EXHIBIT D(4)
MANAGEMENT TRANSACTION AGREEMENT
March 29, 2000
Pine Holdings, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxxxxxxxx, XX 00000
Gentlemen:
Reference is made to the Agreement and Plan of Merger (as amended from time to
time, the "Merger Agreement"), dated as of March 29, 2000, by and among Pine
Holdings, Inc., a Virginia corporation (the "Company"), Pulaski Furniture
Corporation, a Virginia corporation, and Pine Acquisition Corp., a Virginia
corporation. Capitalized terms used but not otherwise defined herein shall have
the meaning set forth in the Merger Agreement.
1. Commitment. This letter (the "Letter Agreement") will confirm the
commitment of each of Xxxxxxxx X. Xxxxxxxx, Xxx X. Xxxxxxxx, Xxxx Xxxxxx, Xxxxx
Xxxxxx, Xxxxx X. Xxxxxx, Xxxx X. Xxxxxxx, Xxxxx X. Xxxxx, Xxxx X. Xxxxxxx,
Xxxxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx (the "Management"):
(a) to exchange their respective Shares (as set forth on Schedule I)
for shares of common stock of the Company and subordinated notes of the
Company (such subordinated notes to be on the terms and conditions set
forth in the term sheet attached hereto as Exhibit A) in accordance with
Section 2.5(b) of the Merger Agreement, and
(b) to execute and deliver a Shareholders Agreement and a Registration
Rights Agreement on the terms and conditions set forth in the term sheet
attached hereto as Exhibit B;
and will confirm the commitment of the Company to adopt a Management Performance
Stock Option Plan and an Annual Incentive Compansation Plan for Key Management
on the terms and conditions set forth in the term sheets attached hereto as
Exhibits C and D, respectively, and to execute and deliver the Shareholders
Agreement and Registration Rights Agreement.
2. Tax Treatment of Exchange. The exchange described in paragraph
1(a) hereof shall take place simultaneously with an exchange by an investor or
investors for shares of common stock of the Company such that, immediately after
the exchanges, the exchanging parties will be in control, as defined in Section
351(a) of the Internal Revenue Code of 1986, as amended, of the Company.
3. Conditions. The commitments of each of the parties are subject to the
consummation of the Merger. The commitments of Management are subject to the
performance
by the Company of its obligations hereunder and the commitments of the Company
are subject to the performance by each member of Management of his or her
respective obligations hereunder.
4. Effectiveness; Termination. This commitment will be effective upon the
Company's acceptance of the terms and conditions of this letter and will expire
on the first to occur of (a) the Closing (as defined in the Merger Agreement) or
(b) the termination of the Merger Agreement.
5. Governing Law. This Letter Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia, without
regard to the conflict of laws rules thereof.
6. Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
7. Entire Agreement; No Third-Party Beneficiaries. This Agreement,
including the documents and instruments referred to herein, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person or entity other than the
parties any rights or remedies hereunder.
8. Headings. The headings contained in this Letter Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Letter Agreement.
Very truly yours,
/s/ Xxxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxxx X. Xxxxxxxx
/s/ Xxx X. Xxxxxxxx
------------------------------
Xxx X. Xxxxxxxx
/s/ Xxxx Xxxxxx
------------------------------
Xxxx Xxxxxx
/s/ Xxxxx Xxxxxx
------------------------------
Xxxxx Xxxxxx
/s/ Xxxxx X. Xxxxx
------------------------------
Xxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxxx
------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxxx
------------------------------
Xxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxxx
------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxxxx
------------------------------
Xxxx X. Xxxxxxx
Accepted as of the date first above written:
PINE HOLDINGS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
CONFIDENTIAL
This Draft if for Discussion Purposes Only.
Project Liberty (the "Company")
Subordinated Note (the "Note") Term Sheet
-----------------------------------------
Issuer: Pine Holdings, Inc. (the "Issuer").
-------
Principal Amount: $1,000.00 per Note.
