AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
SIMMONS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2515 06-1007444
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
ofincorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
-------------------
ONE CONCOURSE PARKWAY, SUITE 600
ATLANTA, GEORGIA 30328
(770) 512-7700
(Address, including zip code, and telephone number,
including area code, of registrant's and co-registrant's principal executive
offices)
-------------------
JONATHAN C. DAIKER
EXECUTIVE VICE PRESIDENT-FINANCE AND ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
SIMMONS COMPANY
ONE CONCOURSE PARKWAY, SUITE 600
ATLANTA, GEORGIA 30328
(770) 512-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
WITH COPIES TO:
CHARLES K. MARQUIS, ESQ.
J. KEITH MORGAN, ESQ.
GIBSON, DUNN & CRUTCHER
200 PARK AVENUE
NEW YORK, NEW YORK 10166
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
10 3/4% Series A Senior
Subordinated Notes due
2006....................... $100,000,000 100% $100,000,000 $34,485.00
=============================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SIMMONS COMPANY
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Forepart of the Registration Statement;
Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Summary; Risk Factors; Selected Historical
and Pro Forma Financial Data
4. Terms of the Transaction.................. The Exchange Offer; Description of Notes;
Certain Federal Income Tax
Considerations; Plan of Distribution
5. Pro Forma Financial Information........... Selected Historical and Pro Forma
Financial Data; Financial Statements
6. Material Contacts with the Company Being
Acquired.................................. Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ Not Applicable
8. Interests of Named Experts and Counsel.... Not Applicable
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities............................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................... Not Applicable
11. Incorporation of Certain Information by
Reference................................. Not Applicable
12. Information With Respect to S-2 or S-3
Registrants............................... Not Applicable
13. Incorporation of Certain Information by
Reference................................. Not Applicable
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants......... Summary; Risk Factors; The Acquisition;
The Simmons ESOP; Capitalization;
Selected Historical and Pro Forma
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Managment; Ownership of Voting
Securities; Certain Transactions;
Capital Structure; Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<C> <S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies................................. Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................. Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies........... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited........ Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer................. The Exchange Offer; Management; Ownership
of Voting Securities; Certain
Transactions
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED MAY , 1996
PROSPECTUS
OFFER FOR ALL OUTSTANDING 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR 10 3/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2006 OF
Simmons Company
The Exchange Offer will expire at 5:00 p.m.,
New York City time on , 1996, unless extended
Simmons Company, a Delaware corporation (the "Company"), hereby offers to
exchange an aggregate principal amount of up to $100,000,000 of its 10 3/4%
Series A Senior Subordinated Notes due 2006 (the "New Notes") for a like
principal amount of its 10 3/4% Senior Subordinated Notes due 2006 (the "Old
Notes") outstanding on the date hereof upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"). The New Notes and
the Old Notes are collectively hereinafter referred to as the "Notes." The terms
of the New Notes are identical in all material respects to those of the Old
Notes, except for certain transfer restrictions and registration rights relating
to the Old Notes. The New Notes will be issued pursuant to, and entitled to the
benefits of, the Indenture (as defined) governing the Old Notes.
The New Notes will be unsecured, will be subordinated to all existing and future
Senior Indebtedness (as defined) of the Company and will be effectively
subordinated to all obligations of any subsidiaries of the Company as may exist
from time to time. The New Notes will rank pari passu with all future Senior
Subordinated Indebtedness (as defined) of the Company and will rank senior to
all other subordinated indebtedness of the Company. The Indenture permits the
Company to incur additional indebtedness, including Senior Indebtedness under
its $115.0 million Senior Credit Facility (as defined), subject to certain
limitations. See "Description of Notes." As of March 30, 1996, on an adjusted
basis after giving effect to the issuance of the Old Notes and the application
of the net proceeds therefrom, the aggregate amount of the Company's Senior
Indebtedness would have been $95.2 million (exclusive of unused commitments),
and the Company would have had no Senior Subordinated Indebtedness outstanding
other than the Notes.
The New Notes will bear interest from and including the date of consummation of
the Exchange Offer. Interest on the New Notes will be payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1996. Additionally,
interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Old Notes surrendered in exchange therefor or, if
no interest has been paid on the Old Notes, from the date of original issue of
the Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated April 18, 1996 (the "Registration Rights Agreement"), between
the Company and the Initial Purchaser (as defined), with respect to the initial
sale of the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, the Company will promptly return such Old
Notes to the Holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivery of a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"). This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
----------------------------------------------------------------
Prior to the Exchange Offer, there has been no public market for the Old Notes.
If a market for the New Notes should develop, such New Notes could trade at a
discount from their principal amount. The Company currently does not intend to
list the New Notes on any securities exchange or to seek approval for quotation
through any automated quotation system and no active public market for the New
Notes is currently anticipated. There can be no assurance that an active public
market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS OF OLD NOTES
SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
INFORMATION HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE NEW NOTES OR OLD NOTES BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. Pursuant to the Indenture, the
Company has agreed to file with the Securities and Exchange Commission (the
"Commission") and provide to the holders of the Notes annual reports and the
information, documents and other reports that are specified in Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company has filed with the Commission a Registration Statement (which
term includes any amendments thereto) on Form S-4 under the Securities Act with
respect to the New Notes offered by this Prospectus. This Prospectus does not
contain all information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made. Statements made in this Prospectus
as to the contents of any contract, agreement, or other document are not
necessarily complete. With respect to each such contract, agreement, or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. For purposes of this Prospectus, the "Company" shall refer to
Simmons Company and all of its consolidated subsidiaries, unless the context
otherwise requires. The fiscal year of the Company ends on the last Saturday of
the calendar year.
THE COMPANY
The Company, founded in 1871, is the second largest bedding manufacturer in
the United States. The Company manufactures and distributes a broad range of
mattresses, box springs, bedding frames and sleep accessories under
well-recognized brand names, including Beautyrest(R), Simmons(R), Maxipedic(R),
Beautysleep(R) and three newly introduced lines, Connoisseur(R), BackCare(R) and
Equation of Sleep(R). Sales of conventional bedding, which includes fully
assembled mattresses and box springs, accounted for approximately 98% of the
Company's 1995 net sales. Beautyrest(R), the Company's premier brand, accounted
for approximately 72% of net sales and approximately 58% of unit volume in 1995.
The Company's net sales and EBITDA (as defined elsewhere herein) increased to
$489.8 million and $39.6 million, respectively, in 1995 from $313.2 million and
$18.3 million, respectively, in 1991. Net sales for the combined first quarter
of 1996 have increased $10.7 million or 9.8% from the first quarter of 1995.
EBITDA for the pro forma first quarter of 1996 remained constant with EBITDA for
the first quarter of 1995.
The Company manufactures and supplies conventional bedding to over 5,000
retail outlets, representing more than 2,500 customers, including furniture
stores, department stores, specialty sleep shops and warehouse showrooms. The
Company operates 18 manufacturing facilities, which are strategically located in
15 states and Puerto Rico in proximity to its customers, thereby reducing
transportation costs, facilitating just-in-time delivery and enhancing the
Company's ability to service large national accounts. The Company believes that
operating each of its manufacturing facilities affords a number of advantages
over several of its national, brand-name competitors that operate as a group of
independent licensees, including: (i) producing consistently high-quality
merchandise across all facilities; (ii) allowing the Company to share its best
practices among manufacturing facilities; (iii) ensuring consistency of local
marketing for national accounts; and (iv) permitting efficient allocation of
production among manufacturing facilities to accommodate variations in regional
demand.
Wholesale revenues for the domestic conventional bedding industry have grown
at a compound annual rate of 6.8% to approximately $3.2 billion in 1995 from
approximately $860.4 million in 1975, according to industry wholesale revenue
data compiled by the International Sleep Products Association ("ISPA"), a
bedding industry trade group. During this 20-year period, wholesale revenues
increased each year, with the exception of 1982, when such revenues declined by
1.9%. The Company estimates that its share of the domestic conventional bedding
market has grown to approximately 15.1% in 1995 from approximately 13.1% in
1992, based on industry wholesale revenue data published by ISPA. The Company
believes that its recent performance is primarily attributable to five key
elements, including its (i) experienced management team, (ii) well-known brand
names, (iii) strong and extensive customer relationships, (iv) recently launched
national advertising campaign and (v) new product innovations and enhancements.
The Company's primary strategic objectives are to maximize profitability and
cash flow by continuing to increase its market share and by improving its
operating efficiency. To achieve these objectives, the Company has implemented a
strategy that includes: (i) increasing penetration of existing and new accounts,
primarily by emphasizing higher-end and more profitable products and by
continuing to introduce new and innovative products; and (ii) improving
operating performance
3
<PAGE>
and profitability by re-engineering the Company's manufacturing facilities and
upgrading the Company's information systems.
THE ACQUISITION
On March 22, 1996 (the "Acquisition Closing Date"), Simmons Holdings, Inc.
("Holdings"), a company organized on behalf of INVESTCORP S.A. ("Investcorp"),
management and certain other investors, acquired 100% of the outstanding common
stock of the Company from affiliates of Merrill Lynch Capital Partners Inc.
("MLCP"), the Simmons Company Employee Stock Ownership Plan (together with a
trust forming a part thereof, the "Simmons ESOP") and certain management
stockholders (collectively, the "Sellers") for (i) a purchase price of $253.2
million (including the refinancing or assumption of existing indebtedness and
the purchase of management stock options, and excluding the payment of fees,
expenses and compensation payable to management) plus (ii) the issuance to the
Simmons ESOP of 5,670,406 shares of the Company's Series A Preferred Stock,
having one vote per share and a liquidation preference of $5.00 per share (the
"Series A Preferred Stock") (together with the financing thereof, the
"Acquisition"). Financing for the Acquisition was provided by (i) $85.0 million
of capital provided by affiliates of Investcorp, management and certain other
investors, (ii) $80.4 million of borrowings under a $115.0 million Senior Credit
Facility among the Company, certain lenders and Chemical Bank, as administrative
agent (the "Senior Credit Facility") and (iii) $100.0 million of borrowings
under a Subordinated Loan Facility among the Company, certain lenders (including
an affiliate of Investcorp) and Chemical Bank, as administrative agent (the
"Subordinated Loan Facility"). The Subordinated Loan Facility was repaid on
April 18, 1996 with the net proceeds of the issuance of the Old Notes, together
with borrowings under the Senior Credit Facility.
The Series A Preferred Stock issued to the Simmons ESOP in connection with
the Acquisition may be converted into common stock of the Company on a
one-for-one basis and, under certain circumstances, may be redeemed for cash or
exchanged for shares of Holdings' capital stock. If so converted into common
stock of the Company or Holdings, the common stock received by the Simmons ESOP
upon conversion would represent direct or indirect ownership of 15.1% of the
common stock of the Company, after giving effect to such conversion (exclusive
of stock options granted under the Company's management stock incentive plan).
See "Management--Retirement Plans--Simmons ESOP," "Ownership of Voting
Securities--Stockholders' Agreement" and "Capital Structure--Preferred Stock."
The Company and Holdings are Delaware corporations. The principal executive
offices of the Company and Holdings are located at One Concourse Parkway, Suite
600, Atlanta, Georgia 30328, and their telephone number is (770) 512-7700.
4
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered......... Up to $100,000,000 aggregate principal amount of 10 3/4% Series
A Senior Subordinated Notes due 2006 (the "New Notes"). The
terms of the New Notes and Old Notes are identical in all
material respects, except for certain transfer restrictions and
registration rights relating to the Old Notes.
The Exchange Offer......... The New Notes are being offered in exchange for a like principal
amount of Old Notes. Old Notes may be exchanged only in integral
multiples of $1,000. The issuance of the New Notes is intended
to satisfy obligations of the Company contained in the
Registration Rights Agreement.
Expiration Date; With-
drawal of Tender......... The Exchange Offer will expire 5:00 p.m. New York City time, on
1996, or such later date and time to which it is extended by the
Company. The tender of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date. Any
Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination of
the Exchange Offer.
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary conditions,
which may be waived by the Company. The Company currently
expects that each of the conditions will be satisfied and that
no waivers will be necessary. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the Exchange Offer
must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such Old Notes and
any other required documentation, to the Exchange Agent (as
defined) at the address set forth herein. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Use of Proceeds............ There will be no proceeds to the Company from the exchange of
Notes pursuant to the Exchange Offer.
Exchange Agent............. SunTrust Bank, Atlanta is serving as the Exchange Agent in
connection with the Exchange Offer.
Federal Income Tax
Consequences............. The exchange of Notes pursuant to the Exchange Offer will not be
a taxable event for federal income tax purposes. See "Certain
Federal Income Tax Considerations."
</TABLE>
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, holders of Old Notes (other than any
holder who is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) who exchange their Old Notes
5
<PAGE>
for New Notes pursuant to the Exchange Offer generally may offer such New Notes
for resale, resell such New Notes, and otherwise transfer such New Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such New Notes are acquired in the ordinary course of
the holder's business and such holders have no arrangement with any person to
participate in a distribution of such New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Old Notes does not exchange such
Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. See "The Exchange Offer--Consequences of Failure to Exchange; Resales of
New Notes."
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its consummation, the Old Notes
may continue to be traded in the PORTAL market. Following consummation of the
Exchange Offer, the New Notes will not be eligible for PORTAL trading.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the Old
Notes, except for certain transfer restrictions and registration rights relating
to the Old Notes. For purposes of this Prospectus, the term "Notes" shall refer
collectively to the New Notes and the Old Notes.
<TABLE>
<S> <C>
Issuer..................... Simmons Company.
Securities Offered......... $100,000,000 principal amount of 103/4% Series A Senior Subordi-
nated Notes due 2006 (the "New Notes").
Maturity................... April 15, 2006.
Interest Payment Dates..... April 15 and October 15 of each year, commencing on October 15,
1996.
Optional Redemption........ Except as described below, the Company may not redeem the New
Notes prior to April 15, 2001. On or after such date, the
Company may redeem the New Notes, in whole or in part, at the
redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition,
at any time on or prior to April 15, 1999, the Company may
redeem up to 33 1/3% of the original aggregate principal amount
of the Notes with the net cash proceeds of one or more Public
Equity Offerings (as defined) by the Company or Holdings
following which there is a Public Market (as defined) at a
redemption price equal to 110.75% of the principal amount to be
redeemed, together with accrued and unpaid interest, if any, to
the date of redemption, provided that at least 66 2/3% of the
original
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
aggregate principal amount of the Notes remains outstanding
immediately after each such redemption. See "Description of
Notes-- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as defined), (i) the
Company will have the option, at any time on or prior to April
15, 2001, to redeem the New Notes in whole but not in part at a
redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium as of, and accrued and unpaid
interest, if any, to, the date of redemption, and (ii) if the
Company does not so redeem the New Notes or if such Change of
Control occurs after April 15, 2001, the Company will be
required to make an offer to repurchase the New Notes at a price
equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase.
See "Description of Notes--Change of Control."
Ranking.................... The New Notes will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined) of the
Company. The New Notes will rank pari passu with any future
Senior Subordinated Indebtedness (as defined) of the Company and
will rank senior to all other subordinated indebtedness of the
Company. The New Notes will be effectively subordinated to the
claims of creditors, including trade creditors and preferred
shareholders (if any), of the Company's existing subsidiaries
and any subsidiary formed by the Company in the future. See
"Description of Notes--Ranking."
Restrictive Covenants...... The indenture under which the New Notes will be issued (the
"Indenture") will limit (i) the incurrence of additional
indebtedness by the Company, (ii) the payment of dividends on,
and redemption of, capital stock of the Company and the
redemption of certain subordinated obligations of the Company,
(iii) investments, (iv) sales of assets and subsidiary stock,
(v) transactions with affiliates, (vi) the creation of liens,
(vii) the lines of business in which the Company may operate and
(viii) consolidations, mergers and transfers of all or
substantially all of the Company's assets. The Indenture also
will prohibit certain restrictions on distributions from
subsidiaries. However, all of these limitations and prohibitions
are subject to a number of important qualifications and
exceptions. See "Description of Notes--Certain Covenants."
Absence of a
Public Market for the
New Notes................ The New Notes are new securities and there is currently no
established market for the New Notes. Accordingly, there can be
no assurance as to the development or liquidity of any market
for the New Notes. The Company does not intend to apply for
listing of the New Notes on a securities exchange.
</TABLE>
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" in connection with the Exchange Offer.
7
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary historical financial and other data
of the Company for the five years ended December 30,1995 and for the quarters
ended April 1, 1995 and March 30, 1996 and certain pro forma financial and other
data for the year ended December 30, 1995 and quarter ended March 30, 1996. The
pro forma statement of operations data assume that the Acquisition and the
Offering of Notes (the "Offering") occurred on January 1, 1995. The pro forma
financial and other data do not purport to represent what the Company's results
of operations would actually have been had the Transactions (as defined in the
Pro Forma Condensed Consolidated Financial Data included elsewhere in this
Prospectus) in fact occurred on the assumed dates or to project the Company's
results of operations for any future date or period. For additional information,
see the Consolidated Financial Statements and Pro Forma Condensed Consolidated
Financial Data included elsewhere in this Prospectus. The following table should
also be read in conjunction with "Selected Historical and Pro Forma Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE><CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
PREDECESSOR
------------------------------------------------------------------------ PRO FORMA
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30,
1991 (A) 1992 (A) 1993 (A) 1994 (A) 1995 1995 (B)
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........... $313,180 $336,949 $391,382 $439,689 $489,815 $489,815
Cost of products
sold.............. 198,904 209,189 240,125 269,741 292,825 292,750(c)
Gross profit........ 114,276 127,760 151,257 169,948 196,990 197,065
Selling, general and
administrative
expenses.......... 98,531 102,943 124,452 137,791 161,202 161,202
Non-cash ESOP
expense(d)........ 12,541 14,007 14,000 4,463 4,533 4,625
Amortization of
intangible
assets............. 5,734 5,732 5,724 5,753 5,753 7,648
Interest expense,
net(e)............. 15,308 10,352 8,105 8,197 8,185 19,068
Income (loss) before
taxes,
extraordinary item
and change in
accounting
principle.......... (18,635) (6,786) (1,784) 11,227 16,917 2,952(f)
Net income (loss)... (17,991) (12,469) (3,319) 7,994 9,411 636(g)
OTHER DATA:
Gross margin........ 36.5% 37.9% 38.6% 38.7% 40.2% 40.2%
EBITDA(h)........... $ 18,326 $ 26,720 $ 29,236 $ 33,981 $ 39,577 $ 39,407
EBITDA margin....... 5.9% 7.9% 7.5% 7.7% 8.1% 8.0%
Depreciation........ $ 3,168 $ 3,227 $ 3,141 $ 3,496 $ 4,027 $ 4,327
Capital
expenditures........ 2,602 3,659 4,972 4,496 5,834 5,834
Cash interest
expense(i)......... 13,942 8,564 6,158 7,093 6,488 18,297
Ratio of EBITDA to
cash interest
expense............ 1.3x 3.1x 4.7x 4.8x 6.1x 2.2x
Ratio of EBITDA less
capital
expenditures to
cash interest
expense............ 1.1x 2.7x 3.9x 4.2x 5.2x 1.8x
Ratio of earnings to
fixed charges(j)... (j) (j) (j) 1.9x 2.4x 1.1x
Inventory
turnover(k)........ 12.3x 15.5x 16.3x 16.8x 17.2x 17.2x
<CAPTION>
QUARTER ENDED
------------------------------------------
PREDECESSOR COMBINED PRO FORMA
APRIL 1, MARCH 30, MARCH 30,
1995 1996(B) 1996(B)
----------- --------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........... $ 108,653 $ 119,317 $119,317
Cost of products
sold............... 67,104 75,672 74,655(c)
Gross profit........ 41,549 43,645 44,662
Selling, general and
administrative
expenses........... 37,518 40,472 40,472
Non-cash ESOP
expense(d)......... 1,133 1,312 1,312
Amortization of
intangible
assets............. 1,438 1,442 1,897
Interest expense,
net(e)............. 1,929 1,950 4,761
Income (loss) before
taxes,
extraordinary item
and change in
accounting
principle.......... (666) (5,936) (4,367)(f)
Net income (loss)... (370) (3,907) (3,079)(g)
OTHER DATA:
Gross margin....... 38.2% 36.6% 37.4%
EBITDA(h)........... $ 4,847 $ 4,945 $ 4,845
EBITDA margin....... 4.5% 4.1% 4.1%
Depreciation........ $ 973 $ 970 $ 1,038
Capital
expenditures....... 163 1,567 1,567
Cash interest
expense(i).......... 1,688 1,583 4,566
Ratio of EBITDA to
cash interest
expense............ (i) (i) (i)
Ratio of EBITDA less
capital
expenditures to
cash interest
expense............ (i) (i) (i)
Ratio of earnings to
fixed charges(j)... (j) (j) (j)
Inventory
turnover(k)........ 4.0x 4.2x 4.2x
<CAPTION>
PREDECESSOR AS OF
------------------------------------------------------------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 2,205 $ 7,581 $ 11,280 $ 8,477 $ 9,185
Working capital(l).................... 8,955 10,366 25,460 23,077 20,171
Total assets.......................... 246,634 245,158 272,533 249,891 254,492
Total debt, including current
maturities........................... 164,104 149,421 141,976 109,435 93,768
Redeemable preferred stock(m)......... 500 548 592 641 680
Series A Preferred Stock--ESOP(n)..... -- -- -- -- --
Unearned compensation--ESOP(n)........ -- -- -- -- --
Redeemable common stock--ESOP, net of
related unearned compensation(o)..... 2,887 4,720 11,418 23,238 32,272
Total common stockholders' equity..... 32,714 34,042 37,878 41,936 44,372
<CAPTION>
SUCCESSOR
AS OF
MARCH 30,
1996
------------------------
ADJUSTED FOR
ACTUAL THE OFFERING
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 8,111 $ 8,111
Working capital(l).................... 27,176 27,176
Total assets.......................... 349,706 350,925
Total debt, including current
maturities........................... 191,229 195,229
Redeemable preferred stock(m)......... -- --
Series A Preferred Stock--ESOP(n)..... 28,352 28,352
Unearned compensation--ESOP(n)........ (28,243) (28,243)
Redeemable common stock--ESOP, net of
related unearned compensation(o)..... -- --
Total common stockholders' equity..... 81,530 79,863(p)
</TABLE>
See Notes to Summary Financial and Other Data.
8
<PAGE>
NOTES TO SUMMARY FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Certain amounts have been reclassified to be consistent with the Company's current reporting
format.
(b) As a result of the Acquisition, the Company's assets and liabilities were adjusted to reflect their
preliminary estimated fair values as of March 22, 1996. In addition, the Company entered into new
financing arrangements and has changed its capital structure. Accordingly, the results of future
periods will not be comparable to the prior historical periods presented. The pro forma financial
data reflects these changes as if the Transactions (as defined) had been consummated on January 1,
1995. The Combined period for 1996 represents the mathematical addition of the historical amounts
for the Predecessor period (December 31, 1995 to March 21, 1996) and the Successor period (March
22, 1996 to March 30, 1996) and are not indicative of results that would have been obtained had the
Acquisition occurred on December 31, 1995. For information regarding these periods separately, see
the Condensed Consolidated Financial Statements included elsewhere in this Prospectus.
(c) Excludes the charge of $1,000 related to the write-up of inventory to its estimated fair value as a
result of the Acquisition.
(d) Represents the non-cash charge resulting from the allocation of shares held by the Simmons ESOP to
participant accounts as they are earned. Amounts charged in 1991, 1992 and 1993 were based on the
1989 acquisition price. In 1994, the Company changed its method of accounting, resulting in the
fair value of the underlying stock becoming the basis for the annual expense as opposed to the
original cost. (See "The Simmons ESOP" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations.")
(e) Interest expense, net includes the amortization of deferred debt issuance costs and is net of
interest income of $210, $188, $50, $845 and $162 for 1991, 1992, 1993, 1994 and 1995,
respectively, $162 for the pro forma year ended December 30, 1995, $40 and $39 for the first
quarter ended 1995 and 1996, respectively and $39 for the pro forma first quarter 1996.
(f) Excludes a compensation charge of $3,735 for amounts payable to management in connection with the
Acquisition. See "Certain Transactions."
(g) Excludes the following incurred in connection with the Acquisition: (i) the compensation charge of
$3,735 for amounts payable to management, (ii) the charge of $1,000 related to the write-up of
inventory to its estimated fair value, (iii) the charge of $350 for non-recurring fees, (iv) the
$2,781 write-off of the Subordinated Loan Facility financing fees as a result of the Offering and
(v) the related income tax benefits of $3,146.
(h) EBITDA represents earnings before interest expense, income tax expense, non-cash ESOP expense,
depreciation and amortization, cumulative effect of change in accounting principle and
extraordinary item, and, for the pro forma year ended December 30, 1995 and for the combined and pro
forma quarters ended March 30, 1996, excludes amortization of the prepaid management fee of $1,000, $83
and $250, respectively, in connection with the Acquisition, excludes the effect of the purchase accounting
inventory write-up of $1,000, the compensation change for $3,735 for amounts payable to management, and the
charge of $350 for non-recurring fees, and excludes the credit of $375, $0 and $85, respectively, for the
amortization of the reserve for unfavorable lease commitments. The Company has included information
concerning EBITDA as it is relevant for covenant analysis under the Indenture, which defines EBITDA
as set forth above for the periods shown. See "Description of Notes--Certain Definitions." In addition,
management believes that EBITDA is generally accepted as providing useful information regarding a
company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows or other consolidated net income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure of a company's profitability
or liquidity.
(i) Cash interest expense is defined as interest expense less amortization of debt issuance costs and
other non-cash interest expense for 1991, 1992, 1993, 1994, 1995 and for the first quarters ended
1995 and 1996. This calculation of interest expense differs from that specified for Consolidated
Interest Expense under the Indenture. See "Description of Notes--Certain Definitions." The ratio of
EBITDA to cash interest expense and the ratio of EBITDA less capital expenditures to cash interest
expense are not applicable to the quarterly periods.
(j) For the purpose of determining the ratio of earnings to fixed charges, earnings consist of income
before income taxes and fixed charges. Fixed charges consist of interest expense, which includes
the amortization of deferred debt issuance costs and the interest portion of the Company's rent
expense (assumed to be one-third of total rent expense). Earnings were insufficient to cover fixed
charges for 1991, 1992, 1993, first quarter 1995, combined first quarter 1996 and pro forma first
quarter 1996 by $18,688, $6,856, $1,861, $666, $5,936 and $4,717, respectively.
(k) Inventory turnover is defined as cost of products sold divided by average inventory.
(l) Represents total current assets (excluding cash and cash equivalents) less total current
liabilities, excluding current maturities of long-term debt and capital lease obligations.
(m) This stock was issued in connection with the recapitalization of the Company in 1991 and was called
for redemption in connection with the Acquisition.
(n) The Series A Preferred Stock was issued to the Simmons ESOP in connection with the Acquisition (See
"The Acquisition"). The Series A Preferred Stock is required to be recorded at the greater of
redemption value or fair value. The Series A Preferred Stock will be recorded at its redemption
value. In addition, unearned compensation was recorded on the Acquisition Closing Date in an amount
representing the redemption value of the Series A Preferred Stock that will be allocated to
participant accounts over future periods. The unearned compensation is classified outside of common
stockholder's equity since it is related to the Series A Preferred Stock. (See "Managment's
Discussion and Analysis of Financial Condition and Results of Operations.")
(o) Historically, under the terms of the Simmons ESOP, the participants had the right to put their
common stock to the Company under certain circumstances. Accordingly, the fair market value of the
common stock that could have been put to the Company, along with the related amount of unearned
compensation, are classified outside of common stockholders' equity in the predecessor financial
statements.
(p) Includes the following charges incurred in connection with the Transactions: (i) the compensation
charge of $3,735 for amounts payable to management, (ii) the charge of $350 for non-recurring fees,
(iii) the $2,781 write-off of the Subordinated Loan Facility financing fees as a result of the
Offering and (iv) the related tax benefits of $2,746.
</TABLE>
9
<PAGE>
RISK FACTORS
In evaluating an investment in the New Notes, prospective investors should
carefully consider the following risk factors as well as the other information
set forth elsewhere in this Prospectus.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company incurred substantial indebtedness in connection with the
Acquisition. As adjusted for the offering of the Notes (the "Offering") and the
application of the net proceeds therefrom, at March 30, 1996, the Company's
total indebtedness would have been $195.2 million (exclusive of unused
commitments), and the Company would have had common stockholder's equity of
$79.9 million. The degree to which the Company is leveraged could have important
consequences to holders of the New Notes, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on the New Notes and its other existing indebtedness,
thereby reducing the funds available to the Company for other purposes; (iii)
the agreements governing the Company's long-term indebtedness contain certain
restrictive financial and operating covenants; (iv) certain indebtedness under
the Senior Credit Facility will be at variable rates of interest, which would
cause the Company to be vulnerable to increases in interest rates; (v) all of
the indebtedness outstanding under the Senior Credit Facility will be secured by
substantially all the assets of the Company and will become due prior to the
time the principal on the New Notes will become due; (vi) the Company is
substantially more leveraged than certain of its competitors, which might place
the Company at a competitive disadvantage; (vii) the Company may be hindered in
its ability to adjust rapidly to changing market conditions; and (viii) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or in its business.
The Company may be required to refinance all or a portion of the Senior
Credit Facility at or prior to its maturity, which is prior to the maturity of
the New Notes. Potential measures to raise cash may include the sale of assets
or equity. However, the Company's ability to raise funds by selling assets is
restricted by the Senior Credit Facility, and its ability to effect equity
financings is dependent on results of operations and market conditions. In the
event that the Company is unable to refinance the Senior Credit Facility or
raise funds through asset sales, sales of equity or otherwise, its ability to
pay principal of and interest on the New Notes would be adversely affected.
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
At March 30, 1996, as adjusted for the Offering (including the application
of net proceeds therefrom), the Company would have had $95.2 million of Senior
Indebtedness outstanding (exclusive of unused commitments), including $84.4
million of Senior Indebtedness that will be incurred under the Senior Credit
Facility. The Indenture permits the Company to incur additional Senior
Indebtedness, provided certain financial or other conditions are met. The New
Notes will be subordinated in right of payment to all existing and future Senior
Indebtedness, including the principal, premium (if any) and interest with
respect to the Senior Indebtedness under the Senior Credit Facility. The New
Notes will rank pari passu with all future Senior Subordinated Indebtedness of
the Company and will rank senior to all other subordinated indebtedness (if any)
of the Company. However, the New Notes will be effectively subordinated to the
claims of creditors, including trade creditors and preferred shareholders (if
any), of the Company's existing subsidiaries and any subsidiary formed by the
Company in the future.
The Company may not pay principal of, premium on (if any), or interest on,
the New Notes, make any deposit pursuant to defeasance provisions or repurchase
or redeem or otherwise retire any New Notes (i) if any Senior Indebtedness is
not paid when due or (ii) if any other default on
10
<PAGE>
Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms, unless, in either case, the default
has been cured or waived, any such acceleration has been rescinded or such
Senior Indebtedness has been paid in full, except that the Company may pay the
New Notes upon the approval of the Representative of the relevant Designated
Senior Indebtedness (as defined in the Indenture). In addition, if any other
default exists with respect to the Designated Senior Indebtedness and certain
other conditions are satisfied, the Company may not make any payments on the New
Notes for up to 179 days. Upon any payment or distribution of the assets of the
Company in connection with a total or partial liquidation or dissolution or
reorganization of or similar proceeding relating to the Company, the holders of
Senior Indebtedness will be entitled to receive payment in full before the
holders of the Notes are entitled to receive any payment. See "Description of
Notes--Ranking."
The New Notes are also unsecured and thus, in effect, will rank junior to
any secured indebtedness of the Company. The indebtedness outstanding under the
Senior Credit Facility will be secured by liens on substantially all of the
assets of the Company. The ability of the Company to comply with the provisions
of the Senior Credit Facility may be affected by events beyond the Company's
control. The breach of any of these covenants could result in a default under
the Senior Credit Facility, in which case, depending on the actions taken by the
lenders thereunder or their successors or assignees, such lenders could elect to
declare all amounts borrowed under the Senior Credit Facility, together with
accrued interest, to be due and payable, and the Company could be prohibited
from making payments of interest and principal on the New Notes until the
default is cured or all Senior Indebtedness is paid or satisfied in full. If the
Company were unable to repay such borrowings, such lenders could proceed against
their collateral. If the indebtedness under the Senior Credit Facility were to
be accelerated, there can be no assurance that the assets of the Company would
be sufficient to repay in full such indebtedness and the other indebtedness of
the Company, including the New Notes. See "Capital Structure--Senior Credit
Facility" and "Description of Notes--Ranking."
RESTRICTIVE LOAN COVENANTS
The Senior Credit Facility includes certain covenants that, among other
things, restrict (i) the making of investments, loans and advances and the
paying of dividends and other restricted payments; (ii) the incurrence of
additional indebtedness; (iii) the granting of liens, other than liens created
pursuant to the Senior Credit Facility and certain permitted liens; (iv)
mergers, consolidations, and sales of all or a substantial part of the Company's
business or property; (v) the sale of assets; and (vi) the making of capital
expenditures. The Senior Credit Facility also requires the Company to maintain
certain financial ratios, including interest coverage and leverage ratios, and
to maintain a minimum level of consolidated cash flow. There can be no assurance
that these requirements will be met in the future. If they are not, the holders
of the indebtedness under the Senior Credit Facility would be entitled to
declare such indebtedness immediately due and payable. See "Capital
Structure--Senior Credit Facility."
CONTROL BY CIP LIMITED, INVESTCORP AND ITS AFFILIATES; CHANGE OF CONTROL
The outstanding voting stock of Holdings is 92% controlled by CIP Limited
through revocable proxies with respect to companies that indirectly own Holdings
stock, and 8% controlled by SIPCO Limited through its control of Investcorp. CIP
Limited and SIPCO Limited are affiliates of Investcorp. Accordingly, CIP Limited
and its affiliates indirectly control the power to vote approximately 84.9% of
the outstanding voting stock of the Company and thereby, subject to certain
rights of the Simmons ESOP, are entitled to elect all directors of the Company,
approve all amendments to the Company's Certificate of Incorporation and effect
fundamental corporate transactions such as mergers and asset sales. In addition,
Investcorp or its affiliates have revocable management services or similar
agreements with Holdings and with entities controlled by CIP Limited that
11
<PAGE>
together control Holdings, pursuant to which Investcorp or its affiliates may be
deemed to share control of the Company. See "Ownership of Voting Securities."
A Change of Control (as defined in the Indenture) could require the Company
to refinance substantial amounts of indebtedness. Upon the occurrence of a
Change of Control, the holders of the New Notes would be entitled to require the
Company to repurchase the New Notes at a purchase price equal to 101% of the
principal amount of such New Notes, plus accrued and unpaid interest, if any, to
the date of purchase. However, the Senior Credit Facility prohibits the purchase
of the New Notes by the Company in the event of a Change of Control, unless and
until such time as the indebtedness under the Senior Credit Facility is repaid
in full. The Company's failure to purchase the New Notes would result in a
default under the Indenture and the Senior Credit Facility. The inability to
repay the indebtedness under the Senior Credit Facility, if accelerated, would
also constitute an event of default under the Indenture, which could have
adverse consequences to the Company and the holders of the New Notes. In the
event of a Change of Control, there can be no assurance that the Company would
have sufficient assets to satisfy all of its obligations under the Senior Credit
Facility and the New Notes. See "Capital Structure--Senior Credit Facility" and
"Description of Notes--Change of Control."
FRAUDULENT CONVEYANCE
If the court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring certain of the indebtedness, including
the Old Notes and the New Notes exchanged therefore, incurred by the Company in
connection with the Acquisition, and that, at the time of such incurrence, the
Company (i) was insolvent, (ii) was rendered insolvent by reason of such
incurrence or grant, (iii) was engaged in a business or transaction for which
the assets remaining with the Company constituted unreasonably small capital or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, such court, subject to applicable
statutes of limitation, could void the Company's obligations under the Notes,
subordinate the Notes to other indebtedness of the Company or take other action
detrimental to the holders of the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property, or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with intent to hinder, delay or defraud creditors, or a
court could subordinate the indebtedness, including the Notes, to the claims of
all existing and future creditors on similar grounds.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the
Acquisition or the sale of the Old Notes or that, regardless of the method of
valuation, a court would not determine that the Company was insolvent upon
consummation of the Acquisition.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent upon the
abilities and experience of its Chairman of the Board of Directors and Chief
Executive Officer, Zenon Nie. The loss of the services of Mr. Nie could have a
material adverse effect on the Company's business and future operations. The
Company and Mr. Nie have entered into a three-year employment agreement
12
<PAGE>
(which renews automatically on a daily basis, subject to termination upon three
years' notice). In addition, the Company maintains a $10 million key man life
insurance policy with respect to Mr. Nie and is the beneficiary of this policy.
See "Management -- Employment Arrangements."
DEPENDENCE ON MAJOR SUPPLIER
The Company purchases certain components used in the manufacture of its
products from a single vendor. The vendor, which supplies spring components as
well as other metal and wood components used in the manufacturing of mattresses
by the Company, provided approximately one-third of the Company's total
estimated raw material requirements in 1995 and is expected to provide a
comparable portion of such requirements in 1996. For certain of these
components, alternative sources may not be readily available and the loss of
this vendor as a supplier could result in an interruption of supply, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Suppliers."
IMPACT OF HIGHLY COMPETITIVE MARKET
The domestic conventional bedding market is highly competitive. Competition
in conventional bedding generally is based upon product quality, brand name
recognition, price, service and prompt delivery. The Company's principal
competitors include Sealy Corporation, Serta, Inc. and Spring Air Company. The
Company also competes with Restonic Sleep Products, King Koil Bedding,
Englander, Bassett and many small, local manufacturers. Certain of the Company's
competitors have greater financial resources than the Company, have larger
customer bases and are less leveraged. See "Business--Industry and Competition."
UNION NEGOTIATIONS
As of March 30, 1996, the Company had approximately 2,600 employees, of
which approximately 1,140 were represented by labor unions. Employees at nine of
the Company's 18 manufacturing facilities are represented by unions.
Manufacturing employees at seven of the unionized plants are covered by a master
collective bargaining agreement with the Upholstery Division of the United
Steelworkers. There are also agreements with other unions. A majority of the
Company's current labor contracts expire in 1997. Union contracts typically are
negotiated for three-year terms. Since 1980, the Company has opened eight new
plants, none of which is unionized. There can be no assurance, however, that any
labor union efforts to organize employees at facilities that are not currently
unionized might not be successful.
The Company is phasing in a re-engineering project at each of the Company's
conventional manufacturing facilities to increase overall efficiency and improve
the flow of production. The Company expects to complete the project by early
1998. The implementation of the changes associated with this project will raise
issues that will require negotiation with the labor unions that represent
employees at nine of the Company's 18 manufacturing facilities. Although the
Company's labor relations historically have been good, there can be no assurance
that the Company will succeed in obtaining the labor unions' cooperation in
implementing the re-engineering project or that disagreements with unions in
connection with the re-engineering project or otherwise will not arise.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The New Notes are new securities for which there currently is no market.
Although the Initial Purchaser has been making a market in the Old Notes and has
informed the Company that it currently intends to make a market in the New
Notes, it is not obligated to do so and any such market making may be
discontinued at any time without notice. In addition, such market making
activity may be limited during the pendency of the Exchange Offer. Accordingly,
there can be no
13
<PAGE>
assurance as to the development or liquidity of any market for the New Notes.
The Old Notes currently are eligible for trading by qualified buyers in the
PORTAL market and the Company does not intend to apply for listing of the New
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System.
The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
THE ACQUISITION
On the Acquisition Closing Date, Holdings, a company organized on behalf of
Investcorp, management and certain other investors, acquired 100% of the
outstanding common stock of the Company from the Sellers for (i) a purchase
price of $253.2 (including the refinancing or assumption of existing
indebtedness and the purchase of management stock options, and excluding the
payment of fees, expenses and compensation payable to management) plus (ii) the
issuance to the Simmons ESOP of 5,670,406 shares of the Company's Series A
Preferred Stock, having one vote per share and a liquidation preference of $5.00
per share. Financing for the Acquisition was provided by (i) $85.0 million of
capital provided by affiliates of Investcorp, management and other investors;
and (ii) borrowings in an aggregate amount equal to $180.4 million, consisting
of $80.4 million under the Senior Credit Facility and all the proceeds of the
$100.0 million Subordinated Loan Facility, a portion of which was provided by an
affiliate of the Initial Purchaser and an affiliate of Investcorp. See "Certain
Transactions." Holdings has no assets or investments other than the shares of
common stock of the Company. The Subordinated Loan Facility was repaid on April
18, 1996 with the net proceeds of the issuance of the Old Notes, together with
borrowings under the Senior Credit Facility.
In connection with the Acquisition, the Simmons ESOP sold 6,001,257 shares
of common stock of the Company for $31.2 million in cash, and converted each of
the remaining 5,670,406 shares of common stock of the Company into one share of
Series A Preferred Stock. Each share of Series A Preferred Stock is entitled to
one vote, is convertible into one share of common stock of the Company at any
time at the option of the holders thereof and is entitled to a liquidation
preference of $5.00 per share. Upon the occurrence of certain events, the Series
A Preferred Stock, at the option of the holders thereof, may be redeemed for
$5.00 per share or, following conversion into common stock of the Company,
exchanged for shares of Holdings' capital stock. In addition, upon the
occurrence of certain events, Holdings or the Company may cause the Series A
Preferred Stock to be converted into common stock of the Company and, following
such conversion, to be exchanged for shares of Holdings' capital stock. If so
converted into common stock of the Company or Holdings, the common stock
received by the Simmons ESOP upon conversion would represent direct or indirect
ownership of 15.1% of the common stock of the Company, after giving effect to
such conversion (exclusive of stock options granted under the Company's
management stock incentive plan). See "Ownership of Voting
Securities--Stockholders' Agreement" and "Capital Structure--Preferred Stock."
In certain circumstances and subject to certain limitations, the Simmons ESOP
also has a statutory right, upon termination of a participant's employment, to
require the Company to redeem stock that has been allocated to such participant.
See "Management--Retirement Plans--Simmons ESOP."
14
<PAGE>
THE SIMMONS ESOP
In January 1989, the Simmons ESOP was established to purchase all of the
Company's then outstanding common stock (the "ESOP Purchase"). The ESOP Purchase
was funded through $249.0 million of debt and preferred stock issued by the
Company (the "Company ESOP Obligation"). Of this amount, the Company loaned the
Simmons ESOP $241.5 million for the purchase of all of the Company's common
stock then outstanding (the "ESOP Loan"). The $249.0 million Company ESOP
Obligation was an "external" obligation of the Company and the $241.5 million
ESOP Loan was an "internal" obligation that the Simmons ESOP owed to the
Company. As of the Acquisition Closing Date, the internal ESOP Loan had been
reduced to approximately $61.2 million, in part due to forgiveness in 1992 of a
substantial portion of the internal obligation. Any outstanding amounts with
respect to the external Company ESOP Obligation were repaid in connection with
the Acquisition.
The Company will make annual cash contributions to the Simmons ESOP in an
amount up to 25% of eligible participant compensation, subject to certain
limitations and conditions. The Simmons ESOP will then use all such cash to
repay the internal ESOP Loan to the Company. As a result, there is no cash cost
to the Company associated with the contributions to the Simmons ESOP. As the
internal ESOP Loan is repaid, a portion of the Series A Preferred Stock will be
allocated to participant accounts and non-cash compensation expense equal to the
fair value of the allocated shares will be charged to non-cash ESOP expense. At
such time as the internal ESOP Loan is repaid in full (in approximately six
years), all shares of Series A Preferred Stock held by the Simmons ESOP will
have been allocated to plan participants. See "Management--Retirement
Plans--Simmons ESOP."
Approximately 1,400 of the Company's current and former employees are
participants in the Simmons ESOP. On the Acquisition Closing Date, the Simmons
ESOP sold 6,001,257 of its shares to Holdings (representing all the shares held
by the Simmons ESOP that had been allocated to plan participants as of such
date) for $31.2 million in the aggregate, which amount was reinvested in
diversified investments in the respective accounts of such plan participants in
the Simmons ESOP. See "Management--Retirement Plans--Simmons ESOP."
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
30, 1996 as reported in the unaudited condensed consolidated financial
statements and as adjusted to give effect to the Offering and the application of
the net proceeds therefrom, as described under "Use of Proceeds." This table
should be read in conjunction with the "Selected Historical and Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 30, 1996
-------------------------
ADJUSTED
FOR
ACTUAL THE OFFERING
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 8,111 $ 8,111
-------- ------------
-------- ------------
Debt:
Revolving credit facility (a)(b)................................. $ -- $ 9,408
Term loans, including current maturities (a)(b).................. 60,000 75,000
103/4% Series A Senior Subordinated Notes due 2006............... -- 100,000
Subordinated Loan Facility....................................... 100,000 --
Adjustable rate subordinated notes (a)........................... 20,408 --
Industrial revenue bonds due 2017 (c)............................ 9,700 9,700
Other, including capital lease obligations....................... 1,121 1,121
-------- ------------
Total debt..................................................... 191,229 195,229
-------- ------------
Series A Preferred Stock issued to the Simmons ESOP (d)............ 28,352 28,352
-------- ------------
Unearned compensation under ESOP (e)............................... (28,243) (28,243)
-------- ------------
Common stockholder's equity:
Common stock, $.01 par value, 50,000,000 shares authorized;
31,964,452 outstanding............................................. 320 320
Additional paid-in capital....................................... 84,680 84,680
Accumulated deficit.............................................. (3,468) (5,137)(f)
Foreign currency translation adjustment.......................... (2) (2)
-------- ------------
Total common stockholder's equity.............................. 81,530 79,863
-------- ------------
Total capitalization........................................... $272,868 $275,207
-------- ------------
-------- ------------
</TABLE>
- ------------
<TABLE>
<S> <C>
(a) Reflects the redemption of the adjustable rate subordinated notes subsequent to March
30, 1996 with the proceeds of an additional $15 million in term loan borrowings under
the Senior Credit Facility and funds from the revolving credit facility under the
Senior Credit Facility.
(b) See "Capital Structure--Senior Credit Facility" for a description of the revolving
credit facility and term loans under the Senior Credit Facility.
(c) The industrial revenue bonds bear interest at a fixed rate of 7.0% per annum and mature
on October 1, 2017.
(d) See "Capital Structure--Preferred Stock" for a description of the Series A Preferred
Stock.
(e) Represents the redemption value of the unallocated shares of Series A Preferred Stock
issued in connection with the Acquisition held by the Simmons ESOP, which will be
recognized as compensation expense as such shares are earned and allocated to
participant accounts. See "The Simmons ESOP" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for further description.
(f) Reflects the write-off of $2,781,000 of deferred financing costs directly related to
the Subordinated Loan Facility that is being refinanced with the proceeds of the
Offering and the related income tax benefit of $1,112,000.
</TABLE>
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected historical financial and other data
of the Company for the five years ended December 30, 1995 and for the quarters
ended April 1, 1995 and March 30, 1996 and certain pro forma financial and other
data for the year ended December 30, 1995 and quarter ended March 30, 1996. The
pro forma statement of operations data assume that the Acquisition and the
Offering occurred on January 1, 1995.
The selected historical financial data for the five years ended December 30,
1995 and for the quarters ended April 1, 1995 and March 30, 1996 were derived
from the Company's Consolidated Financial Statements. The pro forma financial
and other data were derived from Pro Forma Condensed Consolidated Financial Data
included elsewhere in this Prospectus that give effect to the Transactions (as
defined in the Pro Forma Condensed Consolidated Financial Data included
elsewhere in this Prospectus). The pro forma adjustments were based upon
available information and certain assumptions that management believes are
reasonable. The pro forma financial information does not purport to represent
what the Company's results of operations would actually have been had the
Transactions in fact occurred on such date or to project the Company's results
of operations for any future date or period. The pro forma adjustments are based
on the purchase method of accounting and reflect a preliminary estimate of the
allocation of the purchase cost incurred in connection with the Acquisition to
the assets and liabilities of the Company.
For additional information, see the Pro Forma Condensed Consolidated
Financial Data included elsewhere in this Prospectus. The following table should
also be read in conjunction with "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." For the reports
by the Company's independent accountants with respect to historical financial
information, see "Index to Consolidated Financial Statements."
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
PREDECESSOR
------------------------------------------------------------------------
PRO FORMA
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30,
1991 (A) 1992 (A) 1993 (A) 1994 (A) 1995 1995 (B)
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............. $313,180 $336,949 $391,382 $439,689 $489,815 $489,815
Cost of products
sold.................. 198,904 209,189 240,125 269,741 292,825 292,750(c)
------------ ------------ ------------ ------------ ------------ ------------
Gross profit........... 114,276 127,760 151,257 169,948 196,990 197,065
Selling, general and
administrative
expenses.............. 98,531 102,943 124,452 137,791 161,202 161,202
Non-cash ESOP expense
(d)................... 12,541 14,007 14,000 4,463 4,533 4,625
Amortization of
intangible assets...... 5,734 5,732 5,724 5,753 5,753 7,648
Interest expense, net
(e)................... 15,308 10,352 8,105 8,197 8,185 19,068
Other deductions,
net................... 797 1,512 760 2,517 400 1,570(f)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before
taxes, extraordinary
item and change in
accounting principle.. (18,635) (6,786) (1,784) 11,227 16,917 2,952
Provision for income
taxes (benefit)....... -- 483 1,043 3,233 7,506 2,316
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item and
change in accounting
principle............. (18,635) (7,269) (2,827) 7,994 9,411 636
Extraordinary item..... 644 -- -- -- -- --
Cumulative effect of
change in accounting
principle (g)......... -- (5,200) (492) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss)...... $(17,991) $(12,469) $ (3,319) $ 7,994 $ 9,411 $ 636(h)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
OTHER DATA:
Gross margin........... 36.5% 37.9% 38.6% 38.7% 40.2% 40.2%
EBITDA (i)............. $ 18,326 $ 26,720 $ 29,236 $ 33,981 $ 39,577 $ 39,407
EBITDA margin.......... 5.9% 7.99% 7.5% 7.7% 8.1% 8.0%
Depreciation........... $ 3,168 $ 3,227 $ 3,141 $ 3,496 $ 4,027 $ 4,327
Capital expenditures... 2,602 3,659 4,972 4,496 5,834 5,834
Cash interest expense
(j)................... 13,942 8,564 6,158 7,093 6,488 18,297
Ratio of EBITDA to cash
interest expense...... 1.3x 3.1x 4.7x 4.8x 6.1x 2.2x
Ratio of EBITDA less
capital expenditures
to cash interest
expense............... 1.1x 2.7x 3.9x 4.2x 5.2x 1.8x
Ratio of earnings to
fixed charges (k)..... (k) (k) (k) 1.9x 2.4x 1.1x
Inventory turnover
(l)................... 12.3x 15.5x 16.3x 16.8x 17.2x 17.2x
<CAPTION>
QUARTER ENDED
---------------------------------------
PREDECESSOR COMBINED PRO FORMA
APRIL 1, MARCH 30, MARCH 30,
1995 1996 (B) 1996 (B)
----------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales.............. $ 108,653 $ 119,317 $119,317
Cost of products
sold.................. 67,104 75,672 74,655 (c)
----------- --------- ---------
Gross profit........... 41,549 43,645 44,662
Selling, general and
administrative
expenses.............. 37,518 40,472 40,472
Non-cash ESOP expense
(d)................... 1,133 1,312 1,312
Amortization of
intangible assets...... 1,438 1,442 1,897
Interest expense, net
(e)................... 1,929 1,950 4,761
Other deductions,
net................... 197 4,405 587 (f)
----------- --------- ---------
Income (loss) before
taxes, extraordinary
item and change in
accounting principle... (666) (5,936) (4,367 )
Provision for income
taxes (benefit)....... (296) (2,029) (1,288 )
----------- --------- ---------
Income (loss) before
extraordinary item and
change in accounting
principle............. (370) (3,907) (3,079 )
Extraordinary item..... -- -- --
Cumulative effect of
change in accounting
principle (g)......... -- -- --
----------- --------- ---------
Net income (loss)...... $ (370) $ (3,907) $ (3,079 )(h)
----------- --------- ---------
----------- --------- ---------
OTHER DATA:
Gross margin........... 38.2% 36.6% 37.4 %
EBITDA (i)............. $ 4,847 $ 4,945 $ 4,845
EBITDA margin.......... 4.5% 4.1% 4.1 %
Depreciation........... $ 973 $ 970 $ 1,038
Capital expenditures... 163 1,567 1,567
Cash interest expense
(j)................... 1,688 1,583 4,566
Ratio of EBITDA to cash
interest expense...... (j) (j) (j )
Ratio of EBITDA less
capital expenditures
to cash interest
expense............... (j) (j) (j )
Ratio of earnings to
fixed charges (k)..... (k) (k) (k )
Inventory turnover
(l)................... 4.0x 4.2x 4.2x
<CAPTION>
PREDECESSOR AS OF
----------------------------------------------------------------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 2,205 $ 7,581 $ 11,280 $ 8,477 $ 9,185
Working capital (m)............... 8,955 10,366 25,460 23,077 20,171
Total assets...................... 246,634 245,158 272,533 249,891 254,492
Total debt, including current
maturities....................... 164,104 149,421 141,976 109,435 93,768
Redeemable preferred stock (n).... 500 548 592 641 680
Series A Preferred Stock - ESOP
(o).............................. -- -- -- -- --
Unearned compensation - ESOP
(o).............................. -- -- -- -- --
Redeemable common stock - ESOP,
net of related unearned
compensation (p)................. 2,887 4,720 11,418 23,238 32,272
Total common stockholders'
equity........................... 32,714 34,042 37,878 41,936 44,372
<CAPTION>
SUCCESSOR
AS OF
MARCH
30, 1996
----------------------
ADJUSTED FOR
ACTUAL THE OFFERING
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 8,111 $ 8,111
Working capital (m)............... 27,176 27,176
Total assets...................... 349,706 350,925
Total debt, including current
maturities....................... 191,229 195,229
Redeemable preferred stock (n).... -- --
Series A Preferred Stock - ESOP
(o).............................. 28,352 28,352
Unearned compensation - ESOP
(o)............................... (28,243) (28,243)
Redeemable common stock - ESOP,
net of related unearned
compensation (p).................. -- --
Total common stockholders'
equity........................... 81,530 79,863(q)
</TABLE>
See Notes to Selected Historical and Pro Forma Financial Data.
18
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Certain amounts have been reclassified to be consistent with the Company's current reporting
format.
(b) As a result of the Acquisition, the Company's assets and liabilities were adjusted to reflect their
preliminary estimated fair values as of March 22, 1996. In addition, the Company entered into new
financing arrangements and has changed its capital structure. Accordingly, the results of future
periods will not be comparable to the prior historical periods presented. The pro forma financial
data reflects these changes as if the Transactions (as defined) had been consummated on January 1,
1995. The Combined period for 1996 represents the mathematical addition of the historical amounts
for the Predecessor period (December 31, 1995 to March 21, 1996) and the Successor period (March
22, 1996 to March 30, 1996) and are not indicative of results that would have been obtained had the
Acquisition occurred on December 31, 1995. For information regarding these periods separately, see
the Financial Statements included elsewhere in this Prospectus.
(c) Excludes the charge of $1,000 related to the write-up of inventory to its estimated fair value as a
result of the Acquisition.
(d) Represents the non-cash charge resulting from the allocation of shares held by the Simmons ESOP to
participant accounts as they are earned. Amounts charged in 1991, 1992 and 1993 were based on the
1989 acquisition price. In 1994, the Company changed its method of accounting, resulting in the
fair value of the underlying stock becoming the basis for the annual expense as opposed to the
original cost. (See "The Simmons ESOP" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations.")
(e) Interest expense, net includes the amortization of deferred debt issuance costs and is net of
interest income of $210, $188, $50, $845 and $162, for 1991, 1992, 1993, 1994 and 1995,
respectively, $162 for the pro forma year ended December 30, 1995, $40 and $39 for the first
quarter ended 1995 and 1996, respectively and $39 for the pro forma first quarter 1996.
(f) Excludes a compensation charge of $3,735 for amounts payable to management in connection with the
Acquisition. See "Certain Transactions."
(g) Results from the adoption of Statement of Financial Accounting Standards No. 106 in 1992 relating
to post-retirement benefits, and Statement of Financial Accounting Standards No. 109 in 1993
relating to income taxes.
(h) Excludes the following incurred in connection with the Acquisition: (i) the compensation charge of
$3,735 for amounts payable to management, (ii) the charge of $1,000 related to the write-up of
inventory to its estimated fair value, (iii) the charge of $350 for non-recurring fees, (iv) the
$2,781 write-off of the Subordinated Loan Facility financing fees as a result of the Offering and
(v) the related income tax benefits of $3,146.
(i) EBITDA represents earnings before interest expense, income tax expense, non-cash ESOP expense,
depreciation and amortization, cumulative effect of change in accounting principle and
extraordinary item, and, for the pro forma year ended December 30, 1995 and for the combined pro forma
quarters ended March 30, 1996, excludes amortization of the prepaid management fee of $1,000, $83 and
$250, respectively, in connection with the Acquisition, excludes the effect of the purchase accounting
inventory write-up of $1,000, the compensation charge of $3,735 for amounts payable to management and the
charge of $350 for non-recurring fees, and excludes the credit of $375, $0 and $85, respectively, for the
amortization of the reserve for unfavorable lease commitments. The Company has included information
concerning EBITDA as it is relevant for covenant analysis under the Indenture, which defines EBITDA
as set forth above for the periods shown. See "Description of Notes--Certain Definitions." In addition,
management believes that EBITDA is generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows or other consolidated net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's profitability or liquidity.
(j) Cash interest expense is defined as interest expense less amortization of debt issuance costs and
other non-cash interest expense for 1991, 1992, 1993, 1994, 1995 and for the first quarters ended
1995 and 1996. This calculation of interest expense differs from that specified for Consolidated
Interest Expense under the Indenture. See "Description of Notes--Certain Definitions." The ratio of
EBITDA to cash interest expense and the ratio of EBITDA less capital expenditures to cash interest
expense are not applicable to the quarterly periods.
(k) For the purpose of determining the ratio of earnings to fixed charges, earnings consist of income
before income taxes and fixed charges. Fixed charges consist of interest expense, which includes
the amortization of deferred debt issuance costs and the interest portion of the Company's rent
expense (assumed to be one-third of total rent expense). Earnings were insufficient to cover fixed
charges for 1991, 1992, 1993, first quarter 1995, combined first quarter 1996 and pro forma first
quarter 1996 by $18,688, $6,856, $1,861, $666, $5,936 and $4,717, respectively.
(l) Inventory turnover is defined as cost of products sold divided by average inventory.
(m) Represents total current assets (excluding cash and cash equivalents) less total current
liabilities, excluding current maturities of long-term debt and capital lease obligations.
(n) This stock was issued in connection with the recapitalization of the Company in 1991 and was called
for redemption in connection with the Acquisition.
(o) The Series A Preferred Stock was issued to the Simmons ESOP in connection with the Acquisition (see
"The Acquisition"). The Series A Preferred Stock is required to be recorded at the greater of
redemption value or fair value. The Series A Preferred Stock will be recorded at its redemption
value. In addition, unearned compensation was recorded on the Acquisition Closing Date in an amount
representing the redemption value of the Series A Preferred stock that will be allocated to
participant accounts over future periods. The unearned compensation is classified outside of common
stockholder's equity since it is related to the Series A Preferred Stock (See "The Simmons ESOP"
and "Management's Discussion and Analysis of Financial Condition and Results of Operations.")
(p) Historically, under the terms of the Simmons ESOP, the participants had the right to put their
common stock to the Company under certain circumstances. Accordingly, the fair market value of the
common stock that could have been put to the Company, along with the related amount of unearned
compensation, are classified outside of common stockholders' equity in the predecessor financial
statements.
(q) Includes the following charges incurred in connection with the Transactions: (i) the compensation
charge of $3,735 for amounts payable to management, (ii) the charge of $350 for non-recurring fees
(iii) the $2,781 write-off of the Subordinated Loan Facility financing fees as a result of the
Offering and (iv) the related tax benefits of $2,746.
</TABLE>
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Financial Data are
based on the consolidated financial statements included elsewhere in this
Prospectus, adjusted to give effect to (i) the Acquisition and (ii) the Offering
of the Notes and the application of the net proceeds therefrom to repay the
Subordinated Loan Facility (collectively, the "Transactions").
The unaudited Pro Forma Condensed Consolidated Statement of Operations for
the quarter ended March 30, 1996 is derived from the unaudited Condensed
Consolidated Statement of Operations for the periods December 31, 1995 to March
21, 1996 for the Predecessor and March 22, 1996 to March 30, 1996 for the
Successor included elsewhere in this Prospectus. The unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December 30,
1995, is derived from the Consolidated Statement of Operations for the year
ended December 30, 1995, included elsewhere in this Prospectus. Both of these
Pro Forma Condensed Consolidated Statements of Operations assume that the
Transactions were consummated as of January 1, 1995. The unaudited Pro Forma
Condensed Consolidated Financial Data should be read in conjunction with the
Consolidated Financial Statements of the Company, included elsewhere in this
Prospectus.
The unaudited Pro Forma Condensed Consolidated Financial Data do not purport
to be indicative of the results that would actually have been obtained if the
Transactions had occurred on the date indicated or of the results that may be
obtained in the future. The unaudited Pro Forma Condensed Consolidated Financial
Data are presented for comparative purposes only. The pro forma adjustments, as
described in the accompanying data, are based on available information and
certain assumptions that management believes are reasonable.
The unaudited pro forma information with respect to the Acquisition is based
on the historical financial statements of the business acquired. The Acquisition
has been accounted for under the purchase method of accounting. The purchase
price for the Acquisition, including the related fees and expenses, has been
allocated to the tangible and identifiable intangible assets and liabilities of
the acquired business based upon the Company's preliminary estimates of their
fair value with the remainder allocated to goodwill. The allocation of purchase
price for the Acquisition is subject to revision when additional information
concerning asset and liability valuation becomes available. The pro forma
adjustments directly attributable to the Transactions include adjustments to
interest expense related to the financing, changes in amortization of intangible
assets relating to the allocation of the purchase price, management fees, and
the related tax effects.
20
<PAGE>
SIMMONS COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION OFFERING ADJUSTED
RESULTS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
-------- ----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $489,815 -- $ 489,815 -- $ 489,815
Cost of products sold.................. 292,825 $ (75)(a) 292,750 -- 292,750
-------- ----------- --------- ----------- ---------
Gross profit........................... 196,990 75 197,065 -- 197,065
Selling, general and administrative
expenses.............................. 161,202 -- 161,202 -- 161,202
Non-cash ESOP expense.................. 4,533 92(b) 4,625 -- 4,625
Amortization of intangible assets...... 5,753 1,895(c) 7,648 -- 7,648
Interest expense, net.................. 8,185 12,701(d) 20,886 $(1,818)(e) 19,068
Other deductions, net.................. 400 1,170(f) 1,570 -- 1,570
-------- ----------- --------- ----------- ---------
Income before income taxes............. 16,917 (15,783) 1,134 1,818 2,952
Provision for income taxes............. 7,506 (5,917)(g) 1,589 727(g) 2,316
-------- ----------- --------- ----------- ---------
Net income (loss)...................... $ 9,411 $(9,866) $ (455)(h) $ 1,091 $ 636(i)
-------- ----------- --------- ----------- ---------
-------- ----------- --------- ----------- ---------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations.
21
<PAGE>
SIMMONS COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED ACQUISITION OFFERING ADJUSTED
RESULTS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
-------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales.............................. $119,317 -- $ 119,317 -- $ 119,317
Cost of products sold.................. 75,672 $(1,017)(a) 74,655 -- 74,655
-------- ----------- --------- ----------- ---------
Gross profit........................... 43,645 1,017 44,662 -- 44,662
Selling, general and administrative
expenses.............................. 40,472 -- 40,472 -- 40,472
Non-cash ESOP expense.................. 1,312 -- 1,312 -- 1,312
Amortization of intangible assets...... 1,442 455(c) 1,897 -- 1,897
Interest expense, net.................. 1,950 3,078(d) 5,028 $ (267)(e) 4,761
Other deductions, net.................. 4,405 (3,818)(f) 587 -- 587
-------- ----------- --------- ----------- ---------
Loss before income tax benefit......... (5,936) 1,302 (4,634) 267 (4,367)
Provision for income tax benefit....... (2,029) 634(g) (1,395) 107(g) (1,288)
-------- ----------- --------- ----------- ---------
Net loss............................... $ (3,907) $ 668 $ (3,239)(h) $ 160 $ (3,079)(i)
-------- ----------- --------- ----------- ---------
-------- ----------- --------- ----------- ---------
</TABLE>
- ------------
For purposes of the above analysis, the combined amounts represent the
mathematical addition of the historical amounts for the Predecessor period
(December 31, 1995 to March 21, 1996) and the Successor period (March 22, 1996
to March 30, 1996).
See Notes to Pro Forma Condensed Consolidated Statements of Operations.
22
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 30, 1995 and the quarter ended March 30, 1996 reflect the
Transactions as if they had occurred on January 1, 1995 as follows:
(a) The adjustment includes the following:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Elimination of non-recurring charge resulting from write-up
of inventory at Acquisition............................... $ -- ($1,000)
Increase in depreciation expense........................... 300 68
Decrease in rent expense................................... (375) (85)
-------- -------
($ 75) ($1,017)
-------- -------
-------- -------
</TABLE>
<TABLE>
<C> <S>
(b) Increase in ESOP expense for 1995 is due to the pro forma effect of recording such
shares at their redemption value ($5.00 per share).
(c) The adjustment includes the following:
</TABLE>
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Increase in goodwill amortization.......................... $ 991 $ 282
Increase in patent amortization............................ 904 173
-------- -------
$ 1,895 $ 455
-------- -------
-------- -------
</TABLE>
<TABLE>
<C> <S>
(d) Net increase in interest expense, net, resulting from the Acquisition as follows:
</TABLE>
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Elimination of historical interest expense................. ($ 8,347) ($1,980)
Interest resulting from Subordinated Loan Facility of $100
million at an assumed interest rate of 13% and 12.25%..... 13,000 3,063
Interest resulting from senior credit facility term loans:
Tranche A--$40,000 at 7.75%............................... 3,100 775
Tranche B--$35,000 at 8.25%............................... 2,888 722
Interest resulting from Senior Credit Facility revolving
loan with a maximum of $40 million at an assumed interest
rate of 7.75%............................................. 453 113
Interest resulting from industrial revenue bonds and other
borrowings................................................ 796 181
Amortization of the $5,704 million estimated deferred
financing cost related to the above....................... 811 204
-------- -------
$ 12,701 $ 3,078
-------- -------
-------- -------
</TABLE>
<TABLE>
<C> <S>
(e) Net decrease in interest expense resulting from Offering of the $100.0 million Series A
Senior Subordinated Notes due 2006 and the application of the net proceeds therefrom of
$96 million, reflecting the following (dollars in thousands):
</TABLE>
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Elimination of interest on the Subordinated Loan Facility
of $100 million............................................ $(13,000) $(3,063)
Interest resulting from additional borrowings under
revolving loan of $4 million.............................. 310 78
Interest resulting from the $100 million Series A Senior
Subordinated Notes due 2006 at an assumed interest rate at
10.75%.................................................... 10,750 2,688
Elimination of amortization of Subordinated Loan Facility
deferred financing costs.................................. (278) (70)
Amortization of the $4 million deferred financing costs
related to the Series A Senior Subordinated Notes due
2006...................................................... 400 100
-------- -------
$ (1,818) $ (267)
-------- -------
-------- -------
</TABLE>
<TABLE>
<C> <S>
(f) The adjustment includes the following:
</TABLE>
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Amortization of prepaid management fee..................... $ 1,000 $ 225
Increase in annual agent's fee and unused revolver
commitment fee............................................ 170 42
Elimination of non-recurring compensation charge........... -- (3,735)
Elimination of non-recurring fees.......................... -- (350)
-------- -------
$ 1,170 ($3,818)
-------- -------
-------- -------
</TABLE>
<TABLE>
<C> <S>
(g) Net decrease in provision for income taxes as a result of all above items, except
goodwill amortization at an assumed tax rate of 40%.
(h) Excludes (i) the compensation charge of $3,735 for amounts payable to management in
connection with the Acquisition, (ii) the charge of $1,000 related to the write-up of
inventory to its estimated fair value (iii) the charge of $350 for non-recurring fees
and (iv) the related income tax benefits of $2,034.
(i) Excludes the $2,781 write-off of the Subordinated Loan Facility financing fees and
expenses as a result of the offering and the related income benefit of $1,112.
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical and Pro Forma Financial Data" and the Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
GENERAL
On March 22, 1996, Simmons Holdings, Inc., a company organized on behalf of
Investcorp, management and certain other investors, acquired 100% of the
outstanding common stock of the Company from the Sellers for (i) a purchase
price of $253.2 (including the refinancing or assumption of existing
indebtedness and the purchase of management stock options, and excluding the
payment of fees, expenses and compensation payable to management) plus (ii) the
issuance to the Simmons ESOP of 5,670,406 shares of the Company's Series A
Preferred Stock, having one vote per share and a liquidation preference of $5.00
per share. Financing for the Acquisition was provided by (i) $85.0 million of
capital provided by affiliates of Investcorp, management and other investors;
and (ii) borrowings in an aggregate amount equal to $180.4 million, consisting
of $80.4 million under the Senior Credit Facility and all the proceeds of the
$100.0 million Subordinated Loan Facility, a portion of which was provided by an
affiliate of the Initial Purchaser and an affiliate of Investcorp. The
Subordinated Loan Facility was repaid on April 18, 1996 with net proceeds of the
issuance to the Old Notes together with borrowings under the Senior Credit
Facility.
The Company is the second largest bedding manufacturer in the United States.
Approximately 98% of the Company's 1995 net sales were derived from the
manufacture and sale of conventional bedding, which includes innerspring
mattresses and box springs. The Company also manufactures and sells bedding
accessories such as waterbeds, bed frames and upper bunk supports, which
accounted for the other 2.0% of the Company's 1995 net sales. Over the last four
years, the Company's net sales have grown at a compound annual rate of 11.8%,
from $313.2 million in 1991 to $489.8 million in 1995. The Company also licenses
the Simmons name and manufacturing processes to third party manufacturers abroad
to produce and distribute conventional bedding products within their designated
territories and licenses to third party manufacturers domestically the Simmons
name, which is used on adjustable beds, down comforters, pillows, bed sheets,
bed pads and linens. The Company records license and royalty fees received from
these licenses as an offset to selling, general and administrative expenses.
License and royalty fees received for 1993, 1994 and 1995 were $4.3 million,
$5.4 million, and $5.8 million, respectively.
The Company's costs and expenses include manufacturing (approximately 59.8%
of 1995 net sales), selling (approximately 25.3% of 1995 net sales) and general
and administrative (approximately 7.6% of 1995 net sales). Over the last four
years, the Company's gross profit has grown at a compound annual rate of 14.6%,
from $114.3 million in 1991 to $197.0 million in 1995. As a percentage of net
sales, gross profit has increased from 36.5% in 1991 to 40.2% in 1995. Over the
last four years, the Company's EBITDA has increased at a compound annual rate of
21.2% from $18.3 million in 1991 to $39.6 million in 1995. As a percentage of
net sales, EBITDA has improved from 5.9% in 1991 to 8.1% in 1995.
In January 1989, the Simmons ESOP was established to purchase all of the
Company's then outstanding common stock (the "ESOP Purchase"). The ESOP Purchase
was funded through $249.0 million of debt and preferred stock issued by the
Company (the "Company ESOP Obligation"). Of this amount, the Company loaned the
Simmons ESOP $241.5 million for the purchase of all of the Company's common
stock then outstanding (the "ESOP Loan"). The $249.0 million Company ESOP
Obligation was an "external" obligation of the Company and the $241.5 million
ESOP Loan was an "internal" obligation that the Simmons ESOP owed to the
Company. Initially, the
24
<PAGE>
Company recorded the shares of common stock issued to the Simmons ESOP and
recorded a corresponding offset for unearned compensation as capital. Because
these shares held by the Simmons ESOP were subject to certain redemption
requirements, the Company recorded outside of common stockholders' equity an
amount equal to the fair value of such shares, net of a related amount of
unearned compensation. As the internal ESOP Loan was repaid, non-cash ESOP
expense was recorded and unearned compensation was reduced. As of the
Acquisition Closing Date, the internal ESOP Loan had been reduced to
approximately $61.2 million, in part due to forgiveness in 1992 of a substantial
portion of the internal obligation. Any outstanding amounts with respect to the
external Company ESOP Obligation were repaid in connection with the Acquisition.
The Company will make annual cash contributions to the Simmons ESOP in an
amount up to 25% of eligible participant compensation, subject to certain
limitations and conditions. The Simmons ESOP will then use all such cash to
repay the internal ESOP Loan to the Company. As a result, there is no cash cost
to the Company associated with the contributions to the Simmons ESOP. The Series
A Preferred Stock issued to the Simmons ESOP will be recorded at its aggregate
redemption value of $28.4 million and a corresponding amount of unearned
compensation will be recorded. The Series A Preferred Stock is required to be
recorded at the greater of redemption value or fair value. These amounts are
classified outside of common stockholder's equity since the participants have
the right to put the stock to the Company under certain circumstances. As the
internal ESOP Loan is repaid (over approximately six years), a portion of the
Series A Preferred Stock will be allocated to participant accounts and non-cash
ESOP expense will be recorded based on the number of shares allocated to
participant accounts at the greater of the redemption value ($5.00 per share) or
the fair value of the Series A Preferred Stock.
Prior to 1994, the annual charge to non-cash ESOP expense represented the
number of shares allocated to participant accounts resulting from the repayment
of the internal ESOP Loan valued at the original cost of the shares acquired in
1989. In 1994, the Company changed its method of accounting and began using the
fair value of the shares. This resulted in a significant reduction in the annual
expenses. The difference between the original price per share and the
corresponding reduction in unearned compensation and the fair-value based,
non-cash ESOP expense was charged or credited to additional paid-in capital.
RESULTS OF OPERATIONS
For ease of reference in the following table and discussion below, the
results of operations for 1996 represent the mathematical addition of the
historical amounts for the Predecessor period (December 31, 1995 to March 21,
1996) and the Successor period (March 22, 1996 to March 30, 1996) and are not
indicative of results that would actually have been obtained if the Acquisition
had occurred on December 31, 1995.
25
<PAGE>
The following table sets forth certain components of the Company's
Consolidated Statement of Operations data expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold........... 61.4 61.3 59.8 61.8 63.4
------ ------ ------ -------- ---------
Gross profit.................... 38.6 38.7 40.2 38.2 36.6
Selling, general and
administrative expenses(a)...... 31.8 31.3 32.9 34.5 33.9
Non-cash ESOP expense........... 3.6 1.0 0.9 1.0 1.1
Amortization of intangible
assets......................... 1.5 1.3 1.2 1.3 1.2
Interest expense, net(b)........ 2.0 1.9 1.6 1.8 1.7
Other deductions, net........... 0.2 0.6 0.1 0.2 3.7
------ ------ ------ -------- ---------
Income (loss) before income
taxes and cumulative effect of
change in accounting principle.. (0.5) 2.6 3.5 (0.6) (5.0)
Provision for income taxes
(benefit)...................... 0.3 0.8 1.6 (0.3) (1.7)
------ ------ ------ -------- ---------
Income (loss) before cumulative
effect of change in accounting
principle..................... (0.8)% 1.8% 1.9% (0.3)% (3.3)%
------ ------ ------ -------- ---------
------ ------ ------ -------- ---------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Selling, general and administrative expense is net of royalty income.
(b) Includes amortization of deferred financing costs.
</TABLE>
FIRST QUARTER ENDED MARCH 30, 1996 AS COMPARED TO FIRST QUARTER ENDED APRIL 1,
1995
Net Sales. Net sales for the quarter ended March 30, 1996 increased 9.8%, or
$10.7 million, from $108.6 million in 1995 to $119.3 million in 1996. This
increase was due primarily to a 9.1% increase in unit sales volume and a slight
increase in average unit selling price. The growth in unit sales volume resulted
from increased contract bedding sales and continued retail market acceptance of
the BackCare(R) line launched in June 1995. The slight increase in average unit
selling price is attributable to a shift in product mix to the Company's higher
priced Beautyrest(R) and BackCare(R) products.
Gross Profit. As a percentage of net sales, gross profit for the quarter
ended March 30, 1996 declined 1.6 percentage points from 38.2% in 1995 to 36.6%
in 1996. Of the decline, approximately 0.8 percentage point is attributable to
the sale of finished goods inventory which had been written up, as required by
generally accepted accounting principles, to estimated market value, less costs
to sell, as of the date of the Acquisition. The remaining decline in gross
profit percentage resulted primarily from the increased unit sales volume of
lower margin contract and promotional bedding.
Selling, General and Administrative Expenses. As a percentage of net sales,
selling, general and administrative expenses improved 0.6 percentage point, from
34.5% in 1995 to 33.9% in 1996. The improvement was attributable to the
following: (i) $0.4 million or 0.3 percentage point was due to non-recurring
expenditures related to a special national sales meeting held during the first
quarter of 1995; (ii) $0.2 million or 0.2 percentage point was due to the
centralization of the Company's consumer sales support organization; (iii) $0.2
million or 0.2 percentage point was due to higher royalty income; and (iv) $0.6
million or 0.5 percentage point was due to higher total revenues which increased
at a slightly greater rate than selling, general and administrative
26
<PAGE>
expenses. These improvements were offset, in part, by an increase of $0.7
million, or 0.6 percentage point, in expenditures related to the Company's
reengineering program, referred to elsewhere herein as UNITE.
Interest Expense, Net. Interest expense, net for the first quarter ended
March 30, 1996 remained constant at approximately $1.9 million, as slightly
lower debt balances were offset by slightly higher average interest rates.
Non-Cash ESOP Expense. Non-cash ESOP expense for the first quarter of 1996
increased slightly to approximately $1.3 million as compared to $1.1 million in
1995 due to an increase in the estimated fair value of shares to be allocated to
participant accounts.
Other Deductions, Net. Non-recurring expenses of $4.3 million were incurred
in the quarter ended March 30, 1996 in connection with the Acquisition.
Approximately $3.8 million was attributable to special compensation agreements
entered into by the Company with certain members of management of the Company.
The remaining $0.5 million is comprised of fees related to an agreement with
Investcorp International, Inc. for management advisory, consulting services and
certain other fees. See "Certain Transactions."
Provision (Benefit) for Income Taxes. The Company's effective income tax
rates for the quarters ended March 30, 1996 and April 1, 1995 differ from the
federal statutory rate because of non tax-deductible amortization of goodwill
and the utilization, in 1995, of net operating loss carryforwards.
Net Loss. For the reasons set forth above, net loss for the quarter ended
March 30, 1996 increased $3.5 million from net loss for the quarter ended April
1, 1995.
FISCAL 1995 AS COMPARED TO FISCAL 1994
Net Sales. Net sales increased 11.4%, or $50.1 million, from $439.7 million
in 1994 to $489.8 million in 1995. This increase was due to a 4.3% increase in
average unit selling price and a 6.6% increase in unit volume. This average unit
selling price increase resulted primarily from a shift in product mix to the
Company's higher-priced Beautyrest(R) products. The increase in unit volume
resulted from increased sales to existing accounts and the addition of new
customers. In 1995, the Company embarked on a new national advertising campaign
to reinforce brand awareness and also initiated a program to increase its
account base, all of which together resulted in a 10% increase in its account
base in 1995.
Gross Profit. Gross profit increased 15.9%, or $27.1 million, from $169.9
million in 1994 to $197.0 million in 1995. Approximately $19.0 million of the
increase in gross profit resulted from the increase in net sales in 1995. The
remaining increase in gross profit resulted from improved efficiencies resulting
from (i) the increased efficiencies resulting from second shifts at 14 of the
Company's manufacturing facilities and (ii) the leveraging of fixed costs as a
result of the increase in production volume in 1995. As a percentage of net
sales, gross profit increased 1.5 percentage points, from 38.7% in 1994 to 40.2%
in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1995 increased 17.0%, or $23.4 million, from $137.8
million in 1994 to $161.2 million in 1995. This increase was the result of a
$16.2 million increase in selling expenses and a $7.2 million increase in
general and administrative expenses. The increase in selling expenses was due
to: (i) an increase in selling support expenses due to higher sales volume and
the introduction of a program to grow the Company's account base; (ii) an
increase in salesforce compensation due to higher net sales; (iii) an increase
in national advertising related to the rollout in 1995 of a new advertising
program;
27
<PAGE>
and (iv) an increase in cooperative advertising expenses. The increase in
general and administrative expenses was a result of: (i) $1.3 million in
expenditures related to the Company's UNITE program, a manufacturing design and
re-engineering project initiated in 1995; (ii) an increased provision for bad
debts; and (iii) increased bonuses related to the Company's strong 1995 results.
The Company expects its expenditures related to the UNITE program to increase in
1996 by approximately $3 million in connection with its plans to implement the
program at six additional manufacturing facilities. As a percentage of net
sales, selling, general and administrative expenses increased 1.6 percentage
points, from 31.3% in 1994 to 32.9% in 1995.
Interest Expense, Net. Interest expense, net remained constant at
approximately $8.2 million in 1994 and 1995, as a result of lower debt levels
that were offset by higher interest rates.
Non-Cash ESOP Expense. Non-cash ESOP expense in 1995 remained relatively
constant at approximately $4.5 million as compared to 1994.
Provision for Income Taxes. Provision for income taxes increased 132.2%, or
$4.3 million, from $3.2 million in 1994 to $7.5 million in 1995. The effective
income tax rates for both periods differ from the federal statutory rate of
35.0% principally due to the utilization of net operating loss carryforwards and
the high levels of non tax-deductible amortization of goodwill. The increase in
the effective rate from 1994 to 1995 results from a decline in the amount of net
operating loss carryforwards available to be utilized in 1995 compared to 1994.
FISCAL 1994 AS COMPARED TO FISCAL 1993
Net Sales. Net sales increased 12.3%, or $48.3 million, from $391.4 million
in 1993 to $439.7 million in 1994. This increase was due to a 2.3% increase in
the average unit selling price and a 9.8% increase in unit volume. The average
unit selling price increase resulted primarily from standard price increases
realized in 1994 coupled with a slight shift in the Company's product mix
towards higher-priced products. The increase in unit volume was primarily a
function of increased sales to existing accounts.
