Exhibit 10.12
 
EMPLOYMENT AGREEMENT
 
This EMPLOYMENT AGREEMENT (the “Agreement”), dated as of February 22, 2011 (the
“Effective Date”), by and between Jennifer Convertibles, Inc. (the “Company),
having its principal place of business at 417 Crossways Park Drive, Woodbury,
New York 11797 and Gebing (“Morris”) Zou (“Executive”, and the Company and the
Executive collectively referred to herein as the “Parties”).
 
W I T N E S S E T H:
 
WHEREAS, the Company desires to employ Executive as Chief Executive Officer
(“CEO”) of the Company, and the Parties desire to enter into this Agreement
embodying the terms of such employment;
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
promises of the Parties contained herein, the Parties, intending to be legally
bound, hereby agree as follows:
 
1.           Title and Job Duties.
 
(a)           Subject to the terms and conditions set forth in this Agreement,
the Company agrees to employ Executive as CEO.  In this capacity, Executive
shall have the duties, authorities and responsibilities commensurate with the
duties, authorities and responsibilities of persons in similar capacities in
similarly sized companies, and such other duties, authorities and
responsibilities as the Board of Directors of the Company (the “Board”) shall
designate from time to time that are not inconsistent with the Executive’s
position as CEO.  Executive shall report directly to the Board.
 
(b)           Executive accepts such employment and agrees, during the term of
his employment, to carry out and abide by all lawful directions of the Board
that are consistent with his position as CEO.
 
(c)           The Company acknowledges that Executive’s principal place of
residence is in the People’s Republic of China and that Executive is also
employed as CEO of Haining Mengnu Group Co., Ltd. (`Mengnu”).
 
(d)           Executive may own passive investments in Competing Businesses,
defined below (including, but not limited to, indirect investments through
mutual funds), provided the securities of the Competing Business are publicly
traded and Executive does not own or control, directly or indirectly, more than
one percent (1%) of the outstanding voting rights or equity of the Competing
Business.  “Competing Business” means any corporation, partnership, limited
liability company or other entity or person (other than the Company and Mengnu
and its affiliates) which is engaged in any business carried on by any of the
Company, its parents, subsidiaries, divisions or affiliates.
 
 
 

--------------------------------------------------------------------------------

 
 
2.           Salary and Additional Compensation.
 
(a)           Base Salary.  The Company shall pay to Executive an annual base
salary of $250,000 less applicable withholdings and deductions, in accordance
with the Company’s normal payroll procedures.
 
(b)           Bonus.  Beginning in fiscal year 2012, the Company shall pay to
Executive an annual bonus for each fiscal year in an amount equal to three
percent (3%) of the Company’s Earnings Before Interest, Taxes, Depreciation and
Amortization (“EBITDA”).  Such bonus shall be paid each year within thirty (30)
days of the date that the Company’s audited financial statements are issued.
 
(i)           For purposes of this Agreement, “EBITDA” in any given year or
years shall exclude (i) the effects, if any, of the Company’s obligations to pay
the Extension Fee and to reimburse legal fees pursuant to Amendment Number 1 to
the Merchant Agreement dated January 13, 2010 between the Company, Merrick Bank,
and Renaissance Associates, and (ii) such other extraordinary and non-recurring
payments as the Board of Directors in its sole discretion may decide.
 
(c)           Options.  On the Effective Date, the Company shall grant to
Executive an option to purchase three percent (3%) of the Company’s common stock
(“Options”) at an exercise price equivalent to $144,444 for one percent (1%) of
the Company’s common stock (which the Parties agree represents the fair market
value of the Company’s common stock on the Effective Date), and the Options
shall vest as follows: one-third (1/3) of the Options shall vest on August 27,
2011, one-third (1/3) of the Options shall vest on August 26, 2012, and
one-third (1/3) of the Options shall vest on August 31, 2013, subject in each
case to Executive being employed by the Company on each such respective date.
 
3.           Expenses.  In accordance with Company policy, the Company shall
reimburse Executive for all reasonable business expenses properly and reasonably
incurred and paid by Executive in the performance of his duties under this
Agreement upon his presentment of detailed receipts in the form required by the
Company’s policy.
 
4.           Benefits.
 
(a)           Vacation.  Executive shall be entitled to the greater of (i) three
(3) weeks of vacation per year of employment or (ii) such other amount as is
consistent with the vacation policies of Mengnu.
 
(b)           Health Insurance and Other Plans.  Executive shall be eligible to
participate in the Company’s medical, dental, and other employee benefit
programs, if any, that are provided by the Company for its employees generally,
at levels commensurate with Executive’s position, in accordance with the
provisions of any such plans, as the same may be in effect from time to time.
 
