Exhibit 10.11
SECOND AMENDED AND
RESTATED
EMPLOYMENT
AGREEMENT
This Second
Amended and Restated Employment Agreement (this “
Agreement ”) is entered into on September 6. 2005
to be effective as of the Closing Date (the “ Effective
Date ”), by and among Panolam Industries
International, Inc., a Delaware corporation (together with its
successors and assigns, the “ Company ”),
Panolam Industries Holdings, Inc., a Delaware corporation
(together with its successors and assigns, “ Holdings
”), and Robert J. Muller. Jr. (the “ Executive
”). For the avoidance of doubt. Parent shall be considered a
successor to Holdings as of the Effective Date.
W I
T N E S S E T
H:
WHEREAS, the
Executive is currently employed as President and Chief Executive
Officer of the Company and of Holdings:
WHEREAS, the
Company, Holdings, and the Executive entered into that certain
Amended and Restated Employment Agreement on December 18, 2003
(“ Original Agreement ”);
WHEREAS, the
Company and Holdings desire to continue the employment of the
Executive with the Company and Holdings in connection with the
acquisition (the “ Acquisitio n”) of Holdings by
Panolam Holdings Co. (“ Parent ”), pursuant to
an Agreement and Plan of Merger dated July 16, 2005 among GS
Holdings Co., a wholly-owned subsidiary of Parent, PIH Acquisition
Co., Holdings and TC Group, L.L.C. (the “ Merger
Agreement ”), and amend and restate in its entirely, the
Original Agreement;
WHEREAS, the
Executive desires to accept such continued employment, subject to
the terms and provisions of this Agreement; and
WHEREAS, this
Agreement is expressly contingent upon the closing of the
transactions contemplated by the Merger Agreement;
NOW,
THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the
receipt of which is mutually acknowledged, the Company, Holdings
and the Executive (collectively, the “ Parties
”) agree as follows:
1.
Definitions. Capitalized
terms not otherwise defined herein shall have the meanings set
forth in Exhibit A.
2.
Term of Employment. The
Company and Holdings hereby agree to employ the Executive under
this Agreement, and the Executive hereby accepts such employment,
for the Term of Employment. The Term of Employment shall commence
as of the Effective Date and shall end on December 31, 2010;
provided , however , that the Term of Employment
shall thereafter be automatically and indefinitely extended for
additional one year periods unless (x) Holdings and the Company
give the Executive, or (y) the Executive gives Holdings and the
Company, at least 180 days’ prior written notice electing not
to so extend the Term of
Employment. Following
such notice, the Term of Employment shall terminate on the later of
(a) December 31, 2010 and (b) the 180th day after
the giving of such notice. Notwithstanding the foregoing, the Term
of Employment may be earlier terminated in strict accordance
with the provisions of Section 9.
3.
Positions, Duties and
Responsibilities.
(a)
During the Term of Employment, the Executive shall serve as the
President and Chief Executive Officer of the Company, of Holdings
and of such of their Subsidiaries as the Holdings Board
may reasonably request; shall have all authorities, duties and
responsibilities customarily exercised by an individual serving in
those positions in enterprises of a similar size and structure;
shall be assigned no duties or responsibilities that are materially
inconsistent with, or that materially impair his ability to
discharge, the foregoing duties and responsibilities: shall be the
Chairman of the Company Board, the Chairman of the Holdings Board,
and the Chairman of the Board of such of their Subsidiaries as the
Holdings Board may reasonably request; and shall report solely
and directly to the Holdings Board.
(b)
The Executive shall devote substantially all of his business time
and efforts to the affairs of the Company and Holdings:
provided , however, that the Executive may also
engage in the following activities: (i) serving on the boards
of a reasonable number of business entities, trade associations
and/or charitable organizations: (ii) engaging in charitable
activities and community affairs: (iii) accepting and
fulfilling a reasonable number of speaking engagements; and
(iv) managing his personal investments and affairs:
provided that such activities do not in the aggregate
materially interfere with the proper performance of his duties and
responsibilities hereunder.
4.