-----------------
Maturity: Seven years after the initial issuance date of the Notes (the "Maturity Date")
---------
Interest: Interest shall accrue on the unpaid principal amount of each Note at a rate of 12%
--------- per annum (the "Interest Rate"); provided, that interest on the Notes shall be payable
solely in kind in the form of additional Notes (except that, so long as a default or
event of default does not exist under that certain Credit Agreement to be entered into
among Pine Holdings, Inc., Pine Acquisition, Inc., the lenders from time to time
party thereto and Bankers Trust Company, as Agent (the "Credit Agreement"), cash
interest may be paid in respect of the Notes (i) in an amount sufficient to allow
the holders of Notes to pay cash taxes in respect of the Notes or (ii) if the
"senior leverage ratio" (as defined in the Credit Agreement) of the Issuer and its
subsidiaries is less than 2.5:1).
Interest shall be payable on each ________ and __________ until the Maturity Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
Default Interest: If the Issuer shall default on the payment when due of principal or interest, the
----------------- Issuer shall, on demand from time to time pay interest, to the extent permitted by
law, on such defaulted amount up to but not including the date of actual payment
at a rate per annum equal to the Interest Rate.
Prepayments: On not less than thirty (30) days written notice to the holder of any Note, the
------------ Issuer may, at any time and from time to time without premium or penalty, prepay
all or a portion of the unpaid principal amount of any Note together with the unpaid
interest accrued on such portion of the principal amount of such Note; provided that
no prepayment shall be made if such prepayment is then prohibited by the terms of
any senior indebtedness. All such prepayments shall be made pro rata among the
holders of all outstanding Notes.
Pro Rata Payments: Any payments made to any holder of any outstanding Notes (whether for principal,
------------------ interest or otherwise) shall be made pro rata among all holders of outstanding
Notes.
Subordination: Payment of the principal of, interest on and all other amounts owing in respect of
-------------- the Notes will be expressly and fully subordinated to the payment in full in cash
of all indebtedness of the Issuer other than (i) indebtedness which is expressly
pari passu with or junior to the Notes, (ii) trade payables in the ordinary course
of business and (iii) taxes.
Events of Default: An event of default ("Event of Default") shall be deemed to have occurred upon (i)
------------------ the Issuer's failure to pay on the Maturity Date any portion of the unpaid
principal amount of the Notes, (ii) the Issuer's failure to pay on any interest
payment date any portion of the unpaid Interest on the Notes and (iii) the commencement
of bankruptcy, reorganization, insolvency or liquidation proceedings involving the
Issuer (other than an involuntary proceeding which is dismissed or terminated
within 90 days of commencement).
Upon the occurrence and during the continuance of an Event of Default (but subject
to the subordination provisions of the Notes), the holders of a majority of the
outstanding Notes may declare all or any portion of the outstanding principal
amount of the Notes due and payable and demand immediate payment of such amount.
Transfer Restrictions: The Notes are subject to certain transfer restrictions set forth in the
---------------------- Shareholders Agreement of Pine Holdings, Inc.
Governing Law: Virginia.
--------------
CONFIDENTIAL
This Draft if for Discussion Purposes Only.
Project Liberty (the "Company")
Subordinated Note (the "Note") Term Sheet
-----------------------------------------
Issuer: Pine Holdings, Inc. (the "Issuer").
-------
Principal Amount: $1,000.00 per Note.
-----------------
Maturity: Seven years after the initial issuance date of the Notes (the "Maturity Date")
---------
Interest: Interest shall accrue on the unpaid principal amount of each Note at a rate of 12%
--------- per annum (the "Interest Rate"); provided, that for a period of time acceptable to
Bankers Trust Company, interest on the Notes shall be payable solely in kind in
the form of additional Notes (except that, so long as a default or event of
default does not exist under that certain Credit Agreement to be entered into
among Pine Holdings, Inc., Pine Acquisition, Inc., the lenders from time to time
party thereto and Bankers Trust Company, as Agent (the "Credit Agreement"), cash
interest may be paid in respect of the Notes (i) in an amount sufficient to allow
the holders of Notes to pay cash taxes in respect of the Notes or (ii) if the
"senior leverage ratio" (as defined in the Credit Agreement) of the Issuer and its
subsidiaries is less than 2.5:1).
Interest shall be payable on each April 30 and October 31 until the Maturity Date.
Subject to the foregoing, the Issuer may pay Interest accrued on each Note at such
time and from time to time as it shall determine and may elect, in its sole
discretion, not to pay such Interest and to allow such Interest to accrue.