5.           Term.  The terms set forth in this Agreement will commence on the
Effective Date hereof and shall remain in effect through August 31, 2013 (the
“Term”) unless earlier terminated as otherwise provided herein.  The Term shall
automatically renew for additional one (1) year periods (also, the “Term”),
unless either of the Parties gives written notice to the other of non-renewal
ninety (90) days or more prior to the expiration of the Term.
 
 
2

--------------------------------------------------------------------------------

 
 
6.           Termination.
 
(a)           Termination at the Company’s Election.
 
(i)           For Cause.  At the election of the Company, Executive’s employment
may be terminated for Cause (as defined below) upon written notice to Executive
pursuant to Section 9 of this Agreement.  For purposes of this Agreement,
“Cause” for termination shall mean that Executive: (A) has been convicted of,
plead guilty or no contest to a felony or to a crime involving moral turpitude
or theft; (B) engages in misconduct detrimental to the Company; or (C)
materially fails to comply with applicable laws with respect to the Company’s
operations, provided that if the Company provides written notice of Cause
pursuant to (B) through (C), the Executive shall be given thirty (30) days from
the date of such written notice to cure such conduct if such breach is curable.
At the time the Company provides such written notice of Cause, the Company, at
its sole discretion, may temporarily relieve Executive of his duties and absent
him from the premises pending the cure period.
 
(ii)           Upon Disability Death or Without Cause.  At the election of the
Company, Executive’s employment may be terminated without Cause: (A) should
Executive become physically or mentally unable to perform his duties for the
Company hereunder and such incapacity has continued for a total of ninety (90)
consecutive days or any one hundred eighty (180) days in a period of three
hundred sixty-five (365) consecutive days (a “Disability”); (B) upon Executive’s
death (“Death”); or (C) upon written notice for any other reason or for no
reason at all.
 
(b)           Termination at the Executive’s Election.
 
(i)           For Good Reason.  At Executive’s election, Executive’s employment
may be terminated for Good Reason (as defined below) by providing notice to the
Company pursuant to Section 9 of this Agreement.  For purposes of this
Agreement, “Good Reason” shall be deemed to exist if the following actions occur
without Executive’s consent: (A) a material diminution in Executive’s Base
Salary; or (B) a material diminution in Executive’s authority, duties or
responsibilities under this Agreement.  In the event either of the occurrences
in (A) and (B) above have occurred, the Company shall be given written notice by
Executive of Executive’s intention to so terminate Executive’s employment, such
notice: (i) to state in detail the particular acts or failures to act that
constitute the grounds on which the proposed termination for Good Reason is
based, (ii) to be given within sixty (60) days after the first occurrence of
such acts or failures to act, and (iii) the Company shall have thirty (30) days
following receipt of such notice to cure such acts or failures to act in all
material respects. If the Company has not cured such acts or failures to act
within the thirty (30) day cure period, then the Executive’s employment shall be
immediately terminated for Good Reason.
 
 
3

--------------------------------------------------------------------------------

 
 
(ii)           Voluntary Resignation.  Notwithstanding anything contained
elsewhere in this Agreement to the contrary, Executive may terminate his
employment hereunder at any time and for any reason whatsoever or for no reason
at all in Executive’s sole discretion by giving sixty (60) days written notice
pursuant to Section 9 of this Agreement (“Voluntary Resignation”).
 
7.           Payments Upon Termination of Employment.
 
(a)           Termination for Death, Disability, Cause or Voluntary
Resignation.  If, prior to the expiration of the Term, the Executive’s
employment is terminated by the Company for Cause or as a result of the
Executive’s Voluntary Resignation, the Executive shall be entitled to the
following amounts only: (A) payment of his Base Salary accrued up to and
including the date of termination or resignation payable within thirty (30) days
following termination or resignation; (B) payment of any unreimbursed expenses
in accordance with the Company’s business expense reimbursement policy; and (C)
payments and benefits under any Company benefit plan, program or policy that
Executive participated in during employment and paid pursuant to the terms of
such plan, program or policy (collectively, the “Accrued Obligations”).
 
(b)           Termination By Means of Non-Renewal of the Term by the Company,
Termination Without Cause, or Termination By Executive For Good Reason.  If
Executive’s employment is terminated at the Company’s election either by means
of non-renewal of the Term or without Cause or at the Executive’s election for
Good Reason, Executive shall be entitled to receive the following:
 
(i)           the Accrued Obligations;
 
(ii)           a lump sum severance payment equal to nine (9) months of
Executive’s base salary if the termination occurs on or before December 31, 2011
or six (6) months of Executive’s base salary if the termination occurs on or
after January 1, 2012 (the “Severance Payment”) payable within thirty (30) days
of termination;
 
