THL Managers V LLC Management Agreement from RealDealDocs.com

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EXHIBIT 10.20

                                                                

                              MANAGEMENT AGREEMENT

 

     This Management Agreement (this “AGREEMENT”) is entered into as of the 19th

day of December, 2003, by and between Simmons Company, a Delaware corporation

(the “COMPANY”), and THL Managers V, LLC, a Delaware limited liability company

(the “SPONSOR”).

 

         WHEREAS, certain affiliates of Thomas H. Lee Partners, L.P. (“THL”)

have provided equity financing to the Company’s indirect parent, THL Bedding

Holding Company, a Delaware corporation (“HOLDINGS”), pursuant to that certain

Contribution Agreement dated as of December 19, 2003, by and among Holdings and

the persons listed on the signatures pages thereto.

 

         WHEREAS, Holdings’ indirect subsidiary, THL Bedding Company (“THL

BEDDING”) entered into that certain Stock Purchase Agreement by and among THL

Bedding, Simmons Holdings, Inc. and the sellers party thereto, dated as of

November 17, 2003, and THL Bedding entered into that certain ESOP Stock Sale

Agreement by and among THL Bedding, Simmons Holdings, Inc. and State Street Bank

and Trust Company, dated as of November 21, 2003, pursuant to which, as of the

date hereof, THL Bedding acquired all of the outstanding shares of Simmons

Holdings, Inc. (the “ACQUISITION”).

 

         WHEREAS, immediately following the Acquisition, THL Bedding merged with

and into Simmons Holdings, Inc. and Simmons Holdings, Inc. merged with and into

Simmons Company, with Simmons Company as the surviving entity.

 

         WHEREAS, the Sponsor has staff specifically skilled in corporate

finance, strategic corporate planning, and other management skills and advisory

services.

 

         WHEREAS, the Company will require the Sponsor’s special skills and

management advisory services in connection with its business operations and

execution of its strategic plan.

 

         WHEREAS, the Sponsor is willing to provide such skills and services to

the Company.

 

         NOW, THEREFORE, in consideration of the mutual covenants contained

herein, and for other good and valuable consideration, the receipt and

sufficiency of which are hereby acknowledged, the parties hereto, intending to

be legally bound, hereby agree as follows:

 

         1.       Services. The Sponsor hereby agrees that if, during the term

of this Agreement (the “TERM”), the Company reasonably and specifically requests

that the Sponsor provide the services set forth below and the Sponsor agrees to

provide such services, the Sponsor or one of its affiliates will provide the

following services to the Company and its subsidiaries:

 

         (a)      advice in connection with the negotiation and consummation of

agreements, contracts, documents and instruments related to the Company’s

finances or relationships with banks or other financial institutions; or

 

       (b)      advice with respect to the development and implementation of

strategies for improving the operating, marketing and financial performance of

the Company, and other senior management matters related to the business,

administration and policies of the Company.

 

         The Sponsor shall have no obligation to the Company as to the method or

timing of services rendered hereunder, and the Company shall not have any right

to dictate or direct the details of the performance of services by the Sponsor

rendered hereunder.

 

         The parties hereto expressly acknowledge that the services to be

performed hereunder by the Sponsor shall not include investment banking or other

financial advisory services rendered by Sponsor or its affiliates to the Company

in connection with any specific acquisition, divestiture, refinancing or

recapitalization by the Company or any of its subsidiaries for which the Sponsor

may be entitled to receive additional compensation by mutual agreement of the

Company or its subsidiary and the Sponsor. This Agreement shall in no way

prohibit the Sponsor or any of its affiliates or any of their respective

partners (both general and limited), members (both managing and otherwise),

officers, directors, employees, agents or representatives from engaging in other

activities, whether or not competitive with any business of the Company of any

of its affiliates.