Base Salary. Commencing as
of the Effective Date, the Company shall pay the Executive an
annualized Base Salary of $550,000, payable in accordance with the
regular payroll practices applicable to senior executives of the
Company and Holdings but no less frequently than monthly. However,
if during any calendar year that ends during the Term of
Employment, Actual EBITDA (as defined in Section 5) is
(i) greater than or equal to $50 million but less than $55
million. Base Salary for the following year shall be $600,000,
(ii) greater than or equal to $55 million but less than $60
million, Base Salary for the following year shall be $650,000, or
(iii) greater than or equal to $60 million. Base Salary for
the following year shall be $700,000. The Base Salary (including as
increased pursuant to the preceding sentence) shall not be
decreased at any time during the Term of Employment (including,
without limitation, for the purpose of determining benefits due
under Section 9). The Executive shall not be entitled to
receive any additional consideration for service during the Term of
Employment as a member of the Holdings Board, the Company Board, or
the Board of any of their Subsidiaries.
5.
Annual Bonus. In respect of
each calendar year that ends during the Term of Employment, the
Executive shall receive an annual bonus from the Company determined
as follows:
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(a)
Target Annual Bonus . Subject to Section 5(b), the
annual bonus shall be based on the Holdings EB1TDA (as calculated
after considering both the Base Salary and any bonus payable under
this Section 5) (“ Actual EBITA ”) for each
calendar year that ends during the Term of Employment. If Actual
EBITDA for a given calendar year is (i) less than $50 million,
the target annual bonus (“ Target Bonus ”) for
such calendar year shall equal 50% of Base Salary in effect for
such calendar year, (ii) greater than or equal to $50 million
but less than $60 million, the Target Bonus for such calendar year
stall equal 75% of Base Salary in effect for such calendar year, or
(iii) greater than or equal to $60 million, the Target Bonus
for such calendar year shall equal 100% of Base Salary in effect
for such calendar year.
(b)
Adjustments to Annual Bonus . The annual bonus actually
payable with respect to any calendar year shall be equal to the
Target Bonus adjusted as follows to reflect the relationship
between (i) Actual EBITDA for the calendar year in question
and (ii) the target EBITDA (“ Target EBITDA
”) established for Holdings for such calendar year. The
Target EBITDA for each calendar year shall be established for
Holdings during the last 45 days of the year preceding such
calendar year by the Holdings Board reasonably, in good faith, and
in consultation with the Executive, and shall be subject to later
adjustment in light of significant acquisitions, significant
dispositions, significant changes in accounting practices, and
other significant occurrences to the extent necessary to avoid
material distortion of the benefits intended to be provided under
this Section 5. To the extent that Actual EBITDA is less than
Target EBITDA the actual bonus shall be the Target Bonus reduced by
two and one-half percent for each one percent of shortfall (
e.g. , if Actual EBITDA is 90% of Target EBITDA, the
Executive shall be paid a bonus equal to 75% of the Target Bonus):
provided , however , that the Executive stall not be
entitled to receive any annual bonus for a year if (x) Actual
EBITDA is not equal to at least 90% of Target EBITDA for such year
or (y) the Company or Holdings is not in compliance with the
restrictive covenants of the Credit Agreement or the indenture. To
the extent Actual EBITDA exceeds Target EBITDA, the actual bonus
shall be the Target Bonus increased by two and one-half percent for
each one percent of excess (e.g., if Actual EBITDA is 120%
of Target EBITDA, the Executive shall be paid a bonus equal to 150%
of the Target Bonus).
(c)
The Executive shall be paid bonus amounts, if any, earned pursuant
to this Section 5 promptly following certification of
Holdings’ audited year-end consolidated financial statements,
and in no event later than April 30th of the calendar year
following the calendar year to which the bonus relates. Neither
Holding, nor the Company, nor any of their Subsidiaries shall,
during the Term of Employment adopt a fiscal year that is not a
calendar year without the consent of the Executive, which consent
shall not be unreasonably withheld. Holdings and the Company agree
to use commercially reasonable efforts to assure timely
availability of certified consolidated financial statements in
respect of each fiscal year that begins or ends during the Term of
Employment.
6.
Initial Equity
Arrangements.
