its
Subsidiaries’ and Affiliates’ Customers, Customer
Prospects, Vendors, Trade Secrets, and Confidential
Information.
(C)
Executive further acknowledges that the type and periods of
restrictions imposed by the covenants in this Section 5 are
fair, reasonable and necessary to protect the Company’s
legitimate business interests and its Customer, Customer Prospect,
and/or Vendor relationships, Trade Secrets, and Confidential
Information and that such restrictions will not prevent Executive
from earning a livelihood.
(D)
Having acknowledged the foregoing, Executive covenants and agrees
with Company as follows:
5.1.
Duty of Confidentiality
. Executive agrees that during his employment with the Company and
for a period of five (5) years following the termination of such
employment for any reason, Executive shall not directly or
indirectly divulge or make use of any
Confidential Information
outside of his employment with the Company (so long as the
information remains confidential) without the prior written consent
of the Company. Executive shall not directly or indirectly
misappropriate, divulge, or make use of Trade Secrets for an
indefinite
period of time, so long as the information remains a Trade Secret
as defined by the DUTSA and/or any other applicable law. Executive
further agrees that if he is questioned about information subject
to this agreement by anyone not authorized to receive such
information, Executive will notify the Company’s General
Counsel within 24 hours. Executive acknowledges that applicable law
may impose longer duties of non-disclosure, especially for Trade
Secrets, and that such longer periods are not shortened by this
Agreement.
5.2.
Return of Confidential Information And Company
Property
. Executive agrees to return all Confidential Information and/or
Trade Secrets within three (3) calendar days following the
termination of his employment for any reason. To the extent
Executive maintains Confidential Information and/or Trade Secrets
in electronic form on any computers or other electronic devices
owned by him, Executive agrees to irretrievably delete all such
information and to confirm the fact of deletion in writing within
three (3) calendar days following termination of employment with
the Company for any reason. Executive also agrees to return all
property in his possession at the time of the termination of his
employment with the Company, including but not limited to all
documents, records, tapes, and other media of every kind and
description relating to the Business of the Company and its
Customers, Customer Prospects, and/or Vendors, and any copies, in
whole or in part, whether or not prepared by the Excecutive, all of
which shall remain the sole and exclusive property of the
Company.
5.3.
Proprietary Rights
. Proprietary Rights shall be promptly and fully disclosed by
Executive to the Company’s General Counsel and shall be the
exclusive property of the Company as against Executive and
Executive’s successors, heirs, devisees, legatees and
assigns. Executive hereby assigns to the Company his entire right,
title, and interest therein and shall promptly deliver to the
Company all papers, drawings, models, data, and other material
relating to any of the foregoing Proprietary Rights conceived,
made, developed, created or reduced to practice by Executive as
aforesaid. All copyrightable Proprietary Rights shall be considered
“works made for hire.” Executive shall, upon the
Company’s request and at its expense, execute any documents
necessary or advisable in the opinion of the Company’s
counsel to assign, and confirm the Company’s title in the
foregoing Proprietary Rights and to direct issuance of patents or
copyrights to the Company with respect to such Proprietary Rights
as are the Company’s exclusive property as against Executive
and Executive’s successors, heirs, devisees, legatees and
assigns under this
Section 5.3
. or to vest in the Company title to such Proprietary Rights as
against Executive and Executive’s successors, heirs,
devisees, legatees and assigns, the expense of securing any such
patent or copyright, however, to be borne by the
Company.
5.4.
Non-Competition
. Executive covenants and agrees that, during the term of his
employment with the Company and for eighteen (18) months after the
termination thereof, regardless of the reason for the employment
termination, Executive will not, directly or indirectly, anywhere
in the Continental United States or Canada, on behalf of any
Competitive Business serve in a senior executive or similar
capacity, whether as owner, partner, investor, consultant, agent,
employee or co-venturer, or undertake any planning for any
Competitive Business.
5.5.
Non-Solicitation of Customers, Customer Prospects, and
Vendors
. Executive also covenants and agrees that during the term of his
employment with the Company and for eighteen (18) months after the
termination thereof, regardless of the reason for the employment
termination, Executive will not, directly or indirectly, solicit or
attempt to solicit any business from any of the Company’s
Customers, Customer Prospects, and/or Vendors with whom he had
business related contact during the last two (2) years of his
employment with the Company.
5.6.
Non-Solicitation of Employees
. Executive also covenants and agrees that during the term of his
employment with the Company and for eighteen (18) months after the
termination thereof, regardless of the reason for the employment
termination, Executive will not, directly or indirectly, on his own
behalf or on behalf of or in conjunction with any person or legal
entity, recruit, solicit, or induce, or attempt to recruit,
solicit, or induce, any non-clerical employee of the Company with
whom Executive had personal contact or supervised while performing
his Job Duties, to terminate their employment relationship with the
Company.