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
Default Interest: If the Issuer shall default on the payment when due of principal or interest, the
----------------- Issuer shall, on demand from time to time pay interest, to the extent permitted by
law, on such defaulted amount up to but not including the date of actual payment
at a rate per annum equal to the Interest Rate.
Prepayments: On not less than thirty (30) days written notice to the holder of any Note, the
------------ Issuer may, at any time and from time to time without premium or penalty, prepay
all or a portion of the unpaid principal
amount of any Note together with the unpaid interest accrued on such portion of the
principal amount of such Note. All such prepayments shall be made pro rata among the
holders of all outstanding Notes.
Pro Rata Payments: Any payments made to any holder of any outstanding Notes (whether for principal,
------------------ interest or otherwise) shall be made pro rata among all holders of outstanding
Notes.
Subordination: Payment of the principal of, interest on and all other amounts owing in respect of
-------------- the Notes will be expressly and fully subordinated to the payment in full in cash
of all indebtedness of the Issuer other than (i) indebtedness which is expressly
pari passu with or junior to the Notes, (ii) trade payables in the ordinary course
of business and (iii) taxes.
Events of Default: An event of default ("Event of Default") shall be deemed to have occurred upon (i)
------------------ the Issuer's failure to pay on the Maturity Date any portion of the unpaid
principal amount of the Notes, (ii) the Issuer's failure to pay on the Maturity
Date any portion of the unpaid Interest on the Notes and (iii) the commencement of
bankruptcy, reorganization, insolvency or liquidation proceedings involving the
Issuer (other than an involuntary proceeding which is dismissed or terminated
within 90 days of commencement).
Upon the occurrence and during the continuance of an Event of Default (but subject
to the subordination provisions of the Notes), the holders of a majority of the
outstanding Notes may declare all or any portion of the outstanding principal
amount of the Notes due and payable and demand immediate payment of such amount.
Transfer Restrictions: The Notes are subject to certain transfer restrictions set forth in the
---------------------- Shareholders Agreement of Pine Holdings, Inc.
Governing Law: Virginia.
--------------
CONFIDENTIAL
This Draft is for Discussion Purposes Only.
Project Liberty (the "Company")
General Provisions of Shareholders Agreement
(Including Those Affecting Management Rollover Shareholders)
------------------------------------------------------------
Types of Securities: a. Subordinated Notes and Common Stock.
-------------------- b. Each purchaser will purchase Units consisting of equal
dollar amounts of Subordinated Notes and Common Stock.
Aggregate Amount: a. $23.8 million of Subordinated Notes
-----------------
and $23.8 million of Common Stock. Management will
rollover 100% of their existing Common Stock, aggregating
approximately $5.8 million, into equal amounts of
Subordinated Notes and Common Stock. Certain members of
Management will also invest an additional $1.0 million of
cash on the same basis. Partnerships controlled by Quad-C
and individuals affiliated with Quad-C ("Quad-C") will
contribute the remaining Subordinated Notes and Common
Stock.
In addition, Management shareholders have the right to
rollover 100% of their existing options.
Price: The price will be $1,000 per Note and $2.00 per Share of
------ Common Stock. Securities will be sold in Units of $2,000
each, representing one Note and 500 Shares of Common
Stock. Investment "rollover" by Management shareholders
will be valued at the same price as paid by Quad-C.
Voting Rights: One vote per Share of Common Stock.
--------------
Dividends: None.
----------
Non-Competition/
Non-Disclosure/
Non-Disturbance
Agreements: Management shareholders, as part of the Shareholders
Agreement, will be required to enter into non-
competition, non-disclosure and non-disturbance
agreements with the Company. The non-competition
agreements will survive for a period of two years, and
the non-disclosure and non-disturbance agreements will
survive for a period of three years, following
termination of the shareholder's employment with the
Company; provided, however, that the Company agrees to
-------- -------
pay such management
shareholder his base compensation in effect prior to
termination during the term of such non-compete, non-
disclosure or non-disturbance agreements.