(a)
Stock Purchase Agreement . In connection with the
Acquisition, the Executive will acquire shares of common stock of
Parent having an initial agreed upon value of
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$2,000,000. Executive
will acquire such shares pursuant to a tax-free exchange of his
existing shares of common stock of Holdings for shares of common
stock of Parent and pursuant to a Stock Purchase Agreement (the
“ Stock Purchase Agreement ”) to be entered into
by and between Parent and the Executive.
(b)
Stock Option Grant . As of the Effective Date, Parent shall
grant the Executive a time-vested option, in substantially the
form attached hereto as Exhibit B, to purchase a number
of shares of common stock of Parent initially equal to five percent
(5%) of the shares of its common stock outstanding on a fully
diluted basis as of the Effective Date at an exercise price equal
to the purchase price per share of common stock to be paid by
Executive pursuant to the Stock Purchase Agreement.
7.
Other Long-Term
Incentives.
The Executive
shall be eligible to receive additional long-term compensation
incentives during the Term of Employment at the discretion of the
Holdings Board. Such incentive awards shall be at a level, and on
terms and conditions, that are commensurate with his positions and
responsibilities at the Company and Holdings and appropriate in
light of corresponding awards that may be granted from time to
time to other senior executives of the Company and
Holdings.
8.
Other Benefits.
(a)
Employee Benefits . During the Term of Employment, the
Executive shall be eligible to participate in all employee benefit
plans and programs made available generally to senior executives of
the Company or Holdings, including, without limitation, pension,
profit sharing, income deferral, savings and other retirement plans
or programs, accidental death and dismemberment protection,
medical, dental and hospitalization plans, life insurance, short-
and long-term disability programs, travel accident insurance, and
any other employee welfare benefit plans or programs that
may from time to time be made available, including any plans
or programs that supplement the above-listed types of plans or
programs, whether funded or unfunded; provided ,
however , that nothing in this Agreement shall be construed
to require the Company or Holdings to establish or maintain such
plans or programs, except as expressly set forth herein. The
Executive’s participation in all such plans and programs
shall be at a level, and on terms and conditions, that are
commensurate with his positions and responsibilities at the Company
and at Holdings and no less favorable to him than to other senior
executives of the Company or Holdings. During the Term of
Employment, no benefit or coverage available to the Executive under
any such plan or program shall be materially reduced without his
prior written consent, unless a substantially equivalent reduction
is applied generally to the other senior executives of the Company
or Holdings. The Executive shall be entitled to post-retirement
welfare benefits on a basis no less favorable than that applying to
other senior executives of the Company and Holdings during the Term
of Employment.
(b)
Fringe Benefits, Perquisites and Vacations . During the Term
of Employment, the Executive shall participate in all fringe
benefits and perquisites available to senior executives of the
Company or Holdings at levels, and on terms and conditions, that
are commensurate with his positions and responsibilities at the
Company and at Holdings and no less favorable than those applying
to other senior executives of the Company or Holdings; shall
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receive such additional
fringe benefits and perquisites as the Company or Holdings may, in
their discretion, from time-to-time provide; and shall be entitled
to no less than 4 weeks’ paid vacation per year.
(c)
Reimbursement of Business and Other Expenses . The Executive
is authorized to incur reasonable expenses in carrying out his
duties and responsibilities under this Agreement, and the Company
shall promptly reimburse him for all such expenses (including,
without limitation, first class air travel), subject to
documentation in accordance with reasonable policies of the Company
or Holdings previously communicated to the Executive by the Company
or Holdings. The Company shall also promptly reimburse the
Executive (i) for all reasonable expenses (including, without
limitation, reasonable attorneys’ fees and other charges of
counsel) incurred by him in connection with the negotiation and
documentation of these employment arrangements and (ii) for
annual financial, estate and tax counseling that the Executive
may choose to obtain from professional providers of such
services in an amount not to exceed $10,000 for each calendar
year.
9.
Termination of
Employment.