Gross Profit. Gross profit increased 12.4% or $18.7 million, from $151.3
million in 1993 to $169.9 million in 1994. This increase was primarily the
result of an increase in sales and a reduction in the cost of raw materials,
which was partially offset by labor inefficiencies resulting from the
introduction of second shifts at most of the Company's manufacturing facilities.
As a percentage of net sales, gross profit increased 0.1 percentage points, from
38.6% in 1993 to 38.7% in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 10.7% or $13.3 million, from $124.5 million in
1993 to $137.8 million in 1994. This increase was the result of a $7.5 million
increase in selling expenses and a $7.0 million increase in general and
administrative expenses, and partially offset by an increase in royalty income
of $1.2 million. The increase in selling expenses resulted from greater spending
on all forms of advertising coupled with an increase in salesforce compensation
resulting from increased net sales. The increase in general and administrative
expenses was a result of (i) an increase in overhead costs relating to the new
plant opened in Charlotte late in 1993 and (ii) increases in provision for
bonuses and workers' compensation insurance. As a percentage of net sales,
selling, general and administrative expense decreased 0.5 percentage points from
31.8% in 1993 to 31.3% in 1994.
Interest Expense, Net. Interest expense, net increased 1.1%, or $0.1
million, from $8.1 million in 1993 to $8.2 million in 1994, as a result of
higher interest rates which were partially offset by lower debt levels.
Non-Cash ESOP Expense. Non-cash ESOP expense decreased 67.9%, or $9.5
million, from $14.0 million in 1993 to $4.5 million in 1994, primarily as a
result of the adoption of Statement of
28
<PAGE>
Position No. 93-6 of the American Institute of Certified Public Accounts,
Employers' Accounting for Employee Stock Ownership Plans. This Statement of
Position requires non-cash ESOP expense contributions to be recorded as expense
in the statement of operations based on the fair value of the shares allocated
to participant accounts versus historical cost, which was used in prior years.
Provision for Income Taxes. Provision for income taxes increased 220.0%, or
$2.2 million, from $1.0 million in 1993 to $3.2 million in 1994. The effective
income tax rate for 1994 differs from the federal statutory rate of 35%
principally due to the utilization of net operating loss carryforwards offset by
high levels of non tax-deductible amortization of goodwill. The effective rate
in 1993 differs from the federal statutory rate principally due to the high
level of non tax-deductible amortization of goodwill. The decline in effective
tax rate in 1994 from 1993 principally results from the utilization of net
operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs will arise primarily from debt service on
indebtedness incurred in connection with the Acquisition and the funding of
capital expenditures. The Company incurred substantial indebtedness in
connection with the Acquisition. As of March 30, 1996, as adjusted to give
effect to the Offering (including the application of the net proceeds
therefrom), the Company would have had outstanding approximately $195.2 million
of indebtedness, consisting of $100.0 million of Notes, $75.0 million in term
loan borrowings and approximately $9.4 million in revolving credit borrowings
under the Senior Credit Facility, $9.7 million of industrial revenue bonds and
$1.1 million of certain other debt and capital lease obligations. The degree to
which the Company is leveraged could have a significant effect on its results of
operations. For example, the funds available to the Company for purposes other
than debt service will be reduced; the Company may be more vulnerable to
increases in interest rates or downturns in economic conditions; and the
Company's ability to obtain additional financing in the future may be impaired.
While the Company believes that it should be able to satisfy its obligations
from operations, available credit facilities and appropriate refinancings, no
assurance to that effect can be given. See "Risk Factors-- Substantial Leverage
and Debt Service Obligations."
Principal and interest payments under the Senior Credit Facility and
interest payments on the Notes will represent significant liquidity requirements
for the Company. With respect to the $75.0 million borrowed under the term loan
portion of the Senior Credit Facility, the Company must make scheduled
semi-annual principal payments totaling $2.1 million in 1996, $5.2 million in
1997, $7.2 million in 1998 and $9.2 million in 1999. The loans under the Senior
Credit Facility will bear interest at floating rates based upon the interest
rate option selected by the Company. Under the Senior Credit Facility, the
Company is obligated to enter into arrangements to fix an effective maximum rate
of interest with respect to not less than $37.5 million of the term loan portion
of the Senior Credit Facility within 90 days of the Acquisition Closing Date.
For a description of the Senior Credit Facility, see "Capital Structure--Senior
Credit Facility."
The Company's capital expenditures were $5.0 million, $4.5 million, $5.8
million and $1.6 million in 1993, 1994, 1995 and the first quarter 1996,
respectively. These capital expenditures consisted primarily of maintenance
capital expenditures and in 1995 and 1996 also included capitalized expenditures
related to SWIFT, a systems upgrade project. The Company estimates that total
maintenance capital expenditures will be approximately $5.0 million in 1996. In
addition, total expenditures for completing the SWIFT project are expected to be
approximately $7.0 million in 1996. The Company may seek to make selective
acquisitions in the bedding industry. Although the Company has discussions from
time to time with potential acquisition candidates, the Company currently has no
commitments with respect to any such acquisitions. The Company's ability to make
capital expenditures and acquisitions is subject to certain restrictions under
the Senior Credit Facility. See "Capital Structure--Senior Credit Facility."
29
<PAGE>
The Company's principal source of cash to fund its liquidity needs is net
cash provided by operating activities. The components of net cash provided by
operating activities are detailed on the Statements of Cash Flows on pages F-7
and F-23 of this Prospectus and include net income or loss adjusted for (i)
depreciation and amortization, (ii) non-cash interest expense, (iii) gains and
losses on the sale of fixed assets, (iv) non-cash ESOP expense, and (v) the
effect of changes in certain operating assets and liabilities. Net cash from
operating activities was $13.5 million in the first quarter 1995 compared to
$(7.8) million in the first quarter 1996 (combined), due primarily to the timing
of payments of accounts payable. Additionally, in the first quarter 1996
(combined), certain cash compensation expenses were incurred in connection with
the Acquisition. Net cash provided by operating activities in 1995 decreased
17.1%, or $5.9 million, to $28.5 million from $34.4 million in 1994. This
decrease resulted primarily from an increase in accounts receivable and
inventories, partially offset by an increase in accounts payable, reflecting
increased sales levels and lower than normal balances of accounts payable at the
end of 1994. Net cash provided by operating activities increased 91.0% or $16.4
million, from $18.0 million in 1993 to $34.4 million in 1994. This increase
resulted primarily from improved operating results, as well as a decrease in
accounts receivable and inventories, partially offset by a decrease in accounts
payable. The decrease in accounts receivable reflects an increased focus by the
Company on timely collections. Accounts payable levels were lower than normal at
the end of 1994, reflecting differences in timing of payments at year-end
compared to 1993 and 1995.
At March 30, 1996 as adjusted for the Offering (including the application of
the net proceeds therefrom), the amount under the revolving credit portion of
the Senior Credit Facility that was available to be drawn was approximately
$24.4 million, after giving effect to $9.4 million of outstanding borrowings and
$6.2 million that was reserved in respect of the Company's reimbursement
obligations with respect to outstanding letters of credit. Amounts available
under the revolving credit portion of the Senior Credit Facility may be used for
working capital and general corporate purposes, including acquisitions and
capital expenditures, subject to certain limitations under the Senior Credit
Facility. Pursuant to the terms of the Senior Credit Facility: (i) the Company
may make capital expenditures in an amount not to exceed $6.5 million in each of
1996 (commencing March 22, 1996) and 1997, and escalating thereafter; and (ii)
to the extent that acquisitions are not permitted as capital expenditures under
the Senior Credit Facility, the Company may make acquisitions in an amount that
is the lesser of (A) $30.0 million or (B) $15.0 million plus 50% of cumulative
Excess Cash Flow (as defined in the Senior Credit Facility). The Company
believes that cash generated from operations, together with the amounts
available under the revolving credit facility, will be adequate to meet its debt
service requirements, capital expenditures and working capital needs for the
foreseeable future, although no assurance can be given in this regard. The
Company's future operating performance and ability to service or refinance the
New Notes and to extend or refinance the Senior Credit Facility will be subject
to future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control.
SEASONALITY
While the volume of the Company's sales is relatively constant throughout
the year, the Company experiences seasonal fluctuations in its profitability,
with generally lower gross profit in the first quarter of the calendar year. The
Company believes that seasonality of profitability is a factor that affects the
conventional bedding industry generally and is primarily due to retailers'
emphasis in the first quarter on price reductions and promotional bedding and
manufacturers' emphasis on closeouts of the prior year's product lines, which
together result in lower profit margins.
30
<PAGE>
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which the Company is required to adopt in 1996. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The adoption of SFAS No. 121 is not
expected to have a material impact on the Company's financial position, annual
operating results or cash flows.
In October 1995, FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which the Company is required to adopt in 1996. SFAS No. 123
establishes optional alternative accounting methods for stock-based compensation
as well as new required disclosures. The Company intends to account for
stock-based compensation under previously existing accounting guidance. As such,
SFAS No. 123 will be adopted for disclosure purposes only and will not impact
the Company's financial position, annual operating results or cash flows.
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<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER, PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1996; provided, however, that if the
Company has extended the period of time for which the Exchange Offer is open,
the term "Expiration Date" means the latest time and date to which the Exchange
Offer is extended.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1996, to all
holders of Old Notes known to the Company. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under " -- Certain Conditions to the Exchange Offer"
below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving notice of such
extension to the holders thereof. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give notice of any extension, amendment, non-acceptance or termination to
the holders of the Old Notes as promptly as practicable, such notice in the case
of any extension to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to SunTrust Bank, Atlanta (the "Exchange
Agent") at one of the addresses set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT
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<PAGE>
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, that neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such New Notes and that neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of the Securities Act,
of the Company.
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<PAGE>
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral and
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all
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<PAGE>
other documents required by the Letter of Transmittal are received by the
Exchange Agent within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "-- Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA"). In any such event the Company is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
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<PAGE>
EXCHANGE AGENT
SunTrust Bank, Atlanta has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
BY HAND/OVERNIGHT EXPRESS: BY MAIL: BY OVERNIGHT DELIVERY:
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
(insured if registered (insured if registered (insured if registered
recommended) recommended) recommended)
SunTrust Bank, Atlanta SunTrust Bank, Atlanta SunTrust Bank, Atlanta
Corporate Trust Department Corporate Trust Department Corporate Trust Department
58 Edgewood Avenue 58 Edgewood Avenue 58 Edgewood Avenue
Room 400 Room 400 Room 400
Atlanta, Georgia 30303 Atlanta, Georgia 30303 Atlanta, Georgia 30303
VIA FACSIMILE:
(404) 332-3966
FOR INFORMATION CALL:
M. Russell Smith, Jr.
(404) 588-7811
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $ , which includes fees and expenses of the Trustee,
accounting, legal, printing and related fees and expenses.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities law. Old Notes not exchanged pursuant to the
Exchange Offer will continue to accrue interest at 10 3/4% per annum and will
otherwise remain outstanding in accordance with their terms. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. However, (i) if the Initial Purchaser so requests with respect to Old Notes
not eligible to be exchanged for New Notes in the Exchange Offer and held by it
following consummation of the Exchange Offer or (ii) if any holder of Old Notes
is not eligible to participate in the Exchange Offer or, in the case of any
holder of Old Notes that participates in the Exchange Offer, does not receive
freely tradable New Notes in exchange for Old Notes, the Company is obligated to
file a registration statement on the appropriate form under the Securities Act
relating to the Old Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than (i) any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or (ii) any
broker-dealer that purchases Notes from the Company to resell pursuant to Rule
144A or any other available exemption) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate in
the distribution of such New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. A broker-dealer who holds Old
Notes that were acquired for its own account as a result of market-making or
other trading activities may be deemed to be an "underwriter" within the meaning
of the Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes.
Each such broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
in the Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." While the Company
has an obligation under the Registration Rights Agreement to update this
Prospectus by amendment or supplement for a period of 90 days following
consummation of the Exchange Offer, the Company has no obligation thereafter to
update the Prospectus and, therefore, holders required to deliver a prospectus
may not thereafter be able to resell because they may be unable to comply with
the prospectus delivery requirements described above.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
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<PAGE>
BUSINESS
HISTORY OF THE COMPANY
Founded in 1871, the Company was privately held by the Simmons family for
many years and later was publicly traded. Historically, the Company was a
worldwide mattress manufacturer; in 1977 over 20% of the Company's net sales
came from international sales. In 1978, Gulf & Western Industries, Inc., which
later became Paramount Communications, Inc. ("Paramount"), acquired the Company
via a tender offer. In September 1985, Paramount sold the Company to Wickes
Companies, Inc., which in turn sold the stock to a group of private investors
led by Wesray Capital through a leveraged buyout in October 1986. During 1987
and 1988, the Company sold its European and Asian subsidiaries and several
parcels of real estate in order to pay down debt incurred to finance the
leveraged buyout.
In January 1989, 100% of the Company's stock was acquired by the
newly-created Simmons ESOP for approximately $250 million. Between 1989 and
1991, the Company sold additional real estate as well as its Canadian and
Mexican subsidiaries, the proceeds of which were used to repay a portion of the
Company's debt. In conjunction with a financial restructuring completed in 1991,
MLCP provided the Company with a $32.2 million equity investment, the proceeds
of which were used to reduce further the Company's debt, giving MLCP an
approximately 60% interest in the Company. As a result of the Acquisition, 100%
of the Company's common stock is owned by Holdings. The Simmons ESOP holds all
of the Series A Preferred Stock, which upon conversion into common stock of the
Company or Holdings would represent direct or indirect ownership of 15.1% of the
common stock of the Company (exclusive of stock options granted under the
Company's management stock incentive plan).
GENERAL
The Company is the second largest bedding manufacturer in the United States.
The Company manufactures and distributes a broad range of mattresses, box
springs, bedding frames and sleep accessories under well-recognized brand names,
including Beautyrest(R), Simmons(R), Maxipedic(R), Beautysleep(R) and three
newly introduced lines, Connoisseur(R), BackCare(R) and Equation of Sleep(R).
Sales of conventional bedding, which includes fully assembled mattresses and box
springs, accounted for approximately 98% of the Company's 1995 net sales.
Beautyrest(R), the Company's premier brand, accounted for approximately 72% of
net sales and approximately 58% of unit volume in 1995.
The Company manufactures and supplies conventional bedding to over 5,000
retail outlets, representing more than 2,500 customers, including furniture
stores, department stores, specialty sleep shops and warehouse showrooms. The
Company operates 18 manufacturing facilities, which are strategically located in
15 states and Puerto Rico in proximity to its customers, thereby reducing
transportation costs, facilitating just-in-time delivery and enhancing the
Company's ability to service large national accounts. The Company believes that
operating each of its manufacturing facilities affords a number of advantages
over several of its national, brand-name competitors that operate as a group of
independent licensees, including (i) producing consistently high-quality
merchandise across all facilities; (ii) allowing the Company to share its best
practices among manufacturing facilities; (iii) ensuring consistency of local
marketing for national accounts; and (iv) permitting efficient allocation of
production among manufacturing facilities to accommodate variations in regional
demand.
STRATEGY
The Company's primary strategic objectives are to maximize profitability and
cash flow by continuing to increase its market share and by improving its
operating efficiency. To achieve these objectives, the Company has implemented a
strategy that includes: (i) increasing penetration of
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existing and new accounts, primarily by emphasizing higher-end and more
profitable products and by continuing to introduce new and innovative products;
and (ii) improving operating performance and profitability by re-engineering the
Company's manufacturing facilities and upgrading the Company's information
systems.
INCREASE PENETRATION OF EXISTING AND NEW ACCOUNTS. The Company believes
there is significant opportunity to improve its unit volume and market share by
increasing its penetration of existing and new accounts.
Existing Accounts. The Company believes that it can most effectively
increase net sales by increasing sales to existing customers. The Company
plans to achieve such increases primarily by: (i) emphasizing higher-end,
more profitable products; and (ii) increasing the number of slots it has on
its customers' floors through the introduction of new and innovative
products. The Company will continue to help its retailers to remerchandise
their showrooms and to actively market more profitable lines of bedding
through ongoing marketing initiatives and retailer sales force training. The
premium Beautyrest(R) mattresses are more profitable for both the Company
and its retailers, and management believes that a significant opportunity
exists to capture additional sales at the higher-end price points by
educating consumers about the benefits of these models. In addition, the
Company has a staff of engineers dedicated to designing and testing
innovative new products that differentiate the Company's products from those
of its competitors. Management believes that new products, such as the
BackCare(R) open coil product and the ready-to-assemble Equation of Sleep(R)
product, will enable it to increase the number of slots it has on retail
floors and displace marginal competitors, thereby enhancing its share of its
customers' bedding business. The BackCare(R) product line, which was
launched in June 1995, is being sold by 25% of the Company's customers
without any significant displacement of its existing product lines.
New Accounts. Management also is focusing on increasing the number of
accounts and expects that the Company will be able to continue to add a
substantial number of new accounts to its retailer base. The Company
recently has developed an extensive training program for its sales
representatives that focuses on marketing to prospective accounts and has
assigned sales representatives to target specific prospective accounts. The
Company also has devoted more resources to its national advertising program,
which builds brand awareness and emphasizes the various features and
benefits of the Company's products which differentiate them from other
brands. As a result of these initiatives, the Company added approximately
250 net new accounts during 1995 and approximately 60 net new accounts
during the first quarter of 1996, increasing its customer base to over 2,500
accounts.
IMPROVE OPERATING PERFORMANCE AND PROFITABILITY. Management has identified
several potential areas of improvement that are expected to result in increased
efficiency and profitability, including re-engineering the Company's
manufacturing facilities and upgrading the Company's information systems.
Re-engineering Manufacturing Facilities. The Company is working with a
nationally recognized management consulting firm on a re-engineering
project, internally referred to as UNITE, which is expected to be
implemented in each of the Company's conventional manufacturing facilities
and is expected to improve the flow of production and overall efficiency by
changing the layout of the factory floor. In December 1995, the Company
substantially completed the re-engineering of its Fredericksburg, Virginia
facility, which included reorganizing the manufacturing processes into cell
configurations and implementing a Kanban raw materials replenishment system.
The Company intends to re-engineer six additional plants to similar
specifications during 1996, with the remaining 10 conventional facilities to
be converted by early 1998. Based upon the initial results of the
re-engineering of the Fredericksburg facility, management believes that,
upon completion of the scheduled re-engineering of its manufacturing
facilities,
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<PAGE>
the Company will realize a significant increase in manufacturing
productivity (measured in units produced per labor-hour), and an increase in
manufacturing space available for future expansion.
Upgrading Systems. The Company is in the process of implementing a major
upgrade of its computer systems, internally referred to as SWIFT, that is
intended to enable the Company to better analyze account profitability and
identify areas where pricing or margin improvements are available. This
system upgrade, which will consolidate the Company's existing systems into
one integrated system, also is expected to enhance customer service and
order taking by facilitating the more efficient exchange of information
between the Company and its customers. The Company expects this system
upgrade to be completed by June 1997 and believes it will improve operating
performance and profitability.
INDUSTRY AND COMPETITION
Wholesale revenues in the domestic conventional bedding industry have grown
at a compound annual rate of 6.8% to approximately $3.2 billion in 1995 from
approximately $860.4 million in 1975, according to industry sales data compiled
by ISPA. During this 20-year period, wholesale revenues increased each year,
with the exception of 1982, when such revenues declined by 1.9%. The domestic
conventional bedding industry accounts for over 90% of wholesale revenues for
the entire domestic bedding market, according to ISPA. Non-conventional bedding
products, such as flotation bedding ("waterbeds"), futons and electric
adjustable beds, account for the remainder of industry wholesale revenues. The
graph below depicts the growth of the domestic conventional bedding industry
from 1975 to 1995:
DOMESTIC CONVENTIONAL BEDDING REVENUES: 1975-1995
[GRAPH]
---------------
Source: ISPA
The domestic bedding industry consists of over 800 bedding manufacturers,
ranging from small, family-owned plants to large factory-direct producers. The
four largest bedding manufacturers (the Company, Sealy Corporation, Serta, Inc.,
and Spring Air Company), accounted for approximately 58% of the industry's
estimated 1995 wholesale revenues of $3.2 billion. The 10 largest bedding
manufacturers accounted for an estimated 73% of the industry's estimated 1995
wholesale revenues, with the remaining revenues attributable to the hundreds of
small regional and local manufacturers.
The Company estimates that its share of the conventional bedding market has
grown to approximately 15.1% in 1995 from approximately 13.1% in 1992, based on
wholesale revenue data published by ISPA. The following table sets forth certain
information regarding management's most
40
<PAGE>
recent estimates of the domestic market shares of major producers of
conventional bedding, and is principally based on a report published in the
March 18, 1996 edition of Furniture/Today:
<TABLE>
<CAPTION>
1995
MARKET SHARE
COMPANY/LICENSING GROUP (ESTIMATED) MAJOR BRANDS
- --------------------------------- ------------ ---------------------------------
<S> <C> <C>
Sealy Corporation................ 17.4% Posturepedic, Correct Comfort,
Stearns & Foster
SIMMONS COMPANY.................. 15.1% BEAUTYREST, MAXIPEDIC, BACKCARE
Serta, Inc.*..................... 14.3% Perfect Sleeper, Sertapedic
Spring Air Company*.............. 11.3% Back Supporter, Spring-O-Pedic
King Koil*....................... 3.3% Posture Bond, Spinal Guard
Restonic Sleep Products*......... 2.7% Marvelous Middle, Sup-R-Posture
Englander*....................... 2.6% Lady Englander, Comfort Seal
Therapedic Division of the
International Bedding Corp....... 2.4% Medi-Coil
Springwall*...................... 2.2% Chiropractic
E.B. Malone Corp. d/b/a Bassett
Bedding.......................... 1.9% Dreammaker
All others....................... 26.8%
------
100.0%
------
------
</TABLE>
----------------
* Operates as a group of independent licensees.
ISPA estimates that approximately 70% of conventional bedding is sold for
replacement purposes and that the average time between consumer purchases of
conventional mattresses is approximately 11 years. Manufacturers compete on the
basis of product quality, brand-name recognition, price, service and prompt
delivery. Approximately 75% of conventional bedding is sold to furniture stores
and specialty sleep shops. Most of the remaining conventional bedding is sold to
department stores, national mass merchandisers and contract customers, such as
motels, hotels and hospitals.
The economics of selling conventional bedding products are attractive to
retailers for a number of reasons. Conventional bedding products produce higher
sales per square foot than most other products sold in furniture stores.
Furthermore, conventional bedding products generally provide higher gross margin
return on inventory relative to other products in furniture stores because: (i)
retailers generally carry little, if any, conventional bedding inventory other
than floor samples; and (ii) bedding products are consistently among retailers'
highest gross margin products. Furthermore, manufacturers generally share the
cost of cooperative advertising and consumer promotions with retailers.
According to a study conducted by ISPA, households headed by people 45 to 64
years old tend to purchase bedding sets in the premium price segments.
Statistics published by the United States government indicate that the number of
households in this category is expected to grow from 30.4 million in 1995 to
39.8 million in 2000, an increase of 31%, and to 42.2 million in 2005, an
additional increase of 6%. Management expects these demographic trends to result
in an increase in demand for premium priced bedding, the segment of the market
in which the Company predominantly competes.
PRODUCTS
Overview. The Company's conventional bedding, which accounted for
approximately 98% of the Company's net sales in 1995, consists primarily of
brand name bedding that varies in price,
41
<PAGE>
design, material and size. Retail prices for the Company's products range from
under $200 for a twin-size promotional bedding set to approximately $3,000 for a
king-size luxury set. The Company predominantly competes in the $499 and up
retail price segment, which accounts for the top 40% of the market in terms of
units sold. The Company also manufactures and sells waterbeds, licenses the
Simmons name and manufacturing processes to third-party manufacturers abroad to
produce and distribute conventional bedding products within their designated
territories and licenses the Simmons name to third-party manufacturers
domestically for use on adjustable beds, down comforters, pillows, bed sheets,
bed pads and linens.
Pocketed Coil. The Company is the only national manufacturer that produces
conventional bedding using pocketed coil construction. The Company's
Beautyrest(R) and Connoisseur(R) lines, which employ pocketed coil innersprings,
are designed to be among the most comfortable and durable premium mattresses in
the market. Unlike open coil mattresses, in which each innerspring coil is
joined to adjacent coils at the top and the bottom, pocketed coil mattresses are
constructed so that each row of innerspring coils is joined to adjacent rows of
coils in the center third of each coil's pocket, thereby permitting the top and
bottom of each coil to respond independently to pressure applied to the surface
of the mattress. With each coil capable of moving independently, this design
allows the mattress to contour to the user's body, reducing excess movement.
Beautyrest(R) is the Company's flagship product in the pocketed coil line of
bedding, accounting for approximately 72% of the Company's net sales and
approximately 58% of its unit volume in 1995. In the fall of 1995, the Company's
pocketed coil construction was incorporated into the new Connoisseur(R) line in
response to the increasing demand for top-of-the-line premium bedding. The
Connoisseur(R) line is intended to offer high-end customers a luxurious product
that is durable and that contains variable pressure foam for maximum comfort and
support. The Company expects the Connoisseur(R) line to yield higher profit
margins and further elevate the Company's image as a producer of top quality
premium bedding.
Open Coil. To provide a broad product offering, the Company manufactures the
Maxipedic(R), Beautysleep(R) and BackCare(R) product lines, which use
traditional open coil technology. The Maxipedic(R) product line, which features
non-skid quilting and a steel grid that anchors the coils and reduces lateral
motion, is intended to provide the Company's customers with a moderately priced
open coil product. Beautysleep(R) is an exclusive-label product line for
customers interested in a brand-name open coil product.
The newly introduced BackCare(R) mattresses are designed for today's
health-conscious consumers who seek superior support and comfort in the open
coil mattress category. This line combines anatomic foam with a five-zone
system, two for support and three for comfort. The foam responds to the user's
need for support under the lower back and thighs, while offering comfort under
the calves, upper shoulders and buttocks. Thus, the five-zone system is designed
to keep the back in a natural position and ensure proper alignment and comfort
as the user changes position. The BackCare(R) product line, which was introduced
in June 1995, is being sold by 25% of the Company's customers without any
significant displacement of its existing product lines.
Specialty Sleep Products. The Company manufactures waterbeds in a limited
number of its conventional bedding plants. Sold under the name Flotation
Beautyrest(R), waterbeds accounted for approximately 1% of the Company's bedding
sales in 1995. The Company, the only major domestic bedding manufacturer that
produces waterbeds, sells waterbeds to specialty retailers and other customers
throughout the United States.
The Company currently is introducing a line of ready-to-assemble ("RTA")
bedding, which the Company believes is a potentially high-growth segment of the
bedding market. RTA will come on the market in early 1996 under the Equation of
Sleep(R) product line. This new product developed by the Company, which is
expected to be shipped to the customer in two to four boxes via United Parcel
Service or Federal Express, is intended to increase customer and retailer
convenience,
42
<PAGE>
require less retail and inventory floor space, and allow access to
non-traditional distribution channels such as QVC Inc. and catalogs.
CUSTOMERS
The Company manufactures and supplies conventional bedding to over 5,000
retail outlets, representing more than 2,500 customers including furniture
stores, department stores, specialty sleep shops and warehouse showrooms. In
1995, the Company was the exclusive supplier to over 200 of these customers. The
Company's 10 largest customers accounted for approximately 46% of 1995 net
sales, while no single customer accounted for more than 8% of such net sales.
The majority of the Company's net sales are to furniture stores, department
stores, sleep shops and warehouse showrooms. The following table sets forth the
customer profile for the Company's conventional bedding sales, the percentage of
total net sales made to each category of customers in 1995 and the names of
representative customers:
<TABLE>
<CAPTION>
ESTIMATED
PERCENTAGE OF
CHANNEL OF DISTRIBUTION NET SALES REPRESENTATIVE CUSTOMERS
- --------------------------------------- ------------- ---------------------------------------
<S> <C> <C>
Furniture stores....................... 50% Art Van Furniture, Inc.; Heilig-Meyers
Company; Levitz Furniture Inc.;
Rhodes Furniture
Department stores...................... 25% Federated Department Stores, Inc.; May
Department Stores Company; Montgomery
Ward & Co. Inc.; Sears, Roebuck and
Company
Specialty sleep shops.................. 17% Mattress Discounters; Nationwide Sleep
Centers; Sleepy's Bedding Centers
Warehouse showrooms.................... 5% American Furniture Warehouse; Wickes
Furniture Company Inc.
Other (membership clubs, jobbers and
contract customers)................... 3% Price/Costco Inc.; Rent-A-Center
------
100%
------
------
</TABLE>
SALES, MARKETING AND ADVERTISING
The Company's products are sold by approximately 150 field sales
representatives and a national sales staff consisting of eight people. Field
sales representatives visit individual retailers on a regular basis to assist
showroom floor sales people with product presentation, point-of-purchase signage
and sales techniques, while the national sales staff is responsible for national
marketing and national accounts. Over its 125-year history, the Company has
grown to its current market position by providing high-quality products that
appeal to consumers and a high level of service to its retailing customers.
The Company's advertising program focuses on two areas: (i) cooperative
promotional advertising, which complements and is designed around individual
retailers' marketing programs; and (ii) national advertising, which is designed
to establish and build brand awareness with end users. With cooperative
advertising, the Company shares the costs of advertising with retailers in the
form of rebates, merchandising funds and local advertising. Management believes
cooperative advertising fosters strong relationships with its retailers, who
exert significant influence on the consumer's purchasing decision. The Company
seeks to build long-term brand awareness through regular national advertising
and achieve short-term sales objectives through individual commercials. One of
the Company's most successful campaigns, the "Do Not Disturb" campaign, which is
ongoing, was launched in the spring of 1995. This campaign was designed to build
awareness of the
43
<PAGE>
Company and of its competitive points of differentiation, especially the
advantages of the Company's use of pocketed coil technology, which was
demonstrated by the Company's "Bowling Ball" commercial that was initially aired
in April 1995.
Retailers greatly influence the bedding business through the allocation of
floor space and through the advice of the retail floor sales person, who often
has the ability to exert significant impact on customer purchase decisions.
Typically, retail floor sales people are motivated primarily by high commission
rates and by proceeds from promotions. However, the Company has found that
educating and working in partnership with sales people can increase their
awareness of the value of the Company's products. To this end, the Company has
developed programs in the Company's Atlanta offices and on-site at its retailers
that are designed to teach retail floor sales people how to match customers with
their mattress comfort preference by improving the retail floor sales person's
product knowledge and sales skills. The Company's sales force is trained in
advertising, merchandising and salesmanship. Management believes that its
attention and focus on the training of its sales representatives and its
customers' retail floor sales people is one area where the Company
differentiates itself from most of its largest competitors.
The Company also has implemented an automated system for analysis of
marketing data. The Simmons Market Analysis of Retail Trends ("SMART") system
combines geographically-organized sales and demographic data to provide needed
information for the analysis of the bedding business at the retail level. This
computerized system helps the Company analyze demographic, lifestyle and sales
data and provides guidelines for increasing bedding sales. The demographic and
regional lifestyle data set forth in each SMART report provided by the Company
is used by retailers to identify and target customers in high potential sales
areas.
SUPPLIERS
The Company purchases substantially all of its conventional bedding raw
materials (i.e., spring components, wire, lumber, foam and ticking) centrally in
order to maximize economies of scale and volume discounts. The Company sourced
approximately 80% of its 1995 raw material needs from 10 suppliers. The Company
has long-term supply agreements with each of Leggett & Platt ("L&P"), Foamex
International, Inc. and Amoco Fabrics and Fiber Company. L&P supplies the
majority of certain components (including spring components, insulator pads,
wire, fiber, quilt backing and flange material) to the bedding industry. With
the exception of L&P, the Company believes it can replace its other suppliers
because it already has identified and currently uses alternative sources. L&P
currently provides the Company with certain components for which alternative
sources are not readily available. Interruption in the supply of these
components could have a material adverse effect on the Company's business,
financial condition and results of operations.
During 1995, L&P provided approximately one-third of the Company's total raw
material needs. The Company expects that L&P will provide a comparable portion
of the Company's 1996 total estimated raw material needs. The Company and L&P
have entered into agreements for the supply of grid tops, innersprings and wire,
which require the Company to purchase a majority of its requirements of certain
components from L&P and provide the Company certain benefits depending upon the
volume of its purchases.
MANUFACTURING AND FACILITIES
The Company operates 18 manufacturing facilities in 15 states and Puerto
Rico. These manufacturing facilities yield a combined practical capacity of over
20,000 units per day, assuming two eight-hour shifts daily. In 1995, the Company
produced a daily average of 15,250 bedding units per day, although average daily
production was as high as 17,700 units per day during peak periods. Currently,
13 of the Company's 18 facilities operate two shifts a day, four facilities
operate a single shift and one operates three shifts per day. Each facility is
managed by a Vice President--
44
<PAGE>
General Manager who reports to one of three Divisional Executive Vice
Presidents. Each plant operates as a separate profit center and maintains
certain administrative functions, primarily sales and order entry, accounting
and payroll. The corporate headquarters oversees national purchasing and
marketing, the management of national accounts, credit administration, accounts
receivable collection, cash management and personnel functions.
The manufacturing facilities are strategically located to service major
metropolitan areas and consist of an average of approximately 120,000 square
feet of manufacturing space, most of which is devoted to production. Most raw
materials inventory is received through "just-in-time" delivery from the
Company's major suppliers. Finished goods inventory is minimized through
made-to-order production, with most orders being scheduled, produced and shipped
within 24 to 72 hours of receipt.
The Company is working with a nationally recognized management consulting
firm on a re-engineering project, internally referred to as UNITE, which is
expected to be implemented in each of the Company's conventional manufacturing
facilities and is expected to improve the flow of production and overall
efficiency by changing the layout of the factory floor. In December 1995, the
Company substantially completed the re-engineering of its Fredericksburg,
Virginia facility, which included reorganizing the manufacturing processes into
cell configurations and implementing a Kanban raw materials replenishment
system. The Company intends to re-engineer six additional plants to similar
specifications during 1996, with the remaining 10 conventional facilities to be
converted by early 1998. Based upon the initial results of the re-engineering of
the Fredericksburg facility, management believes that, upon completion of the
scheduled re-engineering of its manufacturing facilities, the Company will
realize a significant increase in its manufacturing productivity (measured in
units produced per labor-hour), and an increase in manufacturing space available
for future expansion.
ENGINEERING AND DEVELOPMENT
The Company seeks to maintain close contact with bedding industry
developments through sleep research conducted by industry groups and by the
Company's engineering department, as well as through participation in the Better
Sleep Council, an industry association that promotes awareness of sleep issues,
and ISPA. The Company's marketing and manufacturing departments work closely
with the engineering staff to develop and to test new products for marketability
and durability.
In September 1995, the Company completed the construction of the Simmons
Institute of Technology and Education ("SITE"), a state-of-the-art 38,000 square
foot research center in Atlanta, Georgia. Approximately 25 engineers and
technicians are employed full-time at SITE. These employees conduct product and
materials testing, design manufacturing facilities and equipment, improve
process engineering and development, and ensure high-quality products.
Management believes that the Company's engineering staff gives the Company a
competitive advantage over certain of its competitors who do not have
significant in-house engineering departments.
WARRANTIES; PRODUCT RETURNS
The Company's conventional bedding products generally offer limited
warranties of 10 years against manufacturing defects, with certain promotional
products carrying warranties of one year. Management believes that its warranty
terms are generally consistent with those of its primary national competitors.
While the Company's historic costs of honoring warranty claims have been
immaterial, the Company has experienced numerous non-warranty returns for
reasons generally related to retailer accommodations and order entry errors by
retailers' sales people. The Company is continuing to train its retailers' sales
force personnel on merchandising and salesmanship in
45
<PAGE>
order to minimize non-warranty returns. The Company resells its returned
products primarily through as-is furniture vendors. In addition, the Company has
recently begun to market its returned products and factory overruns in Company
outlets located in or near factory outlet malls.
PATENTS, TRADEMARKS AND LICENSES
The Company owns many trademarks, including Simmons(R), Beautyrest(R),
Maxipedic(R), Connoisseur(R), Beautysleep(R), BackCare(R) and Equation of
Sleep(R), as well as patents, most of which are registered in the United States
and in many foreign countries. As a result of the disposition of certain of the
Company's foreign operations through the early 1990s, the Company now licenses
the Simmons name and many of its trademarks, processes and patents to third
party manufacturers abroad to produce and distribute conventional bedding
products within their designated territories, primarily on perpetual or
automatically renewable terms. In addition, the Company has licensed the Simmons
name and certain trademarks, generally for limited terms, to domestic third
party manufacturers of adjustable beds, down comforters, pillows, bedsheets, bed
pads and linens.
EMPLOYEES
As of March 30, 1996, the Company had approximately 2,600 employees, of
which approximately 1,140 were represented by labor unions. Employees at nine of
the Company's 18 manufacturing facilities are represented by unions.
Manufacturing employees at seven of the unionized plants are under a master
contract with the Upholstery Division of the United Steelworkers. There are also
agreements with Teamsters, United Furniture Workers, Longshoremen and
International Association of Machinists. Labor relations historically have been
good, with no labor-related work stoppages in over 20 years. Union contracts
typically are negotiated for three-year terms. A majority of the Company's
current contracts were negotiated in 1994 and are due for renegotiation in 1997.
Since 1980, the Company has opened eight new plants, none of which is unionized.
Approximately 1,400 of the Company's current and former employees are
participants in the Simmons ESOP.
REGULATORY MATTERS
As a manufacturer of bedding and related products, the Company uses and
disposes of a number of substances, such as glue, lubricating oil, solvents, and
other petroleum products, that may cause the Company to be subject to regulation
under numerous federal and state statutes governing the environment. Among other
statutes, the Company is subject to the Federal Water Pollution Control Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Clean Air Act and related state
statutes and regulations. The Company believes that it is in material compliance
with all applicable federal and state environmental statutes and regulations.
Compliance with all such provisions which have been enacted relating to the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, is not expected to have any material adverse
effect upon the Company's business, financial condition or results of
operations. The Company is not aware of any pending federal environmental
legislation which would have a material adverse effect on the Company's
financial condition or results of operations.
The Company's conventional bedding and other product lines are subject to
various federal and state laws and regulations relating to flammability,
sanitation and other standards. The Company believes that it is in material
compliance with all such laws and regulations.
PROPERTIES
The offices of the Company are located at One Concourse Parkway, Suite 600,
Atlanta, Georgia 30328.
46
<PAGE>
The following table sets forth certain information regarding manufacturing
and certain other facilities operated by the Company as of March 30, 1996:
APPROXIMATE
SQUARE
LOCATION FOOTAGE
- -------------------------------------------------------------- -----------
MANUFACTURING FACILITIES
Atlanta, Georgia.............................................. 148,300
Atlanta, Georgia*............................................. 30,960
Charlotte, North Carolina..................................... 113,400
Columbus, Ohio................................................ 190,000
Dallas, Texas................................................. 106,140
Denver, Colorado.............................................. 98,090
Fredericksburg, Virginia...................................... 128,500
Honolulu, Hawaii.............................................. 58,530
Jacksonville, Florida......................................... 205,729
Janesville, Wisconsin......................................... 195,340
Kansas City, Missouri......................................... 85,165
Los Angeles, California....................................... 223,382
Phoenix, Arizona.............................................. 54,000
Piscataway, New Jersey........................................ 200,908
San Leandro, California....................................... 260,500
Seattle, Washington........................................... 133,610
Springfield, Massachusetts.................................... 129,000
Toa Baja, Puerto Rico......................................... 24,500
-----------
Sub Total................................................. 2,386,054
OTHER FACILITIES
Corporate Headquarters (Atlanta, Georgia)..................... 37,500
SITE (Atlanta, Georgia)....................................... 38,000
-----------
TOTAL..................................................... 2,461,554
-----------
-----------
- ------------
* This facility is not scheduled to be re-engineered pursuant to UNITE.
The Company leases all of its facilities with the exception of its
Janesville, Wisconsin manufacturing facility, which the Company owns. The
average term until final lease expiration, including renewals, is approximately
12 years. While four of the 17 leased manufacturing facilities have leases
expiring within five years, management either is planning to relocate to a
larger facility or expects that a new lease will be signed.
LEGAL PROCEEDINGS
From time to time, the Company has been involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have material adverse
effect on the financial condition or results of operations of the Company.
On May 7, 1996, an action was filed against the Company in federal district
court in Puerto Rico alleging breach of a lease and purchase option agreement
and seeking damages of $300,000 in incurred costs and $2.2 million in lost
earnings to date. The action arises out of the Company subsidiary's termination
of the agreement with the plaintiff and others. The Company believes that the
actions of its subsidiary were in accordance with its rights under the agreement
and intends to vigorously defend the asserted claims. In the event of an
unfavorable outcome, the Company believes that any ensuing liability would not
have a material adverse effect on the Company's financial condition.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company. Each director of the Company
will hold office until the next annual meeting of shareholders of the Company or
until his successor has been elected and qualified. Officers of the Company are
elected by the Board of Directors of the Company and serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------------ ---- ------------------------------------------
<S> <C> <C>
Zenon S. Nie.............................. 45 Chairman of the Board of Directors, Chief
Executive Officer and Director.
Martin R. Passaglia....................... 47 Senior Executive Vice President and
Director.
Jonathan C. Daiker........................ 48 Executive Vice President-Finance and
Administration, Chief Financial Officer
and Director.
William L. Ayers, IV...................... 50 Executive Vice President-Marketing and
Sales.
Joseph Ulicny............................. 53 Executive Vice President-Market
Development.
Robert K. Barton.......................... 55 Senior Vice President-Human Resources.
Gary G. Pleasant.......................... 53 Divisional Executive Vice President.
Cleve B. Murphy........................... 45 Divisional Executive Vice President.
James P. Maher............................ 60 Divisional Executive Vice President.
Leo T. Brennan............................ 61 Vice President-Materials Management.
Roger W. Franklin......................... 40 Vice President-Finance and Treasurer.
Savio W. Tung............................. 45 Director.
Christopher J. O'Brien.................... 37 Director.
Charles J. Philippin...................... 45 Director.
Jon P. Hedley............................. 35 Director.
</TABLE>
Zenon S. Nie joined the Company in 1993 as Chief Executive Officer and was
appointed Chairman in January 1994. Prior to joining the Company, Mr. Nie served
as President of the Consumer Home Fashions Division of Bibb Companies from 1991
to 1993. From 1981 through 1991, Mr. Nie held several senior management
positions at Serta, Inc., including President, Executive Vice President, Chief
Operating Officer, Senior Vice President-Manufacturing Finance and
Administrative and Vice President-Strategic Planning. Mr. Nie's previous
experience includes several marketing positions at Sealy Corporation.
Martin R. Passaglia joined the Company in 1973 as a Sales Representative. He
has held various positions during his tenure including Regional Sales Manager,
Vice President and General Manager-Hawaii, Executive Vice President-Account
Development and Executive Vice President-Marketing and was promoted to Senior
Executive Vice President in January 1994.
Jonathan C. Daiker joined the Company in April 1995 as Executive Vice
President-Finance and Administration, Chief Financial Officer. Prior to joining
the Company, Mr. Daiker held a number of directorships in the corporate offices
of Philips Electronics North America Corporation, as well as operating positions
within its divisional structure from 1981 to 1995. Most recently, he was Senior
48
<PAGE>
Vice President and Chief Financial Officer for Philips Lighting Company. Prior
to Philips, he was a senior manager with Price Waterhouse L.L.P. from 1971 to
1981 and is a Certified Public Accountant.
William L. Ayers, IV joined the Company in 1973. He has held several sales
management positions including Vice President and General Manager-Los Angeles
and Divisional Executive Vice President, and recently was promoted to Executive
Vice President-Sales and Marketing.
Joseph Ulicny joined the Company in 1992 as Executive Vice President-Finance
and Chief Financial Officer. In Spring 1995, he assumed his current position as
Executive Vice Present-- Market Development. Prior to joining the Company, Mr.
Ulicny served with Dannon for over seven years from 1985 to 1992.
Robert K. Barton joined the Company in February 1982 as Director of Dealer
Financial Services. He served as Vice President-Dealer Financial Services, Vice
President-Administration and Vice President-Human Resources prior to assuming
his current position as Senior Vice President-Human Resources.
Gary G. Pleasant rejoined the Company in 1991 as Vice President and General
Manager-Seattle and was promoted to his current position, Divisional Executive
Vice President, in January 1995. Mr. Pleasant had been previously employed by
the Company from 1966 to 1985 in various sales management positions. From 1985
to 1991, Mr. Pleasant worked for Sealy Corporation, first as Vice
President-Sales-Ohio-Sealy and then as National Vice President-Marketing and
Sales.
Cleve B. Murphy joined the Company in May 1995 as Divisional Executive Vice
President. Mr. Murphy's background includes twelve years at Sealy, Inc., where
he started as Sales Manager and became one of four Regional Vice Presidents,
from 1983 to 1995. Prior to his employment with Sealy, Mr. Murphy served eight
years as General Manager for Englander from 1975 to 1983 and two years with
Serta, Inc. from 1973 to 1975.
James P. Maher joined the Company in 1989 and has served as Vice President
and General Manager-Jacksonville and Vice President and General Manager-San
Leandro prior to his current position as Divisional Executive Vice President.
Before joining the Company, Mr. Maher held senior management positions with
Nachman Corporation, Leggett & Platt, Inc., and May & Company from 1965 to 1984.
Leo T. Brennan joined the Company in 1978 as Director of Purchasing and was
promoted to his current position as Vice President-Materials Management in 1985.
Roger W. Franklin joined the Company in November 1986 as Director of Taxes.
He served as Vice President-Controller prior to assuming his current position as
Vice President-Finance and Treasurer. Prior to joining the Company, Mr. Franklin
spent almost nine years with Price Waterhouse in both the audit and tax areas
from 1978 to 1986 and is a Certified Public Accountant.
Savio W. Tung became a director of the Company upon its creation in March
1996. He has been an executive of Investcorp, its predecessor or one or more of
its wholly-owned subsidiaries since September 1984. Mr. Tung is a director of
Saks Holdings, Inc.
Christopher J. O'Brien became a director of the Company upon its creation in
March 1996. He has been an executive of Investcorp, its predecessor or one or
more of its wholly owned subsidiaries since December 1993. Prior to joining
Investcorp, Mr. O'Brien was a Managing Director of Mancuso & Company for four
years.
Charles J. Philippin became a director of the Company upon its creation in
March 1996. He has been an executive of Investcorp, its predecessor or one or
more of its wholly owned subsidiaries since July 1994. Prior to joining
Investcorp, Mr. Philippin was a partner of Coopers & Lybrand L.L.P. Mr.
Philippin is a director of Saks Holdings, Inc. and The Circle K Corporation.
49
<PAGE>
Jon P. Hedley became a director of the Company upon its creation in March
1996. He has been an executive of Investcorp, its predecessor or one or more of
its wholly owned subsidiaries since April 1990. Mr. Hedley is a director of Saks
Holdings, Inc.
DIRECTOR COMPENSATION
The Company pays no additional remuneration to its employees or to
executives of Investcorp for serving as directors. See "--Executive
Compensation." There are no family relationships among any of the directors or
executive officers.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in the previous
three years by the Company's Chief Executive Officer and each of the other four
most highly compensated executive officers whose remuneration exceeded $100,000.
The current compensation arrangements for each of these officers are described
in "Employment Arrangements" below. In connection with the Acquisition, the
Company intends to adopt new compensation arrangements, the terms of which have
not yet been finalized.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OPTIONS/ ALL OTHER
NAME AND SALARY BONUS (A) SARS (B) COMPENSATION (C)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ----------------------------------- ---- -------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Zenon S. Nie....................... 1995 $404,167 $ 474,896 300,000 $ 7,774
Chairman & Chief Executive 1994 377,203 412,702 350,000 3,598
Officer 1993 48,295 30,000 350,000 --
Martin R. Passaglia................ 1995 250,000 262,500 71,306 4,719
Senior Executive Vice President 1994 250,000 242,880 -- 19,909
1993 172,613 104,075 -- 21,688
Joseph Ulicny...................... 1995 167,200 175,962 -- 4,628
Executive Vice President--Market 1994 160,210 155,383 -- 18,292
Development 1993 150,000 66,608 -- 26,207
Robert K. Barton................... 1995 165,500 173,775 70,500 4,061
Senior Vice President--Human 1994 151,831 146,878 -- 18,894
Resources 1993 127,084 62,445 -- 17,932
Jonathan C. Daiker................. 1995 150,000 182,500 150,500 24,144
Executive Vice President-- 1994 -- -- -- --
Finance & Admininstration, 1993 -- -- -- --
Chief Financial Officer
</TABLE>
- ------------
(a) Earned in year shown but paid in subsequent year.
(b) The amounts shown are the number of shares underlying options granted in the
respective years. In connection with the Acquisition, all outstanding
options were purchased for an aggregate of $6,950,000. Messrs. Nie,
Passaglia, Ulicny, Barton and Daiker received $1,812,800, $364,496,
$308,856, $363,867 and $117,435, respectively, for their options, which
amounts were invested in Class C Stock of Holdings.
(c) Consists of (i) contributions to defined contribution plans in 1994 and
1993, respectively, in the amounts of $0 and $0 for Mr. Nie, $18,220 and
$21,216 for Mr. Passaglia, $17,483 and $10,276 for Mr. Ulicny, $18,220 and
$17,764 for Mr. Barton, and $0 and $0 for Mr. Daiker (1995 contributions
have not been established as of this date); (ii) premiums for term life
insurance and long-term disability insurance in 1995, 1994 and 1993,
respectively, in the amounts of
(Footnotes continued on following page)
50
<PAGE>
(Footnotes continued from preceding page)
$7,774, $3,598 and $0 for Mr. Nie, $4,719, $1,689 and $472 for Mr.
Passaglia, $4,628, $809 and $1,036 for Mr. Ulicny, $4,061, $674 and $168 for
Mr. Barton, and $5,334, $0 and $0 for Mr. Daiker, respectively; and (iii)
relocation assistance in the amounts of $14,895 in 1993 for Mr. Ulicny and
$18,810 in 1995 for Mr. Daiker.
RETIREMENT PLANS
The Company has one single employer defined benefit plan and two single
employer defined contribution plans (the Simmons ESOP and a 401(k) plan), and
makes contributions to multi-employer pension plans. In the aggregate, these
plans cover substantially all permanent employees.
Qualified Retirement Plans.
The Company maintains several single employer retirement plans which are
intended to be qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"). The Company also participates in a number of
multi-employer pension plans, from which it has no present intention to
withdraw.
Defined Contribution Plans. The Company sponsors two single employer defined
contribution pension plans; the Simmons Retirement Savings Plan and the Simmons
ESOP.
____Simmons Retirement Savings Plan. The Simmons Retirement Savings Plan
contains a cash or deferred arrangement under Section 401(k) of the Code.
Employees with 12 weeks of employment who have reached age 21 are permitted to
participate in the plan, and generally employees covered by collective
bargaining agreements are not permitted to participate, unless the agreement
expressly provides for participation.
As a result of forming the Simmons ESOP in January 1989, the Company
suspended all employer and employee contributions to this defined contribution
plan during 1989 and 1990. Effective during the 1991 plan year, eligible
participants could again make limited contributions to this defined contribution
plan; however, no employer contributions were allowed. The status of plan
participants was not affected.
Presently, there are approximately 634 participants in this plan, and
participants have the ability to direct the investment of their account
balances. Eligible employees may defer the receipt of a portion of their covered
compensation up to 6% of compensation on a pre-tax basis, subject to various
limitations. Participants are fully vested in their contributions at all times.
The Company did not make any contributions to the plan during plan year 1994
(other than the pre-tax deferrals mentioned above).
____Simmons ESOP. The Simmons ESOP is a defined contribution pension benefit
plan that is designed to qualify as a leveraged employee stock ownership plan
within the meaning of Section 4975(e)(7) of the Code. Assets of the Simmons ESOP
are held in a trust with respect to which NationsBank, N.A. (South) (the "ESOP
Trustee") serves as trustee. The Simmons ESOP covers otherwise eligible
employees of the Company who have completed at least one year of service for the
Company, and have reached age 21. As of December 30, 1995, approximately 1,400
employees participated in the Simmons ESOP.
The Simmons ESOP provides benefits to each participating employee based on
the value of Company stock allocated to such participant's account over the
period of such participant's participation in the plan. In general, benefits
become payable to participants only following retirement or other separation
from employment.
Leveraged ESOPs differ from other defined contribution employee pension
benefit plans due to their ability to borrow funds from the employer sponsoring
the plan or from other parties in order to
51
<PAGE>
acquire company stock for allocation to participants' accounts as such
indebtedness is repaid. Pending such allocation, as described below, company
stock acquired by the ESOP is held by the trustee in a suspense account. In
connection with the establishment of the Simmons ESOP in 1989, the Simmons ESOP
borrowed funds from the Company for the purpose of acquiring Company stock. As
of May 24, 1996, the Simmons ESOP was indebted to the Company in the approximate
principal amount of $61.2 million. Prior to March 22, 1996, the date of the
Acquistion, the Simmons ESOP held approximately 11,671,663 million shares of
common stock of the Company. On the Acquisition Closing Date, the Simmons ESOP
sold approximately 6,001,257 million shares, representing all shares theretofore
allocated to participants' ESOP accounts, to Holdings for $31.2 million in the
aggregate, the net proceeds of which were reinvested in diversified investments
in the respective accounts of such participants in the Simmons ESOP. Pursuant to
the Merger, the remaining 5,670,406 million shares, representing all unallocated
shares held in the suspense account, were converted into Series A Preferred
Stock. If converted into common stock of the Company or capital stock of
Holdings, the Series A Preferred Stock would represent direct or indirect
ownership of 15.1% of the common stock of the Company, after giving effect to
such conversion (exclusive of stock options granted under the Company's
management stock incentive plan).
The Company will make annual cash contributions to the Simmons ESOP in an
amount up to 25% of eligible participant compensation, subject to certain
limitations and conditions. The Simmons ESOP will then use all such cash to
repay the internal ESOP Loan to the Company. As a result, there is no cash cost
to the Company associated with the contribution to the Simmons ESOP. As the
internal ESOP Loan is repaid, a portion of the Series A Preferred Stock will be
allocated to participant accounts and non-cash ESOP expense equal to the fair
value of the allocated shares is charged to non-cash ESOP expense. At such time
as the internal ESOP Loan is repaid in full (in approximately six years), all
shares of Series A Preferred Stock held by the Simmons ESOP will have been
allocated to plan participants.
With certain limited exceptions (such as an exception required by law
permitting certain retirement age individuals with at least 10 years of plan
participation to liquidate, over a six-year period, shares allocated to their
accounts) shares allocated to a participant's account under the Simmons ESOP
cannot be sold or otherwise transferred by the participant. The Simmons ESOP
provides for distributions to be made to participants following termination of
employment. With respect to participants whose termination of employment occurs
after becoming eligible for retirement (age 65), early retirement (age 55 with
at least 10 years of service), on account of permanent disability or death,
distribution generally is made during the plan year following the plan year in
which such termination occurs. In all other cases, distribution generally is
made or commences to be made after the expiration of a five plan year period
following the plan year in which termination occurs. Distributions are made in
cash, based on the fair market value (as determined pursuant to an annual
appraisal) of the shares allocated to the participant's account. Such shares are
deemed to have a value of not less than the redemption price for such shares. A
participant entitled to a distribution is entitled under law to have Company
shares allocated to his or her account distributed in kind. A participant
electing to have a distribution of shares has a limited right to require the
Company to purchase such shares at fair market value over an approximately two
year period, with such value to be not less than the redemption price, in the
case of shares of Series A Preferred Stock.
Defined Benefit Plan. The Company also sponsors a single employer defined
benefit pension plan for eligible employees called the Retirement Plan for
Simmons U.S.A. Employees. This plan currently benefits only employees covered by
certain collective bargaining agreements, and has approximately 122
participants. The monthly benefit for such participants upon normal retirement
is generally determined as the sum of (i) 0.75% of monthly earnings as of
January 1, 1963 multiplied by specified credited service as of May 1, 1963, (ii)
1.0% of the first $400 of monthly earnings plus 1.75% of monthly earnings in
excess of $400 for the time period from May 1, 1963 through April 30,
52
<PAGE>
1967 and (iii) 1.25% of the first $550 of monthly earnings plus 1.75% of monthly
earnings in excess of $550 for each year and completed month of credited
service, beginning May 1, 1967. There is a reduction for benefits accrued under
the Retirement Plan for Simmons Employees, a predecessor plan that was
terminated in 1987. A somewhat different formula applies to certain employees
who are represented by IAM Local 315 in New Jersey and UFWA Local 262 in
California. This plan is fully funded and accruals have been frozen. None of the
named executive officers benefits under the plan.
Multiemployer Plans. Certain union employees participate in multi-employer
pension plans sponsored by their respective unions. Amounts charged to pension
cost, representing the Company's required contributions to these plans for the
years ending December 30, 1995, December 31, 1994 and December 25, 1993, were
$1,366,000, $1,403,000 and $1,304,000, respectively.
Nonqualified Plans.
Simmons Company Nonqualified Employee Stock Ownership Plan. In 1989, the
Company instituted this nonqualified plan to provide benefits to eligible
employees similar to those benefits provided under the Simmons ESOP, described
above. This plan covers certain employees who are not eligible to participate in
the Simmons ESOP because of restrictions imposed by the Simmons ESOP on
employees who elected favorable income tax treatment under Code Section 1402
with respect to the sale of employer securities to the Simmons ESOP. Benefits
are to be paid in cash and are computed based on the value of shares the
participants would have received had they participated in the Simmons ESOP.
Participants are entitled to receive accrued benefits upon termination of
employment with the Company, retirement, death or permanent disability. The
nonqualified plan provides for bookkeeping entries to be provided on account of
each Member, to be credited with the shares of stock which would have been
allocated to the Member's accounts under the Simmons ESOP but for the fact that
the Simmons ESOP terms restricted such an allocation. The same vesting schedule
and distribution provisions apply as are described in the Simmons ESOP. The
Company charged approximately $405,000, $582,000 and $280,000 to expense for the
years ended December 30, 1995, December 31, 1994 and December 25, 1993,
respectively. The accrued benefits under the nonqualified plan were $1,132,000,
$786,000 and $435,000 at December 30, 1995, December 31, 1994 and December 25,
1993, respectively, and are included in other long term liabilities in the
accompanying balance sheets. Vested interests of current participants in the
plan were distributed upon consummation of the Acquisition, resulting in
payments to Messrs. Barton and Passaglia of $102,607 and $117,605, respectively.
Retiree Health Coverage.
The Company provides certain health care and life insurance benefits to
eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or non-union employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20,000 lifetime maximum benefit for
participants age 65 and over. The Company also provides life insurance to all
retirees who retired before 1979. These plans are unfunded.
The Company accrues the cost of providing post-retirement benefits including
medical and life insurance coverage, during the active service period of the
employee.
EMPLOYMENT ARRANGEMENTS
Zenon Nie, Chairman of the Board of Directors and Chief Executive Officer,
and the Company have entered into a three-year employment agreement (which
renews automatically on a daily basis, subject to termination upon three years'
notice). Pursuant to that agreement, Mr. Nie is
53
<PAGE>
entitled to receive (i) a base salary, currently $500,000 per year, subject to
further increases approved by the Company's Board of Directors, (ii) an annual
cash bonus based upon achieving specified levels of operating income (the
"Annual Incentive Plan") and (iii) specified fringe benefits, including
reimbursement of country club dues and provision of an automobile.
Martin R. Passaglia, Senior Executive Vice President, and Jonathan C.
Daiker, Executive Vice President-Finance and Administration and Chief Financial
Officer, have entered into employment agreements with the Company, expiring on
January 1, 1997 and April 1, 1997, respectively. Mr. Passaglia's employment
agreement renews automatically for successive one-year terms, subject to
termination upon notice. Pursuant to these agreements, Messrs. Passaglia and
Daiker are entitled to receive a base salary, currently $267,000 and $200,000
per year, respectively (subject to further increases approved by the Company's
Board of Directors), and to participate in all Company incentive and fringe
benefit programs, including the Annual Incentive Plan.
Certain additional executive officers, including named executive officer
Robert K. Barton, have entered into employment agreements pursuant to which such
executive officers will be entitled to continue to receive base salary for up to
twelve months plus pro rata payments under the Annual Incentive Plan in the
event that their employment is terminated other than for cause, death or
disability, following a Change of Control, as defined therein. All executive
officers are eligible to participate in the Annual Incentive Plan, payments
under which are based upon the Company's achievement of targeted levels of
operating income, as defined in the plan.
MANAGEMENT STOCK INCENTIVE PLAN
Upon the consummation of the Acquisition, Holdings adopted a Management
Stock Incentive Plan (the "Plan"), in order to provide incentives to employees
and directors of Holdings and the Company by granting them awards tied to the
Class C Stock of Holdings. The Plan is administered by a committee of the Board
of Directors of Holdings (the "Compensation Committee"), which has broad
authority in administering and interpreting the Plan. Awards to employees are
not restricted to any specified form or structure and may include, without
limitation, restricted stock, stock options, deferred stock or stock
appreciation rights (collectively, "Awards"). Options granted under the Plan may
be options intended to qualify as incentive stock options under Section 422 of
the Code or options not intended to so qualify. An Award granted under the Plan
to an employee may include a provision terminating the Award upon termination of
employment under certain circumstances or accelerating the receipt of benefits
upon the occurrence of specified events, including, at the discretion of the
Compensation Committee, any change of control of the Company.
Holdings has granted options to purchase up to 2,440,750 shares of its Class
C Stock to certain members of the Company's senior management and intends to
grant additional options to purchase an aggregate of up to approximately 610,715
shares of its Class C Stock to other officers and employees of the Company. The
exercise price of each option granted in connection with the Acquisition is
$2.66 per share, which is the same price per share paid by existing holders of
Class C Stock of Holdings to acquire such Class C Stock. In addition, Holdings
has granted options to purchase up to an additional 202,900 shares of its Class
C Stock to certain members of the Company's senior management at an exercise
price of $3.57 per share, which are exercisable if an option that has been
granted to an affiliate of Investcorp (the "Investcorp Option") is exercised.
Holdings intends to issue options to acquire up to an additional 48,019 shares
of its Class C Stock to officers and employees of the Company, at an exercise
price of $3.57 per share, which are also exercisable if the Investcorp Option is
exercised. Except as noted in the preceding sentence, the exercise price of each
option granted in the future will be equal to the fair market value of the
Company's common stock at the time of the grant. Each option will be subject to
certain vesting provisions. To the extent not earlier vested or terminated, all
options will vest on the tenth anniversary of the date of grant and will expire
30 days thereafter if not exercised. In addition, certain holders of Class C
Stock of Holdings have indicated an intent to offer certain members of
54
<PAGE>
the Company's management an opportunity to purchase shares of Class C Stock of
Holdings at the same price paid by such holders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a corporation to indemnify and advance reasonable expenses to any person who was
a party, is a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Company's Amended and Restated Articles of Incorporation and Bylaws each
include indemnification provisions that mirror the language of the statute. In
addition, the Company's Bylaws provide that, subject to any limitation in the
Company's Articles of Incorporation, the Company may indemnify a director or
officer to the fullest extent permitted by law, including, without limitation,
DGCL Sec.145. Consequently, a director or officer of the Company or a person
serving at the request of the Company in the above-named capacities will be
fully indemnified against such judgments, penalties, fines, settlements and
reasonable expenses actually incurred, except if: (1) the person did not conduct
himself in good faith and did not reasonably believe his conduct was in the
corporation's best interests; or (2) in the case of any criminal action or
proceeding, the person had reasonable cause to believe his conduct was unlawful.
No indemnification may be made in respect of any claim, issue or matter as to
which such person is adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
The Company's Amended and Restated Articles of Incorporation also contain a
provision eliminating liability to the Company or its shareholders for monetary
damages from breach of fiduciary duty as a director. The inclusion of these
indemnification provisions in the Company's Amended and Restated Articles of
Organization and Bylaws is intended to enable the Company to attract qualified
persons to serve as directors and officers who might otherwise be reluctant to
do so.
55
<PAGE>
OWNERSHIP OF VOTING SECURITIES
The Company has two classes of issued and outstanding stock (common stock
and Series A Preferred Stock), both of which possess voting rights. At May 24,
1996, there were 31,964,452 shares of the Company's common stock issued and
outstanding, representing 84.9% of the outstanding voting securities of the
Company, and 5,670,406 shares of Series A Preferred Stock issued and
outstanding, representing 15.1% of the outstanding voting securities of the
Company. All of the Company's common stock is owned by Holdings and all of the
Series A Preferred Stock is owned by the Simmons ESOP. The address of the
Simmons ESOP is c/o NationsBank, N.A. (South), as Trustee, 600 Peachtree Street,
NE, Atlanta, Georgia 30308.
Of the three classes of issued and outstanding stock of Holdings (Class A,
Class C and Class D stock), only shares of Class D stock currently possess
voting rights. At May 24, 1996, there were 200,000 shares of Holdings' Class D
stock issued and outstanding. Certain of the investors in the equity of Holdings
intend to offer certain members of the Company's management an opportunity to
purchase shares of Class C stock of Holdings, which stock has no voting rights
except in certain limited circumstances. The following table sets forth the
beneficial ownership of each class of issued and outstanding voting securities
of Holdings which currently possess voting rights, as of the date hereof, by
each director of the Company, each of the executive officers of the Company
listed under "Management," the directors and executive officers of the Company
as a group and each person who beneficially owns more than 5% of the outstanding
shares of any class of voting securities of Holdings.
Class D Voting Stock:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
NAME (A) CLASS (A)
- ---------------------------------------------------------------------- --------- ----------
<S> <C> <C>
INVESTCORP S.A. (b)(c)................................................ 200,000 100.0%
37 rue Notre-Dame,
Luxembourg
SIPCO Limited (d)..................................................... 200,000 100.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
CIP Limited (e)(f).................................................... 184,000 92.0%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Ballet Limited (e)(f)................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Denary Limited (e)(f)................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Gleam Limited (e)(f).................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
NAME (A) CLASS (A)
- ---------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Highlands Limited (e)(f).............................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Noble Limited (e)(f).................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Outrigger Limited (e)(f).............................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Quill Limited (e)(f).................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Radial Limited (e)(f)................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Shoreline Limited (e)(f).............................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Zinnia Limited (e)(f)................................................. 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
INVESTCORP Investment Equity Limited(c)............................... 16,000 8.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) As used in this table, beneficial ownership means the sole or shared power to vote, or
to direct the voting of a security, or the sole or shared power to dispose, or direct
the disposition of, a security.
(b) Investcorp does not directly own any stock in Holdings. The number of shares shown as
owned by Investcorp includes all of the shares owned by INVESTCORP Investment Equity
Limited (see (c) below). Investcorp owns no stock in Ballet Limited, Denary Limited,
Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited,
Radial Limited, Shoreline Limited, Zinnia Limited, or in the beneficial owners of these
entities (see (f) below). Investcorp may be deemed to share beneficial ownership of the
shares of voting stock held by these entities because the entities have entered into
revocable management services or similar agreements with an affiliate of Investcorp,
pursuant to which each of such entities has granted such affiliate the authority to
direct the voting and disposition of the Holdings voting stock owned by such entity for
so long as such agreement is in effect. Investcorp is a Luxembourg corporation.
</TABLE>
(Footnotes continued on following page)
57
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(c) INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and a
wholly-owned subsidiary of Investcorp.
(d) SIPCO Limited may be deemed to control Investcorp through its ownership of a majority
of a company's stock that indirectly owns a majority of Investcorp's shares.
(e) CIP Limited ("CIP") owns no stock in Holdings. CIP indirectly owns less than 0.1% of
the stock in each of Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited,
Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and
Zinnia Limited (see (f) below). CIP may be deemed to share beneficial ownership of the
shares of voting stock of Holdings held by such entities because CIP acts as a director
of such entities and the ultimate beneficial shareholders of each of those entities
have granted to CIP revocable proxies in companies that own those entities' stock. None
of the ultimate beneficial owners of such entities beneficially owns individually more
than 5% of Holdings' voting stock.
(f) CIP Limited, Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble
Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia
Limited each is a Cayman Islands corporation.
</TABLE>
STOCKHOLDERS' AGREEMENT
In connection with the Acquisition, the Company entered into an agreement
dated as of March 22, 1996 with Holdings and the Simmons ESOP (the
"Stockholders' Agreement"). The following is a summary description of the
principal terms of the Stockholders' Agreement and is subject to and qualified
in its entirety by reference to the definitive Stockholders' Agreement.
Tag-Along and Drag-Along Rights. If, following a sale by Holdings of shares
of common stock of the Company (other than pursuant to a registration statement
under the Securities Act) to an unaffiliated third party, Holdings and its
affiliates cease to own (or to continue to own), in the aggregate, at least 50%
of the shares of common stock of the Company acquired by Holdings on the
effective date of the Acquisition (a "Section 2.1 Event"), the ESOP Trustee may
elect to participate in such sale on a pro rata basis or may be required by
Holdings or the unaffiliated third party to participate in such sale on a pro
rata basis, for the same consideration per share and otherwise on the same terms
and conditions as apply to the sale of shares by Holdings, subject to certain
notice provisions and other conditions.
Exchange Rights. The ESOP Trustee may elect to exchange shares of common
stock of the Company for shares of Class C Stock of Holdings on a one-for-one
basis, as adjusted for any stock dividend, stock split, combination,
recapitalization or similar event, upon the occurrence of a Section 2.1 Event or
one of the following events (each an "Exchange Event"): (i) a sale of Holdings
pursuant to (A) the sale of 50% or more of the outstanding shares of Holdings'
voting capital stock, (B) a sale of all or substantially all of the assets of
Holdings, or (C) a merger, consolidation or recapitalization of Holdings as a
result of which the ownership of the surviving corporation's voting capital
stock changes more than 50%; or (ii) an initial public offering of the common
stock of Holdings pursuant to an effective registration statement under the
Securities Act. Shares of Series A Preferred Stock of the Company are
convertible, at the option of the holder, into shares of common stock of the
Company. See "Capital Structure--Preferred Stock."
Consent of ESOP Trustee. The Company and Holdings have agreed that, subject
to certain exceptions, the following actions will require the written consent of
the ESOP Trustee: (i) the occurrence of a merger or consolidation of the Company
with Holdings, any of its affiliates, or any corporation which, after such
merger or consolidation, would be an affiliate of Holdings, (ii) the issuance by
the Company or Holdings of any shares, securities convertible into shares or
options exercisable for shares of common stock of the Company or Class C Stock
of Holdings, respectively, for consideration per share less than the fair market
value of such shares or options on the date of issuance or grant (other than
shares, securities convertible into shares, or options
58
<PAGE>
exercisable for shares of Class C Stock of Holdings in an outstanding amount not
to exceed 3,051,465 shares issued to directors, employees or consultants of the
Company); (iii) the payment by Holdings of dividends on any shares of Holdings
capital stock unless an equivalent amount is paid to holders of Series A
Preferred Stock upon conversion and exchange for Class C Stock of Holdings or
common stock of the Company; (iv) the undertaking by Holdings of any activity
other than incident to Holdings' ownership of the common stock of the Company or
operation of the Company; (v) any amendment by Holdings' Board of Directors to
Holdings' Bylaws, Certificate of Incorporation or Certificate of Designation
other than to increase the authorized number of shares of any class of Holdings'
capital stock; (vi) the entry by the Company or Holdings into any agreement that
prohibits or limits the Company's ability to honor the "put" option granted to
participants in the Simmons ESOP, pursuant to the terms thereof, following
termination of the participants' employment with the Company and distribution of
such participants' shares of Series A Preferred Stock, if such shares are, at
the time of distribution, not publicly traded or subject to a trading
limitation; or (vii) the consummation of a Section 2.1 Event or Exchange Event
unless the Company has legally sufficient funds to honor the redemption option
set forth in the Company's Certificate of Incorporation.
Registration Rights. The Stockholders' Agreement also grants certain
registration rights with respect to shares of common stock of the Company that
are issued or are issuable upon conversion of shares of Series A Preferred Stock
and held by the ESOP Trustee or that are beneficially owned by Holdings, an
affiliate or a transferee. The Company is obligated to bear all expenses
incident to any such registration other than the underwriting discounts and
commissions and transfer taxes, if any, incurred by selling stockholders in
connection with the shares sold pursuant to the registration statement.
PARENT OPTION AGREEMENT
In connection with the Stockholders' Agreement, the Company entered into an
agreement with Holdings pursuant to which the Company agreed that if Holdings
grants any options to purchase shares of common or Class C Stock of Holdings to
a director, employee or consultant of the Company, the Company will grant to
Holdings corresponding options, exercisable only upon exercise of the Holdings
options, to purchase the same number of shares of common stock of the Company at
the same per share exercise price and subject to substantially the same terms
and conditions as the Holdings options.
CERTAIN TRANSACTIONS
Holdings was formed to consummate the Acquisition on behalf of affiliates of
Investcorp, management and certain other investors. Financing for the
Acquisition was provided by (i) $85.0 million of capital provided by affiliates
of Investcorp, management and other investors, and (ii) borrowings in an
aggregate principal amount equal to $180.4 million, consisting of $80.4 million
under the Senior Credit Facility and all the proceeds of the $100.0 million
Subordinated Loan Facility. Invifin S.A., an affiliate of Investcorp
("Invifin"), provided $25.0 million of the $100.0 million Subordinated Loan
Facility. In connection with the Acquisition, the Company paid Investcorp
International Inc. ("International") advisory fees of $5.7 million. The Company
also paid $3.5 million to International for arranging the Senior Credit Facility
and $687,500 to Invifin in commitment fees in connection with the Subordinated
Loan Facility.
In connection with the Acquisition, the Company entered into an agreement
for management advisory and consulting services (the "Management Agreement")
with International pursuant to which the Company agreed to pay International
$1.0 million per annum for a five-year term. At the closing of the Acquisition,
the Company paid International $3.0 million for the first three years of the
term of the Management Agreement in accordance with its terms.
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In connection with the Acquisition, the Company entered into an agreement
with Holdings pursuant to which the Company agreed to reimburse Holdings for
certain expenses incident to Holdings' ownership of the Company's capital stock
for as long as Holdings and the Company file consolidated federal income tax
returns. Such expenses include franchise taxes and other fees required to
maintain Holdings' corporate existence; operating costs incurred by Holdings
attributable to its ownership of the Company's capital stock not to exceed
$250,000 per fiscal year; federal, state and local taxes paid by Holdings and
attributable to income of the Company and its subsidiaries other than taxes
arising from the sale or exchange by Holdings of the Company's common stock; the
purchase price of capital stock or options to purchase capital stock of Holdings
owned by former employees of the Company or its subsidiaries not to exceed the
amount permitted under the Senior Credit Facility and the Indenture relating to
the Notes; and registration expenses incurred by Holdings incident to a
registration of any capital stock of Holdings under the Securities Act.
In connection with the Acquisition, the Company entered into agreements with
certain members of management of the Company, pursuant to which the Company
agreed to pay an aggregate of $3,735,000 of additional compensation in
connection with their investment in Holdings. Of this amount, $2,360,000 was
paid at the Acquisition Closing Date and the balance will be paid in late 1996
or early 1997. Of this amount, $1,575,609, $316,803, $264,444, $316,257 and
$102,070 has been or will be received by Messrs. Nie, Passaglia, Ulicny, Barton
and Daiker, respectively.
CAPITAL STRUCTURE
SENIOR CREDIT FACILITY
General. The Credit Agreement, dated as of March 22, 1996 (the "Senior
Credit Facility"), among the Company, the several lenders from time to time
parties thereto (collectively, the "Lenders") and Chemical Bank, as
administrative agent for the Lenders (the "Administrative Agent"), provides for
a $115.0 million term and revolving loan credit facility (the "Loans").
At March 30, 1996, on a pro forma basis after giving effect to the
Acquisition and adjusting for the Offering (including the application of the net
proceeds therefrom), the amount under the revolving credit portion of the Senior
Credit Facility that was available to be drawn was approximately $24.4 million,
after giving effect to $9.4 million of outstanding borrowings and $6.2 million
that was reserved in respect of the Company's reimbursement obligations with
respect to outstanding letters of credit. The remaining availability under the
revolving credit facility may be utilized to meet the Company's current working
capital requirements, including issuance of stand-by and trade letters of
credit. The Company also may utilize the remaining availability under the
revolving credit facility to fund acquisitions and capital expenditures.
The Loans are secured by a first priority security interest in substantially
all the personal property of the Company and a pledge by Holdings of all issued
and outstanding capital stock of the Company that is owned by Holdings. Such
pledge secures a guarantee of the Loans by Holdings. Upon the request of the
Administrative Agent, any domestic subsidiary of the Company that has material
assets will also be required to issue a guarantee of the Loans which will be
secured by a first priority security interest in substantially all personal
property of such subsidiary, and, upon the request of the Administrative Agent,
the Company will be required to pledge the issued and outstanding capital stock
of such subsidiary owned by the Company or any of its subsidiaries or up to 65%
of the issued and outstanding capital stock of any foreign subsidiary owned by
the Company or any of its subsidiaries that has material assets to secure
indebtedness under the Senior Credit Facility.
Term Loans. The Senior Credit Facility provides for a $75.0 million term
loan facility, which is divided into two tranches, the Tranche A and Tranche B
term loans. The Tranche A term loans have
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a final scheduled maturity date of March 31, 2001, and the Tranche B term loans
have a final scheduled maturity date of March 31, 2003.
The principal amounts of the Tranche A term loans are required to be repaid
in 10 consecutive semiannual installments totaling $2.0 million in fiscal year
1996, $5.0 million in fiscal year 1997, $7.0 million in fiscal year 1998, $9.0
million in fiscal year 1999, $11.0 million in fiscal year 2000, and $6.0 million
in fiscal year 2001. The principal amounts of the Tranche B term loans are
required to be repaid in 14 consecutive semiannual installments totaling
$100,000 in fiscal year 1996, $200,000 in each of fiscal years 1997, 1998, 1999
and 2000, $8.6 million in fiscal year 2001, $17.0 million in fiscal year 2002
and $8.5 million in fiscal year 2003.
Revolving Credit Facility. The Senior Credit Facility provides for a $40.0
million revolving credit facility. The revolving credit facility will expire on
the earlier of (a) March 31, 2001 and (b) such other date as the revolving
credit commitments thereunder shall terminate in accordance with the terms of
the Senior Credit Facility.
Interest Rates. Borrowings under the Senior Credit Facility accrue interest
at either the Alternate Base Rate (the "Alternate Base Rate") or an adjusted
Eurodollar Rate (the "Eurodollar Rate"), at the option of the Company, plus the
applicable interest margin. The Alternate Base Rate at any time is determined to
be the highest of (i) the Federal Effective Funds Rate plus 1/2 of 1% per annum,
(ii) the Base CD Rate plus 1% per annum and (iii) Chemical Bank's Prime Rate.
The applicable interest margin with respect to loans made under the revolving
credit facility and with respect to Tranche A term loans is 2.50% per annum with
respect to loans that accrue interest at the Eurodollar Rate and 1.25% per annum
for loans that accrue interest at the Alternate Base Rate. The applicable
interest margin with respect to Tranche B term loans is 3.00% per annum for
loans that accrue interest at the Eurodollar Rate and 1.75% per annum for loans
that accrue interest at the Alternate Base Rate.
Mandatory and Optional Prepayments. The Senior Credit Facility requires that
upon an initial public offering by the Company, Holdings or any subsidiary of
the Company of its common or other voting stock, or upon the incurrence of any
additional indebtedness (other than indebtedness permitted under the Senior
Credit Facility), or upon the receipt of proceeds from certain asset sales and
exchanges, 100% of the net proceeds from such offering, incurrence, sale or
exchange is required to be applied toward the prepayment of indebtedness under
the Senior Credit Facility. In addition, the Senior Credit Facility requires
that 50% of Excess Cash Flow (as defined in the Senior Credit Facility) is
required to be applied toward the prepayment of indebtedness under the Senior
Credit Facility. Such prepayments are required to be applied first to the
prepayment of the term loans and, second, to reduce permanently the revolving
credit commitments. Subject to certain conditions, the Company may, from time to
time, make optional prepayments of Loans without premium or penalty. Any
prepayment of term loans, whether mandatory or optional, is required to be
applied to the Tranche A term loans and the Tranche B term loans, and the
respective installments thereof, ratably according to the outstanding principal
amounts thereof.
Covenants. The Senior Credit Facility imposes certain covenants and other
requirements on the Company and its subsidiaries. In general, the affirmative
covenants provide for mandatory reporting by the Company of financial and other
information to the Lenders and notice by the Company to the Lenders upon the
occurrence of certain events. The affirmative covenants also include standard
operating covenants requiring the Company to operate its business in an orderly
manner consistent with past practice.
The Senior Credit Facility also contains certain negative covenants and
restrictions on actions by the Company and its subsidiaries that, among other
things, restrict: (i) the incurrence and existence of indebtedness, (ii)
consolidations, mergers and sales of assets; (iii) the incurrence and existence
of liens or other encumbrances; (iv) the incurrence and existence of contingent
obligations; (v) the payment of dividends and repurchases of common stock; (vi)
prepayments and
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amendments of certain subordinated debt instruments and equity; (vii)
investments, loans and advances; (viii) capital expenditures; (ix) changes in
fiscal year; (x) certain transactions with affiliates; and (x) changes in lines
of business. In addition, the Senior Credit Facility requires that the Company
comply with specified financial ratios and tests, including minimum cash flow, a
maximum ratio of indebtedness to cash flow and a minimum interest coverage
ratio.
Events of Default. The Senior Credit Facility specifies certain customary
events of default including non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default and cross-acceleration to certain other
indebtedness and agreements, bankruptcy and insolvency events, material
judgments and liabilities, change of control, unenforceability of certain
documents under the Senior Credit Facility and any amendment or other
modification of the Subordinated Loan Facility or the Notes made without all
required written consents in accordance with the terms of the Senior Credit
Facility. If certain bankruptcy and insolvency events of default occur, then all
amounts owing under the Senior Credit Facility become immediately due and
payable. If any other event of default occurs, and so long as such event of
default continues, the Administrative Agent may, with the consent of, or shall
upon the request of, a majority of the Lenders, declare all amounts owing under
the Senior Credit Facility to be due and payable.
Fees and Expenses. The Company is required to pay to the Administrative
Agent, for the account of each Lender, 1/2 of 1% per annum on the average daily
amount of the available revolving credit commitment of each such Lender. The
Company is also required to pay to the Administrative Agent an agent's fee in an
amount agreed between the Company and the Administrative Agent.
The description of the Senior Credit Facility set forth above does not
purport to be complete and is qualified in its entirety by reference to the
Senior Credit Facility that contains the principal terms and conditions thereof,
which is available upon request from the Company.
