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EXHIBIT 10.34
STOCK OPTION AGREEMENT
This
Stock Option Agreement (this “ Agreement
”) is made as of this 16 th
day of January, 2008 (the “ Effective
Date ”) between Simmons Holdco, Inc., a Delaware
corporation (the “ Company
”), and the undersigned (the “ Optionee
”). Certain capitalized terms used herein are
defined in Section 8
hereof.
WHEREAS,
the Company believes it to be in the best interests of the
Company and its shareholders to take action to promote
work-force stability, to reward performance and otherwise
align the Optionee’s interests with those of the
Company;
WHEREAS,
accordingly, the Company desires to grant the Optionee a
non-qualified stock option under the Second Amended and
Restated Simmons Holdco, Inc. Equity Incentive Plan (the
“ Plan
”) to acquire shares of Class B Common Stock, par value
$0.01 per share, of the Company (the “ Class B Common
Stock ”); and
WHEREAS,
the Company desires to be assured that the confidential
information and goodwill of the Company will be preserved for
the exclusive benefit of the Company.
NOW,
THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1.
Grant of
Option .
(a)
Grant . The Company hereby grants to the Optionee
under the Plan and subject to the terms and conditions of the Plan
a non-qualified stock option (the “ Option
”) to purchase all or any part of an aggregate number of
shares set forth below the Optionee’s name on the signature
page attached hereto (the “ Shares
”).
(b)
Exercise Price . The per share exercise price
(“ Exercise Price
”) for the Shares covered by the Option shall be
as set forth below the Optionee’s name on the signature page
attached hereto.
2.
Vesting
of Option .
(a)
General .
(i)
Vesting
Targets . The Option shall vest and become
exercisable with respect to the Shares (the “ Vested Shares
”) in accordance with this Section 2 ,
based upon the Company’s achievement of the Consolidated
Adjusted EBITDA targets set forth below (each, the “
Target
EBITDA ”) for each of the Company’s fiscal years
ending December 27, 2008, December 26, 2009, December 25, 2010
and December 27, 2011 (the “ Measurement
Years ”).
EBITDA Targets
(dollars
in millions)
|
Measurement
Years
|
Target EBITDA
|
Cumulative Target
EBITDA
|
90% of Target
EBITDA
|
90% of Cumulative Target
EBITDA
|
Eligible
Shares
|
|
2008
|
$225.0
|
$225.0
|
$202.5
|
$202.5
|
25%
of Shares
|
|
2009
|
$240.0
|
$464.0
|
$216.0
|
$418.5
|
25%
of Shares
|
|
2010
|
$265.0
|
$729.0
|
$238.5
|
$657.0
|
25%
of Shares
|
|
2011
|
(See Note Below)
|
(See Note Below)
|
(See Note Below)
|
(See Note Below)
|
25%
of Shares
|
Note: The 2011 Targets will be determined by the Board
of Directors at a later date.
(ii)
Adjustments
. The minimum Target EBITDA numbers set forth above
shall be equitably adjusted by the Board for acquisitions and
dispositions made by the Company (whether by purchase or sale
of assets or stock, merger, consolidation or otherwise) and
such adjustments may take into account the pro forma annual
Consolidated Adjusted EBITDA of any acquired business, as
determined by the Board.
(iii)
Performance
Based Vesting . At the end of each
Measurement Year, on the Measurement Date, the percentage of
Shares under the Option set forth above shall be eligible to
vest (the “ Eligible
Shares ”). On each Measurement Date,
50% of the Eligible Shares shall become Vested Shares if at
least 90% of the Target EBITDA amount was met for the prior
Measurement Year. If more than 90% of the Target
EBITDA amount was met for the prior Measurement Year, then the
Eligible Shares shall become Vested Shares on a straight line
basis such that an additional 5% of Eligible Shares shall
become Vested Shares for each 1% that actual Consolidated
Adjusted EBITDA exceeds 90% of the Target EBITDA
amount.
(b)
Change of
Control .