Rights of Transfer: Securities may be transferred only as Units, not
------------------- separately, other than in connection with a Compelled
Sale or Tag-Along Sale. Units may be transferred to
Permitted Transferees (an "Exempt Transfer"), to include
the following:
i) any transfer among the Initial Shareholders (other
than Management Shareholders),
ii) any transfer pursuant to a Public Offering,
Compelled Sale, Company Call or Put,
iii) any transfer to a shareholder's spouse or lineal
descendants or to trusts solely for the benefit of
such spouse or lineal descendants,
iv) any transfer pursuant to the laws of succession,
distribution and descent,
v) any transfer from a corporation, limited liability
company or partnership which is a distribution-in-
kind to all of such corporation's shareholders, or
such limited liability company's owners or such
partnership's limited partners and general
partner,
vi) any transfer to an Affiliate, as defined,
vii) any transfer required by a regulatory authority
having jurisdiction over the transferor, or
viii) any transfer by Quad-C made in compliance with the
provisions for Tag-Along Rights.
Other than Exempt Transfers, all transfers will be
subject to a Right of First Refusal Obligation described
below. Permitted Transferees will be required to become
parties to the Shareholders Agreement.
Transfer of Management securities also may be further
restricted by covenants of the Senior Debt.
Company Call: Prior to the second anniversary date, the Company will
------------- have the right, but not the obligation, to purchase
("Call") the securities of a Management Shareholder upon
any event of termination other than Death, Permanent
Disability or, in the case of Xxxx Xxxxxxxx, Retirement
at age 65 or over. In the event of Voluntary
Termination or termination for Cause (a "Just Cause
Dismissal"), the Call price will be at the initial
rollover value ("Initial Fair Value"). In the event of
Involuntary Termination not for Cause, the Call price
will be Fair Market Value (based on the Company as a
whole and as a going concern) as reasonably determined
by the Board of Directors using commonly known and
widely accepted valuation methods without taking into
account any discount for minority interests.
The definition of Just Cause Dismissal will include (i)
the continual or deliberate neglect of the performance
of an executive's material duties, (ii) failure of an
executive to devote substantially all of his working
time to the business of the Company, (iii) engaging
willfully in misconduct in connection with the
performance of any of his duties, (iv) willfully
failing to follow the directives of the Board of
Directors or the Chief Executive Officer of the
Company, (v) breach of confidentiality agreements with
the Company, (vi) active disloyalty to the Company, or
(vii) engaging in conduct which would be reasonably
likely to result in material injury to the reputation
of the Company, including commission of a felony,
fraud, or embezzlement.
The Company will have 60 days following termination in
which to exercise its Call right, after which the
Company's Call right will expire.
Employee Put: In the event of Death or Permanent Disability of a
------------- Management shareholder or the Retirement of Xxxx
Xxxxxxxx at age 65 or older, if the Company has not had
an event of liquidity (an Initial Public Offering or a
Compelled Sale), the Management shareholder or his
estate will have the right to require the Company to
purchase ("Put") part or all of the Units held by him
or it (except that in the case of the Retirement of
Xxxx Xxxxxxxx, such Put right shall apply only to the
Units held by him as of the date of the Shareholders
Agreement) at a purchase price equal to the Fair Market
Value as reasonably determined by the Board of
Directors.
The executive or his estate will have 90 days following
his termination by means of Death or Permanent
Disability in which to exercise its Put right, after
which the Put right will expire.
Payment for securities purchased under the Put right
will be in cash, provided that at the option of the
Company up to two-thirds of the purchase price may be
paid in the form of a two-year note bearing interest at
N.Y. prime rate and amortizable 50% on the first
anniversary and the balance on the second anniversary.
This note will rank junior to any senior and
subordinated debt.
Liquidity Right: After the earlier of (i) 10 years or (ii) six months
---------------- after the acquisition financing is fully repaid (other
than by way of recapitalization or refinancing), if the
Company has not had an event of liquidity (an Initial
Public Offering or a Compelled Sale), the Management
shareholders will have an annual right, exercisable by
notice prior to October 31 of such year, to sell all or
a part of their securities to the Company at a price
equal to the Fair Market Value (on the same basis as
provided in the Company Call) of such securities, as
reasonably determined by the Board of Directors.
Payment for securities purchased under the Liquidity
Right will be in cash, provided that at the option of
the Company up to two-thirds of the purchase price may
be paid in the form of a two-year note bearing interest
at N.Y. prime rate and amortizable 50% on the first
anniversary and the balance on the second anniversary.
This note will rank junior to any senior and
subordinated debt.
The Board of Directors may postpone the Liquidity Right
if it determines that repurchase of the securities
would materially impair the financial health of the
Company or violates any financing agreements of the
Company.