INDUSTRIAL REVENUE BONDS
The construction cost of the Janesville, Wisconsin facility of the Company
was financed through the issuance by the city of Janesville, Wisconsin of
variable rate industrial revenue bonds in August 1980, the proceeds of which
were loaned by the city to the Company, which agreed, pursuant to a loan
agreement, to pay to the city amounts sufficient to pay debt service on the
bonds. The variable rate industrial revenue bonds were converted in November
1992 to fixed rate industrial revenue bonds in a principal amount of $9,700,000
with an effective interest rate of 7.0%, maturing on October 1, 2017.
PREFERRED STOCK
The Company is authorized to issue 6,000,000 shares of preferred stock, par
value $.01 per share, 5,950,000 of which have been designated as "Series A
Preferred Stock." The remaining 50,000 shares are designated "Series C
Cumulative Redeemable Exchangeable Preferred Stock," none of which are
outstanding. At May 24, 1996, there were 5,670,406 shares outstanding of the
Series A Preferred Stock, all of which were held by the Simmons ESOP.
Each share of Series A Preferred Stock is convertible, at the option of the
holder, into the number of shares of common stock of the Company that results
from multiplying the number of shares of Series A Preferred Stock by the
"Conversion Factor" in effect at the time of the conversion. At May 24, 1996,
the Conversion Factor was one. However, the Conversion Factor will be (i)
proportionately increased if (A) the outstanding shares of common stock of the
Company are subdivided into a greater number of shares or a dividend convertible
into or exchangeable for common stock is paid or (B) the Investcorp Option is
exercised, and (ii) proportionately decreased if the outstanding shares of
common stock of the Company are combined into a smaller number of
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shares. Shares of Series A Preferred Stock also are exchangeable for shares of
Class C Stock of Holdings upon the occurrence of certain events. See "Ownership
of Voting Securities--Stockholders' Agreement."
Shares of Series A Preferred Stock are redeemable for cash at the option of
the holder at a redemption price of $5.00 per share upon the occurrence of one
of the following events: (i) a sale of Holdings pursuant to (A) a sale of 50% or
more of the outstanding shares of Holdings' voting capital stock, (B) a sale of
all or substantially all of the assets of Holdings, or (C) a merger,
consolidation or recapitalization of Holdings as a result of which the ownership
of the surviving corporation's voting capital stock changes more than 50%; or
(ii) an initial public offering of common stock of the Company or Holdings
pursuant to an effective registration statement under the Securities Act.
In addition, holders of shares of Series A Preferred Stock have certain
"tag-along rights" and are subject to certain "drag-along rights" pursuant to
the terms of the Stockholders' Agreement following certain sales by Holdings of
shares of common stock of the Company. See "Ownership of Voting
Securities--Stockholders' Agreement."
Each share of Series A Preferred Stock entitles the holder thereof to a
number of votes equal to the number of votes carried by the number of shares of
common stock of the Company that would be issuable if such share of Series A
Preferred Stock were converted to common stock. In most circumstances the ESOP
Trustee votes such shares as directed by a committee appointed under the Simmons
ESOP. However, upon the occurrence of a corporate merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all of the assets of the Company or other similar transaction,
participants in the Simmons ESOP may direct the committee as to the manner in
which such participants' allocated shares shall be voted. Holders of Series A
Preferred Stock are entitled to receive equal per-share dividends on an
as-converted basis when dividends or distributions are declared upon shares of
common stock of the Company.
In the event of any involuntary or voluntary liquidation, dissolution or
winding-up of the affairs of the Company, holders of Series A Preferred Stock
are entitled to receive out of the assets of the Company available for
distribution to the shareholders, before any payments are made or assets
distributed on any common stock or on any other class or series of capital stock
of the Company, the amount of $5.00 per share. If the assets of the Company are
insufficient to permit such distribution, the entire assets of the Company
distributable to stockholders of the Company will be distributed ratably among
the holders of Series A Preferred Stock in proportion to the sum of their
respective per share liquidation values.
COMMON STOCK
The authorized common stock of the Company consists of 50,000,000 shares of
common stock, par value $0.01 per share ("Common Stock"). At May 24, 1996, there
were 31,964,452 shares of Common Stock issued and outstanding, all of which are
held of record by Holdings. All outstanding shares of Common Stock are pledged
to secure the Company's obligations under the Senior Credit Facility. Each share
of Common Stock entitles the holder thereof to one vote on all matters to be
voted on by shareholders of the Company. Pursuant to the restrictions contained
in the Senior Credit Facility and the Indenture, the Company is not expected to
be able to pay dividends on its Common Stock for the foreseeable future, other
than certain limited dividends permitted by the Senior Credit Facility and the
Indenture. In the event of a liquidation, dissolution or winding-up of the
Company, the holders of the Common Stock are entitled to share in the remaining
assets of the Company after payment of all liabilities (including payments
required to be made to holders of the Notes) and after satisfaction of all
liquidation preferences payable to the holders of the Series A Preferred Stock
and all other shares of stock ranking senior to the Common Stock in respect of
any distribution upon the liquidation, dissolution or winding-up of the Company.
The Common Stock has no pre-emptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of the Common Stock are fully paid and
non-assessable.
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DESCRIPTION OF NOTES
GENERAL
The New Notes are to be issued under an Indenture, dated as of April 18,
1996 (the "Indenture"), between the Company and SunTrust Bank, Atlanta, as
Trustee (the "Trustee"), a copy of which is available upon request to the
Company.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used herein
and not otherwise defined have the meanings set forth in "--Certain
Definitions."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee's agent, at The First Chicago Trust
Company of New York, 14 Wall Street, 8th Floor, Corporate Trust Department, New
York, New York, 10005), except that, at the option of the Company, payment of
interest may be made by check mailed to the addresses of the Holders as such
address appears in the Note Register.
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. No service
charge will be made for any registration of transfer or exchange of New Notes,
but the Company may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The New Notes will be unsecured senior subordinated obligations of the
Company, limited to $100.0 million aggregate principal amount, and will mature
on April 15, 2006. Each New Note will bear interest at a rate per annum shown on
the front cover of this Prospectus from April 18, 1996, or from the most recent
date to which interest has been paid or provided for, payable semiannually to
Holders of record at the close of business on April 1st or October 1st
immediately preceding the interest payment date on April 15th and October 15th
of each year, commencing October 15, 1996.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to April 15, 2001. On and after such date, the Notes will be
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued interest to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
If redeemed during the 12-month period commencing on or after April 15th of
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ----------------------------------------------------------------------- ----------
<S> <C>
2001................................................................... 105.3750%
2002................................................................... 103.5833%
2003................................................................... 101.7917%
2004 and thereafter.................................................... 100.0000%
</TABLE>
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In addition, at any time and from time to time on or prior to April 15,
1999, the Company may redeem in the aggregate up to 33 1/3% of the original
aggregate principal amount of Notes with the proceeds of one or more Public
Equity Offerings by Holdings (so long as substantially all its assets consist of
its investment in the Company) or the Company following which there is a Public
Market, at a redemption price (expressed as a percentage of principal amount) of
110.75% plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 66 2/3% of the
original aggregate principal amount of the Notes must remain outstanding after
each such redemption.
At any time on or prior to April 15, 2001, the Notes may also be redeemed as
a whole at the option of the Company upon the occurrence of a Change of Control,
upon not less than 30 nor more than 60 days' prior notice (but in no event more
than 90 days after the occurrence of such Change of Control) mailed by
first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued but unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at April 15, 2001 (such redemption price being described under "--Optional
Redemption") plus (2) all required interest payments (excluding accrued but
unpaid interest) due on such Note through April 15, 2001, computed using a
discount rate equal to the Treasury Rate plus 100 basis points, over (B) the
principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to April 15, 2001; provided, however, that if the period
from the Redemption Date to April 15, 2001 is not equal to the constant maturity
of a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Redemption Date to April 15, 2001 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
provided that no Note of $1,000 in original principal amount or less will be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The payment of the principal of, premium (if any) and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the
payment when due of all Senior Indebtedness
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of the Company. However, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under "Defeasance"
below is not subordinated to any Senior Indebtedness or subject to the
restrictions described herein. At March 30, 1996, adjusting for the issuance and
sale of the Notes and the application of the net proceeds therefrom, the
outstanding Senior Indebtedness of the Company would have been $95.2 million.
Although the Indenture contains limitations on the amount of additional
Indebtedness which the Company may Incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be Senior Indebtedness. See "--Certain Covenants--Limitation on
Indebtedness" below.
"Senior Indebtedness" whether outstanding on the date of the Indenture or
thereafter issued, is defined as (i) all obligations consisting of the Bank
Indebtedness; (ii) all obligations consisting of the principal of and premium,
if any, and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company regardless of whether post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of the Company for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable; (iii)
all Capitalized Lease Obligations of the Company; (iv) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (B) under interest rate
swaps, caps, collars, options and similar arrangements and foreign currency
hedges entered into in respect of any obligations described in clauses (i), (ii)
and (iii) or (C) issued or assumed as the deferred purchase price of property
and all conditional sale obligations of the Company and all obligations of the
Company under any title retention agreement; (v) all obligations of other
persons of the type referred to in clauses (ii), (iii) and (iv) and all
dividends of other persons for the payment of which, in either case, the Company
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including guarantees of such obligations and dividends; and (vi) all
obligations of the Company consisting of modifications, renewals, extensions,
replacements and refundings of any obligations described in clauses (i), (ii),
(iii), (iv) or (v); unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such obligations
are not superior in right of payment to the Notes; provided, however, that
Senior Indebtedness will not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness,
Guarantee or obligation of the Company that is subordinate or junior to any
other Indebtedness, Guarantee or obligation of the Company or (5) any
Indebtedness that is incurred in violation of the Indenture. If any Designated
Senior Indebtedness is disallowed, avoided or subordinated pursuant to the
provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Designated Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness which is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinate or junior to secured Indebtedness merely because it is
unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not
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paid when due or (ii) any other default on Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full. However, the Company may pay the Notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to the Company) of written notice (a "Blockage Notice")
of such default from the Representative of the Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) because such Designated Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Notes after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
such period. However, if any Blockage Notice within such 360-day period is given
by or on behalf of any holders of Designated Senior Indebtedness (other than the
Bank Indebtedness), the Representative of the Bank Indebtedness may give another
Blockage Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any consecutive 360-day period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of the Senior Indebtedness before the
Noteholders are entitled to receive any payment and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled, but for the subordination provisions of the Indenture, will
be made to holders of the Senior Indebtedness as their interests may appear. If
a distribution is made to Noteholders that, due to the subordination provisions,
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness (including the Notes) may recover less,
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ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the holders of Senior Subordinated Indebtedness.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(i) prior to the first public offering of Voting Stock of the Company or
Holdings, as the case may be, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of majority voting power of the Voting Stock
of Holdings or Holdings shall cease to own 84% of the issued and outstanding
Voting Stock of the Company, whether as a result of issuance of securities
of the Company or Holdings, as the case may be, any merger, consolidation,
liquidation or dissolution of the Company or Holdings, as the case may be,
any direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (i) and clause (ii) below, the
Permitted Holders will be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation (the
"parent corporation") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, a majority of the Voting Stock of the
parent corporation);
(ii) following the first public offering of Voting Stock of the Company
or Holdings, as the case may be, any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in clause
(i) above, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company or Holdings, as the case may be; provided
that the Permitted Holders beneficially own (as defined in clause (i)
above), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of the Company or Holdings, as the
case may be, than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of the Company or Holdings, as the case
may be (for purposes of this clause (ii), such other person shall be deemed
to beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person "beneficially owns" (as defined in
this clause (ii)), directly or indirectly, more than 35% of the voting power
of the Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting Stock
of such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation); or
(iii) following the first public offering of Voting Stock of the Company
or Holdings, as the case may be, any person (other than Investcorp, its
Affiliates and members of the Management Group) (a) nominates one or more
individuals for election to the board of directors of the Company or
Holdings, as the case may be, (b) solicits proxies, authorizations or
consents in connection therewith and (c) such number of nominees elected to
serve on the board of directors represents a majority of the board of
directors of the Company or Holdings, as the case may be, following such
election.
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In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Company shall (i) repay in full all Bank Indebtedness or
offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness of
each lender who has accepted such offer or (ii) obtain the requisite consent
under the agreements governing the Bank Indebtedness to permit the repurchase of
the Notes as provided for in the immediately following paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date); (2) the circumstances
and relevant facts and financial information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (4) the instructions
determined by the Company, consistent with this covenant, that a Holder must
follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a repurchase may
be limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company may Incur Indebtedness if on the date thereof the Consolidated
Coverage Ratio would be greater than 2.00:1.00, if
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such Indebtedness is Incurred on or prior to March 31, 1998; and 2.25:1.00 if
such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
under the Senior Credit Facility (as the same may be amended from time to time,
without increasing the committed amount thereunder, except as otherwise
permitted by this covenant) and any Refinancing Indebtedness with respect
thereto in an aggregate principal amount on the date of Incurrence that, when
added to all other Indebtedness Incurred pursuant to this clause (i) and then
outstanding, shall not exceed the sum of the then outstanding Indebtedness under
the Senior Credit Facility and the unused commitments thereunder; provided,
however, that any Refinancing Indebtedness with respect to Indebtedness Incurred
pursuant to this clause (i) shall not be subject to the limitations contained in
clauses (i) and (ii) of the definition of Refinancing Indebtedness set forth in
"--Certain Definitions" below; (ii) Indebtedness (A) of the Company to any
Restricted Subsidiary, (B) of any Restricted Subsidiary to the Company or any
other Restricted Subsidiary; (iii) Indebtedness represented by the Notes, any
Indebtedness (other than the Indebtedness described in clauses (i) and (ii)
above) outstanding on the date of the Indenture and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iii) or
paragraph (a); (iv) Indebtedness of the Company and its Restricted Subsidiaries
for (A) industrial revenue bonds or other similar governmental and municipal
bonds and (B) the deferred purchase price of newly acquired property of the
Company and its Restricted Subsidiaries used in the ordinary course of business
of the Company and its Subsidiaries (provided such purchase money financing is
entered into within 180 days of the acquisition of such property) in an amount
(based on the remaining balance of the obligations therefor on the books of the
Company and its Restricted Subsidiaries) which in the case of the preceding
clauses (A) and (B) shall not exceed $12.0 million in the aggregate at any time
outstanding; (v) Indebtedness of the Company or any of its Restricted
Subsidiaries (which may comprise Bank Indebtedness) in an aggregate principal
amount at any time outstanding not in excess of $15.0 million; (vi) Indebtedness
in an aggregate principal amount at any time outstanding not in excess of $5.0
million in respect of letters of credit (other than letters of credit issued
under the Senior Credit Facility); (vii) (A) Indebtedness assumed in connection
with acquisitions permitted under the Senior Credit Facility (so long as such
Indebtedness was not incurred in anticipation of such acquisitions), (B)
Indebtedness of newly acquired Subsidiaries acquired in such acquisitions (so
long as such Indebtedness was not incurred in anticipation of such acquisitions)
and (C) Indebtedness owed to the seller in any acquisition permitted under the
Senior Credit Facility constituting part of the purchase price thereof, all in
an aggregate principal amount at any time outstanding not in excess of $5.0
million; (viii) Indebtedness represented by the Note Guarantees and Guarantees
of Indebtedness Incurred pursuant to clause (i) or (v) above; and (ix)
Indebtedness incurred in connection with the repurchase of shares of the Capital
Stock of the Company or Holdings as permitted by paragraph (b)(v)(D) of the
covenant described under "--Limitation on Restricted Payments."
(c) Notwithstanding any other provision of this covenant, the Company will
not Incur any Indebtedness (i) pursuant to paragraph (b) if the proceeds thereof
are used, directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any Subordinated Obligations unless such Indebtedness shall
be subordinated to the Notes to at least the same extent as such Subordinated
Obligations or (ii) pursuant to paragraph (a) or (b) if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any
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merger or consolidation involving the Company) except dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and except
dividends or distributions payable to the Company or another Restricted
Subsidiary (and, if such Restricted Subsidiary is not wholly owned, to its other
shareholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of the Company or any Restricted Subsidiary
held by Persons other than the Company or another Restricted Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition), (iv) pay any
amount to Holdings for the purposes set forth in clauses (v)(A) through (C) of
the following paragraph (b), or (v) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement, payment or
Investment being herein referred to as a "Restricted Payment") if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a
Default shall have occurred and be continuing (or would result therefrom); (2)
the Company could not Incur at least $1.00 of additional Indebtedness pursuant
to paragraph (a) of the covenant described under "--Limitation on Indebtedness";
or (3) the aggregate amount of such Restricted Payment and all other Restricted
Payments (the amount so expended, if other than in cash, to be determined in
good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution of the Board of Directors) declared or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company or an employee
stock ownership plan or other trust established by the Company or any of its
Subsidiaries); and (C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date
of any Indebtedness of the Company or its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other property distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange).
(b) The provisions of the foregoing paragraph shall not prohibit: (i) any
purchase or redemption of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); provided, however, that (A) such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale applied in the manner set forth in this clause (i)
will be excluded from clause (3)(B) of paragraph (a); (ii) any purchase or
redemption of Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
that is permitted to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; provided, however, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock"; provided, however, that
such purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days
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after the date of declaration thereof if at such date of declaration such
dividend would have complied with paragraph (a); provided, however, that such
dividend will be included in the calculation of the amount of Restricted
Payments; or (v) payment of dividends, other distributions or other amounts by
the Company for the purposes set forth in clauses (A) through (E) below;
provided, however, that such dividend, distribution or amount set forth in
clauses (A) through (D) will be included in the calculation of the amount of
Restricted Payments for purposes of the preceding paragraph: (A) to Holdings in
amounts equal to the amounts required for Holdings to pay franchise taxes and
other fees required to maintain its corporate existence and provide for other
operating costs of up to $500,000 per fiscal year; (B) to Holdings in amounts
equal to amounts required for Holdings to pay federal, state and local income
taxes to the extent such income taxes are attributable to the income of the
Company and its Restricted Subsidiaries (and, to the extent of amounts actually
received from its Unrestricted Subsidiaries, in amounts required to pay such
taxes to the extent attributable to the income of such Unrestricted
Subsidiaries); (C) to Holdings in amounts equal to amounts expended by Holdings
to repurchase Capital Stock of Holdings owned by former employees of the Company
or its Subsidiaries or their assigns, estates and heirs; provided, however, that
the aggregate amount paid, loaned or advanced to Holdings pursuant to this
clause (C) shall not, in the aggregate, exceed $2.5 million per fiscal year of
the Company, up to a maximum aggregate amount of $7.5 million during the term of
the Indenture, plus any amounts contributed by Holdings to the Company as a
result of resales of such repurchased shares of Capital Stock; (D) in amounts
equal to amounts expended by the Company to repurchase shares of its Capital
Stock from deceased or retired employees in accordance with the terms of the
ESOP as in effect on the Closing Date and from employees whose employment with
the Company or any of its Subsidiaries has terminated for any other reason but
only to the extent mandatorily required by the ESOP as in effect on the Closing
Date, the Code or ERISA; provided that in each case the Company has deferred
making any cash payments in respect of such repurchase obligations to the
maximum extent possible under the ESOP as in effect on the Closing Date; and (E)
in an amount not in excess of an aggregate amount of $750,000 to redeem the
Series C Preferred Stock of the Company that was called for redemption in
connection with the Acquisition.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except: (1) any encumbrance or restriction pursuant to
an agreement in effect at or entered into on the date of the Indenture; (2) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary
prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred as consideration in, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement effecting a refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (1) or (2) of this covenant or this clause (3)
or contained in any amendment to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that the encumbrances
and restrictions contained in any such refinancing agreement or amendment are no
less favorable to the Noteholders than encumbrances and restrictions contained
in such agreements; (4) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, (B) by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise
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prohibited by the Indenture or (C) contained in security agreements securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such security
agreements; and (5) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the shares
and assets subject to such Asset Disposition, (ii) at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent the Company elects (or
is required by the terms of any Senior Indebtedness or Indebtedness (other than
Preferred Stock) of a Wholly Owned Subsidiary), to prepay, repay or purchase
Senior Indebtedness or such Indebtedness (other than Preferred Stock) of a
Wholly Owned Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within 12 months after the later of the
date of such Asset Disposition or the receipt of such Net Available Cash; (B)
second, to the extent of the balance of Net Available Cash after application in
accordance with clause (A), to the extent the Company or such Restricted
Subsidiary elects, to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) within 12 months
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (C) third, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), to make an offer
to purchase Notes pursuant and subject to the conditions of the Indenture to the
Noteholders at a purchase price of 100% of the principal amount thereof plus
accrued and unpaid interest to the purchase date, and (D) fourth, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C), to (x) acquire Additional Assets (other than
Indebtedness and Capital Stock) or (y) prepay, repay or purchase Indebtedness of
the Company (other than Indebtedness owed to an Affiliate of the Company and
other than Disqualified Stock of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case described in this clause (D) within one year from the
receipt of such Net Available Cash or, if the Company has made an Offer pursuant
to clause (C), six months from the date such Offer is consummated; provided,
however, that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. The Company and the Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $500,000.
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption of Indebtedness of the Company (other than Disqualified Stock
of the Company) or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
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(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C), the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes (the "Offer") at a
purchase price of 100% of their principal amount plus accrued and unpaid
interest to the Purchase Date in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. If the
aggregate purchase price of the Notes tendered pursuant to the Offer is less
than the Net Available Cash allotted to the purchase of the Notes, the Company
will apply the remaining Net Available Cash in accordance with clause
(a)(iii)(D) above. The Company shall not be required to make an Offer for Notes
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (a)(iii)(A) and (a)(iii)(B)
is less than $5.0 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this paragraph (c) by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") on terms (i) that are less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate and (ii) that, in the event such Affiliate
Transaction involves an aggregate amount in excess of $500,000, are not in
writing and have not been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction. In addition,
any transaction involving aggregate payments or other transfers by the Company
and its Restricted Subsidiaries in excess of $3.0 million will also require an
opinion from an independent investment banking firm or appraiser of national
prominence, as appropriate, to the effect that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments," (ii) the performance of the Company's or
Subsidiary's obligations under any employment contract, collective bargaining
agreement, employee benefit plan, related trust agreement or any other similar
arrangement heretofore or hereafter entered into in the ordinary course of
business, (iii) payment of compensation to employees, officers, directors or
consultants in the ordinary course of business, (iv) maintenance in the ordinary
course of business of benefit programs or arrangements for employees, officers
or directors, including vacation plans, health and life insurance plans,
deferred compensation plans, and retirement or savings plans and similar plans,
(v) any transaction between the Company and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries, (vi) the payment of certain fees under the Management
Agreement, provided that such payment will not exceed an aggregate amount of
$1.0 million during any 12-month period, (vii) payments to certain members of
management in respect of a one-time management tax gross-up made in connection
with the Acquisition not in excess of an aggregate amount of $1,376,000, or
(viii) payments made to Holdings to reimburse Holdings for costs, fees and
expenses incident to a registration of any of the capital stock of Holdings for
a primary offering under the Securities Act, so long as the net proceeds of such
offering (if it is completed) are contributed to, or otherwise used for the
benefit of, the Company.
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Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien on any of its property or assets (including Capital Stock), whether owned
on the date of the Indenture or thereafter acquired, securing any obligation
other than Permitted Liens unless the obligations due under the Indenture and
the Notes are secured, on an equal and ratable basis (or on a senior basis, in
the case of Indebtedness subordinated in right of payment to the Notes), with
the obligations so secured.
SEC Reports. The Company shall file with the Trustee and provide
Noteholders, within 15 days after it files them with the SEC, copies of its
annual report and the information, documents and other reports which the Company
is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall continue to file with the SEC and, within 15 days after such
reports are filed, provide the Trustee and Noteholders (at their addresses as
set forth in the register of Notes) with the annual reports and the information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act. The Company shall also comply with the other provisions of TIA
314(a).
Future Note Guarantors. The Company will cause each Domestic Subsidiary that
Incurs Indebtedness and each Restricted Subsidiary that is a guarantor of
Indebtedness Incurred pursuant to clause (b)(i) or (b)(v) of the covenant
described under "--Limitation on Indebtedness" to execute and deliver to the
Trustee a Note Guarantee pursuant to which such Subsidiary will Guarantee
payment of the Notes. Each Note Guarantee will be limited in amount to an amount
not to exceed the maximum amount that can be Guaranteed by that Subsidiary
without rendering the Note Guarantee, as it relates to such Subsidiary, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Related
Business.
Merger and Consolidation. The Company will not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") is a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) expressly assumes, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii) immediately
after giving effect to such transaction, the Successor Company would be able to
incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under "--Limitation on Indebtedness"; (iv) immediately after
giving effect to such transaction, the Successor Company will have Consolidated
Net Worth in an amount that is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and (v) the Company will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (1) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company and (2) the Company may merge with
an Affiliate incorporated for the purpose of reincorporating the Company in
another jurisdiction to realize tax or other benefits.
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DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment is prohibited by the provisions described under
"--Ranking" above, (iii) the failure by the Company to comply with its
obligations under the covenant described under "--Merger and Consolidation"
above, (iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "--Change of Control"
above or under the covenants described under "--Certain Covenants" above (in
each case, other than a failure to purchase Notes), (v) the failure by the
Company to comply for 60 days after notice with its other agreements contained
in the Indenture, (vi) the failure of the Company or any Significant Subsidiary
to pay any Indebtedness within any applicable grace period after final maturity
or acceleration by the holders thereof because of a default if the total amount
of such Indebtedness unpaid or accelerated exceeds $10.0 million (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions"), (viii) the rendering of any judgment or decree for the payment of
money in excess of $10.0 million against the Company or a Significant Subsidiary
if (A) an enforcement proceeding thereon is commenced or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed (the "judgment default provision") or (ix)
the failure of any Note Guarantee by a Note Guarantor which is a Significant
Subsidiary to be in full force and effect (except as contemplated by the terms
thereof) or the denial or disaffirmation by any such Note Guarantor of its
obligations under the Indenture or any Note Guarantee if such Default continues
for 10 days. However, a default under clauses (iv) and (v) will not constitute
an Event of Default until the Trustee or the Holders of 25% in principal amount
of the outstanding Notes notify the Company of the default and the Company does
not cure such default within the time specified in clauses (iv) and (v) hereof
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs and is continuing, the principal of and interest on all the Notes will
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holders. Under certain circumstances, the Holders of
a majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the
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time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
no later than the date that is the earlier of 90 days after such default occurs
or 30 days after it is known to a trust officer or written notice is received by
the Trustee. Except in the case of a Default in the payment of principal of,
premium (if any) or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its Trust officers in good faith determines that
withholding notice is in the interests of the Noteholders. In addition, the
Company is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Default that occurred during the previous year. The Company also is required
to deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any event which would constitute certain Defaults, their status and
what action the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each Holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of Notes
whose Holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the principal of or
extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under "--Optional Redemption" above, (v) make any Note payable in
money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes or (viii) make any change in the amendment provisions which
require each Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided, however, that the uncertificated Notes
are issued in registered form for purposes of Section 163(f) of the Code, or in
a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to add further Guarantees with respect to the Notes,
to secure the Notes, to add to the covenants of the Company for the benefit of
the Noteholders or to surrender any right or power conferred upon the Company,
to make any change that does not adversely affect the rights of any Holder or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the Trust Indenture Act. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness (or any group or representative thereof authorized
to give a consent) consent to such change.
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The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
or other governmental charges required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Note selected for redemption
or to transfer or exchange any Note for a period of 15 days prior to a selection
of Notes to be redeemed. The Notes will be issued in registered form and the
registered holder of a Note will be treated as the owner of such Note for all
purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "--Certain Covenants," the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries and the
judgment default provision described under "--Defaults" above and the
limitations contained in clauses (iii) and (iv) under "--Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) with respect only to
Subsidiaries, (viii) or (ix) under "--Defaults" above or because of the failure
of the Company to comply with clause (iii) or (iv) under "--Merger and
Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
SunTrust Bank, Atlanta is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" and "--Limitation on Affiliate
Transactions" only, "Affiliate" shall also mean any beneficial owner of shares
representing 5% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Voting Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (ii) a disposition of property or assets in the ordinary course of
business, and (iii) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "--Certain
Covenants--Limitation on Restricted Payments."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Facility and the other Senior Credit Documents and the
Refinancing Indebtedness with respect thereto, as amended from time to time,
including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not a claim for post filing interest is allowed in
such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees and all other amounts payable thereunder or in respect thereof.
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"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions (including, without limitation, the
Federal Reserve System) are authorized or required by law to close in New York
City.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such determination
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset Disposition for
such period or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during
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such period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate Protection
Agreement has a remaining term as at the date of determination in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, plus, to the extent
incurred by the Company and its Subsidiaries in such period but not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) noncash interest expense, (v) commissions, discounts
and other fees and charges attributable to letters of credit and bankers'
acceptance financing, (vi) interest actually paid by the Company or any such
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vii) net costs associated with Hedging Obligations (including
amortization of fees), (viii) the product of (a) all Preferred Stock dividends
in respect of all Preferred Stock of Subsidiaries of the Company and
Disqualified Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary multiplied by (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of the Company, expressed as a decimal, in
each case, determined on a consolidated basis in accordance with GAAP and (ix)
the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust; provided, however, that there shall be excluded
therefrom any such interest expense of any Unrestricted Subsidiary to the extent
the related Indebtedness is not Guaranteed or paid by the Company or any
Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iv) below) and (B) the Company's equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any expense recognized (net of
tax benefits related thereto) as a consequence of payments permitted to be made
by the Company under clauses (v)(A) through (C) of paragraph (b) of the covenant
described under "--Certain Covenants--Limitation on Restricted Payments"; (iii)
any net income (loss) of any person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iv) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that (A) subject to the limitations
contained in (v) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been
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distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
that could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (v) any gain (but not loss) realized upon the sale or
other disposition of any asset of the Company or its consolidated Subsidiaries
(including pursuant to any sale/leaseback transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (vi) any extraordinary gain or loss; and (vii) the cumulative effect of
a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount of, or under which, at the date of determination, the
holders thereof, are committed to lend up to, at least $10.0 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the
Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" means, for any period the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense, (v) the effect of inventory
write-up under APB 16 in connection with the Acquisition, (vi) non-cash ESOP
Expense, (vii) the establishment of a reserve not in excess of $4,000,000 for a
one-time management tax gross up payment made in connection with the Acquisition
and (viii) non-cash expenses not in excess of $3,000,000 related to the
prepayment of management fees paid pursuant to certain agreements referred to in
the Indenture.
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"ESOP" means the Simmons Company Employee Stock Ownership Plan, as from time
to time amended, supplemented or otherwise modified, and a trust forming a part
thereof and its successors.
"ESOP Expense" means, with respect to any period, the aggregate amount of
expenses incurred by the Company relating to the ESOP with respect to such
period calculated in accordance with GAAP.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP as in effect as of the Issue Date.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
in the Register.
"Holdings" means Simmons Holdings, Inc., a Delaware corporation.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication) (i) the principal of and premium (if any) in
respect of indebtedness of such Person for borrowed money; (ii) the principal of
and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations of such Person; (vi) the
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amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any
accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Company at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means any Officer of the Company or Holdings.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred (including legal, accounting and investment banking fees and any
relocation expenses incurred as a result of an Asset Disposition), and all
Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness
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that is secured by any assets subject to such Asset Disposition, in accordance
with the terms of any Lien upon such assets, or that must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by applicable
law be repaid out of the proceeds from such Asset Disposition, (iii) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock by the Company or any Subsidiary, the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Note Guarantee" means any guarantee that may from time to time be executed
and delivered by a Subsidiary of the Company pursuant to the provisions of the
covenant described under "--Certain Covenants--Future Note Guarantors". Each
such Note Guarantee will be in the form prescribed in the Indenture.
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary or Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Investcorp, its Affiliates, members of the
Management Group and any Person acting in the capacity of an underwriter in
connection with a public or private offering of the Company's or Holdings'
Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary, the Company or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary; and
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments.
"Permitted Liens" means, (a) Liens for taxes, assessments or other
governmental charges not yet delinquent or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or such Restricted Subsidiary, as the
case may be, in accordance with GAAP; (b) carriers', warehousemen's,
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mechanics', landlords', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business in respect of obligations that are not yet
due or that are bonded or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Company or such Restricted Subsidiary, as the case may be,
in accordance with GAAP; (c) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security legislation; (d)
deposits to secure the performance of bids, tenders, trade or government
contracts (other than for borrowed money), leases, licenses, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (e) easements
(including reciprocal easement agreements), rights-of-way, building, zoning and
similar restrictions, utility agreements, covenants, reservations, restrictions,
encroachments, changes, and other similar encumbrances or title defects
incurred, or leases or subleases granted to others, in the ordinary course of
business, which do not in the aggregate materially detract from the aggregate
value of the properties of the Company and its Subsidiaries, taken as a whole or
in the aggregate materially interfere with or adversely affect in any material
respect the ordinary conduct of the business of the Company and its Subsidiaries
on the properties subject thereto, taken as a whole; (f) Liens pursuant to the
Senior Credit Documents, liens in connection with industrial revenue bonds,
liens securing the Bank Indebtedness and bankers' liens arising by operation of
law; (g) Liens on property of the Company or any of its Restricted Subsidiaries
created solely for the purpose of securing Indebtedness permitted by clause
(b)(iv) of the covenant described under "--Certain Covenants--Limitation on
Indebtedness" or incurred in connection with Indebtedness permitted by clause
(b)(vii) thereof; provided, however that, in the case of liens described in such
clause (b)(iv), no such Lien shall extend to or cover other property of the
Company or such Restricted Subsidiary other than the respective property so
acquired, and the principal amount of Indebtedness secured by any such Lien
shall at no time exceed the original purchase price of such property; (h) Liens
existing on the date of the Indenture; (i) Liens on goods (and the proceeds
thereof) and documents of title and the property covered thereby securing
Indebtedness in respect of commercial letters of credit; (j) (i) mortgages,
liens, security interests, restrictions or encumbrances that have been placed by
any developer, landlord or other third party on property over which the Company
or any Restricted Subsidiary of the Company has easement rights or on any real
property leased by the Company on the date of the Indenture and subordination or
similar agreements relating thereto and (ii) any condemnation or eminent domain
proceedings affecting any real property; (k) leases or subleases to third
parties; (l) Liens in connection with workmen's compensation obligations and
general liability exposure of the Company and its Restricted Subsidiaries; and
(m) Liens securing Indebtedness Incurred under clause (b)(v) of the covenant
described under "--Certain Covenants-- Limitation on Indebtedness".
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note that is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock (or other voting stock) of the Company or Holdings pursuant to an
effective registration statement (other than a registration statement on Form
S-4, S-8 or any successor or similar forms) under the Securities Act.
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"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company or Holdings (as applicable) has been distributed by means
of an effective registration statement under the Securities Act.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; provided, however, that (i) except in
the case of any refunding, refinancing, replacement, renewal, repayment or
extension of any Bank Indebtedness, the Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) except in the case of any refunding, refinancing, replacement,
renewal, repayment or extension of any Bank Indebtedness, the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced, plus fees, underwriting
discounts and other costs and expenses incurred in connection with such
Refinancing Indebtedness; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means those businesses in which the Company or any of its
Subsidiaries are engaged on the date of the Indenture, or that are directly
related thereto.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Senior Credit Documents" means the collective reference to the Senior
Credit Facility, the notes issued pursuant thereto and the Guarantees thereof,
and the Security Agreements, the Mortgages and the Pledge Agreements (each as
defined in the Senior Credit Facility).
"Senior Credit Facility" means the credit agreement dated as of March 22,
1996, as amended, waived or otherwise modified from time to time, among the
Company, the several lenders party thereto and Chemical Bank, a New York banking
corporation, as administrative agent (except to the extent that any such
amendment, waiver or other modification thereto would be prohibited by the terms
of the Indenture, unless otherwise agreed to by the Holders of at least a
majority in aggregate principal amount of Notes at the time outstanding).
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes and is not subordinated by its terms to any
Indebtedness or other obligation of the Company that is not Senior Indebtedness.
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"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter Incurred) that is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person or (ii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by the
United States of America having capital, surplus and undivided profits
aggregating in excess of $300.0 million (or the foreign currency equivalent
thereof), (iii) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) or (ii) above
entered into with a bank meeting the qualifications described in clause (ii)
above, and (iv) investments in commercial paper, maturing not more than six
months after the date of acquisition, issued by any Lender as defined under the
Senior Credit Facility or the parent corporation of any Lender, and commercial
paper with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less
or (B) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under the provisions of the covenant described
under "--Certain Covenants--Limitations on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "--Certain Covenants--Limitation
on Indebtedness" and (y) no Default shall have occurred and be
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continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
BOOK ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered notes in global form without coupons (each, a
"Global Note"). Upon issuance, each Global Note will be deposited with, or on
behalf of, the Depository Trust Company (the "Depository") and registered in the
name of Cede & Co., as nominee of the Depository.
If a holder tendering Old Notes so requests, such holder's New Notes will be
issued as described below under "Certificated Securities" in registered form
without coupons (the "Certificated Securities").
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchaser), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants who elect to exchange Old Notes with an interest in the
Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
So long as the Depository or its nominee is the registered owner of a Global
Note, the Depository or such nominee, as the case may be, will be considered the
sole owner or Holder of the New Notes represented by the Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have New Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Securities, and will not be considered
the owners or
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Holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instruction or approval to the Trustee thereunder.
As a result, the ability of a person having a beneficial interest in New Notes
represented by a Global Note to pledge such interest to persons or entities that
do not participate in the Depository's system, or to otherwise take action with
respect to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
The Company understands that under existing industry practice, in the event
the Company requests any action of Holders or an owner of a beneficial interest
in a Global Note desires to take any action that the Depository, as the Holder
of such Global Note, is entitled to take, the Depository would authorize the
Participants to take such action and the Participant would authorize persons
owning through such Participants to take such action or would otherwise act upon
the instruction of such persons. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by the Depository, or for maintaining,
supervising or reviewing any records of the Depository relating to such New
Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered Holder of the Global Note representing such New Notes under
the indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the Depository of
its Global Notes, Certificated Securities will be issued to each person that the
Depository identifies as the beneficial owner of the New Notes represented by
the Global Note. In addition, any person having a beneficial interest in a
Global Note or any holder of Old Notes whose Old Notes have been accepted for
exchange may, upon request to the Trustee or the Exchange Agent, as the case may
be, exchange such beneficial interest or Old Notes for Certificated Securities.
Upon any such issuance, the Trustee is required to register such Certificated
Securities in the name of such person or persons (or the nominee of any
thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
90
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the material United States federal income tax
consequences of the Exchange Offer is for general information only. It is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, and judicial and
administrative determinations, all of which are subject to change at any time,
possibly on a retroactive basis. Moreover, holders of Notes should note that
there are no Treasury Regulations, judicial decisions or other authority that
have considered a transaction closely comparable to the Exchange Offer and there
can be no assurance that the Internal Revenue Service (the "IRS") will not take
a contrary position to the positions taken herein. The following relates only to
the Old Notes, and the New Notes received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by persons who are
citizens or residents of the United States. It does not discuss state, local, or
foreign tax consequences, nor does it discuss tax consequences to categories of
holders that are subject to special rules, such as foreign persons, tax-exempt
organizations, insurance companies, banks, and dealers in stocks and securities.
Tax consequences may vary depending on the particular status of an investor. No
rulings will be sought from the IRS with respect to the federal income tax
consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD NOTES
FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING
THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS
PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD NOTES FOR NEW
NOTES.
THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute a material modification of the terms of the Notes and,
accordingly, such exchange should not constitute an exchange for federal income
tax purposes. Accordingly, such exchange should have no federal income tax
consequences to holders of Notes, either those who exchange or those who do not,
and each holder of Notes would continue to be required to include interest on
the Notes in its gross income in accordance with its method of accounting for
federal income tax purposes and the Company intends, to the extent required, to
take such position.
If the exchange of Old Notes for New Notes constitutes an exchange for
federal income tax purposes, and both the Old Notes and the New Notes constitute
"securities" for federal income tax purposes (which determination generally is
made by reference to the initial term of the debt instrument, with debt
instruments with initial terms of ten years or more generally being treated as
securities and debt instruments with initial terms of less than five years
generally being treated not as securities), a holder of Notes would recognize no
gain or loss on the consummation of the Exchange Offer. If in such event the Old
Notes or the New Notes did not constitute securities, (i) a holder would
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (x) the "issue price" of the New Notes and (y) the holder's
adjusted tax basis in the Old Notes exchanged therefor, and (ii) (A) gain, if
any, recognized by a holder on the exchange generally would be short-term
capital gain if the holder's holding period in the Old Notes was not more than
one year, (B) a holder's initial tax basis in the New Notes would be their
"issue price" determined on the date of the exchange, and (C) a holder's holding
period for the New Notes would begin on the day after the date of the exchange.
Without regard to whether both the Old Notes and New Notes constituted
securities, if the exchange of Old Notes for New Notes constitutes an exchange
for federal income tax purposes, a holder might be required to include original
issue discount in gross income for federal income tax purposes in advance of the
receipt of
91
<PAGE>
cash in respect thereof. Whether the New Notes will be treated as issued with
original issue discount will depend upon the issue price of such Notes, as
determined on the date of exchange.
BACKUP WITHHOLDING
Under the Code, a holder of a Note may be subject, under certain
circumstances, to "backup withholding" at a 31% rate with respect to payments in
respect of interest thereon or the gross proceeds from the disposition thereof.
This withholding generally applies only if the holder (i) fails to furnish his
or her social security or other taxpayer identification number ("TIN") within a
reasonable time after request therefor, (ii) furnishes an incorrect TIN, (iii)
is notified by the IRS that he or she has failed to report properly payments of
interest and dividends and the IRS has notified the Company that he or she is
subject to backup withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is his or her correct number and that he or she is not subject to
backup withholding. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
IRS. Corporations and certain other entities described in the Code and Treasury
regulations are exempt from such withholding if their exempt status is properly
established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1996 (90 days after the date of this Prospectus),
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the Old
Notes), other than commissions or concessions of any brokers or dealers, and
will
92
<PAGE>
indemnify the holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Gibson, Dunn & Crutcher LLP, New York, New York.
EXPERTS
The financial statements of the Company as of and for the year ended
December 30, 1995 appearing in this Prospectus have been audited by Coopers &
Lybrand L.L.P., independent auditors, as stated in their report appearing
herein, and are included in reliance on such report given on the authority of
such firm as experts in accounting and auditing. The financial statements for
the two years ended December 31, 1994 appearing in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein, in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
93
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-2
Report of Independent Public Accountants............................................. F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and December 30, 1995........ F-4
Consolidated Statements of Operations for the years ended December 25, 1993,
December 31, 1994 and December 30, 1995........................................ F-5
Consolidated Statements of Common Stockholders' Equity for the years ended
December 25, 1993, December 31, 1994 and December 30, 1995..................... F-6
Consolidated Statements of Cash Flows for the years ended December 25, 1993,
December 31, 1994 and December 30, 1995........................................ F-7
Notes to Consolidated Financial Statements....................................... F-8
Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet as of March 30, 1996
for the Successor.............................................................. F-21
Condensed Consolidated Statements of Operations for the quarter ended
April 1, 1995 for the Predecessor, for the period from December 31, 1995
through March 21, 1996 for the Predecessor, and for the period from
March 22, 1996 through March 30, 1996 for the Successor........................ F-22
Condensed Consolidated Statements of Cash Flows for the quarter ended
April 1, 1995 for the Predecessor, for the period from December 31, 1995
through March 21, 1996 for the Predecessor, and for the period from
March 22, 1996 through March 30, 1996 for the Successor........................ F-23
Notes to Condensed Consolidated Financial Statements............................. F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
SIMMONS COMPANY
We have audited the accompanying consolidated balance sheet of Simmons
Company (a Delaware corporation) and subsidiaries as of December 30, 1995, and
the related consolidated statements of operations, common stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As explained in Note 15 to the consolidated financial statements, on March
22, 1996, an affiliate of INVESTCORP S.A. ("Investcorp") acquired 100% of the
common stock of Simmons Company.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simmons Company and subsidiaries as of December 30, 1995, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 13, 1996, except for Notes 8 and 15
which are as of March 22, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SIMMONS COMPANY
We have audited the accompanying consolidated balance sheets of Simmons
Company (a Delaware corporation) and subsidiaries as of December 31, 1994 and
December 25, 1993 and the related consolidated statements of operations, common
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simmons Company and subsidiaries as of December 31, 1994 and December 25, 1993
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, effective December 26,
1993, the Company changed its method of accounting for its Employee Stock
Ownership Plan in accordance with Statement of Position No. 93-6 of the American
Institute of Certified Public Accountants, "Employers' Accounting for Employee
Stock Ownership Plans."
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 17, 1995 except for Notes 6
and 14 which are as of May 4, 1995
(not presented herein)
F-3
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 8,477 $ 9,185
Accounts receivable, net...................................... 42,861 49,453
Inventories................................................... 15,760 18,293
Deferred income taxes......................................... 9,276 7,565
Other current assets.......................................... 5,425 5,372
------------ ------------
Total current assets...................................... 81,799 89,868
Property, plant and equipment, net.............................. 21,614 23,410
Patents......................................................... 16,165 14,275
Goodwill........................................................ 125,437 121,573
Other assets.................................................... 4,876 5,366
------------ ------------
$249,891 $254,492
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 18,312 $ 22,712
Accrued liabilities........................................... 31,933 37,800
Current maturities of long-term obligations................... 11,572 2,661
------------ ------------
Total current liabilities................................. 61,817 63,173
Noncurrent liabilities:
Long-term debt................................................ 96,954 90,291
Capital lease................................................. 909 816
Deferred income taxes......................................... 8,469 6,537
Postretirement benefit obligations other than pensions........ 7,268 7,999
Other......................................................... 8,659 8,352
------------ ------------
Total liabilities......................................... 184,076 177,168
------------ ------------
Commitments (Notes 3 and 8)
Redeemable preferred stock...................................... 641 680
------------ ------------
Redeemable common stock under ESOP, net of related unearned
compensation of $29,624 and $29,674, respectively............. 23,238 32,272
------------ ------------
Common stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized,
36,311,967 shares issued.................................... 363 363
Additional paid-in capital.................................... 190,560 176,501
Unearned compensation under ESOP.............................. (60,169) (47,531)
Accumulated deficit........................................... (88,305) (78,894)
Foreign currency translation adjustment....................... (347) (288)
Treasury stock, 60,472 and 1,727,191 shares, respectively, at
cost........................................................ (166) (5,779)
------------ ------------
Total common stockholders' equity......................... 41,936 44,372
------------ ------------
$249,891 $254,492
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales......................................... $391,382 $439,689 $489,815
Cost of products sold............................. 240,125 269,741 292,825
------------ ------------ ------------
Gross profit.................................. 151,257 169,948 196,990
Selling, general and administrative expenses...... 124,452 137,791 161,202
ESOP expense...................................... 14,000 4,463 4,533
Amortization of intangible assets................. 5,724 5,753 5,753
Interest expense, net............................. 8,105 8,197 8,185
Other deductions, net............................. 760 2,517 400
------------ ------------ ------------
Income (loss) before income taxes and change
in accounting principle..................... (1,784) 11,227 16,917
Provision for income taxes........................ 1,043 3,233 7,506
------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle.............. (2,827) 7,994 9,411
Cumulative effect of the change in accounting for
income taxes.................................... (492) -- --
------------ ------------ ------------
Net income (loss)................................. $ (3,319) $ 7,994 $ 9,411
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL UNEARNED CURRENCY TOTAL
COMMON COMMON PAID-IN COMPENSATION ACCUMULATED TRANSLATION TREASURY STOCKHOLDERS'
SHARES STOCK CAPITAL UNDER ESOP DEFICIT ADJUSTMENT STOCK EQUITY
---------- ------ ---------- ------------ ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26,
1992................... 36,311,967 $363 $231,394 $ (104,567) $ (92,980) $(146) $ (21 ) $34,043
ESOP expense............ -- -- -- 14,000 -- -- -- 14,000
Net loss................ -- -- -- -- (3,319) -- -- (3,319)
Dividends paid or
accrued on redeemable
preferred stock...... -- -- (46) -- -- -- -- (46)
Change in foreign
currency translation... -- -- -- -- -- (77) -- (77)
Change in fair value of
ESOP shares........... -- -- (14,525) 7,827 -- -- -- (6,698)
Purchase of treasury
stock................. -- -- -- -- -- -- (24 ) (24)
---------- ------ ---------- ------------ ----------- --- -------- ------
Balance, December 25,
1993................... 36,311,967 363 216,823 (82,740) (96,299) (223) (45 ) 37,879
ESOP expense............ -- -- (9,541) 14,004 -- -- -- 4,463
Income tax benefit on
ESOP................... -- -- 3,721 -- -- -- -- 3,721
Net income.............. -- -- -- -- 7,994 -- -- 7,994
Dividends paid or
accrued on redeemable
preferred stock...... -- -- (55) -- -- -- -- (55)
Change in foreign
currency translation... -- -- -- -- -- (124) -- (124)
Change in fair value of
ESOP shares........... -- -- (20,388) 8,567 -- -- -- (11,821)
Purchase of treasury
stock................. -- -- -- -- -- -- (121 ) (121)
---------- ------ ---------- ------------ ----------- --- -------- ------
Balance, December 31,
1994................... 36,311,967 363 190,560 (60,169) (88,305) (347) (166 ) 41,936
ESOP expense............ -- -- (8,065) 12,598 -- -- -- 4,533
Income tax benefit on
ESOP.................. -- -- 3,145 -- -- -- -- 3,145
Net income.............. -- -- -- -- 9,411 -- -- 9,411
Dividends paid or
accrued on redeemable
preferred stock...... -- -- (65) -- -- -- -- (65)
Change in foreign
currency translation... -- -- -- -- -- 59 -- 59
Change in fair value of
ESOP shares........... -- -- (9,074) 40 -- -- -- (9,034)
Purchase of treasury
stock................. -- -- -- -- -- -- (5,613 ) (5,613)
---------- ------ ---------- ------------ ----------- --- -------- ------
Balance, December 30,
1995................... 36,311,967 $363 $176,501 $ (47,531) $ (78,894) $(288) $(5,779 ) $44,372
---------- ------ ---------- ------------ ----------- --- -------- ------
---------- ------ ---------- ------------ ----------- --- -------- ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (3,319) $ 7,994 $ 9,411
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 3,141 3,496 4,027
Non-cash interest expense.................... 1,040 1,112 1,180
Amortization of deferred debt issuance
costs...................................... 957 835 679
Loss (gain) on disposal of fixed assets...... (141) 2,823 --
Amortization of intangibles.................. 5,724 5,753 5,753
ESOP expense................................. 14,000 4,463 4,533
Provision for bad debts...................... 1,257 1,706 3,500
Provision for deferred income taxes.......... 822 2,484 1,006
Other, net................................... -- (732) (444)
Cumulative effect of change in accounting for
income taxes............................... 492 -- --
Net changes in operating assets and
liabilities:
Accounts receivable.......................... (15,040) 7,997 (10,092)
Inventories.................................. (3,342) 641 (2,533)
Other assets and liabilities................. 862 84 2,029
Accounts payable............................. 8,322 (5,905) 4,400
Accrued liabilities.......................... 3,227 1,629 5,064
------------ ------------ ------------
Net cash provided by operating activities.... 18,002 34,380 28,513
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment..... (4,972) (4,496) (5,834)
Proceeds from sale of property................. 254 301 --
------------ ------------ ------------
Net cash used in investing activities........ (4,718) (4,195) (5,834)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from revolving line of credit and
long-term borrowings......................... 17,181 25,789 15,842
Principal payments on revolving line of credit,
long-term debt and capital lease obligations. (26,665) (58,532) (32,259)
Treasury stock purchases....................... (24) (121) (5,613)
------------ ------------ ------------
Net cash used in financing activities........ (9,508) (32,864) (22,030)
------------ ------------ ------------
Net effect of exchange rate changes on cash...... (77) (124) 59
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents.................................... 3,699 (2,803) 708
Cash and cash equivalents, beginning of year..... 7,581 11,280 8,477
------------ ------------ ------------
Cash and cash equivalents, end of year........... $ 11,280 $ 8,477 $ 9,185
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow information:
Cash paid for interest......................... $ 6,125 $ 7,840 $ 5,458
------------ ------------ ------------
------------ ------------ ------------
Cash paid for income taxes..................... $ 390 $ 749 $ 3,047
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Simmons Company ("Simmons" or "the Company") is one of the largest bedding
manufacturers in the United States. The Company manufactures and distributes
mattresses, box springs, bedding frames and sleep accessories. Simmons also
sells bedding products to certain institutional customers, such as schools and
government entities, and to the lodging industry. The Company also licenses its
patents and trademarks to various domestic and foreign manufacturers.
The Company was privately held by the Simmons family for many years and
later was publicly traded. Following a number of ownership changes beginning in
1978, the Company has most recently been owned by an Employee Stock Ownership
Plan (the "ESOP") and affiliates of Merrill Lynch Capital Partners, Inc.
("MLCP"). In 1991, MLCP made a $32 million equity investment, acquiring its
controlling interest of approximately 60%, as part of a financial restructuring
of the Company's balance sheet.
See Note 15 for a discussion of the acquisition of the Company, which was
completed on March 22, 1996.
2. PRINCIPAL ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
the Company and all its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the 1993
and 1994 financial statements have been reclassified to conform with the current
year presentation.
]Basis of Accounting
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. Such financial
statements include estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and the
amounts of revenues and expenses. Actual results could differ from those
estimates.
Fiscal Year
The Company operates on a 52/53 week fiscal year ending on the last Saturday
in December. Fiscal years 1993 and 1995 comprised 52 weeks and fiscal 1994
comprised 53 weeks.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
net realizable value.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation expense is
determined principally using the straight-line method over the estimated useful
lives for financial reporting and accelerated methods for income tax purposes.
Expenditures that substantially increase asset values or extend useful lives are
capitalized. Expenditures for maintenance and repairs are expensed as incurred.
When property items are retired or otherwise disposed of, amounts
F-8
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES--(CONTINUED)
applicable to such items are removed from the related asset and accumulated
depreciation accounts and any resulting gain or loss is credited or charged to
income. Useful lives are generally as follows:
Buildings and improvements............................ 10 - 25 years
Machinery and equipment............................... 5 - 15 years
Patents and Goodwill
The cost of patents acquired is being amortized using the straight-line
method over the estimated remaining economic lives of the respective patents.
Accumulated amortization of patents totaled approximately $11,269,000 and
$13,198,000 as of December 31, 1994 and December 30, 1995, respectively.
Amortization expense was approximately $1,900,000, $1,929,000 and $1,929,000 for
1993, 1994 and 1995, respectively.
Goodwill is being amortized on a straight-line basis, over the estimated
future periods to be benefited (principally 40 years). Accumulated amortization
of goodwill totaled $22,967,000 and $26,831,000 as of December 31, 1994 and
December 30, 1995, respectively. Amortization expense was approximately
$3,824,000 in the accompanying statements of operations for each of fiscal years
1993, 1994 and 1995.
At each balance sheet date, management assesses whether there has been a
permanent impairment in the value of patents or goodwill by comparing
anticipated undiscounted future cash flows from operating activities with the
carrying value of the intangibles. The factors considered by management in this
assessment include operating results, trends and prospects, as well as the
effects of obsolescence, demand, competition and other economic factors.
Revenue Recognition
The Company recognizes revenue at the time the product is shipped to the
customer.
ESOP Expense
In 1994, the Company prospectively adopted Statement of Position No. 93-6 of
the American Institute of Certified Public Accounts, "Employers' Accounting for
Employee Stock Ownership Plans," whereby ESOP expense is recognized as an amount
equal to the fair market value of the shares released. The unearned compensation
balance continues to be amortized using the shares allocated method (i.e., at
cost). The difference in these two amounts is recorded as a charge to additional
paid-in capital.
Product Development Costs
Costs associated with the development of new products and changes to
existing products are charged to expense as incurred. These costs amounted to
approximately $560,000, $1,100,000 and $1,245,000 in 1993, 1994 and 1995,
respectively, and are included in cost of products sold in the accompanying
statements of operations.
Advertising Costs
The Company records the cost of advertising as an expense when incurred.
Advertising expense was $41,620,000, $43,532,000 and $49,510,000 for 1993, 1994
and 1995, respectively, and is included as a component of selling, general and
administrative expenses in the accompanying statements of operations.
F-9
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES--(CONTINUED)
Concentration of Credit Risk
The Company manufactures and markets sleep products, including mattresses,
box springs, and flotation mattresses to retail establishments primarily in the
United States. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. Sales
to three of the Company's major customers aggregated approximately 17%, 23% and
23% of total sales for 1993, 1994 and 1995, respectively. Accounts receivable
from one customer was approximately 12% and 16% of total accounts receivable at
December 31, 1994 and December 30, 1995, respectively. However, sales to no one
customer represented more than 9% of net sales for 1993, 1994 or 1995.
Purchases of raw materials from one vendor represented approximately 19%,
19% and 20% of cost of products sold for 1993, 1994 and 1995, respectively.
The Company maintains cash balances in excess of FDIC insurance limits at
certain large financial institutions. The Company monitors the financial
condition of such institutions and considers the risk of loss to be remote.
Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of, which the Company is required to adopt in 1996. SFAS
No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill. The adoption of SFAS No.
121 is not expected to have a material impact on the Company's financial
position, annual operating results or cash flows.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which the Company is required to adopt effective in 1996. SFAS No.
123 establishes optional alternative accounting methods for stock-based
compensation as well as new required disclosures. The Company has elected to
account for stock-based compensation under previously existing accounting
guidance. As such, SFAS No. 123 will be adopted in 1996 for disclosure purposes
only and will not impact the Company's financial position, annual operating
results or cash flows.
3. EMPLOYEE STOCK OWNERSHIP PLAN
The Company is structured so that the employees of the Company will have a
beneficial ownership of the Company's common stock through their participation
in the ESOP. At December 31, 1994 and December 30, 1995, the ESOP owned
11,746,627 and 11,687,923 shares of the Company's common stock, respectively.
The funds used to purchase the common stock were borrowed by the ESOP pursuant
to various loan agreements with the Company.
The ESOP pledged all of its shares of the Company's common stock as
collateral for the loans. These shares are held by NationsBank Trust, the ESOP
trustee, in a suspense account and are released to the ESOP participants'
accounts based on debt service. As of December 31, 1994 and December 30, 1995,
5,163,682 and 6,088,982 shares, respectively, had been allocated to
participants' accounts. The remaining unallocated shares held in the ESOP had
estimated fair values of approximately $29,624,000 ($4.50 per share) and
$29,664,000 ($5.30 per share) at December 31, 1994 and December 30, 1995,
respectively.
Under the ESOP, employees are eligible to participate in the ESOP following
the date when the employee has completed at least one year of service and has
reached age 21. All employees of
F-10
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EMPLOYEE STOCK OWNERSHIP PLAN--(CONTINUED)
the Company, except employees who are covered by a negotiated collective
bargaining agreement (unless the collective bargaining agreement provides for
participation in the ESOP) or who are nonresident aliens, are covered by the
ESOP. Approximately 50% of the Company's full-time employees are participants in
the ESOP. The participants and beneficiaries of the ESOP are not subject to
income tax with respect to contributions made on their behalf until they receive
distributions from the ESOP.
Under the provisions of the ESOP, the Company is obligated to repurchase
participant shares which have been distributed under the terms of the plan, as
long as the shares are not publicly traded or if the shares are subject to
trading limitations. The Company repurchased approximately 42,938 and 58,700
shares from ESOP participants in 1994 and 1995, respectively, at prices ranging
from $2.75 to $3.30 in 1994 and $3.30 to $4.50 per share in 1995, respectively.
These shares have been reflected as treasury stock.
Because of the Company's obligation to repurchase its shares from the ESOP
under certain circumstances for their then current fair value, the Company has
classified the redemption value of such shares in the accompanying balance
sheets as Redeemable Common Stock Under ESOP. Additionally, pursuant to
generally accepted accounting principles, the Company has classified a
proportional amount of unearned compensation under ESOP in the same manner.
The Company also repurchased 1,608,019 shares at $3.30 to $4.50 per share
from non-ESOP stockholders during 1995, which is also reflected as treasury
stock.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1994 and
December 30, 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Accounts receivable............................................ $47,142 $56,593
Allowance for doubtful accounts................................ (2,267) (4,600)
Allowance for cash discounts and other......................... (2,014) (2,540)
------- -------
$42,861 $49,453
------- -------
------- -------
</TABLE>
5. INVENTORIES
Inventories consist of the following at December 31, 1994 and December 30,
1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw materials.................................................. $10,101 $11,807
Work-in-progress............................................... 1,920 1,942
Finished goods................................................. 3,739 4,544
------- -------
$15,760 $18,293
------- -------
------- -------
</TABLE>
F-11
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1994
and December 30, 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Land, buildings and improvements.............................. $ 9,178 $ 8,784
Machinery and equipment....................................... 27,636 32,966
Construction in progress...................................... 509 844
-------- -------
37,323 42,594
Less accumulated depreciation................................. (15,709) (19,184)
-------- -------
$ 21,614 $23,410
-------- -------
-------- -------
</TABLE>
7. OTHER ASSETS
Other assets consist of the following at December 31, 1994 and December 30,
1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Long-term note receivable......................................... $2,200 $2,200
Debt issue costs, net of accumulated amortization of $4,519 and
$5,613, respectively.............................................. 1,999 1,584
Other............................................................. 677 1,582
------ ------
$4,876 $5,366
------ ------
------ ------
</TABLE>
Debt issue costs are being amortized to interest expense using the
straight-line method (which approximates the effective interest method) over the
term of the respective debt. Amortization of $957,000, $835,000 and $679,000 for
1993, 1994 and 1995, respectively, is included as a component of interest
expense in the accompanying consolidated statements of operations.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1994 and December
30, 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Senior loans:
Tranche A term loan........................................ $ 46,013 $ 36,045
Tranche C term loan........................................ 17,700 17,700
Revolving loan............................................. 8,053 2,000
Adjustable rate senior subordinated notes.................... 2,354 2,618
Adjustable rate junior subordinated notes.................... 23,885 24,328
Janesville, Wisconsin, industrial revenue bonds, 7%, due
October 2017................................................. 9,700 9,700
Other........................................................ 735 468
-------- --------
108,440 92,859
Less current portion......................................... (11,486) (2,568)
-------- --------
$ 96,954 $ 90,291
-------- --------
-------- --------
</TABLE>
In connection with the Acquisition discussed in Note 15, the Company
refinanced the above term loans, the revolving loan, and the senior and junior
subordinated notes. As a result, the current and future maturities of long-term
debt have been adjusted to reflect the principal payment terms resulting from
such refinancing.
F-12
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
Interest on the Tranche A and C term loans was computed based on the
Company's selection from certain variable rates as defined in the loan
agreements. The interest rates at December 30, 1995 were 8.0% and 7.75% for the
Tranche A and C term loans, respectively.
In 1994, the Chemical Bank credit agreement was amended to allow amounts
previously held in a cash collateral account due to limitations in the ESOP
agreement to be used to prepay the Tranche A loan. This prepayment precluded the
holders of the Tranche A loan from excluding 50% of interest received from
taxable income, after such prepayment. The Company effectively pays a higher
interest rate on the related debt as a result of the disallowance.
The revolving loan agreement provides funding based on the amount of the
monthly available borrowing base, as defined in the loan agreement, up to a
maximum of $26,000,000. Interest is computed based on the Company's selection
from certain variable rates as defined in the loan agreement and at December 30,
1995 was 9.5%. The Company pays Chemical Bank a revolving credit commitment fee
of .5% per annum on the average daily unused credit facility. The available
unused portion of the revolving loan was approximately $17,743,000 at December
30, 1995. The revolving credit agreement expires in conjunction with the
maturity of the Tranche C term loan in 1997. At December 30, 1995, available
borrowings under the revolving credit agreement were reduced by standby letters
of credit in the amount of $6,257,000 related to insurance coverage, industrial
site evaluation, and the acquisition of real estate leases.
The adjustable rate senior subordinated notes pay a variable rate of
interest equal to the prime rate plus 2% and mature in January 1999. The
interest rate at December 30, 1995 was 10.5%. Interest may be paid in cash or
added to the outstanding loan principal balance.
The adjustable rate junior subordinated notes bear interest at 10% through
March 14, 1996, and 12% thereafter and mature on January 17, 2003. Interest may
be paid in cash or by issuing additional notes, thereby increasing the
outstanding loan principal balance. In connection with a 1991 exchange of notes,
these adjustable rate junior subordinated notes were recorded at the exchanged
notes' carrying value, since the total future cash payment requirements
(principal and interest) on these notes exceeded the carrying value of the
junior subordinated notes for which they were exchanged. For financial reporting
purposes, the effective interest rate has been adjusted to equate the present
value of the future cash payments specified by the terms of the new notes with
their carrying amount and was 3.96% at December 30, 1995.
All shares of common stock of the Company, accounts receivable, inventories
and property, plant and equipment have been pledged as collateral for the
various debt agreements.
Total interest expense was $8,155,000, $9,042,000 and $8,347,000, for 1993,
1994 and 1995, respectively.
The various loan agreements contain restrictions which require the Company
to comply with certain financial tests, including current ratio, consolidated
interest expense coverage ratio, consolidated net worth, leverage ratio, working
capital and capital expenditures. The Company was in compliance with all debt
covenants at December 30, 1995. In addition, the various loan agreements
restrict the Company from paying cash dividends and limit other payments, loans,
advances, additional debt, liens and material acquisitions.
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of similar terms and maturities.
At December 30, 1995, the Company's fair value of long-term debt approximates
the carrying value except for the junior subordinated notes, whose fair value
was determined to be approximately $17,571,000.
F-13
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
Future maturities of long-term debt as of December 30, 1995 are as follows
(in thousands):
1996.............................................................. $2,568
1997.............................................................. 5,200
1998.............................................................. 7,200
1999.............................................................. 9,200
2000.............................................................. 11,200
Thereafter........................................................ 57,491
--------
$92,859
--------
--------
9. LEASES
The Company has capitalized a leased facility. Annual lease payments
providing amounts sufficient to pay principal and interest are summarized as
follows (in thousands):
1996.............................................................. $163
1997.............................................................. 163
1998.............................................................. 163
1999.............................................................. 163
2000.............................................................. 163
Thereafter........................................................ 720
-------
1,535
Less Interest..................................................... 626
-------
Unpaid principal at December 30, 1995 (including $93
due within one year)............................................ $909
-------
-------
Amounts related to the capital lease are included in buildings and
improvements in the accompanying financial statements.
The Company also leases certain other facilities and equipment under
operating leases. Rent expense was $8,672,000, $10,143,000 and $10,626,000, for
1993, 1994 and 1995, respectively.
The following is a schedule of the future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 30, 1995 (in thousands):
1996.............................................................. $10,085
1997.............................................................. 8,901
1998.............................................................. 7,853
1999.............................................................. 7,204
2000.............................................................. 6,388
Thereafter........................................................ 30,852
--------
$71,283
--------
--------
F-14
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. REDEEMABLE PREFERRED STOCK
The Company has issued 5,000 shares of Series C Preferred Stock plus shares
subsequently issued for dividends. The Company is required to redeem the Series
C upon the occurrence of certain events but in no case later than January 17,
2003. Dividends on the Series C are accrued at the rate of 8% through March 14,
1994, 9% from March 15, 1994 through March 14, 1995, 10% from March 15, 1995
through March 14, 1996, and 12% thereafter. The Series C shares are exchangeable
into new adjustable rate junior subordinated notes after three years from date
of issuance at 97% of their liquidation preference and at 100% of their fair
value after six years from date of issuance. At December 30, 1995, the Series C
had an aggregate liquidation preference of approximately $720,000, including
accrued dividends.
The Series C shares have no voting rights, except that, upon certain
occurrences of default, the holders of Series C shares will have the right to
elect one director. The Series C shares contain covenants that restrict cash
dividends on common stock. Dividends in cash, however, may be paid on shares of
common stock held by the ESOP to the extent that the ESOP utilizes the dividends
to repay amounts borrowed from the Company or purchase shares from the
employees. The Series C shares are subordinated in liquidation and right of
payment to all indebtedness of the Company. At December 31, 1994 and December
30, 1995, the Company had 6,408 and 6,801 shares issued and outstanding,
respectively.
The Series C shares were called for redemption in connection with the
Acquisition as discussed in Note 15.
11. STOCK OPTION PLAN
The board of directors has established a performance stock option plan and a
separate executive stock option plan ("the Plans"). The option price per share
is equal to the estimated fair value on the date of the grant. The Company has
reserved shares in an amount sufficient for issuance upon exercise of the
options under the plans. Stock option transactions for both plans are as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Options outstanding at beginning of year... 1,470,000 1,426,000 2,170,000
Granted.................................... 60,000 840,000 1,042,000
Canceled................................... (104,000) (96,000) (160,000)
-------------------- -------------------- --------------------
Options outstanding at end of year......... 1,426,000 2,170,000 3,052,000
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
Option price range at end of year.......... $ 1.42 - 2.75 $ 1.42 - 3.30 $ 1.42 - 4.50
Options vested at end of year.............. 158,947 472,038 1,293,000
</TABLE>
F-15
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current tax provision:
Federal................................................ $ 47 $ 277 $5,398
State.................................................. 115 208 1,102
Foreign................................................ 59 264 --
------ ------ ------
221 749 6,500
------ ------ ------
Deferred tax provision:
Federal................................................ 658 2,166 903
State.................................................. 164 318 103
------ ------ ------
822 2,484 1,006
------ ------ ------
$1,043 $3,233 $7,506
------ ------ ------
------ ------ ------
</TABLE>
The reconciliation of the statutory federal income tax rate to the effective
income tax rate for the 1993, 1994 and 1995 provision for income taxes is as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Income taxes at statutory rate......................... $ (606) $ 3,727 $ 5,921
State income taxes, net of federal benefit............. 115 347 889
Goodwill amortization.................................. 1,491 1,491 1,491
Reduction of valuation allowance....................... -- (3,626) (1,914)
Other, net............................................. 43 1,294 1,119
------ ------- -------
$1,043 $ 3,233 $ 7,506
------ ------- -------
------ ------- -------
</TABLE>
Components of the net deferred income tax asset (liability) at December 31,
1994 and December 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Current deferred income taxes:
Accounts receivable and inventory reserves..................... $ 1,921 $2,587
Accrued liabilities not currently deductible................... 5,957 5,014
Net operating loss carryforwards............................... 3,106 --
Valuation allowance............................................ (957) --
Prepaids and other assets, net currently taxable............... (751) (36)
------- ------
9,276 7,565
------- ------
Noncurrent deferred income taxes:
Property basis differences..................................... (1,198) (1,356)
Patents basis differences...................................... (5,569) (4,871)
ESOP liability basis differences............................... (8,990) (7,181)
Net operating loss carryforwards............................... 2,645 1,688
Valuation allowance............................................ (2,645) (1,688)
Other noncurrent accrued liabilities, not currently
deductible................................................... 7,288 6,871
------- ------
(8,469) (6,537)
------- ------
Net deferred tax asset......................................... $ 807 $1,028
------- ------
------- ------
</TABLE>
At December 30, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $4,326,000, all of which are
limited to their utilization under the Internal Revenue Code. Due to such
limitations, the Company believes it is more likely than not that it will not
realize the benefit of the loss carryforwards and has provided a valuation
allowance of approximately $1,688,000 to fully reserve such amounts as of
December 30, 1995. These carryforwards expire through 2006.
F-16
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
Effective December 27, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
SFAS No. 109 requires a change in accounting for income taxes to an asset and
liability approach. SFAS No. 109 uses the method under which deferred tax assets
and liabilities are determined based on the difference between the financial
accounting and income tax bases of assets and liabilities. The cumulative effect
of this change in accounting on the Company's results of operations was $492,000
and is included in the 1993 statement of operations.
13. RETIREMENT PLANS
The Company has an ESOP (see Note 3) and a defined contribution plan (a
401(k) plan) and makes contributions to multiemployer pension plans.
The Company had accrued $2,448,000 and $2,753,000 at December 31, 1994 and
December 30, 1995, respectively, for a supplemental executive retirement plan
for a former executive. Such amounts are included in postretirement benefit
obligations other than pensions in the accompanying balance sheets.
The Company has a defined contribution pension plan (a 401(k) plan) for
substantially all employees other than employees subject to collective
bargaining agreements. Eligible participants may make limited contributions to
the defined contribution plan; however, no employer contributions are allowed.
Certain union employees participate in multiemployer pension plans sponsored
by their respective unions. Amounts charged to pension cost, representing the
Company's required contributions to these plans for 1993, 1994 and 1995, were
$1,304,000, $1,403,000 and $1,366,000, respectively.
The Company also has an unfunded nonqualified employee stock ownership plan
to provide benefits to certain employees who were not eligible to participate in
the ESOP. Benefits are to be paid in cash and are computed based on the value of
shares the participants would have received had they participated in the ESOP.
Participants are entitled to receive accrued benefits upon termination of
employment with the Company, retirement, death, or permanent disability.
Benefits vest based on the provisions of the ESOP. The Company charged
approximately $280,000, $582,000, and $405,000 to expense for 1993, 1994, 1995,
respectively. The accrued benefits under the nonqualified plan were $786,000 and
$1,132,000 at December 31, 1994 and December 30, 1995, respectively, and are
included in other long-term liabilities in the accompanying balance sheets.
The Company provides certain health care and life insurance benefits to
eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or nonunion employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20,000 lifetime maximum benefit for
participants age 65 and over. The Company also provides life insurance to all
retirees who retired before 1979. These plans are unfunded.
The Company accrues the cost of providing postretirement benefits, including
medical and life insurance coverage, during the active service period of the
employee.
F-17
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RETIREMENT PLANS--(CONTINUED)
The following table presents a reconciliation of the Plan's status at
December 31, 1994 and December 30, 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................ $3,769 $3,406
Fully eligible active plan participants......................... 689 890
Other active participants....................................... 1,377 1,259
------ ------
5,835 5,555
Unrecognized prior service cost................................... 333 303
Unrecognized net gain/(loss)...................................... (584) 88
------ ------
Accrued postretirement benefit obligation......................... $5,584 $5,946
------ ------
------ ------
</TABLE>
The components of the net periodic postretirement benefit cost for 1993,
1994 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost.................................................. $122 $137 $163
Interest cost on accumulated benefit obligation............... 408 412 387
Amortization of unrecognized prior service cost............... (30) (30) (30)
---- ---- ----
Net periodic postretirement benefit cost...................... $500 $519 $520
---- ---- ----
---- ---- ----
</TABLE>
Assumptions used in the computation of the accumulated postretirement
benefit obligation at December 31, 1994 and December 30, 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Discount rate...................................................... 7.5% 7.0%
Initial health care cost trend rate................................ 14.5% 11.5%
Ultimate health care cost trend rate............................... 6.5% 5.5%
Year ultimate health care cost trend rate reached.................. 2009 2007
</TABLE>
If the health care cost trend rate were increased by 1% for all future
years, the accumulated postretirement benefit obligation as of December 30, 1995
would have increased 7.5%. The effect of this change on the aggregate of service
and interest cost for 1995 would have been an increase of 11%.
14. RELATED-PARTY TRANSACTIONS
Certain holders of the senior and junior subordinated notes are related
parties. The amounts due to these individuals at December 31, 1994 and December
30, 1995 were $1,951,136 and $438,170, respectively.
15. SUBSEQUENT EVENTS
On March 22, 1996, Simmons Holdings, Inc. ("Holdings"), through its
subsidiary formed for this purpose, Simmons Acquisition Corp. ("SAC"), acquired
100% of the outstanding common stock of the Company (the "Acquisition").
Holdings was formed to consummate the Acquisition on behalf of affiliates of
INVESTCORP S.A. ("Investcorp"), management and certain other investors.
Immediately following the completion of the Acquisition, SAC merged into the
Company, as a result of which 100% of the Common Stock of the Company became
owned by Holdings.
The purchase price for the Acquisition was approximately $269.6 million
(including approximately $94.6 million in refinancing or assumption of existing
indebtedness, purchase of certain
F-18
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS--(CONTINUED)
stock options, and the payments of fees and expenses) which will be allocated to
the assets and liabilities of the Company based upon their estimated fair values
at the date of Acquisition, under the purchase method of accounting. The
financing for the Acquisition (including the refinancing of outstanding debt)
was provided by (i) borrowings under a new $115 million Senior Credit Facility,
which will refinance the Company's existing senior and subordinated loans, (ii)
the $100 million proceeds under a new Subordinated Loan Facility, and (iii) $85
million of capital provided by affiliates of Investcorp, management and certain
other investors from Holdings.
In connection with the Acquisition, the Simmons ESOP sold 6,001,257 shares
of the Company's common stock (representing all of the allocated shares) for
cash, and converted each of the remaining 5,670,406 shares of common stock of
the Company (unallocated shares) into one share of Series A Preferred Stock. The
Series A Preferred Stock is convertible into common stock of the Company on a
one-to-one basis and is entitled to an aggregate liquidation preference of $28.4
million ($5.00 per share). The ESOP also has the right, upon the occurrence of
certain events, to require the Company to purchase the stock owned by the ESOP
for $5.00 per share.
The Company intends to issue $100 million in Senior Subordinated Notes,
pursuant to an offering, during April, 1996 (the "Offering"). The proceeds of
the offering will be used to retire loans under the Subordinated Loan Facility
mentioned above.
The following unaudited pro forma condensed consolidated statement of
operations presents the results of operations for the year ended December 30,
1995 as though the Acquisition and the Offering had been completed on January 1,
1995, and assumes that there were no other changes in the operations of the
Company. The following unaudited pro forma condensed consolidated balance sheet
assumes the Acquisition and the Offering had been completed on December 30,
1995. Such pro forma information excludes non-recurring charges of $1.0 million
related to the write-up of inventory to its estimated fair value, $3.7 million
related to amounts payable to management, $350,000 for non-recurring fees and
tax benefits of $2.0 million related to these items. The pro forma results are
not necessarily indicative of the financial results that might have occurred had
the Acquisition and the Offering actually taken place on January 1, 1995, or of
future results of operations (in thousands):
<TABLE>
<S> <C>
Net sales....................................................................... $489,815
Cost of products sold........................................................... 292,750
Selling, general and administrative expenses.................................... 161,202
ESOP expense.................................................................... 4,625
Amortization of intangible assets............................................... 7,648
Interest expense, net........................................................... 19,068
Other deductions, net........................................................... 1,570
--------
Loss before taxes on income................................................... 2,952
Provision for income taxes...................................................... 2,316
--------
Net loss........................................................................ $ 636
--------
--------
</TABLE>
F-19
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS--(CONTINUED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Current Assets:
Cash and cash equivalents..................................................... $ 9,185
Accounts receivable, net...................................................... 49,453
Inventories................................................................... 19,293
Deferred income taxes......................................................... 7,165
Other current assets.......................................................... 6,372
--------
Total current assets...................................................... 91,468
Property, plant and equipment................................................... 26,410
Patents......................................................................... 17,000
Goodwill........................................................................ 192,603
Deferred income taxes........................................................... 8,843
Other assets.................................................................... 12,705
--------
Total assets.............................................................. $349,029
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current Liabilities:
Accounts Payable.............................................................. $ 22,712
Accrued liabilities........................................................... 33,155
Current maturities of long-term obligations................................... 4,761
--------
Total current liabilities................................................. 60,628
Long-term debt.................................................................. 188,244
Capital lease................................................................... 816
Postretirement benefit obligations other than pensions.......................... 7,999
Other........................................................................... 10,252
--------
Total liabilities......................................................... 267,939
Series A Preferred Stock--ESOP.................................................. 28,352
Unearned compensation--ESOP..................................................... (28,352)
Common stockholder's equity..................................................... 81,090
--------
Total liabilities and stockholder's equity................................ $349,029
--------
--------
</TABLE>
The allocation of the purchase price shown above is, in most instances,
based on preliminary information and is therefore subject to revision when
additional information concerning asset and liability valuations is obtained.