(i) The
vesting of Shares that are not Vested Shares will accelerate
as set forth below upon a Change of Control solely if (a) the
Company achieves at least 90% of the Target EBITDA for the
Measurement Year immediately preceding the year in which the
Change of Control occurs, and (b) the actual Consolidated
Adjusted EBITDA for the Measurement Year immediately
preceding the year in which the Change of Control occurs
exceeds the actual Consolidated Adjusted EBITDA for the
preceding year. If (x) the conditions set forth in
clauses (a) and (b) above are met, and (y) the Company
achieves 90% of the Cumulative Target EBITDA above for the
Measurement Year completed immediately prior to the Change of
Control, then 50% of the Shares that were Eligible Shares but
which did not previously become Vested Shares (the “
Missed
Shares ”) and 50% of the Shares that are not yet
Eligible Shares shall become Vested Shares. If (1) the
conditions set forth in clauses (a) and (b) above are met,
and (2) the Company achieves more than 90% of the Cumulative
Target EBITDA above for the immediately preceding Measurement
Year, then a number of Missed Shares and Shares that are not
yet Eligible Shares will become Vested Shares, determined on
a straight line basis such that an additional 5% of the
Missed Shares and 5% of the Shares that are not yet Eligible
Shares will become Vested Shares for each 1% that actual
Consolidated Adjusted EBITDA for the immediately preceding
Measurement Year exceeds 90% of the Cumulative Target EBITDA
set forth above.
(ii) Notwithstanding
the foregoing paragraph, the vesting of Shares that are not
Vested Shares will accelerate upon a Change of Control which
occurs in the Measurement Year ending December 27, 2008
as follows: Shares that are not Vested Shares will
accelerate as set forth below upon a Change of Control solely
if (a) the Company achieves at least 90% of the Target EBITDA
for the Measurement Year immediately preceding the year in
which the Change of Control occurs, and (b) the actual
Consolidated Adjusted EBITDA for the Measurement Year
immediately preceding the year in which the Change of Control
occurs exceeds the actual Consolidated Adjusted EBITDA for the
preceding year. If (x) the conditions set forth in
clauses (a) and (b) above are met, and (y) the Company
achieves 90% of the 2008 Year to Date Target EBITDA (as
defined below) for the month completed immediately prior to
the Change of Control, then 50% of the Shares that are not yet
Eligible Shares shall become Vested Shares. The
Target EBITDA for each month in 2008 is set forth below and
the 2008 Year to Date Target EBITDA represents the cumulative
Target EBITDA for the period commencing December 30, 2007 and
ending on the last day of such fiscal month (the " Year to Date
Target EBITDA "). If (1) the conditions set
forth in clauses (a) and (b) above are met, and (2) the
Company achieves more than 90% of the 2008 Year to Date Target
EBITDA for the fiscal month completed immediately prior to the
Change of Control, then a number of Shares that are not yet
Eligible Shares will become Vested Shares, determined on a
straight line basis such that an additional 5% of the Shares
that are not yet Eligible Shares will become Vested Shares for
each 1% that actual Consolidated Adjusted EBITDA for the
period commencing December 30, 2007 and ending on the last day
of the fiscal month immediately preceding the Change of
Control exceeds 90% of the 2008 Year to Date Target
EBITDA.
|
Month
|
2008 Monthly
Target EBITDA
(dollars in millions)
|
2008 Year to Date
Target EBITDA
(dollars in millions)
|
|
January
|
$20.0
|
$20.0
|
|
February
|
$15.0
|
$35.0
|
|
March
|
$12.9
|
$47.9
|
|
April
|
$22.8
|
$70.7
|
|
May
|
$15.8
|
$86.5
|
|
June
|
$18.1
|
$104.6
|
|
July
|
$23.9
|
$128.5
|
|
August
|
$22.6
|
$151.1
|
|
September
|
$19.3
|
$170.4
|
|
October
|
$22.2
|
$192.6
|
|
November
|
$16.2
|
$208.8
|
|
December
|
$16.2
|
$225
|
(iii)
Upon the occurrence of a Change of Control, the Option shall
automatically terminate and cease to be thereafter exercisable
as to any Shares other than those Shares that have become
vested in accordance herewith. Upon a Change of
Control, Vested Shares are subject to Section 13(b) of the
Plan.
(c)
In
the event that the Company achieves the Target EBITDA with respect
to the Measurement Year in which termination of Service occurs,
then the Eligible Shares with respect to such year multiplied by a
fraction, the numerator of which shall equal the number of whole
months during such year that the Optionee served on the Board or
remained employed with the Company and the denominator of which is
12, shall become Vested Shares as of the end of such
year.