Other Provisions Which Will Be
Included in a Shareholders Agreement:
-------------------------------------
Term: The Shareholders Agreement will terminate upon the
----- earlier to occur of i) an Initial Public Offering;
ii) a Compelled Sale, or iii) a Control Transfer.
Preemptive Rights: All shareholders of the Company will have preemptive
------------------ rights with respect to any equity issuance subsequent
to closing, enabling all shareholders to maintain their
pro rata ownership in the Company.
Rights of First Refusal: The Company will have the right of first refusal on the
------------------------ sale of any securities of the Company (in a transfer
that is not a Control Transfer or Compelled Sale) to
any person who is not a Permitted Transferee. To the
extent the Company is unable or unwilling to purchase
such securities, the right of first refusal will run to
the then shareholders of the Company on a pro rata
basis. Shares not purchased by a shareholder or
shareholders will be reoffered to the purchasing
shareholders. In the event the securities covered under
the right of first refusal are securities held by
Management, if so requested by the other Management
shareholders, the Company will assign part or all of
its rights under the right of first refusal to the
other Management Shareholders and they will have a
priority right over the
Company and other shareholders to purchase such
securities. Such priority right will not operate in the
event of a "Company Call" (see above).
All, but not less than all, of the offered securities
must be purchased; otherwise, the shareholder will be
free to sell the securities to a third-party. No sale
may occur during the period in which the securities are
subject to the "Company Call" (see above).
Compelled Sale: In the event shareholders controlling not less than 50%
--------------- of the voting Common Stock of the Company propose to
make a Control Transfer, then all shareholders of the
Company, including shareholders by virtue of holding
warrants or options to purchase or securities
exchangeable into Common Stock of the Company, can be
required to sell their securities in the Control
Transfer on a pro rata basis at the same price and on
the same terms as the compelling holders (a "Compelled
Sale"). A Control Transfer means sale or transfer of
greater than 50% of the voting Common Stock of the
Company to a third party.
Tag-Along Rights: If any Principal Investor (defined as partnerships or
----------------- corporations controlled by Quad-C) transfers or sells
more than 5% of the securities it owns in the Company
(in a transfer that is not an Exempt Transfer, a
Compelled Sale or a public sale), all other
shareholders of the Company, including shareholders by
virtue of holding warrants or options to purchase (but
only to the extent vested) or securities exchangeable
in Common Stock of the Company, shall have the right to
participate in such sale on a pro rata basis at the
same price and under the same terms as the Principal
Investor.
Board of Directors: Board size and representation will be determined.
------------------- Quad-C will control the Board. The Chief Executive
Officer of the Company and one additional Management
representative will be members of the Board.
Registration Rights: A Registration Rights Agreement will be entered into by
-------------------- all shareholders. Following an initial public offering
("IPO") of the Company, all shareholders who are
subject to securities law sale restrictions will have
pro rata piggyback rights on incidental registrations
of securities by the Company. Priority of registration
will be i) first to the Company for the shares it
wishes to register and sell, and ii) thereafter, to the
extent approved by the underwriters and the Company,
pro rata to the piggybacking shareholders. In addition,
Quad-C will be granted two long form demand
registrations.
Management shareholders will not have a right to sell
shares in an IPO unless recommended by the Board and
approved by the underwriters.
However, in the event that the underwriters allow non-
Management shareholders to sell shares in the IPO, the
Board and Company will use their reasonable efforts to
enable Management shareholders to sell shares in the
IPO.
Other: Xxxx Xxxxxxxx will keep his SERP benefits if his
------ employment ends before age 65 unless such he is
terminated for cause.
The Management shareholders agree that they have not
entered into and will not enter into any severance,
retention, compensation or employee benefit plan,
policy, program, arrangement or agreement under the
Proposed Program for the Assurance of Continued
Employment and Severance Benefits (the "Severance
Plan") pursuant to which the execution of the Merger
Agreement between Pine Holdings, Inc., Pine Acquisition
Corp. and Pulaski Furniture Corporation or the
consummation of the transactions contemplated thereby
constitutes or would constitute a "change in control"
of Pulaski Furniture Corporation within the meaning of
the Severance Plan. The parties further agree that the
Severance Plan will be terminated upon consummation of
the merger contemplated by such Merger Agreement.