(a)
Termination Due to Death . The term of Employment is
terminated upon the Executive’s death. In the event that the
Executive’s employment under this Agreement is terminated due
to his death, his estate or his beneficiaries (as the case
may be) shall be entitled to the following:
(i)
Base Salary for a period of 90 days following the date of
death;
(ii)
prompt payment of a Pro-Rata Annual Bonus for the year in which his
death occurs:
(iii)
any Stock Option that becomes exercisable solely with the passage
of time, without satisfaction of any performance criterion other
than continued service, shall become exercisable as of the date of
death to the extent provided in the agreement granting such Option,
but at least to the extent that it was then scheduled to become
exercisable within six months following such date if the
Executive’s employment hereunder had continued; and
(iv)
any Stock Option that is, or becomes, exercisable as of the date of
death shall remain exercisable as provided in the agreement
granting such Option, but must be exercised no later than the
second anniversary of such date.
(b)
Termination Due to Disability . The Term of Employment
may be terminated due to Disability as provided in this
Section 9(b). In the event that the Executive’s
employment under this Agreement is terminated due to Disability, he
shall be entitled to the following:
(i)
to receive, to age 65 and no less frequently than monthly, periodic
disability payments at a rate equal to 60% of the Base Salary in
effect at the termination of his employment, less the amount of any
periodic disability benefits provided (other than benefits
attributable to his own unreimbursed contributions) under any
disability insurance plan or program of the Company, Holdings, or
any of their Affiliates;
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(ii)
prompt payment of a Pro-Rata Annual Bonus for the year in which his
employment terminates;
(iii)
any Stock Option that becomes exercisable solely with the passage
of time, without satisfaction of any performance criterion other
than continued service, shall become exercisable as of the
Termination Date to the extent provided in the agreement granting
such Option, but at least to the extent that it was then scheduled
to become exercisable within six months following such date if the
Executive’s employment hereunder had continued;
(iv)
any Stock Option that is, or becomes, exercisable as of the
Termination Date, shall remain exercisable as provided in the
agreement granting such Option, but at least through the second
anniversary of such date: and
(v)
continued participation, through the third anniversary of the
Termination Date, in all medical, dental, vision, hospitalization
and life insurance coverages and in all other employee welfare
benefit plans, programs and arrangements in which he or his family
members were participating on the Termination Date, on terms and
conditions that are no less favorable than those that applied on
such date.
No termination
of the Executive’s employment for Disability shall be
effective unless (x) Holdings and the Company first give the
Executive, or (y) the Executive first gives Holdings and the
Company, 15 days’ written notice of such termination pursuant
to this Section 9(b).
(c)
Termination for Cause .
(i)
No termination of the Executive’s employment under this
Agreement for Cause shall be effective unless the provisions of
this Section 9(c)(i) shall have been complied with. The
Executive shall be given written notice by the Holdings Board of
the intention to terminate him for Cause, such notice (A) to
state in detail the particular circumstances that constitute the
grounds on which the proposed termination for Cause is based and
(B) to be given no later than 180 days after the Holdings
Board first learns of such circumstances. The Executive shall have
15 days after receiving such notice in which to cure such grounds,
to the extent such cure is possible. If he fails to fully cure such
grounds within such period, the Executive shall then be entitled to
a hearing before the Holdings Board. Such hearing shall be held
within 20 days of his receiving such notice, provided that
he requests a hearing within 15 days of receiving such notice. If,
within five days following such hearing, Holdings Board gives
written notice to the Executive confirming that, in the judgment of
at least two-thirds of the members of the Holdings Board (excluding
the Executive), Cause for terminating his employment on the basis
set forth in the original notice exists, his employment hereunder
shall thereupon be terminated for Cause, subject to de novo
review, at the Executive’s election, through arbitration in
accordance with Section 15.
(ii)
In the event that the Executive’s employment hereunder is
terminated for Cause in accordance with Section 9(c)(i),
(A) any Stock Option that is exercisable as of the Termination
Date shall expire 30 days after the Termination Date, (B) any
Stock Option that later becomes exercisable shall expire 30 days
after it becomes exercisable, (C) all other
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Stock Options shall
expire upon termination of the Executive’s employment, and
(D) the Executive shall be entitled to the benefits described
in Section 9(f)(i).