3.
Manner of
Exercise of Option; Adjustments .
(a)
To
the extent that the right to exercise the Option has vested in
accordance with the vesting schedule and such right is in effect,
the Option may be exercised in full or in part as to Vested Shares
by giving written notice to the Company stating the number of
Shares exercised and accompanied by payment in full for such
Shares. Payment may be either (i) in cash or by personal
check payable to the order of the Company, (ii) in shares of the
Class B Common Stock of the Company legally and beneficially owned
by the Optionee, fully vested and free of all liens, claims and
encumbrances of every kind and valued at Fair Market Value on the
date of delivery, or (iii) any combination of (i) and (ii);
provided ,
however , that
payment of the exercise price by delivery of shares of Class B
Common Stock of the Company owned by such Optionee may be made only
if such payment does not result in a charge to earnings for
financial accounting purposes as determined by the
Company. Upon such exercise, delivery of a certificate
for paid-up, non-assessable Shares shall be made at the principal
office of the Company, not more than thirty (30) days from the date
of receipt of notice by the Company.
(b)
The
Company shall at all times during the Term of the Option reserve
and keep available such number of Shares of Class B Common Stock as
will be sufficient to satisfy the requirements of this
Option.
(c)
Except
as expressly set forth herein, adjustments on changes in
recapitalization, reorganization and the like shall be made in
accordance with Section 13 of the Plan, as in effect on the date of
this Agreement.
4.
Termination;
Repurchase of Shares .
(a)
Expiration . The Option shall expire on the
earliest of (i) the expiration of the Term, (ii) the date that is
twelve (12) months following the date on which the Optionee’s
Service terminates as a result of the Optionee’s death or
Disability, (iii) the date that is three (3) months following the
date on which the Optionee’s termination of Service without
Cause or resignation for Good Reason or (iv) on the date of
termination of Service if the Optionee’s Service is
terminated with Cause or due to voluntary resignation by the
Optionee without Good Reason (the “ Termination
Date ”). However, the Optionee (or in the
case of the Optionee’s death or Disability, the
Optionee’s representative) may exercise all or a part of the
Optionee’s Option at any time before the expiration of such
Option under the preceding sentence only to the extent that the
Option has become exercisable for Vested Shares pursuant to this
Agreement on or before the date the Optionee’s Service
terminates. The balance of the Option (which is not exercisable for
and vested on the date Optionee’s Service terminates) shall
lapse when the Optionee’s Service
terminates. Notwithstanding the foregoing, with respect
to the portion of the Option that would vest in accordance with
Section
2(c) , such portion of the Option shall not terminate until
(i) the date that is twelve (12) months following the Measurement
Date for the Measurement Year in which the termination of Service
occurs if the Optionee’s Service terminates as a result of
the Optionee’s death or Disability or (ii) the date that is
three (3) months following the Measurement Date for the Measurement
Year in which the termination of Service occurs if the
Optionee’s Service is terminated for any other
reason.
(b)
In
the event that the Optionee’s Service terminates for any
reason, then all Shares purchased by the Optionee upon exercise of
this Option (including any capital stock issued with respect to
such Shares by way of stock split, stock dividend or other
recapitalization and whether held by the Optionee or by one or more
of the Optionee’s transferees) will be subject to repurchase
by the Company, at its option (the “ Repurchase
Option ”), for Fair Market Value as of the date of
repurchase.
(c)
The
Repurchase Option shall be exercised by the Company, or its
designee, from time to time, by delivering to the Optionee a
written notice of exercise and a check in the amount of Fair Market
Value. Upon delivery of such notice and payment of the
purchase price as described above, the Company, or its designee,
shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest therein or related thereto,
and the Company, or its designee, shall have the right to transfer
to its own name the number of Shares being repurchased without
further action by the Optionee or any of his or her
transferees. If the Company or its designee elect to
exercise the repurchase rights pursuant to this Section 4 and
the Optionee or his or her transferee fails to deliver the Shares
in accordance with the terms hereof, the Company, or its designee,
may, at its option, in addition to all other remedies it may have,
deposit the purchase price in an escrow account administered by an
independent third party (to be held for the benefit of and payment
over to the Optionee or his or her transferee in accordance
herewith), whereupon the Company shall by written notice to the
Optionee cancel on its books the certificates(s) representing such
Shares registered in the name of the Optionee and all of the
Optionee’s or his or her transferee’s right, title, and
interest in and to such Shares shall terminate in all
respects.