(iii)           if the date of the termination is on or after September 1, 2011,
provided that Executive has been employed by the Company for at least six (6)
months of the fiscal year in which the termination occurs, a bonus payment equal
to five percent (5%) of EBITDA for that fiscal year, multiplied by: the
percentage of the fiscal year that the Executive was employed by the Company,
multiplied by itself.  For example, if Executive’s employment is terminated in
May of a fiscal year, the EBITDA for that year is $5,000,000, and Executive has
been employed for seventy-five percent (75%) of such fiscal year, the
calculation of his bonus following termination shall be as follows: three
percent (3%) of EBITDA multiplied by seventy-five percent (75%), multiplied by
seventy-five percent (75%) (or $150,000 x .75 x .75 = $84,375).  Such prorated
portion of the annual bonus shall be paid in a lump sum payment within thirty
(30) days of the issuance of the Company’s audited financial statements for such
fiscal year, but not later than the last day of the calendar year in which the
termination occurs (the “Bonus Payment”); and
 
(iv)           immediate vesting of a prorated portion of the Options that are
scheduled to vest pursuant to Section 2(c)(i) in the fiscal year during which
Executive’s employment is terminated, prorated based on the percentage of the
fiscal year that Executive was employed by the Company.  If Executive’s
employment is terminated during fiscal year 2011, the Options shall be prorated
based on the percentage of the six (6) month period between March 1, 2011 and
August 31, 2011 that Executive was employed.
 
 
4

--------------------------------------------------------------------------------

 
 
(v)           The Severance Payment and the Bonus Payment set forth in Sections
7(b)(ii), 7(b)(iii) and 7(b)(iv) above shall be subject to Executive’s execution
and delivery of a general release (that is no longer subject to revocation under
applicable law) of the Company, its parents, subsidiaries and affiliates and
each of its officers, directors, employees, agents, successors and assigns in
the form that is acceptable to the Company (the “General Release”).  All
payments under Sections 7(b)(ii) and 7(b)(iii) shall begin within sixty (60)
days following termination of employment, provided, however, that if the sixty
(60) day period begins in one calendar year and ends in the second calendar
year, payment and/or grants will be made on the first day in the second calendar
year after Executive’s execution and delivery of the General Release (that is no
longer subject to revocation under applicable law).
 
(c)           Notwithstanding the foregoing, Executive agrees that in the event
that all or a portion of any payment described in Subparagraph (b) of this
Paragraph 7 constitutes nonqualified deferred compensation within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and
Executive is at such time a specified employee, such payment or payments that
constitute nonqualified deferred compensation within the meaning of the Code
shall not be made prior to the date which is six (6) months after the date
Employee separates from service (within the meaning of the Code).
 
(d)           No Mitigation.  Executive shall not be required to mitigate the
amount of any payment provided for pursuant to this Agreement by seeking other
employment, and no amounts earned pursuant to other employment shall be set—off
against the amounts due hereunder.
 
8.           Legal Fees.  The Company shall reimburse Executive for reasonable,
documented legal fees incurred by Executive in connection with the negotiation
and execution of this Agreement in an amount not to exceed $2,500.
 
9.           Notice.  Any notice or other communication required or permitted to
be given to the Parties shall be deemed to have been given if personally
delivered, if sent by nationally recognized overnight courier or if mailed by
certified or registered mail, return receipt requested, first class postage
prepaid, and addressed as follows:
 
If to Executive, to:
the home address shown on the records of the Company.
 
with a copy to:
James Jiang
c/o King & Wood
444 Madison Avenue, 42nd Floor
New York, New York 10022
 
 
5

--------------------------------------------------------------------------------

 
 
If to the Company, to:
Jennifer Convertibles, Inc.
417 Crossways Park Drive
Woodbury, New York 11797
Attention: Rami Abada
 
with a copy to:
James Jiang
c/o King & Wood
444 Madison Avenue, 42nd Floor
New York, New York 10022
 
10.           Severability.  If any provision of this Agreement is declared void
or unenforceable by a court of competent jurisdiction, all other provisions
shall nonetheless remain in full force and effect.
 
11.           Governing Law.  This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
regard to the conflict of laws provisions thereof.  Any action, suit or other
legal proceeding that is commenced to resolve any matter arising under or
relating to any provision of this Agreement shall be submitted to the exclusive
jurisdiction of any state or federal court in New York County.
 
12.           Indemnification and Liability Insurance.  The Company shall
indemnify and cover Executive under the Company’s directors’ and officers’
liability insurance during the Term in the same amount and to the same extent as
the Company indemnifies and covers its other officers- and directors.
 
13.           Waiver.  The waiver by either Party of a breach of any provision
of this Agreement shall not be construed as a waiver of any subsequent
breach.  The failure of a Party to insist upon strict adherence to any provision
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that Party of the right thereafter to insist upon strict adherence to
that provision or any other provision of this Agreement.  Any waiver must be in
writing.
 