 

         2.       Payment of Fees. In exchange for the Sponsor’s arrangement of

the equity financing and agreement to provide the services set forth herein, the

Company hereby agrees to pay to the Sponsor (or its designee) the following

fees:

 

                  (a)      a transaction fee in connection with the transactions

contemplated in the Stock Purchase Agreement payable at the Closing (as defined

in the Stock Purchase Agreement) of $20,000,000; and

 

                  (b)      a management fee (the “FEE”) equal to the greater of

(i) $1,500,000 per year or (ii) 1.0% of Consolidated EBITDA (as defined in the

Credit and Guaranty Agreement dated as of December 19, 2003 by and among the

Lenders from time to time party thereto, Goldman Sachs Credit Partners L.P., UBS

Securities LLC, Deutche Bank A.G., Cayman Islands Branch, the Company and

certain of the subsidiaries of the Company, as the same may be amended,

modified, renewed, refunded, replaced or refinanced from time to time) before

deducting the Fee payable pursuant to this Section 2(b) (“ADJUSTED EBITDA”),

commencing at the Closing. The Fee shall be payable semi-annually in advance

(based on the prior year’s Adjusted EBITDA) on January 2nd and July 2nd of each

year, with an adjustment of the Fee for any fiscal year payable promptly

following the determination of Adjusted EBITDA for such fiscal year or on

termination of this Agreement. The first installment of the Fee shall be payable

at the Closing. The initial Fee shall be for the period through July 2, 2004 and

shall include a pro rata portion of the 2003 fiscal year based on the number of

days in the 2003 fiscal year following the Closing. All references to “per

annum” or “annual” herein refer to the fiscal year of the Company.

 

         Each payment made pursuant to this Section 2 shall be paid by wire

transfer of immediately available funds to the accounts specified on Exhibit A

attached hereto, or to such other account(s) as each Sponsor may specify in

writing to the Company.

 

         3.       Term. This Agreement shall be effective as of the date hereof

and shall continue in full force and effect, unless and until (a) terminated by

the Sponsor, (b) terminated automatically on the date which the Sponsor and its

affiliates no longer beneficially owns at least twenty percent

 

                                       2

 

(20%) of the equity securities of Holdings, or (c) terminated by the Sponsor

upon the consummation of any public offering of the equity securities of the

Company or Holdings. Upon any termination of this Agreement, each of (A) the

obligations of the Company under Section 4 below, (B) any and all owed and

unpaid obligations of the Company under Section 2 above and (C) the provisions

of Section 7 shall survive any termination of this Agreement to the maximum

extent permitted under applicable law. In the event that the Sponsor terminates

this Agreement in accordance with clause (c) above of this Section, the Company

agrees to pay the Sponsor a cash lump-sum termination fee equal to the net

present value of the fees that would have been payable to such Sponsor (but for

the termination hereof) pursuant to Section 2(b) hereof for a period of seven

(7) years from the date of such termination calculated using a discount rate

equal to the ten-year treasury rate on the date of such termination. Such

termination fee shall be payable by wire transfer of immediately available funds

within ten (10) days after the date of termination to the account specified on

Exhibit A attached hereto, or to such other account(s) as the Sponsor may

specify in writing to the Company. As used herein, the term “PERSON” shall be

construed in the broadest sense and means and includes a natural person, a

partnership, a corporation, an association, a joint stock company, a limited

liability company, a trust, a joint venture, an unincorporated organization and

any other entity and any federal, state, municipal, foreign or other government,

governmental department, commission, board, bureau, agency or instrumentality,

or any private or public court or tribunal.

 

         4.       Expenses; Indemnification.

 

         (a)      Expenses. In addition to the fees set forth in Section 2

hereof, the Company agrees to pay on demand all reasonable costs and expenses

incurred by the Sponsor and their affiliates or any of them in connection with

this Agreement and in connection with performing services hereunder including

but not limited to air travel charged at charter equivalent rates, legal,

consulting, out of pocket and other expenses, including but not limited to the

fees and disbursements of Weil, Gotshal & Manges LLP, counsel to the Sponsor,

and any other consultants or advisors retained by the Sponsor or its respective

counsel arising in connection therewith, including but not limited to the

preparation, negotiation and execution of this Agreement, the performance of

services hereunder (including, without limitation, fees and expenses of

independent professionals, research, transportation and per diem costs).