(d)
Notwithstanding
the foregoing, if at any time the Company elects to purchase any
Shares pursuant to this Section 4
, the Company shall pay the purchase price for the Shares it
purchases (i) first, by offsetting indebtedness, if any, owing
from such Optionee to the Company and (ii) then, by the
Company’s delivery of cash for the remainder of the purchase
price, if any, against delivery of the certificates or other
instruments representing the Shares so purchased, duly endorsed;
provided
that , if any
such cash payment at the time such payment is required to be made
would result (A) in a violation of any law, statute, rule,
regulation, policy, order, writ, injunction, decree or judgment
promulgated or entered by any federal, state, local or foreign
court or governmental authority applicable to the Company or any of
its Subsidiaries or any of its or their property or (B) after
giving effect thereto, a Financing Default, or (C) if the Board
determines in good faith that immediately prior to such purchase
there shall exist a Financing Default which prohibits such
purchase, dividend or distribution ((A) through (C) collectively
the “ Cash Deferral
Conditions ”), the portion of the cash payment so
affected may be made by the Company’s delivery of a
promissory note or senior preferred shares of the Company with a
liquidation preference equal to the balance of the purchase price.
The promissory note or senior preferred shares shall accrue
interest or yield, as the case may be, annually at the “prime
rate” published in The Wall Street Journal on the date of
issuance, which interest or yield, as the case may be, shall be
payable at maturity or upon payment of distributions by the
Company. The value of each such senior preferred share shall as of
its issuance be deemed to equal (A) the portion of the cash
payment paid by the issuance of such preferred shares divided by
(B) the number of senior preferred shares so
issued. Any senior preferred shares or the promissory
note shall be redeemed or payable when and to the extent the Cash
Deferral Condition which prompted their issuance no longer
exists.
(e)
In
the event that any Shares are repurchased pursuant to this
Section
4 , the Optionee and his or her successors, assigns or
Representatives shall take (at the Company’s expense) all
steps necessary and desirable to obtain all required third-party,
governmental and regulatory consents and approvals and take all
other actions necessary and desirable to facilitate consummation of
such repurchase in a timely manner.
5.
Restrictions on
Transfer and Voting .
(a)
The
right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee other than by will or
the laws of descent and distribution, and the Option may be
exercised during the lifetime of the Optionee only by him or
her. The Option shall be null and void and without
effect upon the bankruptcy of the Optionee or upon any attempted
assignment or transfer, except as hereinabove provided, including
without limitation any purported assignment, whether voluntary or
by operation of law, pledge, hypothecation or other disposition
contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or
equitable, upon the Option.
(b)
As
a condition precedent to the Optionee’s exercise of any
portion of the Option, the Optionee will sign a joinder agreement
to the Securityholders’ Agreement as an
“Employee” or “Senior Manager,” as the case
may be, in which the Optionee agrees that such Shares will be
subject to the restrictions in the Securityholders’
Agreement.
6.
Representation Letter and Investment Legend.
(a)
In
the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the
Securities Act of 1933, upon any date on which the Option is
exercised in whole or in part, the person exercising the Option
shall give a written representation to the Company in the form
attached hereto as Exhibit A and
the Company shall place an “investment legend”
so-called, as described in Exhibit A ,
upon any certificate for the Shares issued by reason of such
exercise.
(b)
The
Company shall be under no obligation to qualify Shares or cause a
registration statement or post-effective amendment to any
registration statement to be prepared for the purpose of covering
the issue of Shares.
7.
Restricted Activities.
(a)
The
Optionee acknowledges that (1) the Company has separately bargained
and paid additional consideration for the restrictive covenants
herein; (2) the Company will provide certain benefits to the
Optionee hereunder in reliance on such covenants in view of the
unique and essential nature of the services the Optionee will
perform on behalf of the Company and the irreparable injury that
would befall the Company should the Optionee breach such covenants;
and (3) as used in this Section 7 and
for all terms defined in Section 8 that
are utilized in Section 7 ,
the definition of the “Company” includes the Company
and/or its Subsidiaries, Affiliates, and the successors and assigns
of each and any such related entities.