14.           Assignment.  This Agreement is a personal contract and Executive
may not sell, transfer, assign, pledge or hypothecate his rights, interests and
obligations hereunder.  Except as otherwise herein expressly provided, this
Agreement shall be binding upon and shall inure to the benefit of Executive and
his personal representatives and shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
 
15.           Entire Agreement.  This Agreement (together with the Exhibits
attached hereto) embodies all of the representations, warranties, and agreements
between the Parties relating to Executive’s employment with the Company.  No
other representations, warranties, covenants, understandings, or agreements
exist between the Parties relating to Executive’s employment.  This Agreement
shall supersede all prior agreements, written or oral, relating to Executive’s
employment.  This Agreement may not be amended or modified except by a writing
signed by the Parties.
 
 
6

--------------------------------------------------------------------------------

 
 
16.           Code Section 409A Compliance.
 
(a)           The intent of the parties is that payments and benefits under this
Agreement comply with, or be exempt from, Code Section 409A and the regulations
and guidance promulgated thereunder (collectively “Code Section 409A”) and,
accordingly, to the maximum extent permitted, this Agreement shall be
interpreted to be in compliance therewith.  If the Executive notifies the
Company (with specificity as to the reason therefor) that the Executive believes
that as a result of subsequent published guidance issued by the I.R.S. upon
which taxpayers generally rely, any provision of this Agreement (or of any award
of compensation, including equity compensation or benefits) would cause
Executive to incur any additional tax or interest under Code Section 409A and
the Company concurs with such belief or the Company independently makes such
determination, the Company shall, after consulting with the Executive, reform
such provision to try to comply with Code Section 409A through good faith
modifications to the minimum extent reasonably appropriate to conform with Code
Section 409A. To the extent that any provision hereof is modified in order to
comply with Code Section 409A, such modification shall be made in good faith and
shall, to the maximum extent reasonably possible, maintain the original intent
and economic benefit to the Executive and the Company and is tax neutral to the
Company of the applicable provision without violating the provisions of Code
Section 409A.
 
(b)           A termination of employment shall not be deemed to have occurred
for purposes of any provision of this Agreement providing for the payment of any
amounts or benefits upon or following a termination of employment that are
considered “nonqualified deferred compensation” under Code Section 409A unless
such termination is also a “separation from service” within the meaning of Code
Section 409A and, for purposes of any such provision of this Agreement,
references to a “termination,” “termination of employment” or like terms shall
mean “separation from service.” If the Executive is deemed on the date of
termination to be a “specified employee” within the meaning of that term under
Code Section 409A(a)(2)(B), then with regard to any payment that is considered
non-qualified deferred compensation under Code Section 409A payable on account
of a “separation from service,” such payment or benefit shall be made or
provided at the date which is the earlier of (A) the expiration of the six
(6)-month period measured from the date of such “separation from service” of the
Executive, and (B) thirty (30) days from the date of the Executive’s death (the
“Delay Period”). Upon the expiration of the Delay Period, all payments and
benefits delayed pursuant to this Section 20 (whether they would have otherwise
been payable in a single sum or in installments in the absence of such delay)
shall be paid or reimbursed to the Executive in a lump sum with interest at the
prime rate as published in The Wall Street Journal on the first business day of
the Delay Period, and any remaining payments and benefits due under this
Agreement shall be paid or provided in accordance with the normal payment dates
specified for them herein.
 
 
7

--------------------------------------------------------------------------------

 
 
(c)           With regard to any provision herein that provides for
reimbursement of costs and expenses or in-kind benefits, except as permitted by
Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not
be subject to liquidation or exchange for another benefit, (ii) the amount of
expenses eligible for reimbursement, or in-kind benefits, provided during any
taxable year shall not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other taxable year, provided that the
foregoing clause (ii) shall not be violated without regard to expenses
reimbursed under any arrangement covered by Code Section 105(b) solely because
such expenses are subject to a limit related to the period the arrangement is in
effect and (iii) such payments shall be made on or before the last day of
Executive’s taxable year following the taxable year in which the expense
occurred.
 
(d)           For purposes of Code Section 409A, the Executive’s right to
receive any installment payments pursuant to this Agreement shall be treated as
a right to receive a series of separate and distinct payments.  Whenever a
payment under this Agreement specifies a payment period with reference to a
number of days (e.g., “within sixty (60) days following the date of
termination”), the actual date of payment within the specified period shall be
within the sole discretion of the Company.
 
[Signature page follows]
 
 
8

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
and delivered on the date above.
 

 
JENNIFER CONVERTIBLES, INC.
             
By:
/s/ Rami Abada
   
Name:
Rami Abada
   
Title:
President

Agreed to and Accepted:
   
/s/ Gebing (“Morris”) Zou
Gebing (“Morris) Zou