F-20
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 8,111
Accounts receivable, net...................................................... 53,581
Inventories................................................................... 17,574
Deferred income taxes......................................................... 7,165
Other current assets.......................................................... 5,574
--------
Total current assets...................................................... 92,005
Property, plant and equipment, net.............................................. 27,907
Patents......................................................................... 17,007
Goodwill........................................................................ 190,367
Deferred income taxes........................................................... 9,607
Other assets.................................................................... 12,813
--------
$349,706
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................................. $ 14,032
Accrued liabilities........................................................... 42,686
Current maturities of long-term obligations................................... 4,528
--------
Total current liabilities................................................. 61,246
Noncurrent liabilities:
Long-term obligations......................................................... 186,701
Post retirement benefit obligations other than pensions....................... 7,581
Other......................................................................... 12,539
--------
Total liabilities......................................................... 268,067
--------
Series A Preferred Stock--ESOP.................................................. 28,352
Unearned compensation--ESOP..................................................... (28,243)
Common stockholder's equity:
Common stock, $.01 par value; 50,000,000 shares authorized, 31,964,452 shares
issued...................................................................... 320
Additional paid-in capital.................................................... 84,680
Accumulated deficit........................................................... (3,468)
Foreign currency translation adjustment....................................... (2)
--------
Total common stockholder's equity......................................... 81,530
--------
$349,706
--------
--------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-21
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ----------
----------------------------- PERIOD
PERIOD FROM FROM
DECEMBER 31, MARCH 22,
1995 1996
QUARTER ENDED THROUGH THROUGH
APRIL 1, MARCH 21, MARCH 30,
1995 1996 1996
------------- ------------ ----------
<S> <C> <C> <C>
Net sales........................................... $ 108,653 $106,431 $ 12,886
Cost of products sold............................... 67,104 66,630 9,042
------------- ------------ ----------
Gross profit.................................... 41,549 39,801 3,844
Selling, general and administrative expenses........ 37,518 35,846 4,626
ESOP expense........................................ 1,133 1,203 109
Amortization of intangibles......................... 1,438 1,324 118
Interest expense, net............................... 1,929 1,489 461
Other deductions, net............................... 197 96 4,309
------------- ------------ ----------
Loss before income taxes........................ (666) (157) (5,779)
Provision for income tax benefit (expense).......... 296 (282) 2,311
------------- ------------ ----------
Net loss............................................ $ (370) $ (439) $ (3,468)
------------- ------------ ----------
------------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-22
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------- --------------
QUARTER PERIOD FROM PERIOD FROM
ENDED DECEMBER 31, 1995 MARCH 22, 1996
APRIL 1, THROUGH THROUGH
1995 MARCH 21, 1996 MARCH 30, 1996
-------- ----------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (370) $ (439) $ (3,468)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation.............................. 973 874 96
Non-cash interest expense................. 225 322 --
Amortization of deferred debt issuance
costs................................... 56 84 --
Amortization of intangibles............... 1,438 1,324 118
ESOP expense.............................. 1,133 1,203 109
Provision for bad debts................... 453 566 50
Provision for deferred income taxes....... (1,342) (164) --
Other, net................................ (15) 66 --
Net changes in operating assets and
liabilities:
Accounts receivable....................... (4,041) (1,732) (3,012)
Inventories............................... (2,028) 1,229 490
Other assets and liabilities.............. 1,046 (531) (2,916)
Accounts payable.......................... 8,379 (7,250) (1,430)
Accrued liabilities....................... 7,564 6,787 (224)
-------- ------- --------------
Net cash provided by (used in) operating
activities.............................. 13,471 2,339 (10,187)
-------- ------- --------------
Cash flows from investing activities:
Purchases of property, plant, and
equipment................................. (163) (1,567) --
Payment to the seller for the acquisition... -- -- (151,625)
Payments to option holders.................. -- -- (6,950)
Payments of acquisition costs............... -- -- (16,040)
-------- ------- --------------
Net cash (used in) investing activities... (163) (1,567) (174,615)
-------- ------- --------------
Cash flows from financing activities:
Proceeds from Predecessor revolving line of
credit and long-term borrowings........... 2,842 3,334 --
Predecessor principal payments on revolving
line of credit, long term debt and capital
lease obligations......................... (12,437) (3,490) --
Payments of Predecessor debt................ -- -- (55,495)
Proceeds of Successor debt.................. -- -- 160,000
Payments of financing costs................. -- -- (5,742)
Proceeds from issuance of Successor common
stock..................................... -- -- 85,000
Treasury stock purchases.................... (5,218) (660) --
-------- ------- --------------
Net cash provided by (used in) financing
activities.............................. (14,813) (816) 183,763
-------- ------- --------------
Net effect of exchange rate changes on cash... 6 9 --
-------- ------- --------------
Decrease in cash and cash equivalents......... (1,499) (35) (1,039)
Cash and cash equivalents, beginning of
period...................................... 8,477 9,185 9,150
-------- ------- --------------
Cash and cash equivalents, end of period...... $ 6,978 $ 9,150 $ 8,111
-------- ------- --------------
-------- ------- --------------
Supplemental cash flow information:
Cash paid for interest...................... $ 859 $ 803 $ 273
-------- ------- --------------
-------- ------- --------------
Cash paid for income taxes.................. $ -- $ 2,315 $ 93
-------- ------- --------------
-------- ------- --------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-23
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND PREPARATION OF INTERIM FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements of the Company have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (the "SEC"). In the opinion of the management of the
Company, these statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein. All
adjustments are of a normal recurring nature unless otherwise disclosed. Certain
information and footnote disclosures prepared in accordance with generally
accepted accounting principles have been either condensed or omitted pursuant to
SEC rules and regulations. However, management believes that the disclosures
made are adequate for a fair presentation of results of operations, financial
position and cash flows. These condensed consolidated financial statements
should be read in conjunction with the year-end consolidated financial
statements and accompanying notes included elsewhere herein. Operating results
for the periods in the quarter ended March 30, 1996 are not necessarily
indicative of future results that may be expected for the year ending December
28, 1996.
2. THE ACQUISITION
On March 22, 1996, Simmons Holdings, Inc. ("Holdings"), through its
subsidiary formed for this purpose, Simmons Acquisition Corp. ("SAC"), acquired
100% of the outstanding common stock of the Company. Holdings was formed to
consummate the Acquisition on behalf of affiliates of INVESTCORP S.A.
("Investcorp"), management and certain other investors. Immediately following
the completion of the Acquisition, SAC merged into the Company, as a result of
which 100% of the common stock of the Company became owned by Holdings. For
purposes of identification and description, Simmons Company is referred to as
the "Predecessor" for the period prior to the Acquisition, the "Successor" for
the period subsequent to the Acquisition, and the "Company" for both periods.
The purchase price for the Acquisition was approximately $269.6 million
(including approximately $94.6 million in refinancing or assumption of existing
indebtedness, purchase of certain stock options, and the payments of fees and
expenses) which were allocated to the assets and liabilities of the Company
based upon their estimated fair market value at the date of Acquisition, under
the purchase method of accounting. The allocation of the purchase price was, in
certain instances, based on preliminary information and is therefore subject to
revision when additional asset and liability valuations are obtained. In the
opinion of the Company's management, the asset and liability valuation for the
Acquisition will not be materially different than that initially recorded.
The financing for the Acquisition (including the refinancing of outstanding
debt) was provided for by (i) borrowings under a new $115.0 million Senior
Credit Facility, which refinanced the Company's existing senior and subordinated
loans, (ii) the $100.0 million proceeds under a new Subordinated Loan Facility,
and (iii) $85.0 million of capital provided by affiliates of Investcorp,
management and certain other investors from Holdings.
In connection with the Acquisition, the Simmons ESOP sold 6,001,257 shares
of the Company's common stock (representing all of the allocated shares) for
cash, and converted each of the remaining 5,670,406 shares of common stock of
the Company (unallocated shares) into one share of Series A Preferred Stock. The
Series A Preferred Stock is convertible into common stock of the Company on a
one-to-one basis and is entitled to an aggregate liquidation preference of $28.4
million ($5.00 per share). The ESOP also has the right, upon the occurrence of
certain events, to require the Company to purchase the stock owned by the ESOP
for $5.00 per share.
F-24
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. THE ACQUISITION--(CONTINUED)
On April 18, 1996, the Company issued $100.0 million in 10.75% Senior
Subordinated Notes, pursuant to an offering (the "Offering") (See Note 4). The
proceeds of the offering were used to retire loans under the Subordinated Loan
Facility mentioned above.
The following unaudited pro forma data present the results of operations for
the quarters ended April 1, 1995 and March 30, 1996, respectively, as though the
Acquisition and the Offering had been completed on January 1, 1995 and assume
that there were no other changes in the operations of the Company. Such pro
forma information excludes non-recurring charges of $1.0 million related to the
write-up of inventory to its estimated fair value, $3.7 million related to
amounts payable to management, $350,000 for non-recurring fees, and tax benefits
of $2.0 million related to these items. The pro forma results are not
necessarily indicative of the financial results that might have occurred had the
Acquisition and the Offering actually taken place on the above mentioned date,
or of the future results of operations (in thousands):
QUARTER ENDED
---------------------
APRIL 1, MARCH 30,
1995 1996
-------- ---------
Net sales........................................... $108,653 $ 119,317
Loss before income tax benefit...................... (4,157) (4,367)
Net loss............................................ (2,564) (3,079)
3. INVENTORIES
Inventories consist of the following at March 30, 1996 (in thousands):
Raw materials................................................... $ 11,185
Work-in-progress................................................ 2,130
Finished goods.................................................. 4,259
--------
$ 17,574
--------
--------
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at March 30, 1996 (in
thousands):
Senior loans:
Tranche A term loan........................................... $ 25,000
Tranche B term loan........................................... 35,000
Adjustable rate senior subordinated notes....................... 2,711
Adjustable rate junior subordinated notes....................... 17,697
Subordinated Loan Facility, 12.25%.............................. 100,000
Industrial Revenue Bonds, 7.00%, due 2017....................... 9,700
Other, including capital lease obligations...................... 1,121
--------
191,229
Less current portion............................................ (4,528)
--------
$186,701
--------
--------
F-25
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. LONG-TERM OBLIGATIONS--(CONTINUED)
In connection with the Acquisition, the Company entered into a new Senior
Credit Facility (the "Senior Credit Facility"). The Senior Credit Facility
provides for a $40.0 million revolving credit facility. The revolving credit
facility will expire on the earlier of (a) March 31, 2001 or (b) such other date
as the revolving credit commitments thereunder shall terminate in accordance
with the terms of the Senior Credit Facility. The Senior Credit Facility also
provides for a $75.0 million term loan facility, which is divided into two
tranches, the Tranche A and Tranche B term loans. The Tranche A term loans have
a final scheduled maturity date of March 31, 2001, and the Tranche B term loans
have a final scheduled maturity date of March 31, 2003.
The interest rate under the Senior Credit Facility is based, at the
Company's option, on an Alternate Base Rate or a Eurodollar Rate (both as
defined), plus margins as follows:
<TABLE>
<CAPTION>
REVOLVING TRANCHE A TRANCHE B
CREDIT LOAN TERM LOAN TERM LOAN
----------- --------- ---------
<S> <C> <C> <C>
Alternate base rate margin............... 1.25% 1.25% 1.75%
Eurodollar rate (LIBOR-based)............ 2.50% 2.50% 3.00%
</TABLE>
The interest rates in effect at March 30, 1996 for the revolving credit,
Tranche A term, and Tranche B term loans were 9.75%, 9.5% and 10.0%,
respectively.
At March 30, 1996 the amount under the revolving credit portion of the
Senior Credit Facility that was available to be drawn was approximately $33.8
million, after giving effect to no amounts of outstanding borrowings and $6.2
million that was reserved for the Company's reimbursement obligations with
respect to outstanding letters of credit. The remaining availability under the
revolving credit facility may be utilized to meet the Company's current working
capital requirements, including issuance of stand-by and trade letters of
credit. The Company also may utilize the remaining availability under the
revolving credit facility to fund acquisitions and capital expenditures.
The Senior Credit Facility contains certain covenants and restrictions on
actions by the Company and its subsidiaries. In addition, the Senior Credit
Facility requires that the Company comply with specified financial ratios and
tests, including minimum cash flow, a maximum ratio of indebtedness to cash flow
and a minimum interest coverage ratio.
On April 18, 1996, the Company completed a refinancing, which consisted of
(i) the sale of $100.0 million of 10.75% Senior Subordinated Notes due 2006 (the
"Notes") pursuant to a private offering, (ii) the application of approximately
$96.0 million (after deduction of discounts to the Initial Purchaser and other
expenses of the Offering), together with other available funds, to repay the
outstanding indebtedness under the Company's Subordinated Loan Facility.
The Notes mature on April 15, 2006 and bear interest at the rate of 10.75%
per annum from April 15, 1996 payable semiannually on April 15th and October
15th of each year, commencing October 15, 1996. The Notes may be redeemed at the
option of the Company on or after April 15, 2001, under the conditions and at
the redemption price as specified in the note indenture, dated as of April 18,
1996, under which the Notes were issued (the "Note Indenture"). The Notes are
subordinated to all existing and future Senior Indebtedness (as defined) of the
Company and will be effectively subordinated to all obligations of any
subsidiaries of the Company.
The Company plans to issue 10.75% Series A Senior Subordinated Notes due
2006 (the "New Notes") pursuant to an exchange offer whereby holders of the
Notes will have the opportunity to
F-26
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. LONG-TERM OBLIGATIONS--(CONTINUED)
receive New Notes which will be registered under the Securities Act of 1933, as
amended, but are otherwise identical to the Old Notes.
Future maturities of long-term obligations as of March 30, 1996 are as
follows (in thousands):
1996 (nine months).............................................. $ 2,334
1997............................................................ 5,200
1998............................................................ 7,200
1999............................................................ 9,200
2000............................................................ 11,200
Thereafter...................................................... 156,095
--------
$191,229
--------
--------
Subsequent to March 30, 1996 the Tranche A term loan was increased to $40.0
million and the proceeds, together with certain additional funds, were used to
retire the adjustable rate junior and senior subordinated notes. The above
future maturities, and the current maturities of long-term obligations in the
condensed consolidated balance sheet, have been adjusted to reflect these
transactions, as well as the terms of the Notes.
5. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Successor paid Investcorp and its
affiliates approximately $9.1 million in exchange for Investcorp's assistance in
arranging the Acquisition and the financing.
6. INCOME TAXES
As a result of the Acquisition and the resultant purchase price allocation,
the components of deferred income tax assets were adjusted to reflect the
differences in the amounts allocated to assets and liabilities and their tax
bases at the date of Acquisition. The components of the deferred income tax
assets at March 30, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
Current deferred income tax assets:
Accounts receivable and inventory reserves..................................... $ 2,187
Accrued liabilities not currently deductible................................... 4,978
-------
7,165
-------
Net noncurrent deferred income tax assets (liabilities):
Property basis differences..................................................... (2,556)
Patents basis differences...................................................... (6,636)
ESOP liability basis differences............................................... 13,059
Net operating loss carryforwards............................................... 1,688
Valuation allowance............................................................ (1,688)
Adjustable rate notes basis differences........................................ (2,931)
Other noncurrent accrued liabilities not currently deductible.................. 8,671
-------
9,607
-------
Total net deferred income tax assets........................................... $16,772
-------
-------
</TABLE>
F-27
<PAGE>
No person has been authorized to give any Prospectus
information or to make any representations
other than those contained in this Prospectus, $
and, if given or made, such information or
representations must not be relied upon as
having been authorized. This Prospectus does Simmons Company
not constitute an offer to sell or the
solicitation of an offerto buy any securities
other than the securities to which it relates 10 3/4% Series A Senior
or any offer to sell or the solicitation of an Subordinated Notes due 2006
offer to buy such securities in any
circumstances in which such offer or
solicitation is unlawful. Neither the delivery
of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any
implication that there has been no change in
the affairs of the Company since the date
hereof or that the information contained
herein is correct as of any time subsequent to
its date.
- -------------------------------------------
Table of Contents
Summary.............................. 3
Risk Factors......................... 10
The Acquisition...................... 14
The Simmons ESOP..................... 14
Use of Proceeds...................... 15
Capitalization....................... 16
Selected Historical and Pro Forma
Financial Data...................... 17
Pro Forma Condensed Consolidated
Financial Data (Unaudited)........... 20
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 24
The Exchange Offer................... 32
Business............................. 38
Management........................... 48
Ownership of Voting Securities....... 56
Certain Transactions................. 59
Capital Structure.................... 60
Description of Notes................. 64
Certain Federal Income Tax
Considerations....................... 91
Plan of Distribution................. 92
Legal Matters........................ 93
Experts.............................. 93
Index to Consolidated Financial
Statements........................... F-1
UNTIL , 1996 (90 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER
OR NOT PARTICIPATING IN THE ORIGINAL
DISTRIBUTION MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the offering of New Notes. All amounts are estimates except
the registration fees.
Registration fees............................................... $
Printing........................................................
Legal expenses..................................................
Trustee's fees..................................................
Accounting fees.................................................
Miscellaneous...................................................
Total....................................................... $
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a corporation to indemnify and advance reasonable expenses to any person who was
a party, is a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Company's Amended and Restated Articles of Incorporation and Bylaws each
include indemnification provisions that mirror the language of the statute. In
addition, the Company's Bylaws provide that, subject to any limitation in the
Company's Articles of Incorporation, the Company may indemnify a director or
officer to the fullest extent permitted by law, including, without limitation,
DGCL Sec.145. Consequently, a director or officer of the Company or a person
serving at the request of the Company in the above-named capacities will be
fully indemnified against such judgments, penalties, fines, settlements and
reasonable expenses actually incurred, except if: (1) the person did not conduct
himself in good faith and did not reasonably believe his conduct was in the
corporation's best interests; or (2) in the case of any criminal action or
proceeding, the person had reasonable cause to believe his conduct was unlawful.
No indemnification may be made in respect of any claim, issue or matter as to
which such person is adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
The Company's Amended and Restated Articles of Incorporation also contain a
provision eliminating liability to the Company or its shareholders for monetary
damages from breach of fiduciary duty as a director. The inclusion of these
indemnification provisions in the Company's Amended and Restated Articles of
Organization and Bylaws is intended to enable the Company to attract qualified
persons to serve as directors and officers who might otherwise be reluctant to
do so.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company's 10 3/4% Senior Subordinated Notes due 2006 (the "Old Notes")
were issued on April 18, 1996 for aggregate consideration of $100,000,000. Chase
Securities Inc. acted as the Initial Purchaser with respect to the offering. The
aggregate discount paid to the Initial Purchaser was $3,000,000. The Initial
Purchaser offered the Old Notes pursuant to Rule 144A promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The initial issuance
and sale of the Old Notes to the Initial Purchaser were made pursuant to the
exemption from registration set forth in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
(b) Financial Statement Schedules:
1. Financial Statement Schedules filed herewith:
None applicable
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 14 or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlanta, Georgia, on May , 1996.
SIMMONS COMPANY
By: /s/ Zenon S. Nie
..................................
Zenon S. Nie
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Simmons Company and each of
us, do hereby constitute and appoint Roger W. Franklin and John M. Kenney, or
any one of them, our true and lawful attorneys and agents, each with power of
substitution, to do any and all acts and things in our name and on our behalf in
our capacities as directors and officers and to execute any and all instruments
for us and in our names in the capacities indicated below, as said attorneys and
agents, or any one of them, may deem necessary or advisable to enable said
corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but
without limitation, the power and authority to sign for us or any of us our
names in the capacities indicated below, any and all amendments (including
post-effective amendments) hereto; and we do hereby ratify and confirm all that
the said attorneys and agents, or their substitute or substitutes, or any one of
them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May , 1996.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ ZENON S. NIE Chairman of the Board of Directors,
............................................. Chief Executive Officer and Director
Zenon S. Nie (Principal Executive Officer)
/s/ MARTIN R. PASSAGLIA Senior Executive Vice President and Director
.............................................
Martin R. Passaglia
/s/ JONATHAN C. DAIKER Executive Vice President--Finance and
............................................. Administration, Chief Financial Officer and
Jonathan C. Daiker Director (Principal Financial and
Accounting Officer)
/s/ SAVIO W. TUNG Director
.............................................
Savio W. Tung
/s/ CHRISTOPHER J. O'BRIEN Director
.............................................
Christopher J. O'Brien
/s/ CHARLES J. PHILIPPIN Director
.............................................
Charles J. Philippin
/s/ JON P. HEDLEY Director
.............................................
Jon P. Hedley
</TABLE>
II-3
<PAGE>
EXHIBITS TO REGISTRATION STATEMENT
----------------------------------
Exhibit Number Description of Exhibits
- ---------------- ------------------------------------------------------------
2 Agreement of Merger between Simmons Acquisition Corp. and the
Company, dated March 22, 1996
3(i)(a) Amended and Restated Certificate of Incorporation of the
Company
3(i)(b)* Certificate of Designation relating to the Preferred Stock of
the Company
3(ii) By-laws of the Company adopted by the Company
4.1 Indenture between the Company and SunTrust Bank, as Trustee,
dated as of April 18, 1996.
4.2 Exchange and Registration Rights Agreement between the Company
and Chase Securities Inc. dated April 18, 1996.
5* Opinion of Gibson, Dunn & Crutcher.
10.1 Stock Purchase Agreement between management stockholders,
Merrill Lynch Capital Appreciation Partnership No. B-XI,
L.P., MLCP Associates L.P. No. II, ML IBK Positions Inc.,
ML Offshore LBO Partnership No. B-XI, Merrill Lynch KECALP
L.P. 1987, Merrill Lynch KECALP L.P. 1989, Merchant Banking
L.P. No. IV and the Company, Simmons Holdings, Inc., Simmons
Acquisition Corp. and NationsBank N.A. (South), solely as
Trustee for the Simmons Employee Stock Ownership Trust
dated as of February 21, 1994.
10.2 Consolidated ESOP Loan Agreement between the Company and the
Employment Stock Ownership Trust dated March 22, 1996.
10.3 Consolidated Pledge Agreement between the Company and the
Employment Stock Ownership Trust dated March 22, 1996.
10.4 Amended Agreement of Trust between the Company and NationBank,
N.A. (South) dated as of March 22, 1996.
10.5 Second Amendment to the ESOP dated March 22, 1996.
10.6 1996 Stockholders' Agreement among the Company, the Simmons
Company Employee Stock Ownership Trust and Simmons Holdings,
Inc. dated as of March 22, 1996.
10.7 Purchase Agreement between the Company and Chase Securities
Inc. dated as of April 15, 1996.
10.8 Credit Agreement among the Company, Chemical Bank, as
Administrative Agent, and the lenders party thereto, dated as
of March 22, 1996.
- --------------------------------
* to be filed by amendment
<PAGE>
Exhibit Number Description of Exhibits
- ---------------- --------------------------------------------------------------
10.9* Security Agreement made by the Company in favor of Chemical
Bank, as Administrative Agent, dated as of March 22, 1996.
10.10 Services and Expenses Agreement between the Company and
Holdings, dated as of March 22, 1996.
10.11 Parent Option Agreement between the Company and Holdings,
dated as of March 22, 1996.
10.12* Agreement for Management Advisory and Consulting Services
between Investcorp International, Inc. and the Company,
dated as of March 22, 1996.
10.13* The Management Stock Incentive Plan of Simmons Holdings, Inc.
established as of March 22, 1996.
10.14 Form of Stock Purchase Agreement
10.15 Form of Stock Option Agreement
10.16 Form of Bonus Stock Purchase Agreement
10.17 Form of Anti-Dilution Stock Option Agreement
10.18 Form of Bonus Agreement
10.19 Form of Stock Acquisition Agreement
10.20* Labor Agreement between the Company and the Miscellaneous
Warehousemen, Drivers and Helpers Union, Local No. 986
affiliated with the International Brotherhood of Teamsters
covering warehouse employees, truck drivers and shipping and
receiving clerks for the period August 1, 1995 to August 1,
1998.
10.21* Labor Agreement between the Company and United Furniture
Workers of America , Local #262, A.F.L.-C.I.O. covering
production and maintenance employees working at the San
Leandro, California plant for the period August 1, 1995 to
August 1, 1998.
10.22* Labor Agreement between the Company and ILWU Local 142
covering all full-time production and maintenance employees
for the period from January 15, 1994 to January 15, 1999.
10.23* Labor Agreement between the Company and Buckeye Lodge Lodge
#55 of the International Association of Machinists and
Aerospace Workers, Columbus, Ohio covering maintenance
technicians for the period from December 31, 1995 to
December 31, 1997.
10.24* Labor Agreement between the Company and The International
Association of Machinists and Aerospace Workers, Local No.
315 of District No. 15, A.F.L.-C.I.O. covering all mechanics
at the Piscataway, New Jersey plant of the Company for the
period form December 10, 1995 to December 10, 1998.
10.25* Master Multi-Plan Working Ageement between the Company and The
United Steel Workers
- ------------------------------------
* to be filed by amendment 2
<PAGE>
Exhibit Number Description of Exhibits
- ---------------- --------------------------------------------------------------
of America, A.F.L., C.I.O., C.L.C.
(Upholstery Industries Division) through its Locals 63, 424,
422, 420, ,425, 173 and 515 covering various employees in
the Atlanta, Georgia; Columbus, Ohio; Dallas, Texas;
Piscataway, New Jersey; Jacksonville, Florida; Kansas City;
Missouri; and Los Angeles, California plants of the Company
for the period from October 15, 1994 to October 15, 1997.
10.26* Loan Finance and Advisory Services Agreement dated as of March
22, 1996 between Investcorp International Inc. and the
Company.
10.27* Mergers and Acquisitions Advisory Agreement dated as of
March 22, 1996 between Investcorp International Inc. and
the Company.
10.28* Lease between the Company, as tenant, and Leadership Group,
Inc. as landlord, dated November 4, 1987, for premises in
Grove City, Ohio.
(i) Amendment dated April 1, 1988.
10.29* Lease between the Company, as tenant, and Security Capital
Industrial Trust, as landlord, dated December 16, 1988, for
premises in Aurora, Colorado.
10.30 Lease between the Company, as tenant, and 365 South
Randolphville, L.P., as assignee of 287 Industrial park, as
landlord, dated September 16, 1988, for premises in
Piscataway, New Jersey.
10.31* Lease between the Company, as tenant, and The Prudential
Insurance Company of America, as landlord, dated June 19,
1973, for premises in Jacksonville, Florida.
10.32* Lease between the Company, as tenant, and Hunter Industrial
Venture, as landlord, dated September 22, 1986, for
premises in Kansas City, Missouri.
(i) Amendment dated July 31, 1989
(ii) Amendment dated February 27, 1990
(iii) Second Amendment to Lease
10.33* Lease between the Company, as tenant, and 20100 S. Alameda
Property Co. (assignee of Overton, Moore & Associates), as
landlord, dated March 12, 1974, for premises in Compton,
California.
(i) First Amendment dated October 2, 1974
(ii) Second Amendment dated as of September 17, 1984
(iii) Third Amendment dated as of September 18, 1984
(iv) Fourth Amendment dated as of June 28, 1993
10.34* Lease between the Company, as tenant, and Glenn Rudel (d/b/a
Rudel Development), as landlord, dated June 18, 1987, for
premises in Phoenix, Arizona.
(i) Addendum dated June 18, 1987
(ii) Second Addendum dated March 28, 1989
10.35 Lease between the Company, as tenant, and Bluefin Associates,
as landlord, dated December 4, 1987, for premises in Agawam,
Massachusetts.
(i) First Amendment dated October 5, 1993
10.36* Lease between the Company, as tenant, and Concourse I, Ltd.,
as landlord, dated August 1, 1992, for premises in Atlanta,
Georgia.
- ---------------------------------
* to be filed by amendment
3
<PAGE>
Exhibit Number Description of Exhibits
- ---------------- --------------------------------------------------------------
10.37 Lease between the Company, as tenant, and John W. Rooker, as
landlord, dated October 23, 1991, for premises in Mableton,
Georgia.
(i) First Amendment dated as of December 10, 1991
(ii) Second Amendment dated as of July 14, 1992
10.38 Lease between the Company, as tenant, and CK-Childress Klein
#8 Limited Partnership, as landlord, dated May 5, 1993, for
premises in Charlotte, North Carolina.
(i) First Amendment dated February 6, 1994
10.39* Lease between the Company, as tenant, and St. Paul Properties,
Inc., as landlord, dated February 5, 1993, for premises in
Carrollton, Texas.
10.40 Lease between the Company, as tenant, and Moon & Hart, as
landlord, dated November 30, 1992, for premises in Ewa Beach,
Hawaii.
10.41* Lease between the Company, as tenant, and 1700 Fairway Drive
Associates, as landlord, dated September 30, 1992, for
premises in San Leandro, California.
(i) Amendment to Lease dated July 1, 1993
10.42 Lease between the Company, as tenant, and Hill-Raaum
Investment Company, as landlord, dated December 19, 1991,
for premises in Bellevue, Washington.
10.43* Lease between Simmons Caribbean Bedding, Inc., as tenant, and
ALFA Casting Corporation, as landlord, dated May 25, 1989,
for premises in Toa Baja, Puerto Rico.
(i) Modification of Lease Agreement dated April 7, 1994
10.44 Lease between the Company, as tenant, and St. Paul Properties,
Inc., as landlord, dated October 19, 1994 for premises in
Gwinnett County, Georgia.
10.45* Lease between the Company, as tenant, and Liberty Property
Limited Partnership (assignee of Simmons Associates, L.P.),
as landlord, dated as of October 7, 1994 for premises in
Spotsylvania County, Virginia.
(i) First Amendment dated as of October 28, 1994
10.46* Lease between the Company and Eagle Warren Properties,
successors to B.F. Saul Real Estate Investment Trust, dated
July 15, 1977 for premises in Norcross, Georgia.
(i) Amendment
10.47* Loan Agreement, dated as of November 1, 1982, between the
City of Janesville, Wisconsin and the Company, as
successor by merger to Simmons Manufacturing Company, Inc.,
relating to $9,700,000 City of Janesville, Wisconsin
Industrial Development Revenue Bond (Simmons Manufacturing
Company, Inc. Project) Series 1982.
10.48* Down Products Trademark License Agreement, dated January
1, 1991 between Simmons, as Licensor, and Louisville
Bedding Co., as Licensee.
10.49* Down Products Trademark License Agreement, dated January 1,
1995 between Simmons, as
- ---------------------------------
* to be filed by amendment
4
<PAGE>
Exhibit Number Description of Exhibits
- ---------------- --------------------------------------------------------------
Licensor, and Louisville Bedding Co., as Licensee.
10.50* Amended and Restated Trademark License Agreement dated as of
April 14, 1986 (as restated November 28, 1990) between
Simmons, as Licensor, and Louisville Bedding Co., as
Licensee.
10.51* Trademark License Agreement, dated as of July 13, 1990 between
Simmons, as Licensor, and Simmons Upholstered Furniture Inc.,
as Licensee
10.52* Patent and Technology License Agreement, dated as of July 13,
1990 between Simmons Company as Licensor and Simmons
Upholstered Furniture Inc. as Licensee
- --------------------------------
* to be filed by amendment
5
<PAGE>
Exhibit Number Description of Exhibits
- ---------------- --------------------------------------------------------------
10.53* Agreement dated as of October 30, 1986 between Simmons, as
Licensor, and Simmons Universal Corporation, as Licensee.
10.54* Woolmark License Agreement, dated as of October 21, 1988
between the Wool Bureau Incorporated and Simmons.
10.55* License Agreement, dated as of June 29, 1990 between Simmons,
Simmons I.P. Inc., as Licensor, and Simmons Canada Inc., as
Licensee.
10.56* Industrial Property License Agreement, Areas 1-5, dated as of
April 9, 1987 as between Simmons, and INFO Establishment, as
Licensor and Christie-Tyler PLC, as Licensee.
10.57* Existing Territory License Agreement, dated as of June 30,
1987 between Simmons and SJL Investments Limited.
10.58* Trademark License Agreement, dated as of May 21, 1990 as
between Simmons, as Licensor, and Compania Simmons S.A. de
C.V. as Licensee.
10.59* Master Agreement, dated as of December 7, 1993 between Simmons
and N.V. B Linea.
10.60* Assignment, dated as of December 7, 1993 between Simmons and
N.V. B Linea.
10.61* Security Agreement, dated as of December 7, 1993 between
Simmons and N.V. B Linea.
10.62* Software License Agreement, undated, between Simmons and J.D.
Edwards & Company.
10.63* Employment Agreement between the Company and Zenon S. Nie
dated November 5, 1993.*
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
21* Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand LLP.
23.2 Consent of Arthur Andersen LLP.
23.3* Consent of Gibson, Dunn & Crutcher LLP
25* Statement of Eligibility of Trustee.
27 Financial Data Schedule
- ---------------------------------
* to be filed by amendment
6
EXHIBIT 2
AGREEMENT OF MERGER
Agreement of Merger (this "Agreement"), dated as of March 22,
1996, between Simmons Company, a Delaware corporation ("Simmons"), and Simmons
Acquisition Corp., a Delaware corporation ("SAC", together with Simmons, the
"Merging Companies").
WHEREAS, Simmons is a corporation organized and existing under
the laws of the State of Delaware and having an authorized capitalization of
50,000,000 shares of common stock, $.01 par value (the "Simmons Common Stock"),
of which 34,471,514 shares are issued and outstanding as of the date hereof, and
10,000,000 shares of preferred stock, $.01 par value, of which 50,000 shares
have been designated as Series C Cumulative Redeemable Exchangeable Preferred
Stock (the "Simmons Preferred Stock"), 6,801.53 of which are issued and
outstanding as of the execution of this Agreement;
WHEREAS, SAC is a corporation organized and existing under the
laws of the State of Delaware and having an authorized capitalization of 1,000
shares of common stock, $.01 par value (the "SAC Common Stock"), of which 1,000
shares are issued and outstanding as of the date hereof; and
WHEREAS, The Boards of Directors of each of Simmons and SAC deem
it desirable and in the best interests of each of Simmons and SAC that, upon the
terms and subject to the conditions herein stated, (a) SAC be merged (the
"Merger") with and into Simmons and that Simmons be the surviving corporation of
such Merger (the "Surviving Corporation"), (b) each share of SAC Common Stock
outstanding immediately prior to the Merger be converted into 31,964.452 shares
of the common stock, $.01 par value, of the Surviving Corporation (the
"Surviving Corporation Common Stock"), (c) each share of Simmons Common Stock
outstanding immediately prior to the Merger and held by SAC shall be canceled
and (d) each remaining share of Simmons Common Stock outstanding immediately
prior to the Merger shall be converted into the right to receive one share of
series A preferred stock, $.01 par value, of the Surviving Corporation (the
"Series A Preferred Stock").
<PAGE>
In consideration of the mutual promises and covenants, and
subject to the conditions set forth herein, the Merging Companies agree as
follows:
1. Merger. At the Effective Time of the Merger (as defined in
------
Section 2), SAC will merge with and into Simmons (the "Merger"), with Simmons
being the Surviving Corporation of such Merger, on the terms and conditions as
set forth herein and pursuant to the provisions of the Delaware General
Corporation Law (the "DGCL"). The Merger shall have the effects set forth in
Section 259 of the DGCL.
2. Effective Time of the Merger. This Agreement shall be
----------------------------
submitted to the stockholders entitled to vote thereon of each of Simmons and
SAC as provided by the DGCL. If this Agreement is duly adopted by the requisite
votes of such stockholders and is not terminated, as contemplated in Section 10,
a certificate or certificates of merger, executed in accordance with the DGCL
(the "Certificate of Merger"), shall be filed with the Secretary of State of the
State of Delaware by Simmons. The Merger shall become effective at the date and
time of the filing by Simmons of the Certificate of Merger with the Secretary of
State of the State of Delaware. This date and time are referred to as the
"Effective Time of the Merger".
3. Shares of SAC and Simmons. At the Effective Time of the
-------------------------
Merger:
(a) Shares of SAC. Each share of SAC Common Stock that is issued
-------------
and outstanding at the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
canceled and converted into the right to receive 31,964.452 shares of
Surviving Corporation Common Stock, such shares of Surviving Corporation
Common Stock to represent all of the issued and outstanding shares of
Surviving Corporation Common Stock at the Effective Time of the Merger.
(b) Shares of Simmons. Each share of Simmons Common Stock that is
-----------------
issued and outstanding and that is held by SAC at the Effective Time of
the Merger shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled. Each remaining share of Simmons
Common Stock (other than "Dissenting Shares" (as defined below) which
shall be governed by Section 3(c) below) that is issued and outstanding
at the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the
Page 2
<PAGE>
part of the holder thereof, be canceled and converted into the right to
receive one share of Series A Preferred Stock, such shares of Series A
Preferred Stock to represent all the issued and outstanding Series A
Preferred Stock of the Surviving Corporation. The Series A Preferred
Stock shall have the rights, preferences, privileges and restrictions
contained in the Amended and Restated Certificate of Incorporation of
the Surviving Corporation as attached hereto as Exhibit A (the "Amended
and Restated Certificate of Incorporation"). Each share of Simmons
Preferred Stock that is issued and outstanding at the Effective Time of
the Merger, if any, shall be unaffected by the Merger and remain
outstanding in accordance with and subject to its terms.
(c) Dissenting Shares. Shares of Simmons Common Stock as to which
-----------------
appraisal rights shall have been properly perfected and not abandoned
under Section 262 of the DGCL ("Dissenting Shares") shall, as of the
Effective Time of the Merger, have only such rights as are afforded to
the holder thereof by the provisions of the DGCL.
4. Surviving Corporation. The name of the Surviving Corporation
---------------------
shall be Simmons Company. The purposes of the Surviving Corporation and the
county where the registered office for the Surviving Corporation shall be
located shall be as they appear in the Amended and Restated Certificate of
Incorporation.
5. Authorized Capital. The authorized capital stock of the
------------------
Surviving Corporation following the Effective Date shall be 50,000,000 shares of
Surviving Corporation Common Stock and 6,000,000 shares of preferred stock, $.01
par value, of which 5,950,000 shares shall be designated as Series A Preferred
Stock and 50,000 shares shall be designated as Series C Cumulative Redeemable
Exchangeable
Page 3
<PAGE>
Preferred Stock, unless and until the same shall be changed in
accordance with the DGCL.
6. Amended and Restated Certificate of Incorporation of the
--------------------------------------------------------
Surviving Corporation. The Amended and Restated Certificate of Incorporation, as
- ---------------------
attached hereto as Exhibit A, shall be the certificate of incorporation of the
Surviving Corporation, until the same shall be altered or amended pursuant to
the DGCL.
7. Bylaws. The Amended and Restated Bylaws, as attached
------
hereto as Exhibit B, shall be the bylaws of the Surviving Corporation, until
the same shall be altered, amended, or repealed, or until new bylaws are
adopted, as provided therein.
8. Board of Directors. The names and addresses of the
------------------
persons who shall constitute the board of directors of the Surviving
Corporation, and who shall hold office until the first annual meeting of the
shareholders of the Surviving Corporation, are as follows:
Name Address
---- -------
Savio W. Tung 280 Park Ave, 37th Floor
New York, NY 10017
Christopher J. O'Brien 280 Park Ave, 37th Floor
New York, NY 10017
Charles J. Philippin 280 Park Ave, 37th Floor
New York, NY 10017
John M. Kenney 280 Park Ave, 37th Floor
New York, NY 10017
9. Retirement of Stock. At and after the Effective Time of the
-------------------
Merger, all holders of SAC Common Stock or Simmons Common Stock shall surrender
to the Surviving Corporation for cancellation all their certificates
representing shares of such stock by delivering the same to the Surviving
Corporation's appointed agent, Sean P. Griffiths, Gibson, Dunn & Crutcher, 200
Park Avenue, New York, NY 10166-0193. Notwithstanding any failure to deliver any
such certificate in accordance with this Section
Page 4
<PAGE>
9, all certificates representing shares of SAC Common Stock, SAC Preferred
Stock and Simmons Common Stock shall be deemed canceled as of the Effective
Time of the Merger and shall thereafter no longer be of any force or effect.
10. Abandonment by Board of Directors. The directors of the
---------------------------------
Merging Companies may, in their discretion, abandon this Merger, subject to the
rights of third parties under any contracts relating to this Merger, without
further action or approval by the shareholders of the Merging Companies, at any
time before the Merger has been completed.
11. Counterparts. This Agreement may be executed in any
------------
number of counterparts, and all such counterparts and copies shall be and
constitute one original instrument.
[The remainder of this page has been intentionally left blank.]
Page 5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by the undersigned on the date first written above.
SIMMONS COMPANY
By: /s/ Zenon S. Nie
-----------------------
Name: Zenon S. Nie
Title: Chief Executive Officer
SIMMONS ACQUISITION CORP.
By: /s/ John M. Kenney
-----------------------
Name: John M. Kenney
Title: Vice President
Page 6
EXHIBIT 3(i)(a)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SIMMONS COMPANY
The undersigned, for the purpose of amending and restating the
Certificate of Incorporation of SIMMONS COMPANY, a Delaware corporation (the
"Corporation"), does hereby certify that:
(1) The name of the Corporation is "Simmons Company."
(2) The date of filing of the Corporation's original Certificate
of Incorporation with the Secretary of State of Delaware was July 30, 1979,
under the name "Simmons U.S.A. Corporation."
(3) The Certificate of Incorporation of Simmons Company is
hereby amended and restated in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation (hereinafter called the
"Corporation") is "Simmons Company".
ARTICLE II
DURATION
The period of duration of the Corporation is perpetual.
ARTICLE III
PURPOSE
The purpose for which the Corporation is organized is the
transaction of any and all lawful business for which corporations may be
incorporated under the Delaware General Corporation Law.
ARTICLE IV
CAPITALIZATION
The total number of shares of stock which the Corporation shall
have authority to issue is 56,000,000
<PAGE>
shares. 50,000,000 of said shares shall be designated as shares of Common Stock,
all of which shall be of the same series with $.01 par value per share.
6,000,000 of said shares shall be designated as Preferred Stock, which shall be
of such series as designated below:
1. Series A Preferred. A series of Preferred Stock shall be
------------------
designated consisting of 5,950,000 shares of Preferred Stock, such series
entitled "Series A Preferred Stock", with $.01 par value per share. The Series A
Preferred Stock will have such rights, preferences, privileges and restrictions
thereof as follows:
(a) Dividends.
---------
(1) Dividends shall be paid on shares of Series A Preferred Stock
in such amount and at such time as shall be determined from time to time
by the Board of Directors and as shall be expressed by resolution duly
authorized.
(2) Each dividend shall be paid to the holders of record of
shares of Series A Preferred Stock as they appear on the books of the
Corporation on the record date, not exceeding 30 days prior to the
Dividend Payment Date thereof, as shall be fixed by the Board of
Directors of the Corporation.
(3) Dividends or distributions may be declared and paid upon
shares of Common Stock only if equal per-share dividends on an as
converted basis shall have been declared and paid on all shares of
Series A Preferred Stock. Dividends, if paid or if declared and set
apart for payment on the Common Stock, must be paid or declared and set
apart for payment on the Series A Preferred Stock contemporaneously.
(b) Redemption at the Option of the Holder.
--------------------------------------
(1) At least 30 Business Days (as defined below) prior to (i) the
consummation of a transaction which would result in a Sale of Simmons
Holdings (as defined below), (ii) the date that a registration statement
is declared effective for a Corporation IPO or (iii) the date that a
registration statement is declared effective
2
<PAGE>
for a Simmons Holdings IPO (as defined below)(any of the events set
forth in clauses (i) through (iii) hereinafter referred to as a
"Redemption Event"), the Corporation shall provide written notice (the
"Redemption Event Notice") of the Redemption Event to each holder of
record of the Series A Preferred Stock. The Redemption Notice shall set
forth the material terms of the Redemption Event, including in the event
of a (A) Sale of Simmons Holdings, the purchase price (less estimated
fees and expenses to be bourne by stockholders of Simmons Holdings) of a
share of Class C Stock of Simmons Holdings in connection with such Sale
of Simmons Holdings or (B) Corporation IPO or Simmons Holdings IPO, the
estimated range of the initial per share price to the public and
underwriting discounts and commissions of such IPO.
Each holder of record of Series A Preferred Stock shall have the
right, exercisable by delivery of a written notice (the "Redemption
Notice") to the Corporation on or before the expiration of ten Business
Days after the date of the Redemption Event Notice, to require the
Corporation to redeem all or part of the Series A Preferred Stock held
by it by delivery of written notice requesting such redemption and
specifying the number of shares of Series A Preferred Stock desired to
be so redeemed.
For purposes of this Amended and Restated Certificate of
Incorporation, (i) a "Sale of Simmons Holdings" shall mean the sale of
Simmons Holdings, Inc., a Delaware corporation ("Simmons Holdings"),
whether such sale occurs pursuant to (A) the sale of fifty percent (50%)
or more of the outstanding shares of Simmons Holdings' voting capital
stock, (B) a sale of all or substantially all of the assets of Simmons
Holdings or (C) a merger, consolidation or recapitalization of Simmons
Holdings as a result of which the ownership of Simmons Holdings' voting
capital stock (or the capital voting stock of the surviving corporation,
if Simmons Holdings is not the survivor) is changed to the extent of
more than fifty percent (50%), (ii) "Corporation IPO" shall mean the
consummation of an underwritten initial public offering of Common Stock
of the Corporation pursuant to a registration statement that was
declared
3
<PAGE>
effective under the Securities Act of 1933, as amended (the
"Securities Act"), (iii) "Simmons Holdings IPO" shall mean the
consummation of an underwritten initial public offering of common stock,
$.01 par value, of Simmons Holdings pursuant to a registration statement
that was declared effective under the Securities Act and (iv) "Business
Day" shall mean any day other than a Saturday, Sunday, federal holiday
or other day on which commercial banks in New York City are authorized
or required to close under the laws of the State of New York.
(2) In addition to the redemption right set forth in Section
1(b)(1) of this Article IV, a holder of record of Series A Preferred
Stock who receives written notice pursuant to Section 2.1 of the 1996
Stockholders' Agreement (as amended from time to time, the "1996
Stockholders' Agreement"), dated March 22, 1996, among the Corporation,
Simmons Holdings, NationsBank, N.A. (South), solely as trustee of the
Simmons Company Employee Stock Ownership Trust (the "Trust"), shall have
the right (a "Covered Sale Redemption Right"), exercisable by delivery
of a written notice (the "Covered Sale Redemption Notice") to the
Corporation within five Business Days of such Section 2.1 written
notice, to require the Corporation to redeem up to that number of such
holder's shares of Series A Preferred Stock equal to the number of
shares of Series A Preferred Stock convertible into the number of shares
of Common Stock such holder would have been entitled to sell pursuant to
the terms and conditions of Section 2.1 of the 1996 Stockholders
Agreement. The Covered Sale Redemption Notice shall specify the number
of shares of Series A Preferred Stock desired to be so redeemed,
assuming the conversion of such holder's Series A Preferred Stock.
(3) The shares of the Series A Preferred Stock specified in a
timely delivered Redemption Notice or Covered Sale Redemption Notice
shall hereinafter be defined as "Redemption Shares". The Corporation
shall redeem all Redemption Shares at a redemption price equal to 100%
of the Liquidation Value (as hereinafter defined) of such shares (the
"Redemption Price").
4
<PAGE>
(4) Redemption by the Corporation of the Redemption Shares shall
take place at the principal office of the Corporation (i) in the case of
Redemption Shares specified in a Redemption Event Notice, immediately
prior to or contemporaneously with the consummation of the transaction
giving rise to the Redemption Event and (ii) in the case of Redemption
Shares specified in a Covered Sale Redemption Notice, on the date
specified in the written notice received by the holder of such
Redemption Shares triggering the Covered Sale Redemption Right, provided
that on or prior to such date the transaction giving rise to such notice
is consummated (the times and dates referred to in clauses (i) and (ii)
hereinafter defined as the "Redemption Date"). On the Redemption Date,
each holder of Redemption Shares to be redeemed shall surrender the
certificate or certificates representing such shares to the Corporation,
and thereupon the Redemption Price for such shares shall be payable to
the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate
shall be canceled and retired. In the event less than all of the shares
represented by such certificate are redeemed, a new certificate
representing the unredeemed shares shall be issued to the holder of such
shares.
(5) Notwithstanding anything to the contrary contained in this
Section 1(b) of this Article IV, the Corporation shall not be obligated
to redeem any Redemption Shares to the extent that the redemption
thereof would violate any law, statute, order, writ, injunction, decree,
judgment, rule, regulation, policy, or guideline promulgated, or
judgment entered, by any federal, state, local or foreign court or
governmental authority applicable to the Corporation or any of its
subsidiaries.
(6) From and after the Redemption Date, unless there shall have
been a failure by the Company to pay the Redemption Price (including by
virtue of Section 1(b)(5) of this Article IV), all rights of the holders
of such shares as holders of Series A Preferred Stock (except the right
to receive the applicable Redemption Price without interest upon
surrender of their certificate or
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<PAGE>
certificates) shall cease with respect to such shares, and such shares
shall not thereafter be transferred on the books of the Corporation or
be deemed to be outstanding for any purpose whatsoever. If the funds of
the Corporation legally available for the redemption of Redemption
Shares on any Redemption Date are insufficient to redeem the total
number Redemption Shares to be redeemed, the funds which are legally
available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. The
Redemption Shares not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. At any time thereafter
when additional funds of the Corporation are legally available for the
redemption of such Redemption Shares, such funds will immediately be
used to redeem the balance of the Redemption Shares, provided such
shares have not been converted into Common Stock, which the Corporation
has become obligated to redeem on any Redemption Date but which it has
not redeemed.
(c) Conversion.
----------
(1) Each share of the Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
date of the issuance of such share, at the office of the Corporation or
any transfer agent for the Series A Preferred Stock or the Common Stock,
into that number of the fully paid and nonassessable shares of Common
Stock determined in accordance with the provisions of Section 1(c)(4) of
this Article IV. In order to convert shares of Series A Preferred Stock
into shares of Common Stock, the holder thereof shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or to the transfer agent for the Series A Preferred
Stock or the Common Stock, together with written notice to the
Corporation stating that it elects to convert the same and setting forth
the name or names it wishes the certificate or certificates for Common
Stock to be issued, and the number of shares of Series A Preferred Stock
being converted.
6
<PAGE>
(2) If a holder of record of Series A Preferred Stock becomes
entitled under Section 1(b) of this Article IV to redeem any shares of
Series A Preferred Stock and such holder fails to, or does not properly,
exercise its redemption rights with respect to such shares (it being
understood that the failure of the Corporation to have legally available
funds to pay the Redemption Price shall not be deemed to be a failure of
a holder to exercise or to properly exercise its redemption rights),
such shares (and only such shares) shall be automatically converted into
that number of fully paid and nonassessable shares of Common Stock
determined in accordance with the provisions of Section 1(c)(4) of this
Article IV. Such automatic conversion shall take place on the Redemption
Date for such shares irrespective of the receipt by the Corporation of
any Redemption Notice.
(3) The Corporation shall, as soon as practicable after the
surrender of the certificate or certificates evidencing the surrender of
the shares of Series A Preferred Stock for conversion at the office of
the Corporation or the transfer agent for the Series A Preferred Stock
or the Common Stock, issue to each holder of such shares, or its nominee
or nominees, a certificate or certificates evidencing the number of
shares of Common Stock (and any other securities and property) to which
it shall be entitled and, in the event that only a part of the shares
evidenced by such certificate or certificates are converted, a
certificate evidencing the number of shares of Series A Preferred Stock
which are not converted. In the case of any voluntary conversion, such
conversion shall be deemed to have been made on the date of such
surrender of the shares of Series A Preferred Stock to be converted not
later than immediately prior to the close of business on such date. In
the case of any automatic conversion, such conversion shall be deemed to
have been made on the Redemption Date. The person or persons entitled to
receive the shares of Common Stock issuable upon any conversion shall be
treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares,
have only those rights of a holder of Common Stock of the Corporation.
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<PAGE>
(4) The Series A Preferred Stock shall be convertible into the
number of shares of Common Stock which results from multiplying the
number of shares of Series A Preferred Stock being converted by the
Conversion Factor (as defined below) in effect at the time of
conversion.
(5) The conversion factor per share for the Series A Preferred
Stock shall initially be one (the "Conversion Factor") and shall be
subject to adjustment from time to time as provided herein.
(6) If the outstanding shares of the Common Stock of the
Corporation shall be subdivided into a greater number of shares, or a
dividend in Common Stock or other securities of the Corporation
convertible into or exchangeable for Common Stock (in which latter event
the number of shares of Common Stock issuable upon the conversion or
exchange of such securities shall be deemed to have been distributed),
shall be paid in respect to the Common Stock of the Corporation, the
Conversion Factor in effect immediately prior to such subdivision or at
the record date of such dividend shall, simultaneously with the
effectiveness of such subdivision or immediately after the record date
of such dividend, be proportionately increased, and conversely, if
outstanding shares of the Common Stock of the Corporation shall be
combined into a smaller number of shares, the Conversion Factor in
effect immediately prior to such combination shall simultaneously with
the effectiveness of such combination, be proportionately decreased.
Any adjustment to the Conversion Factor under this Section
1(c)(6) of this Article IV shall become effective at the close of
business on the date the subdivision or combination referred to herein
becomes effective.
(7) In the event the Corporation at any time, or from time to
time, shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation other than shares
of Common Stock or securities convertible into or exchangeable for
Common Stock then and in each such
8
<PAGE>
event, the Company shall give notice to each holder of the Series A
Preferred Stock then outstanding of such event at least ten Business
Days prior to such event.
(8) In each case of an adjustment or readjustment of the
Conversion Factor, the Corporation, at its expense, shall cause the
chief financial officer of the Corporation to compute such adjustment or
readjustment in accordance with the provisions contained herein and
prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first-class mail, postage prepaid, to each
registered holder of the Series A Preferred Stock at the holder's
address shown on the Corporation's stock transfer books. The certificate
shall set forth such adjustment or readjustment, showing in detail the
facts upon which such adjustment or readjustment is based, including a
statement of the number of additional shares of Common Stock and the
type and amount, if any, of the other property which at the time would
be received upon conversion of the Series A Preferred Stock.
(9) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of Series A
Preferred Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect a conversion of all outstanding
shares of the Series A Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(10) The Corporation shall pay all taxes and other governmental
charges (other than any income or other taxes imposed upon the profits
realized by the recipient) that may be imposed in respect of the issue
or delivery of shares of Common Stock or other securities or property
upon conversion of shares of Series A Preferred Stock,
9
<PAGE>
including without limitation, any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of
shares of Common Stock or other securities in a name other than that of
which the shares of Series A Preferred Stock so converted were
registered.
(11) In the event any shares of Series A Preferred Stock shall be
converted pursuant to Section 1(c) of this Article IV, the shares so
converted shall be canceled and shall not be issuable by the
Corporation.
(d) Voting. Each share of Series A Preferred Stock shall be
------
entitled to vote, either in person or by proxy, at any meeting of the
stockholders, or to consent in writing to any action of the stockholders
without a meeting, pursuant to Section 228 of the Delaware General
Corporation Law, and each share of Series A Preferred Stock shall be
entitled to a number of votes equal to the number of votes carried by
the number of full shares of Common Stock which would be issuable were
such share of Series A Preferred Stock converted to Common Stock,
pursuant to Section 1(c) of this Article IV, on the record date fixing
the stockholders entitled to vote at such meeting or, in the case of an
action by written consent, as of the effective date of such written
consent.
(e) Liquidation.
-----------
(1) In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, after
payment or provision for payment of the debts and other liabilities of
the Corporation, the holders of each share of Series A Preferred Stock
shall be entitled to receive out of the assets of the Corporation,
whether such assets are capital, surplus or earnings, an amount equal to
the Liquidation Value of such share before any payment shall be made or
assets distributed on the Common Stock or any other class or series of
capital stock of the Corporation other than Series C Preferred Stock (as
hereinafter defined) which shall be on a parity with the Series A
Preferred Stock for purposes of payments or distributions made pursuant
to a liquidation or winding up of the Company.
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<PAGE>
(2) If upon any dissolution, liquidation or winding up of the
affairs of the Corporation, the assets of the Corporation distributable
as aforesaid among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to them of the full preferential
amounts to which they are entitled, then the entire assets of the
Corporation so to be distributed shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the sum of
their respective per share liquidation values, until payment in full of
such amount per share.
(3) The Liquidation Value per share of Series A Preferred Stock
shall be $5.00.
(4) For purposes of this Section 1(e) of this Article IV, a
dissolution, liquidation or winding up of the affairs of the Corporation
shall not be deemed to be occasioned by or to include the consolidation
or merger of the Corporation with or into another person, or the sale or
other disposition of all or substantially all of the assets of the
Corporation.
2. Series C Preferred Stock. A series of Preferred Stock shall be
------------------------
designated consisting of 50,000 shares of Preferred Stock, such series entitled
"Series C Cumulative Redeemable Exchangeable Preferred Stock" (hereinafter
referred to as the "Series C Preferred Stock"), with $.01 par value per share.
The Series C Preferred Stock will have such rights, preferences, privileges and
restrictions thereof as follows:
(a) Dividends.
---------
(1) Subject to Section 2(a)(7) of this Article IV, with respect
to each dividend period the Board of Directors shall declare, the
Corporation shall pay and the holders of the shares of Series C
Preferred shall be entitled to receive, if funds are legally available
therefor, cumulative dividends on the shares of the Series C Preferred
Stock, at a rate per annum of the Applicable Rate (as defined below) of
the liquidation preference thereof. The term Applicable Rate shall mean,
for each 12-month period following the initial date of
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<PAGE>
issuance of the Series C Preferred Stock (the "Series C Initial Issuance
Date"), the rate per annum set forth below:
12-Month Period Following Rate per
Series C Initial Issuance Date Annum
- ------------------------------ -----
First 8%
Second 8%
Third 8%
Fourth 9%
Fifth 10%
Sixth and thereafter 12%
(2) All dividends described in this Section 2(a) of this Article
IV shall be payable on June 1 of each year, which date shall be the
first day of the next succeeding dividend period (an "Annual Dividend
Period"), and on the date of any redemption of the Series C Preferred
Stock, or if any such date is not a Business Day (as hereinafter
defined), on the next succeeding Business Day (each of such dates being
a "Series C Dividend Payment Date"), commencing June 1, 1992 in
preference to and in priority over dividends on the Junior Securities,
except as provided in Section 2(a)(10) of this Article IV.
(3) All dividends on the Series C Preferred Stock shall be paid
to the holders of record at the close of business on the date specified
by the Board of Directors of the Corporation at the time such dividend
is declared; provided, however, that such date shall not be more than 60
days nor less than 10 days prior to the respective Series C Dividend
Payment Date. Each of such annual dividends shall be fully cumulative
and shall accrue (whether or not earned or declared), without interest,
from the first day of the Annual Dividend Period, except that with
respect to the Annual Dividend Period ending on June 1, 1992, such
dividend shall accrue from the Series C Initial Issuance Date. The
amount of dividends payable hereunder shall be determined on the basis
of twelve 30-day months and a 360-day year. Cumulative dividends with
respect to Series C Preferred Stock which are in arrears may be declared
and paid at any time without reference to any regular Series C Dividend
Payment Date.
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<PAGE>
(4) All shares of Series C Preferred Stock redeemed or purchased
by the Corporation shall be retired and cancelled and shall be restored
to the status of authorized but unissued shares of preferred stock,
without designation as to series, and may thereafter be issued, but not
as shares of Series C Preferred Stock. After the Series C Initial
Issuance Date (as defined below), the Corporation shall not issue any
shares of Series C Preferred Stock other than shares which comprise
Additional Shares of Series C Preferred Stock (as defined below).
(5) The Series C Preferred Stock shall, with respect to dividend
rights and rights of liquidation, winding up and dissolution, rank (i)
junior to any other series of preferred stock established by the Board
of Directors of the Corporation, the terms of which shall specifically
provide that such series shall rank prior to the Series C Preferred
Stock, (ii) on a parity with any other series of preferred stock
established by the Board of Directors, the terms of which shall
specifically provide that such series shall rank on a parity with the
Series C Preferred Stock, and (iii) prior to any other equity securities
of the Corporation, including, without limitation, the Common Stock; all
of such equity securities of the Corporation to which the Series C
Preferred Stock ranks prior, including without limitation the Common
Stock, are collectively referred to herein as the "Junior Securities").
(6) Any dividend on the Series C Preferred Stock accrued and
payable on any Series C Dividend Payment Date shall be paid either, as
so elected by the Board of Directors of the Corporation, (x) in cash,
except as provided in the following sentence, or (y) by issuing a number
of additional shares of the Series C Preferred Stock (the "Additional
Shares of Series C Preferred Stock") for each such share (or partial
share) of Series C Preferred Stock then outstanding equal to the
dividend then payable on each such share (or partial share) of Series C
Preferred Stock for the Annual Dividend Period then ended (expressed as
a dollar amount) divided by the liquidation value of one share of Series
C Preferred Stock (expressed as a dollar amount); provided, however,
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<PAGE>
that on each Series C Dividend Payment Date which occurs on or after
June 1, 1995, except as provided in the following sentence, at least
33.33% of such dividend amount shall be paid in cash. If, at any time
after the Series C Initial Issuance Date, the Corporation is not
required to pay cash dividends pursuant to Section 2(a)(7)of this
Article IV, then the Corporation shall instead issue Additional Shares
of Series C Preferred Stock as set forth in clause (y) of the preceding
sentence.
(7) Notwithstanding any of the other provisions of this Section
2(a) of this Article IV, the Corporation shall not be required to pay
cash dividends on shares of Series C Preferred Stock if the payment
thereof would result in an Indebtedness Default (as hereinafter
defined), if an Indebtedness Default has occurred and is continuing, or
would result therefrom, or to the extent the payment of cash dividends
on shares of Series C Preferred Stock is prohibited by the then
applicable corporation law of the State of Delaware. Notwithstanding any
of the other provisions of this Section 2(a) of this Article IV, the
Corporation shall not be required to pay dividends on shares of Series C
Preferred Stock in Additional Shares of Series C Preferred Stock to the
extent such payment is prohibited by the then applicable corporation law
of the State of Delaware.
(8) No full cash dividends shall be declared or paid or set apart
for payment on the preferred stock of any series ranking, as to
dividends, on a parity with Series C Preferred Stock for any period
unless full cumulative dividends have been or contemporaneously are
declared and paid in cash or declared and a sum sufficient for the
payment thereof set apart for such payment in cash on shares of Series C
Preferred Stock or unless such dividends shall have been paid by the
issuance of Additional Shares of Series C Preferred Stock, in any event,
through the most recent Series C Dividend Payment Date. When dividends
are not paid in full, as aforesaid, upon the shares of Series C
Preferred Stock and any other series of preferred stock ranking on a
parity as to dividends with Series C Preferred Stock,
14
<PAGE>
all dividends declared on Series C Preferred Stock and any other series
of preferred stock ranking on a parity as to dividends with Series C
Preferred Stock shall be declared and paid in cash or by the issuance of
additional shares of such respective series of preferred stock pro rata
so that the amount of dividends so declared per share on Series C
Preferred Stock and such other series of preferred stock shall in all
cases bear to each other the same ratio that accrued dividends per share
on the shares of Series C Preferred Stock through the most recent Series
C Dividend Payment Date and such other series of preferred stock bear to
each other.
(9) Subject to Section 2(a)(10) of this Article IV, as long as
any shares of Series C Preferred Stock are outstanding, no dividend
shall be declared or paid or set aside for payment or other distribution
declared or made (in each case, other than dividends or distributions
paid in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Junior Securities) upon the Junior Securities, nor
shall any Junior Securities be redeemed, purchased or otherwise acquired
by the Corporation for any consideration (except for shares of Junior
Securities or options, warrants or rights to subscribe for or purchase
shares of Junior Securities or by conversion into or exchange for Junior
Securities), unless, in each case, the full cumulative dividends on all
outstanding shares of Series C Preferred Stock shall have been paid
(either in cash or by issuance of Additional Shares of Series C
Preferred Stock) through the most recent Series C Dividend Payment Date.
(10) Nothing contained in this Amended and Restated Certificate
of Incorporation shall prevent (x) the declaration, payment or setting
aside for payment of dividends, or the declaration or making of other
distributions, on capital stock of the Corporation held by the Simmons
Company Employee Stock Ownership Plan (or any successor plan) (the
"ESOP") or (y) the purchase, redemption or other acquisition by the
Corporation for any consideration of shares of capital stock from
current, future or former ESOP plan participants or their beneficiaries
to the extent required by applicable law or
15
<PAGE>
the terms of the ESOP (or any related trust or other agreement) as in
effect from time to time.
(11) Any dividend payment made on shares of Series C Preferred
Stock shall first be credited against the dividends accrued with respect
to the earliest periods for which dividends have not been paid. Holders
of shares of Series C Preferred Stock shall not be entitled to (i) any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series C Preferred
Stock, or (ii) any interest, or sum of money in lieu of interest, in
respect of any dividend payment or payments on the Series C Preferred
Stock which may be in arrears.
(12) Certificates for Additional Shares of Series C Preferred
Stock shall bear a legend identifying such shares as Additional Shares
of Series C Preferred Stock. Except as expressly set forth in Section
2(b) of this Article IV, shares of Additional Shares of Series C
Preferred Stock are identical in all respects to shares of Series C
Preferred Stock and shall be treated alike.
(b) Redemption.
----------
(1) At the option of the Corporation, shares of Series C
Preferred Stock may be redeemed at any time as a whole or in part from
time to time, out of funds legally available therefor, at a cash
redemption price of $100 per share, with such redemption price per share
to be adjusted proportionally in respect of partial shares, plus, in
each case, an amount equal to accrued and unpaid dividends thereon
(whether or not earned or declared), if any, to the date fixed for
redemption.
(2) Subject to Section 2(b)(8) of this Article IV, on January 17,
2003, the Corporation shall be required to redeem all of the shares of
the Series C Preferred Stock then outstanding, out of funds legally
available therefor, by paying in cash $100 per share, plus accrued and
unpaid dividends thereon (whether or not earned or declared) if any,
with such redemption price per share to be adjusted proportionally in
respect of partial shares, to the date fixed for redemption.
16
<PAGE>
(3) Subject to Section 2(b)(8) of this Article IV, the
Corporation shall be required to redeem on January 17, 1999, and on each
anniversary of such date, at a cash redemption price of $100 per share,
plus accrued and unpaid dividends thereon (whether or not earned or
declared), if any, with such redemption price per share to be adjusted
proportionally in respect of partial shares, to the date fixed for
redemption, the percentage of the shares of Series C Preferred Stock
outstanding on each such respective date equal to the applicable Payment
Percentage (as defined below); provided, however, that the Corporation
shall not be required to redeem any Series C Preferred Stock pursuant to
this clause (ii) unless on or prior to the date on which the Series C
Preferred Stock would otherwise be redeemable pursuant to this clause
(ii) all Obligations (as such term is defined in the Bank Credit
Agreement), and all Bridge Loan Financing shall have been paid in full
(and all indebtedness incurred or assumed by the Corporation or any
Subsidiary to repay or refinance such Obligations or such Bridge Loan
Financing shall have been paid in full) (the "Full Payment Date"). The
Payment Percentage shall mean the lowest applicable percentage set forth
below if the Full Payment Date occurs:
On or Prior To Payment Percentage
-------------- ------------------
January 17, 1999 20.00%
January 17, 2000 25.00%
January 17, 2001 33.33%
January 17, 2002 50.00%
and thereafter 100.00%
(4) Subject to Section 2(b)(8) of this Article IV, if any
Restricted Payment Event (as defined in the Junior Subordinated Notes as
in effect on the Series C Initial Issuance Date) (x) shall occur on or
after the Term Loan Full Payment Date (as defined in the Junior
Subordinated
17
<PAGE>
Notes as in effect on the Series C Initial Issuance Date),
the Corporation shall be required to redeem all then outstanding
Additional Shares of Series C Preferred Stock at a cash redemption price
of $100 per share plus accrued and unpaid dividends thereon (whether or
not earned or declared), if any, to the date fixed for redemption, and
(y) the Corporation shall be required to redeem the percentage of the
shares of Series C Preferred Stock which are not Additional Shares of
Series C Preferred Stock outstanding on the date of such Restricted
Payment Event equal to the Trigger Percentage (as defined below) at a
cash redemption price equal to $100 per share, plus accrued and unpaid
dividends thereon (whether or not earned or declared), if any, to the
date fixed for redemption. The term "Trigger Percentage" shall mean a
fraction the numerator of which is the then applicable Test Percentage
(as defined below) multiplied by the aggregate amount of the proceeds
received by the Covered Stockholders (as defined in the Junior
Subordinated Notes as in effect on the Series C Initial Issuance Date)
in such Restricted Payment Event and the denominator of which is the sum
of the aggregate liquidation value of all shares of Series C Preferred
Stock outstanding on the date of the Restricted Payment Event and all
accrued and unpaid dividends thereon (whether or not earned or
declared), if any, to the date fixed for redemption. The term "Test
Percentage" shall mean (A) .0091 if the Restricted Payment Event occurs
on or prior to March 15, 1995, (B) .0182 if the Restricted Payment Event
occurs after March 15, 1995 and on or prior to March 15, 1999, and (C)
.0274 if the Restricted Payment Event occurs thereafter.
(5) Subject to Section 2(b)(8) of this Article IV, in the event
of an Initial Public Offering which involves the sale by the Corporation
of Common Stock for its own account, the Corporation shall apply .91% of
the excess of (X) the net proceeds to the Corporation of such Initial
Public Offering of such Common Stock over (Y) the amount of such net
proceeds which are utilized by the Corporation or any of its
Subsidiaries to repay or reduce any Indebtedness (as such term is
defined in the Bank Credit Agreement, as in effect on the Series C
Initial
18
<PAGE>
Issuance Date), whether or not such repayment or reduction is optional
or mandatory, and whether or not such reduction or repayment results in
a reduction of any lender's commitment to advance funds, to redeem such
number of shares of Series C Preferred Stock as may be redeemed at a
cash redemption price of $100 per share, plus accrued and unpaid
dividends thereon (whether or not earned or declared), if any, to the
date fixed for redemption.
(6) Subject to Section 2(b)(8) of this Article IV, upon the
occurrence of a Triggering Event (as defined below), the Corporation
shall redeem all shares of Series C Preferred Stock then outstanding at
a cash redemption price of $100 per share, plus accrued and unpaid
dividends thereon (whether or not earned or declared), if any, to the
date fixed for redemption. The term "Triggering Event", shall mean the
earliest to occur of the following events:
(a) the sale by the Corporation and its Subsidiaries
of all or substantially all of the assets of the Corporation and its
Subsidiaries in a single transaction or a series of related
transactions;
(b) 40 days following the occurrence of a Change of
Control (as such term is defined in the Bank Credit Agreement, as in
effect on the Series C Initial Issuance Date); and
(c) any merger, consolidation or other business
combination (other than a statutory merger to effect jurisdictional
changes or similar purposes and other than a merger, consolidation or
other business combination involving Merrill Lynch Capital Partners,
Inc. ("MLCP") or one or more of its Affiliates) by the Corporation with
one or more persons other than a wholly-owned Subsidiary of the
Corporation.
(7) If an Indebtedness Default (as defined below) has occurred
and is continuing solely as a result of a cross-default provision in
such Indebtedness (as defined in the Bank Credit Agreement (as in effect
on the Series C Initial Issuance Date)) to the failure of the
19
<PAGE>
Corporation to pay dividends or other amounts on the Series C Preferred
Stock, and if there is no other Indebtedness Default and if no
Indebtedness Default would result from such redemption, and if the banks
party to the Bank Credit Agreement shall have waived (or failed to
declare an event of default thereunder within 40 days after the
occurrence of a Change of Control (as defined above)) compliance with
clause (m) of Article VII of the Bank Credit Agreement (as in effect on
the Series C Initial Issuance Date) the provisions of Section 2(b)(8) of
this Article IV shall not be applicable to a Triggering Event specified
in clause (b) of Section 2(b)(6) of this Article IV.
(8) The Corporation shall not be required to discharge its
redemption obligations pursuant to this Section 2(b) of this Article IV
if such redemption would result in an Indebtedness Default or if an
Indebtedness Default has occurred and is continuing or would result
therefrom or to the extent such redemption is prohibited by the then
applicable corporation law of the state of Delaware. Any such redemption
obligation shall be discharged as soon as the provisions of the
immediately preceding sentence are no longer applicable.
(9) Whenever shares of Series C Preferred Stock (including
Additional Shares of Series C Preferred Stock) are to be redeemed
pursuant to this Section (2)(b) of this Article IV, a notice of such
redemption shall be mailed, by first-class mail, postage prepaid, or
delivered to each holder of the shares to be redeemed at such holder's
address as the same appears on the stock transfer books of the
Corporation. Such notice shall be mailed or delivered not less than 20
days and not more than 60 days prior to the date fixed for redemption.
Each such notice shall state: (i) the date fixed for redemption; (ii)
the number of shares of Series C Preferred Stock to be redeemed; (iii)
the redemption price; (iv) the place or places where such shares of
Series C Preferred Stock are to be surrendered for payment of the
redemption price; (v) that dividends on the shares to be redeemed will
cease to accrue on such date fixed for redemption; (vi) the provision of
this Section 2(b) of this Article IV under which the
20
<PAGE>
redemption is made; and (vii) the extent, if any, to which Additional
Shares of Series C Preferred Stock are being redeemed. If fewer than all
shares of Series C Preferred Stock held by a holder are to be redeemed,
the notice mailed to such holder shall specify the number of shares to
be redeemed from such holder. Except as required by applicable law, no
defect in the notice of redemption or in the mailing thereof shall
affect the validity of the redemption proceedings. Notwithstanding
Section 2(b)(2) through Section 2(b)(7) of this Article IV, the
Corporation shall not be required to mail any such notice, in the case
of Section 2(b)(3) of this Article IV, until the Full Payment Date shall
occur, in the case of Section 2(b)(4) of this Article IV, until the
consummation of the applicable Restricted Payment Event, in the case of
Section 2(b)(5) of this Article IV, until the consummation of the
Initial Public Offering, and in the case of Section 2(b)(6) of this
Article IV, until the occurrence of a Triggering Event; provided,
however, that in no event shall the Corporation be required to mail any
such notice if it is not required to redeem any Notes pursuant to
Section 2(b)(8) of this Article IV.
(10) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price of the shares
called for redemption) dividends on the shares of Series C Preferred
Stock so called for redemption shall cease to accrue, and said shares
shall no longer be deemed to be outstanding and shall have the status of
authorized but unissued shares of preferred stock, unclassified as to
series, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the
redemption price and any accrued and unpaid dividends to the redemption
date) shall cease. Upon surrender in accordance with said notice of the
certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by
the Corporation at the redemption price aforesaid. In case fewer than
all the shares represented by any such
21
<PAGE>
certificate are redeemed, a new certificate shall be issued representing
the unredeemed shares without cost to the holder thereof.
(11) In the event that fewer than all shares of Series C
Preferred Stock are redeemed, except as expressly provided herein, the
Corporation may elect whether to redeem shares of Series C Preferred
Stock generally, only Additional Shares of Series C Preferred Stock or
any combination thereof. Any such redemption of Additional Shares of
Series C Preferred Stock or other Series C Preferred Stock shall be made
pro rata among Additional Shares of Series C Preferred Stock or other
Series C Preferred Stock, as the case may be.
(12) Nothing contained herein shall limit any legal right of the
Corporation or any Affiliate to purchase or otherwise acquire any shares
of Series C Preferred Stock at any price, whether higher or lower than
the redemption price.
(c) Exchange.
--------
(1) From and after March 15, 1994, the Series C Preferred Stock
shall be exchangeable in whole or in part on any Series C Dividend
Payment Date, subject to the following sentence, at the option of the
holder thereof. The Corporation shall not be required to exchange any
shares of Series C Preferred Stock pursuant to this Section 2(c) of this
Article IV if any such exchange would result in an Indebtedness Default,
if an Indebtedness Default has occurred and is continuing, or would
result therefrom, or if any such exchange is prohibited by the then
applicable corporation law of the State of Delaware and unless and until
such exchange is permitted by Federal securities law and any applicable
state or "blue sky" securities law (it being agreed that the Corporation
shall have no obligation to register the Exchange Junior Subordinated
Notes (as such term is defined below) issuable upon exchange hereof
under the Securities Act (as defined below) or pursuant to any such
state or "blue sky" securities law) (any of the foregoing, an "Exchange
Restriction"). Holders of the outstanding shares of Series C Preferred
Stock will be
22
<PAGE>
entitled to receive (x) prior to March 15, 1997, $97.00 principal amount
of the Exchange Junior Subordinated Notes and (y) thereafter $100.00
principal amount of the Exchange Junior Subordinated Notes, in each case
in exchange for each share of Series C Preferred Stock held by them at
the time fixed for exchange. At such time, the rights of the holders of
Series C Preferred Stock to be exchanged as stockholders of the
Corporation shall cease, and the person or persons entitled to receive
the Exchange Junior Subordinated Notes issuable upon exchange shall be
treated for all purposes as the registered holder or holders of such
Exchange Junior Subordinated Notes.
(2) Any holder desiring to exercise its option to exchange all or
a portion of its Series C Preferred Stock shall give written notice of
the number of such shares to be so exchanged to the Corporation at least
thirty, but not more than sixty, days prior to the date fixed for
exchange. In the event that the exchange is subject to an Exchange
Restriction, the Corporation shall give notice thereof to the holder so
electing to exchange on or prior to the date fixed for such exchange. In
the event any such notice is so given, such holder's election to
exchange shall be deemed to be rescinded. Each holder of shares of
Series C Preferred Stock may exercise such exchange privilege by
surrendering to the Corporation the certificate or certificates for the
shares to be exchanged, together with a written notice of exchange
executed to indicate the number of shares to be exchanged.
(3) All shares of Series C Preferred Stock which have been
exchanged shall no longer be deemed to be outstanding and shall be
retired, and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall forthwith cease,
except only the right of the holders thereof to receive Exchange Junior
Subordinated Notes in exchange therefor and to receive any accrued and
unpaid dividends thereon.
(4) Such retired shares of Series C Preferred Stock shall become
authorized but unissued preferred stock. Upon any exchange of shares of
Series C Preferred Stock in accordance with this Section (2)(c) of this
Article IV, the Corporation will pay any stock transfer taxes which may
be due with respect to the transfer and sale of such exchanged shares to
the Corporation; provided, however, that if the Exchange Junior
23
<PAGE>
Subordinated Notes into which the Series C Preferred Stock is
exchangeable pursuant to this Section (2)(c) of this Article IV is to be
issued in the name of any person other than the registered holder of the
Series C Preferred Stock to be so exchanged (the "registered holder"),
the amount of any transfer taxes (whether imposed on the registered
holder or on such other person) payable on account of the transfer to
such person will be payable by the registered holder. If satisfactory
evidence of the payment of such taxes or exemption therefrom is not
submitted upon exchange, either the exchange consideration will be
withheld until such evidence or payment is received or, at the
Corporation's option, the amount of such stock transfer taxes will be
billed directly to such registered holder. In case fewer than all the
shares represented by any certificate for Series C Preferred Stock are
exchanged, a new certificate shall be issued representing the
unexchanged shares without cost to the registered holder of such shares
so exchanged.
(d) Voting. The holders of record of shares of Series C Preferred
------
Stock shall not be entitled to any voting rights except as specified in
this Section (2)(d) of this Article IV and except as otherwise provided
by law. The affirmative vote of the holders of at least a majority in
liquidation value of the outstanding shares of Series C Preferred Stock,
voting separately as a single class on a one vote per share (prorated
for fractional shares) basis, in person or by proxy, at a special or
annual meeting of stockholders called for the purpose, or by consent,
shall be required to amend, repeal or change any provisions of this
Amended Certificate of Incorporation of Series C Preferred Stock in any
manner which would materially and adversely affect, alter or change the
powers, preferences or special rights of any share of Series C Preferred
Stock. Notwithstanding the foregoing, and without limiting the first
sentence of this Section (2)(d) of this Article IV, no vote or consent
of the holders of the Series C Preferred Stock will be required for (i)
the creation or incurrence of any indebtedness of any kind of the
Corporation or any of its Subsidiaries, (ii) the creation, issuance, or
increase or decrease in the amount, of any class or series of capital
stock of the Corporation, whether ranking prior to, on a parity with, or
junior to the Series C Preferred Stock as to dividends
24
<PAGE>
or upon liquidation, dissolution or winding up of the Corporation, (iii)
any merger, consolidation or similar transaction involving the
Corporation or any sale, lease or other conveyance of all or
substantially all of the assets of the Corporation, or (iv) any other
action by the Corporation or any of its Subsidiaries.
(e) Liquidation.
-----------
(1) Upon a liquidation, winding up or dissolution of the affairs
of the Corporation, whether voluntary or involuntary, the holders of
shares of Series C Preferred Stock then outstanding shall be entitled,
whether from capital or surplus before any assets of the Corporation
shall be distributed among or paid over to the holders of Junior
Securities but after distribution of such assets among, or payment
thereof over to, creditors of the Corporation and to holders of any
stock of the Corporation with liquidation rights senior to the Series C
Preferred Stock, to be paid $100 per share (prorated for fractional
shares), plus, in each such case, an amount equal to all accrued and
unpaid dividends thereon (whether or not earned or declared) to and
including the date of final distribution. After any such payment in
full, the holders of shares of the Series C Preferred Stock shall not be
entitled to any further participation in any distribution of assets of
the Corporation.
(2) Neither the merger or consolidation of the Corporation into
or with any other corporation or the merger or consolidation of any
other corporation into or with the Corporation, nor the sale of assets
by the Corporation, shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, for the purposes of this Section
(2)(e) of this Article IV.
(3) If, upon any such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets of the
Corporation shall be insufficient to make the full payments required by
Section 2(e)(1) of this Article IV, no such distribution shall be made
on account of any shares of any other class or series of preferred stock
ranking on a parity with the shares of Series C Preferred Stock upon
such dissolution,
25
<PAGE>
liquidation or winding up unless proportionate distributive amounts
shall be paid on account of the shares of Series C Preferred Stock,
ratably, in proportion to the full distributable amounts for which
holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(4) Subject to the rights of the holders of shares of any series
or class or classes of stock ranking on a parity with or prior to the
shares of Series C Preferred Stock upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders
of the shares of Series C Preferred Stock as provided in this Section
(2)(e) of this Article IV, but not prior thereto, any Junior Securities
shall, subject to the respective terms and provisions (if any) applying
thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of the shares of Series C Preferred
Stock shall not be entitled to share therein.
(f) Restrictions on Transfer.
------------------------
(1) No sale, assignment, transfer, pledge, encumbrance or other
disposition (each, a "disposition") of any shares of Series C Preferred
Stock, in whole or in part, shall be permitted unless such disposition
is permitted by Sections 2(f)(2) and (2)(f)(3) of this Article IV.
(2) The Series C Preferred Stock has not been registered under
the Securities Act or any applicable state securities or blue sky law
and may not be sold, transferred or otherwise disposed of without such
registration unless the sale, transfer or disposition can be effected
without such registration and in compliance with the Securities Act and
such laws. The holder of the Series C Preferred Stock shall not sell,
transfer or otherwise dispose of all or any part of, any shares of
Series C Preferred Stock, other than pursuant to an effective
registration statement under the Securities Act, without first notifying
the Corporation prior to
26
<PAGE>
such sale, transfer or disposition and, if requested by the Corporation,
delivering to the Corporation a written opinion of legal counsel
experienced in Securities Act matters, in form and substance reasonably
satisfactory to the Corporation, that an exemption from registration is
available under the Securities Act and any applicable state securities
or blue sky law.
(3) No disposition of any shares of Series C Preferred Stock, in
whole or in part, shall be permitted at any time unless such disposition
is not to any person or entity, engaged, directly or indirectly, in any
line of business in which the Corporation or any of its Subsidiaries
then engages, or to any person or entity which is a supplier to, or
customer of, the Corporation or any of its Subsidiaries.
(g) No Registration Rights. No person shall at any time be
----------------------
entitled to registration or similar rights with respect to any shares of
Series C Preferred Stock.
(h) Additional Definitions. As used in this Certificate of
----------------------
Designation, the following terms have the meanings specified below:
"Affiliate" shall have the meaning assigned to it in the Junior
---------
Subordinated Notes.
"Bank Credit Agreement" shall have the meaning assigned to it in
---------------------
the Junior Subordinated Notes (as such Junior Subordinated Notes are in
effect on the Series C Initial Issuance Date). A copy of the Bank Credit
Agreement is available at the principal executive offices of the
Corporation and a copy will be sent to any holder of the Series C
Preferred Stock upon request.
"Bridge Loan Agreement" shall have the meaning assigned to it in
---------------------
the Junior Subordinated Notes (as such Junior Subordinated Notes are in
effect on the Series C Initial Issuance Date). A copy of the Bridge Loan
Agreement is available at the principal executive offices of the
Corporation and a copy will be sent to any holder of the Series C
Preferred Stock upon request.
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<PAGE>
"Bridge Loan Financing" shall have the meaning assigned to it in
---------------------
the Junior Subordinated Notes (as such Junior Subordinated Notes are in
effect on the Series C Initial Issuance Date).