(d)
Termination Without Cause . In the event that the
Executive’s employment under this Agreement is terminated in
a Termination Without Cause, he shall be entitled to:
(i)
prompt payment of a Pro Rata Annual Bonus for the year in which his
employment terminates;
(ii)
a prompt lump-sum payment equal to (A) the sum of his (x) Base
Salary, at the annualized rate in effect on the Termination Date,
and (y) the annual bonus award he earned for the year prior
to the year of termination times (B) the lesser
of (x) 1095 and (y) the number of days in the period that begins on
the Termination Date and ends on December 31, 2010 (but in no
event less than 730), divided by (C) 365; provided
that, in connection with such payment, if the Company and
Holdings execute a waiver and release of claims against the
Executive, then the Executive shall execute a waiver and release of
claims against the Company, Holdings or any of their officers,
directors, representatives, agents or Affiliates, in each case as
reasonably agreed by the Parties and excluding claims under this
Agreement and other contractual claims as appropriate;
(iii)
any Stock Option that becomes exercisable solely with the passage
of time, without satisfaction of any performance criterion other
than continued service, shall become exercisable as of the
Termination Date to the extent provided in the agreement granting
such Stock Option, but only to the extent that it was then
scheduled to become exercisable within six months following such
date if the Executive’s employment hereunder had
continued;
(iv)
any Stock Option (x) that is, or becomes, exercisable as of the
Termination Date shall remain exercisable as provided in the
agreement granting such Stock Option, but at least through the
second anniversary of such date and (y) that becomes exercisable in
connection with an Approved Sale that occurs within one year
following the Termination Date shall remain exercisable as provided
in the agreement granting such Stock Option, but at least through
the second anniversary of the occurrence of such Approved Sale;
and
(v)
continued participation, through the second anniversary of the
Termination Date, in all medical, dental, vision, hospitalization
and life insurance coverages and in all other employee welfare
benefit plans, programs and arrangements in which he or his family
members were participating on the Termination Date, on terms and
conditions that are no less favorable than those that applied on
such date, provided that the Executive’s entitlements
under this Section 9(d) shall expire to the extent that
equivalent coverages and benefits (determined on a
coverage-by-coverage and benefit-by-benefit basis) are provided
under the plans, programs or arrangements of a subsequent
employer.
(e)
Voluntary Termination . In the event that the Executive
terminates his employment under this Agreement prior to the
then-scheduled expiration of the Term of Employment on his own
initiative, other than by death, for Disability, or in a
Constructive Termination Without Cause, he shall have the same
entitlements as provided in Section 9(c) in
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the case of a
termination for Cause. The Executive shall provide the Company and
Holdings 90 days’ prior written notice of his election to
voluntarily terminate his employment pursuant to this
Section 9(e), except that the Executive may terminate his
employment hereunder immediately after giving such notice if an
event described in clauses (i)-(-) of the definition of
Constructive Termination Without Cause occurs and Executive has
given due notice and Holdings and the Company have not cured within
the time period set forth in the definition of Constructive
Termination Without Cause. A voluntary termination in accordance
with this Section 9(e) shall not be deemed a breach of
this Agreement.
(f)
Miscellaneous .
(i)
On any termination of the Executive’s employment under this
Agreement, he shall be entitled to:
(A)
Base Salary through the Termination Date;
(B)
the balance of any annual, long-term, or other incentive or bonus
award earned, accrued or owing to him (but not yet paid);
(C)
any amounts due under Section 8:
(D)
a lump-sum payment in respect of accrued but unused vacation days
at his Base Salary rate in effect on the Termination Date;
(E)
other or additional benefits, if any, in accordance with applicable
plans, programs and arrangements of the Company. Holdings and their
Affiliates (including, without limitation, Sections 6, 7,
10(b) and 1l(a), and the form of agreement attached as
Exhibit B); and
(F)
payment promptly when due, by check or (at his election) by wire
transfer of immediately available funds, of all amounts owed to him
and payable as of the Termination Date in connection with the
termination.
(ii)
In the event that the Executive or any member of his family
entitled thereto hereunder, is precluded from continuing full
participation in any employee benefit plan, program or arrangement
as provided in Sections 9(b)(v) or 9(d)(v), the Executive
shall be provided with the after-tax economic equivalent of any
benefit or coverage foregone. For t
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