EX-99.(E)(10) 6 d95177ex99-e10.txt PROPOSED MEMORANDUM OF UNDERSTANDING [Draft: (New York) March 15, 2002,] EXHIBIT (e)(10) MEMORANDUM OF UNDERSTANDING BETWEEN MICHAEL CAPORALE, JR., 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 Michael Caporale, Jr. (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.
2 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) --------------- (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. 3 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: MICHAEL CAPORALE, JR. Date: ---------------------------------------------- -----------------------------------------------------
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