5.7.
No Disparagement
. (a) Executive will not make any negative, disparaging or
defamatory statement, comment, or remark, directly or indirectly,
either in writing or any other medium, regarding the Company,
Thomas H. Lee Partners, or any of their respective officers,
directors, employees, affiliates, subsidiaries, successors and
assigns, compelled truthful testimony under oath being expressly
excepted from this Section 5.7 and permitted.
(b) Following the termination of the Executive’s employment
for any reason, none of the Company, Holdings or the executive
leadership team and General Counsel of the Company or Holdings will
make any negative, disparaging or defamatory statement, comment, or
remark, directly or indirectly, either in writing or any other
medium, about the Executive externally, compelled truthful
testimony under oath being expressly excepted from this Section 5.7
and permitted.
5.8.
False Claims Representations, Cooperation and
Promises
. Executive also agrees to disclose to the Company any information
he learns concerning any conduct involving the Company that he has
any reason to believe may be unlawful. Executive promises to
cooperate fully with the Company during and after his employment
with the Company in any investigation the Company undertakes into
matters occurring during his employment with Company. Executive
agrees that, as and when requested by the Company whether during or
after his employment with the Company, he will fully cooperate with
Company in effecting a smooth transition of his responsibilities to
others. If requested by the Company, Executive will promptly and
fully respond to all inquiries from the Company and its
representatives relating to any claims or lawsuits which relate to
matters which occurred during his employment with the Company. If
Executive is contacted as a potential witness to any claim or in
any litigation at any time, he will notify Company of any such
contact or request as promptly as practicable (but in no event more
than five (5) business days) after learning of it and will permit
the Company to take all steps it deems to be appropriate, if any,
to prevent his involvement, or to be present during any such
discussions. This Section does not prohibit Executive’s
participation as a witness to the extent otherwise legally required
but does require that Executive provide Company with notice and the
opportunity to object and/or participate.
5.9.
Outside Activities
. The Executive agrees that, during his employment with the
Company, he will not undertake any outside activity (except as
explicitly allowed pursuant to Section 2), whether or not
competitive with the business of the Company or any of its
Subsidiaries or Affiliates, that could reasonably give rise to a
conflict of interest with his duties and obligations to the Company
or any of its Subsidiaries or Affiliates.
5.10.
Ownership of Securities
. Notwithstanding the provisions set forth herein, the Executive
shall have the right to (a) invest in or acquire any class of
securities issued by any Person not engaged in a Competitive
Business, or (b) acquire as a passive investor (with no involvement
in the operations or management of the business) up to 1% of any
class of securities which is (i) issued by any Person engaged in a
Competitive Business, and (ii) publicly traded on a national
securities exchange or over-the-counter market.
SECTION 6.
TERMINATION
.
Subject to the respective continuing obligations of the parties
hereto, including those set forth in Section 5, the
Executive’s employment by the Company hereunder may be
terminated prior to the expiration of the Term as
follows:
6.1.
Death
. The Executive’s employment hereunder shall terminate upon
his death.
6.2.
Incapacity
. If the Executive shall have been unable to perform his duties
hereunder by reason of any physical or mental illness, injury or
other incapacity (a) for any period of sixty (60) consecutive days
or (b) for a total of one hundred twenty (120) days in any period
of twelve (12) consecutive calendar months, in the reasonable
judgment of the Holdings Board, after consultation with such
experts, if any, as the Holdings Board may deem necessary or
advisable, the Company may terminate the Executive’s
employment hereunder by written notice to the
Executive.
6.3.
Cause
. The Company may terminate the Executive’s employment
hereunder for Cause at any time upon written notice to the
Executive. For purposes of this Agreement, the Company shall have
“
Cause
” to terminate the Executive’s employment hereunder
upon: (a) the Executive’s breach of any of his material
obligations set forth in this Agreement, which breach, if capable
of being cured, is not cured within fifteen (15) days after receipt
by the Executive of written notice from the Holdings Board of such
breach; (b) the Executive’s breach of his fiduciary duties
involving a matter of material consequence as an officer or
director of the Company or any of its Subsidiaries or Affiliates,
or as an officer, trustee, director or other fiduciary of any
pension or employee benefit plan of the Company or any of its
Subsidiaries or Affiliates, which breach, if capable of being
cured, is not cured within fifteen (15) days after receipt by the
Executive of written notice from the Holdings Board of such breach;
or (c) the Executive’s commission of a felony involving
fraud, personal dishonesty or moral turpitude (whether or not in
connection with his employment).
6.4.
Other than for Cause
. The Company may terminate the Executive’s employment
hereunder other than for Cause at any time upon written notice to
the Executive.
6.5.
Good Reason
. The
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