[Draft: (New York)
March 15, 2002,]
EXHIBIT (e)(10)
MEMORANDUM OF UNDERSTANDING
BETWEEN XXXXXXX XXXXXXXX, XX., AND HARVEST/AMI HOLDINGS INC.
RELATING TO TERMS OF EMPLOYMENT AND STOCK PARTICIPATION
By executing this Memorandum of Understanding, Harvest/AMI Holdings Inc.
("Buyer") and Xxxxxxx Xxxxxxxx, Xx. (the "Executive"), agree before the closing
of the tender offer by a wholly-owned subsidiary of Buyer ("Sub") for the common
stock of Associated Materials Incorporated (the "Company"), as more fully
described in the Agreement and Plan of Merger among Buyer, Sub, and the Company,
dated as of March , 2002 (the "Merger Agreement"), to sign definitive
documents incorporating the terms set forth below.
Amendments to Employment Agreement
Position...................... As of the Offer Completion Date (as defined in
the Merger Agreement) the Executive shall
become the President and Chief Executive
Officer of the Company and shall be a member of
the Company's Board of Directors.
Base Salary................... Initial base salary of $500,000, with annual
reviews by the Board of Directors.
Annual Incentive Bonus........ Amend to replace current bonus (equal to 0.0079
times Alside's pre-tax earnings) with a new
incentive bonus arrangement based primarily on
growth in Buyer's equity value, with a target
pay-out of 1 times annual base salary and a
maximum pay-out of 2 times annual base salary.
Until such new bonus arrangement is mutually
agreed to between Harvest Partners and the
Executive, the existing incentive bonus
arrangement will remain in place.
Employment Term............... 3 years from the Offer Completion Date (as
defined in the Merger Agreement), with
automatic one-year extensions commencing on the
first anniversary of the Offer Completion Date,
unless the Company provides the Executive with
at least 30 days advance written notice of
termination or upon termination under other
specified circumstances.
Severance..................... Upon involuntary termination by the Company
other than for cause (to be defined in the
employment agreement) and not due to
non-extension of the employment term by the
Company or disability (to be defined in the
employment agreement), or upon the Executive's
resignation for good reason (to be defined in
the employment agreement), the Executive shall
be entitled to severance equal to his annual
base salary, together with continued health and
dental benefits, for the longer of the
remaining employment term or two years, plus a
pro rata bonus for year of termination. As a
condition to receiving such payments and
benefits, the Executive shall be required to
execute and deliver to the Company a general
release of the Company and the Company's
affiliates and their respective officers,
directors and employees from all claims of any
kind whatsoever arising out of the Executive's
employment or termination thereof (including,
without limitation, civil rights claims) in
such form as reasonably requested by the
Company.
Non-competition/Non-solicitation/
Noninterference............... During the employment term and thereafter
during any period the Executive receives
severance, or for a period of one year
following
the executive's resignation without good
reason, the Executive shall not perform
services for, or otherwise be connected with,
any business in competition with the Company;
solicit the Company's employees for employment;
or interfere with the Company's relationships
with its customers, suppliers or employees.
Confidentiality............... Customary confidentiality and nondisclosure
covenants.
Stock-Based Arrangements
Stock Investment.............. The Executive may invest at the Closing Date or
within 3 months thereafter his own funds in
shares of Buyer's common and preferred stock
with an aggregate value of up to one times his
annual base salary at the same price per share
paid by, and on substantially the same terms
as, Buyer's other equity investors.
Roll-over Stock Options....... The Executive shall convert his existing
options on Company common stock into options to
purchase preferred and common stock of Buyer
with approximately the same aggregate exercise
price and aggregate value as his existing
Company options. Such Buyer options will be
fully exercisable and otherwise have terms and
conditions generally the same as the
Executive's existing options.
New Stock Options............. The Executive shall receive new options to
purchase an aggregate of 8% of Buyer's
outstanding common stock at the Closing Date at
a per-share exercise price equal to the price
per share paid by Buyer's other equity
investors. The principal terms and conditions
of such new stock options shall be as follows:
Time-vested 5% of Buyer's outstanding common
options stock at the Closing Date.
During the Executive's
employment, 10% of the option
becomes exercisable on the
Closing Date and 1 1/2% becomes
exercisable monthly over the
following 60 months, and the
Compensation Committee shall
accelerate exercisability in the
event of a Sale of the Business
(as defined).
Performance-vested 3% of Buyer's outstanding common
options stock at the Closing Date.
Option becomes exercisable if
Harvest Partners realizes a net
internal rate of return on its
equity investment in Buyer of at
least 27.5%, and at the time of
such liquidity event the
Executive continues to be
employed by the Company. If full
exercise of all
performance-vested options held
by Company employees would reduce
Harvest Partners' internal rate
of return to less than 27.5%,
performance-vested options will
be partially exercisable.
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Other terms and All options are non-qualified stock
conditions options.
10-year term, subject to earlier
termination in the event of
termination of employment.
If the Executive voluntarily
terminates his employment or the
Company terminates his employment
without cause, any then-exercisable
options may be exercised for 3 months
thereafter (subject to earlier
expiration date), and any other
options are forfeited.
If the Company terminates the
Executive's employment for cause, or
if the Executive violates the
non-competition, non-solicitation or
other restrictive covenants in his
employment agreement, all of the
Executive's options are forfeited.
Buyer Repurchase Rights....... If the Company terminates the Executive's
employment other than for cause or the
Executive resigns his employment for good
reason (as defined), Buyer will have a right to
repurchase any shares of Buyer stock and any
exercisable options then held by the Executive
at their fair market value at the time Buyer
delivers a repurchase notice to the Executive.
If the Company terminates the Executive's
employment for cause at any time, or if the
Executive violates the non-competition,
non-solicitation or other restrictive covenants
in his employment agreement, all of the
Executive's options terminate, and Buyer will
have the right to repurchase any shares of
Buyer stock then held by the Executive for an
amount equal to the lower of the Executive's
cost or fair market value. If the Executive
resigns his employment without good reason, all
of the Executive's options that are not then
exercisable terminate, Buyer will have the
right to repurchase any exercisable options
then held by the Executive at their fair market
value at the time Buyer delivers a repurchase
notice to the Executive, and Buyer will have
the right to repurchase any shares of Buyer
stock then held by the Executive for an amount
equal to the lower of the Executive's cost or
fair market value. If any restrictions
contained under Delaware law or in Buyer's or
its subsidiaries' debt or equity financing
agreements prohibit the payment of the purchase
price for shares of Buyer's stock, Buyer will
be entitled to make such payment as soon as it
is permitted to do so.(1)
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(1) Buyer will have the express right under debt or other financing agreements
to repurchase its stock; however, Buyer's exercise of this right may be
limited by other covenants in such agreements.
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Stockholders Agreement........ All shares of Buyer stock held by the Executive
will be subject to the terms and conditions of
Buyer's Stockholders Agreement, to which the
Executive shall be a party. The Stockholders
Agreement will contain customary transfer
restrictions, subject to permitted transfers
for estate planning purposes; drag-along rights
in favor of Harvest Partners and certain other
Buyer stockholders; and tag-along rights and
piggy-back registration rights, subject to
customary conditions, in favor of management
stockholders, including the Executive.
Buyer and the Executive have executed this Memorandum of Understanding
reflecting their agreement as to the terms contained herein as of the dates set
forth below.
HARVEST/AMI HOLDINGS INC.
Date: ---------------------------------------------- -----------------------------------------------------
Name:
Title:
XXXXXXX XXXXXXXX, XX.
Date: ---------------------------------------------- -----------------------------------------------------
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