 

         (b)      Indemnity and Liability. The Company will indemnify and hold

harmless the Sponsor, its affiliates and their respective partners (both general

and limited), members (both managing and otherwise), officers, directors,

employees, agents and representatives (each such Person being an “INDEMNIFIED

PARTY”) from and against any and all losses, claims, damages and liabilities,

whether joint or several, expenses of any nature (including reasonable

attorneys’ fees and disbursements), judgments, fines, settlements and other

amounts arising from any and all claims, demands, actions, suits or proceedings,

whether civil, criminal, administrative, arbitral or investigative, in which an

Indemnified Party was involved or may be involved, or threatened to be involved,

as a party or otherwise (the “LIABILITIES”), related to, arising out of or in

connection with the advisory and consulting services contemplated by this

Agreement or the engagement of the Sponsor pursuant to, and the performance by

the Sponsor of the services contemplated by, this Agreement, and any other

action taken by an Indemnified Party on behalf of the Company in connection with

this Agreement, whether or not pending or threatened, whether or not resulting

in any liability and whether or not such action, claim, suit, investigation or

proceeding is initiated or brought by the Company. The Company will reimburse

any Indemnified Party for all reasonable costs and expenses (including

reasonable attorneys’ fees and expenses) as they are incurred in

 

                                       3

<PAGE>

 

connection with investigating, preparing, pursuing, defending or assisting in

the defense of any action, claim, suit, investigation or proceeding for which

the Indemnified Party would be entitled to indemnification under the terms of

the previous sentence, or any action or proceeding arising therefrom, whether or

not such Indemnified Party is a party thereto, provided that, subject to the

following sentence, the Company shall be entitled to assume the defense thereof

at its own expense, with counsel satisfactory to such Indemnified Party in its

reasonable judgment. Any Indemnified Party may, at its own expense, retain

separate counsel to participate in such defense, and in any action, claim, suit,

investigation or proceeding in which both the Company and/or one or more of its

subsidiaries, on the one hand, and an Indemnified Party, on the other hand, is,

or is reasonably likely to become, a party, such Indemnified Party shall have

the right to employ separate counsel at the expense of the Company and to

control its own defense of such action, claim, suit, investigation or proceeding

if, in the reasonable opinion of counsel to such Indemnified Party, a conflict

or potential conflict exists between the Company, on the one hand, and such

Indemnified Party, on the other hand, that would make such separate

representation advisable. The Company agrees that it will not, without the prior

written consent of the applicable Indemnified Party, settle, compromise or

consent to the entry of any judgment in any pending or threatened claim, suit,

investigation, action or proceeding relating to the matters contemplated hereby

(if any Indemnified Party is a party thereto or has been threatened to be made a

party thereto) unless such settlement, compromise or consent includes an

unconditional release of the applicable Indemnified Party and each other

Indemnified Party from all liability arising or that may arise out of such

claim, suit, investigation, action or proceeding. Provided the Company is not in

breach of its indemnification obligations hereunder, no Indemnified Party shall

settle or compromise any claim subject to indemnification hereunder without the

consent of the Company. The Company will not be liable under the foregoing

indemnification provision with respect to any Indemnified Party, to the extent

that any loss, claim, damage, liability, cost or expense is determined by a

court, in a final judgment from which no further appeal may be taken, to have

resulted primarily from the gross negligence or willful misconduct by an

Indemnified Party. If an Indemnified Party is reimbursed hereunder for any

expenses, such reimbursement of expenses shall be refunded to the extent it is

finally judicially determined that the Liabilities in question resulted

primarily from the gross negligence or willful misconduct of such Indemnified

Party.

 

         The Company agrees that if any indemnification sought by any

Indemnified Party pursuant to this Section 4 is unavailable for any reason or is

insufficient to hold the Indemnified Party harmless against any Liabilities

referred to herein, then the Company shall contribute to the Liabilities for

which such indemnification is held unavailable or insufficient in such

proportion as is appropriate to reflect the relative benefits received (or

anticipated to be received) by the Company, on the one hand, and the Indemnified

Party, on the other hand, in connection with the transactions which gave rise to

such Liabilities or, if such allocation is not permitted by applicable law, not

only such relative benefits but also the relative faults of the Company, on the

one hand, and the Indemnified Party, on the other hand, as well as any other

equitable considerations, subject to the limitation that in any event the

aggregate contribution by the Indemnified Parties to all Liabilities with

respect to which contribution is available hereunder shall not exceed the fees

actually received by the Sponsors in connection with the transaction which gave

rise to such Liabilities (excluding any amounts paid as reimbursement of

expenses).