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of New York or the State
of Georgia) on which banks are open for business in New York City.
"Exchange Junior Subordinated Notes" shall mean the Junior
----------------------------------
Subordinated Notes due January 17, 2003 of the Corporation, in the form
attached as an exhibit to the Junior Securities Exchange, Termination
and Release Agreement, dated as of March 11, 1991, among the
Corporation, the initial holders of the Series C Preferred Stock and
certain other person. A copy of such Junior Securities Exchange,
Termination and Release Agreement is available at the principal
executive offices of the Corporation and a copy will be sent to any
holder of the Series C Preferred Stock upon request.
"Indebtedness Default" means any breach of, or the happening of a
--------------------
default or event of default under, the Bank Credit Agreement, the Bridge
Loan Agreement, the Management Notes, the Junior Subordinated Notes (or
any agreement or instrument relating to any of the foregoing) or any
other agreement, instrument or other document representing or relating
to Indebtedness (as defined in the Bank Credit Agreement, as in effect
on the Series C Initial Issuance Date) to which the Corporation or any
of its Subsidiaries is a party or by which any of their respective
properties or assets is bound, that, in any such event, permits, or
would permit upon notice or with lapse of time or both, any holder
thereof to effect, or automatically effects, or would effect, whether
upon notice or with lapse of time or both, an acceleration of the
maturity thereof.
"Initial Public Offering" shall have the meaning assigned to it
-----------------------
in the Junior Subordinated Notes (as such Junior Subordinated Notes are
in effect on the Series C Initial Issuance Date).
28
<PAGE>
"Junior Subordinated Notes" shall mean the Junior Subordinated
-------------------------
Notes due January 17, 2003 of the Corporation, as the same may be
amended, supplemented or otherwise modified from time to time. A copy of
the Junior Subordinated Notes is available at the principal executive
offices of the Corporation and a copy will be sent to any holder of the
Series C Preferred Stock upon request.
"Management Notes" shall mean the Amended and Restated Adjustable
----------------
Rate Senior Subordinated Notes due January 1, 1999 of the Corporation as
amended, supplemented or otherwise modified from time to time. A copy of
the Management Notes is available at the principal executive offices of
the Corporation and a copy will be sent to any holder of the Series C
Preferred Stock upon request.
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
"Subsidiary" shall have the meaning assigned to it in the Junior
----------
Subordinated Notes (as such Junior Subordinated Notes are in effect on
the Series C Initial Issuance Date).
ARTICLE V
REGISTERED OFFICE
The address, including street, number, city and county, of the
registered office of the Corporation is 1013 Centre Road, in the City of
Wilmington, County of New Castle, Delaware, and the name of the registered agent
of the Corporation at such address is Corporation Service Company.
ARTICLE VI
REQUIRED STOCKHOLDER VOTE AND CONSENT
Except as otherwise required by law, the affirmative vote of the
holders of a majority of the issued and outstanding shares of the Corporation
shall decide any matter submitted to a vote of the stockholders of the
Corporation. The holders of a majority of the issued and outstanding shares of
the Corporation may take any action that the stockholders
29
<PAGE>
of the Corporation are permitted or required to take at a meeting pursuant to a
consent signed by such holders and setting forth the action taken.
ARTICLE VII
DIRECTORS
The number of directors constituting the initial board of
directors of the Corporation is four.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall (i) indemnify any person who was, is, or is
threatened to be made a defendant or respondent in any completed, pending, or
threatened action, proceeding, or suit (whether civil, criminal, administrative,
or investigative or whether an appeal in such action, proceeding, or suit or an
inquiry or investigation that could lead to such an action, proceeding or suit)
because such person was or is a director or officer of the Corporation, or,
while a director or officer of the Corporation, was or is serving at the request
of the Corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise, against judgments, penalties (including excise and similar
taxes), fines, settlements, and reasonable expenses (including attorneys' fees)
actually incurred by such person in connection with such action, proceeding, or
suit and (ii) advance reasonable expenses to such person in connection with such
action, proceeding or suit. Any repeal or modification of this Article shall not
adversely affect any rights to indemnification of any person with respect to any
completed, pending, or threatened action, proceeding, or suit existing
immediately prior to such repeal or modification. The rights provided in this
Article shall not be exclusive of any other rights to which such person may be
entitled under any provision of the bylaws of the Corporation, resolution of the
stockholders or directors of the Corporation, agreement, or otherwise.
30
<PAGE>
ARTICLE IX
LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director. Any repeal or modification of this Article shall
not adversely affect any rights or protection of a director of the Corporation
existing immediately prior to such repeal or modification.
ARTICLE X
CORPORATE POWER
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on the
stockholders of the Corporation herein are granted subject to this reservation.
SIMMONS COMPANY
By: /s/ Zenon S. Nie
---------------------------
Name: Zenon S. Nie
Title: Chief Executive Officer
EXHIBIT 3(ii)
AMENDED AND RESTATED BYLAWS
of
SIMMONS COMPANY
(a Delaware Corporation)
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. The registered office of Simmons
Company (hereinafter called the "Corporation") in the State of Delaware shall be
at 1013 Centre Road, in the City of Wilmington, County of Newcastle, Delaware;
and the name of the registered agent in charge thereof shall be Corporation
Service Company.
SECTION 1.02 Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors (hereinafter called the "Board")
may from time to time determine or as the business of the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders
of the Corporation, for the purpose of electing directors and for the
transaction of such other proper business as may come before such meetings, may
be held at such time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the
stockholders, for the transaction of any proper business, may be called at any
time by the Board or by the Chief Executive Officer.
SECTION 2.03 Place of Meetings. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meeting and as specified in the respective notices or waivers of notice thereof.
<PAGE>
SECTION 2.04 Notice of Meetings. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail or in the care of an
express courier in a postage prepaid envelope directed to him at his post office
address or other delivery address furnished by him to the Secretary of the
Corporation for such purpose, or, if he shall not have furnished to the
Secretary his address for such purpose, at his post office address last known to
the Secretary, or by transmitting a notice thereof to him at such address by
facsimile, telegraph, cable, or wireless. Except as otherwise expressly required
by law, no publication of any notice of a meeting of the stockholders shall be
required. Every notice of a meeting of the stockholders shall state the place,
date and hour of the meeting and, in the case of a special meeting, shall also
state the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder who
shall have waived such notice, and such notice shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, except as a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Except as otherwise expressly
required by law, notice of any adjourned meeting of the stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any
2
<PAGE>
meeting or any adjournment thereof, a majority in voting interest
of the stockholders present, in person or by proxy, and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at or to act as secretary of such meeting may adjourn such meeting from
time to time. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 2.06 Voting.
(a) Each stockholder shall, at each meeting of the stockholders,
be entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and shall be registered in his name on the
books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these
Bylaws as the record date for the determination of stockholders entitled
to notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then
(A) at the close of business on the day next preceding the day on which
notice of the meeting shall be given or (B) if notice of the meeting
shall be waived, at the close of business on the day next preceding the
day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons or
other entities, whether fiduciaries, members of a partnership, joint tenants in
3
<PAGE>
common, tenants by entirety or otherwise, or with respect to which two or more
persons or other entities have the same fiduciary relationship, shall be voted
in accordance with the provisions of the Delaware General Corporation Law.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder, or by his attorney thereunto
authorized, and delivered to the secretary of the meeting; provided, however,
that no proxy shall be voted or acted upon after eleven months from its date
unless said proxy shall provide for a longer period. The attendance at any
meeting of a stockholder who may theretofore have given a proxy shall not have
the effect of revoking the same unless he shall in writing so notify the
secretary of the meeting prior to the voting of the proxy. At any meeting of the
stockholders all matters, except as otherwise provided in the Certificate of
Incorporation, in these Bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present in person or by proxy
and entitled to vote thereat and thereon, a quorum being present. The vote at
any meeting of the Shareholders on any question need not be by ballot, unless so
directed by the chairman of the meeting. On a vote by ballot each ballot shall
be signed by the stockholder voting, or by his proxy, if there be such proxy,
and it shall state the number of shares voted.
SECTION 2.07 List of Shareholders. The Secretary of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
4
<PAGE>
SECTION 2.08 Judges. If at any meeting of the stockholders a vote
by written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath to faithfully execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and shall
report the number of shares represented at the meeting and entitled to vote on
such question, shall conduct and accept the votes, and, when the voting is
completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The judges
need not be stockholders of the Corporation, and any officer of the Corporation
may be a judge on any question other than a vote for or against a proposal in
which he shall have a material interest.
SECTION 2.09 Action Without Meeting. Any action required to be
taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding shares of stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.10 Telephonic Meetings. The stockholders may hold a
meeting by means of conference telephone or similar communications equipment if
all persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 2.10 shall constitute presence in person at
such meeting.
5
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The property, business and affairs
of the Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The Board shall initially
consist of the number of directors established in the Corporation's Amended and
Restated Certificate of Incorporation and may be changed by a resolution of the
Board; provided that the number of directors shall not be less than one (l) and
not more than ten (10). Each of the directors of the Corporation shall hold
office until his successor shall have been duly elected and shall qualify or
until he shall resign or shall have been removed in the manner hereinafter
provided.
SECTION 3.03 Election of Directors. The directors shall be
elected annually by the stockholders of the Corporation entitled to vote thereon
and the persons receiving the greatest number of votes, up to the number of
directors to be elected, shall be the directors.
SECTION 3.04 Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed in the manner
hereinafter provided.
6
<PAGE>
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as
practicable after each annual election of directors, and notice of such first
meeting shall not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may
be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting shall be held at the
same hour and place on the next succeeding business day not a legal holiday.
Except as provided by law, notice of regular meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board
shall be held whenever called by the Chief Executive Officer or a majority in
number of directors then serving on the Board. Except as otherwise provided by
law, notice of the time and place of each such special meeting shall be mailed
to each director, addressed to him at his residence or usual place of business,
at least five (5) days before the day on which the meeting is to be held or
shall be sent to him at such place by facsimile, wireless, telegraph or cable or
be delivered personally not less than forty-eight (48) hours before the time at
which the meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of the purpose
of a special meeting need not be given. Notice of any meeting of the Board shall
not be required to be given to any director who is present at such meeting,
except a director who shall attend such meeting for
7
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the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise
provided in the Certificate of Incorporation, in these Bylaws or by law, the
presence of a majority of the authorized number of directors shall be required
to constitute a quorum for the transaction of business at any meeting of the
Board, and all matters shall be decided at any such meeting, a quorum being
present, by the affirmative votes of a majority of the directors present. In the
absence of a quorum, a majority of directors present at any meeting may adjourn
the same from time to time until a quorum shall be present. Notice of any
adjourned meeting need not be given. The directors shall act only as a Board,
and the individual directors shall have no power as such.
SECTION 3.11 Action by Consent. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of
the Certificate of Incorporation, any director may be removed at any time, with
or without cause, by the affirmative vote of stockholders having a majority of
the shares entitled to elect directors of the Corporation given at a special
meeting of the Shareholders called for the purpose.
SECTION 3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the
8
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Corporation or its subsidiaries in any other capacity and receiving compensation
therefor.
SECTION 3.14 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member.
ARTICLE IV
OFFICERS
SECTION 4.01 Number. The Board shall elect a Chief Executive
Officer or a President (or both), a Secretary, and a Treasurer, and it may, if
it so determines, choose a Chairman of the Board from among its members. The
Board may also choose one or more Vice Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. The same person may hold any
two or more offices.
SECTION 4.02 Election, Term of Office and Qualifications. The
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected annually by the Board at the
first meeting thereof held after the election thereof. Each officer shall hold
office until his successor shall have been duly chosen and shall qualify or
until his resignation or removal in the manner hereinafter provided.
9
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SECTION 4.03 Assistants, Agents and Employees, Etc. In addition
to the officers specified in Section 4.01, the Board may appoint other
assistants, agents and employees as it may deem necessary or advisable,
including one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority
and perform such duties as the Board may from time to time determine. The Board
may delegate to any officer of the Corporation or any committee of the Board the
power to appoint, remove and prescribe the duties of any such assistants, agents
or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee
of the Corporation may be removed, with or without cause, at any time: (i) in
the case of an officer, assistant, agent or employee appointed by the Board,
only by resolution of the Board; and (ii) in the case of any other officer,
assistant, agent or employee, by any officer of the Corporation or committee of
the Board upon whom or which such power of removal may be conferred by the
Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at
any time by giving written notice of his resignation to the Board or the
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, upon receipt thereof by the
Board or the Secretary, as the case may be; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or other cause may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The Chief Executive Officer. The Chief Executive
Officer of the Corporation shall be the chief executive officer of the
Corporation and shall have, subject to the control of the Board, general and
active supervision and management over the business of the Corporation and over
its several officers, assistants, agents and employees.
10
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SECTION 4.07A The President. The President of the Corporation
shall have such powers and perform such duties as the Board may from time to
time prescribe. At the request of the Chief Executive Officer, or in the absence
or inability of the Chief Executive Officer to act, upon the request of the
Board, the President shall perform the duties of Chief Executive Officer and,
when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Chief Executive Officer.
SECTION 4.08 The Vice Presidents. Each Vice President shall have
such powers and perform such duties as the Board may from time to time
prescribe. At the request of the President, or in case of the President's
absence or inability to act, upon the request of the Board, a Vice President
shall perform the duties of the President and, when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the President.
SECTION 4.09 The Secretary. The Secretary shall, if present,
record in one or more books provided for that purpose the proceedings of all
meetings of the Board, of the stockholders, and of all committees for which a
secretary shall not have been appointed; he shall see that all notices are duly
given in accordance with these Bylaws and as required by law; he shall be
custodian of the seal of the Corporation and shall affix and attest the seal to
all documents to be executed on behalf of the Corporation under its seal; and,
in general, he shall perform all the duties incident to the office of Secretary
and such other duties as may from time to time be assigned to him by the board.
SECTION 4.10 The Treasurer. The Treasurer shall have the general
care and custody of the funds and securities of the Corporation and shall
deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected by the Board. He shall
receive, and give receipts for, moneys due and payable to the Corporation from
any source whatsoever. He shall exercise general supervision over expenditures
and disbursements made by officers, agents and employees of the Corporation and
the preparation of such records and reports in connection therewith as may be
necessary or desirable. He shall, in general, perform all other duties incident
to
11
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the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board.
SECTION 4.11 Compensation. The compensation of the officers of
the Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving proper compensation therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 Execution of Contracts. The Board, except as these
Bylaws otherwise provide, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the
12
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Corporation, the Chief Executive Officer, President, any Vice President or the
Treasurer (or any other officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation who shall from time to time
be determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any or all of the signatures on the
certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the
13
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persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases provided
for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed and Mutilated Certificates.
In any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction or mutilation and upon the giving of a
14
<PAGE>
bond of indemnity to the Corporation in such form and in such sum as the Board
may direct; provided, however, that a new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Shareholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of, or to vote at, any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any other change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board may
fix, in advance, a record date, which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any other
action. If in any case involving the determination of stockholders for any
purpose other than notice of or voting at a meeting of stockholders or
expressing consent to corporate action without a meeting the Board shall not fix
such a record date, the record date for determining stockholders for such
purpose shall be the close of business on the day on which the Board shall adopt
the resolution relating thereto. A determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of such meeting; provided, however, that the Board may fix a new record date for
the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Indemnification. Subject to any limitation which may
be contained in the Certificate of Incorporation, the Corporation shall to the
full extent permitted by law, including, without limitation, Delaware General
Corporation Law Sec. 145, as such Section now exists or shall hereafter be
amended, indemnify any person who was, is or is threatened to be made a named
defendant or respondent to any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, arbitral, administrative, or
investigative, any appeal in such action, suit, or proceeding, and any inquiry
or investigation that
15
<PAGE>
could lead to such an action, suit, or proceeding, because such person is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, against judgments, penalties (including excise and similar taxes),
fines, settlements, and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit, or proceeding. The
termination of any action, suit or proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that an individual did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 7.02 Expenses. Subject to any limitation which may be
contained in the Certificate of Incorporation, the Corporation shall, to the
full extent permitted by law, including, without limitation, Sec. 145 of the
Delaware General Corporation Law, as such Section now exists or shall hereafter
be amended, pay or reimburse on a current basis the expenses incurred by any
person described in Section 7.01 in connection with any such action, suit, or
proceeding in advance of the final disposition thereof, if the Corporation has
received (i) a written affirmation by the recipient of his good faith belief
that he has met the standard of conduct necessary for indemnification under the
Delaware General Corporation Law and (ii) a written undertaking by or on behalf
of the director to repay the amount paid or reimbursed if it is ultimately
determined that he has not satisfied such standard of conduct or if
indemnification is prohibited by law.
SECTION 7.03 Notice to Shareholders. If required by law at the
time such payment is made, any payment of indemnification or advance of expenses
to a director shall be reported in writing to the stockholders with or before
the notice or waiver of notice of the next Shareholder's
16
<PAGE>
meeting or with or before the next submission to Shareholders of a consent to
action without a meeting pursuant to Sec. 228 of the Delaware General
Corporation Law, and, in any case, within the 12-month period immediately
following the date of the indemnification or advance.
SECTION 7.04 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or who is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
person, whether or not the corporation would have the power to indemnify him
against that liability under this article, subject to any restrictions imposed
by law. The Corporation may create a trust fund, establish any form of
self-insurance, grant a security interest or other lien on the assets of the
Corporation, or use other means (including, without limitation, a letter of
credit, guarantee or surety arrangement) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
SECTION 7.05 Other Rights and Remedies. The rights provided under
this Article VII shall not be deemed exclusive of any other rights permitted by
law to which such person may be entitled under any provision of the Certificate
of Incorporation, a resolution of stockholders or directors of the Corporation,
an agreement, or otherwise and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The rights provided in
this Article VII shall be deemed to be provided by a contract between the
Corporation and the individuals who serve in the capacities described in Section
7.01 at any time while these bylaws are in effect, and no repeal or modification
of this Article VII by the Shareholders shall adversely affect any right of any
person
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otherwise entitled to indemnification by virtue of this Article VII at the time
of such repeal or modification.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Fiscal Year. The fiscal year of the Corporation
shall be determined by resolution of the Board.
SECTION 8.02 Seal. The Board shall provide a corporate seal,
which shall be in the form of a circle and shall bear the name of the
Corporation and words and figures showing that the Corporation was incorporated
in the State of Delaware and the year of incorporation.
SECTION 8.03 Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.04 Amendments. These Bylaws, or any portion of them,
may be altered, amended or repealed, and new Bylaws may be made, (i) by the
Board, by vote of a majority of the number of directors then in office as
directors, acting at any meeting of the Board or (ii) by the stockholders
holding shares of a class of stock entitled to vote for the election of
directors, at any annual meeting of stockholders, without previous notice, or at
any special meeting of stockholders, provided that notice of such proposed
amendment, modification, repeal or adoption is given in the notice of special
meeting. Any Bylaws made or altered by the stockholders may be altered or
repealed by either the Board or the stockholders.
18
EXHIBIT 4.1
EXECUTION COPY
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SIMMONS COMPANY
10-3/4% Senior Subordinated Notes due 2006
--------------------------
INDENTURE
Dated as of April 18, 1996
--------------------------
SunTrust Bank, Atlanta,
Trustee
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<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . 26
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . 26
SECTION 1.04. Rules of Construction . . . . . . . . . 27
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating . . . . . . . . . . . . 28
SECTION 2.02. Execution and Authentication . . . . . . 30
SECTION 2.03. Registrar and Paying Agent . . . . . . . 31
SECTION 2.04. Paying Agent to Hold Money in Trust . . . 32
SECTION 2.05. Securityholder Lists . . . . . . . . . . 32
SECTION 2.06. Transfer and Exchange . . . . . . . . . 32
SECTION 2.07. Replacement Securities . . . . . . . . . 41
SECTION 2.08. Outstanding Securities . . . . . . . . . 42
SECTION 2.09. Temporary Securities . . . . . . . . . . 42
SECTION 2.10. Cancellation . . . . . . . . . . . . . . 43
SECTION 2.11. Defaulted Interest . . . . . . . . . . . 43
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . 43
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee . . . . . . . . . . . 44
SECTION 3.02. Selection of Securities
To Be Redeemed . . . . . . . . . . . . 44
SECTION 3.03. Notice of Redemption . . . . . . . . . . 44
SECTION 3.04. Effect of Notice of Redemption . . . . . 45
SECTION 3.05. Deposit of Redemption Price . . . . . . 46
SECTION 3.06. Securities Redeemed in Part . . . . . . 46
SECTION 3.07. Optional Redemption . . . . . . . . . . 46
<PAGE>
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities . . . . . . . . . 48
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . 48
SECTION 4.03. Limitation on Indebtedness . . . . . . . 48
SECTION 4.04. Limitation on Restricted Payments . . . . 51
SECTION 4.05. Limitation on Restrictions on
Distributions from Subsidiaries . . . . 55
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock . . . . . . . . . . . 56
SECTION 4.07. Limitation on Transactions with
Affiliates . . . . . . . . . . . . . . 60
SECTION 4.08. Change of Control . . . . . . . . . . . 61
SECTION 4.09. Compliance Certificates . . . . . . . . 63
SECTION 4.10. Further Instruments and Acts . . . . . . 63
SECTION 4.11. Limitation on Liens . . . . . . . . . . 63
SECTION 4.12. Subsidiary Guarantees . . . . . . . . . 63
SECTION 4.13. Limitation on Lines of Business . . . . 64
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer
Assets . . . . . . . . . . . . . . . . 64
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default . . . . . . . . . . . 65
SECTION 6.02. Acceleration . . . . . . . . . . . . . . 68
SECTION 6.03. Other Remedies . . . . . . . . . . . . . 68
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . 69
SECTION 6.05. Control by Majority . . . . . . . . . . 69
SECTION 6.06. Limitation on Suits . . . . . . . . . . 69
SECTION 6.07. Rights of Holders to
Receive Payment . . . . . . . . . . . 70
SECTION 6.08. Collection Suit by Trustee . . . . . . . 70
SECTION 6.09. Trustee May File Proofs of Claim . . . . 70
SECTION 6.10. Priorities . . . . . . . . . . . . . . . 71
SECTION 6.11. Undertaking for Costs . . . . . . . . . 71
SECTION 6.12. Waiver of Stay or Extension Laws . . . . 71
<PAGE>
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee . . . . . . . . . . . 72
SECTION 7.02. Rights of Trustee . . . . . . . . . . . 73
SECTION 7.03. Individual Rights of Trustee . . . . . . 74
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . 75
SECTION 7.05. Notice of Defaults . . . . . . . . . . . 75
SECTION 7.06. Reports by Trustee to Holders . . . . . 75
SECTION 7.07. Compensation and Indemnity . . . . . . . 75
SECTION 7.08. Replacement of Trustee . . . . . . . . . 77
SECTION 7.09. Successor Trustee by Merger . . . . . . 78
SECTION 7.10. Eligibility; Disqualification . . . . . 78
SECTION 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . 78
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities;
Defeasance . . . . . . . . . . . . . . 79
SECTION 8.02. Conditions to Defeasance . . . . . . . . 80
SECTION 8.03. Application of Trust Money . . . . . . . 81
SECTION 8.04. Repayment to Company . . . . . . . . . . 82
SECTION 8.05. Indemnity for Government
Obligations . . . . . . . . . . . . . 82
SECTION 8.06. Reinstatement . . . . . . . . . . . . . 82
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders . . . . . . . 83
SECTION 9.02. With Consent of Holders . . . . . . . . 84
SECTION 9.03. Compliance with Trust Indenture Act . . . 85
SECTION 9.04. Revocation and Effect of Consents and
Waivers . . . . . . . . . . . . . . . . 85
SECTION 9.05. Notation on or Exchange
of Securities . . . . . . . . . . . . . 85
SECTION 9.06. Trustee to Sign Amendments . . . . . . . 86
SECTION 9.07. Payment for Consent . . . . . . . . . . 86
<PAGE>
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement to Subordinate . . . . . . . . 86
SECTION 10.02. Liquidation, Dissolution, Bankruptcy . . 87
SECTION 10.03. Default on Senior Indebtedness . . . . . 87
SECTION 10.04. Acceleration of Payment of Securities . . 88
SECTION 10.05. When Distribution Must Be Paid Over . . . 89
SECTION 10.06. Subrogation . . . . . . . . . . . . . . 89
SECTION 10.07. Relative Rights . . . . . . . . . . . . 89
SECTION 10.08. Subordination May Not Be Impaired by
Company . . . . . . . . . . . . . . . . 89
SECTION 10.09. Rights of Trustee and Paying Agent . . . 89
SECTION 10.10. Distribution or Notice to
Representative . . . . . . . . . . . . 90
SECTION 10.11. Article 10 Not To Prevent Events
of Default or Limit
Right To Accelerate . . . . . . . . . . 90
SECTION 10.12. Trust Moneys Not Subordinated . . . . . 90
SECTION 10.13. Trustee Entitled to Rely . . . . . . . . 91
SECTION 10.14. Trustee to Effectuate Subordination . . . 91
SECTION 10.15. Trustee Not Fiduciary for Holders of
Senior Indebtedness . . . . . . . . . . 92
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions . . . . . . . . . . . . . . 92
SECTION 10.17. Trustee's Compensation Not Prejudiced . . 92
ARTICLE 11
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls . . . . . . 92
SECTION 11.02. Notices . . . . . . . . . . . . . . . . 92
SECTION 11.03. Communication by Holders with Other
Holders . . . . . . . . . . . . . . . . 93
SECTION 11.04. Certificate of Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . 93
SECTION 11.05. Statements Required in Certificate or
Opinion . . . . . . . . . . . . . . . . 94
SECTION 11.06. When Securities Disregarded . . . . . . 94
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar . . . . . . . . . . . . . . . 95
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . 95
SECTION 11.09. Governing Law . . . . . . . . . . . . . 95
SECTION 11.10. No Recourse Against Others . . . . . . . 95
<PAGE>
SECTION 11.11. Successors . . . . . . . . . . . . . . . 95
SECTION 11.12. Multiple Originals . . . . . . . . . . . 95
SECTION 11.13. Table of Contents; Headings . . . . . . 95
Exhibit A - Form of Initial Security
Exhibit B - Form of Exchange Security
Exhibit C - Form of Transferee Letter of Representation
Exhibit D - Form of Note Guarantee
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310 (a) (1) . . . . . . . . . . . . . . . . . 7.10
(a) (2) . . . . . . . . . . . . . . . . . 7.10
(a) (3) . . . . . . . . . . . . . . . . . N.A.
(a) (4) . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . 11.03
313 (a) . . . . . . . . . . . . . . . . . 7.06
(b) (1) . . . . . . . . . . . . . . . . . N.A.
(b) (2) . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . 11.02
(d) . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . 4.02; 4.12;
11.02
(b) . . . . . . . . . . . . . . . . . N.A.
(c) (1) . . . . . . . . . . . . . . . . . 11.04
(c) (2) . . . . . . . . . . . . . . . . . 11.04
(c) (3) . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . 4.12
315 (a) . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . 6.11
316 (a) (last
sentence) . . . . . . . . . . . . . . . . . 11.06
(a) (1) (A) . . . . . . . . . . . . . . . . . 6.05
(a) (1) (B) . . . . . . . . . . . . . . . . . 6.04
(a) (2) . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . 6.07
317 (a) (1) . . . . . . . . . . . . . . . . . 6.08
(a) (2) . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . 11.01
N.A. means Not Applicable.
_____________________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
EXECUTION COPY
INDENTURE dated as of April 18, 1996, between SIMMONS
COMPANY, a Delaware corporation (the "Company"), and SUNTRUST
BANK, ATLANTA, a Georgia banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's 10-
3/4% Senior Subordinated Notes due 2006 (the "Initial Securities") and, when and
if issued as provided in the Exchange and Registration Rights Agreement of even
date herewith, the Company's 10-3/4% Senior Subordinated Notes Series A due 2006
(the "Exchange Securities", and together with the Initial Securities, the
"Securities").
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"Acquisition" means the acquisition on March 22, 1996, by Simmons
Acquisition Corp. (which was subsequently merged with and into the Company) of
shares of common stock, representing approximately 84.9% of the issued and
outstanding Capital Stock of the Company and other transactions directly related
thereto.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such
-------- -------
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any person who is a
<PAGE>
2
director or officer (a) of such Person, (b) of any Subsidiary of such Person or
(c) of any Person described in clause (i) above. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 4.06 and 4.07 only, "Affiliate" shall also
mean any beneficial owner of shares representing 5% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Applicable Premium" means, with respect to a Security at any Redemption
Date, the greater of (i) 1.0% of the principal amount of such Security and (ii)
the excess of (A) the present value at such time of (1) the redemption price of
such Security at April 15, 2001, as set forth in Section 3.07, plus (2) all
required interest payments (excluding accrued but unpaid interest) due on such
Security through April 15, 2001, computed using a discount rate equal to the
Treasury Rate plus 100 basis points, over (B) the principal amount of such
Security.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (ii) a disposition of property or assets in the ordinary course of
business and (iii) for purposes of Section 4.06 only, a disposition subject to
Section 4.04.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or
<PAGE>
3
similar payment with respect to such Preferred Stock multiplied by the amount of
such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Facility, the other Senior Credit Documents and the
Refinancing Indebtedness with respect thereto, as amended from time to time,
including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not a claim for post-filing interest is allowed in
such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees and all other amounts payable thereunder or in respect thereof.
"Banks" has the meaning specified in the Senior Credit Facility.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions (including, without limitation, the
Federal Reserve System) are authorized or required by law to close in New
York City.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Change of Control" means the occurrence of any of the following events:
<PAGE>
4
(i) prior to the earlier to occur of (A) the first public offering of Voting
Stock of Holdings or (B) the first public offering of Voting Stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
Holdings or Holdings shall cease to own 84% of the issued and outstanding Voting
Stock of the Company, whether as a result of issuance of securities of the
Company or Holdings, as the case may be, any merger, consolidation, liquidation
or dissolution of the Company or Holdings, as the case may be, any direct or
indirect transfer of securities by any Permitted Holder or otherwise (for
purposes of this clause (i) and clause (ii) below, the Permitted Holders shall
be deemed to own beneficially any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so long
as the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting Stock
of the parent corporation);
(ii) following the first public offering of Voting Stock of the Company or
Holdings, as the case may be, (A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in clause (i) above, except that
such person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total voting power of the Voting Stock of the Company or
Holdings, as the case may be, and (B) the Permitted Holders "beneficially own"
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
or Holdings, as the case may be, than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of the Company or Holdings, as
the case may be (for the purposes of this clause (ii), such other person shall
be deemed to own beneficially any Voting Stock of a specified corporation held
by a parent corporation, if such other person "beneficially owns" (as defined in
this clause (ii)), directly or indirectly, more than 35% of the voting power of
the Voting Stock of such parent corporation and the Permitted Holders
"beneficially
<PAGE>
5
own" (as defined in clause (i) above), directly or indirectly, in the aggregate
a lesser percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent corporation); or
(iii) following the first public offering of Voting Stock of the Company or
Holdings, as the case may be, any Person (other than Investcorp, its Affiliates
and members of the Management Group) (a) nominates one or more individuals for
election to the board of directors of the Company or Holdings, as the case may
be, (b) solicits proxies, authorizations or consents in connection therewith and
(c) such number of nominees elected to serve on the board of directors
represents a majority of the board of directors of the Company or Holdings, as
the case may be, following such election.
"Closing Date" means the date of this Indenture as set forth in the
preamble.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such determination
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided ,
--------
however, that (A) if the Company or any Restricted Subsidiary has Incurred any
- -------
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased,
<PAGE>
6
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (C) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (D) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (B) or (C) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount
<PAGE>
7
Of Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement has a
remaining term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, plus, to the extent
incurred by the Company and its Subsidiaries in such period but not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges attributable to letters of credit and bankers'
acceptance financing, (vi) interest actually paid by the Company or any such
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vii) net costs associated with Hedging Obligations (including
amortization of fees), (viii) the product of (A) all Preferred Stock dividends
in respect of all Preferred Stock of Subsidiaries of the Company and
Disqualified Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary multiplied by (B) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of the Company, expressed as a decimal, in
each case, determined on a consolidated basis in accordance with GAAP, and (ix)
the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust; provided, however, that there shall be excluded
-------- -------
therefrom any such interest expense of any Unrestricted Subsidiary to the extent
the related Indebtedness is not Guaranteed or paid by the Company or any
Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated
<PAGE>
8
Subsidiaries; provided, however, that there shall not be included in such
-------- -------
Consolidated Net Income
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained
in clause (v) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in
clause (iv) below) and (B) the Company's equity in a net loss of any such
Person (other than an Unrestricted Subsidiary) for such period shall be
included in determining such Consolidated Net Income,
(ii) any expense recognized (net of tax benefits related thereto) as a
consequence of payments permitted to be made by the Company under clauses
(b)(v)(A) through (C) of Section 4.04;
(iii) any net income (loss) of any person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition,
(iv) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the limitations contained in (v) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income,
<PAGE>
9
(v) any gain (but not loss) realized upon the sale or other
disposition of any asset of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but
not loss) realized upon the sale or other disposition of any Capital Stock
of any Person,
(vi) any extraordinary gain or loss, and
(vii) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus relat-
ing to such Capital Stock plus (iii) any retained earnings or earned surplus
less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" shall not include
-------- -------
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary shall
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Definitive Securities" means Securities that are in the form of Exhibit A
or Exhibit B attached hereto that
<PAGE>
10
do not include the information called for by footnote 1 thereof.
"Depository" means, with respect to the Securities issuable or issued in
whole or in part in global form, the person specified in Section 2.03 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depository" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least
$10,000,000 and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Securities.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense, (v) the effect of inventory
write-up under APB 16 in connection with the Acquisition, (vi) non-cash ESOP
Expense, (vii) the establishment of a reserve not in excess of $4,000,000 for a
one-time management tax gross up payment made in connection with the Acquisition
and (viii) non-cash expenses not in excess of $3,000,000 related to the
<PAGE>
11
prepayment of management fees paid pursuant to the Management Agreements.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ESOP" means the Simmons Company Employee Stock Ownership Plan, as from time
to time amended, supplemented or otherwise modified, and a trust forming a part
thereof and its successors.
"ESOP Expense" means, with respect to any period, the aggregate amount of
expenses incurred by the Company relating to the ESOP with respect to such
period calculated in accordance with GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement dated April 18, 1996, by and between the Initial
Purchaser and the Company, as such agreement may be amended, modified, or
supplemented from time to time in accordance with the terms thereof.
"Exchange Securities" means the 10-3/4% Senior Subordinated Notes due 2006
Series A to be issued pursuant to this Indenture in connection with the offer to
exchange Securities for the Initial Securities that may be made by the Company
pursuant to the Exchange and Registration Rights Agreement.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company which is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on
<PAGE>
12
GAAP contained in this Indenture shall be computed in conformity with GAAP as in
effect as of the Issue Date.
"Global Security" means a Security that is in the form of Exhibit A or
Exhibit B hereto that includes the information called for by footnote 1 thereof.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to keep-
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
-------- -------
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security is
registered on the Registrar's books.
"Holdings" means Simmons Holdings, Inc., a Delaware corporation.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any
-------- -------
<PAGE>
13
Indebtedness or Capital Stock of a Person existing at the time such person
becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be Incurred by such Subsidiary at the time it
becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money,
(ii) the principal of and premium (if any) in respect of obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments,
(iii) all obligations of such Person in respect of letters of credit
or other similar instruments (including reimbursement obligations with
respect thereto),
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion
of such services,
(v) all Capitalized Lease Obligations of such Person,
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of the Company, any referred Stock (but
excluding, in each case, any accrued dividends),
(vii) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
-------- -------
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other
Persons,
(viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person and
<PAGE>
14
(ix) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Initial Securities" means the 10-3/4% Senior Subordinated Notes due 2006,
issued under this Indenture on or about the date hereof.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investcorp" means INVESTCORP S.A., a Luxembourg corporation.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.04, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
--------
however, that upon a redesignation of such Subsidiary as a Restricted
- -------
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such
<PAGE>
15
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the Initial Securities are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreements" means (i) the Services and Expenses Agreement
between Holdings and the Company dated as of March 22, 1996, (ii) the Management
Services Agreement dated as of March 22, 1996, between Investcorp International,
Inc. ("III") and the Company, (iii) the Loan Finance and Advisory Services
Agreement dated as of March 22, 1996, between III and the Company, and (iv) the
Mergers and Acquisitions Advisory Agreement dated as of March 22, 1996, between
III and the Company.
"Management Group" means any Officer of the Company or Holdings.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred (including legal, accounting and investment banking fees and any
relocation expenses incurred as a result of an Asset Disposition), and all
federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to
<PAGE>
16
obtain a necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in Sub-
sidiaries or joint ventures as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock
by the Company or any Subsidiary, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Note Guarantee" means any guarantee that may from time to time be executed
and delivered by a Subsidiary of the Company pursuant to Section 4.12. Each such
Note Guarantee shall have subordination provisions equivalent to those contained
in this Indenture and will be substantially in the form of Exhibit D hereto.
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or any Assistant Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Investcorp, its Affiliates, members of the
Management Group and any Person acting in the capacity of an underwriter in
connection with a public or private offering of the Company's or Holdings'
Capital Stock.
<PAGE>
17
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary, the Company or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
--------
however, that the primary business of such Restricted Subsidiary is a Related
- -------
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
- -------- -------
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
--------
however, that such trade terms may include such concessionary trade terms as the
- -------
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary; and
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments or other
governmental charges not yet delinquent or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or such Restricted Subsidiary, as the
case may be, in accordance with GAAP; (ii) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business in respect of obligations that are not yet
due or that are bonded or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Company or such Restricted Subsidiary, as the case may be,
in accordance with GAAP; (iii) pledges or deposits in.connection with workmen's
compensation, unemployment insurance and other social security legislation; (iv)
deposits to secure the performance of bids, tenders, trade or government
contracts (other than for
<PAGE>
18
borrowed money), leases, licenses, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (v) easements (including reciprocal easement
agreements), rights-of-way, building, zoning and similar restrictions, utility
agreements, covenants, reservations, restrictions, encroachments, changes, and
other similar encumbrances or title defects incurred, or leases or sub-leases
granted to others, in the ordinary course of business, which do not in the
aggregate materially detract from the aggregate value of the properties of the
Company and its Subsidiaries, taken as a whole or in the aggregate materially
interfere with or adversely affect in any material respect the ordinary conduct
of the business of the Company and its Subsidiaries on the properties subject
thereto, taken as a whole; (vi) Liens pursuant to the Senior Credit Documents,
Liens in connection with industrial revenue bonds, Liens securing the Bank
Indebtedness and bankers' liens arising by operation of law; (vii) Liens on
property of the Company or any of its Restricted Subsidiaries created solely for
the purpose of securing Indebtedness permitted by clause (b)(iv) of Section 4.03
or incurred in connection with Indebtedness permitted by clause (b)(vii)
thereof; provided, however that, in the case of liens described in such clause
-------- -------
(b)(iv), no such Lien shall extend to or cover other property of the Company or
such Restricted Subsidiary other than the respective property so acquired, and
the principal amount of Indebtedness secured by any such Lien shall at no time
exceed the original purchase price of such property; (viii) Liens existing on
the date of this Indenture; (ix) Liens on goods (and the proceeds thereof) and
documents of title and the property covered thereby securing Indebtedness in
respect of commercial letters of credit; (x) (A) mortgages, liens, security
interests, restrictions or encumbrances that have been placed by any developer,
landlord or other third party on property over which the Company or any
Restricted Subsidiary of the Company has easement rights or on any real property
leased by the Company on the date of this Indenture and subordination or similar
agreements relating thereto and (B) any condemnation or eminent domain
proceedings affecting any real property; (xi) leases or subleases to third
parties; (xii) Liens in connection with workmen's compensation obligations and
general liability exposure of the Company and its Restricted Subsidiaries; and
(xiii) Liens securing Indebtedness Incurred under clause (b)(v) of Section 4.03.
<PAGE>
19
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security that is due or overdue or is to become
due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company or Holdings pursuant to an effective registration
statement (other than a registration statement on Form S-4, S-8 or any successor
or similar forms) under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding common
stock of the Company or Holdings (as applicable) has been distributed by means
of an effective registration statement under the Securities Act.
"Redeemable Stock" means, with respect to any Person, any Capital Stock that
is by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable) or upon the happening of any event (i) matures or
is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness (other than Preferred
Stock) or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part.
"Redemption Date" means the date on which the Securities are optionally
redeemed pursuant to Section 3.07.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge
<PAGE>
20
mechanism) (collectively, "refinances" and "refinanced" shall have a correlative
meaning) any Indebtedness existing on the date of this Indenture or Incurred in
compliance with this Indenture (including Indebtedness of the Company that
refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in
this Indenture) and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) except in the
-------- -------
case of any refunding, refinancing, replacement, renewal, repayment or extension
of any Bank Indebtedness, the Refinancing Indebtedness has a Stated Maturity no
earlier than the Stated Maturity of the Indebtedness being refinanced, (ii)
except in the case of any refunding, refinancing, replacement, renewal,
repayment or extension of any Bank Indebtedness, the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
refinanced and (iii) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being refinanced plus fees, underwriting
discounts and other costs and expenses incurred in connection with such
Refinancing Indebtedness; provided, further, however, that Refinancing
-------- ------- -------
Indebtedness shall not include (A) Indebtedness of a Restricted Subsidiary that
refinances Indebtedness of the Company or (B) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Registered Exchange Offer" shall have the meaning set forth in the Exchange
and Registration Rights Agreement.
"Related Business" means those businesses in which the Company and the
Restricted Subsidiaries are engaged on the date of this Indenture, or that are
directly related thereto.
"Representative" means the trustee, agent or representative (if any) of
Senior Indebtedness.
"Restricted Securities Legend" means the legend set forth in Section 2.06
hereof.
<PAGE>
21
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities" means, collectively, the Initial Securities and, when and if
issued as provided in the Exchange and Registration Rights Agreement, the
Exchange Securities.
"Securities Custodian" means the custodian with respect to the Global
Security (as appointed by the Depository), or any successor entity thereto and
shall initially be the Trustee.
"Senior Credit Documents" means the collective reference to the Senior
Credit Facility, the notes issued pursuant thereto and the Guarantees thereof,
and the Security Agreements, the Mortgages and the Pledge Agreements (each as
defined in the Senior Credit Facility).
"Senior Credit Facility" means the credit agreement dated as of March 22,
1996, as amended, waived or otherwise modified from time to time, among the
Company, the several lenders party thereto, and Chemical Bank, a New York
banking corporation, as administrative agent (except to the extent that any such
amendment, waiver or other modification thereto would be prohibited by the terms
of this Indenture, unless otherwise agreed to by the Holders of at least a
majority in aggregate principal amount of Notes at the time outstanding).
"Senior Indebtedness,, means, whether outstanding on the date of this
Indenture or thereafter issued, (i) all obligations consisting of the Bank
Indebtedness; (ii) all obligations consisting of the principal of and premium,
if any, and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in
<PAGE>
22
bankruptcy or for reorganization relating to the Company regardless of whether
post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable; (iii) all Capitalized Lease Obligations of
the Company; (iv) all obligations of the Company (A) for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (B) under interest rate swaps, caps, collars, options and similar
arrangements and foreign currency hedges entered into in respect of any
obligations described in clauses (i), (ii) and (iii) or (C) issued or assumed as
the deferred purchase price of property and all conditional sale obligations of
the Company and all obligations of the Company under any title retention
agreement; (v) all obligations of other persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons for the payment
of which, in either case, the Company is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including guarantees of such
obligations and dividends; and (vi) all obligations of the Company consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clauses (i), (ii), (iii), (iv) or (v); unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Securities; provided, however, that Senior Indebtedness shall not
-------- -------
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for federal, state, local or other taxes owed or owing by the Company,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of
the Company which is subordinate or junior to any other Indebtedness, Guarantee
or obligation of the Company or (5) any Indebtedness that is incurred in
violation of this Indenture. If any Designated Senior Indebtedness is dis-
allowed, avoided or subordinated pursuant to the provisions of Section 548 of
Title 11 of the United States Code or any applicable state fraudulent conveyance
law, such Designated Senior Indebtedness nevertheless shall constitute Senior
Indebtedness.
"Senior Subordinated Indebtedness" means the Securities and any other
Indebtedness of the Company that
<PAGE>
23
specifically provides that such Indebtedness is to rank pari passu with the
---- -----
Securities and is not subordinated by its terms to any Indebtedness or other
obligation of the Company that is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the date of this Indenture or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person or (ii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $300,000,000 (or the foreign
<PAGE>
24
currency equivalent thereof) (iii) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clause
(i) or (ii) above entered into with a bank meeting the qualifications described
in clause (ii) above, and (iv) investments in commercial paper, maturing not
more than six months after the date of acquisition, issued by any Lender (as
defined under the Senior Credit Facility) or the parent corporation of any
Lender, and commercial paper with a rating at the time as of which any
investment therein is made of "P-l" (or higher) according to Moody's Investors
Service, Inc. or "A-l" (or higher) according to Standard and Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sec.Sec. 77aaa-77bbbb) as
------
in effect on the date of this Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transfer Restricted Securities" means Securities that bear or are required
to bear the legend set forth in Section 2.06 hereof.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to April 15, 2001; provided, however, that if the period
-------- -------
from the Redemption Date to April 15, 2001, is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the Redemption Date to April 15, 2001, is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
<PAGE>
25
"Trustee" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned to and working in the corporate trust department of the Trustee, and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge and familiarity with the
particular subject.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
-------- -------
that either (A) the Subsidiary to be so designated has total consolidated assets
of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under Section 4.04. The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
-------- -------
designation (x) the Company could Incur $1.00 of additional Indebtedness under
Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any
designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
<PAGE>
26
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly Owned Subsidiary.
SECTION 1.02. Other Definitions.
------------------
Defined in
Term Section
---- -------
"Affiliate Transaction" ................ 4.07
"Bankruptcy Law" ....................... 6.01
"Blockage Notice" ...................... 10.03
"Covenant defeasance option" ........... 8.01 (b)
"Custodian" ............................ 6.01
"Event of Default" ..................... 6.01
"Legal defeasance option" .............. 8.01 (b)
"Legal Holiday" ........................ 11.08
"Offer" ................................ 4.06
"Offer Amount" ......................... 4.06
"Offer Period" ......................... 4.06
"Pay the Securities" ................... 10.03
"Paying Agent" ......................... 2.03
"Payment Blockage Period" .............. 10.03
"Purchase Date" ........................ 4.06
"Registrar" ............................. 2.03
"Restricted Payment" ................... 4.04
"Successor Company" .................... 5.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This
--------------------------------------------------
Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"Indenture securities" means the Securities.
<PAGE>
27
"Indenture security holder" means a Securityholder.
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the Trustee.
"Obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise requires:
----------------------
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) Unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as Unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP and accretion of principal on such security shall be
deemed to be the Incurrence of Indebtedness; and
(8) the principal amount of any Preferred Stock shall be (i) the maximum
liquidation value of such Preferred Stock or (ii) the maximum mandatory
redemp-
<PAGE>
28
tion or mandatory repurchase price with respect to such Preferred Stock,
whichever is greater.
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating. The Initial Securities and the Trustee's
----------------
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. Any
Exchange Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit B, which is incorporated in and expressly
made a part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). Each Security shall be
dated the date of its authentication. The terms of the Securities set forth in
Exhibit A and B are part of the terms of this Indenture.
(a) Global Securities. The Initial Securities are being offered and sold by
------------------
the Company pursuant to a Purchase Agreement, dated April 15, 1996, between the
Company and the Initial Purchaser.
Initial Securities offered and sold to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) ("QIBs") in accordance with Rule
144A under the Securities Act ("Rule 144A") as provided in the Purchase
Agreement, shall be issued initially in the form of a single, permanent Global
Security in definitive, fully registered form without interest coupons with the
legend set forth in footnote 1 to Exhibit A hereto (the "Restricted Global
Security"), which shall be deposited on behalf of the Initial Purchaser of the
Initial Securities represented thereby with the Trustee, as Securities Custodian
for the Depository, and registered in the name of the Depository or a nominee of
the Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Restricted Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Trustee, as Securities Custodian, and the Depository or its
nominee as hereinafter provided.
<PAGE>
29
(b) Book-Entry Provisions. This Section 2.01(b) shall apply only to Global
----------------------
Securities deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(b), authenticate and deliver initially one or more Global
Securities that (i) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (ii)
shall be held by the Trustee as custodian for the Depository. After the issuance
of Exchange Securities under a Registered Exchange Offer, the Trustee shall have
no duty to hold any Global Security as custodian for the Depository or any other
Security registered in the name of the Depository or a nominee of the
Depository.
Members of, or participants in, the Depository ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depository or by the Trustee as the custodian of the Depository or
under such Global Security, and the Depository may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices of such
Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(c) Certificated Securities. Except as otherwise provided herein, owners
------------------------
of beneficial interests in Global Securities will not be entitled to receive
physical delivery of certificated Securities. Purchasers of Initial Securities
who are not QIBs (referred to herein as the "Non-Global Purchasers") will
receive certificated Initial Securities bearing the Restricted Securities Legend
set forth in Exhibit A hereto ("Restricted Certificated Securities"); provided,
--------
however, that upon transfer of such Restricted Certificated Securities to a QIB
- -------
or in accordance with Regulation S, such Restricted Certificated Securities
will, unless the relevant Global Security has previously been exchanged, be
exchanged for an interest in a Global Security pursuant to the provisions of
Section 2.06 hereof.
<PAGE>
30
Certificated Securities will include the Restricted Securities Legend set forth
in Exhibit A unless removed in accordance with this Section 2.01(c) or Section
2.06(g) hereof.
After a transfer of any Initial Securities during the period of the
effectiveness of, and pursuant to, a Shelf Registration Statement with respect
to the Initial Securities, all requirements pertaining to legends on such
Initial Securities will cease to apply, the requirements requiring that any such
Initial Securities issued to certain Holders be issued in global form will cease
to apply, and certificated Initial Securities without legends will be made
available to the Holders of such Initial Securities. Upon the consummation of a
Registered Exchange Offer with respect to the Initial Securities pursuant to
which Holders of Initial Securities are offered Exchange Securities in exchange
for their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued in global
form will cease to apply and certificated Initial Securities with the Restricted
Securities Legend set forth in Exhibit A hereto will be available to Holders of
such Initial Securities that do not exchange their Initial Securities, and
Exchange Securities in certificated form will be available to Holders that
exchange such Initial Securities in such Registered Exchange Offer.
SECTION 2.02. Execution and Authentication. Two Officers shall sign the
-----------------------------
Securities for the Company by manual or facsimile signature. The Company's seal
shall be impressed, affixed, imprinted or reproduced on the Securities and may
be in facsimile form.
If an Officer whose signature is on a Security no longer holds that office
at the time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate and deliver (1) Initial Securities for
original issue in an aggregate principal amount of $100,000,000, and (2)
Exchange
<PAGE>
31
Securities for issue only in a Registered Exchange Offer, pursuant to the
Exchange and Registration Rights Agreement, for Initial Securities for a like
principal amount of Initial Securities exchanged pursuant thereto, in each case
upon a written order of the Company signed by two Officers or by an Officer and
either an Assistant Treasurer or an Assistant Secretary of the Company. Such
order shall specify the amount of the Securities to be authenticated, the date
on which the original issue of Securities is to be authenticated and whether the
Securities are to be Initial Securities or Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$100,000,000 except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably acceptable to the
Company to authenticate the Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an
---------------------------
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the provi-
sions of this Indenture that relate to such agent. The Company shall notify the
Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its Wholly Owned Subsidiaries that is a Domestic Subsidiary
may act as Paying Agent, Registrar, co-registrar or transfer agent.
<PAGE>
32
The Company initially appoints the Trustee as Registrar and Paying Agent in
connection with the Securities.
The Company initially appoints The Depository Trust Company to act as
Depository with respect to the Global Securities.
SECTION 2.04. Paying Agent to Hold Money in Trust. Prior to each due date of
------------------------------------
the principal and interest on any Security, the Company shall deposit with the
Paying Agent a sum sufficient to pay such principal and interest when so
becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Security holders or the Trustee all money held by the Paying Agent
for the payment of principal of or interest on the Securities and shall notify
the Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
to account for any funds disbursed by the Paying Agent. Upon complying with this
Section, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current
---------------------
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Security holders. If the Trustee is not the Registrar,
the Company shall furnish to the Trustee, in writing at least five Business Days
before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Security holders.
SECTION 2.06. Transfer and Exchange. (a) Transfer and Exchange of Definitive
---------------------- -----------------------------------
Securities. When Definitive Securities are presented to the Registrar or a co-
- -----------
registrar with a request:
(x) to register the transfer of such Definitive Securities; or
<PAGE>
33
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
- -------------------
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar
or co-registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are Definitive
Securities, are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause (A),
(B) or (C) below, and are accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Securities are being delivered to
the Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
substantially the form set forth on the reverse of the Security); or
(B) if such Transfer Restricted Securities are being transferred
to the Company or to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance with Rule 144A under
the Securities Act, a certification to that effect (in substantially
the form set forth on the reverse of the Security); or
(C) if such Transfer Restricted Securities are being transferred
(w) pursuant to an exemption from registration in accordance with Rule
144 or Regulation S under the Securities Act; or (x) to an
institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
the security for its own account, or for the account of such an
institutional accredited investor, in each case in
<PAGE>
34
a minimum principal amount of the Securities of $250,000 for
investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act;
or (y) in reliance on another exemption from the registration
requirements of the Securities Act: (i) a certification to that effect
(in substantially the form set forth on the reverse of the Security),
(ii) if the Company or Registrar so requests, an Opinion of Counsel
reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities Act and
(iii) in the case of clause (x), a signed letter substantially in the
form of Exhibit C hereto.
(b) Restrictions on Transfer of a Definitive Security for a
-------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- -----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted Security,
certification, substantially in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Security is a Transfer Restricted
Security, written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased
<PAGE>
35
accordingly. If no Global Securities are then outstanding, the Company shall
issue and the Trustee shall authenticate, upon written order of the Company in
the form of an Officers' Certificate, a new Global Security in the appropriate
principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and exchange of
--------------------------------------------
Global Securities or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture (including applicable restrictions
on transfer set forth herein, if any) and the procedures of the Depository
therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
------------------------------------------------------------
Definitive Security.
--------------------
(i) Any person having a beneficial interest in a Global Security that
is being transferred or exchanged pursuant to an effective registration
statement under the Securities Act or pursuant to clause (A),(B) or (C)
below may upon request, and if accompanied by the information specified
below, exchange such beneficial interest for a Definitive Security of the
same aggregate principal amount. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for the
Depository from the Depository or its nominee on behalf of any Person
having a beneficial interest in a Global Security and upon receipt by the
Trustee of a written order or such other form of instructions as is
customary for the Depository or the Person designated by the Depository as
having such a beneficial interest in a Transfer Restricted Security only,
the following additional information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the owner of a beneficial
interest in a Global Security, a certification from such Person to
that effect (in substantially the form set forth on the reverse of the
Security); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities
<PAGE>
36
Act, a certification to that effect (in substantially the form set
forth on the reverse of the Security); or
(C) if such beneficial interest is being transferred (w) pursuant
to an exemption from registration in accordance with Rule 144 or
Regulation S under the Securities Act; or (x) to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3)
or (7) under the Securities Act that is acquiring the security for its
own account, or for the account of such an institutional accredited
investor, in each case in a minimum principal amount of the Securities
of $250,000 for investment purposes and not with a view to, or for
offer or sale in connection with, any distribution in violation of the
Securities; or (y) in reliance on another exemption from the
registration requirements of the Securities Act: (i) a certification
to that effect from the transferee or transferor (in substantially the
form set forth on the reverse of the Security), (ii) if the Company or
Registrar so requests, an Opinion of Counsel from the transferee or
transferor reasonably acceptable to the Company and to the Registrar
to the effect that such transfer is in compliance with the Securities
Act, and (iii) in the case of clause (x), a signed letter
substantially in the form of Exhibit C hereto,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian,
the aggregate principal amount of the Global Security to be reduced on its
books and records and, following such reduction, the Company will execute
and the Trustee will authenticate and deliver to the transferee a
Definitive Security.
(ii) Definitive Securities issued in exchange for a beneficial interest
in a Global Security pursuant to this Section 2.06(d) shall be registered
in such names and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver such
Definitive Securities to
<PAGE>
37
the persons in whose names such Securities are so registered in accordance
with the instructions of the Depository.
(e) Restrictions on Transfer and Exchange of Global Securities.
-----------------------------------------------------------
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Security
may not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of Depository. If at
-----------------------------------------------------------------
any time:
(i) the Depository for the Securities notifies the Company that the
Depository is unwilling or unable to continue as Depository for the Global
Securities and a successor Depository for the Global Securities is not
appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Trustee in
writing that they elect to cause the issuance of Definitive Securities
under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities
to the Persons designated by the Company, will authenticate and deliver
Definitive Securities, in an aggregate principal amount equal to the principal
amount of Global Securities, in exchange for such Global Securities.
(g) Legend.
-------
(i) Except as permitted by the following paragraph (ii), each Security
certificate evidencing the Global Securities and the Definitive Securities
(and all Securities issued in exchange therefor or substitution thereof)
shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
<PAGE>
38
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE
ONRULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES
ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF
SUBPARAGRAPH (A) (1), (A) (2), (A) (3) OR (A) (7) OF RULE 501 UNDER
THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE
IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF ANY OF THE FOREGOING
CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE
<PAGE>
39
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security
that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) any such Transfer Restricted Security represented by a Global
Security shall not be subject to the provisions set forth in clause
(i) of this Section 2.06(g) (such sales or transfers being subject
only to the provisions of Section 2.06(c) hereof); provided, however,
that with respect to any request for an exchange of a Transfer
Restricted Security that is represented by a Global Security for a
Definitive Security that does not bear a legend, which request is made
in reliance upon Rule 144, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant to Rule 144
(such certification to be substantially in the form set forth on the
reverse of the Security).
(h) Cancellation and/or Adjustment of Global Security. At such time as all
--------------------------------------------------
beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to the Depository for cancellation or retained and canceled by
the Trustee. At any time prior to such cancellation, if any beneficial interest
in a Global Security is exchanged for Definitive Securities, redeemed,
repurchased or canceled, the principal amount of Securities represented by such
Global Security shall be reduced and an adjustment shall be made on the books
and records of the Trustee (if it is then the
<PAGE>
40
Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of Securities.
------------------------------------------------------------------
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive Securities and
Global Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith.
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of (a) any Definitive Security selected for
redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the mailing
of a notice of an offer to repurchase or redeem Securities or 15 Business
Days before an interest payment date.
(iv) Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
<PAGE>
41
(j) No Obligation of the Trustee. (i) The Trustee shall have no
-----------------------------
responsibility or obligation to any beneficial owner of a Global Security, a
member of, or a participant in the Depository or other Person with respect to
the accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depository) of any notice
(including any notice of redemption) or the payment of any amount, under or with
respect to such Securities. All notices and communications to be given to the
Holders and all payments to be made to Holders under the Securities shall be
given or made only to or upon the order of the registered Holders (which shall
be the Depository or its nominee in the case of a Global Security). The rights
of beneficial owners in any Global Security in global form shall be exercised
only through the Depository subject to the applicable rules and procedures of
the Depository. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depository with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor, determine
or inquire as to compliance with any restrictions on transfer imposed under
this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including without limitation any transfers
between or among Depository participants, members or beneficial owners in
any Global Security) other than to require delivery of such certificates
and other documentation or evidence as are expressly required by, and to do
so if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered
-----------------------
to the Registrar or if the Holder of a Security claims that the Security has
been lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the requirements of Section
8-405 of the Uniform Commercial Code are met, such that the Holder (i) satisfies
the Company or the Trustee within a reasonable time after he has notice of such
loss, destruction or wrongful taking and the Registrar does not register a
transfer prior to receiving such
<PAGE>
42
notification, (ii) so requests the Company or the Trustee prior to the Security
being acquired by a bona fide purchaser and (iii) satisfies any other reasonable
requirements of the Trustee. If required by the Trustee or the Company, such
Holder shall furnish an indemnity bond sufficient in the judgment of the Trustee
to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-
registrar from any loss that any of them may suffer if a Security is replaced.
The Company and the Trustee may charge the Holder for their expenses in
replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities. Securities outstanding at any time are
-----------------------
all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section as
not outstanding. A Security does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to pay all
principal and interest payable on that date with respect to the Securities (or
portions thereof) to be redeemed or maturing, as the case may be, and the Paying
Agent is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are ready
---------------------
for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
Definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate Definitive
<PAGE>
43
Securities and deliver them in exchange for temporary Securities.
SECTION 2.10. Cancellation. The Company at any time may deliver Securities
-------------
to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Securities surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancellation.
The Trustee shall not authenticate Securities in place of canceled Securities
other than pursuant to the terms of this Indenture.
SECTION 2.11. Defaulted Interest. If the Company defaults in a payment of
-------------------
interest on the Securities, the Company shall pay the defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the persons who are Security-
holders on a subsequent special record date. The Company shall fix or cause to
be fixed any such special record date and payment date to the reasonable
satisfaction of the Trustee and shall promptly mail to each Securityholder a
notice that states the special record date, the payment date and the amount of
defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use
--------------
"CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
--------
however, that any such notice may state that no representation is made as to the
- -------
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.
<PAGE>
44
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
--------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of
Securities to be redeemed and the paragraph of the Securities pursuant to
which the redemption will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company to the
effect that such redemption will comply with the conditions herein. If
fewer than all the Securities are to be redeemed, the record date relating
to such redemption shall be selected by the Company and given to the
Trustee, which record date shall be not less than 15 days after the date of
notice to the Trustee. Any such notice may be canceled at any time prior to
notice of such redemption being mailed to any Holder and shall thereby be
void and of no effect.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all
----------------------------------------
the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them the Trustee selects
shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of
this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption. The Trustee shall notify the
Company promptly of the Securities or portions of Securities to be
redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than
----------------------
60 days before a date for redemption of Securities, the Company shall mail
a notice of
<PAGE>
45
redemption by first-class mail to each Holder of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant to the
terms of this Indenture, interest on Securities (or portion thereof) called
for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required
by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
--------------------------------
is mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon
<PAGE>
46
surrender to the Paying Agent, such Securities shall be paid at the
redemption price stated in the notice, plus accrued interest, if any, to
the redemption date; provided that if the redemption date is after a
---------
regular record date and on or prior to the interest payment date, the
accrued interest shall be payable to the Securityholder of the redeemed
Securities registered on the relevant record date. Failure to give notice
or any defect in the notice to any Holder shall not affect the validity of
the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to 10:00 a.m. on the
-----------------------------
redemption date, the Company shall deposit with the Paying Agent (or, if
the Company or a Subsidiary is the Paying Agent, shall segregate and hold
in trust) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
-----------------------------
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate for the Holder (at the Company's expense) a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. Optional Redemption. (a) Except as set forth in the next
---------------------
two paragraphs, the Securities may not be redeemed prior to April 15, 2001.
On and after that date, the Company may redeem the Securities in whole at
any time or in part from time to time at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to
the redemption date
<PAGE>
47
subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date):
if redeemed during the 12-month period beginning on or after April 15
of the years set forth below:
Redemption
Period Price
------
2001 . . . . . . . . . . . . . . . . . . . 105.3750%
2002 . . . . . . . . . . . . . . . . . . . 103.5833%
2003 . . . . . . . . . . . . . . . . . . . 101.7917%
2004 and thereafter . . . . . . . . . . . . 100.0000%
(b) Notwithstanding the foregoing, at any time prior to April 15, 1999,
the Company may redeem in the aggregate up to 33 1/3% of the original
aggregate principal amount of Securities with the proceeds of one or more
Public Equity Offerings by Holdings (so long as substantially all its
assets consist of its investment in the Company) or the Company following
which there is a Public Market, at a redemption price (expressed as a
percentage of principal amount) of 110.75% plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 66 2/3% of the original aggregate
-------------------
principal amount of the Securities must remain outstanding after each such
redemption.
(c) At any time on or prior to April 15, 2001, the Securities may be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not fewer than 30 nor more than 60 days' prior
notice (but in no event more than 90 days after the occurrence of such
Change of Control) mailed by first-class mail to each Holder's registered
address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest,
if any, to, the Redemption Date (subject to the right of Holders of record
on the relevant record date to receive interest due on the relevant
interest payment date).
<PAGE>
48
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay the
-----------------------
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest
shall be considered paid on the date due if on such date the Trustee or the
Paying Agent holds in accordance with this Indenture money sufficient to
pay all principal and interest then due and the Trustee or the Paying
Agent, as the case may be, is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Company may not be
------------
required to be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall file with the SEC, and provide the
Trustee and Securityholders within 15 days after it files them with the
SEC, copies of its annual report and the information, documents and other
reports which are specified in Section 13 or 15(d) of the Exchange Act. In
addition, following a Public Equity Offering, the Company shall furnish to
the Trustee and the Securityholders, promptly upon their becoming
available, copies of the annual report to shareholders and any other
information provided by the Company or Holdings to its public shareholders
generally. The Company also shall comply with the other provisions of TIA
Sec. 314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and
----------------------------
shall not permit any Restricted Subsidiary to, Incur any Indebtedness;
provided, however, that the Company may Incur Indebtedness if on the date
-------------------
thereof the Consolidated Coverage Ratio would be greater than 2.00:1.00 if
such Indebtedness is Incurred through March 31, 1998, and 2.25:1.00
thereafter.
(b) Notwithstanding Section 4.03(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
<PAGE>
49
(i) Indebtedness under the Senior Credit Facility (as the same may
be amended from time to time, without increasing the committed amount
outstanding, except as otherwise permitted by this Section) and any
Refinancing Indebtedness with respect thereto in an aggregate
principal amount on the date of Incurrence which, when added to all
other Indebtedness Incurred pursuant to this clause (i) and then
outstanding, shall not exceed the sum of the outstanding Indebtedness
under the Senior Credit Facility and the unused commitments
thereunder; provided, however, that any Refinancing Indebtedness with
-------------------
respect to Indebtedness Incurred pursuant to this clause (i) shall not
be subject to the limitations contained in clauses (i) and (ii) of the
definition of Refinancing Indebtedness set forth in Section 1.01;
(ii) Indebtedness (A) of the Company to any Restricted Subsidiary
and (B) of any Restricted Subsidiary to the Company or any other
Restricted Subsidiary;
(iii) Indebtedness represented by the Securities, any Indebtedness
(other than the Indebtedness described in clauses (i)-(ii) above)
outstanding on the date of this Indenture and any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (iii) or paragraph (a) of this Section 4.03;
(iv) Indebtedness of the Company and its Restricted Subsidiaries
for industrial revenue bonds or other similar governmental and
municipal bonds, for the deferred purchase price of newly acquired
property and to finance equipment of the Company and its Restricted
Subsidiaries used in the ordinary course of business
(provided such financing is entered into within
----------
180 days of the acquisition of such equipment) of the Company and its
Restricted Subsidiaries in an amount (based on the remaining balance
of the obligations therefor on the books of the Company and its
Restricted Subsidiaries) which shall not exceed $12,000,000 in the
aggregate at any time outstanding;
(v) Indebtedness of the Company or any of its Restricted
Subsidiaries (which may comprise Bank Indebtedness) in an aggregate
principal amount at any time outstanding not in excess of $15,000,000.
<PAGE>
50
(vi) Indebtedness in an aggregate principal amount at any time
outstanding not in excess of $5,000,000 in respect of letters of
credit (other than letters of credit issued under the Senior Credit
Facility);
(vii) (A) Indebtedness assumed in connection with acquisitions
permitted under the Senior Credit Facility (so long as such
Indebtedness was not incurred in anticipation of such acquisitions),
(B) Indebtedness of newly acquired Subsidiaries acquired in such
acquisitions (so long as such Indebtedness was not incurred in
anticipation of such acquisitions) and (C) Indebtedness owned to the
seller in any acquisition permitted under the Senior Credit Facility
constituting part of the purchase price thereof, all in an aggregate
principal amount at any time outstanding not in excess of $5,000,000;
(viii) Indebtedness represented by the Note Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i) or (v)
above; and
(ix) Indebtedness incurred in connection with the repurchase of
shares of the Capital Stock of the Company or Holdings as permitted by
Section 4.04(b)(v)(D).
(c) Notwithstanding any other provision of this Section 4.03, the
Company shall not Incur any Indebtedness (i) pursuant to Section 4.03(b) if
the proceeds thereof are used, directly or indirectly, to repay, prepay,
redeem, defease, retire, refund or refinance any Subordinated Obligations
unless such Indebtedness shall be subordinated to the Securities to at
least the same extent as such Subordinated Obligations or (ii) pursuant to
Section 4.03(a) or 4.03(b) if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right
of payment to Senior Subordinated Indebtedness.
(d) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or any Restricted
Subsidiary may Incur pursuant to this Section shall not be deemed to be
exceeded solely as a result of fluctuations in the exchange rates of
currencies. For purposes of determining the outstanding principal amount of
any particular Indebtedness Incurred pursuant to this
<PAGE>
51
Section 4.03, (1) Indebtedness Incurred pursuant to the Senior Credit
Facility prior to or on the date of this Indenture shall be treated as
Incurred pursuant to
Section 4.03(b)(i), (2) Indebtedness permitted by this Section 4.03 need
not be permitted solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such provision and in part
by one or more other provisions of this Section permitting such
Indebtedness and (3) in the event that Indebtedness or any portion thereof
meets the criteria of more than one of the types of Indebtedness described
in this Section, the Company, in its sole discretion, shall classify such
Indebtedness and only be required to include the amount of such
Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall
-----------------------------------
not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and except dividends or distributions payable to the Company or
another Restricted Subsidiary (and, if such Restricted Subsidiary is not
wholly owned, to its other shareholders on a pro rata basis), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock
of the Company or any Restricted Subsidiary held by Persons other than the
Company or another Restricted Subsidiary, (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment
any Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition),
(iv) pay any amount to Holdings for the purposes set forth in clauses
(v)(A) through (C) of the following paragraph (b), or (v) make any
Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment
<PAGE>
52
being herein referred to as a "Restricted Payment") if at the time the
Company or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company could not Incur at least $1.00 of additional
Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution of the
Board of Directors) declared or made subsequent to the Issue Date
would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the Issue Date to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary of the Company or an employee
stock ownership plan or other trust established by the Company or
any of its Subsidiaries); and
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary)
subsequent to the Issue Date of any Indebtedness of the Company
or its Restricted Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other property distributed by the
Company or any Restricted Subsidiary upon such conversion or
exchange).
<PAGE>
53
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or other trust established
by the Company or any of its Subsidiaries); provided, however, that (A)
-------------------
such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
applied in the manner set forth in this clause (i) shall be excluded from
clause (3)(B) of Section 4.04(a);
(ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to Section 4.03; provided, however, that such purchase or redemption shall
-------------------
be excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by Section 4.06; provided, however,
------------------
that such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.04(a); provided, however, that such dividend shall be
-------------------
included in the calculation of the amount of Restricted Payments; or
(v) payment of dividends, other distributions or other amounts by the
Company for the purposes set forth in clauses (A) through (E) below;
provided, however, that such dividend, distribution or amount set forth in
-------------------
clauses (A) through (D) shall be included in the calculation of the amount
of Restricted Payments for the purposes of Section 4.04(a):
(A) to Holdings in amounts equal to the amounts required for Holdings
to pay franchise
<PAGE>
54
taxes and other fees required to maintain its corporate existence
and provide for other operating costs of up to $500,000 per
fiscal year;
(B) to Holdings in amounts equal to amounts required for
Holdings to pay federal, state and local income taxes to the
extent such income taxes are attributable to the income of the
Company and its Restricted Subsidiaries (and, to the extent of
amounts actually received from its Unrestricted Subsidiaries, in
amounts required to pay such taxes to the extent attributable to
the income of such Unrestricted Subsidiaries);
(C) to Holdings in amounts equal to amounts expended by
Holdings to repurchase Capital Stock of Holdings owned by former
employees of the Company or its Subsidiaries or their assigns,
estates and heirs; provided, however, that the aggregate amount
-------------------
paid, loaned or advanced to Holdings pursuant to this clause (C)
shall not, in the aggregate, exceed $2,500,000 per fiscal year of
the Company, up to a maximum aggregate amount of $7,500,000
during the term of this Indenture, plus any amounts contributed
by Holdings to the Company as a result of resales of such
repurchased shares of Capital Stock;
(D) in amounts equal to amounts expended by the Company to
repurchase shares of its Capital Stock from deceased or retired
employees in accordance with the terms of the ESOP as in effect
on the Closing Date and from employees whose employment with the
Company or any of its Subsidiaries has terminated for any other
reason but only to the extent mandatorily required by the ESOP as
in effect on the Closing Date, the Code or ERISA; provided that
---------
in each case the Company has deferred making any cash payments in
respect of such repurchase obligations to the maximum extent
possible under the ESOP as in effect on the Closing Date; and
(E) in an amount not in excess of an aggregate amount of
$750,000 to redeem the Series C Preferred Stock of the Company
that was called for redemption in connection with the
Acquisition.
<PAGE>
55
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
-------------------------
Restricted Subsidiary to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other
obligations owed to the Company, (ii) make any loans or advances to the
Company or (iii) transfer any of its property or assets to the Company,
except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the date of this Indenture;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired
by the Company) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (1) or (2) of this Section or this
clause (3) or contained in any amendment to an agreement referred to
in clause (1) or (2) of this Section or this clause (3); provided,
---------
however, that the encumbrances and restrictions contained in any such
---------
refinancing agreement or amendment are no less favorable to the
Securityholders than encumbrances and restrictions contained in such
agreements;
(4) in the case of clause (iii), any encumbrance or restriction
(A) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license
or similar contract, (B) by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or
assets of the Company or any
<PAGE>
56
Restricted Subsidiary not otherwise prohibited by this Indenture or
(C) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security
agreements; and
(5) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock. (a)
----------------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
make any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration (including by way of relief from, or by
any other Person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of such Asset Disposition at least
equal to the fair market value of the shares and assets subject to such
Asset Disposition, (ii) at least 80% of the consideration thereof received
by the Company or such Restricted Subsidiary is in the form of cash and
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be) (A) first, to the extent the Company elects (or is
-------
required by the terms of any Senior Indebtedness or Indebtedness (other
than Preferred Stock) of a Wholly Owned Subsidiary), to prepay, repay or
purchase Senior Indebtedness or such Indebtedness (other than Preferred
Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within 12 months after
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of Net Available
--------
Cash after application in accordance with clause (A), to the extent the
Company or such Restricted Subsidiary elects, to reinvest in Additional
Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) within 12 months from the later of such
Asset Disposition or the receipt of such Net Available Cash; (C) third, to
-------
the extent of the balance of such Net Available Cash after application in
accordance with clauses (A) and (B), to make
<PAGE>
57
an Offer to purchase Securities pursuant to and subject to the conditions
of Section 4.06(b), and (D) fourth, to the extent of the balance of such
--------
Net Available Cash after application in accordance with clauses (A), (B)
and (C), to (x) acquire Additional Assets (other than Indebtedness and
Capital Stock) or (y) prepay, repay or purchase Indebtedness of the Company
(other than Indebtedness owed to an Affiliate of the Company and other than
Disqualified Stock of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of
the Company), in each case described in this clause (D) within one year
from the receipt of such Net Available Cash or, if the Company has made an
Offer pursuant to Section 4.06(b), six months from the date such Offer is
consummated; provided, however that in connection with any prepayment,
------------------
repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D)
above, the Company or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. The Company and the Restricted Subsidiaries shall not
be required to apply any Net Available Cash in accordance with this Section
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions that is not applied in accordance with this Section 4.06
exceeds $500,000.
For the purposes of this Section 4.06, the following are deemed to be
cash: (x) the assumption of Indebtedness of the Company (other than
Disqualified Stock of the Company) or any Restricted Subsidiary and the
release of the Company or such Restricted Subsidiary from all liability on
such Indebtedness in connection with such Asset Disposition and (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to
Section 4.06(a)(iii)(C), the Company shall be required to purchase
Securities tendered pursuant to an offer by the Company for the Securities
(the "Offer") at a purchase price of 100% of their principal amount plus
accrued and unpaid interest to-the Purchase Date in accordance with the
procedures (including prorationing in the event of over-subscription) set
forth in Section 4.06(c). If the aggregate purchase price of Securities
tendered pursuant to the
<PAGE>
58
Offer is less than the Net Available Cash allotted to the purchase of the
Securities, the Company shall apply the remaining Net Available Cash in
accordance with Section 4.06(a)(iii)(D). The Company shall not be required
to make an Offer for Securities pursuant to this Section if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (A) and (B) of Section 4.06(a)(iii)) is less than
$5,000,000 for any particular Asset Disposition (which lesser amounts shall
be carried forward for purposes of determining whether an Offer is required
with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to
deliver to the Trustee and send, by first-class mail to each Holder, a
written notice stating that the Holder may elect to have his Securities
purchased by the Company either in whole or in part (subject to
prorationing as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not
less than 30 days nor more than 60 days after the date of such notice (the
"Purchase Date") and shall contain such information concerning the business
of the Company which the Company in good faith believes will enable such
Holders to make an informed decision (which at a minimum shall include (i)
the most recently filed Annual Report on Form 10-K (including audited
consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on
Form 8-K of the Company filed subsequent to such Quarterly Report, other
than Current Reports describing Asset Dispositions otherwise described in
the offering materials (or corresponding successor reports), (ii) a
description of material developments in the Company's business subsequent
to the date of the latest of such Reports, and (iii) if material,
appropriate pro forma financial information) and all instructions and
materials necessary to tender Securities pursuant to the Offer, together
with the address referred to in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, the Company shall deliver to
the Trustee an Officers' Certificate as to (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the
Asset Dispositions pursuant to which such Offer is being
<PAGE>
59
made and (iii) the compliance of such allocation with the provisions of
Section 4.06(a). On such date, the Company shall also irrevocably deposit
with the Trustee or with a paying agent (or, if the Company is acting as
its own paying agent, segregate and hold in trust) in Temporary Cash
Investments an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Offer remains open (the "Offer Period"), the Company
shall deliver to the Trustee for cancellation the Securities or portions
thereof which have been properly tendered to and are to be accepted by the
Company. The Trustee (or the Paying Agent, if not the Trustee) shall, on
the Purchase Date, mail or deliver payment to each tendering Holder in the
amount of the purchase price. In the event that the aggregate purchase
price of the Securities delivered by the Company to the Trustee is less
than the Offer Amount, the Trustee shall deliver the excess to the Company
immediately after the expiration of the Offer Period for application in
accordance with this Section.
(3) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business
Day prior to the Purchase Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Security which was delivered by the Holder for purchase and a statement
that such Holder is withdrawing his election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that
only Securities in denominations of $1,000, or integral multiples thereof,
shall be purchased). Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an
Officers' Certificate stating that such Securities are to be accepted by
the Company pursuant to and in accordance with the terms of this Sec-
<PAGE>
60
tion. A Security shall be deemed to have been accepted for purchase at the
time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities
pursuant to this Section. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section,
the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
this Section by virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates. (a) The
--------------------------------------------
Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into or conduct any transaction (including,
the purchase, sale, lease or exchange of any property or the rendering of
any service) with any Affiliate of the Company (an "Affiliate Transaction")
on terms (i) that are less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate and (ii) that, in the event such Affiliate Transaction
involves an aggregate amount in excess of $500,000, are not in writing and
have not been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction. Any
transaction involving aggregate payments or other transfers by the Company
and its Restricted Subsidiaries in excess of $3,000,000, shall require an
opinion from an independent investment banking firm or appraiser of
national prominence, as appropriate, to the effect that such transaction is
fair to the Company or such Restricted Subsidiary from a financial point of
view.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) the
performance of the Company's or Subsidiary's obligations under any
employment contract, collective bargaining agreement, employee benefit
plan, related trust agreement or any other similar arrangement heretofore
or hereafter entered into in the ordinary course of business, (iii) payment
of compensation to employees, officers, directors or consultants in the
<PAGE>
61
ordinary course of business, (iv) maintenance in the ordinary course of
business of benefit programs or arrangements for employees, officers or
directors, including vacation plans, health and life insurance plans,
deferred compensation plans, and retirement or savings plans and similar
plans, (v) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries, (vi) the payment of
certain fees under the agreement described in clause (ii) of the definition
of the term "Management Agreements", provided that such payment shall not
exceed an aggregate amount of $1,000,000 during any 12-month period or
(vii) payments to certain members of management in respect of a one-time
management tax gross up made in connection with the Acquisition not in
excess of an aggregate amount of $1,376,000 or (viii) payments made to
Holdings to reimburse Holdings for costs, fees and expenses incident to a
registration of any of the capital stock of Holdings for a primary offering
under the Securities Act of 1933, as amended, so long as the net proceeds
of such offering (if it is completed) are contributed to, or otherwise used
for the benefit of, the Company.
SECTION 4.08. Change of Control. (a) Upon a Change of Control, each
-------------------
Holder shall have the right to require that the Company repurchase all or
any part of such Holder's Securities at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on
a record date to receive interest due on the relevant interest payment
date), in accordance with the terms contemplated in Section 4.08(b);
provided, however, that notwithstanding the occurrence of a Change in
-------------------
Control, the Company shall not be obligated to purchase the Securities
pursuant to this Section 4.08 in the event that it has exercised its right
to redeem all the Securities under Section 3.07 hereof. In the event that
at the time of such Change of Control the terms of the Bank Indebtedness
restrict or prohibit the repurchase of Securities pursuant to this Section,
then prior to the mailing of the notice to Holders provided for in Section
4.08(b) below but in any event within 30 days following any Change of
Control, the Company shall (i) repay in full all Bank Indebtedness or offer
to repay in full all Bank Indebtedness and repay the Bank Indebtedness of
each lender who has accepted such offer or (ii) obtain the requisite
consent under the agreements governing the Bank Indebtedness to permit the
repurchase of the Securities as provided for in Section 4.08(b).
<PAGE>
62
(b) Within 30 days following any Change of Control (except as provided
in the proviso to the first sentence of Section 4.08(a)), the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities
at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on a record date
to receive interest due on the relevant interest payment date);
(2) the circumstances and relevant facts and financial
information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with
this Section, that a Holder must follow in order to have its
Securities purchased.
(c) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the purchase date. Holders shall be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business
Day prior to the purchase date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Security which was delivered for purchase by the Holder and a statement
that such Holder is withdrawing his election to have such Security
purchased.