(b)
The
Optionee agrees that the Optionee’s work for the Company has
brought and will bring Optionee into close contact with many of the
Company’s Customers, Customer Prospects, Vendors, Trade
Secrets, and Confidential Information. The Optionee
further agrees that the covenants in this Section 7 are
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.
(c)
The
Optionee agrees to faithfully perform the duties assigned to the
Optionee and will not engage in any other employment or business
activity while employed by the Company that might interfere with
the Optionee’s full-time performance of the Optionee’s
duties for the Company or cause a conflict of
interest. The Optionee agrees to abide by all of the
Company’s policies and procedures, which may be amended from
time-to-time.
(d)
The
Optionee agrees that, due to Optionee’s position, the
Optionee’s engaging in any activity that may breach this
Agreement will cause the Company great, immediate, and irreparable
harm.
(e)
Duty of Confidentiality . The Optionee agrees that during
the Optionee’s employment with the Company and for a period
of five (5) years following the termination of such employment for
any reason, the Optionee shall not directly or indirectly divulge
or make use of any Confidential Information outside of the
Optionee’s employment with the Company (so long as the
information remains confidential) without the prior written consent
of the Company. The Optionee 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. The Optionee further agrees that if the
Optionee is questioned about information subject to this Agreement
by anyone not authorized to receive such information, the Optionee
will notify the Company’s General Counsel within 24
hours. The Optionee 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.
(f)
Return of Confidential Information And Company Property
. The Optionee agrees to return to the Company all
Confidential Information and/or Trade Secrets within three (3)
calendar days following the termination of the Optionee’s
employment for any reason. To the extent the Optionee
maintains Confidential Information and/or Trade Secrets in
electronic form on any computers or other electronic devices owned
by the Optionee, the Optionee 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. The Optionee also
agrees to return all property in the Optionee’s possession at
the time of the termination of the 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 Optionee, all of which shall remain the sole and
exclusive property of the Company.
(g)
Proprietary Rights . Proprietary Rights shall be
promptly and fully disclosed by the Optionee to the Company’s
General Counsel and shall be the exclusive property of the Company
as against the Optionee and the Optionee’s successors, heirs,
devisees, legatees and assigns. The Optionee hereby
assigns to the Company Optionee’s 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 the Optionee as
aforesaid. All copyrightable Proprietary Rights shall be
considered “works made for hire.” The
Optionee 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 the Optionee and/or the
Optionee’s successors, heirs, devisees, legatees and assigns
under this Section 7(g)
or to vest in the Company title to such Proprietary Rights as
against the Optionee and/or the Optionee’s successors, heirs,
devisees, legatees and assigns, the expense of securing any such
patent or copyright, however, to be borne by the
Company.
(h)
Non-Competition . The Optionee covenants and
agrees that, during the term of Optionee’s employment with
the Company and for twelve (12) months after the termination
thereof, regardless of the reason for the employment termination,
the Optionee will not, directly or indirectly, anywhere in the
Territory, on behalf of any Competitive Business perform the same
or substantially the same Job Duties.
(i)
Non-Solicitation of Customers, Customer Prospects, and
Vendors . The Optionee also covenants and agrees
that during the term of Optionee’s employment with the
Company and for twelve (12) months after the termination thereof,
regardless of the reason for the employment termination, the
Optionee will not, directly or indirectly, solicit or attempt to
solicit any business from any of the Company’s Customers,
Customer Prospects, or Vendors with whom the Optionee had Material
Contact during the last two (2) years of the Optionee’s
employment with the Company.
(j)
Non-Solicitation of Employees . The Optionee also
covenants and agrees that during the term of Optionee’s
employment with the Company and for twelve (12) months after the
termination thereof, regardless of the reason for the employment
termination, the Optionee will not, directly or indirectly, on the
Optionee’s 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 the Optionee had personal contact or supervised
while performing the Optionee’s Job Duties, to terminate
their employment relationship with the Company.
(k)
Ownership of Securities. Notwithstanding the
provisions set forth herein, the Optionee shall have the right to
(a) invest in or acquire any class of securities issued by any
firm, partnership, corporation, and/or any other entity and/or
person not engaged in any 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 securities which
is (i) issued by any Competitive Business, and (ii) publicly traded
on a national securitie
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