 

         5.       Assignment, etc. Except as provided below, neither the Company

nor the Sponsor shall have the right to assign this Agreement. The Sponsor

acknowledges that its services under this Agreement are unique. Accordingly, any

purported assignment by the Sponsor shall be void.

 

                                       4

<PAGE>

 

Notwithstanding the foregoing, the Sponsor may assign all or part of its rights

and obligations hereunder to any affiliate of such Sponsor which provides

services similar to those called for by this Agreement.

 

         6.       Amendments and Waivers. No amendment or waiver of any term,

provision or condition of this Agreement shall be effective, unless in writing

and executed by the Sponsor and the Company. No waiver on any one occasion shall

extend to or effect or be construed as a waiver of any right or remedy on any

future occasion. No course of dealing of any Person nor any delay or omission in

exercising any right or remedy shall constitute an amendment of this Agreement

or a waiver of any right or remedy of any party hereto.

 

         7.       Miscellaneous.

 

         (a)      Choice of Law. This Agreement shall be governed by and

construed in accordance with the domestic substantive laws of The Commonwealth

of Massachusetts without giving effect to any choice or conflict of law

provision or rule that would cause the application of the domestic substantive

laws of any other jurisdiction.

 

         (b)      Consent to Jurisdiction. Each of the parties agrees that all

actions, suits or proceedings arising out of or based upon this Agreement or the

subject matter hereof shall be brought and maintained exclusively in the federal

and state courts of The Commonwealth of Massachusetts. Each of the parties

hereto by execution hereof (i) hereby irrevocably submits to the jurisdiction of

the federal and state courts in The Commonwealth of Massachusetts for the

purpose of any action, suit or proceeding arising out of or based upon this

Agreement or the subject matter hereof and (ii) hereby waives to the extent not

prohibited by applicable law, and agrees not to assert, by way of motion, as a

defense or otherwise, in any such action, suit or proceeding, any claim that it

is not subject personally to the jurisdiction of the above-named courts, that it

is immune from extraterritorial injunctive relief or other injunctive relief,

that its property is exempt or immune from attachment or execution, that any

such action, suit or proceeding may not be brought or maintained in one of the

above-named courts, that any such action, suit or proceeding brought or

maintained in one of the above-named courts should be dismissed on grounds of

forum non conveniens, should be transferred to any court other than one of the

above-named courts, should be stayed by virtue of the pendency of any other

action, suit or proceeding in any court other than one of the above-named

courts, or that this Agreement or the subject matter hereof may not be enforced

in or by any of the above-named courts. Each of the parties hereto hereby

consents to service of process in any such suit, action or proceeding in any

manner permitted by the laws of The Commonwealth of Massachusetts, agrees that

service of process by registered or certified mail, return receipt requested, at

the address specified in or pursuant to Section 10 is reasonably calculated to

give actual notice and waives and agrees not to assert by way of motion, as a

defense or otherwise, in any such action, suit or proceeding any claim that

service of process made in accordance with Section 10 does not constitute good

and sufficient service of process. The provisions of this Section 7(b) shall not

restrict the ability of any party to enforce in any court any judgment obtained

in a federal or state court of The Commonwealth of Massachusetts.

 

         (c)      Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY

APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES,

AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR

OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN

 

                                       5

<PAGE>

 

RESPECT OF ANY ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT OR PROCEEDING

ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT HEREOF, IN EACH CASE

WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR

OTHERWISE. Each of the parties hereto acknowledges that it has been informed by

each other party that the provisions of this Section 7(c) constitute a material

inducement upon which such party is relying and will rely in entering into this

Agreement and the transactions contemplated hereby. Any of the parties hereto

may file an original counterpart or a copy of this Agreement with any court as

written evidence of the consent of each of the parties hereto to the waiver of

its right to trial by jury.

 

         8.       Independent Contractor. The parties agree and understand that

the Sponsor is and shall act as an independent contractor of the Company in the

performance of its duties hereunder. The Sponsor is not, and in the performance

of its duties hereunder will not hold itself out as, an employee, agent or

partner of the Company.

 

         9.       Merger/Entire Agreement. This Agreement contains the entire

understanding of the parties with respect to the subject matter hereof and

supersedes any prior communication or agreement with respect thereto.