(d) On the purchase date, all Securities purchased by the Company under
this Section shall be delivered to the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if
any, to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities
pursuant to
<PAGE>
63
this Section. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section,
the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
this Section by virtue thereof.
SECTION 4.09. Compliance Certificate. The Company shall deliver to the
------------------------
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate complying with Section 314(a)(4) of the TIA and
stating that a review of its activities and the activities of its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under
this Indenture and further stating, as to each Officer signing such
certificate, whether or not the signer knows of any failure by the Company
or any Subsidiary of the Company to comply with any conditions or covenants
in this Indenture, and, if such signer does know of such a failure to
comply, the certificate shall describe such failure with particularity and
describe what actions, if any, the Company proposes to take with respect to
such failure.
SECTION 4.10. Further Instruments and Acts. Upon request of the
------------------------------
Trustee, the Company shall execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
SECTION 4.11. Limitation on Liens. The Company shall not, and shall not
---------------------
permit any Restricted Subsidiary to, directly or indirectly, create or
permit to exist any Lien on any of its property or assets (including
Capital Stock), whether owned on the date of this Indenture or thereafter
acquired, securing any obligation other than Permitted Liens unless
contemporaneously therewith (or prior to) effective provision is made to
secure the Securities on an equal and ratable basis (or on a senior basis,
in the case of Indebtedness subordinated in right of payment to the
Securities) with such obligation for so long as such obligation is so
secured.
SECTION 4.12. Subsidiary Guarantees. The Company shall cause each
-----------------------
Domestic Subsidiary which Incurs Indebtedness or which is a guarantor of
Indebtedness Incurred pursuant to clause (b)(i) or (b)(v) of Section 4.03
<PAGE>
64
to execute and deliver to the Trustee a Note Guarantee pursuant to which
such Subsidiary shall Guarantee payment of the Securities on the terms and
conditions set forth in this Indenture. Each Note Guarantee shall be
limited in amount to an amount not to exceed the maximum amount that can be
Guaranteed by that Subsidiary without rendering the Note Guarantee, as it
relates to such Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
SECTION 4.13. Limitation on Lines of Business. The Company shall not,
---------------------------------
and shall not permit any Restricted Subsidiary to, engage in any business,
other than a Related Business.
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. The Company
-------------------------------------------
shall not consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
<PAGE>
65
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not less
than the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture, but
the predecessor Company in the case of a lease of all or substantially all
its assets shall not be released from the obligation to pay the principal
of and interest on the Securities.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (1) any
Restricted Subsidiary may consolidate with, merge into or transfer all or
part of its properties and assets to the Company and (2) the Company may
merge with an Affiliate incorporated for the purpose of reincorporating the
Company in another jurisdiction to realize tax or other benefits.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
------------------
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase (including those pursuant to
Section 4.06 and 4.08), upon declaration or otherwise, whether or not such
payment shall be prohibited by Article 10;
<PAGE>
66
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06,
4.07, 4.08, 4.11, 4.12 or 4.13 (other than a failure to purchase Securities
when required under Section 4.06 or 4.08) and such failure continues for 30
days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2), (3)
or (4) above) and such failure continues for 60 days after the notice
specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or the acceleration
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10,000,000 or its foreign
currency equivalent at the time;
(7) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
<PAGE>
67
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or
any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order
or decree remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$10,000,000 or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary and is not discharged,
waived or stayed and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following the entry of such judgment or decree during
which such judgment or decree is not discharged, waived or the execution
thereof stayed; or
(10) any Note Guarantee by a Guarantor which is a Significant
Subsidiary shall cease to be in full force and effect (except as
contemplated by the terms thereof) or any such Note Guarantor or person
acting by or on behalf of such Guarantor shall deny or disaffirm its
obligations under this Indenture or any Note Guarantee and such Default
continues for 10 days after the notice specified below.
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or
is effected by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative
or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
--------------------
similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the
Securities notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such notice.
<PAGE>
68
Such notice must specify the Default, demand that it be remedied and state
that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clause (6) and any event which with the
giving of notice or the lapse of time would become an Event of Default
under clause (4), (5) or (9), its status and what action the Company is
taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event
--------------
of Default specified in Section 6.01(7) or (8) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by notice to
the Company and the Trustee, may declare the principal of and accrued but
unpaid interest on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(7) or (8)
with respect to the Company occurs, the principal of and interest on all
the Securities shall ipso facto become and be immediately due and payable
-----------
without any declaration or other act on the part of the Trustee or any
Securityholders. The Holders of a majority in principal amount of the
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely
because of acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
----------------
continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any
right or remedy accruing upon an Event of Default shall not impair the
right or remedy or constitute a waiver of or acquies-
<PAGE>
69
cence in the Event of Default. No remedy is exclusive of any other remedy.
All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
-------------------------
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment
of the principal of or interest on a Security or (ii) a Default in respect
of a provision that under Section 9.02 cannot be amended without the
consent of each Securityholder affected. When a Default is waived, it is
deemed cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
---------------------
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve
the Trustee in personal liability; provided, however, that the Trustee may
-------------------
take any other action deemed proper by the Trustee that is not inconsistent
with such direction. Prior to taking any action hereunder, the Trustee
shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking
such action.
SECTION 6.06. Limitation on Suits. A Security-holder may not pursue any
---------------------
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
<PAGE>
70
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity;
and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
--------------------------------------
other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder,
on or after the respective due dates expressed in the Securities, or to
bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
----------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount then due and owing (together with
interest on any unpaid interest to the extent lawful) and the amounts
provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
----------------------------------
such proofs of claim and other papers or documents and take such other
actions, including participating as a member, voting or otherwise, of any
committee of creditors appointed in the matter, as may be necessary or
advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceedings relative to the
Company, any Subsidiary or Note Guarantor, their creditors or their
property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or
other Person performing similar functions, and any Custodian in any such
judicial proceeding is hereby authorized by each Holder to make payments to
the Trustee and, in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and
advances of the
<PAGE>
71
Trustee, its agents and its counsel, and any other amounts due the Trustee
under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or property
------------
pursuant to this Article 6, it shall pay out the money or property in the
following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness to the extent required by
Article 10;
THIRD: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such
record date, the Trustee shall mail to each Securityholder and the Company
a notice that states the record date, the payment date and amount to be
paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
-----------------------
any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking
to pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply
to a suit by the Company, a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
----------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead,
or in any manner whatsoever claim or take the benefit or advantage of, any
stay or extension law wherever enacted, now or at any time hereafter
<PAGE>
72
in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and shall
not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power
as though no such law had been enacted.
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
-------------------
occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
Default:
(b)
Except during the continuance of an Event of
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer
<PAGE>
73
unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The
-------------------
Trustee may rely on any document believed by it to be genuine and to have
been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on the Officers' Certificate or Opinion of Counsel.
(C) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
<PAGE>
74
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights
or powers; provided, however, that the Trustee's conduct does not
-------------------
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here-
under in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, debenture, note or other paper or document unless requested in
writing to do so by the Holders of not less than a majority in principal
amount of the Securities at the time outstanding, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney, during reasonable business hours and subject to executing a
confidentiality undertaking in customary form with respect to confidential
and/or proprietary information of the Company; provided, however, that if
-------------------
the payment within a reasonable time to the Trustee of the costs, expenses
or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require reasonable indemnity against such expense or
liability as a condition to so proceeding.
(g) The Trustee shall not be deemed to have knowledge of any default or
fact the occurrence of which requires the Trustee to take any action (other
than a payment default hereunder) unless a Trust Officer knows of such
default or fact.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
------------------------------
individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal
<PAGE>
75
with the Company or its Affiliates with the same rights it would have if it
were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying
agent may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
----------------------
responsible for and makes no representation as to the validity or adequacy
of this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-----------------------
continuing and if it is known to a Trust Officer of the Trustee, the
Trustee shall mail to each Securityholder notice of the Default within 90
days after it occurs. Except in the case of a Default in payment of
principal of or interest on any Security (including payments pursuant to
the mandatory redemption provisions of such Security, if any), the Trustee
may withhold the notice if and so long as a committee of its Trust Officers
in good faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable
-------------------------------
after each May 15 beginning with the May 15 following the date of this
Indenture, but only upon the occurrence within the previous 12 months of
any events specified in TIA Sec. 313(a), the Trustee shall mail to each
Securityholder a brief report dated as of May 15 that complies with TIA
Sec. 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
----------------------------
Trustee, Paying Agent and Registrar from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
<PAGE>
76
Company shall reimburse the Trustee upon request for all reasonable out-of-
pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include
the reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Company shall
indemnify the Trustee, Paying Agent, Registrar, and each of their officers,
directors, agents and employees (each in their respective capacities), for
and hold each of them harmless against any and all loss, liability or
expense (including attorneys' fees) incurred by them without negligence or
bad faith on their part in connection with the administration of this trust
and the performance of their duties hereunder. The Trustee, Paying Agent
and Registrar shall notify the Company of any claim for which they may seek
indemnity promptly upon obtaining actual knowledge thereof; provided that
---------
any failure so to notify the Company shall not relieve the Company of its
indemnity obligations hereunder except to the extent the Company shall have
been adversely affected thereby. The Company shall defend the claim and the
indemnified party shall provide reasonable cooperation at the Company's
expense in the defense. Such indemnified parties may have separate counsel
and the Company shall pay the fees and expenses of such counsel; provided
--------
that the Company shall not be required to pay such fees and expenses if it
assumes such indemnified parties' defense and, in such indemnified parties'
reasonable judgment, there is no conflict of interest between the Company
and such parties in connection with such defense. The Company need not pay
for any settlement made without its written consent. The Company need not
reimburse any expense or indemnify against any loss, liability or expense
incurred by an indemnified party through such party's own wilful
misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust
to pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee, Paying Agent or
Registrar incurs expenses after the occurrence of a Default specified in
Section 6.01(7) or (8) with respect to the Company, the expenses are
intended
<PAGE>
77
to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
------------------------
time by so notifying the Company in writing. The Holders of a majority in
principal amount of the Securities may remove the Trustee by so notifying
the Company and the Trustee and may appoint a successor Trustee with the
consent of the Company, which shall not be unreasonably withheld. The
Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly
appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Securityholders. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee,
subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders
of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
<PAGE>
78
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
-----------------------------
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not
have been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name
of the successor to the Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
-------------------------------
times satisfy the requirements of TIA Sec. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply
with TIA Sec. 310(b); provided, however, that there shall be excluded from
-------------------
the operation of TIA Sec. 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Sec. 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
---------------------------------------------------
Trustee shall comply with TIA Sec. 311(a), excluding any creditor
relationship listed in TIA
<PAGE>
79
Sec. 311(b). A Trustee who has resigned or been removed shall be subject to
TIA Sec. 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities: Defeasance. (a)
--------------------------------------------------
When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07) for cancellation
or (ii) all outstanding Securities have become due and payable, whether at
maturity or as a result of the mailing of a notice of redemption pursuant
to Article 3 hereof and the Company irrevocably deposits with the Trustee
funds or U.S. Government Obligations on which payment of principal and
interest when due will be sufficient to pay at maturity or upon redemption
all outstanding Securities, including interest thereon to maturity or such
redemption date (other than Securities replaced pursuant to Section 2.07),
and if in either case the Company pays all other sums payable hereunder by
the Company, then this Indenture shall, subject to Section 8.01(c), cease
to be of further effect. The Trustee shall acknowledge satisfaction and
discharge of this Indenture on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel and at the cost and expense
of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02,
4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 5.01(iii) and
5.01(iv) and the operation of Section 6.01(4), 6.01(6), 6.01(7) (with
respect to Subsidiaries of the Company only), 6.01(8) (with respect to
Subsidiaries of the Company only) and 6.01(9) ("covenant defeasance
option"). The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities
may not be accelerated because of an Event of Default specified in Section
6.01(4), 6.01(6), 6.01(7) (with respect to Subsidiaries of the Company
only), 6.01(8) (with respect
<PAGE>
8O
to Subsidiaries of the Company only) and 6.01(9) or because of the failure
of the Company to comply with (iii) and (iv) of Section 5.01.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of
those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04,
8.05 and 8.06 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
--------------------------
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any)
and interest on the Securities to maturity or redemption, as the case may
be;
(2) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that
the payments of principal and interest when due and without reinvestment on
the deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other agreement
binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from
<PAGE>
81
the deposit does not constitute, or is qualified as, a regulated investment
company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Security-holders will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future
date in accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
----------------------------
trust money or U.S. Government Obligations deposited with it pursuant to
this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
Money and securities so held in trust are not subject to Article 10.
<PAGE>
82
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
----------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to
the Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company shall
--------------------------------------
pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
---------------
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under
this Indenture and the Securities shall be revived and reinstated as though
no deposit had occurred pursuant to this Article 8 until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with this Article 8; provided,
---------
however., that, if the Company has made any payment of interest on or
----------
principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
<PAGE>
83
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the Trustee
----------------------------
may amend this Indenture or the Securities without notice to or consent of
any Security-holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in place
of certificated Securities; provided, however, that the uncertificated
-------------------
Securities are issued in registered form for purposes of Section 163(f) of
the Code or in a manner such that the uncertificated Securities are
described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article 10;
(5) to add further Guarantees with respect to the Securities or to
secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(8) to make any change that does not adversely affect the rights of any
Securityholder; or
(9) to provide for the issuance and authorization of the Exchange
Securities.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness (or any
group or
<PAGE>
84
representative thereof authorized to give a consent) consent to such
change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment.
The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee may
-------------------------
amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in
principal amount of the Securities. However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment;
(2) reduce the rate of or extend the time for payment of interest
on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security
or change the time at which any Security may be redeemed in accordance
with Article 3;
(5) make any Security payable in money other than that stated in
the Security;
(6) make any change in Article 10 that adversely affects the rights
of any Securityholder under Article 10; or
(7) make any change in Section 6.04 or 6.07 or the second sentence
of this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of
<PAGE>
85
any holder of Senior Indebtedness then outstanding unless the holders of
such Senior Indebtedness (or any group or representative thereof authorized
to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment.
The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to
-------------------------------------
this Indenture or the Securities shall comply with the TIA as then in
effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent
-----------------------------------------------
to an amendment or a waiver by a Holder of a Security shall bind the Holder
and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to
such Holder's Security or portion of the Security if the Trustee receives
the notice of revocation before the date the amendment or waiver becomes
effective. After an amendment or waiver becomes effective, it shall bind
every Security-holder. An amendment or waiver becomes effective once the
requisite number of consents are received by the Company or the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted
to be taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to give such consent or to revoke any
consent previously given or to take any such action, whether or not such
Persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
-------------------------------------
changes the terms of a
<PAGE>
86
Security, the Trustee may require the Holder of the Security to deliver it
to the Trustee. The Trustee may place an appropriate notation on the
Security regarding the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the
appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
----------------------------
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Indenture and complies with the provisions hereof (including Section 9.03).
SECTION 9.07. Payment for Consent. Neither the Company nor any
---------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to
any Holder for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of this Indenture or the Securities unless
such consideration is offered to be paid to all Holders that so consent,
waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and each
--------------------------
Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the
extent and in the manner provided in this Article 10, to the prior payment
in full of all Senior Indebtedness and that the subordination is for the
benefit of and enforceable by the holders of Senior Indebtedness. The
Securities shall in all respects rank pari passu with all other Senior
-----------
<PAGE>
Subordinated Indebtedness of the Company and only Indebtedness of the
Company that is Senior Indebtedness shall rank senior to the Securities in
accordance with the provisions set forth herein. For purposes of these
subordination provisions, the Indebtedness evidenced by the Securities is
deemed to include the liquidated damages payable pursuant to the provisions
set forth in the Securities and the Exchange and Registration Rights
Agreement. All provisions of this Article 10 shall be subject to Section
10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
--------------------------------------
or distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive payment
in full of the Senior Indebtedness before Securityholders shall be entitled
to receive any payment of principal of or interest on the Securities; and
(2) until the Senior Indebtedness is paid in full, any payment or
distribution to which Securityholders would be entitled but for this
Article 10 shall be made to holders of Senior Indebtedness as their
interests may appear.
SECTION 10.03. Default on Senior Indebtedness. The Company may not pay
--------------------------------
the principal of, premium (if any) or interest on the Securities or make
any deposit pursuant to Section 8.01 and may not repurchase, redeem or
otherwise retire any Securities (collectively, "pay the Securities") if (i)
any Senior Indebtedness is not paid when due or (ii) any other default on
Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, (x) the
default has been cured or waived and any such acceleration has been
rescinded or (y) such Senior Indebtedness has been paid in full; provided,
---------
however, that the Company may pay the Securities without regard to the
---------
foregoing if the Company and the Trustee receive written notice approving
such payment from the Representative of the Designated Senior Indebtedness
with respect to which either of the events in clause (i) or (ii) of this
sentence has occurred and is continuing. During the continuance of any
default
<PAGE>
88
(other than a default described in clause (i) or (ii) of the preceding
sentence) with respect to any Designated Senior Indebtedness pursuant to
which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration)
or the expiration of any applicable grace periods, the Company may not pay
the Securities for a period (a "Payment Blockage Period") commencing upon
the receipt by the Company and the Trustee of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee (with a copy to the
Company) from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full of such Designated Senior Indebtedness or (iii) because
the default giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding
sentence (but subject to the provisions contained in the first sentence of
this Section), unless the holders of such Designated Senior Indebtedness or
the Representative of such holders shall have accelerated the maturity of
such Designated Senior Indebtedness, the Company may resume payments on the
Securities after such Payment Blockage Period. Not more than one Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during
such period; provided, however, that if any Blockage Notice within such
-------------------
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the Bank Indebtedness), the Representative of the
Bank Indebtedness may give another Blockage Notice within such period;
provided further, however, that in no event may the total number of days
---------------------------
during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any 360 consecutive day period.
SECTION 10.04. Acceleration of Payment of Securities. If payment of the
---------------------------------------
Securities is accelerated because of an Event of Default, the Company or
the Trustee shall promptly notify the holders of the Designated Senior
Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the
Securities until five Business Days after such holders or the
Representative of the Designated Senior Indebtedness receive notice of such
acceleration and,
<PAGE>
89
thereafter, may pay the Securities only if this Article 10 otherwise
permits payment at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a distribution
-------------------------------------
is made to Securityholders that because of this Article 10 should not have
been made to them, the Securityholders who receive the distribution shall
hold it in trust for holders of Senior Indebtedness and pay it over to them
as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness is paid in
-------------
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under
this Article 10 to holders of Senior Indebtedness which otherwise would
have been made to Securityholders is not, as between the Company and
Securityholders, a payment by the Company on Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article 10 defines the relative
-----------------
rights of Securityholders and holders of Senior Indebtedness. Nothing in
this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No right
----------------------------------------------
of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this
Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
------------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on
the Securities and shall not be charged with knowledge of the existence of
<PAGE>
90
facts that would prohibit the making of any such payments unless, not less
than two Business Days prior to the date of such payment, a Trust Officer
of the Trustee receives notice satisfactory to it that payments may not be
made under this Article 10. The Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness may give
the notice; provided, however, that, if an issue of Senior Indebtedness has
-------------------
a Representative, only the Representative may give the notice. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself or itself to be a holder of any Senior
Indebtedness (or a Representative of such holder) to establish that such
notice has been given by a holder of such Senior Indebtedness or
Representative thereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness;
and nothing in Article 7 shall deprive the Trustee of any of its rights as
such holder. Nothing in this Article 10 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
------------------------------------------
distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
----------------------------------------------------
Right To Accelerate. The failure to make a payment pursuant to the
---------------------
Securities by reason of any provision in this Article 10 shall not be
construed as preventing the occurrence of a Default. Nothing in this
Article 10 shall have any effect on the right of the Securityholders or the
Trustee to accelerate the maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything
-------------------------------
contained herein to the contrary, payments from money or the proceeds of
U.S. Government Obligations held in trust under Article 8 by the Trustee
for
<PAGE>
91
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to
the restrictions set forth in this Article 10, and none of the
Securityholders shall be obligated to pay over any such amount to the
Company or any holder of Senior Indebtedness of the Company or any other
creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
--------------------------
distribution pursuant to this Article 10, the Trustee and the
Securityholders shall be entitled to rely
(i) upon any order or decree of a court of competent jurisdiction in
which any proceedings of the nature referred to in Section 10.02 are
pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Security-holders or (iii) upon the Representatives for the holders of
Senior Indebtedness for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 10. In the event that the
Trustee determines, in good faith, that evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article 10, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by
such Person, the extent to which such Person is entitled to participate in
such payment or distribution and other facts pertinent to the rights of
such Person under this Article 10, and, if such evidence is not furnished,
the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
provisions of Sections 7.01 and 7.02 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each Securityholder
-------------------------------------
by accepting a Security authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Security-holders and the holders
of Senior Indebtedness as provided in this Article 10 and appoints the
Trustee as attorney-in-fact for any and all such purposes.
<PAGE>
92
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
-------------------------------------------
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to
--------------
the holders of Senior Indebtedness and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Securityholders or
the Company or any other Person, money or assets to which any holders of
Senior Indebtedness shall be entitled by virtue of this Article 10 or
otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
--------------------------
acknowledges and agrees that the foregoing subordination provisions are,
and are intended to be, an inducement and a consideration to each holder of
any Senior Indebtedness, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and
continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of Senior Indebtedness shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
SECTION 10.17. Trustee's Compensation Not Prejudiced. Nothing in this
---------------------------------------
Article shall apply to amounts due to the Trustee pursuant to other
sections of this Indenture.
ARTICLE 11 Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls. If any provision of this
------------------------------
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provi-
sion shall control.
SECTION 11.02. Notices. Any notice or communication shall be in writing
---------
and delivered in person or mailed by first-class mail addressed as follows:
<PAGE>
93
if to the Company:
Simmons Company
One Concourse Parkway, Suite 600 Atlanta, GA 30328
Attention of:
Chief Financial Officer
if to the Trustee:
SunTrust Bank, Atlanta 58 Edgewood Avenue, N.E. Suite 400A
Atlanta, GA 30303
Attention of:
Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Security-holder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA Sec. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA Sec. 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon
----------------------------------------------------
any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to
the Trustee:
<PAGE>
94
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
-----------------------------------------------
certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with;
provided that an Opinion of Counsel can rely as to matters of fact on
an Officers' Certificate or certificates of public officials.
SECTION 11.06. When Securities Disregarded. In determining whether the
-----------------------------
Holders of the required principal amount of Securities have concurred in
any direction, waiver or consent, Securities owned by the Company or by any
Person directly or indirectly controlling or controlled by or under direct
or indirect common control with the Company shall be disregarded and deemed
not to be outstanding, except that, for the purpose of determining whether
the Trustee shall be protected in relying on any such direction, waiver or
consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the fore-
<PAGE>
95
going, only Securities outstanding at the time shall be considered in any
such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
----------------------------------------------
Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable
rules for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
----------------
Sunday or a day on which commercial banking institutions (including,
without limitation, the Federal Reserve System) are authorized or required
by law to close in New York City. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If a
regular record date is a Legal Holiday, the record date shall not be
affected.
SECTION 11.09. Governing Law. This Indenture and the Securities shall
---------------
be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of
law to the extent that the application of the laws of another jurisdiction
would be required thereby.
SECTION 11.10. No Recourse Against Others. A director, officer,
----------------------------
employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be
part of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
------------
Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number of
--------------------
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to
prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
-----------------------------
cross-reference sheet and headings of the
<PAGE>
96
Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not intended to be considered a part hereof and
shall not modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
Attest: /s/ John M. Kenney
Title: Assistant Secretary
SIMMONS COMPANY,
by /s/ Roger W. Franklin
Name: Roger W. Franklin
Title: Vice-President-Finance,
Treasurer
SUNTRUST BANK, ATLANTA, as Trustee
by /s/ Sandra Thompson
Name: Sandra Thompson
Title: Vice President
<PAGE>
97
STATE OF NEW YORK
COUNTY OF NEW YORK
STATE OF NEW YORK )
) s
COUNTY OF NEW YORK )
On April 18, 1996, before me personally came Roger W. Franklin, to me
--
known, who, being by me duly sworn, did depose and say that he is the Vice-
President-Finance, Treasurer of Simmons Company, a Delaware corporation and
that he signed his name thereto on behalf of such corporation.
Notary Public in and for the State of New
York
Name:
My commission expires:
<PAGE>
98
STATE OF NEW YORK )
) s
COUNTY OF NEW YORK )
On April 18, 1996, before me personally came Sandra Thompson, to me
----
known, who, being by me duly sworn, did depose and say that she is a Vice
President of SunTrust Bank, Atlanta, a Georgia banking corporation and that
she signed her name thereto on behalf of such corporation.
Notary Public in and for the State of New
York
Name:
My commission expires:
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NETHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF SUCH SECURITY) ONLY
(A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (A)
( 1 ) , (A) ( 2 ), (A) ( 3 ) OR
<PAGE>
(A)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY
FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF
$250,000 FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR
SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S OR THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER
IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
SIMMONS COMPANY
10-3/4% SENIOR SUBORDINATED NOTE DUE 2006
No. 1
CUSIP No. 828709AA3
$100,000,000
SIMMONS COMPANY, a Delaware corporation, promises to pay to Cede & Co.,
or registered assigns, the principal sum of $100,000,000 on April 15, 2006.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
<PAGE>
Additional provisions of this Security are set forth on the other side
of this Security.
Dated: April 18, 1996
SIMMONS COMPANY,
by
Roger W. Franklin
Vice President-Finance,
Treasurer
John M. Kenney
Assistant Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
SUNTRUST BANK, ATLANTA
as Trustee, certifies that this
is one of the Securities referred
to in the Indenture,
by ________________________________
Authorized Signatory
[Seal]
<PAGE>
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10-3/4% Senior Subordinated Note due 2006
1. Interest
--------
Simmons Company, a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Company will
use its best efforts to have the Exchange Offer Registration Statement and,
if applicable, a Shelf Registration Statement (each a "Registration
Statement") declared effective by the Commission as promptly as practicable
after the filing thereof. If (i) the Shelf Registration Statement or
Exchange Offer Registration Statement, as applicable under the Exchange and
Registration Rights Agreement is not filed with the Commission on or prior
to 45 days after the Issue Date, (ii) the Exchange Offer Registration
Statement or, as the case may be, the Shelf Registration Statement, is not
declared effective within 105 days after the Issue Date, (iii) the Exchange
Offer is not consummated on or prior to 135 days after the Issue Date, or
(iv) the Shelf Registration Statement is filed and declared effective
within 105 days after the Issue Date but shall thereafter cease to be
effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "Registration Default"),
the Company will pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of such Registration Default, in
an amount equal to $0.192 per week per $1,000 principal amount of the
Securities constituting Transfer Restricted Securities held by such holder
until the applicable Registration Statement is filed or declared effective,
the Exchange Offer is consummated or the Shelf Registration Statement again
becomes effective, as the case may be. All accrued liquidated damages shall
be paid to holders in the same manner as interest payments on the
Securities on semiannual payment dates which correspond to interest payment
dates for the Securities. Following the cure of all Registration Defaults,
the accrual of liquidated damages will cease. The Trustee shall have no
responsibility with
<PAGE>
respect to the determination of the amount of any such liquidated damages.
The Company will pay interest semiannually on April 15 and October 15
of each year. Interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
April 18, 1996. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Company shall pay interest on overdue principal
at the rate borne by the Securities plus 1% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the
close of business on the April 1 or October 1 next preceding the interest
payment date even if Securities are canceled after the record date and on
or before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company
may pay principal and interest by check payable in such money. It may mail
an interest check to a Holder's registered address.
3. Paying Agent and Registrar
--------------------------
Initially, SUNTRUST BANK, ATLANTA, a Georgia banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of April
18, 1996 ("Indenture"), between the Company and the Trustee. The terms of
the Securities
<PAGE>
include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sec.Sec. 77aaa-
-------
77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement
of those terms.
The Securities are general unsecured obligations of the Company limited
to $100,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the
Initial Securities referred to in the Indenture. The Securities include the
Initial Securities and any Exchange Securities issued in exchange for the
Initial Securities pursuant to the Indenture. The Initial Securities and
the Exchange Securities are treated as a single class of securities under
the Indenture. The Indenture imposes certain limitations on the issuance of
debt by the Company, the payment of dividends and other distributions and
acquisitions or retirements of the Company's Capital Stock and Subordinated
Obligations, the incurrence by the Company and its Subsidiaries of Liens on
its property and assets which do not equally and ratably secure the
Securities, the sale or transfer of assets and Subsidiary Stock,
investments by the Company, the lines of business in which the Company may
operate, consolidations, mergers and transfers of all or substantially all
of the Company's assets and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and its Subsidiaries to
restrict distributions and dividends from Subsidiaries.
5. Optional Redemption
-------------------
Except as set forth in the next two paragraphs, the Securities may not
be redeemed prior to April 15, 2001. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time
at the following redemption prices (expressed in percentages of principal
amount), plus accrued interest to the
<PAGE>
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date):
if redeemed during the 12-month period beginning on or after April 15
of the years set forth below:
Redemption
Period Price
------
2001 . . . . . . . . . . . . . . . . . 105.3750%
2002 . . . . . . . . . . . . . . . . . . . 103.5833%
2003 . . . . . . . . . . . . . . . . . . . 101.7917%
2004 and thereafter . . . . . . . . . . . . 100.0000%
Notwithstanding the foregoing, at any time prior to April 15, 1999, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of Securities with the proceeds of one or more Public
Equity Offerings by Holdings (so long as substantially all its assets
consist of its investment in the Company) or the Company following which
there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 110,750% plus accrued interest to the redemption
date (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date); provided,
---------
however, that at least 66 2/3% of the original aggregate principal amount
---------
of the Securities must remain outstanding after each such redemption.
At any time on or prior to April 15, 2001, the Securities may also be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not fewer than 30 nor more than 60 days prior
notice (but in no event more than 90 days after the occurrence of such
Change of Control) mailed by first-class mail to each Holder's registered
address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest,
if any, to, the Redemption Date (subject to the right of Holders of record
on the relevant record date to receive interest due on the relevant
interest payment date).
<PAGE>
6. Notice of Redemption
---------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If
money sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and
certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
repurchase price equal to 101% of the principal amount of the Securities to
be repurchased plus accrued interest to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive
interest due on the related interest payment date) as provided in, and
subject to the terms of, the Indenture.
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and
each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
<PAGE>
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if
the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption
or maturity, as the case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set
forth in the Indenture, without the consent of any Securityholder, the
Company and
<PAGE>
10
the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5
of the Indenture, or to provide for uncertificated Securities in addition
to or in place of certificated Securities, or to add guarantees with
respect to the Securities or to secure the Securities, or to add additional
covenants or surrender rights and powers conferred on the Company, or to
comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any other change that does not
adversely affect the rights of any Securityholder, or to provide for the
issuance and authorization of the Exchange Securities.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to para-
graph 5 or 6 of the Securities, upon acceleration or otherwise, or failure
by the Company to redeem or purchase Securities when required; (iii)
failure by the Company to comply with other agreements in the Indenture or
the Securities, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period
after final maturity) of other Indebtedness of the Company if the amount
accelerated (or so unpaid) exceeds $10,000,000; (v) certain events of bank-
ruptcy or insolvency with respect to the Company and the Significant
Subsidiaries; and (vi) certain judgments or decrees for the payment of
money in excess of $10,000,000.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Securities may declare all the
Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities
being due and payable immediately upon the occurrence of such Events of
Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Securityholders notice
of any continuing Default
<PAGE>
11
(except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have
if it were not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting
a Security, each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
12
19. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to
be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Security-holder a copy of the Indenture which has in
it the text of this Security in larger type. Requests may be made to:
Simmons Company
One Concourse Parkway, Suite 600
Atlanta, GA 30328
Attention of Chief Financial Officer
<PAGE>
13
ASSIGNMENT FORM
To assign this Security, fill in the form below: I or we assign and
transfer this Security to
(Print or type assignee's name, address and zip code) (Insert assignee's
soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may
substitute another to act for him.
- -----------------------------------------------------------------------------
Date:
------------------
Your Signature:
---------------------------------------------------------
Signature Guarantee:
---------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature
guarantee medallion program)
------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE>
14
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER RESTRICTED SECURITIES
This certificate relates to $ principal amount of
-----------------
Securities held in (check applicable space) book-entry or
----------- -------
definitive form by the undersigned.
-
The undersigned (check one box below):
/ / has requested the Trustee by written order to deliver in exchange for its
beneficial interest in the Global Security held by the Depository a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial
interest in such Global Security (or the portion thereof indicated above);
/ / has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
In connection with any transfer or exchange of any of the Securities
evidenced by this certificate occurring prior to the date that is three
years after the later of the date of original issuance of such Securities
and the last date, if any, on which such Securities were owned by the
Company or any Affiliate of the Company, the undersigned confirms that such
Securities are being:
CHECK ONE BOX BELOW:
(1) []
acquired for the undersigned's own account, without transfer (in
satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of the
Indenture); or
(2) []
transferred to the Company; or
(3) []
transferred pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
(4) []
transferred pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
<PAGE>
15
(s)
transferred to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended),
that has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter appears as Exhibit
C to the Indenture; or
(6) []
transferred pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box
-------------------
(4), (5) or (6) is checked, the Trustee or the Company may require, prior
to registering any such transfer of the Securities, in their sole
discretion, such legal opinions, certifications and other information as
the Trustee or Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act of
1933, as amended, such as the exemption provided by Rule 144 under such
Act.
Signature Guarantee:
---------------------------------------------------
Signature
-------------------------------------------------------------
(Signature must be guaranteed by a participant in
a recognized signature
guarantee medallion program)
------------------------------------------------------------------------
Signature Guarantee:
<PAGE>
16
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
---
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount:
$
Date:
Your Signature:
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:
(Signature must be guaranteed by a participant in a
signature guarantee medallion program)
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. 1/
to pay to of
SIMMONS COMPANY
10-3/4% SENIOR SUBORDINATED NOTE SERIES A DUE 2006
NO. Cusip No.
$
SIMMONS COMPANY, a Delaware corporation, promises
or registered assigns, the principal sum on April 15, 2006.
Interest Payment Dates: April 15 and October 15. Record Dates: April 1 and
October 1.
1/This paragraph should only be added if the Security is issued in
global form.
<PAGE>
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
SIMMONS COMPANY,
by
President
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
SUNTRUST BANK, ATLANTA,
as Trustee, certifies that this is one of the Securities referred to in the
Indenture,
by
Authorized Signatory
[Seal]
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
10-3/4% Senior Subordinated Note Series A due 2006
1. Interest
--------
Simmons Company, a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Company will
pay interest semiannually on October 15 and April 15 of each year. Interest
on the Securities will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from April 18, 1996.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate
borne by the Securities plus 1% per annum, and it shall pay interest on
overdue installments of interest at the same rate to the extent lawful.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the
close of business on the April 1 or October 1 next preceding the interest
payment date even if Securities are canceled after the record date and on
or before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company
may pay principal and interest by check payable in such money. It may mail
an interest check to a Holder's registered address.
3. Paying Agent and Registrar
--------------------------
Initially, SUNTRUST BANK, ATLANTA, a Georgia banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without
notice. The
<PAGE>
Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of April
18, 1996 ("Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. $$
---------
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement
of those terms.
The Securities are general unsecured obligations of the Company limited
to $100,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the
Exchange Securities referred to in the Indenture. The Securities include
the Initial Securities and any Exchange Securities issued in exchange for
the Initial Securities pursuant to the Indenture. The Initial Securities
and the Exchange Securities are treated as a single class of securities
under the Indenture. The Indenture imposes certain limitations on the
issuance of debt by the Company, the payment of dividends and other
distributions and acquisitions or retirements of the Company's Capital
Stock and Subordinated Obligations, the incurrence by the Company and its
Subsidiaries of Liens on its property and assets which do not equally and
ratably secure the Securities, the sale or transfer of assets and
Subsidiary Stock, investments by the Company, the lines of business in
which the Company may operate, consolidations, mergers and transfers of all
or substantially all of the Company's assets and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company
and its Subsidiaries to restrict distributions and dividends from
Subsidiaries.
<PAGE>
5. Optional Redemption
-------------------
Except as set forth in the next two paragraphs, the Securities may not
be redeemed prior to April 15, 2001. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time
at the following redemption prices (expressed in percentages of principal
amount), plus accrued interest to the redemption date (subject to the right
of Holders of record on the relevant record date to receive interest due on
the related interest payment date):
if redeemed during the 12-month period beginning on or after April 15
of the years set forth below:
Redemption
Period Price
------ -------------
2001 105.3750%
2002 103.5833%
2003 101.7917%
2004 and thereafter 100.0000%
Notwithstanding the foregoing, at any time prior to April 15, 1999, in
the aggregate up to 33 1/3% of the original aggregate principal amount of
Securities with the proceeds of one or more Public Equity Offerings by
Holdings (so long as substantially all its assets consist of its investment
in the Company) or the Company following which there is a Public Market, at
a redemption price (expressed as a percentage of principal amount) of
110.750% plus accrued interest to the redemption date (subject to the right
of Holders of record on the relevant record date to receive interest due on
the relevant interest payment date); provided, however, that at least 66
2/3% of the original aggregate principal amount of the Securities must
remain outstanding after each such redemption.
At any time on or prior to April 15, 2001, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not fewer than 30 nor more than 60 days prior
notice (but in no event more than 90 days after the occurrence of such
Change of Control) mailed by first-class mail to each Holder's registered
address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest,
if any, to, the Redemption Date (subject to the right of Holders of record
<PAGE>
on the relevant record date to receive interest due on the relevant
interest payment date).
6. Notice of Redemption
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If
money sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and
certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
repurchase price equal to 101% of the principal amount of the Securities to
be repurchased plus accrued interest to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive
interest due on the related interest payment date) as provided in, and
subject to the terms of, the Indenture.
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and
each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
<PAGE>
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if
the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption
or maturity, as the case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least
<PAGE>
a majority in principal amount outstanding of the Securities and (ii) any
default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may
amend the Indenture or the Securities to cure any ambiguity, omission,
defect or inconsistency, or to comply with Article 5 of the Indenture, or
to provide for uncertificated Securities in addition to or in place of
certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company, or to comply with any
request of the SEC in connection with qualifying the Indenture under the
Act, or to make certain changes in the subordination provisions, or to make
any change that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to para-
graph 5 or 6 of the Securities, upon acceleration or otherwise, or failure
by the Company to redeem or purchase Securities when required; (iii)
failure by the Company to comply with other agreements in the Indenture or
the Securities, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period
after final maturity) of other Indebtedness of the Company if the amount
accelerated (or so unpaid) exceeds $10,000,000; (v) certain events of bank-
ruptcy or insolvency with respect to the Company and the Significant
Subsidiaries; and (vi) certain judgments or decrees for the payment of
money in excess of $10,000,000. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount
of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The
<PAGE>
Trustee may refuse to enforce the Indenture or the Securities unless it
receives reasonable indemnity or security. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold
from Securityholders notice of any continuing Default (except a Default in
payment of principal or interest) if it determines that withholding notice
is in the interest of the Holders.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have
if it were not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting
a Security, each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
<PAGE>
10
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to
be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in
it the text of this Security in larger type. Requests may be made to:
Simmons Company
One Concourse Parkway, Suite 600
Atlanta, GA 30328
Attention of Chief Financial Officer
<PAGE>
11
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: Your Signature:
------------------------- --------------------
Signature Guarantee:
------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
Sign exactly as your name appears on the other side of this Security.
<PAGE>
12
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
---
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount:
$
Date: Your Signature:
------------------------- --------------------
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:
------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
<PAGE>
EXHIBIT C
Transferee Letter of Representation
Simmons Company
c/o SunTrust Bank, Atlanta
58 Edgewood Avenue, N.E.
Suite 400A
Atlanta, GA 30303
Dear Sirs:
This certificate is delivered to request a transfer of $
principal amount of the 10-3/4% Senior Subordinated Notes due 2006 (the
"Notes") of Simmons Company (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name:
----------------------------------
Address:
-------------------------------
Taxpayer ID Number:
--------------------
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act")) purchasing for our own account or for the account
of such an institutional "accredited investor," and we are acquiring the
Notes not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act. We have such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risk of our investment in the Notes and invest in or
purchase securities similar to the Notes in the normal course of our
business. We and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on
<PAGE>
2
behalf of any investor account for which we are purchasing Notes to offer,
sell or otherwise transfer such Notes prior to the date which is three
years after the later of the date of original issue and the last date on
which the Company or any affiliate of the Company was the owner of such
Notes (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement
which has been declared effective under the Securities Act, (c) in a
transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified
institutional buyer under Rule 144A (a "QIB") that purchases for its own
account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales that occur outside the United States within the meaning of Regulation
S under the Securities Act, (e) to an institutional "accredited investor"
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities
Act that is purchasing for its own account or for the account of such an
institutional "accredited investor", in each case in a minimum principal
amount of Notes of $250,000 or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject
in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or
accounts be at all times within our or their control and in compliance with
any applicable state securities laws. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. If
any resale or other transfer of the Notes is proposed to be made pursuant
to clause (e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the
form of this letter to the Company and the Trustee, which shall provide,
among other things, that the transferee is an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act and that it is acquiring such Notes for investment purposes
and not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Company and the Trustee reserve the right prior to
any offer, sale or other transfer prior to the Resale Termination Date of
the Notes pursuant
<PAGE>
to clauses (d), (e) or (f) above to require the delivery of an opinion of
counsel, certifications and/or other information satisfactory to the
Company and the Trustee.
TRANSFEREE:
------------------------
BY
---------------------------------
<PAGE>
EXHIBIT D
FORM OF NOTE GUARANTEE
----------------------
NOTE GUARANTEE, dated as of , , made by
(the "Guarantor"), the undersigned subsidiary of Simmons Company, in favor
of the Holders and the Trustee (as defined in the Indenture referred to
below).
Reference is made to the Indenture dated as of April 18, 1996 (as
amended, restated, supplemented, modified or waived from time to time, the
"Indenture"), between Simmons Company (the "Company") and the Trustee.
W I T N E S S E T H :
WHEREAS the Company is a party to the Indenture;
WHEREAS the Company owns directly all of or a majority interest in the
Guarantor;
WHEREAS the Guarantor will derive substantial direct and indirect
benefit from the transactions contemplated by the Indenture;
NOW, THEREFORE, in consideration of the promises thereby, the Guarantor
hereby agrees with and for the benefit of the Holders as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01.Defined Terms. As used in this Guarantee, terms defined in
--------------
the Indenture or in the preamble or recitals hereto are used herein as
therein defined, except that the term "Holders" in this guarantee shall
refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such holders.
<PAGE>
2
ARTICLE II
Representations and Warranties of the Guarantor
-----------------------------------------------
SECTION 2.01. Representations and Warranties. The Guarantor hereby
-------------------------------
represents and warrants to the Holders as follows:
(a) Due Existence; Compliance. The Guarantor is a corporation or
--------------------------
limited partnership duly organized, validly existing and in good standing,
where applicable, under the laws of the jurisdiction in which it was
incorporated or organized and has all requisite power and authority under
such laws to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted, and to execute,
deliver and perform its obligations under this Guarantee. The Guarantor is
duly qualified or licensed to do business as a foreign corporation or
entity and is in good standing, where applicable, in all jurisdictions in
which it owns or leases property, or proposes to own or lease property, or
in which the conduct of its business requires it to so qualify or be
licensed, except to the extent that the failure to so qualify or be in good
standing would have no material adverse effect on the business, operations,
properties, prospects or condition (financial or otherwise) of the
Guarantor. The Guarantor is in compliance in all material respects with all
applicable law, rules, regulations and orders.
(b) Corporate Authorities; No Conflicts. The execution, delivery and
------------------------------------
performance by the Guarantor of this Guarantee is within its corporate or
limited partnership powers and has been duly authorized by all necessary
corporate and stockholder approvals or partnership approvals and (i) does
not contravene its organizational documents or any law, rule, regulation,
judgment, order or decree applicable to or binding on the Guarantor and
(ii) does not contravene, and will not result in the creation of any lien
under, any provision of any contract, indenture, mortgage or agreement to
which the Guarantor is a party, or by which it or any of its properties are
bound.
(c) Government Approvals and Authorizations. No authorization or
----------------------------------------
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due
execution, delivery and performance by or enforcement against the Guarantor
of this
<PAGE>
3
Guarantee (except such governmental approvals or authorizations as have
been duly obtained or made and remain in full force and effect).
(d) Legal, Valid and Binding. This Guarantee is the legal valid and
-------------------------
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms.
(e) Litigation. There is no pending or threatened action or proceeding
-----------
affecting the Guarantor by or before any court, governmental agency or
arbitrator, which may materially adversely affect the condition,
operations, business, prospects, properties or assets of the Guarantor, or
prohibit, limit in any way or materially adversely affect the ability of
the Guarantor to perform its obligations under this Guarantee.
(f) Immunities. Neither the Guarantor nor its property has any immunity
-----------
from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) under applicable law.
(g) No Filing. To ensure the legality, validity, enforceability or
----------
admissibility in evidence of this Guarantee in each of the jurisdictions in
which the Guarantor is incorporated or organized and the Commonwealth of
Massachusetts or any other jurisdiction in which the Guarantor conducts
business, it is not necessary that this Guarantee be filed or recorded with
any court or other authority in such jurisdiction, or that any stamp or
similar tax be paid on or with respect to this Guarantee.
(h) No Defaults. There does not exist any event of default, or any
------------
event that with notice or lapse of time or both would constitute an event
of default, under any agreement to which the Guarantor is a party or by
which it may be bound, or to which any of its properties or assets may be
subject which default would have a material adverse effect on the
Guarantor, or would materially adversely affect the Guarantor's ability to
perform its obligations under this Guarantee.
(i) Solvency. The Guarantor is on the date hereof, and at all times
---------
will be, solvent.
<PAGE>
4
ARTICLE III
Guarantee
---------
SECTION 3.01. Guarantee. The Guarantor hereby unconditionally and
-----------
irrevocably guaranties to each Holder of the Securities (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all
other monetary obligations of the Company under the Indenture and the
Securities and (b) the full and punctual performance within applicable
grace periods of all other obligations of the Company under the Indenture
and the Securities (all the foregoing being hereinafter collectively called
the "Obligations"). The Guarantor further agrees that the Obligations may
be extended or renewed, in whole or in part, without notice or further
assent from it, and that it will remain bound under this Article III
notwithstanding any extension or renewal of any Obligation.
The Guarantor waives presentation to, demand of payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. The Guarantor waives notice of any default under
the Securities or the Obligations. The obligations of the Guarantor
hereunder shall not be affected by (a) the failure of any Holder to assert
any claim or demand or to enforce any right or remedy against the Company
or any other person under the Indenture, the Securities or any other
agreement or otherwise; (b) any extension or renewal of any thereof;
(c) any rescission, waiver, amendment or modification of any of the terms
or provisions of the Indenture, the Securities or any other agreement; or
(d) the failure of any Holder to exercise any right or remedy against any
other Guarantor of the Obligations.
The Guarantor further agrees that its Guarantee herein constitutes a
guarantee of payment, performance and compliance when due (and not a
guarantee of collection) and waives any right to require that any resort be
had by any Holder to any security held for payment of the Obligations.
Except as otherwise provided herein, the obligations of the Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment
<PAGE>
5
or termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of the Guarantor herein shall
not be discharged or impaired or otherwise affected by the failure of any
Holder to assert any claim or demand or to enforce any remedy under the
Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or
thing or omission or delay to do any other act or thing which may or might
in any manner or to any extent vary the risk of the Guarantor or would
otherwise operate as a discharge of the Guarantor as a matter of law or
equity.
The Guarantor further agrees that its Guarantee herein shall continue
to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any Obligation
is rescinded or must otherwise be restored by any Holder upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder has at law or in equity against the Guarantor by
virtue hereof, upon the failure of the Company to pay the principal of or
interest on any Obligation when and as the same shall become due, whether
at maturity, by acceleration, by redemption or otherwise, or to perform or
comply with any other Obligation, the Guarantor hereby promises to and
will, upon receipt of written demand by the Trustee or the Holders of a
majority of the Securities (the "Majority Securityholders"), forthwith pay,
or cause to be paid, in cash, to the Holders an amount equal to the sum of
(i) the unpaid principal amount of such Obligations, (ii) accrued and
unpaid interest on such Obligations (but only to the extent not prohibited
by law) and (iii) all other monetary Obligations of the Company to the
Holders.
The Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any Obligations
guarantied hereby until payment in full of all Obligations. The Guarantor
further agrees that, as between such Guarantor, on the one hand, and the
Holders, on the other hand, (x) the maturity of the Obligations guaranteed
hereby may be accelerated for the purposes of such Guarantor's Guarantee
herein, notwith-
<PAGE>
6
standing any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guarantied hereby, and (y) in
the event of any declaration of acceleration of such Obligations, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by such Guarantor for the purposes of this Section.
The Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by any Holder in enforcing
any rights under this Section.
SECTION 3.02. Limitation on Liability. (a) Any term or provision of
------------------------
this Guarantee to the contrary notwithstanding, the maximum aggregate
amount of the Obligations guarantied hereunder by the Guarantor shall not
exceed the maximum amount that can be hereby guarantied without rendering
this Guarantee, as it relates to such Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer.
(b) This Guarantee shall terminate and be of no further force or effect
upon the sale or other transfer (i) by the Guarantor of all or
substantially all of its assets or (ii) by the Company of all of its stock
or other equity interests in the Guarantor, to a Person that is not an
Affiliate of the Company; provided, however, that such sale or transfer
constitutes an Asset Disposition as defined in the Indenture. Upon notice
to the Trustee that such a sale or transfer described in this clause
3.02(b) has occurred, the Trustee shall return the original Guarantee to
the Guarantor.
SECTION 3.03. Successors and Assigns. Subject to Section 3.02(b)
-----------------------
hereof, this Article III shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Holders and, in the event of any transfer or assignment of
rights by any Holder, the rights and privileges conferred upon that party
in this Guarantee and in the Securities shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions of this Guarantee.
SECTION 3.04. No Waiver, etc. Neither a failure nor a delay on the part
---------------
of the Holders or the Trustee in exercising any right, power or privilege
under this Article III shall operate as a waiver thereof, nor shall a
<PAGE>
7
single or partial exercise thereof preclude any other or further exercise
of any right, power or privilege. The rights, remedies and benefits of the
Holders and the Trustee herein expressly specified are cumulative and not
exclusive of any other rights, remedies or benefits which either may have
under this Article III at law, in equity, by statute or otherwise.
SECTION 3.05. Modification, etc. No modification, amendment or waiver
------------------
of any provision of this Article, nor the consent to any departure by the
Guarantor therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Majority Securityholders, and then such
waiver or consent shall be effective only in the specific instance and for
the purpose for which it was given. No notice to or demand on the Guarantor
in any case shall entitle such Guarantor or any other guarantor to any
other or further notice or demand in the same, similar or other
circumstances.
ARTICLE IV
Subordination
-------------
SECTION 4.01. Subordination. The Obligations of the Guarantor under
--------------
this Guarantee are subordinate to the obligations of the Guarantor under
any Guarantee of the Senior Credit Facility and any other Senior
Indebtedness of the Company to the extent and in the manner that the
Indebtedness evidenced by the Securities is subordinate to the obligations
of the Company under the Senior Credit Facility and other Senior
Indebtedness of the Company under Article X of the Indenture. By acceptance
of this Guarantee, the Holders agree to be bound by the foregoing
provisions.
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Notices. All notices and other communications pertaining
--------
to this Guarantee or any Security shall be in writing and shall be deemed
to have been duly given upon the receipt thereof. Such notices shall be
delivered by hand, or mailed, certified or registered mail with postage
prepaid (a) if to the Guarantor, at its address
<PAGE>
8
set forth below, and (b) if to the Holders or the Trustee, as provided in
the Indenture.
SECTION 5.02. Parties. Nothing expressed or mentioned in this Guarantee
--------
is intended or shall be construed to give any Person, firm or corporation,
other than the Holders and the Trustee and the holders of any Senior
Indebtedness, any legal or equitable right, remedy or claim under or in
respect of this Guarantee or any provision herein contained.
SECTION 5.03. Governing Law. This Agreement shall be governed by the
--------------
laws of the State of New York regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
SECTION 5.04. Severability Clause. In case any provision in this
--------------------
Guarantee shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby and such provision shall be ineffective
only to the extent of such invalidity, illegality or unenforceability.
SECTION 5.05. Waivers, Amendments and Remedies. The failure to insist
---------------------------------
in any one or more instances upon strict performance of any of the
provisions of this Guarantee or to take advantage of any of its rights
hereunder shall not be construed as a waiver of any such provisions or the
relinquishment of any such rights, but the same shall continue and remain
in full force and effect. Except as otherwise expressly limited in this
Guarantee, all remedies under this Guarantee shall be cumulative and in
addition to every other remedy provided for herein or by law.
SECTION 5.06. Entire Agreement. This Guarantee is intended by the
-----------------
parties to be a final expression of their agreement in respect of the
subject matter contained herein and supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
SECTION 5.07. Headings. The headings of the Articles and the sections
---------
in this Guarantee are for convenience of reference only and shall not be
deemed to alter or affect the meaning or interpretation of any provisions
hereof.
<PAGE>
9
IN WITNESS WHEREOF, the Guarantor has duly executed this Guarantee as
of the date first above written.
[NAME OF GUARANTOR],
By
------------------------------
Name:
Title:
Address:
EXHIBIT 4.2
EXECUTION COPY
SIMMONS COMPANY
$100,000,000
10-3/4% Senior Subordinated Notes due 2006
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
------------------------------------------
April 18, 1996
CHASE SECURITIES INC.
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Simmons Company, a Delaware corporation (the "Company"), proposes to
issue and sell to a certain purchaser (the "Initial Purchaser"), upon the
terms set forth in a purchase agreement of even date herewith (the
"Purchase Agreement"), $100,000,000 principal amount of its 10-3/4% Senior
Subordinated Notes due 2006 (the "Securities"). Capitalized terms used but
not specifically defined herein are defined in the Purchase Agreement. As
an inducement to the Initial Purchaser to enter into the Purchase Agreement
and in satisfaction of a condition to your obligations thereunder, the
Company agrees with you, for the benefit of the holders of the Securities
(including the Initial Purchaser) (the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall prepare and, not later
--------------------------
than 45 days following the Closing Date, shall file with the Commission a
registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act with respect to a proposed offer
(the "Registered Exchange Offer") to the Holders to issue and deliver to
such Holders, in exchange for the Securities, a like aggregate principal
amount of debt securities of the Company (the "Exchange Securities")
identical in all material respects to the Securities, except for the
transfer restrictions relating to the Securities, shall use its best
efforts to cause the Exchange Offer Registration Statement to become
effective under the Securities Act within 105 days after the Closing Date
and shall keep the Exchange Offer Registration Statement
<PAGE>
2
effective for not less than 30 days (or longer, if required by applicable
law) after the date on which notice of the Exchange Offer is mailed to the
Holders (such period being called the "Exchange Offer Registration
Period"). The Exchange Securities will be issued under the Indenture or an
indenture (the "Exchange Securities Indenture") between the Company and the
Trustee or such other bank or trust company reasonably satisfactory to you,
as trustee (the "Exchange Securities Trustee"), such indenture to be
identical in all material respects with the Indenture except for the
transfer restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being
the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder is not an affiliate of the Company within the meaning of the
Securities Act, acquires the Exchange Securities in the ordinary course of
such Holder's business and has no arrangements with any person to
participate in the distribution of the Exchange Securities) to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions
under the securities laws of the several states of the United States. The
Company acknowledges that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, (i) each Holder that
is a broker-dealer electing to exchange Securities, acquired for its own
account as a result of market making activities or other trading
activities, for Exchange Securities (an "Exchanging Dealer"), is required
to deliver a prospectus containing the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section, and in Annex C
hereto in the "Plan of Distribution" section of such prospectus in
connection with a sale of any such Exchange Securities received by such
Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) if the
Initial Purchaser elects to sell Exchange Securities acquired in exchange
for Securities constituting any portion of an unsold allotment, it is
required to deliver a prospectus, containing the information required by
Items 507 and/or 508 of Regulation S-K under the Securities Act, as
applicable, in connection with such a sale.
<PAGE>
3
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of
the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30
days after the date notice thereof is mailed to the Holders (or longer
if required by applicable law);
(c) utilize the services of a Depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York;
(d) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York time, on the last business
day on which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all applicable laws.
As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder of
Securities, Exchange Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
Interest on each Exchange Security issued pursuant to the Registered
Exchange Offer will accrue from the last interest payment date on which
interest was paid on the Securities surrendered in exchange therefor or, if
no interest has been paid on the Securities, from the date of original
issue of the Securities.
<PAGE>
4
The Company may require each holder of Securities participating in the
Registered Exchange Offer to represent to the Company that at the time of
the consummation of the Registered Exchange Offer (i) any Exchange
Securities received by such holder will be acquired in the ordinary course
of business, (ii) such holder will have no arrangements or understanding
with any person to participate in the distribution of the Securities or the
Exchange Securities within the meaning of the Securities Act and (iii) such
holder is not an affiliate of the Company within the meaning of the
Securities Act.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Exchange Offer Registration Statement and
any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (iii) any prospectus forming part of any Exchange Offer
Registration Statement, and any supplement to such prospectus, does not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
2. Shelf Registration. If, because of any change in law or applicable
-------------------
interpretations thereof by the Commission's staff, the Company determines
that it is not permitted to effect the Registered Exchange Offer as
contemplated by Section 1 hereof, or if for any other reason the Registered
Exchange Offer is not consummated within 135 days of the date hereof, or if
the Initial Purchaser so requests with respect to Securities not eligible
to be exchanged for Exchange Securities in a Registered Exchange Offer and
held by it following consummation of the Registered Exchange Offer or if
any Holder (other than an Exchanging Dealer) is not eligible to participate
in the Registered Exchange Offer or, in the case of any Holder that
participates in the Registered Exchange Offer (other than an Exchanging
Dealer), does not receive freely tradeable Exchange Securities in exchange
for tendered Securities or if the Company so elects, the following
provisions shall apply:
<PAGE>
5
(a) The Company shall as promptly as practicable file with the
Commission and thereafter shall use its best efforts to cause to be
declared effective a registration statement on an appropriate form under
the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined below) by the Holders from time to time
in accordance with the methods of distribution elected by such Holders and
set forth in such registration statement (hereafter, a "Shelf Registration
Statement" and, together with any Exchange Offer Registration Statement, a
"Registration Statement").
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by Holders for a period of
three years from the date the Shelf Registration Statement is declared
effective by the Commission or such shorter period that will terminate when
all the Securities covered by the Shelf Registration Statement have been
sold pursuant to the Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed
not to have used its best efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any action
that would result in Holders of Securities covered thereby not being able
to offer and sell such Securities during that period, unless (i) such
action is required by applicable law, or (ii) such action is taken by the
Company in good faith and for valid business reasons (not including
avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly
thereafter complies with the requirements of Section 4(j) hereof, if
applicable.
(c) Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Shelf Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies
in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Shelf Registration
Statement, and any supplement to such prospectus, does not include an
untrue statement of a
<PAGE>
6
material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were
made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
-------------------
Securities will suffer damages if the Company fails to fulfill its
obligations under Section 1 or Section 2, as applicable, and that it would
not be feasible to ascertain the extent of such damages. Accordingly, if
(i) the applicable Registration Statement is not filed with the Commission
on or prior to 45 days after the Closing Date, (ii) the Exchange Offer
Registration Statement or, as the case may be, the Shelf Registration
Statement, is not declared effective within 105 days after the Closing
Date, (iii) the Exchange Offer is not consummated on or prior to 135 days
after the Closing Date, or (iv) the Shelf Registration Statement is filed
and declared effective within 105 days after the Closing Date but shall
thereafter cease to be effective (at any time that the Company is obligated
to maintain the effectiveness thereof) without being succeeded within 30
days by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), the Company will pay liquidated damages to each holder of
Transfer Restricted Securities (as defined below), during the period of
such Registration Default, in an amount equal to $0.192 per week per $1,000
principal amount of the Securities constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement
is filed or declared effective, the Exchange Offer is consummated or the
Shelf Registration Statement again becomes effective, as the case may be.
Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. "Transfer Restricted Securities" means each Security
until (i) the date on which such Security has been exchanged for a freely
transferrable Exchange Security in the Exchange Offer, (ii) the date on
which such Security has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or
(iii) the date on which such Security is distributed to the public pursuant
to Rule 144 under the Securities Act or is salable pursuant to Rule 144(k)
under the Securities Act.
(b) The Company shall notify the Trustee and Paying Agent under the
Indenture immediately upon the happening of each and every Registration
Default. The Company shall pay the liquidated damages due on the Transfer
<PAGE>
7
Restricted Securities by depositing with the Paying Agent (which may not be
the Company for these purposes), in trust, for the benefit of the Holders
thereof, prior to 10:00 a.m. New York City time on the next interest
payment date specified by the Indenture and the Securities, sums sufficient
to pay the liquidated damages then due. The liquidated damages due shall be
payable on each interest payment date specified by the Indenture to the
record holder entitled to receive the interest payment to be made on such
date. Each obligation to pay liquidated damages shall be deemed to accrue
from and including the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by holders of Transfer
Restricted Securities by reason of the failure of the Shelf Registration,
or the Exchange Offer, to be filed, to be declared effective, to be
consummated or to remain effective, as the case may be, to the extent
required by this Agreement.
4. Registration Procedures. In connection with any Shelf Registration
-------------------------
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to you, prior to the filing thereof
with the Commission, a copy of the Registration Statement and each
amendment thereof and each supplement, if any, to the prospectus included
therein and, in the event that the Initial Purchaser (with respect to any
portion of an unsold allotment from the original offering) is participating
in the Registered Exchange Offer or the Shelf Registration, shall use its
best efforts to reflect in each such document, when so filed with the
Commission, such comments as you reasonably may propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
and (iii) if requested by any Initial Purchaser, include the information
required by Items 507 and/or 508 of Regulation S-K under the Securities
<PAGE>
8
Act, as applicable, in the prospectus forming a part of the Exchange Offer
Registration Statement.
(b) The Company shall advise you and the Holders (if applicable), and,
if requested by you or any such Holder, confirm such advice in writing
(which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by
an instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when the Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the making of any
changes in the Registration Statement or the prospectus so that, as of
such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) The Company will make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
(d) The Company will furnish to each Holder of Securities included
within the coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
<PAGE>
9
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(e) The Company will deliver to each Holder of Securities included
within the coverage of any Shelf Registration Statement, without charge, as
many copies of the prospectus (including each preliminary prospectus)
included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request; and the Company
consents to the use of the prospectus or any amendment or supplement
thereto by each of the selling Holders of Securities in connection with the
offering and sale of the Securities covered by the prospectus or any
amendment or supplement thereto.
(f) The Company will furnish to each Exchanging Dealer or the Initial
Purchaser, as applicable, that so requests, without charge, at least one
copy of the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Exchanging Dealer or Initial Purchaser, as applicable, so requests in
writing, all exhibits (including those incorporated by reference).
(g) The Company will, during the Exchange Offer Registration Period
and/or the Shelf Registration Period, as applicable, promptly deliver to
each Exchanging Dealer or the Initial Purchaser, as applicable, without
charge, as many copies of the prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer or the Initial Purchaser, as applicable, may reasonably
request for delivery by (i) such Exchanging Dealer in connection with a
sale of Exchange Securities received by it pursuant to the Registered
Exchange Offer or (ii) the Initial Purchaser in connection with a sale of
Exchange Securities received by it in exchange for Securities constituting
any portion of an unsold allotment; and the Company consents to the use of
the prospectus or any amendment or supplement thereto by any such
Exchanging Dealer or the Initial Purchaser, as applicable, as aforesaid.
(h) Prior to any public offering of Securities pursuant to any
Registration Statement, the Company will use its reasonable best efforts to
register or qualify or cooperate with the Holders of Securities included
therein and their respective counsel in connection with the
<PAGE>
10
registration or qualification of such securities for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holder
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities covered by such Shelf Registration Statement; provided,
--------
however, that the Company will not be required to qualify generally to do
-------
business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process or to
taxation in any such jurisdiction where it is not then so subject.
(i) The Company will cooperate with the Holders of Securities to
facilitate the timely preparation and delivery of certificates representing
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names
as Holders may request prior to sales of Securities pursuant to such
Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (b)(ii)
through (v) above during the period for which the Company is required to
maintain an effective Registration Statement, the Company will promptly
prepare a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities or purchasers
of Exchange Securities from an Exchanging Dealer or the Initial Purchaser,
as applicable, as contemplated in paragraph (g) above, as applicable, the
prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Securities or
Exchange Securities, as the case may be, and provide the applicable trustee
with printed certificates for the Securities or Exchange Securities, as the
case may be in a form eligible for deposit with The Depositary Trust
Company.
(1) The Company will comply with all applicable rules and regulations
of the Commission and will make generally available to its security holders
as soon as
<PAGE>
11
practicable after the effective date of the applicable Registration
Statement an earnings statement satisfying the provisions of Section 11(a)
of the Securities Act.
(m) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture
Act as required by applicable law in a timely manner.
(n) The Company may require each Holder of Securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such Securities as
the Company may from time to time reasonably require for inclusion in such
Registration Statement, and the Company may exclude from such registration
the Securities of any Holder that unreasonably fails to furnish such
information within a reasonable time after receiving such request.
(o) The Company shall enter into such customary agreements (including
if requested an underwriting agreement in customary form) and take all such
other action, if any, as Holders of a majority in aggregate principal
amount of Securities being sold or the managing underwriters (if any) shall
reasonably request in order to facilitate the disposition of Securities
pursuant to any Shelf Registration Statement.
(p) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and
Special Counsel acting for, the Holders, and any underwriter participating
in any disposition pursuant to a Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by such
representative, counsel or any such underwriter (an "Inspector") in
connection with any such Registration Statement, subject to executing a
confidentiality undertaking in customary form with respect to confidential
and/or proprietary information of the Company.
(q) In the case of a Shelf Registration Statement, the Company, if
requested by Holders of a majority in aggregate principal amount, their
Special Counsel, or the managing underwriters (if any) in connection
<PAGE>
12
with any Shelf Registration Statement, shall use its best efforts to cause
(w) its counsel to deliver an opinion relating to the Registration
Statement and the Securities or the Exchange Securities, as applicable, in
customary form, (x) its officers to execute and deliver all customary
documents and certificates requested by Holders of a majority in aggregate
principal amount, their Special Counsel, or the managing underwriters (if
any) and (y) its independent public accountants to provide a comfort letter
in customary form, subject to receipt of appropriate documentation as
contemplated, and only if permitted by Statement of Auditing Standards No.
72.
(r) The Company will use its best efforts to cause the Securities or
the Exchange Securities, as applicable, covered by a Registration Statement
to be rated with the appropriate rating agencies, if so requested by
Holders of a majority in aggregate principal amount of Securities covered
by such Registration Statement or the Exchange Securities, as the case may
be, or the managing underwriters, if any.
(s) The Company will use its best efforts to cause the Securities or
the Exchange Securities, as applicable, relating to such Registration
Statement to be listed on each securities exchange, if any, on which debt
securities issued by the Company are then listed, if so requested by
Holders of a majority in aggregate principal amount of Securities covered
by such Registration Statement or the Exchange Securities, as the case may
be, or the managing underwriters, if any.
(t) In the case of a Shelf Registration Statement, each Holder of
Securities agrees by acquisition of such Securities that, upon receipt of
any notice of the Company pursuant to Section 4(b)(ii) through (v) hereof,
such Holder will discontinue disposition of such Securities covered by such
Registration Statement until such Holder's receipt of copies of the
supplemental or amended Prospectus contemplated by Section 4(j) hereof, or
until advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed. If the Company shall give any notice
under Section 4(b)(ii) through (v) during the period that the Company is
required to maintain an effective Registration Statement (the
"Effectiveness Period"), such Effectiveness Period shall be extended by the
number of days during such period from and including the date of the giving
of such notice to and including the date
<PAGE>
13
when each seller of Securities covered by such Registration Statement shall
have received (x) the copies of the supplemental or amended Prospectus
contemplated by Section 4(j) (if an amended or supplemental Prospectus is
required) or (y) the Advice (if no amended or supplemental Prospectus is
required).
5. Registration Expenses. The Company will bear all expenses incurred
----------------------
in connection with the performance of its obligations under Sections 1, 2,
3 and 4 hereof and will reimburse the Initial Purchaser and/or the Holders
for the reasonable fees and disbursements of one firm of attorneys (in
addition to local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Securities (the "Special Counsel") acting for the
initial Purchaser and/or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration Statement
----------------
or in connection with any prospectus delivery pursuant to an Exchange Offer
Registration Statement by an Exchanging Dealer or Initial Purchaser, as
applicable, as contemplated in Section 4(g) above, the Company shall
indemnify and hold harmless each Holder and each person, if any, who
controls such Holder within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(ii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements
of counsel chosen by the indemnified party), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental or regulatory agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission;
<PAGE>
14
provided, however, that (i) this indemnity shall not apply to any loss,
-------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by the indemnified party expressly for use in such Registration
Statement and (ii) this indemnity with respect to any untrue statement or
alleged untrue statement or omission or alleged omission in any related
preliminary prospectus shall not enure to the benefit of any indemnified
party from whom the person asserting any such loss, claim damage or
liability received Securities if such persons did not receive a copy of the
final prospectus at or prior to the confirmation of the sale of such
Securities to such person in any case where such delivery is required by
the Securities Act and-the untrue statement or omission of material fact
contained in the related preliminary prospectus was corrected in the final
prospectus unless such failure to deliver the final prospectus was a result
of noncompliance by the Company with Sections 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration
Statement, each Holder agrees to indemnify and hold harmless the Company,
its directors, officers, agents and employees and each person, if any, who
controls the Company within meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and the directors, officers, agents and
employees of such controlling persons against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section
6(a) hereof, as incurred, arising out of or based upon any untrue
statements or omissions, or alleged untrue statements or omissions, made in
the Registration Statement (or any amendment or supplement thereto) in
reliance on and in conformity with written information furnished to the
Company by such Holder expressly for use in the Registration Statement (or
in such amendment or supplement); provided, however, that no such Holder
-------- -------
shall be liable for any indemnity claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Securities
pursuant to the Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any claim or action commenced
against it in respect of which indemnity may be sought hereunder, provided,
---------
that failure to so notify an indemnifying party shall not relieve
<PAGE>
15
such indemnifying party from any obligation that it may have pursuant to
this Section except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure
and, provided further that the failure to notify the indemnifying party
shall not relieve it from any liability that it may have to an indemnified
party otherwise than on account of this indemnity agreement. If any such
claim or action shall be brought against an indemnified party, the
indemnified party shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof (other than reasonable costs of investigation); provided,
--------
however, that an indemnified party will have the right to employ its own
-------
counsel in any such action, but the fees, expenses and other charges of
such counsel will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnified party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified
party) between the indemnified party and indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of
such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or
parties. It is understood that the indemnifying party or parties shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and other
charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified
<PAGE>
16
party or parties. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 6(a) and 6(b), shall use all reasonable
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall be liable for any settlement
of any such action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If a claim by an indemnified party for indemnification under this
Section 6 is found unenforceable in a final judgment by a court of
competent jurisdiction (not subject to further appeal or review) even
though the express provisions hereof provide for indemnification in such
case, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions, statements or omissions
that resulted in such losses as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a
party as a result of any losses shall be deemed to include, subject to the
limitations set forth in Section 6(c) herein, any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section, an
indemnifying party that is a holder of Transfer
<PAGE>
17
Restricted Securities or Exchange Securities shall not be required to
contribute any amount in excess of the amount by which the total price at
which the securities sold by such indemnifying party and distributed to the
public were offered to the public exceeds the amount of any damages that
such indemnifying party has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to any contribution
from any person who was not guilty of such fraudulent misrepresentation.
7. Rules 144 and 144A. The Company shall use its best efforts to file
-------------------
the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the request of any holder of
Transfer Restricted Securities, make publicly available other information
so long as necessary to permit sales of their securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action
as any holder of Transfer Restricted Securities may reasonably request, all
to the extent required from time to time to enable such holder to sell
Transfer Restricted Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144 A(d)(4)). Upon
the request of any holder of Transfer Restricted Securities, the Company
shall deliver to such holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, nothing in
this Section 7 shall be deemed to require the Company to register any of
its securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
---------------------------
Securities covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by
the holders of a majority in aggregate principal amount of such Transfer
Restricted Securities included in such offering, subject to the consent of
the Company (which shall not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell
<PAGE>
18
such person's Transfer Restricted Securities on the basis reasonably
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements.
9. Miscellaneous. (a) Amendments and Waivers. The provisions of this
-------------- -----------------------
Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless
the Company has obtained the written consent of Holders of a majority in
aggregate principal amount of the Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of the Holders
of Securities whose Securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of a majority in aggregate principal
amount of the Securities being sold by such Holders pursuant to such
Registration Statement.
(b) Notices. All notices and other communications provided for or
--------
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this
Section 9(b), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to Chase Securities Inc.;
(2) if to you, initially at the respective addresses set forth in
the Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day
after being delivered to a next-day air courier; five business days after
being deposited in the mail; when answered back, if faxed; and
<PAGE>
19
when receipt is acknowledged by the recipient's telecopier machine, if
telecopied.
(c) Successors And Assigns. This Agreement shall be binding upon the
-----------------------
Company and its successors and assigns.
(d) Counterparts. This agreement may be executed in any number of
-------------
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Headings. The headings in this agreement are for convenience of
---------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
----------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF
A TRANSFER RESTRICTED SECURITY TO SERVE PROCESS IN ANY MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
COMPANY IN ANY OTHER JURISDICTION.
(g) Remedies. In the event of a breach by the Company, or by a holder
---------
of Transfer Restricted Securities, of any of their obligations under this
Agreement, each holder of Transfer Restricted Securities or the Company, as
the case may be, in addition to being entitled to exercise
<PAGE>
20
all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company and
each holder of Transfer Restricted Securities, agree that monetary damages
would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect
of such breach, it shall waive the defense that a remedy at law would be
adequate.
(h) No Inconsistent Agreements. The Company has not, nor shall the
---------------------------
Company on or after the date of this Agreement, enter into any agreement
that is inconsistent with the rights granted to the holders of Transfer
Restricted Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company has not previously entered into any
agreement granting any registration rights with respect to any of its debt
securities to any person. Without limiting the generality of the foregoing,
without the written consent of the holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities,
the Company shall not grant to any person the right to request the Company
to register any debt securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior
rights of the holders of Transfer Restricted Securities set forth herein,
and are not otherwise in conflict or inconsistent with the provisions of
the Agreement.
(i) No Piggyback on Registrations. None of the Company nor any of their
------------------------------
respective security holders (other than the holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities
of the Company in any Shelf Registration or Exchange Offer other than
Transfer Restricted Securities.
(j) Severability. The remedies provided herein are cumulative and not
-------------
exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable efforts
to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such
<PAGE>
21
term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed
the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void
or unenforceable.
<PAGE>
22
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
SIMMONS COMPANY,
By: /s/ Roger W. Franklin
-----------------------
Name: Roger W. Franklin
Title: Vice-President-Finance, Treasurer
Accepted in New York, New York
CHASE SECURITIES INC.,
By: /s/ Robert Berk
-------------------------
Name: Robert Berk
Title V.P.
<PAGE>
23
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Existing Notes where such Existing Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90
days after the Expiration Date (as defined herein), it will make this
Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
<PAGE>
24
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Existing Notes, where such Existing Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. See
"Plan of Distribution."
<PAGE>
25
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange
Securities. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of
Exchange Securities received in exchange for Existing Notes where such
Existing Notes were acquired as result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90
days after the Expiration Date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 199 , all dealers effecting
transactions in the Exchange Securities may be required to deliver a
prospectus. * /
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-
dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Securities or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such Now Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Securities and any commission or concessions
received by any such persons may be deemed to be
*/In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
26
underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that It will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the Holders of the Securities) other than commissions or
concessions of any brokers or dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
<PAGE>
27
ANNEX D
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
-----
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name:
---------------------------------------------------
Address:
------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Securities. If the undersigned is a broker-dealer that will
receive Exchange Securities for its own account in exchange for Existing
Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Securities; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
EXHIBIT 10.1
Final Execution Copy
--------------------
===========================================================================
STOCK PURCHASE AGREEMENT
by and among
NationsBank, N.A. (South), solely as Trustee
of the Simmons Company Employee Stock Ownership Trust
Simmons Company,
Merrill Lynch Capital Appreciation
Partnership No. B-XI, L.P.,
MLCP Associates L.P. No. II,
ML IBK Positions Inc.,
ML Offshore LBO Partnership No. B-XI,
Merrill Lynch KECALP L.P. 1987,
Merrill Lynch KECALP L.P. 1989,
Merchant Banking L.P. No. IV,
Certain Other Stockholders of Simmons Company
Listed on the Signature Pages Hereto,
Simmons Acquisition Corp.
and
Simmons Holdings, Inc.
------------------------
As of February 21, 1996
------------------------
===========================================================================
<PAGE>
TABLE OF CONTENTS
------------------
Page
----
ARTICLE I
DEFINITIONS 1
-----------
ARTICLE II
PURCHASE OF SHARES 6
------------------
2.1. Purchase and Sale of the Shares . . . . . . . . . . . . . . . . . 6
2.2. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4. Closing Date Deliveries . . . . . . . . . . . . . . . . . . . . . 7
2.5. Adjustment of ESOP Allocated Shares
and Purchase Price . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY 9
------------------------------
3.1. Organization of the Company . . . . . . . . . . . . . . . . . . . 9
3.2. Capital Stock of the Company . . . . . . . . . . . . . . . . . . 10
3.3. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4. Authority of the Company . . . . . . . . . . . . . . . . . . . . 12
3.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 14
3.6. Operations Since December 31, 1994 . . . . . . . . . . . . . . . 15
3.7. No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 17
3.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.9. Governmental Permits . . . . . . . . . . . . . . . . . . . . . . 18
3.10. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
Page
----
3.11. Real Property Leases . . . . . . . . . . . . . . . . . . . . . 19
3.12. Intellectual Property . . . . . . . . . . . . . . . . . . . . 20
3.13. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . 20
3.14. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 21
3.15. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.16. No Violation, Litigation or Regulatory Action . . . . . . . . 26
3.17. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.18. Certain Transactions or Arrangements . . . . . . . . . . . . . 27
3.19. Customer and Supplier Relationships . . . . . . . . . . . . . 27
3.20. Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE SELLERS 28
---------------------------------
4.1. Authority and Related Matters . . . . . . . . . . . . . . . . . 28
4.2. No Finder . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3. Absence of Proceedings . . . . . . . . . . . . . . . . . . . . 30
4.4. Additional Representations of the Trustee . . . . . . . . . . 30
4.5. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.6. Company Representations and Warranties . . . . . . . . . . . . 31
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS 31
-----------------------------------------------------
5.1. Organization and Capitalization of Buyer
and Holdings . . . . . . . . . . . . . . . . . . . . . . . . 31
5.2. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 32
5.3. Authority of Each of Buyer and Holdings . . . . . . . . . . . 32
-ii-
<PAGE>
Page
----
5.4. Pro Forma Balance Sheet; Post-Merger
Capitalization of Company . . . . . . . . . . . . . . . . . 33
5.5. Certain Transactions or Arrangements . . . . . . . . . . . . . 33
5.6. No Finder . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.7. Absence of Proceedings . . . . . . . . . . . . . . . . . . . . 34
5.8. Investment Intent . . . . . . . . . . . . . . . . . . . . . . 34
5.9. Status as Accredited Investor . . . . . . . . . . . . . . . . 34
5.10. Financial Capability . . . . . . . . . . . . . . . . . . . . . 34
5.11. HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.12. Employer Securities . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI
ADDITIONAL COVENANTS 35
--------------------
6.1. Investigation of the Company by Buyer
and the Trustee . . . . . . . . . . . . . . . . . . . . . . . . 35
6.2. Investigation of Buyer and Holdings by
the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3. Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . 36
6.4. Operations Prior to the Closing Date . . . . . . . . . . . . . . 37
6.5. No Public Announcement . . . . . . . . . . . . . . . . . . . . . 40
6.6. Governmental Filings; Consents . . . . . . . . . . . . . . . . . 40
6.7. Directors' and Officers' Indemnification . . . . . . . . . . . . 41
6.8. Company Options . . . . . . . . . . . . . . . . . . . . . . . . 41
6.9. Buyer to Fund Certain Obligations . . . . . . . . . . . . . . . 42
6.10. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . 42
6.11. Termination of Obligations to ML Sellers . . . . . . . . . . . . 42
6.12. FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . 43
-iii-
<PAGE>
Page
----
6.13. Stockholders' Agreement; Exercise of
Certain Call Rights . . . . . . . . . . . . . . . . . . . . . . 43
6.14. ESOP Amendments; New Stockholders Agreement . . . . . . . . . . 44
6.15. Approval of Merger . . . . . . . . . . . . . . . . . . . . . . 44
6.16. Approval of Amended Certificate of
Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.17. Other Agreements; Approval . . . . . . . . . . . . . . . . . . . 44
6.18. Consents Relating to Certain Obligations . . . . . . . . . . . . 44
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER 45
--------------------------------------------
7.1. No Misrepresentation or Breach of Covenants
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.2. Resignations of Directors . . . . . . . . . . . . . . . . . . . . 46
7.3. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.4. Necessary Approvals and Consents . . . . . . . . . . . . . . . . . 46
7.5. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.6. ESOP Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE SELLERS 47
------------------------------
8.1. No Misrepresentation or Breach of Covenants
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.2. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.3. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . 48
8.4. ESOP Amendments; New Stockholders Agreement . . . . . . . . . . . 48
8.5. Additional Conditions to Trustee's Obligations . . . . . . . . . . 48
-iv-
<PAGE>
Paqe
----
ARTICLE IX
TERMINATION 49
-----------
9.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.2. No Liability Upon Termination . . . . . . . . . . . . . . . . . . 50
ARTICLE X
GENERAL PROVISIONS 50
------------------
10.1. Non-survival of Representations, Warranties
and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.3. Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . 52
10.4. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 53
10.5. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . 53
10.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.7. Assignment; Successors and Assigns . . . . . . . . . . . . . . . . 54
10.8. Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . 54
10.9. Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . 54
10.10. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.11. Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . 55
10.12. Action by Management Stockholders
and ML Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.13. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Exhibit A - Aggregate Purchase Price Payable to Each Seller
Exhibit B - Form of ESOP Amendments
B-1 - Form of Consolidated ESOP Loan Agreement
B-2 - Form of Consolidated Pledge Agreement
B-3 - Form of Amended and Restated ESOP Note
B-4 - Form of Amendment Agreement of Trust
B-5 - Form of Second Amendment to the ESOP
Exhibit C - Form of New Stockholders Agreement
Exhibit D - Form of Agreement of Merger
-v-
<PAGE>
Exhibit E - Amendments to the Company's Incorporation
Documents:
E-1 - Form of Amended and Restated Certificate of Incorporation
E-2 - Form of Amended and Restated bylaws
Exhibit F - Parent Option Agreement
Exhibit G - Services and Expenses Agreement
Exhibit H - Management Advisory, Strategic Planning
and Consulting Services Agreement
Exhibit I - Opinions
Exhibit J - Terms of Management Options
Exhibit K - Buyer's and Holdings' Incorporation Documents:
K-1 - Form of Buyer's Certificate of
Incorporation
K-2 - Form of Buyer's bylaws
K-3 - Form of Holdings' Certificate of Incorporation, including
all Certificates of Designation
K-4 - Form of Holdings bylaws
Schedules
- ---------
Schedule 3.1 Organization of the Company
Schedule 3.2 Capital Stock of the Company
Schedule 3.3 Subsidiaries
Schedule 3.4 Authority of the Company
Schedule 3.5 Financial Statements
Schedule 3.6 Operations Since December 31, 1994
Schedule 3.7 Undisclosed Liabilities
Schedule 3.8 Taxes
Schedule 3.9 Governmental Permits
Schedule 3.10 Real Property
Schedule 3.11 Real Property Leases
Schedule 3.12 Intellectual Property
Schedule 3.13 Labor Relations
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts
Schedule 3.16 Violation, Litigation or Regulatory Action
Schedule 3.17 Insurance
Schedule 3.18 Certain Transactions or Arrangements
Schedule 3.19 Customer and Supplier Relationships
Schedule 5.2 Subsidiaries of Buyer and Holdings
Schedule 5.5 Certain Transactions or Arrangements
Schedule 10.3 Fees and Expenses
<PAGE>
THIS STOCK PURCHASE AGREEMENT ("Agreement") is dated as of February
21, 1996, by and among Merrill Lynch Capital Appreciation Partnership No. B-XI,
L.P., a Delaware limited partnership, MLCP Associates L.P. No. II, a Delaware
limited partnership, ML IBK Positions Inc., a Delaware corporation, ML Offshore
LBO partnership No. B-XI, a Cayman Islands limited partnership, and Merchant
Banking L.P. No. IV (collectively, the "ML Sellers" and, individually, an "ML
Seller"), Simmons Company, a Delaware corporation (the "Company"), Merrill Lynch
KECALP L.P. 1987, a Delaware limited partnership ("KECALP 1987"), Merrill Lynch
KECALP L.P. 1989, a Delaware limited partnership ("KECALP 1989"), NationsBank,
N.A. (South), solely in its capacity as trustee (the "Trustee") of the Simmons
Company Employee Stock Ownership Trust (as amended, supplemented or otherwise
modified from time to time, the "ESOT"), the management stockholders listed on
the signature pages attached hereto (the "Management Stockholders" and, together
with the ML Sellers, KECALP 1987, KECALP 1989 and the Trustee, the "Sellers"),
Simmons Acquisition Corp., a Delaware corporation ("Buyer") and Simmons
Holdings, Inc., a Delaware corporation ("Holdings").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Sellers are the owners of that number of shares of common
stock, par value $.01 per share, of the Company (the "Company Common Stock") set
forth next to such Seller's name on Exhibit A attached hereto (the "Shares");
WHEREAS, such Sellers desire to sell to Buyer, and Buyer desires to
purchase from such Sellers, the shares of Company Common Stock to be purchased
pursuant to this Agreement for the amounts provided herein, all on the terms and
subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other covenants and agreements set forth herein, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
-----------
In addition to the other words and terms defined elsewhere in the
Agreement, as used in this Agreement, the following words and terms have the
meanings specified or referred to below:
<PAGE>
"Affiliate" means, with respect to any Person, any other Person who,
-----------
directly or indirectly, controls, is controlled by or is under common control
with such Person.
"Allocated Shares" has the meaning specified in Section 2.5.
------------------
"Amended Certificate of Incorporation" has the meaning specified in
--------------------------------------
Section 2.4(c)(iv).
"Buyer" has the meaning specified in the preamble of this Agreement.
-------
"Class A Stock" means the Class A Stock, $.01 par value per share, of
---------------
Holdings.
"Class C Stock" means the Class C Stock, $.01 par value per share, of
---------------
Holdings.
"Class D Stock" means the Class D Stock, $.01 par value per share, of
---------------
Holdings.
"Closing" has the meaning specified in Section 2.3.
---------
"Closing Date" has the meaning specified in Section 2.3.
--------------
"Code" means the Internal Revenue Code of 1986, as
------
amended.
"Company" has the meaning specified in the preamble to this Agreement.
---------
"Company Common Stock" has the meaning specified in the recitals to
----------------------
this Agreement.
"Company Group" has the meaning specified in Section 3.14(a).
---------------
"Company Options" has the meaning specified in Section 3.2.
-----------------
"December 1994 Balance Sheet" has the meaning specified in Section
-----------------------------
3.5.
"Defined Benefit Plan" has the meaning specified in Section 3.14(a).
----------------------
"Employee Plan" has the meaning specified in Section 3.14.
---------------
-2-
<PAGE>
"Encumbrance" means any lien, claim, charge, security interest,
-------------
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other encumbrance or restriction of any kind.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-------
amended.
"ESOP" means the Simmons Company Employee Stock Ownership Plan as
------
amended and restated effective January 17, 1989.
"ESOP Amendments" has the meaning specified in Section 2.4(c)(ii).
-----------------
"ESOP Fairness Opinion" has the meaning specified in Section 4.4.
-----------------------
"ESOT" has the meaning specified in the preamble to this Agreement.
------
"Final Notice" shall have the meaning specified in Section 6.9.
--------------
"Financial Statements" has the meaning specified in Section 3.5.
----------------------
"Foreign Plan." has the meaning specified in Section specified in
---------------
3.14 (a).
"Governmental Body" means any federal, state, local or foreign court,
-------------------
government, department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority.
"Governmental Permits" has the meaning specified in Section 3.9.
----------------------
"Holdings" has the meaning specified in the preamble to this
----------
Agreement.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-----------
1976, as amended, and the rules and regulations promulgated thereunder.
"Intellectual Property" has the meaning specified in Section 3.12(a).
-----------------------
"Investcorp" has the meaning specified in Section 8.1.
------------
-3-
<PAGE>
"IRS" means the Internal Revenue Service.
-----
"KECALP 1987" has the meaning specified in the preamble to
this Agreement.
---------
"KECALP 1989" has the meaning specified in the preamble to this
-------------
Agreement.
"Junior Notes" means the Company's Junior Subordinated Notes, due
--------------
January 17, 2003.
"Major Transactions" has the meaning specified in Section 4.4.
--------------------
"Management Notes" means the Company's Amended and Restated Adjustable
------------------
Rate Senior Subordinated Notes due January 1, 1999.
"Management Stockholders" has the meaning specified in the preamble to
-------------------------
this Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-------------------------
financial condition, businesses or results of operations of the Company and the
Subsidiaries taken as a whole or (ii) the ability of the Company to consummate
the transactions contemplated hereby.
"Material Leases" has the meaning specified in Section 3.11.
-----------------
"Merger" has the meaning specified in Section 2.4(c)(i).
-------
"Merger Agreement" means the Agreement of Merger, dated as of
------------------
March , 1996, between the Company and Buyer, the form of which is
attached as Exhibit D hereto.
"ML Seller" and "ML Sellers" have the meanings specified in the
----------- ------------
preamble to this Agreement.
"MLCP" means Merrill Lynch Capital Partners, Inc., a Delaware
------
corporation, of which each of the ML Sellers is an Affiliate.
"Multiemployer Plan" has the meaning specified in Section 3.14(a).
--------------------
"New Stockholders Agreement" has the meaning specified in Section
----------------------------
2.4(c)(iii).
-4-
<PAGE>
"October 1995 Interim Balance Sheet" has the meaning specified in
------------------------------------
Section 3.5.
"Option Plans" has the meaning specified in Section 3.2.
--------------
"Owned Real Property" has the meaning specified in Section 3.10.
---------------------
"PBGC" means the Pension Benefit Guaranty Corporation established
------
pursuant to Subtitle A of Title IV of ERISA, or any other governmental agency,
department or instrumentality succeeding to the functions of said Corporation.
"Permitted Encumbrance" means (i) only with respect to real estate
-----------------------
and interests therein, easements, covenants, conditions, restrictions and other
matters of record, and incidental mechanics' and other similar liens, none of
which, individually or in the aggregate, materially affect the value of, or
marketability of title to, the property subject thereto or the use to which such
property is presently put, (ii) the Encumbrances arising from the Senior Credit
Agreement, and (iii) the Encumbrances permitted under Section 6.02 of the Senior
Credit Agreement.
"Person" means and includes an individual, a partnership, a
--------
corporation, a trust, a joint venture, an unincorporated organization and any
governmental or regulatory body or other agency or authority.
"Preferred Stock" has the meaning specified in Section 3.2.
-----------------
"Pro Forma Balance Sheet" has the meaning specified in Section 5.4.
-------------------------
"Purchase Price" has the meaning specified in Section 2.2.
----------------
"Returns" has the meaning specified in Section 3.8(a).
---------
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Sellers" has the meaning specified in the preamble to this Agreement.
---------
"Senior Credit Agreement" means the Credit Agreement dated as of
-------------------------
January 17, 1989, as amended and restated as
-5-
<PAGE>
of September 27, 1989, as amended and restated as of March 11, 1991,
as amended by the First Amendment and Consent, dated as of April 18,
1994, the Second Amendment and Waiver, dated as of December 28, 1994,
the Third Amendment, dated as of March 29, 1995, the Fourth Amendment,
dated April 13, 1995, and the Fifth Amendment, dated as of April 27,
1995, all among the Company, the Guarantors named therein, the Banks
named therein and Chemical Bank, as agent for the Banks.
"Series A Preferred Stock" has the meaning specified in Section
--------------------------
3.6(b).
"Series C Preferred Stock" has the meaning specified in Section 3.2.
--------------------------
"Shares" has the meaning specified in the recitals to this Agreement.
--------
"Significant Sellers" means the ML Sellers, the Trustee, KECALP 1987
---------------------
and KECALP 1989.
"Stockholders' Agreement" has the meaning specified in Section 6.13.
-------------------------
"Subsidiary" shall mean, as of the applicable point in time, each
------------
corporation, partnership, joint venture or other entity of which the Company
owns, directly or indirectly, more than 50% of the outstanding voting securities
or equity interests.
"Tax" or "Taxes" has the meaning specified in Section 3.8(a).
----- -------
"Trustee" has the meaning specified in the preamble to this Agreement.
---------
"Trust Agreement" has the meaning specified in Section 3.2.
-----------------
ARTICLE II
PURCHASE OF SHARES
------------------
2.1. Purchase and Sale of the Shares. Subject to the terms and
---------------------------------
conditions hereof, on the Closing Date, as defined in Section 2.3, each Seller
shall sell to the Buyer, and the Buyer shall purchase from each Seller, the
number of Shares specified next to each such Seller's respective name
-6-
<PAGE>
on Exhibit A hereto for the aggregate purchase price listed next to such
Seller's name on Exhibit A.
2.2. Purchase Price. The purchase price ("Purchase Price") to be paid
--------------- --------------
to any Seller for such Seller's Shares to be sold pursuant hereto shall be as
set forth on Exhibit A hereto. The Purchase Price payable to each Seller shall
be payable as provided in Section 2.4(b)(i).
2.3. Closing Date. Subject to the terms and conditions hereof, the
--------------
consummation of the transactions provided for in Sections 2.1 and 2.4 (the
"Closing") shall take place at 10:00 A.M., local time, on March 25, 1996, or
-------
such other date as may be agreed upon by Buyer, the Company, MLCP and the
Trustee upon which the conditions to be satisfied prior to the Closing set forth
in Articles VII and VIII are satisfied or waived, at the offices of Gibson, Dunn
& Crutcher, 200 Park Avenue, New York, New York 10166 (the date and time at
which the Closing shall occur is hereinafter called the "Closing Date").
------------
2.4. Closing Date Deliveries. (a) On the Closing Date, each Seller
-------------------------
shall deliver to Buyer:
(i) one or more stock certificates representing the number of the
Shares to be purchased from such Seller by Buyer, in proper form for
transfer, accompanied by appropriate stock powers duly executed in blank,
together with any and all necessary documentary or transfer tax stamps duly
affixed and canceled and otherwise in form satisfactory to Buyer; and
(ii) all of the instruments required or contemplated to be
delivered under Article VII and such other evidence as Buyer shall
reasonably request to demonstrate satisfaction of the conditions set forth
in such Article VII.
(b) On the Closing Date, Buyer and where applicable Holdings shall
deliver to the Sellers and the Company, as the case may be:
(i) the Purchase Price set forth on Exhibit A hereto (subject to
adjustment, in the case of the shares to be purchased from the Trustee,
pursuant to Section 2.5 hereof) next to such Seller's name to each respec-
tive Seller by wire transfer of immediately available funds to such bank
account or accounts as each such Seller shall designate in writing to Buyer
at least two business days prior to the Closing Date; and
-7-
<PAGE>
(ii) all of the instruments required or contemplated to be delivered
under Article VIII and such other evidence as the Company, MLCP or the
Trustee shall reasonably request to demonstrate satisfaction of the
conditions set forth in such Article VIII.
(c) On the Closing Date, the following additional actions shall occur:
(i) Buyer and the Company shall enter into the Agreement of Merger in
the form of Exhibit D hereto (the "Merger Agreement") providing for the
--------------------
merger of Buyer with and into the Company (the "Merger") and the Merger
------
shall occur;
(ii) the Company and the Trustee, as applicable, shall execute the
Consolidated ESOP Loan Agreement, the Consolidated Pledge Agreement, the
Amended and Restated ESOP Note, the Amendment Agreement of Trust and the
Second Amendment to the ESOP in the form of Exhibits B-l, B-2, B-3, B-4 and
B-5 hereto, respectively (collectively, the "ESOP Amendments");
-------------------
(iii) the Company, the Trustee and Holdings shall enter into the
stockholders agreement in the form of Exhibit C hereto (the "New
----
Stockholders Agreement");
-------------------------
(iv) the Company shall amend and restate its Certificate of
Incorporation (the "Amended Certificate of Incorporation") in the form of
----------------------------------------
Exhibit E-1 hereto and its bylaws in the form of Exhibit E-2 hereto;
(v) Subject to Sections 6.9 and 6.18 hereof, Buyer shall pay or shall
contribute or otherwise make such funds available to the Company and cause
the Company to pay the outstanding amount of the Company's indebtedness as
of the Closing Date under the Senior Credit Agreement and the outstanding
amounts due in connection with the transactions contemplated hereby under
the Junior Notes, Management Notes and Series C Preferred Stock;
(vi) Buyer shall pay to the holders of Company Options the amounts
contemplated by Section 6.8;
(vii) Buyer shall deliver to the parties indicated on Schedule 10.3(b)
and pursuant to Section 10.3 the respective amounts to be paid at the
Closing.
-8-
<PAGE>
(viii) Holdings and the Company shall enter into the Parent Option
Agreement in the form of Exhibit F hereto;
(ix) Holdings and the Company shall enter into the Services and
Expenses Agreement in the form of Exhibit G hereto; and
(x) The Company or Buyer and INVESTCORP International Inc. shall enter
into an agreement regarding management services in the form of Exhibit H
hereto.
2.5. Adjustment of ESOP Allocated Shares and Purchase Price. At least five
------------------------------------------------------
business days prior to the Closing Date, the Company shall provide written
notice to Buyer setting forth the number of shares of Company Common Stock to be
allocated, as of December 31, 1995, to the accounts of ESOP participants (the
"Allocated Shares"), all of which Allocated Shares shall be purchased by Buyer
- ---------------------
hereunder. The number of Allocated Shares shall not be less than 5,990,000
shares. The aggregate purchase price payable to the Trustee with respect to such
Allocated Shares shall be determined as follows: (a) the product of $5.36 and
the number of Allocated Shares less (b) $931,681.00 (which reflects the pro rata
portion relating to the shares of Company Common Stock held by the ESOP, whether
or not allocated to the accounts of the ESOP participants, on a fully diluted
basis, of the expenses set forth on Schedule 10.3(b) hereto). Exhibit A shall be
amended prior to the Closing to set forth the number of Allocated Shares
and the purchase price as determined pursuant to this Section 2.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
----------------------------------------------------
As an inducement to Buyer to enter into this Agreement and the Merger
Agreement and to consummate the transactions contemplated hereby and thereby,
the Company represents and warrants to Buyer and, with respect to the ESOP
Amendments, the Company represents and warrants to the Trustee as follows:
3.1. Organization of the Company. The Company is a corporation duly
----------------------------
organized, legally existing and in good standing under the laws of the State of
Delaware. Except as set forth on Schedule 3.1, the Company is duly qualified to
transact business as a foreign corporation and is in good standing in each of
the jurisdictions listed in Schedule 3.1.
-9-
<PAGE>
Those jurisdictions are the only jurisdictions in which the ownership or leasing
of its properties or the conduct of its business requires such qualification
(except where the failure to so qualify would not have a Material Adverse
Effect). The Company has all requisite corporate power to own or lease and to
operate and use its properties and assets and to carry on its business as now
conducted. The Company has delivered or made available to Buyer and the Trustee
complete and correct copies of the Company's Certificate of Incorporation, and
bylaws, each as in effect on the date hereof and as to be amended and restated
in connection with the transactions contemplated hereby.
3.2. Capital Stock of the Company. As of the date hereof and immediately
-----------------------------
prior to the Merger, the authorized capital stock of the Company consists and
shall consist of (i) 50,000,000 shares of Company Common Stock, and (ii)
10,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
----------
Stock"), of which 50,000 have been designated as Series C Cumulative Redeemable
- --------
Exchangeable Preferred Stock (the "Series C Preferred Stock"). As of the date
-----------------------------
hereof and immediately prior to the Merger (other than due to exercise of
Company Options, as defined below, or as permitted by Article VI), 34,582,552
shares of Company Common Stock are outstanding, of which 11,687,894 shares are
owned of record by the Trustee (and of which shares no more than 6,017,488
shares are or will be Allocated Shares), and 6,801.53 shares of Series C
Preferred Stock are outstanding. As of the date hereof and immediately prior to
the Merger (other than due to exercise of Company Options, as defined below, or
as permitted by Article VI), options to purchase 3,052,306 shares of Company
Common Stock (the "Company Options") were outstanding pursuant to the Company's
------------------
1991 performance stock option plan, as amended, and certain additional option
agreements (collectively, the "Option Plans"). None of the issued and
-----------------
outstanding shares of Company Common Stock or Series C Preferred Stock has been
issued in violation of, or is subject to, any preemptive or any subscription
rights. Except for this Agreement, the transactions contemplated hereby and the
provisions of the ESOP, the Agreement of Trust between the Company and the
Trustee (the "Trust Agreement") and the Option Plans and except as disclosed on
-------------------
Schedule 3.2, there are no agreements, arrangements, warrants, options, puts,
calls, rights, option or other employee benefit plans or other commitments or
understandings of any character to which the Company, or to the Company's
knowledge, any Seller is a party relating to the issuance, sale, purchase,
redemption, conversion, exchange, registration, voting or transfer of any shares
of Company
-10-
<PAGE>
Common Stock, Preferred Stock or other securities of the Company. The names of
the record holders of all such warrants, options, puts, calls and rights, and
the names of the parties to all such agreements, arrangements, plans,
commitments or understandings, are set forth on Schedule 3.2. All of the shares
of Company Common Stock subject to issuance pursuant to the Option Plans upon
exercise of the Company Options, shall, upon issuance on the terms and
conditions specified in the instruments pursuant to which the shares are
issuable, be duly authorized, validly issued, fully paid and nonassessable. All
of the outstanding shares of Company Common Stock and Series C Preferred Stock
are duly and validly issued and fully paid and nonassessable, free of any
preemptive or subscription rights (except as set forth in Schedule 3.2), and
upon delivery to Buyer pursuant to Article II hereof, the Shares will be duly
and validly issued and fully paid and nonassessable, free of any preemptive or
subscription rights and free and clear of all Encumbrances.
Schedule 3.2 hereto sets forth (i) the record and to the Company's knowledge
beneficial owners of the shares of Series C Preferred Stock and the number of
shares of Series C Preferred Stock held by each such holder, (ii) the holders of
the Management Notes and the aggregate principal amount of Management Notes held
by each such holder, (iii) the holders of the Junior Notes and the aggregate
principal amount of Junior Notes held by each such holder and (iv) the holders
of the Company Options, the number of shares of Company Common Stock for, and
the exercise price at, which such Company Options are exercisable by each such
holder, in each case, as of the date hereof.
3.3. Subsidiaries. (a) Schedule 3.3 contains a list of (i) each Subsidiary
--------------
as of the date hereof and (ii) each corporation, partnership, joint venture or
other entity (other than any Subsidiary) in which the Company owns, directly or
indirectly, at least 5% of the voting securities or other equity interests.
Schedule 3.3 contains (A) the name, jurisdiction of incorporation or
organization, authorized shares or other equity capital and percentage of
outstanding shares or other equity interests of each of the Subsidiaries owned,
directly or indirectly, of record by the Company, and (B) to the knowledge of
the Company, the name of the owner and the number and percentage of outstanding
shares or other equity interests of each of the Subsidiaries owned of record by
any other person.
(b) Except as set forth on Schedule 3.3, each of the Subsidiaries is a
corporation duly organized, legally
-11-
<PAGE>
existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified to transact business as a foreign
corporation and is in good standing in each of the jurisdictions listed in
Schedule 3.3, which are the only jurisdictions in which the ownership or leasing
of its properties or the conduct of its business requires such qualification
(except where the failure to so qualify would not have a Material Adverse
Effect). Each of the Subsidiaries has all requisite corporate power to own or
lease and to operate and use its properties and assets and to carry on its
business as now conducted.
(c) All of the outstanding capital stock of each of the Subsidiaries
has been validly issued and is fully paid and nonassessable. Except as disclosed
on Schedule 3.3, there are no agreements, arrangements, options, warrants, puts,
calls, rights, option or other employee benefit plans or other commitments or
understandings of any character relating to the issuance, sale, purchase,
redemption, conversion, exchange, registration, voting or transfer of any capi-
tal stock or other securities of any of the Subsidiaries. The Company or a
Subsidiary owns directly the amount of shares of capital stock of each of the
Subsidiaries set forth on Schedule 3.3 as being owned by them, free of
preemptive and any subscription rights and from all Encumbrances, other than
Permitted Encumbrances.
3.4. Authority of the Company. (a) The Company has all requisite
--------------------------
corporate power to execute and deliver this Agreement and the ESOP Amendments,
to consummate the transactions, subject to the conditions set forth herein,
contemplated hereby and to comply with the terms, conditions and provisions
hereof. The execution, delivery and performance of this Agreement and the ESOP
Amendments by the Company have been, or will prior to execution thereof be, duly
authorized by all requisite corporate action. This Agreement has been duly
executed and delivered by the Company and constitutes, and each other instrument
of the Company contemplated hereby (including the ESOP Amendments), when
executed and delivered by the Company, will constitute, the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. The provisions of Section 203 of the Delaware General Corporation Law are
not and will not be applicable to the transactions contemplated by this
Agreement or to any other "business combination" (as defined therein) involving
Buyer, Holdings or any of their "affiliates" or "associates" (as such terms are
defined therein). The foregoing notwithstanding, the Company makes no
representations and warranties herein with respect to the Merger Agreement and
the Merger or with respect to the actions to be taken in
-12 -
<PAGE>
connection with Sections 2.4(c)(i), 2.4(c)(iii), 2.4(c)(iv) and 2.4(c)
(viii) - (x).
(b) Except as set forth in Schedule 3.4 and other than with respect to
the matters specified in Sections 2.4(c)(viii) - (x), neither the execution and
delivery by the Company or any security holder of the Company of this Agreement
or of any of the other instruments contemplated hereby (including the ESOP
Amendments, the Merger Agreement and the New Stockholders Agreement), the
consummation by the Company or any security holder of the Company of any of the
transactions contemplated hereby or by the ESOP Amendments, the Merger Agreement
or the New Stockholders Agreement, nor compliance by the Company or any security
holder of the Company with or fulfillment by the Company or any security holder
of the Company of the terms, conditions and provisions hereof or of the ESOP
Amendments, the Merger Agreement or the New Stockholders Agreement will:
(i) violate any provision of the Company's or any Subsidiary's charter
or bylaws;
(ii) result in the acceleration of or entitle any party to accelerate
(whether after the giving of notice or lapse of time or both) any debt
obligation of the Company or any Subsidiary in excess of $2,000,000 in the
aggregate;
(iii) violate or result in a default under, or result with giving of
notice or lapse of time or both in any violation of or default under, or
result in the creation or imposition of any Encumbrance upon any of the
properties of the Company or any Subsidiary pursuant to any provision of,
any mortgage, lien, lease (including any Material Lease), agreement,
Governmental Permit, item of Intellectual Property, indenture, license, in-
strument, law, regulation, order, arbitration award, judgment or decree to
which the Company or any Subsidiary is a party or by which any of them or
any of their properties is bound, the effect of all of which violations,
creations and impositions would result in liability to the Company or any
Subsidiary in excess of $500,000 in the aggregate;
(iv) constitute an event permitting modification, amendment or
termination of a mortgage, lien, lease, agreement, Governmental Permit,
item of Intellectual Property, indenture, license, instrument, order, arbi-
tration award, judgment or decree to which the Company or any Subsidiary is
a party or by which any of them or
-13-
<PAGE>
any of their properties is bound, which modification(s), amendment(s) or
termination(s) would result in liability to the Company or any Subsidiary
in excess of $500,000 in the aggregate; or
(v) require the approval, consent, authorization or act of, or the
making by the Company or any Subsidiary or any other Person of any
declaration, filing or registration with, any Person or any
Governmental Body, except as provided by the Delaware General Corporation
Law in connection with the filing by the Company with the Secretary of
State of Delaware of the Amended Certificate of Incorporation substantially
in the form of Exhibit E-1 hereto, or any successor statute,and except for
such federal and state securities laws requirements as will be satisfied
prior to the Closing Date, except to the extent the failure to obtain any
of the foregoing does not result in the aggregate in a Material Adverse
Effect; provided, however, that, to the extent resulting from the execution
-------- --------
and delivery by any security holder of the Company of this Agreement or of
any of the other instruments contemplated hereby, the consummation by any
security holder of the Company of any of the transactions contemplated
hereby, or the compliance by any security holder of the Company with or
fulfillment by any security holder of the Company of the terms, conditions
and provisions hereof or thereof, the representations and warranties in
this clause (v) are only being made to the Company's actual knowledge.
3.5. Financial Statements. Schedule 3.5 contains true and complete
---------------------
copies of (a) the consolidated balance sheet of the Company and its Subsidiaries
as of December 25, 1993 and the related statements of income, and stockholders'
equity and cash flow for the year then ended; (b) the consolidated balance sheet
of the Company and its Subsidiaries as of December 31, 1994 (the "December 1994
--------------
Balance Sheet") and the related statements of income and stockholders' equity
- --------------
for the year then ended, in the case of each of clauses (a) and (b) as audited
by, and accompanied by the opinion of, Arthur Andersen LLP, independent
certified public accountants; and (c) the unaudited interim consolidated balance
sheet of the Company and its Subsidiaries as of November 4, 1995 (the "October
--------
1995 Interim Balance Sheet") and the related interim statements of income,
- -----------------------------
stockholders' equity and cash flows for the nine months then ended. The
financial statements referred to in the preceding sentence are herein referred
to collectively as the "Financial Statements" Subject, in the case of the
--------------------------
October 1995 Interim Balance Sheet, to normal audit adjustments, all the
Financial Statements
-14-
<PAGE>
present fairly the financial condition and results of operations of the Company
and its consolidated subsidiaries as of such dates and for such periods; such
balance sheets and the notes thereto disclose all liabilities, direct or
contingent, of the Company and its consolidated subsidiaries as of the dates
thereof required to be disclosed by generally accepted accounting principles;
and such financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as specified
in the notes thereto.
3.6. Operations Since December 31, 1994. (a) Except as set forth in
------------------------------------
the Financial Statements, and except for changes resulting from general economic
conditions and changes that may result from announcement of the transactions
contemplated by this Agreement, since December 31, 1994 there has been no
Material Adverse Effect.
(b) Except as described in Schedule 3.6 or in any other Schedule hereto
and except for the transactions contemplated by this Agreement (including the
issuance of shares of Series A Preferred Stock of the Company, par value $.01
per share (the "Series A Preferred Stock")), since December 31, 1994 the Company
-------------------------
has conducted its business in the ordinary course and in conformity with past
practice and, without limiting the foregoing:
(i) the Company and the Subsidiaries have not made any capital
expenditures or commitments for the acquisition or construction of any
assets characterized as "property and equipment" on the Financial
Statements exceeding $500,000 per item of property or equipment or
exceeding $2,000,000 in the aggregate;
(ii) there has been no declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the
Company or any Subsidiary, other than dividends payable in kind on the
Series C Preferred Stock in accordance with the terms thereof and, other
than dividends declared by any wholly owned Subsidiary, and no issuance of
any capital stock of the Company or any Subsidiary or of any securities
convertible into or exchangeable or exercisable for, or otherwise
representing any right to acquire, any such capital stock;
(iii) neither the Company nor any Subsidiary has redeemed, repurchased,
or otherwise acquired any of its capital stock or securities convertible
into or exchangeable or exercisable for its capital stock or any
-15-
<PAGE>
other securities of the Company or any Subsidiary or entered into any agreement,
arrangement or other commitment to do so;
(iv) neither the Company nor any Subsidiary has adopted or amended any
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation or other plan, agreement, trust fund or arrangement or other plan
for the benefit of its employees other than any such adoptions or amendments as
were in the ordinary course of business consistent with past practices and which
in the aggregate do not have a Material Adverse Effect;
(v) neither the Company nor any Subsidiary has granted any bonus or other
special compensation or increased compensation or benefits payable or to become
payable to any directors, officers or employees except, in the case of
employees, for increases, bonuses or special compensation in the ordinary course
of business consistent with past compensation practice, or taken any action with
respect to the grant or increase of severance or termination pay or entered into
any employment, consulting or similar agreement;
(vi) neither the Company nor any Subsidiary has incurred any indebtedness
for money borrowed except for revolving credit borrowings, letters of credit and
guarantees issued under the Senior Credit Agreement;
(vii) neither the Company nor any Subsidiary has disposed of or acquired any
assets or properties, other than in the ordinary course of business;
(viii) any change in accounting methods, principles or practice by the
Company, except insofar as may have been required by a change in generally
accepted accounting principles;
(ix) there has been no damage, destruction or similar loss to tangible
property which has resulted in, or is reasonably expected to result in, a loss
of more than $500,000 (net of any insurance recovery) or a material cessation or
diminution in the Company's ongoing business activities; and
(x) neither the Company nor any Subsidiary has entered into any agreement,
arrangement or understanding, or otherwise resolved or committed, to do any of
the foregoing.
-16-
<PAGE>
3.7. No Undisclosed Liabilities. Except as set forth in Schedule 3.7
-----------------------------
or as is expressly set forth in any other Schedule to this Agreement, neither
the Company nor any Subsidiary is subject to any obligation or liability of any
nature (whether accrued, absolute, contingent, inchoate or otherwise, including,
without limitation, unasserted claims), which would individually or in the
aggregate, be required by generally accepted accounting principles to be
reflected on a consolidated balance sheet of the Company and which is not
reflected on the October 1995 Interim Balance Sheet or the notes thereto, other
than obligations pursuant to or in connection with this Agreement or the
transactions contemplated hereby and liabilities and obligations incurred in the
ordinary course of business after October 31, 1995, which, in the aggregate, do
not have a Material Adverse Effect.
3.8. Taxes. (a) Except as set forth on Schedule 3.8, the Company and
------
each of the Subsidiaries have filed or caused to be filed all material federal,
state, foreign and local, tax returns, tax information returns, reports, and
estimates ("Returns"), for all taxable or reporting periods ending on or before
-------------
the Closing Date (taking into account applicable extension periods) that were
required to be filed by the Company and each of the Subsidiaries, under the ap-
plicable federal, foreign, state or local law, on or before the Closing Date;
all Taxes shown to be due on such Returns have been paid in full when due; the
Returns have been examined by the IRS or the appropriate state, local or foreign
taxing authority or the period for assessment of the Taxes in respect of which
such Returns were required to be filed has expired; neither the Company nor any
Subsidiary has requested any extension of time within which to file any Return
which Return has not since been filed; no waivers of statutes of limitation have
been given by or requested with respect to any Taxes of the Company or any
Subsidiary; and all such Returns are true, complete and accurate in all material
respects. As used in this Agreement, "Taxes" or "Tax" means all taxes of any
------- -----
kind and any interest or penalties related thereto,' including, without
limitation, net income, capital gains, gross receipts, franchise, or withholding
taxes validly imposed upon the Company or any Subsidiary with respect to such
taxes.
(b) Except as set forth in Schedule 3.8, there are no material claims
or investigations by any taxing authority pending or threatened against the
Company or any Subsidiary for any past due Taxes for periods ending prior to the
Closing Date.
-17-
<PAGE>
(c) The Company and each Subsidiary have withheld all material amounts
required to be withheld from the wages of their respective employees (if any),
with respect to tax withholding and taxes due from such employees under the Fed-
eral Insurance Contributions Act or any other foreign, federal, state, or local
unemployment tax laws, for payroll periods ending before the close of business
on the day before the Closing Date, and have filed all material foreign, fed-
eral, state or local returns and reports that were required by the applicable
foreign, federal, state or local law to be filed on or before the day before the
Closing Date (taking into account applicable extension periods) with respect to
such withholding for such periods.
3.9. Governmental Permits. The Company and the Subsidiaries own, hold
----------------------
or possess all governmental licenses, franchises, permits, privileges,
immunities, approvals and other authorizations which are required to own, lease,
operate and use their respective assets and properties and to carry on and
conduct their respective businesses as currently conducted (herein collectively
called "Governmental Permits"), except where the failure to own, hold or possess
-------------------------
would not have a Material Adverse Effect. Each of such material Governmental
Permits is valid, subsisting and in full force and effect and, to the knowledge
of the Company, no suspension or cancellation of any of them is threatened, ex-
cept for such suspensions or cancellations that would not in the aggregate have
a Material Adverse Effect. Except as set forth in Schedule 3.9, no written
notice of cancellation, of default or of any dispute concerning any material
Governmental Permit, or of any event, condition or state of facts which
constitutes or, after notice or lapse of time or both, would constitute a breach
or default under any material Governmental Permit has been received by the
Company or any Subsidiary. To the knowledge of the Company, there are no pending
or proposed changes in permit requirements that would require the Company or any
Subsidiary to make material additional monetary payments in order to obtain,
renew or comply with any material Governmental Permit.
3.10. Real Property. All real property of which the Company or any
---------------
Subsidiary thereof is the record or beneficial owner is identified on Schedule
3.10 and is hereinafter referred to as the "Owned Real Property". Except as
-----------------------
stated in the policies of title insurance with respect to such properties
(copies of which have been delivered to Buyer) or as disclosed on Schedule 3.10,
the Company or a Subsidiary, as the case may be, holds good and marketable fee
title to the Owned Real Property, free of all Encumbrances which would have a
Material Adverse Effect, but subject to
-18 -
<PAGE>
Permitted Encumbrances. Neither the Company nor any Subsidiary has heretofore
made any title claims or has outstanding any title claims under any policy of
title insurance respecting the Owned Real Property. All improvements on the
Owned Real Property conform in all material respects to applicable zoning and
other land use ordinances and building codes and are in material compliance with
all applicable laws, statutes, rules, regulations and ordinances, except where
the failure to comply would not in the aggregate have a Material Adverse Effect.
There are no pending negotiations or commitments respecting the purchase of any
additional material real property.
3.11. Real Property Leases. The leases of real property, subleases and
---------------------
other agreements and documents with respect to real property which are
identified on Schedule 3.11 constitute (a) the lease of the Company's
headquarters in Atlanta, Georgia, (b) the lease of all manufacturing facilities
of the Company and Subsidiaries, and (c) the lease of all other facilities
material to the Company and the Subsidiaries and are hereinafter referred to as
the "Material Leases". Correct and complete copies of the Material Leases have
-------------------
been delivered to the Buyer. The Company or a Subsidiary, as the case may be,
holds good and valid leasehold title to each of the properties which are the
subject of the Material Leases, in each case free of all Encumbrances, except
for liens for Taxes not yet due and payable or which are being contested in good
faith and except for Encumbrances which neither materially interfere with the
intended use of the property which is the subject of the Material Lease nor have
a material adverse effect upon the use by the Company or any Subsidiary of such
property or the business currently conducted thereon and Permitted Encumbrances.
Except as identified on Schedule 3.11, there are no existing defaults under any
Material Lease and no event has occurred which with notice or lapse of time, or
both, could constitute an event of default under any Material Lease, which
default would result in the modification, amendment or termination of such
Material Lease or a material increase in the rent payable thereunder or in the
creation of any Encumbrance on any properties of the Company or its
Subsidiaries. The Material Leases are in material compliance with all applicable
laws, rules, regulations and ordinances and there are no pending negotiations or
commitments respecting any additional material leases of real property.
-19-
<PAGE>
3.12. Intellectual Property. (a) Schedule 3.12 is a complete and
----------------------
correct list of all United States and foreign issued patents, patent
applications, registered trademarks, trademark applications, registered service
marks, service mark applications, trade names and copyrights which are material
to the business of the Company and the Subsidiaries taken as a whole (the
"Intellectual Property"), including, if applicable, the date of issuance or
- --------------------------
registration, serial, patent or registration number, the date of application,
the expiration date and the country of registration of such items of
Intellectual Property and any material licenses thereunder.
(b) Except as set forth in Schedule 3.12, the right, title or interest
of the Company and the Subsidiaries in each item of Intellectual Property is
free and clear of Encumbrances which would have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.12, neither the Company nor any
Subsidiary has received written notice that is still pending to the effect that
the Company or any Subsidiary has infringed any patent, trademark, service mark,
trade name, copyright, brand name, logo, symbol or other intellectual property
right of any third party, nor is there any action, pending or, to the Company's
knowledge, threatened, against the Company or any Subsidiary claiming that the
Company or any Subsidiary has, whether directly, contributorily or by
inducement, infringed any trade secret or misappropriated any other intellectual
property which infringement, notice, charge, claim, or assertion, as the case
may be, would have a Material Adverse Effect.
(d) Except as set forth in Schedule 3.12, neither the Company nor any
Subsidiary has sent or otherwise communicated to another person any notice,
charge, claim or other assertion of, nor does the Company have any knowledge of,
any present, impending or threatened patent, trademark or copyright infringement
which infringement would have a Material Adverse Effect.
(e) The Company or a Subsidiary has the right to use all material
patents, trademarks, service marks, trade names, copyrights, brand names, logo
types, symbols and other intellectual property rights in all material respects
as currently used by the Company and its Subsidiaries.
3.13. Labor Relations. Except as described in Schedule 3.13, there is
-----------------
no pending labor grievance or unfair labor practice charge or claim of
wrongful termination or
-20 -
<PAGE>
discrimination in employment against the Company or any Subsidiary which is
reasonably anticipated will result in a cost to the Company of more than
$250,000. Except as described in Schedule 3.13, to the Company's knowledge there
are no organizing efforts by any union or other group seeking to represent any
employees of the Company or any Subsidiary; and there is not pending any
decertification which would result in withdrawal liability to any Multiemployer
Plan, except such efforts, petitions or decertifications which would not have a
Material Adverse Effect. The Company has not incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act or
similar state laws which remains unsatisfied. The Company is in compliance in
all material respects with all material local, state and federal statutes, rules
and ordinances governing employment.
3.14. Employee Benefit Plans. (a) The term "Employee Plan" shall mean
----------------------- ----------------
any pension, retirement, profit-sharing, deferred compensation, stock purchase,
stock option, bonus or incentive plan, any medical, vision, dental or other
health plan, any life insurance plan, vacation, severance, disability or any
other employee benefit plan, program, policy, or arrangement, whether written,
unwritten, formal or informal, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA, any employee benefit plan
covering any employees of the Company, any domestic Subsidiary, any Subsidiary
in any foreign country or territory (a "Foreign Plan") or any other entity
----------------
which, together with the Company or any Subsidiary constitutes a single employer
within the meaning of Section 414 of the Code (hereinafter collectively
referred to as the "Company Group") to which any member of the Company Group
----------------
has any outstanding, present, or future obligations to make payments or to
contribute whether voluntary, contingent, or otherwise, is a party or is bound
and under which any employees of the Company Group are eligible to participate
or derive a benefit, except any government-sponsored program. Schedule 3.14
lists each Employee Plan which is presently in effect, or which was previously
in effect (if it may result in a material liability), and identifies
each Employee Plan (other than a Foreign Plan) which is a
defined benefit plan as defined in Section 3(35) of ERISA (a "Defined
--------
Benefit Plan") or which is a multiemployer plan within the meaning of Section
- ---------------
3(37) of ERISA (a "Multiemployer Plan"). In the case of each Defined Benefit
-----------------------
Plan, Schedule 3.14 sets forth the unfunded accrued liabilities of such Defined
Benefit Plan as of the date indicated as determined by the actuaries for such
Defined Benefit Plan. Schedule 3.14 identifies each of the Employee Plans which
purports to be a qualified plan under Section 401(a) of the Code. In the case of
each Multiemployer Plan, Schedule
-21-
<PAGE>
3.14 sets forth the Company Group contributions made to such Multiemployer Plan
for the most recent fiscal year of such Multiemployer Plan. In the case of each
Foreign Plan, Schedule 3.14 sets forth the Company Group contributions made to
such Foreign Plan for the last plan year ending prior to the date of this
Agreement. The Company has delivered or made available to Buyer the following
documents as in effect on the date hereof: (i) correct and complete copies of
each Employee Plan, other than a Multiemployer Plan or a Foreign Plan, including
all amendments thereto and, in the case of any unwritten Employee Plans, written
descriptions thereof, (ii) with respect to any plans or plan amendments
described in the foregoing clause (i), the most recent determination letter
issued by the IRS, if any, (iii) with respect to any plans described in the
foregoing clause (i), all trust agreements or other funding agreements,
including insurance contracts, (iv) with respect to each Defined Benefit Plan,
all notices of intent to terminate any such plan and all notices of reportable
events with respect to any such plan, (v) with respect to any plans described in
the foregoing clause (i), the most recent actuarial valuations, annual reports,
summary plan descriptions, summaries of material modifications and summary
annual reports, if any, and (vi) a correct and complete summary of the benefits
provided under each Foreign Plan, together with the most recent actuarial
valuation or financial information relative thereto.
(b) (i) Each of the Employee Plans that purports to be qualified under
Section 401(a) of the Code has received a determination of qualification
from the IRS and any trusts under such Employee Plans are exempt from
income tax under Section 501(a) of the Code and each funded Employee Plan
has received a recognition of exemption under Section 501(a) of the Code.
Each Employee Plan has been administered according to its terms, the ap-
plicable provisions of ERISA, the Code and any other applicable law, and
nothing has occurred which would adversely affect such qualification or
exemption. The Employee Plans and each member of the Company Group are in
material compliance with all other laws (including, without limitation,
ERISA and the Code), orders, government rules and regulations, and any
collective bargaining agreement applicable to Employee Plans. All material
reports and material disclosures relating to the Employee Plans required to
be filed with or furnished to governmental agencies, participants, or
beneficiaries prior to the Closing have been or will be filed or furnished
in a timely manner and in accordance with applicable law. Other than
routine claims for benefits submitted by participants or beneficiaries,
there is no
-22 -
<PAGE>
litigation, legal action, investigation, claim, or proceeding pending or, to the
Company's or any Subsidiary's knowledge, threatened against any Employee Plan or
against any fiduciary of any Employee Plan or against the Company or a member of
a Company Group under Section 515 of ERISA.
(ii) With respect to any Employee Plan, no prohibited transaction (within
the meaning of Section 406 of ERISA and/or Section 4975 of the Code) exists
which could subject the Company Group to any civil penalty assessed pursuant to
Section 502(1) of ERISA or tax imposed by Section 4975 of the Code. Neither any
member of the Company Group, nor any administrator or fiduciary of any Employee
Plan (or agent of any of the foregoing) has engaged in any transaction or acted
or failed to act in a manner which is likely to subject any member of the
Company Group to any liability for a breach of fiduciary or other duty under
ERISA or any other applicable law which would have a Material Adverse Effect. To
the extent applicable, the representations and warranties contained in this
paragraph (ii) are true and accurate with respect to each Multiemployer Plan.
(iii) No Defined Benefit Plan has been terminated or partially terminated
after September 1, 1974, except as set forth on Schedule 3.14. Each Defined
Benefit Plan listed as terminated on Schedule 3.14 has met the requirements for
standard termination of single-employer plans contained in Section 4041(b) of
ERISA to the extent such requirements were applicable to such Defined Benefit
Plans.
(iv) Except as provided in Schedule 3.14, no member of the Company Group
has completely or partially withdrawn from any Multiemployer Plan. No member of
the Company Group has suffered a 70% decline in "contribution base units"
(within the meaning of Section 4205(b)(1)(A) of ERISA) in any plan year
beginning after 1979. No termination liability to the PBGC or withdrawal
liability to any Multiemployer Plan that is material in the aggregate has been
or is expected to be incurred with respect to any Employee Plan by any member of
the Company Group. The PBGC has not instituted, and is not expected to
institute, any proceedings to terminate any Employee Plan. Except as provided in
Schedule 3.14, there has been no reportable event (within the meaning of Section
4043(b) of ERISA) with respect to any Employee Plan.
-23 -
<PAGE>
(c) Each member of the Company Group has made full and timely payment of
all amounts required under the terms of each of the Employee Plans that are
employee pension benefit plans (as defined in Section 3(2) of ERISA), including
the Multiemployer Plans, to have been paid as contributions to such plan. No
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, exists with respect to any Employee
Plan. Each member of the Company Group has made full and timely payment of,
or has accrued pending full and timely payment, all amounts which are required
under the terms of each Employee Plan to be paid as a contribution to each
such Employee Plan. The assets of each Defined Benefit Plan are sufficient to
provide all of the benefits under each such Defined Benefit Plan, except as
set forth on Schedule 3.14.
(d) Each member of the Company Group has complied in material respects with
the continuation coverage requirements of Title X of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended.
(e) Except as provided in Schedule 3.14, no member of the Company Group has
any outstanding, present or future obligations to make payment to any insurers
for reserves of any Employee Plan which is an employee welfare benefit plan
(within the meaning of Section 3(1) of ERISA) provided under a minimum premium
arrangement with an insurer.
(f) Assuming the accuracy of the representations of the Trustee contained
in this Agreement, neither the consummation of the transactions contemplated by
this Agreement nor its execution will accelerate or increase any liability under
any Employee Plan because of an acceleration, creation or increase of any of the
rights or benefits to which employees may be entitled thereunder. Prior to
Closing, except as contemplated by this Agreement or as necessary to remove the
authority of the administrative committee of the ESOP to direct the Trustee with
respect to the transactions contemplated by this Agreement, no member of the
Company Group shall amend any Employee Plan, except to the extent necessary to
maintain compliance with the Code or ERISA, increase any benefits or rights
under any Employee Plan, or adopt any new plan, program, policy, or arrangement
which, if it existed as of the date hereof, would constitute an Employee Plan.
(g) No state of facts exists with respect to the Foreign Plans, the effect
of which would have a Material Adverse Effect.
-24 -
<PAGE>
(h) No vote of the participants in the ESOP with respect to any of the
transactions contemplated hereby is required, whether pursuant to the Trust
Agreement, the ESOP or Section 409(e) of the Code or otherwise.
3.15. Contracts. (a) Except as set forth in Schedule 3.15 or as
---------
expressly set forth on any other Schedule to this Agreement, and except as set
forth specifically herein, neither the Company nor any Subsidiary is a party
to, nor bound by, nor are any of their respective properties subject to any
written or oral agreement described as follows:
(i) any contract, except purchase orders that involve the purchase or
sale of goods, with a value, or involving payments by the Company, of more
than $500,000 and which is not cancelable without liability upon notice
given at or after the Closing Date within six months after the date of such
notice;
(ii) any contract for the employment of any officer or employee (other
than, with respect to any employee, contracts which are terminable without
liability upon notice of 30 days or less and do not provide for any further
payments following such termination) or contract with a former officer or
employee pursuant to which payments by the Company or by a Subsidiary may
be required to be made at any time following the date hereof;
(iii) any mortgage or other form of secured indebtedness, other than
indebtedness incurred in connection with the transactions contemplated
hereby, or any other indebtedness for money borrowed;
(iv) any unsecured debentures, notes or installment obligations or
other instruments for or relating to any unsecured borrowing of money by
the Company or a Subsidiary, or any letter of credit issued to secure any
obligation of a third party other than borrowings less than $500,000 in the
aggregate; or
(v) any agreement containing any covenant not to compete.
(b) Complete and correct copies of all contracts, agreements and other
instruments referred to in Schedule 3.15 have heretofore been made available to
Buyer by the Company.
(c) Except as disclosed in Schedule 3.15, none of the Company, any
Subsidiary, or any third party is in default under, and no event has occurred
which with notice or lapse
-25-
<PAGE>
of time, or both, could reasonably be expected to result in a material default
under, or violation of, any contract, agreement or instrument identified in
subsections (a) above.
3.16. No Violation, Litigation or Regulatory Action. (a) The Company
------------------------------------------------
and the Subsidiaries have complied in all material respects in the conduct of
their respective businesses with all material foreign, federal, state or local
laws. Without limiting the foregoing, except as set forth on Schedule 3.16, the
Company and its Subsidiaries have not been notified that they may be potentially
responsible parties under or otherwise in material violation of or material non-
compliance with the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Sec. 9601 et seq., the Resource Conservation
---------
and Recovery Act, 42 U.S.C. Sec. 6901 et seq., the Federal Water Pollution
------
Control Act, 33 U.S.C. Sec. 1201 et seq, the Clean Water Act, 33 U.S.C. Sec.
---------
1321 et seq., the Clean Air Act, 42 U.S.C. Sec. 7401 et seq., the Toxic
- --------- ---------
Substances Control Act, 15 U.S.C. Sec. 2601 et seq., in each case, as
----------
amended from time to time, or any other federal, state or local law, ordinance
or regulation dealing with the protection of human health, natural resources
and/or the environment, and there are no events or facts known to the Company
or any Subsidiary that indicate that the Company or the Subsidiaries will be
a "potentially responsible party", including without limitation, any disposal,
release, burial or placement of hazardous or toxic substances, pollutants,
contaminants, petroleum or gas products or asbestos containing materials by
the Company or any Subsidiary or on properties owned or leased by the Company
or any Subsidiary.
(b) Except as set forth in Schedule 3.16, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge, threatened
against the Company or any Subsidiary which if adversely determined could
reasonably be expected to result in damages in excess of $250,000 not covered by
insurance, nor has the Company or any Subsidiary entered into or received any
consent decree, compliance order or administrative order (whether relating to
environmental protection or otherwise); and neither the Company nor any
Subsidiary is in default (or would be in default with the giving of notice or
lapse of time or both) in respect of any judgment, order, writ, injunction or
decree of any court or any Governmental Body which defaults in the aggregate
would have a Material Adverse Effect.
3.17. Insurance. Schedule 3.17 is a complete and correct schedule of
----------
all currently effective material insurance policies or binders of insurance or
programs of self-insurance which relate to the business of the Company and the
-26 -
<PAGE>
Subsidiaries (excluding insurance funding Employee Plans). The coverage under
each such policy and binder is in full force and effect, and no notice of
cancellation or nonrenewal with respect to, or disallowance of any claim under,
or material increase of premium for, any such policy or binder has been received
by the Company or any Subsidiary, except such notices, disallowances or
increases which would in the aggregate not have a Material Adverse Effect.
3.18. Certain Transactions or Arrangements. To the Company's
-------------------------------------
knowledge, except as described on Schedule 3.18 and except for employee benefit
arrangements, employment agreements or arrangements and for participation in or
pursuant to the ESOP or as expressly contemplated by this Agreement, no security
holder, officer or director of the Company (and no Person with whom any such
securityholder, officer or director has any direct or indirect relation by
blood, marriage or adoption) and no Affiliate or associate (as such term is
defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as
amended), of any of the foregoing is presently, directly or indirectly, a party
to any agreement, arrangement or understanding with the Company or any of the
Subsidiaries (other than arising out of the employment at will of that
securityholder by the Company), including without limitation: (a) any contract,
agreement, understanding, commitment or other arrangement providing for the
furnishing of services or rental of real or personal property to or from, or
otherwise relating to the business or operations of, the Company or any
Subsidiary; (b) any loans or advances to or from the Company or any of the
Subsidiaries; (c) pursuant to which the Company or any Subsidiary or Affiliate
thereof may have any obligation or liability whatsoever; and (d) any transaction
of a kind which would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated by the Securities and Exchange Commission, if the
Company were subject thereto.
3.19. Customer and Supplier Relationships. Except as set forth on
-----------------------------------
Schedule 3.19, to the knowledge of the Company, the relationships of the Company
with its material customers (including franchises and authorized dealers) and
suppliers are, in the aggregate, satisfactory, and the Company is not aware of
any fact or circumstance (including the entering into of this Agreement) that
would cause any Change in such relationships, which change would have a Material
Adverse Effect.
3.20. Finders. Neither the Company nor any party acting on its behalf
--------
has paid or become obligated to pay any fee or commission to any broker, finder
or intermediary for
-27 -
<PAGE>
or on account of the transactions contemplated by this Agreement, except as
provided pursuant to Section 10.3 hereof and except that the Company has
retained Merrill Lynch, Pierce, Fenner & Smith, Inc. and Wheat First Butcher &
Singer as its financial advisors in connection with the transactions con-
templated hereby. The Trustee has engaged Houlihan, Lokey, Howard and Zukin,
Inc. as its financial advisor in connection with the transactions contemplated
hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
As an inducement to Buyer to enter into this Agreement and, with
respect to representations and warranties made by the Trustee, the Merger
Agreement, and to consummate the transactions contemplated hereby and thereby,
each Seller severally (as to himself or itself and not as to any other Seller)
represents and warrants, as of the date hereof and as of the Closing Date, to
Buyer and, with respect to the ESOP Amendments and the New Stockholders
Agreement, the Trustee represents and warrants to the Company as follows:
4.1. Authority and Related Matters. (a) Such Seller has full legal
------------------------------
right, power, capacity and authority to execute and deliver this Agreement and
all of the other instruments contemplated hereby (including, in the case of the
Trustee, the ESOP Amendments and the New Stockholders Agreement) to be executed
by it, to consummate the transactions contemplated hereby and to comply with the
terms, conditions and provisions hereof. This Agreement is, and each other in-
strument of such Seller contemplated hereby (including, in the case of the
Trustee, the ESOP Amendments and the New Stockholders Agreement) will be, the
legal, valid and binding obligation of such Seller enforceable in accordance
with its terms.
(b) Each such Seller is the record and beneficial owner of the
aggregate number of shares of Company Common Stock listed beside such Seller's
name on Exhibit A. Except for this Agreement and the transactions contemplated
hereby (including, in the case of the Trustee, the ESOP Amendments and the New
Stockholders Agreement) and except as disclosed on Schedule 3.2, there are no
agreements, arrangements, warrants, options, puts, calls, rights, options or
other employee benefit plans or other commitments or understandings of any
character to which such Seller is a party or by which any of their respective
assets is bound and relating to the
-28 -
<PAGE>
issuance, sale, purchase, redemption, conversion, exchange, registration, voting
or transfer of any shares of Company Common Stock, Preferred Stock or other
securities of the Company. As of the Closing Date, all such agreements, arrange-
ments, warrants, options, puts, calls, rights, options or other employee benefit
plans or other commitments or understandings disclosed on Schedule 3.2 or on any
other Schedule hereto of such Seller shall be terminated without any liability
to the Company or any Subsidiary. As of the Closing Date, the Shares to be sold
by such Seller will be transferred to Buyer free of any preemptive or
subscription rights and free and clear of all Encumbrances.
(c) Neither the execution and delivery by such Seller of this
Agreement or of any of the other instruments contemplated hereby to be executed
by it (including, in the case of the Trustee, the ESOP Amendments and the New
Stockholders Agreement), the consummation by such Seller of any of the
transactions contemplated hereby, nor compliance by such Seller with or
fulfillment by such Seller of the terms, conditions and provisions hereof or
thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, amendment, termination or cancellation or
a loss of rights under, or result in the creation or imposition of any
Encumbrance upon any of the assets or properties of the Company or any
Subsidiary under, any charter, by-laws, trust agreement, partnership
agreement or certificate of partnership or other constitutive documents of
such Seller, any note, instrument, agreement, mortgage, lease, license,
franchise, Governmental Permit or judgment, order, award or decree to which
such Seller is a party or by which such Seller is bound, or any statute,
other law or regulatory provision affecting such Seller (provided the
Trustee makes no representations as to compliance with ERISA); or
(ii) except as set forth on Schedule 3.4, require the approval,
consent, authorization or act of, or the making by such Seller of any
declaration, filing or registration with, any third Person or any
Governmental Body.
(d) The Trustee has determined that, as of the date hereof, on the
basis of the representations, warranties, covenants and conditions set forth in
this Agreement and its own evaluation and the advice of its legal and financial
advisors, consummation of the transactions contemplated by this
-29-
<PAGE>
Agreement (assuming such transactions were consummated on the date hereof
pursuant to this Agreement) does not constitute a "Prohibited Transaction"
within the meaning of Section 4975 of the Code or Section 406 of ERISA.
4.2. No Finder. No such Seller, or any party acting on his or its
---------
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement. The Company is not obligated to pay any such fee or commission
on behalf of any Seller, other than as provided in Section 10.3 hereof in
connection with the transactions contemplated by this Agreement. The Trustee has
engaged Houlihan, Lokey, Howard and Zukin, Inc. in connection with the
transactions contemplated by this Agreement.
4.3. Absence of Proceedings. There is no action, suit, proceeding or
-----------------------
investigation pending or, to the knowledge of such Seller, threatened, against
such Seller which might adversely affect or restrict his or its ability to con-
summate the transactions contemplated by this Agreement.
4.4. Additional Representations of the Trustee. The Trustee further
-------------------------------------------
represents and warrants that (a) the ESOP has received the fairness opinion (the
"ESOP Fairness Opinion") of Houlihan, Lokey, Howard. and Zukin, Inc. to the ef-
- -------------------------
fect that the consideration to be received by the Trustee for the Shares to be
sold to Buyer and for shares of Company Common Stock of the Trustee that will be
converted in the Merger into the right to receive shares of Series A Preferred
Stock as of the Closing and will be subject to the New Stockholders Agreement
constitutes "adequate consideration" and that the transactions, considered as a
whole, are fair to the ESOP from a financial point of view and that the
conversion price is reasonable, and such opinion has not been withdrawn, qual-
ified or otherwise modified, and (b) it hereby acknowledges and agrees that any
and all obligations of the Company pursuant to Section 15 ("Major Transactions")
----------------------
of that certain Amended and Restated ESOP Loan Agreement #1, dated as of January
17, 1989, as amended as of September 29, 1989 and March 15, 1991, by and between
the Trustee and the Company, shall, only upon consummation of the transactions
contemplated hereby, be satisfied or waived in full solely with respect to this
Agreement and the transactions contemplated hereby and not with respect to any
other transaction or event occurring after the date hereof, and further agrees
that the Trustee shall have no rights, and the Company shall have no
obligations, pursuant to such Section 15, subject to and upon consummation of
the transactions contemplated hereby, solely
-30-
<PAGE>
with respect to such transactions and not with respect to any other transaction
or event occurring after the date hereof.
4.5. Bankruptcy. There has not been filed any petition or application,
-----------
nor has any proceeding been commenced or threatened by or against, or with
respect to any of the assets of, such Seller under Title 11 of the United States
Code or any other law, domestic or foreign, relating to bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of debt or
creditors' rights, and such Seller has not made any assignment for the benefit
of creditors.
4.6. Company Representations and Warranties. To the knowledge (without
---------------------------------------
any independent factual investigation) of such Seller (other than the Trustee),
each of the representations and warranties of the Company set forth in Article
III hereof is true, complete and correct in all material respects.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS
----------------------------------------------------
As an inducement to the Company and each of the Sellers to enter into
this Agreement and to consummate the transactions contemplated hereby, Buyer and
Holdings hereby represent and warrant to the Company and each of the Sellers as
follows:
5.1. Organization and Capitalization of Buyer and Holdings. (a) Each
--------------------------------------------------
of Buyer and Holdings is a corporation duly organized, legally existing and in
good standing under the laws of the jurisdiction of its formation and has full
corporate power and authority to own or lease and to operate and use its
properties and assets and to carry on its business as now conducted. Prior to
the date hereof, a true and complete copy of the Certificate of Incorporation
and bylaws of each of Buyer and Holdings has been delivered to each of the
Company, MLCP and the Trustee and such Certificate has not been amended or
modified.
(b) Each of Buyer and Holdings has been formed for the purpose of entering
into the transactions contemplated hereby, and by the New Stockholders
Agreement, the ESOP Amendments and the Merger Agreement. As of the date hereof
and immediately prior to the Merger, the authorized capital stock of Buyer
consists of 1,000 shares of Buyer common stock, par value $.01 per share. As of
the date hereof,
-31-
<PAGE>
1,000 shares of Buyer common stock are outstanding, all of which are owned of
record by Holdings. As of the date hereof, other than shares of common stock of
Buyer issued to Holdings, Buyer has not issued any shares of its capital stock
or agreed to do so. Other than approximately 25,567,801 shares of Class A Stock,
6,196,651 shares of Class C Stock (excluding any shares of Class C Stock or
Holdings common stock issuable upon the occurrence of an Exchange Event (as
defined in the New Stockholders Agreement)) and 200,000 shares of Class D Stock
to be issued in connection with the transactions contemplated hereby (the
representation regarding the foregoing share amounts is qualified by the
assumption that Buyer purchases 28,817,339 shares of Company Common Stock on the
Closing Date), Holdings has not issued any shares of its capital stock or agreed
to do so; provided that after the Closing, Holdings shall grant to certain mem-
--------
bers of the Company's management options exercisable for Class C Stock
representing up to 7.5% of the post-closing fully diluted capital stock of
Holdings. Prior to the Closing Holdings will have duly reserved a sufficient
number of authorized but unissued shares of Class C Stock for issuance pursuant
to the terms of the New Stockholders Agreement upon the occurrence of an
Exchange Event.
(c) All of the outstanding shares of Buyer common stock and the Class
A Stock, Class C Stock and Class D Stock of Holdings are or prior to the Closing
will be duly authorized, validly issued, fully paid, nonassessable, free of any
statutory preemptive rights and free and clear of all Encumbrances (other than
those created or permitted under the credit arrangements described in Section
8.5(e) hereof) created by Buyer or Holdings.
5.2. No Subsidiaries. Except as contemplated by this Agreement,
-----------------
neither Holdings nor Buyer owns any interest in any Person, except that Holdings
owns all of the issued and outstanding capital stock of Buyer.
5.3. Authority of Each of Buyer and Holdings. (a) Each of Buyer and
-----------------------------------------
Holdings has the requisite power and authority to execute and deliver this
Agreement and all of the other instruments contemplated hereby to be executed by
it, to consummate the transactions contemplated hereby and to comply with the
terms, conditions and provisions hereof. The execution, delivery and performance
of this Agreement by each of Buyer and Holdings have been duly authorized and
approved by all necessary partnership or corporate action on behalf of each of
Buyer and Holdings and do not require any further authorization or consent of
Buyer or Holdings or their respective stockholders. This Agreement is, and each
other
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instrument contemplated hereby to be executed by Buyer or Holdings, as the case
may be, will be, the legal, valid and binding obligation of Buyer or Holdings
enforceable against Buyer or Holdings in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by Buyer or
Holdings or any of the other instruments contemplated hereby, the consummation
by Buyer or Holdings of any of the transactions contemplated hereby nor com-
pliance by Buyer or Holdings with or fulfillment by Buyer or Holdings of the
terms, conditions and provisions hereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under the certificate of incorporation or bylaws of Buyer or
Holdings or any material agreement or any judgment, order, award or
decree to which Buyer or Holdings is a party or any of their respective
properties is subject or by which Buyer or Holdings is bound; or
(ii) require the approval, consent, authorization or act of, or the
making by Buyer or Holdings of any declaration, filing or registration
with, any third Person or any Governmental Body, except as provided under
the New Jersey Environmental Cleanup Responsibility Act or any successor
statute.
5.4. Pro Forma Balance Sheet; Post-Merger Capitalization of Company.
---------------------------------------------------------------
On or prior to the date hereof Holdings provided to the Trustee and the Company
a true and complete copy of the consolidated pro forma balance sheet of
Holdings and its subsidiary as of immediately prior to the Closing
(the "Pro Forma Balance Sheet"). The Pro Forma Balance Sheet fairly
----------------------------
presents the financial condition of Holdings and its consolidated subsidiary as
of its date and time. Immediately after the Merger and except for shares of
Series C Preferred Stock that may be outstanding following the Merger and prior
to redemption pursuant to Sections 6.9 and 6.18, the authorized capital stock of
the Company shall consist of (i) 50,000,000 shares of Company Common Stock and
(ii) 6,000,000 shares of Preferred Stock, 5,950,000 of which will have been
designated as Series A Preferred Stock,
5.5. Certain Transactions or Arrangements. Except as described on
--------------------------------------
Schedule 5.5, except for arrangements and agreements disclosed to the Trustee or
as expressly contemplated by this Agreement, immediately following the Closing
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<PAGE>
neither Holdings, Buyer nor their respective Affiliates will be, directly or
indirectly, a party to any agreement, arrangement or understanding with the
Company or any of its Subsidiaries.
5.6. No Finder. Neither Buyer or Holdings nor any party acting on its
---------
behalf has paid or will become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement, except that Buyer or Holdings has agreed to
pay certain fees to Chemical Bank N.A. and affiliates of Investcorp S.A. in
connection with the transactions contemplated by this Agreement, as previously
disclosed in writing to the Sellers.
5.7. Absence of Proceedings. There is no action, suit, proceeding or
------------------------
investigation pending, or to the knowledge of Buyer or Holdings, threatened,
against Buyer or Holdings which might adversely affect or restrict Buyer's or
Holdings' ability to consummate the transactions contemplated in this Agreement.
5.8. Investment Intent. Buyer is purchasing the Shares hereunder solely
-------------------
for its own account and with no intention of distributing or reselling the
Shares or any part thereof, or interest therein, in any transaction that would
be in violation of the Securities Act or any other securities laws of the United
States of America or any state thereof.
5.9. Status as Accredited Investor. At the time of the Closing, Buyer
-------------------------------
will be an "accredited investor" (as that term is defined in Rule 501 of
Regulation D under the Securities Act). Buyer has such knowledge and experience
in business and financial matters so that Buyer is capable of evaluating the
merits and risks of an investment in the Shares. Buyer understands the full
nature and risk of an investment in the Shares. Buyer further acknowledges that
it has had access to the books and records of the Company and the Subsidiaries,
is generally familiar with the business being conducted by the Company and the
Subsidiaries and has had an opportunity to ask questions concerning the Company
and the Subsidiaries and the Shares; provided, however, that nothing herein
-----------------
shall affect the representations and warranties of the Company hereunder, any of
the obligations of the Company, or any of Buyer's rights under Section 6.1
hereof.
5.10. Financial Capability. Buyer has, or has entered into binding
----------------------
commitments to have, and will have immediately prior to the Closing funds
sufficient to consummate the transactions contemplated hereby. Buyer has
provided
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<PAGE>
each of the Company, MLCP and the Trustee with evidence reasonably satisfactory
to each of the Company, MLCP and the Trustee that it will have sufficient funds
as of the Closing to consummate the transactions contemplated hereby, and there
has been no change in such information that would materially adversely affect
Buyer's ability to perform its obligations hereunder.
5.11. HSR Act. Neither Buyer nor Holdings is obligated to make any
-------
filings pursuant to or receive any consent or approval under the H-S-R Act or
any other antitrust, competition or trade regulatory laws, rules or regulations
of any Governmental Body in connection with the execution of this Agreement and
consummation of the transactions contemplated hereby.
5.12. Employer Securities. Immediately following the Closing and the
---------------------
Merger, the Series A Preferred Stock will be "employer securities" within the
meaning of Section 409(1) of the Code; provided, however, that neither Buyer nor
-------------------
Holdings makes any representation or warranty as to whether the "conversion
price" for such Series A Preferred Stock is reasonable, as set forth in Section
409(1)(3) of the Code.
ARTICLE VI
ADDITIONAL COVENANTS
--------------------
The respective parties hereto covenant and agree to take, or to cause
the Company to take, the following actions between the date hereof and the
Closing Date:
6.1. Investigation of the Company by Buyer and the Trustee. The
---------------------------- --------------------------
Company shall afford to the officers, employees and authorized representatives
of Buyer and the Trustee (including, without limitation, independent public
accountants, attorneys, environmental consultants and engineers) and to the
employees and authorized representatives of Buyer's financing sources complete
access during normal business hours to the offices, properties, employees and
business, tax, accounting and financial records (including computer files,
retrieval programs and similar documentation) of the Company and the
Subsidiaries to the extent Buyer and the Trustee shall reasonably deem necessary
or desirable and shall furnish to Buyer and the Trustee or their authorized
representatives, such additional information concerning the Company, the
Subsidiaries and their properties, assets, businesses and operations as shall be
reasonably requested, including all such information as shall be necessary to
enable Buyer and
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<PAGE>
the Trustee or their representatives to verify the accuracy of the
representations and warranties contained in Article III, to verify that the
covenants of the Company in Section 6.4 have been complied with and to determine
whether the conditions set forth in Article VII have been satisfied. Buyer and
the Trustee covenants that such investigation shall be conducted in such a
manner as not to interfere unreasonably With the operations of the Company. The
Trustee covenants to provide Buyer with access to the books and records of the
ESOP. No investigation by Buyer and the Trustee or their representatives
hereunder shall affect the representations and warranties of the Company or the
Sellers.
6.2. Investigation of Buyer and Holdings by the Trustee. Buyer and
--------------------------------------------------
Holdings shall afford to the officers, employees and authorized representatives
of the Trustee (including, without limitation, independent public accountants
and attorneys) complete access during normal business hours to the offices,
properties, employees and business, tax, accounting and financial records
(including computer files, retrieval programs and similar documentation) of
Buyer and Holdings to the extent the Trustee shall reasonably deem necessary or
desirable and shall furnish to the Trustee or its authorized representatives,
such additional information concerning Buyer and Holdings and their properties,
assets, businesses and operations as shall be reasonably requested, including
all such information as shall be necessary to enable the Trustee or its
representatives to verify the accuracy of the representations and warranties
contained in Article V and to determine whether the conditions set forth in
Article VIII have been satisfied. The Trustee covenants that such investigation
shall be conducted in such a manner as not to interfere unreasonably with the
operations of Buyer and Holdings. No investigation by the Trustee or its repre-
sentatives hereunder shall affect the representations and warranties of Buyer
and Holdings.
6.3. Certain Agreements. Each of the parties hereto shall use his or
-------------------
its reasonable best efforts to consummate the transactions contemplated by this
Agreement. Each party shall promptly notify the others of any action, suit or
proceeding that shall be instituted or threatened against such party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement. The Company shall promptly notify Buyer and the
Trustee of any lawsuit, claim, proceeding or investigation that may be
threatened, brought, asserted or commenced after the date hereof against the
Company or any Subsidiary that would have been required to be included on
Schedule 3.16, and, in the case of any of the foregoing pending on the date
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<PAGE>
hereof, of any material development with respect thereto. The Company and each
Seller shall give prompt notice to Buyer and the Trustee of (a) any notice or
other communication received by any such Person from any Governmental Body or
third person alleging that the consent of such Governmental Body or third
Person is or may be required in connection with the transactions contemplated
by this Agreement, (b) the occurrence of any event or circumstance which could
have a Material Adverse Effect, and of which such party has knowledge, or (c)
the breach of any material representation, warranty, covenant or other material
agreement of any such party.
6.4. Operations Prior to the Closing Date. (a) Subject to Section
--------------------------------------
6.4(b) hereof, the Company shall, and shall cause each of its Subsidiaries to,
operate and carry on its business only in the ordinary course, except as
otherwise expressly contemplated by this Agreement and except as required by the
Senior Credit Agreement. In furtherance and not in limitation of the foregoing,
the Company shall, and shall cause each of its Subsidiaries to, use reasonable
efforts consistent with good business practice to (i) keep and maintain its
respective assets and properties in normal operating condition and repair, and
(ii) maintain the business organization of the Company and the Subsidiaries
intact and preserve the goodwill of the suppliers, contractors, licensors,
employees, customers, distributors and others having business relations with
them.
(b) Except as expressly contemplated by this Agreement, and except as
required by the Senior Credit Agreement, the Company shall not, and shall not
cause or allow any Subsidiary to, without the express prior written approval of
Buyer (which shall not be unreasonably withheld):
(i)amend its Certificate of Incorporation or By-laws;
(ii) issue or agree to issue (by the issuance or granting of options,
warrants or rights to purchase Common Stock or Preferred Stock or otherwise) any
shares of Common Stock or Preferred Stock, any securities exchangeable for or
convertible into Common Stock or Preferred Stock, or any other securities,
except pursuant to the terms of the Series C Preferred Stock or in connection
with exercise of Company Options granted as of the date hereof pursuant to the
Option Plans;
(iii) split, combine or reclassify any shares of the Common Stock or
Preferred Stock or declare, set aside or pay any dividends or make any other
distributions
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<PAGE>
(whether in cash, stock or other property) in respect of the Common Stock or the
Preferred Stock, (except for dividends in kind payable pursuant to the terms of
the Series C Preferred Stock);
(iv) issue, transfer, sell or deliver any shares of its capital stock (or
securities convertible into or exchangeable or exercisable for with or without
additional consideration, such capital stock) or any other interest therein,
except pursuant to the terms of the Series C Preferred Stock or in connection
with exercise of Company Options granted prior to the date hereof pursuant to
the Options Plans and reflected as outstanding on Schedule 3.2 hereto;
(v) other than pursuant to the terms of the ESOP, redeem, purchase or
otherwise acquire for any consideration (A) any outstanding shares of its
capital stock or securities carrying the right to acquire, or which are
convertible into or exchangeable or exercisable for, with or without additional
consideration, such stock, (B) any other securities of the Company or any
Subsidiary, or (C) any interest in any of the foregoing;
(vi) incur any indebtedness for borrowed money, except in the ordinary
course of business, which exceed $1,000,000 in the aggregate, or amend,
supplement or otherwise modify any of the terms of the Senior Credit Agreement
or any other instrument or agreement evidencing indebtedness for borrowed money
in excess of $1,000,000 of the Company or the Subsidiaries;
(vii) make any acquisition or disposition of stock or assets of any entity
not in the ordinary course of business and in excess of $500,000;
(viii) incur capital expenditures not otherwise provided for in the
Company's budget or in connection with the projects referenced on Schedule
3.6(b) and which expenditures are in excess of $500,000;
(ix) merge or consolidate with any corporation or other entity;
(x) enter into any employment or similar contract with, or materially
increase the compensation payable to, any officer or employee, except in the
ordinary course of business and in a manner consistent with past practice;
-38-
<PAGE>
(xi) alter in any respect its practices and policies relating to the
payment and collection, as the case may be, of accounts payable and accounts
receivable;
(xii) except as contemplated by this Agreement, adopt, amend in any
material respect or terminate any Employee Plan, severance plan or collective
bargaining agreement, including the ESOP, or make awards or distributions under
any Employee Plan, except awards or distributions to any participant or employee
in the ordinary course and relating to the Option Plans;
(xiii) create, assume or suffer to be incurred any Encumbrance of any kind
on any of its properties or assets or the properties or assets of any Subsidiary
other than (A) Encumbrances which are immaterial and in the ordinary course of
business consistent with past practices, as long as the creation, assumption or
sufferance thereof does not interfere with, hinder or delay the transactions
contemplated hereby and (B) Permitted Encumbrances;
(xiv) amend, supplement or modify any contract set forth on Schedule 3.15
or relinquish any material right or privilege of the Company or any Subsidiary,
except, in the case of any contract set forth on Schedule 3.15, for any such
amendments, supplements or modifications which are not materially adverse to the
Company;
(xv) except in the ordinary course of business, enter into any contract,
including but not limited to assignments, licenses, transfers of exclusive
rights, "work for hire" agreements, special commissions, employment contracts,
purchase orders, sales orders, mortgages and security agreements which (A)
contain a grant or other transfer, whether present, retroactive, prospective, or
contingent, by the Company or by a Subsidiary, of any rights in any material
invention, trade secret, proprietary information, patent, trademark, trade name,
copyright, material object in which an original work of authorship was first
fixed, or other intellectual property by whatever name designated or (B) contain
a promise made by or to the Company, or by or to any Subsidiary, to pay any lump
sum or royalty or other payment or consideration in respect to the acquisition,
practice or use of any rights in any material invention, trade secret,
proprietary information, patent, trademark, trade name, copyright, material
object in which an original work of authorship was first fixed, or other
material intellectual property by whatever name designated;
-39-
<PAGE>
(xvi) permit a lapse or material reduction in the coverage under any
currently effective material insurance policies or binders of insurance or
programs of self-insurance which relate to the business of the Company or
the Subsidiaries; or
(xvii) agree, commit or resolve to do or authorize any of the
foregoing.
(c) Prior to the Closing, the Company and the Subsidiaries shall:
(i) promptly comply with all filing requirements which foreign,
federal or state law may impose on the Company or any Subsidiary with
respect to the transactions contemplated hereby; and
(ii) use their best efforts to obtain any consent, authorization or
approval of, or exemption by, any Governmental Body or other third Person,
including without limitation, landlords and lenders and those persons
(other than the Company and the Subsidiaries) who are parties to the
agreements described on Schedule 3.4 hereto, required to be obtained or
made by it in connection with the transactions contemplated hereby.
6.5. No Public Announcement. Prior to the Closing Date, neither Buyer,
-----------------------
the Company nor any Seller shall, without the approval of Buyer, the Company,
MLCP and the Trustee, make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to the
extent that any such party shall be so obligated by law, in which case Buyer,
the Company, MLCP and the Trustee shall be advised and Buyer, the Company, MLCP
and the Trustee shall use their reasonable best efforts to cause a mutually
agreeable release or announcement to be issued. On the Closing Date, the
parties shall issue a joint press release, which shall be reasonably acceptable
to the Company, Buyer, the Trustee and MLCP.
6.6. Governmental Filings; Consents. The Sellers, the Company and
-------------------------------
Buyer shall cooperate with each other in filing any necessary applications,
reports or other documents with any federal or state agencies, authorities or
bodies (domestic or foreign) having jurisdiction with respect to the sale of the
Shares and this Agreement and the transactions contemplated hereby, and in
seeking necessary consultation with and prompt favorable action by, including
required consents of, any such agencies, authorities or bodies.
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<PAGE>
6.7. Directors' and Officers' Indemnification. (a) With respect to each
-----------------------------------------
of the current members of the Company's Board of Directors, the Company shall
not take any action to directly or indirectly disaffirm the provisions of the
Company's Certificate of Incorporation and By-laws relating to indemnification
of officers and directors for actions arising prior to the Closing Date.
(b) For five years from the Closing Date, the Company shall use its
best efforts to maintain, if available, officers' and directors' liability
insurance covering the persons who are presently covered by the Company's
officers' and directors' liability insurance policies (copies of which have
heretofore been delivered to Buyer) with respect to actions and omissions
occurring prior to the Closing Date, on terms which are not materially less
favorable than the terms of such current insurance in effect for the Company on
the date hereof; provided, however, that in no event shall the Company be
-------------------
obligated to pay annual premiums greater than 200% of such premiums paid or
payable as of the date hereof; provided, further, that, if any annual premium
-------------------
for such coverage and amount of insurance would exceed 200% of such annual
rate, the Company shall provide the maximum coverage which shall then be
available at an annual premium equal to 200% of such rate.
(c) Each of Buyer and the Sellers covenant for itself and its
respective successors, assigns, heirs, legatees and personal representatives
that they shall not institute any action or proceeding in any court or before
any administrative agency or before any other tribunal against any of the
current directors of the Company, in their capacity as such, with respect to any
liabilities, actions or causes of action, judgments, claims and demands of any
nature or description (consequential, compensatory, punitive or otherwise), in
each such case solely to the extent resulting from their approval of this
Agreement or the transactions contemplated hereby.
6.8. Company Options. Simultaneously with the Closing, all Company
----------------
Options issued and outstanding as of the Closing Date (all of which options
shall be deemed to be vested as of such date for the purposes hereof) shall be
cashed out for a cash payment or equivalent consideration, which payment shall
equal, for each share of Company Common Stock underlying a Company Option the
excess of (a) $5.2803, over (b) the Option Price (as defined in the Option
Plans), with the aggregate proceeds to each holder of Company Options rounded to
the nearest cent. The aggregate cash proceeds
-41-
<PAGE>
payable to a holder of Company Options shall be further subject to adjustment to
reflect such holder's pro rata portion of the amounts set forth on Schedule
10.3(b), such pro rata portion to equal the total of such fees times a fraction,
the numerator of which is the aggregate number of Company Options held by such
holder as of the date hereof and the denominator of which is the number of fully
diluted shares of Company Common Stock outstanding as of the date hereof, it
being agreed that the per-Company Option cash-out price of $5.2803 reflects
$.0797 towards payment of such fees per Company Option to be cashed out
hereunder.
6.9. Buyer to Fund Certain Obligations. At least three business days
-----------------------------------
prior to the date that is expected to be the Closing Date, the Company shall
deliver to Buyer a notice setting forth the amounts that the Company estimates
will, at the Closing Date, be outstanding under the Senior Credit Agreement and
that are due in connection with the transactions contemplated hereby under the
Management Notes, the Junior Notes and the Series C Preferred Stock. After the
close of business on the day prior to the expected Closing Date, the Company
shall deliver to Buyer a notice (the "Final Notice") setting forth such amounts
----------------
under such documents. At the Closing, Buyer shall pay or shall contribute or
otherwise make available to the Company and cause the Company to pay the amounts
set forth in the Final Notice; provided, however, that to the extent holders of
-------------------
Management Notes, Junior Notes or Series C Preferred Stock do not consent to
such redemption at the Closing, (a) Buyer or the Company (from funds contributed
or otherwise made available by Buyer) shall pay any amounts due promptly
following the Closing in accordance with the terms of such securities, (b) the
form of the Company's Amended and Restated Certificate of Incorporation shall be
revised to include, without alteration or amendment, the Certificate of
Designations of the Series C Preferred Stock, and (c) the form of Merger
Agreement shall be revised to reflect such revisions to the form of the
Company's Amended and Restated Certificate of Incorporation.