 

         10.      Notice. All notices, demands, and communications of any kind

which any party may require or desire to serve upon any other party under this

Agreement shall be in writing and shall be served upon such other party and such

other party’s copied persons as specified below by personal delivery to the

address set forth for it below or to such other address as such party shall have

specified by notice to each other party or by mailing a copy thereof by

certified or registered mail, or by Federal Express or any other reputable

overnight courier service, postage prepaid, with return receipt requested,

addressed to such party and copied persons at such addresses. In the case of

service by personal delivery, it shall be deemed complete on the first business

day after the date of actual delivery to such address. In case of service by

mail or by overnight courier, it shall be deemed complete, whether or not

received, on the third day after the date of mailing as shown by the registered

or certified mail receipt or courier service receipt. Notwithstanding the

foregoing, notice to any party or copied Person of change of address shall be

deemed complete only upon actual receipt by an officer or agent of such party or

copied person.

 

         If to the Company, to it at:

 

                  Simmons Company

                  One Concourse Parkway, Suite 800

                  Atlanta, Georgia  30328

                  Attn: Chief Financial Officer and General Counsel

                  Telecopier: 770-392-2565

 

                                       6

<PAGE>

 

         If to Sponsor, to it at:

 

                  THL Managers V, LLC

                  c/o Thomas H. Lee Partners, L.P.

                  75 State Street

                  Boston, MA 02109

                  Attention:        Mr. Scott A. Schoen

                                    Mr. Todd Abbrecht

                                    Mr. George Taylor

                  Telecopier:  (617) 227-3514

 

         with a copy to:

 

                  Weil, Gotshal & Manges LLP

                  100 Federal Street

                  Boston, Massachusetts 02110

                  Attention: James Westra, Esq.

                  Telecopier: (617) 772-8333

 

         11.      Severability. If in any judicial or arbitral proceedings a

court or arbitrator shall refuse to enforce any provision of this Agreement,

then such unenforceable provision shall be deemed eliminated from this Agreement

for the purpose of such proceedings to the extent necessary to permit the

remaining provisions to be enforced. To the full extent, however, that the

provisions of any applicable law may be waived, they are hereby waived to the

end that this Agreement be, deemed to be a valid and binding agreement

enforceable in accordance with its terms, and in the event that any provision

hereof shall be found to be invalid or unenforceable, such provision shall be

construed by limiting it so as to be valid and enforceable to the maximum extent

consistent with and possible under applicable law.

 

         12.      Counterparts. This Agreement may be executed in any number of

counterparts and by each of the parties hereto in separate counterparts, each of

which when so executed shall be deemed to be an original and all of which

together shall constitute one and the same agreement.

 

         13.      Headings. All descriptive headings in this Agreement are

inserted for convenience only and shall be disregarded in construing or applying

any provision of this Agreement.

 

         14.      Prevailing Party. If any legal action or other proceedings is

brought for a breach of this Agreement or any of the warranties herein, the

prevailing party shall be entitled to recover its reasonable attorneys’ fees and

other costs incurred in bringing such action or proceeding, in addition to any

other relief to which such party may be entitled.

 

                                    * * * * *

 

                                       7

<PAGE>

 

         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be

executed on its behalf as an instrument under seal as of the date first above

written by its officer or representative thereunto duly authorized.

 

                                        SIMMONS COMPANY

 

                                        By: /s/ William S. Creekmuir

                                            ————————–

                                            Name: William S. Creekmuir

                                            Title: Executive Vice President

                                                   and CFO

 

                                        THL MANAGERS V, LLC

 

                                        By: Thomas H. Lee Partners, L.P., its

                                              Managing Member

 

                                        By: THL Equity Advisors V, L.P., its

                                              General Partner

 

                                        By: /s/ Scott A. Schoen

                                            ————————-

                                            Name: Scott A. Schoen

                                            Title: Managing Director

 

Management Agreement

 

 

                                       8

<PAGE>

 

                                                                       EXHIBIT A

 

                                Wire Instructions

 

THL Managers V, LLC

 

FleetBoston

100 Federal Street

Boston, MA

ABA #

Account Name:  THL Managers V, LLC

Account #

 

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