6.10. Employee Benefits. From and after the Closing, the Company shall
-------------------
maintain and perform all obligations pursuant to employee benefit plans and
policies, including the ESOP, that have accrued or otherwise become due on or
before the Closing.
6.11. Termination of Obligations to ML Sellers. Prior to the Closing
------------------------------------------
and other than the agreements relating to items 4 and 5 of Schedule 3.18 hereof,
all agreements and arrangements between (a) the Company or any of its Subsidiar-
ies and (b) any of the ML Sellers, KECALP 1987, KECALP 1989
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<PAGE>
or their respective Affiliates, including any agreement or arrangement entered
into in connection with the Stock Purchase Agreement, dated as of March 15,
1991, among the ML Sellers, the Company and certain securityholders of the Com-
pany, shall be terminated by such parties without any cost, liability or
obligation on the part of the Company or its Subsidiaries.
6.12. FIRPTA Certificate. On the Closing Date, the Company shall
-------------------
deliver to Buyer a certificate under Code Section 1445(b)(3), in form reasonably
acceptable to Buyer, stating that the Company is not, and has not been during
the five-year period preceding the Closing Date, a United States real property
holding corporation (as defined in Code Section 897(c)(1)(A)(ii)), and, as of
the Closing Date, interests in the Company are not United States real property
interests by reason of Code Section 897(c)(1)(B).
6.13. Stockholders' Agreement; Exercise of Certain Call Rights.(a) On
---------------------------------------------------------
or prior to the Closing, the Company and each of the Significant Sellers who are
parties to that certain Stockholders' Agreement, dated as of March 11, 1991, by
and among the Sellers named therein and the Company (the "Stockholders'
--------------
Agreement"), will have executed an amendment to the Stockholders' Agreement
- -------------
terminating such agreement and extinguishing the rights and obligations of the
parties thereunder, such amendment to be effective upon consummation of the
transactions contemplated hereby. No other amendments or supplements to the
Stockholders' Agreement (other than with respect to termination thereof by other
parties thereto) will be entered into by the parties thereto on or after the
date hereof. Prior to the Closing, the Company shall use its reasonable best
efforts to cause all parties to the Stockholders' Agreement to execute an
amendment terminating the Stockholders' Agreement. Buyer shall be provided with
a true and complete copy of any such amendments.
(b) Prior to the Closing, the Company shall deliver a Call Notice as
provided for in Section 3.1 of the Stockholders' Agreement to each of Paul H.
Brannock and David L. Marshall providing for the purchase by the Company at or
promptly following the Closing of shares of Company Common Stock (or Company
Options) owned by such individuals at a per share purchase price of $5.2803 in
cash (less any exercise price), with the aggregate proceeds to each stockholder
rounded to the nearest cent, and shall consummate such transactions
substantially in accordance with the Stockholders' Agreement.
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<PAGE>
6.14. ESOP Amendments; New Stockholders Agreement. On the Closing,
--------------------------------------------
Buyer, the Trustee and the Company shall enter into the ESOP Amendments and the
New Stockholders Agreement, in the form attached as Exhibits B-1 to 5 and
Exhibit C, respectively, hereto. Such parties shall use their respective best
efforts to agree upon definitive documentation relating to such agreements and
to enter into any other documents which may be reasonably necessary or
appropriate in connection with the consummation of the transactions contemplated
hereby and thereby.
6.15. Approval Of Merger. At the Closing, each of Buyer and the
-------------------
Trustee shall, pursuant to a written consent of stockholders in lieu of a
special meeting, vote all shares of Company Common Stock then held by them to
approve and adopt the Merger pursuant to the terms of the Merger Agreement in
the form attached as Exhibit D hereto.
6.16. Approval of Amended Certificate of Incorporation. At the
-------------------------------------------------
Closing, each of Buyer and the Trustee shall, pursuant to a written consent of
stockholders in lieu of a special meeting, vote all shares of Company Common
Stock then held by them to approve and adopt the Amended Certificate of
Incorporation of the Company in the form attached as Exhibit E-l, and
simultaneously therewith, the Company shall cause such Amended Certificate of
Incorporation to be filed with the Secretary of State of the State of Delaware.
6.17. Other Agreements; Approval. At the Closing, following the
---------------------------
purchase of shares of Company Common Stock and prior to the Merger: (a) Holdings
and the Company shall enter into the Parent Option Agreement in the form of
Exhibit F hereto; (b) Holdings and the Company shall enter into the Services and
Expenses Agreement in the form of Exhibit G hereto; and (c) Buyer or the Company
and INVESTCORP International Inc. shall enter into an agreement regarding
management services in the form of Exhibit H hereto. Each of Buyer and the
Trustee shall, pursuant to a written consent of stockholders in lieu of a
special meeting, vote all shares of Company Common Stock then held by them to
approve each of the foregoing agreements.
6.18. Consents relating to Certain Obligations. Prior to the
-----------------------------------------
Closing, the Company and Buyer shall cooperate and use reasonable efforts to
obtain any required consents of the holders of Series C Preferred Stock,
Management Notes or Junior Notes to permit the redemption or prepayment of such
securities at the Closing and retire in full all outstanding amounts thereunder;
provided, however, that the Company shall not be obligated to incur any
- -------------------
redemption or prepayment
-44 -
<PAGE>
premium or fee (other than as provided in such securities) in connection
therewith or to take any action that would require the Company to make a
redemption or prepayment in the event the Closing does not occur. To the extent
such securities are not redeemed or prepaid at the Closing, Buyer and the
Company shall provide notices of redemption or prepayment to all remaining
holders thereof promptly following the Closing and shall redeem or prepay such
securities in accordance therewith.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer to consummate the transactions contemplated by this
Agreement shall, at the option of Buyer, be subject to the satisfaction, on or
prior to the Closing Date, of the following conditions:
7.1. No Misrepresentation or Breach of Covenants and Warranties. (a)
------------------------------------------------------------
There shall have been no material breach by the Company in the performance of
any of its covenants, agreements and obligations herein; none of the repre-
sentations and warranties contained or referred to in Article III hereof shall
fail to be true and correct on the date hereof or on the Closing Date as though
made on the Closing Date, except for (i) representations and warranties that
speak as of a specific date or time other than the Closing Date (which need
only be true and correct as of such date or time), (ii) representations and
warranties which are not qualified by Material Adverse Effect or otherwise by
material adversity (which need be true and correct except for such inaccuracies
as in the aggregate (together with the inaccuracies referred to in the following
clause (iii)) would not have a Material Adverse Effect), (iii) representations
and warranties which are qualified by Material Adverse Effect or otherwise by
material adversity shall also be true and correct without regard to such
qualification except for such inaccuracies as in the aggregate (together with
the inaccuracies referred to in the preceding clause (ii)) would not have a
Material Adverse Effect, and (iv) changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing by
Buyer; and there shall have been delivered to Buyer a certificate to such
effect, dated the Closing Date and signed by the President and Chief Financial
Officer of the Company.
(b) There shall have been no material breach by any of the Significant
Sellers in the performance of any of
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<PAGE>
his or its covenants, agreements and obligations herein, and none of the
representations and warranties contained in Article IV made by such Significant
Sellers shall fail to be true and correct in any material respect on the date
hereof or on the Closing Date as though made on the Closing Date; provided,
---------
however, that Buyer shall not be obligated to purchase Shares to be sold
- -------
hereunder by any Seller with respect to which the representations and warranties
contained in Section 4.1 fail to be true and correct in all material respects on
the date hereof and as of the Closing Date as though made on the Closing Date or
which fails to comply in all material respects with its covenants herein.
7.2. Resignations of Directors. Prior to the Closing, the Buyer shall
--------------------------
notify the Company of those directors of the Company and the Subsidiaries from
whom it will require resignations. The Company shall have furnished Buyer
with such signed resignations, effective as of the Closing.
7.3. Litigation. At the Closing Date, there shall be no injunction,
-----------
restraining order or decree of any nature of any court or other Governmental
Body of competent jurisdiction that is in effect that restrains or prohibits the
consummation of the transactions or other material obligations of the parties
hereto as contemplated hereby, and no proceeding seeking any such relief or
seeking material damages with respect to the transactions contemplated hereby or
the ESOP shall be threatened or pending by any Governmental Body of competent
jurisdiction.
7.4. Necessary Approvals and Consents. The Company shall have
---------------------------------
delivered to Buyer such evidence as Buyer may reasonably request of the receipt
of all consents, approvals and actions of any third Person or Governmental Body
specified in Schedule 3.4 (or required by the terms of Section 3.4 to have been
specified) and all exceptions set forth on Schedule 3.1 and Schedule 3.3 shall
have been cured, unless the absence of such cure would not have a Material
Adverse Effect.
7.5. Corporate Action. The Board of Directors of the Company shall
-----------------
have taken all action necessary to approve the transactions contemplated by this
Agreement and the ESOP Amendments (other than with respect to the Merger, the
Merger Agreement and the transactions contemplated by Sections 2.4(c)(i),
2.4(c)(iii), 2.4(c)(iv) and 2.4(c)(viii)-(x)), and the Company shall have
furnished Buyer with certified copies of resolutions adopted by the Board of
Directors of the Company, in form and substance reasonably satisfactory to
counsel for Buyer, in connection with such transactions.
-46 -
<PAGE>
7.6. ESOP Trustee. The Company shall have received a written statement
-------------
from the Trustee to the effect that, on the basis of the representations,
warranties, covenants and conditions set forth in this Agreement and its own
evaluation and on the advice of its financial and legal advisors, the Trustee
believes that the transactions contemplated by this Agreement are fair from a
financial point of view to the ESOP.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SELLERS
------------------------------------------------------------------
The obligations of the Company and the Sellers to consummate the
transactions contemplated by this Agreement shall, at their respective options,
be subject to the satisfaction on or prior to the Closing Date, of the following
conditions:
8.1. No Misrepresentation or Breach of Covenants and Warranties. There
-----------------------------------------------------------
shall have been no material breach by Buyer or Holdings in the performance of
any of their respective covenants and agreements herein or by Investcorp Bank
E.C. ("InvestCorp") of its covenants and agreements contained on the signature
---------------
page hereof; each of the representations and warranties of Buyer and Holdings
contained or referred to in Article V hereof or of Investcorp contained on the
signature page hereof shall be true and correct on the Closing Date as though
made on the Closing Date, except for (a) representations and warranties that
speak as of a specific date or time other than the Closing Date (which need only
be true and correct as of such date or time), (b) representations and warranties
which are not qualified by a material adverse effect (which need be true and
correct except for such inaccuracies as in the aggregate would not have a
Material Adverse Effect) and (c) changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing by
the Company; and there shall have been delivered to the Company and the Trustee
a certificate to such effect, dated the Closing Date and signed by the President
and Chief Financial Officer of Buyer and Holdings.
8.2. Litigation. At the Closing Date, there shall be no injunction,
-----------
restraining order or decree of any nature of any court or other Governmental
Body of competent jurisdiction that is in effect that restrains or prohibits the
consummation of the transactions or other material obligations of the parties
hereto as contemplated hereby, and no
-47-
<PAGE>
proceeding seeking any such relief or seeking material damages with respect to
the transactions contemplated hereby or the ESOP shall be threatened or pending
by any Governmental Body of competent jurisdiction.
8.3. Other Transactions. The conditions set forth in Sections 7.4 and
-------------------
7.6 shall be satisfied (except if such condition is to Buyer's satisfaction and
discretion, it shall be read as being to the Company's, MLCP's and the Trustee's
satisfaction or discretion as applicable).
8.4. ESOP Amendments; New Stockholders' Agreement. The Company's
--------------------------------------------
obligations with respect to the ESOP Amendments and the New Stockholders'
Agreement shall, at its option, be subject to the satisfaction on or prior to
the Closing Date of the following conditions: there shall be no material breach
by the Trustee in its representations and warranties relating to the execution,
delivery and performance by the Trustee of the ESOP Amendments and the New
Stockholders' Agreement.
8.5. Additional Conditions to Trustee's Obligations. The Trustee's
-----------------------------------------------
obligations to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction (or waiver by the Trustee) of the following ad-
ditional conditions:
(a) the receipt by the Trustee from Houlihan, Lokey, Howard &
Zukin, Inc. of an opinion (applying analysis, methodology and factors
consistent with those applied in the ESOP Fairness Opinion) affirming, as
of the Closing Date, the matters set forth in the ESOP Fairness Opinion,
except that receipt thereof shall not be a condition hereunder where the
failure to receive such opinion is not due exclusively to changes as of the
Closing Date in the terms and conditions of the transactions contemplated
by this Agreement from the terms and conditions contemplated as of the date
hereof;
(b) the Trustee not having determined that, due to facts and
circumstances arising after the date hereof, consummation of the
transactions contemplated hereby constitutes a "Prohibited Transaction"
within the meaning of Section 4975 of the Code or Section 406 of ERISA,
such determination to be made in good faith, based upon consultation with
the Trustee's financial advisor and legal counsel and consistent with the
written opinion of the Trustee's legal counsel;
-48-
<PAGE>
(c) the conditions set forth in Sections 7.1(a) and 7.5 shall
have been satisfied (with all references therein to Buyer (other than with
respect to the furnishing of certificates) to refer to the Trustee for the
purposes of this clause (c));
(d) the Trustee shall have received the legal opinions, dated as
of the Closing Date, of Jones, Day, Reavis & Pogue and Gibson, Dunn &
Crutcher, as applicable, with respect to the matters set forth on Exhibit I
hereto, such opinions to be in form and substance reasonably satisfactory
to the Trustee;
(e) the indebtedness and other credit arrangements incurred or
made by Buyer, and assumed by the Company by virtue of the Merger, shall be
materially in the amounts and on the terms provided to the Trustee in
writing by Buyer on the date hereof; and
(f) the amount and exercise price of the options to be received
by members of the Company's management at Closing shall not be more
favorable to such individuals than as set forth in Exhibit J hereto.
ARTICLE IX
TERMINATION
-----------
9.1. Termination. Anything contained in this Agreement to the contrary
------------
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date: (a) by the mutual consent of Buyer, the Company and MLCP; (b) by
Buyer in the event that any condition set forth in Article VII shall not be
satisfied and shall not be reasonably capable of being remedied on or prior to
the Closing Date; (c) by the Company, MLCP or the Trustee in the event that any
condition set forth in Article VIII shall not be satisfied and shall not be
reasonably capable of being remedied on or prior to the Closing Date; and (d) by
Buyer, the Company, MLCP or the Trustee if the Closing shall not have occurred
on or before March 25, 1996 (or, if Buyer, the Company, MLCP and the Trustee
shall have agreed to a later date pursuant to Section 2.3, on or before any such
later date); provided, however, that no party may terminate this Agreement
-------------------
pursuant to clause (b), (c) or (d) if the failure of any condition in Article
VII or Article VIII to be satisfied or the failure of the Closing to occur on or
before March 25, 1996 (or, if Buyer, the Company, MLCP and the Trustee shall
have agreed to a later date pursuant to Section 2.3, on or before any such
-49 -
<PAGE>
later date), results from the willful and material breach by such party of any
covenant of this Agreement.
9.2. No Liability Upon Termination. In the event that this Agreement
------------------------------
shall be terminated pursuant to this Article IX, all obligations of the parties
under this Agreement (other than under this Section 9.2 and Section 10.1) shall
be terminated without liability or penalty on the part of any party or its
officers, directors or general or limited partners to any other party, other
than as may result from any willful and material breach by a party of this
Agreement.
ARTICLE X
GENERAL PROVISIONS
------------------
10.1. Non-survival of Representations, Warranties and Agreements. All
-----------------------------------------------------------
representations and warranties set forth in Article III and Article IV of this
Agreement shall terminate at the earlier of (a) consummation of the transactions
contemplated hereby and (b) termination of this Agreement in accordance with
Article IX hereof, except for the representations and warranties of the Sellers
set forth in Section 4.1(b), respectively, which shall survive indefinitely. All
covenants and agreements set forth in this Agreement shall survive in accordance
with their terms.
10.2. Notices. All notices and other communications given or made
--------
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made (a) five business days after being sent by registered or cer-
tified mail, return receipt requested, (b) upon delivery, if hand delivered, (c)
one business day after being sent by prepaid overnight carrier with guaranteed
delivery, with a record of receipt, or (d) upon transmission with confirmed
delivery if sent by cable, telegram, facsimile or telecopy (with a copy
simultaneously sent by registered or certified mail, return receipt requested),
to the parties at the following addresses (or at such other addresses as shall
be specified by the parties by like notice):
(a) if to Buyer:
c/o INVESTCORP International Inc.
280 Park Avenue, 37th Floor West
New York, New York 10017
Attention: Christopher J. O'Brien
-50 -
<PAGE>
John M. Kenney
Telecopy: 212/983-7073
with copies to:
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attn: Charles K. Marquis, Esq.
Telecopy: 212/351-4035
(b) if to the Company or the Management Stockholders:
Simmons Company
One Concourse Parkway Suite 600
Atlanta, GA 30328
Attention: Jonathan C. Daiker
Telecopy: 770/392-2608
with copies to:
(i) Roger W. Franklin
(at the address listed above)
and
(ii) Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street NE
Atlanta, GA 30308
Attention: Lizanne Thomas, Esq.
Telecopy: 404/581-8330
(c) if to MLCP or the ML Sellers:
Merrill Lynch Capital Partners, Inc.
c/o Stonington Partners, Inc.
767 Fifth Avenue
New York, NY 10153
Attention: Robert F. End
Telecopy: 212/339-8585
-51-
<PAGE>
with copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Andrew R. Brownstein, Esq.
Telecopy: 212/403-2000
(d) if to KECALP 1987 or KECALP 1989:
Merrill Lynch & Co.
World Financial Center,
North Tower
250 Vesey Street
New York, NY 10281
Attention: Margaret Nelson, Esq.
Telecopy: 212/449-7750
(e) if to the Trustee:
NationsBank, N.A. (South)
600 Peachtree Street, NE
Atlanta, GA 30308
Attention: Ernest F. Ritter
Telecopy: 404/607-6543
with copies to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15272
Attention: Charles R. Smith, Esq.
Telecopy: 412/355-6501
10.3. Expenses and Taxes. Subject to Section 9.2, and except as
-------------------
otherwise provided in this Section 10.3, each party hereto shall pay all of his
or its own costs and expenses incident to his or its negotiation and preparation
of this Agreement and any other related agreement contemplated hereby and to his
or its performance and compliance with all agreements and conditions contained
herein or therein on his or its part to be performed or complied with, including
the fees, expenses and disbursements of his or its counsel and accountants. The
foregoing notwithstanding, immediately prior to the Closing the Company (a)
shall pay the fees and expenses of counsel and financial advisors to the Company
and the Trustee (exclusive of any fees and expenses of Merrill Lynch, Pierce,
Fenner & Smith, Inc. and Wachtell, Lipton,
-52-
<PAGE>
Rosen & Katz, in each case, in connection with the transactions contemplated
hereby) that are due at Closing and (b) shall pay to the members of the
Company's management listed in Schedule 10.3(a) the respective amounts listed
next to such person's name therein. In the Company's good faith estimate as of
the date hereof, based upon estimates received, the fees and expenses described
in clause (a) of the preceding sentence due at Closing will not exceed $650,000
in the aggregate. The Company and the Trustee shall seek to cause the entities
referred to in clause (a) to deliver, at least two business days prior to the
Closing, invoices to the Company and Buyer for fees and expenses to be paid at
the Closing in connection with the transactions contemplated hereby. The
foregoing notwithstanding, the Company shall also pay any stock transfer or
similar taxes in connection with the sale and exchange of Shares owned by the
Trustee. In addition, at the Closing, Buyer shall pay the amounts as set forth,
to the parties indicated, on Schedule 10.3(b).
10.4. Partial Invalidity. Wherever possible, each provision hereof
-------------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision or provisions had never been
contained herein unless the deletion of such provision or provisions would
result in such a material change as to cause completion of the transactions
contemplated hereby to be unreasonable.
10.5. Execution in Counterparts. This Agreement may be executed in one
--------------------------
or more counterparts, each of which shall be considered an original instrument,
but all of which shall be considered one and the same agreement, and shall
become binding when one or more counterparts have been signed by each of the
parties and delivered to each of the Company and Buyer. Upon execution and
delivery of this Agreement by each of Buyer, Investcorp and the Significant
Sellers, this Agreement shall become binding as to such parties.
10.6. Governing Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of laws, except that any matters governed by the General
Corporation Law of the State of Delaware shall be governed by the laws of the
State of Delaware.
-53-
<PAGE>
10.7. Assignment; Successors and Assigns. Neither this Agreement nor
-----------------------------------
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other parties;
provided, however, that Buyer may assign its right to purchase the Shares to one
- ------------------
or more of its Affiliates; provided further, however, that no such assignment
---------------- ---------
shall relieve Buyer of any of its liabilities or obligations hereunder without
the written consent of the Company, the Trustee and MLCP. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors or assigns, heirs, legatees,
distributees, executors, administrators and guardians. Nothing in this
Agreement, expressed or implied, is intended or shall be construed upon any
Person (other than the parties hereto and the successors and assigns permitted
by this Section 10.7, officers and directors of the Company and their respective
heirs, legatees and personal representatives with respect to Section 6.7, and
holders of the Management Notes, Junior Notes and Series C Preferred Stock with
respect to Sections 2.4(c)(v) and 6.9 and holders of Company Options with
respect to Section 6.8) any right, remedy or claim under or by reason of this
Agreement.
10.8. Titles and Headings. Titles and headings to Sections herein are
--------------------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
10.9. Schedules and Exhibits. The Schedules and Exhibits referred to
-----------------------
in this Agreement shall be construed with and as an integral part of this
Agreement to the same extent as if the same had been set forth verbatim herein.
Except as expressly set forth herein, disclosure of any fact or item in any
Schedule hereto shall, to the extent apparent from the face of such Schedule and
relevant to any other Schedule or Schedules, be deemed to be disclosed in such
other Schedule or Schedules, notwithstanding the lack of a specific cross-
reference.
10.10. Knowledge. In each provision of this Agreement in which a
----------
representation or warranty is qualified to the "knowledge" of a Person or to the
"best of the knowledge" of a Person, unless otherwise stated in such provision,
each such phrase means that the Person does not have actual knowledge after due
investigation thereof of any state of facts which is different from the facts
described in the warranty or representation.
-54-
<PAGE>
10.11. Entire Agreement; Amendments. This Agreement, including the
-----------------------------
Schedules and Exhibits, contains the entire understanding of the parties hereto
with regard to the subject matter contained herein. The parties hereto, by mu-
tual agreement in writing, may amend, modify and supplement this Agreement. Any
such agreement shall be validly and sufficiently authorized for purposes of this
Agreement if it is signed by Buyer, the Company, MLCP, KECALP 1987, KECALP 1989,
the Trustee and, where required pursuant to Section 10.12 hereof, the Management
Stockholders.
10.12. Action by Management Stockholders and ML Sellers. Each of the
-------------------------------------------------
ML Sellers and Management Stockholders expressly agrees that any action that may
be taken by them under Section 10.11 or 10.13 hereof or otherwise hereunder
shall be effective as to all of the ML Sellers and all of the Management
Stockholders if a written instrument evidencing approval of such action is
signed by MLCP; provided, however, that in the case of any action that does not
--------- ---------
similarly affect such Sellers on a pro rata basis, the approval of MLCP shall be
--------
effective as to the ML Sellers only, and the approval of each Management
Stockholder affected by such action shall be required for such approval to be
effective as to such Seller.
10.13. Waivers. Any term or provision of this Agreement may be waived,
--------
or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof; provided, however, that any waiver or extension
-------------------
evidenced by a written instrument contemplated by Section 10.12 shall be an
effective waiver or extension as to all ML Sellers and all Management
Stockholders. The failure of any party hereto to enforce at any time any
provision of this Agreement shall not be construed to be a waiver of such pro-
vision, nor in any way to affect the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to constitute
a waiver of any other or subsequent breach.
-55-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
SIMMONS ACQUISITION CORP.
By: /s/ John M. Kenney
---------------------
Name: John M. Kenney
Title: Vice President
SIMMONS HOLDINGS, INC.
By: /s/ John M. Kenney
----------------------
Name: John M. Kenney
Title: Vice President
MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. B-XI, L.P.
By: Merrill Lynch LBO Partners
No. B-II, L.P., its general
partner
By: Merrill Lynch Capital Partners, Inc.,
its general partner
By: /s/ James V. Caruso
------------------------
Name: James V. Caruso
Title: Vice President
MLCP ASSOCIATES L.P. NO. II
By: Merrill Lynch Capital Partners, Inc.,
its general partner
By: /s/ James V. Caruso
------------------------
Name: James V. Caruso
Title: Vice President
-56-
<PAGE>
ML IBK POSITIONS INC.
By: /s/ James V. Caruso
-------------------------
Name: James V. Caruso
Title: Vice President
ML OFFSHORE LBO PARTNERSHIP NO. B-XI
By: Merrill Lynch LBO Partners
No. B-II, L.P., its investment
general partner
By: Merrill Lynch Capital
Partners, Inc., its
general partner
By: /s/ James V. Caruso
--------------------
Name: James V. Caruso
Title: Vice President
MERRILL LYNCH KECALP L.P. 1987
By: KECALP INC., its general
partner
By: /s/ James V. Caruso
-------------------------------
Name: James V. Caruso
Title: Vice President
MERRILL LYNCH KECALP L.P. 1989
By: KECALP Inc., its general partner
By: /s/ James V. Caruso
--------------------------------
Name: James V. Caruso
Title: Vice President
-57-
<PAGE>
MERCHANT BANKING L.P. NO. IV
By: Merrill Lynch MBP Inc.,
its general partner
By: /s/ James V. Caruso
-------------------------
Name: James V. Caruso
Title: Vice President
SIMMONS COMPANY
By: /s/ Zenon S. Nie
-------------------------
Name: Zenon S. Nie
Title: Chairman/CEO
NATIONSBANK, N.A. (SOUTH), AS
TRUSTEE OF THE SIMMONS COMPANY
EMPLOYEE STOCK OWNERSHIP TRUST
By: /s/ Ernest F. Ritter, Jr.
--------------------------
Name: Ernest F. Ritter, Jr.
Title: Sr. Vice President
MANAGEMENT STOCKHOLDERS
/s/ Robert K. Barton
- --------------------------
ROBERT K. BARTON
/s/ Leo T. Brennan
- --------------------------
LEO T. BRENNAN
/s/ Martin R. Passaglia
- --------------------------
MARTIN R. PASSAGLIA
The undersigned, INVESTCORP BANK E.C., hereby undertakes and agrees
to cause Buyer and Holdings to perform
-58-
<PAGE>
each of their obligations and agreements under this Agreement and the
undersigned expressly agrees to be liable in the event Buyer fails to perform
any of their obligations or agreements under this Agreement; provided, however,
-----------------
that this undertaking and agreement shall terminate immediately following the
Closing. The undersigned hereby represents and warrants to each Seller and the
Company that (i) it has full corporate power and authority to execute and
deliver this Agreement and perform its obligations hereunder, (ii) it has taken
all actions necessary to authorize the execution, delivery and performance of
this Agreement by it, (iii) such execution, delivery and performance do not
conflict with, violate or otherwise result in a default under its Certificate of
Incorporation, By-laws or other organizational documents, and (iv) this
Agreement is the legal, valid and binding obligation of Investcorp, enforceable
in accordance with its terms.
INVESTCORP BANK E.C.
By: /s/ Elias N. Hallak
-----------------------
Name: Elias N. Hallak
Title: Chief Operating Officer
-59-
<PAGE>
Exhibit A
Aggregate Purchase Price Payable to Each Seller
Number Of Aggregate
Shares Of Purchase Price
Seller Common Stock Payable to Seller
------ ------------- -----------------
NationsBank, N.A, 6,001,257 $31,235,056.52
(South), solely as
Trustee of the Simmons
Company Employee Stock
Ownership Trust 1
Merrill Lynch Capital 11,345,821 59,909,187.34
Appreciation Partner-
ship No. B-XI, L.P.
ML Offshore LBO Partner- 6,645,841 35,091,945.62
ship No. B-XI
ML IBK Positions, Inc. 2,982,686 15,749,437.12
Merrill Lynch KECALP 602,282 3,180,221.61
L.P. 1987
Merrill Lynch KECALP 522,196 2,757,344.58
L.P. 1989
Merchant Banking L.P. 390,748 2,063,261.45
No. IV
MLCP Associates L.P. 179,918 950,018.62
No. II
Robert K. Barton 29,627 156,439.05
Leo T. Brennan 71,105 375,454.78
Martin R. Passaglia 29,627 156,439.05
---------- ---------------
Total 28,801,108 $151,624,805.74
========== ===============
- ---------------
1 The shares to be purchased from the Trustee, and the related purchase
price, have been adjusted as set forth above prior to the Closing Date
pursuant to Section 2.5 of the Agreement.
EXHIBIT 10.2
CONSOLIDATED
ESOP LOAN AGREEMENT
THIS CONSOLIDATED ESOP LOAN AGREEMENT (the "Consolidated Loan
Agreement") amends, consolidates and supersedes, effective as of the
Closing Date (as such term is defined below), the following loan
agreements:
1. ESOP Loan Agreement #1, dated as of January 17, 1989, as amended
and restated as of March 15, 1991,
2. ESOP Loan Agreement #2, dated as of January 17, 1989, as amended
and restated as of March 15, 1991,
3. ESOP Loan Agreement #3, dated as of January 17, 1989, as amended
and restated as of March 15, 1991,
4. ESOP Loan Agreement #4, dated as of January 17, 1989, as amended
and restated as of March 15, 1991,
5. ESOP Loan Agreement #5, dated as of January 17, 1989, as amended
and restated as of March 15, 1991,
6. ESOP Loan Agreement #6, dated as of January 17, 1989, as amended
and restated as of March 15, 1991,
(collectively, the "Prior ESOP Loan Agreements"), each of which is by and
between NationsBank, N.A. (South), as successor by merger to Citizens and
Southern Trust Company (Georgia), N.A., solely in its capacity as trustee
(the "Trustee") of the Simmons Company Employee Stock Ownership Trust (the
"Trust") established pursuant to the Agreement of Trust for the Simmons
Company Employee Stock Ownership Plan dated as of January 17, 1989, as
amended (such Trust Agreement, as amended or restated from time to time,
the "Trust Agreement"), adopted as part of the Simmons Company Employee
Stock Ownership Plan, as amended (such Plan, as amended or restated from
time to time, the "Plan"), and Simmons Company, a Delaware corporation (the
"Company").
WITNESSETH:
WHEREAS, the Company has established the Plan and adopted the Trust and
has appointed the Trustee as the trustee of the Trust;
WHEREAS, the Plan and Trust specifically contemplate the purchase of
"qualifying employer securities," as such term is defined in Section
4975(e)(8) of the Internal Revenue Code (the "Code") ("Qualifying Employer
Securities") with the proceeds of certain loans to the Trust from the
Company;
<PAGE>
WHEREAS, under the terms of the Plan and Trust the Trustee may in its
sole discretion purchase such Qualifying Employer Securities and borrow the
amount necessary for such purchase;
WHEREAS, the Trustee previously purchased (after giving effect to a
ten-to-one stock split, effective after the date of purchase) 11,809,290
shares of common stock of the Company, par value of $0.01 per share (the
"Common Stock") with the proceeds of loans made by the Company pursuant to
the Prior ESOP Loan Agreements;
WHEREAS, pursuant to the Prior ESOP Loan Agreements the Company loaned
the aggregate amount of $241,500,000 (the "ESOP Indebtedness") to the Trust
for the purpose of providing the funds necessary to purchase the above-
referenced Common Stock;
WHEREAS, in connection with certain proposed transactions contemplated
by the terms of that certain Stock Purchase Agreement by and among the
Trustee, the Company, Merrill Lynch Capital Appreciation Partnership No. B-
XI, L.P., MLCP Associates L.P. No. II, ML IBK Positions Inc., ML Offshore
LBO Partnership No. B-XI, Merrill Lynch KECALP L.P. 1987, Merrill Lynch
KECALP L.P. 1989, Merchant Banking L.P. No. IV, certain other stockholders
of the Company, Simmons Holdings, Inc. and Simmons Acquisition Corp., dated
February 21, 1996 ("Acquisition Agreement"), shares of Common Stock
allocated to the accounts of participants under the Plan as of the Closing
Date (as such term is defined in the Acquisition Agreement) ("Closing
Date") have been sold by the Trustee, and unallocated shares of Common
Stock held by the Plan and Trust in a Suspense Account as provided in
Section 5.04(a) of the Plan have been exchanged for shares of Series A
Preferred Stock of the Company, par value $.01 (such shares, together with
other property constituting the Pledged Collateral, as such term is used in
the Consolidated Pledge Agreement (as hereinafter defined), the "Shares"),
and certain indebtedness will be incurred by the Company (the "Chemical
Senior Financing Facilities"); and
WHEREAS, each loan made pursuant to each of the Prior ESOP Loan
Agreements has at all times been intended to constitute an "exempt loan" as
described in Section 4975(d)(3) of the Internal Revenue Code of 1986 as
amended from time to time (the "Code") and as defined in section 54.4975-
7(b)(1)(iii) of the Treasury Regulations (the "Regulations"); and
WHEREAS, for the purpose of reflecting the terms of the Acquisition
Agreement and the consummation of certain transactions contemplated thereby
it is deemed desirable by the parties hereto to amend and consolidate the
Prior ESOP Loan Agreements to the extent such agreements have not
previously been terminated, to supersede such agreements by this
Consolidated Loan Agreement, and to provide in this Consolidated Loan
Agreement the full and complete understanding and agreement of
2
<PAGE>
the parties hereto respecting the indebtedness of the Plan and Trust to the
Company, under the Prior ESOP Loan Agreements and otherwise; and
WHEREAS, for the purpose of reflecting the terms of the Acquisition
Agreement and the consummation of certain transactions contemplated
thereby, certain prior pledge agreements between the parties hereto are to
be consolidated into a single consolidated pledge agreement (the
"Consolidated Pledge Agreement") contemporaneously with this Consolidated
Loan Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants made herein, it is agreed as follows:
1. Aqreement to Lend and Borrow Funds. As of February 29, 1996, the
----------------------------------
principal balance of the ESOP Indebtedness consisted of $61,156,000 (the
"ESOP Loan Balance"). As of such date interest in the amount of $0 had
accrued but not been paid. The Company agrees to lend to the Trustee the
ESOP Loan Balance on the terms set forth herein.
2. The Note. From and after the date hereof the ESOP Indebtedness,
--------
consisting of the ESOP Loan Balance and accrued interest as described in
Section 1, above, shall be evidenced by an amended and restated promissory
note executed and delivered by the Trustee to the Company, in the form
attached hereto as Exhibit A (the "Note"), and the notes executed pursuant
to each Prior ESOP Loan Agreement shall be canceled and surrendered by the
Company to the Trustee. The Trustee
(i) shall make payments to the Company with respect to the
ESOP Loan Balance not less frequently than annually, commencing
December 31, 1996, with each payment consisting of interest
accrued to the date of such payment, and such payment of
principal not in excess of $12,000,000, as will, in the
aggregate, result in an annual addition (as such term is used in
Treasury Regulation Section 1,415-6) to the account of each
participant entitled to share in an allocation of a Company
contribution for such period, which as nearly as practicable
equals but does not exceed the maximum annual addition to such
account under Section 415 of the Code, after taking into account
all amounts under the Plan and each other plan of the employer
that must be considered in computing the maximum annual addition
for such participant's account.
(ii) may, at its option at any time prepay any amount of the
ESOP Loan Balance (in integral multiples of $100,000);
provided, however, that no repayment or prepayment of the ESOP
Loan Balance shall be required if it would
3
<PAGE>
cause the Company to incur an excise tax under section 4972 of
the Code or it would adversely affect (a) the qualification of
the Plan or the Trust under the Code or the Employee Retirement
Income Security Act of 1974, as amended from time to time
("ERISA"), or (b) the status of the ESOP Loan Balance or any
portion thereof as an "exempt loan" as such term is described in
section 4975(d)(3) of the Code.
3. Interest On the ESOP Loan Balance. The Trustee shall pay interest
---------------------------------
on the aggregate unpaid principal amount of the ESOP Loan Balance
outstanding from time to time from the date of the receipt by the Trustee
of the proceeds of the ESOP Loan Balance until payment in full of such
amount on the date upon which any such principal amount shall be due and
payable at an interest rate equal to eight percent (8%) per annum.
4. Source of Funds. The Note and any interest thereon shall be
---------------
payable or prepayable only from (i) employer contributions, and earnings
from such employer contributions, made to the Trust to meet the Plan's
obligation under this Consolidated Loan Agreement, (ii) any earnings
attributable to the Shares (including, but not limited to, cash dividends
declared and paid with respect to the Shares, but excluding any dividends
simultaneously paid with respect to other classes of the Company's capital
stock) whether allocated or unallocated to participants' accounts; and
(iii) from the proceeds of a sale of the unallocated shares held in a
suspense account, solely to the extent provided in the Consolidated Pledge
Agreement in the case of a current and continuing Event of Default. To the
extent that there is not a continuing Event of Default under the
Consolidated Pledge Agreement, as amended from time to time, the
"Consolidated Pledge Agreement"), the proceeds of such a sale shall not be
used to repay the Note or any interest thereon. The Company shall make
contributions to the Plan in amounts and with a frequency sufficient to
permit repayment of the Note and any interest thereon when and in the
amounts due. All contributions to the Plan, earnings thereon and dividends
shall be applied to the payment or prepayment of the ESOP Loan Balance
until the unpaid principal balance thereof and accrued interest thereon
shall be paid in full and only thereafter to any other obligations of the
Plan or Trust; provided, however, that no contributions, earnings, or
dividends may be applied in payment of the Note or any interest thereon if
such application would cause the Company to incur an excise tax under
section 4972 of the Code or would adversely affect (a) the qualification of
the Plan or the Trust under the Code or ERISA, or (b) the status of the
ESOP Loan Balance or any portion thereof as an "exempt loan" as such term
is described in section 4975(d)(3) of the Code. The Company shall not be
entitled to repayment of the ESOP Loan Balance out of any assets of the
Trust other than as provided in this Section 4 and in Section 10 hereof.
4
<PAGE>
5. Purpose of the ESOP Indebtedness. The proceeds of the
--------------------------------
indebtedness evidenced by this Consolidated Loan Agreement shall be used by
the Trustee only to purchase the Shares or to refinance prior "exempt
loans" as such term is described in section 4975(d)(3) of the Code.
6. Contingent Upon Closing. This Consolidated Loan Agreement, as
-----------------------
effective as of the Closing Date as hereinabove defined, shall become
effective contingent upon the occurrence of Closing (as such term is
defined in the Acquisition Agreement ("Closing")).
7. Restriction on Trust Assets. Except as otherwise provided in
---------------------------
Section 8 and Section 9 hereof, and except as expressly permitted or
required by the Plan, the stockholders' agreement executed in connection
with the transactions contemplated by the Acquisition Agreement, among the
Company, the Trustee, the Buyer named therein, and certain other
stockholders named therein as the same may be amended from time to time
(the "1996 Stockholders' Agreement"), or the Company's certificate of
incorporation, the Trustee shall not (a) sell, transfer or otherwise
dispose of any of the Shares, the certificates representing any of the
Shares or any additional shares of stock of the Company or any instruments
or other property from time to time received, receivable or distributed in
respect of or in exchange for any or all of the Shares; (b) create, incur,
assume or suffer to exist any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement upon
or with respect to any of the Shares, the certificates representing any of
the Shares or any additional shares of stock of the Company or any
instruments or other property from time to time received, receivable or
distributed in respect of or in exchange for any or all of the Shares
except pursuant to the Consolidated Pledge Agreement; (c) deliver the
certificates representing any of the Shares to the Company or to any other
person or entity (other than the custodian appointed by the Trustee to hold
them on behalf of the Trustee) except pursuant to the Consolidated Pledge
Agreement; or (d) sign any contract or security agreement with respect to
any of the foregoing actions except pursuant to the Consolidated Pledge
Agreement.
8. Release of Restrictions. Notwithstanding anything in Section 7 to
-----------------------
the contrary, for each Plan Year (as such term is defined in the Plan) of
the Plan until the ESOP Loan Balance is fully repaid, a number of Shares
shall be released from the Consolidated Pledge Agreement and the covenants
contained in Section 7, which number of released Shares shall equal the
number of unreleased Shares immediately before such release for the current
Plan Year multiplied by the "Release Fraction." As used herein, the term
"Release Fraction" shall mean a fraction, calculated for each Plan Year
within thirty (30) days before the end of the Plan Year, the numerator of
which is the amount of principal and interest paid on the indebtedness
evidenced hereby
5
<PAGE>
for such current Plan Year and the denominator of which is the sum of the
numerator plus the principal and interest to be paid on the indebtedness
evidenced hereby for all future Plan Years during the term of this
Consolidated Loan Agreement (determined without reference to any possible
extensions or renewals thereof). Notwithstanding any other provision herein
or in the Consolidated Pledge Agreement, in the event the Plan is
terminated by action of the Company as provided in the Plan document, all
Shares shall be released from the Consolidated Pledge Agreement and the
covenants in Section 7, and the indebtedness evidenced by this Consolidated
Loan Agreement shall be forgiven by the Company.
9. Unrestricted Shares. Notwithstanding anything in Sections 7 and 8
-------------------
to the contrary, Section 7 shall not apply to those Shares which have been
allocated to the accounts of participants in the Plan pursuant to Section
5.04 of the Plan.
10. Default/Remedies. The occurrence of any of the following events
----------------
shall constitute an Event of Default ("Event of Default"):
(a) Except to the extent that payment is not made by reason of the
failure of the Company to contribute to the Plan, the Trustee shall fail to
pay when due any principal of the Note; or
(b) Except to the extent that payment is not made by reason of the
failure of the Company to contribute to the Plan, the Trustee shall fail to
pay when due any interest on the Note or any other amounts (other than the
amount referred to in (a) above) due and payable under this Consolidated
Loan Agreement;
and such failure shall continue unremedied for a five (5) business days
after the due date in the case of a default in the payment of such interest
or for a period of three (3) days after notice thereof from the Company in
the case of a default in the payment of such other amounts.
Notwithstanding any provision in the Trust Agreement, the Note, the
Consolidated Pledge Agreement or in any document referred to therein or
entered into in connection therewith, the obligations of the Trust in this
Consolidated Loan Agreement are without recourse to the Trust except as
provided in this Consolidated Loan Agreement. If an Event of Default shall
occur and be continuing, the Company shall have no rights to assets of the
Trust other than: (a) contributions (other than contributions of employer
securities) that are made by the Company to enable the Trust to meet its
obligations hereunder and earnings attributable to the investment of such
contributions; and (b) those Shares that are pledged to the Company
pursuant to the Consolidated Pledge Agreement provided, however, that (x)
the value of Trust assets transferred in satisfaction of the
6
<PAGE>
indebtedness evidenced hereby shall not exceed the amount in default; and
(y) Trust assets shall be transferred to the Company only to the extent of
the failure of the Trust to meet the payment schedule of the indebtedness
evidenced hereby.
11. Amendments of this Consolidated Loan Agreement. Each of the parties
----------------------------------------------
hereto agrees that it will not, without the prior written consent of the
other party hereto, (a) cancel or terminate this Consolidated Loan
Agreement or consent to or accept any cancellation or termination hereof,
or (b) amend or otherwise modify this Consolidated Loan Agreement.
Notwithstanding the foregoing sentence, this Consolidated Loan Agreement
may be amended only in a writing signed by the Company and an independent
corporate trustee.
12. Major Transactions.
------------------
(a) Neither the Company nor any of its stockholders shall consummate a
Major Transaction (as defined in paragraph (c) below) unless, prior to the
consummation of such Major Transaction, the Company and the Trust,
expressly agree in writing on actions that will be taken by them in
connection with such Major Transaction to produce pre-tax financial results
of such Major Transaction to the Plan or its participants and beneficiaries
that are no less favorable than the pre-tax financial results which would
have been produced if, upon the occurrence of such Major Transaction, the
Company, with the consent of Chemical Bank, had (i) released the Trust from
its repayment obligations under this Consolidated Loan Agreement, the Note
and the Consolidated Pledge Agreement, (ii) canceled the Note and released
the security interest of the Company in the Pledged Collateral (as defined
in the Consolidated Pledge Agreement), and (iii) returned to the Trust the
Note and the certificates evidencing the Pledged Collateral. The written
agreement referred to in the immediately preceding sentence shall be
entered into on behalf of the Trust only by an independent corporate
trustee (whether the Trustee or a successor trustee) upon the advice of an
independent financial advisor and independent legal counsel retained by
such independent corporate trustee. The Company shall pay all reasonable
fees and expenses of such trustee, financial advisor and legal counsel in
connection with any determination required under this paragraph (a). Any
participation of the Trust or such trustee in any Major Transaction
(including, without limitation, any vote of Common Stock in favor of, or
any sale, delivery or transfer of Common Stock in connection with, such
Major Transaction) shall not be deemed to constitute the written agreement
required of the Trust, nor be deemed to substitute for or constitute a
waiver of such required written agreement.
(b) If at any time (i) the Company or, if applicable, its stockholders,
shall fail to comply with the requirements of paragraph (a) (including
without limitation, by failing to obtain the required written agreement of
the Trust, or
7
<PAGE>
by failing to take the actions contemplated by such written agreement in
order to produce the pre-tax financial results for the Plan or its
participants and beneficiaries contemplated by paragraph (a)), or (ii) the
Company shall repudiate any of its material obligations under paragraph (a)
(including, without limitation, by asserting that the requirements of
paragraph (a) are not enforceable by the Trust) then, effective upon such
failure or repudiation, but in any event not later than immediately prior
to the consummation of any Major Transaction, and to the extent of such
failure or repudiation, (1) the Trust shall be released from its repayment
obligations under this Consolidated Loan Agreement, the Note and the
Consolidated Pledge Agreement and (2) the Company shall, upon written
demand by the Trustee, cancel the Note, release its security interest in
the Pledged Collateral, and return to the Trust the Note, the certificates
evidencing the Pledged Collateral, and all amounts received by the Company
from the Trust on or after the date of consummation of the Major
Transaction, to the extent that such amounts constitute payments with
respect to the Note relating to periods after the Major Transaction.
Notwithstanding the immediately preceding sentence, the Company and the
Trustee intend that the provisions of this paragraph (b) shall be applied
only to the extent that the Plan or its participants and beneficiaries do
not in fact receive the pre-tax financial results contemplated by paragraph
(a).
(c) The term "Major Transaction" as used in this Section 12 shall mean
the occurrence of any of the following events after or substantially
simultaneously with the Company's satisfaction of all of its obligations
under the Chemical Senior Financing Facilities:
(i) the sale of all or substantially all of the assets of the
Company;
(ii) the merger of the Company with or into another person
where the Company is not the surviving entity;
(iii) the sale, in a single transaction or a series of
related transactions, of shares of Common Stock representing 90%
or more of then outstanding Common Stock; or
(iv) the liquidation or dissolution of the
Company
(d) Nothing in this Section 12 shall be deemed to limit or otherwise
reduce the rights provided to the Trustee under any other agreement or
security.
13. Miscellaneous
-------------
8
<PAGE>
(a) No amendment or waiver of any provisions of this Consolidated Loan
Agreement, nor consent to any departure by the Trust therefrom, shall in
any event be effective unless the same shall be in writing and signed by
the Company and the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
(b) No failure on the part of the Company or the Trustee to exercise
any rights hereunder shall operate as a waiver thereof, nor shall any
single waiver of any right hereunder preclude any other future exercise
thereof.
(c) This Consolidated Loan Agreement shall be governed by, and
construed in accordance with, the laws of the State of GeOrgia.
(d) This Consolidated Loan Agreement, the Note and the Consolidated
Pledge Agreement set forth the entire agreement of the parties with respect
to their subject matter and supersede all previous understandings, written
and oral, in respect thereof. In particular, the parties agree that the
Prior ESOP Loan Agreements to the extent such agreements have not
previously been terminated, are superseded by this Consolidated Loan
Agreement and neither the Plan nor the Trust is indebted to any party other
than as provided in this Consolidated Loan Agreement, and that the Pledge
Agreement is superseded by the Consolidated Pledge Agreement.
(f) In no event shall payments made with respect to the indebtedness
evidenced hereby exceed an amount equal to the sum of contributions,
dividends, proceeds and earnings received during or prior to the due date
of such payments, less such payments in prior years.
(g) All provisions hereof shall be construed so as to maintain (i) the
Plan as a qualified leveraged employee stock ownership plan under section
401(a) and section 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation under section 501(a) of the Code, and (iii) the indebtedness
evidenced hereby as an exempt loan under section 54.4975-7(b)(1)(iii) of
the Regulations.
(h) The parties agree that the purpose of the indebtedness evidenced
hereby is to refinance certain prior indebtedness incurred by the Plan and
Trust to enable the Trust to purchase qualifying employer securities as
described herein.
(i) This Consolidated Loan Agreement shall be binding upon and shall
inure to the benefit of, the parties hereto and their respective permitted
successors and assigns.
14. Assignment and Pledge. The Trustee agrees that if required by the
---------------------
terms of the Chemical Senior Financing Facilities
9
<PAGE>
or similar credit facility, a security interest may be given by the Company
in the Note, this Consolidated Loan Agreement and the Consolidated Pledge
Agreement, on terms corresponding to that certain Assignment, Pledge and
Security Agreement described in the Prior ESOP Loan Agreements but only to
the extent that the Trustee reasonably determines that such security
interest does not interfere with, reduce, or otherwise impair any rights to
which the Trustee is entitled under the terms of this Consolidated Loan
Agreement or the Consolidated Pledge Agreement, and the Trustee shall
consent thereto.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized representatives on this 22nd day of March
------
, 1996.
- ---
SIMMONS COMPANY
By: /s/ Zenon S. Nie
-------------------------------
Title: Chief Executive Officer
----------------------------
SIMMONS COMPANY EMPLOYEE STOCK OWNERSHIP
TRUST
By: NationsBank, N.A. (South), solely as
Trustee
By: /s/ M. Carole Trizzino
-------------------------------
Title: Vice President
----------------------------
10
EXHIBIT 10.3
CONSOLIDATED PLEDGE AGREEMENT
THIS CONSOLIDATED PLEDGE AGREEMENT (this "Consolidated Pledge
Agreement") is made, effective as of the Closing Date (as such term is
defined below), by and between NationsBank, N.A. (South) (the "Pledgor"),
solely in its capacity as trustee of the Simmons Company Employee Stock
Ownership Trust (the "Trust") established pursuant to the Agreement of
Trust for the Simmons Company Employee Stock Ownership Plan dated as of
January 17, 1989 and as thereafter amended (the "Trust Agreement") adopted
as part of the Simmons Company Employee Stock Ownership Plan (the "Plan")
and Simmons Company, a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company has established the Plan and adopted the Trust,
and has appointed the Pledgor as the trustee of the Trust; and
WHEREAS, the Plan and Trust specifically contemplate the purchase of
"qualifying employer securities," as such term is defined in Section
4975(e)(8) of the Internal Revenue Code of 1986, as amended(the "IRC")
("Qualifying Employer Securities") with the proceeds of certain loans to
the Trust from the Company; and
WHEREAS, under the terms of the Plan and Trust the Trustee may in its
sole discretion purchase such Qualifying Employer Securities and borrow the
amount necessary for such purchase; and
WHEREAS, the Trustee previously purchased (after giving effect to a
ten-to-one stock split, effective after the date of purchase) 11,809,290
shares (the "Shares") of common stock of the Company, par value of $0.01
per share (the "Common Stock") with the proceeds of loans made by the
Company pursuant to certain prior loans pursuant to the following loan
agreements:
1. ESOP Loan-Agreement #1, dated as of January 17, 1989, as
amended and restated as of March 15, 1991,
2. ESOP Loan Agreement #2, dated as of January 17, 1989, as
amended and restated as of March 15, 1991,
3. ESOP Loan Agreement #3, dated as of January 17, 1989, as
amended and restated as of March 15, 1991,
<PAGE>
4. ESOP Loan Agreement #4, dated as of January 17, 1989, as
amended and restated as of March 15, 1991,
5. ESOP Loan Agreement #5, dated as of January 17, 1989, as
amended and restated as of March 15, 1991,
6. ESOP Loan Agreement #6, dated as of January 17, 1989, as
amended and restated as of March 15, 1991,
(collectively, the "Prior ESOP Loan Agreements") each of which
,
is by and between the Trustee, as successor by merger to Citizens and
Southern Trust Company (Georgia), N.A., and the Company; and
WHEREAS, pursuant to the Prior ESOP Loan Agreements the Company loaned
the aggregate amount of $241,500,000 (the "ESOP Indebtedness") to the Trust
for the purpose of providing the funds necessary to purchase the above-
referenced Common Stock; and
WHEREAS, asof the date hereof, 5,670,406 of the Shares held pursuant to
the Trust have not been allocated to the accounts of Participants in the
Plan; and
WHEREAS, in connection with certain proposed transactions contemplated
by the terms of that certain Stock Purchase Agreement by and among the
Trustee, the Company, Merrill Lynch Capital Appreciation Partnership No. B-
XI, L.P., MLCP Associates L.P. No. II, ML IBK Positions Inc., ML Offshore
LBO Partnership No. B-XI, Merrill Lynch KECALP L.P. 1987, Merrill Lynch
KECALP L.P. 1989, Merchant Banking L.P. No. IV, certain other stockholders
of the Company, Simmons Holdings, Inc. and Simmons Acquisition Corp., dated
February 21, 1996, ("Acquisition Agreement"), shares of Common Stock
allocated to the accounts of Participants under the Plan as of the Closing
Date (as such term is defined in the Acquisition Agreement) ("Closing
Date") have been sold by the Trustee, and unallocated shares of Common
Stock held by the Plan and Trust in a Suspense Account as provided in
Section 5.04(a) of the Plan have been exchanged for shares of Series A
Preferred Stock of the Company, $.01 par value (the "Unallocated Shares"),
and
WHEREAS, each loan made pursuant to each of the Prior ESOP Loan
Agreements has at all times been intended to constitute an "exempt loan" as
described in Section 4975(d)(3) of the IRC and as defined in section
54.4975-7(b)(1)(iii) of the Treasury Regulations (the "Regulations"); and
WHEREAS, as a condition precedent to each of the Prior ESOP Loan
Agreements, the Company has required the Pledgor to enter into a pledge
agreement respecting shares acquired by the
2
<PAGE>
Trust with the proceeds of the indebtedness evidenced by such loan
agreement; and
WHEREAS, the Pledgor and the Company have heretofore entered into a
succession of pledge agreements (the "Prior Pledge Agreements"); and
WHEREAS, for the purpose of reflecting the terms of the Acquisition
Agreement and the consummation of certain transactions contemplated
thereby, the parties hereto to have amended and consolidated the Prior ESOP
Loan Agreements, to the extent such agreements have not previously been
terminated, by execution of a consolidated ESOP loan agreement, of even
date herewith (the "Consolidated Loan Agreement"), which Consolidated Loan
Agreement sets forth the full and complete understanding and agreement of
the parties hereto respecting the indebtedness of the Plan and Trust to the
Company, under the Prior ESOP Loan Agreements and otherwise; and
WHEREAS, for the purpose of reflecting the terms of the Acquisition
Agreement and the consummation of certain transactions contemplated thereby
it is deemed desirable by the parties hereto to amend and consolidate the
Prior Pledge Agreements, to supersede such agreements by this Consolidated
Pledge Agreement (the "Consolidated Pledge Agreement"), and to provide in
this Consolidated Pledge Agreement the full and complete understanding and
agreement of the parties hereto respecting the pledge of the Shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants made herein, it is agreed as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the Company and grants
------
to the Company a security interest in the following (the "Pledged
Collateral") to secure the Secured Obligations (as defined in Section 2):
The Unallocated Shares and the certificates representing such
shares as identified in Schedule I hereto, any substitute collateral,
any securities for which such securities are exchanged or into which
such shares are converted, any proceeds from the sale, exchange or
other disposition of such securities, and any interest of the Pledgor
in the entries on the books of any financial intermediary pertaining
to such property. Any securities forming a part of the Pledged
Collateral shall be referred to herein as the "Pledged Shares."
SECTION 2. Secured Obligations. This Consolidated Pledge Agreement
-------------------
secures, and the Pledged Collateral is collateral security for, the prompt
payment or performance in full when due, whether at stated maturity or
otherwise, of all obligations of the Pledgor now or hereafter existing
under or in
3
<PAGE>
respect of the Consolidated Loan Agreement and the note which evidences the
indebtedness under the Consolidated Loan Agreement (the "Note") (all such
obligations being the "Secured Obligations").
SECTION 3. Delivery of Pledged Collateral. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be
delivered to and held by the Company or by its nominee on behalf of the
Company pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by, as applicable, Pledgor's endorsement
where necessary, or appropriate stock powers or other instruments of
transfer or assignment in blank. The Company shall have the right, at any
time upon or after the occurrence of an Event of Default (as defined in the
Consolidated Loan Agreement) and without notice to the Pledgor, to transfer
to or to register in the name of any of its nominees any or all of the
Eligible Pledged Collateral (as defined in Section 8(c) hereof). In
addition, the Company shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral
for certificates or instruments of smaller or larger denominations.
SECTION 4. Supplements, Further Assurances. The Pledgor agrees that at
-------------------------------
any time and from time to time, at the expense of the Company, the Pledgor
will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the Company may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Company to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral.
SECTION 5. Voting Rights, Dividends, Etc.
------------------------------
(a) As long as no Event of Default (as defined in the Consolidated Loan
Agreement) shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this
Consolidated Pledge Agreement or the Consolidated Loan Agreement.
(ii) The Pledgor shall be entitled to receive and retain any and all
cash dividends or other distributions in respect of the Pledged Shares.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) Upon written notice from the Company to the Pledgor, all rights of
the Pledgor to exercise the voting and
4
<PAGE>
other consensual rights that it would otherwise be entitled to exercise
pursuant to Section 5(a)(i) above with respect to Eligible Pledged Shares
(as such term is defined below) shall cease, and all such rights shall
thereupon become vested in the Company which shall thereupon have the sole
right to exercise such voting and other consensual rights during the
continuance of such Event of Default.
(ii) All rights of the Pledgor to receive the dividends or other
distributions that it would otherwise be authorized to receive and retain
pursuant to Section 5(a)(ii) above with respect to Eligible Pledged Shares
shall cease and all such rights shall thereupon become vested in the
Company which shall thereupon have the sole right to receive and hold as
Pledged Collateral such dividends or other distributions during the
continuance of such Event of Default.
As used herein the term "Eligible Pledged Shares" shall mean that
number of Pledged Shares that has an aggregate fair market value equal to
the amount by which the Pledgor is in default or such lesser number of
Pledged Shares as may be required hereunder.
(c) In order to permit the Pledgor to exercise the voting and other
rights that it is entitled to exercise pursuant to Section 5(a)(i) above
and to receive the dividends or other distributions that it is authorized
to receive and retain pursuant to Section 5(a)(ii) above, the Company
shall, if necessary, upon written request of the Pledgor, from time to time
execute and deliver (or cause to be executed and delivered) to the Pledgor
all such proxies, dividend payment orders and other instruments as the
Pledgor may reasonably request. In order to permit the Company to exercise
the voting and other consensual rights which it may be entitled to exercise
pursuant to Section 5(b)(i) above, and to receive all dividends or other
distributions that it may be entitled to receive under Section 5(b)(ii)
above, the Pledgor shall, if necessary, upon written notice from the
Company, from time to time execute and deliver to the Company appropriate
proxies, dividend payment orders and other instruments as the Company may
reasonably request.
(d) All dividends and distributions that are received by the Pledgor
contrary to the provisions of Section 5(b)(ii)
above shall be received in trust for the benefit of the Company, shall be
segregated from other funds of the Pledgor and shall be forthwith paid over
to the Company as Pledged Collateral in the same form as so received (with
any necessary endorsements).
SECTION 6. Transfer and Other Liens. The Pledgor agrees that it will
------------------------
not, except as permitted by the Consolidated Loan Agreement, (i) sell or
otherwise dispose of, or grant any option or warrant with respect to, any
of the Pledged Collateral, or (ii) create or permit to exist any lien upon
or with respect to any of the Pledged Collateral, except for the lien and
5
<PAGE>
security interest under this Consolidated Pledge Agreement and any liens in
existence prior to the date of this Consolidated Pledge Agreement.
SECTION 7. Reasonable Care. The Company shall be deemed to have
---------------
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equivalent to that which the Company accords its
own property consisting of negotiable securities, it being understood that
the Company shall not have responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Pledged Collateral, whether or not the
Company has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps (other than steps taken in accordance with the standard
of care set forth above to maintain possession of the Pledged Collateral)
to preserve rights against any person with respect to any Pledged
Collateral.
SECTION 8. Remedies Upon Default. If any Event of Default (as defined
---------------------
in the Consolidated Loan Agreement) shall have occurred and be continuing:
(a) (i) The Company may exercise in respect of the Eligible Pledged
Collateral (as such term is defined below), in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Uniform Commercial
Code (the "Code") in effect in the State of Georgia at that time, and the
Company may also in its sole discretion, without notice except as specified
below or as required by law, sell the Eligible Pledged Collateral or any
part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Company's offices or elsewhere,
for cash, on credit or for future delivery, and at such price or prices and
upon such other terms as the Company may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Pledged Collateral. Each purchaser at any such sale shall hold the property
sold absolutely free from any claim or right on the part of the Pledgor,
and the Pledgor hereby waives (to the extent permitted by law) all rights
of redemption, stay and appraisal which it now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the Pledgor of private
sale is to be made shall constitute reasonable notification to Pledgor. The
Company shall not be obligated to make any sale of Eligible Pledged
Collateral regardless of notice of sale having been given. The Company may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the extent
permitted by law, the Pledgor hereby waives and agrees
6
<PAGE>
not to assert any rights or privileges it may acquire under sections 9504
or 9507 of the Code and any claims against the Company arising by reason of
the fact that the price at which any Eligible Pledged Collateral may have
been sold at such a private sale was less than the price which have been
obtained at a public sale, even if the Company accepts the first offer
received and does not offer such Eligible Pledged Collateral to more than
one offeree.
(ii) The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities laws, the Company may be compelled, with
respect to any sale of all or any part of the Eligible Pledged Collateral,
to limit purchasers to those who will agree, among other things, to acquire
the Eligible Pledged Collateral for their own account, for investment and
not with a view to the distribution or resale thereof. The Pledgor
acknowledges that any such private sale may be at prices and on terms less
favorable to the Company than those obtainable through a public sale
without such restrictions (including, without limitation, a public offering
made pursuant to a registration statement under the Securities Act), and,
notwithstanding such circumstances, agrees, to the extent permitted by law,
that any such private sale shall be deemed to have been made in a
commercially reasonable manner and that the Company shall have no
obligation to engage in public sales and no obligation to delay the sale of
any Eligible Pledged Collateral for the period of time necessary to permit
the issuer thereof to register it for a form of public sale requiring
registration under the Securities Act or under applicable state securities
laws, even if the Pledgor would agree to do so.
(b) If the Company determines to exercise its right to sell any or all
of the Eligible Pledged Collateral, upon written request, the Pledgor shall
from time to time furnish to the Company all such information as the
Company may request in order to determine the number of shares and other
instruments included in the Eligible Pledged Collateral that may be sold by
the Company as exempt transactions under the Securities Act and the rules
of the Securities and Exchange Commission thereunder, as the same are from
time to time in effect.
(c) As used herein the term "Eligible Pledged Collateral" shall mean
that amount of Pledged Collateral that has an aggregate fair market value
equal to the amount by which the Pledgor is in default or such lesser
amount of Pledged Collateral as may be required pursuant to Section 18
hereof.
SECTION 9. Application of Proceeds. After and during the continuance of
-----------------------
an Event of Default, all cash proceeds received by the Company (all such
cash being "Proceeds") in respect of any sale of, collection from, or other
realization upon all or any part of the Eligible Pledged Collateral
pursuant to the exercise by the Company of its remedies as a secured
7
<PAGE>
creditor as provided in Section 8 of this Consolidated Pledge Agreement
shall be applied promptly from time to time by the Company as follows:
First, to the payment of the Secured Obligations; and
- ---------
Second, after payment in full of all Secured Obligations, any amount
- ----------
remaining, including, without limitation, any amount required by law, to
the Pledgor, or its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may
direct, of any surplus then remaining from such Proceeds.
SECTION 10. No Waiver. No failure on the part of the Company to
---------
exercise, and no course of dealing with respect to, and no delay in
exercising, any rights, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Company of any
right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies
herein provided are to the fullest extent permitted by law cumulative and
are not exclusive of any remedies provided by law.
SECTION 11. Amendments, Etc. This Consolidated Pledge Agreement may not
----------------
be amended, modified or waived except with the written consent of the
Pledgor and the Company.
SECTION 12. Termination. When all Secured Obligations have been
-----------
indefeasibly paid in full, this Consolidated Pledge Agreement shall
terminate, and the Company shall, upon the request and at the expense of
the Pledgor, forthwith assign, transfer and deliver, against receipt and
without recourse to the Company, such of the Pledged Collateral as shall
not have been sold or otherwise applied pursuant to the terms hereof to or
on the order of the Pledgor.
SECTION 13. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be in writing (including telegraphic or
telecopy communication) and mailed, telegraphed, telecopied or delivered,
if to the Pledgor, addressed to it at the address set forth on the
signature page of this Consolidated Pledge Agreement, if to the Company,
addressed to it at the address set forth on the signature page of this
Consolidated Pledge Agreement, or as to any party at such other address as
shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this Section 13. All such
notices and other communications shall, when mailed or telegraphed,
respectively, be effective when deposited in the mails or delivered to the
telegraph company, respectively, addressed as aforesaid and shall, when
delivered or telecopied, be effective when received.
SECTION 14. Continuing Security Interest: Releases: Transfer of Note.
--------------------------------------------------------
Subject to Section 12 hereof and Sections 7, 8
8
<PAGE>
and 9 of the Consolidated Loan Agreement, this Consolidated Pledge
Agreement shall create a continuing security interest in the Pledged
Collateral and shall (i) remain in full force and effect until indefeasible
payment in full of all Secured Obligations, (ii) be binding upon the
Pledgor, its successors and assigns, and (iii) inure, together with the
rights and remedies of the Company hereunder, to the benefit of the Company
and each of its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), the Company may assign or
otherwise transfer any indebtedness held by it secured by this Consolidated
Pledge Agreement to any other person or entity (including, without
limitation, a lender to the Company as provided in Section 14 of the
Consolidated Loan Agreement), and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to
the Company. This Consolidated Pledge Agreement is the Consolidated Pledge
Agreement referred to in, and is subject to the terms of, the Consolidated
Loan Agreement.
SECTION 15. Governing Law; Terms. This Consolidated Pledge Agreement
--------------------
shall be governed by, and construed in accordance with, the laws of the
State of Georgia, except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the security
interest hereunder, or remedies hereunder, in respect of any particular
Pledged Collateral are governed by the laws of a jurisdiction other than
the State of Georgia. Unless otherwise defined herein or in the
Consolidated Loan Agreement, terms defined in articles 8 and 9 of the Code
in the State of Georgia are used herein as therein defined.
SECTION 16. Consent to Jurisdiction and Service of Process. All
----------------------------------------------
judicial proceedings brought against the Pledgor with respect to this
Consolidated Pledge Agreement may be brought in any state or federal court
of competent jurisdiction in the State of Georgia and by execution and
delivery of this Consolidated Pledge Agreement, the Pledgor accepts for
itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Consolidated Pledge Agreement.
SECTION 17. Security Interest Absolute. All rights of the Company and
--------------------------
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of any terms or provisions
of the Consolidated Loan Agreement, the Note, or any other agreement or
instrument relating thereto that does not render the entire agreement or
instrument invalid or unenforceable;
9
<PAGE>
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the
Consolidated Loan Agreement or the Note;
(iii) any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to any departure from
any guaranty, for all or any of the Secured Obligations; or
(iv) any other circumstance which might otherwise constitute a defense
available to the Pledgor.
SECTION 18. Release from Pledge. The pledge of the Pledged Collateral
-------------------
shall continue until all obligations due under the Consolidated ESOP Loan
Agreement have been paid in full and all the terms and conditions of the
Note (as defined therein) have been satisfied; provided that for each Plan
--------
Year (as such term is defined in the Plan) of the Plan until the note and
any interest thereon is paid in full, a number of shares of Pledged
Collateral shall be released from the pledge hereunder, which number of
released shares shall equal the number of shares of Pledged Collateral
immediately before such release for the current Plan Year multiplied by the
"Release fraction." As used herein, the "Release Fraction" shall mean a
fraction, calculated for each Plan Year within thirty (30) days before the
end of the Plan Year, the numerator of which is the amount of principal and
interest paid on the Note for such current Plan Year and the denominator of
which is the sum of the numerator plus the principal and interest to be
paid on the Note for all future Plan Years during the term of the
Consolidated Loan Agreement (determined without references to any
extensions or renewals thereof). Notwithstanding any other provision herein
or in the Consolidated Loan Agreement, in the event the Plan is terminated
by action of the Company, as provided in the Plan document, all Pledged
Collateral shall be released from the pledge hereunder and the covenants in
Section 7 of the Consolidated Loan Agreement and the Note shall be
forgiven.
SECTION 19. Construction. All provisions hereof shall be construed so
------------
as to maintain (i) the Plan, as a qualified leveraged employee stock
ownership plan under sections 401(a) and 4975(e)(7) of the IRC, (ii) the
Trust as exempt from taxation under section 501(a) of the IRC and (iii) the
indebtedness evidenced by the Consolidated Loan Agreement as an exempt loan
under section 54.4975-7(b)(1)(iii) of the Treasury Regulations.
10
<PAGE>
This Consolidated Pledge Agreement supersedes the Prior Pledge Agreements.
IN WITNESS WHEREOF, the parties have caused this
instrument to be executed by their duly authorized
representatives this 22nd day of March , 1996.
- -----
SIMMONS COMPANY By:
By: /s/ Zenon S. Nie
--------------------------------
Title: Chief Executive Officer
-----------------------------
SIMMONS COMPANY EMPLOYEE STOCK OWNERSHIP
TRUST
By: NATIONSBANK, N.A. (SOUTH),
solely as Trustee
By: /s/ M. Carole Trizzino
--------------------------------
Title: Vice President
-----------------------------
Notice Addresses:
Simmons Company
1 Concourse Parkway
Suite 600
Atlanta, GA 30328
Attention: Chief Financial Officer
NationsBank, N.A. (South)
600 Peachtree Street, N.E. 7th Floor
Atlanta, Georgia 30308 Attention: Ernest F. Ritter
11
<PAGE>
SCHEDULE I
Attached to and forming a part of that certain Consolidated Pledge
Agreement dated as of March 22 , 1996, by NationsBank, N.A. (South), solely
---
in its capacity as Trustee, as Pledgor, to Simmons Company.
Stock
Certificate Number of
Stock No(s). Par Value Shares
----- ------ --------- ------
Series A
Preferred Stock 1 $.01 per share 5,670,406
12
EXHIBIT 10.4
AMENDMENT AGREEMENT AND
CERTIFICATION OF AGREEMENT OF TRUST
AGREEMENT by and between Simmons Company, a Delaware corporation
("Simmons"), and NationsBank, N.A. (South), a banking corporation, solely
as trustee (the "Trustee") of the Simmons Company Employee Stock Ownership
Trust (the "Trust").
Second Amendment
----------------
WHEREAS, Simmons and the Trustee are parties to an Agreement of Trust
dated January 17, 1989, as amended by Agreement dated as of March 11, 1991
(the "Trust Agreement"), and
WHEREAS, Simmons and the Trustee now wish to amend the Trust Agreement.
NOW, THEREFORE, FOR DUE AND VALUABLE CONSIDERATION THE RECEIPT OF WHICH
IS HEREBY ACKNOWLEDGED IT IS AGREED:
1. A new Section XXIIA of the Trust Agreement is added, to read in
its entirety as follows:
Section XXIIA. Notwithstanding any other provision of this
Agreement providing for the Trustee to act in accordance with
directions given by the Committee or by the Company, in
connection with those transactions contemplated by that certain
Acquisition Agreement (as such term is defined in Section 1.01 of
the Plan document), the Trustee hereunder shall serve in the
capacity of an independent corporate fiduciary. In such capacity
the Trustee shall evaluate the transactions proposed or
contemplated by such Acquisition Agreement, for the purpose of
making such determinations as are necessary or appropriate under
such circumstances, may enter into such agreements, including
such Acquisition Agreement, on such terms and conditions as are
deemed by the Trustee to be prudent and in the interests of
participants and beneficiaries, and may take such further actions
in connection therewith as the Trustee deems appropriate in the
exercise of its fiduciary responsibility, in each case without
direction by the Company or by the Committee.
Certification
-------------
The Trustee and the Company certify that (a) the Agreement of Trust,
dated January 17, 1989, by and between the Company and the Trustee, atrue
and correct copy of which is attached hereto as Exhibit A, (b) the
Amendment Agreement dated as of March 11, 1991 by and between the Company
and the Trustee,
<PAGE>
a true and correct copy of which is attached hereto as Exhibit B, and (c)
the Second Amendment to the Trust, as set forth in this instrument,
comprise the Agreement of Trust for the Simmons Company Employee Stock
Ownership Plan and set forth the full and complete understanding and
agreement of the Company and the Trustee respecting the Trust.
IN WITNESS WHEREOF, the Company and the Trustee have
caused this instrument to be executed by their duly authorized
representatives on this 22nd day of March , 1996.
----- -----
Attest: SIMMONS COMPANY
/s/ Roger W. Franklin By /s/ Zenon S. Nie
- ------------------------- ---------------------------------
Asst. Secretary Chief Executive Officer
(Corporate Seal)
Attest: TRUSTEE:
NATIONSBANK, N.A. (SOUTH),
solely as Trustee
/s/ Ernest F. Ritter, Jr. By: /s/ M. Carole Trizzino
- -------------------------- -------------------------------
Title: Sr. Vice President Title: Vice President
2
<PAGE>
EXHIBIT A
AGREEMENT OF TRUST
<PAGE>
AGREEMENT OF TRUST
FOR THE
SIMMONS COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT made this 17 day of January, 1989, by and between
SIMMONS COMPANY (the "Company"), a corporation organized under the laws of the
State of Delaware
a
n
d
CITIZENS AND SOUTHERN TRUST COMPANY (GEORGIA), N.A., a banking corporation
organized under the laws of the United States (the "Trustee"),
WITNESSETH THAT:
WHEREAS, effective January 31, 1989 the Company adopted the Simmons
Company Employee Stock Ownership Plan (the "Plan"); and
WHEREAS, effective on the date of this Agreement, the Company wishes
to establish a Trust to hold contributions made under the Plan; and
WHEREAS, the Trustee is willing to accept and hold such contributions
made under the Plan in trust in accordance with the terms and conditions
hereinafter set forth,
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, do mutually covenant and agree as follows:
SECTION I. Unless otherwise defined herein, the terms used in this
---------
Agreement of Trust shall have the same meaning as are ascribed to such terms in
the Plan or the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), unless the context clearly indicates a different intended meaning.
In the event that there should be any conflict between the meaning of a term in
the Plan and the meaning of the same term under ERISA, the latter meaning shall
govern. All of the terms of the Plan are incorporated herein by reference.
SECTION II. The Trustee hereby establishes a Trust consisting of such
----------
sums of money or shares of Company Stock as shall from time to time be paid or
delivered to the Trustee by
-1-
<PAGE>
the Company, or a predecessor trustee pursuant to the provisions of the Plan.
Such contributions, together with all investments and reinvestments thereof and
all income, earnings and profits thereon, less any losses and authorized
payments or transfers therefrom, which are hereinafter referred to collectively
as the "Trust Assets," shall be received and held by the Trustee in trust upon
the terms and conditions of this Agreement of Trust and subject to the
provisions of the Plan. The Trust Assets shall be held for the exclusive
purpose of providing benefits to Participants in the Plan and their
beneficiaries and defraying reasonable costs of administering the Plan. The
Trust Assets shall never be used for the benefit of or diverted to an employer,
except as provided below:
(a) In the event that any contribution to the Trust is made by the
Company under a mistake of fact, at the direction of such Company, the Trustee
shall return such contribution within one year after the date of payment of the
contribution.
(b) Each contribution which is made by the Company hereunder shall be
conditioned upon the initial qualification of the Plan pursuant to section 401
of the Internal Revenue Code of 1986, as amended (the "Code"). In the event
that the Plan does not so qualify under section 401, at the direction of the
Company, the Trustee shall return such contributions to the Company, within one
year after the date of the final disposition of the denial of qualification of
the Plan.
(c) Each contribution that is made by the Company hereunder shall be
conditioned upon the deductibility of the contribution under section 404 of the
Code. In the event that the deduction should be disallowed under section 404 of
the Code, upon direction of the Company, the Trustee shall return such
contribution to the Company, within one year after the disallowance of the
deduction.
SECTION III. The Trust herein established is intended to comply with
-----------
ERISA and to continue to be a qualified exempt trust under sections 401(a) and
501(a) of the Code, or any successor statutory provisions. This Agreement of
Trust and the trust fund created hereby are subject to the following express
conditions subsequent, the occurrence of either of which shall permit the
Company and the Trustee, upon written election delivered to the other within
thirty (30) days after such occurrence, to be excused from performance hereunder
and released from their respective obligations contained herein:
-2-
<PAGE>
(a) The Trust and the Plan shall be determined not to meet the
exemption and qualification requirements, respectively, of the Code, and the
regulations issued thereunder, so as to deny the deduction for federal income
tax purposes of the amounts contributed by the Company to the Trust and so that
such contributions would be taxable to Participants as income in the year of
contribution; and
(b) The Plan and Trust shall be determined not to meet all of the
requirements of ERISA.
SECTION IV. The Plan shall be administered by the Committee provided
----------
for in the Plan, and the Trustee shall not be responsible in any respect for
such administration, for the collection of any funds required to be contributed
by the Company or for the sufficiency of the Trust to provide the benefits
granted in the Plan. The duties of the Trustee are to hold the Trust Assets as
a trust fund and to invest and manage the same in the manner hereinafter
provided and as provided in ERISA. The Trustee shall from time to time make
disbursements from the Trust in accordance with the written directions of the
Committee. Such directions need not specify the application to be made of
disbursements so directed, provided the Committee shall certify that such monies
or securities are to be used solely for the purposes set forth in the Plan.
SECTION V. The Trustee shall discharge all of its duties hereunder
---------
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with
like aims and, with respect to Trust Assets other than Company Stock, by
diversifying the investments held hereunder so as to minimize the risk of large
losses unless under the Plan or circumstances prevailing from time to time it
clearly would not be prudent to diversify.
SECTION VI. (a) As directed by the Committee, the Trustee shall
----------
invest and reinvest the Trust Assets primarily in Company Stock, in accordance
with the terms of the Plan and this Agreement. The Trustee may invest and hold
up to one hundred percent (100%) of the Trust Assets in Company Stock, if so
directed by the Committee. The Trustee may dispose of Company Stock only if so
specifically directed in writing by the Committee (with the approval of the
Company's Board of Directors). Notwithstanding any other provisions of this
Agreement of Trust or the Plan, the initial purchase of all or substantially all
the outstanding shares of Company Stock, using the proceeds of a Loan, shall be
effected by the Trustee without direction from the Committee and pursuant to the
Trustee's determination (in the exercise of its reasonable judgment) that
-3-
<PAGE>
such transaction is in the best interests of Participants and is in compliance
with all applicable provisions of the Code and ERISA.
(b) The Trustee shall invest and reinvest the principal of the Trust
not invested in Company Stock pursuant to the directions of the Committee and,
in the absence of such directions, shall invest and reinvest such principal in
its sole discretion, and shall keep the Trust Assets invested, without
distinction between principal and income, in any bonds, debentures, notes,
equipment trust certificates, investment trust certificates, mortgages and
mortgage participations, savings accounts (including those maintained by the
Trustee), deposit administration contracts, group or individual annuity
contracts, variable annuity contracts, common trust funds or collective funds
for qualified employee benefit plans (including those maintained by the
Trustee), securities of investment companies or funds (open-end or otherwise),
preferred stocks, common stocks, or other securities or property, real or
personal, or part interest therein, in compliance with ERISA and other
applicable law and as provided in the Plan, but without regard to any
restriction under any other present or future laws relating to investments by
trustees. Without liability for interest, the Trustee may keep a portion of
the Trust Assets in the form of cash or cash balances as is necessary from
time to time to meet contemplated payments from the Trust.
(c) The Trustee shall not maintain indicia of ownership of any asset
held in this Trust outside the jurisdiction of a United States District Court
unless such holding is approved through ruling or regulation promulgated under
ERISA by the Secretary of Labor.
(d) The Committee shall assume the responsibility and liability for
the prudence of investments directed by it under this Section. The Committee
may delegate to the Trustee the responsibility for investing Trust Assets other
than Company Stock.
(e) In the event that the Trustee is directed to dispose of any
Company Stock held as Trust Assets, under circumstances which require
registration and/or qualification of the securities under applicable federal or
state securities laws, then the Company, at its own expense, will take, or cause
to be taken, any and all such actions as may be necessary or appropriate to
effect such registration and/or qualification.
SECTION VII. (a) In the administration of the Trust, subject to the
-----------
provisions of ERISA and to subsection (b) of this Section, the Trustee shall
have full power and authority, without the necessity of obtaining the consent of
any court or any other consent whatsoever, to do all acts and things, to
execute, acknowledge and deliver all instruments and to exercise any and
-4-
<PAGE>
all powers, authorities and discretions which would be lawful for it were it, in
its own right, the actual owner of the monies, securities and property
constituting the Trust Assets, including by way of illustration, but not
limitation, any of the following:
(1) to sell, exchange, convey, transfer or otherwise dispose of
any property held in the Trust by private contract or at public auction, and no
person dealing with the Trustee shall be bound to see to the application of the
purchase money or inquire into the validity, expediency or propriety of such
sale or other disposition;
(2) With respect to any securities or stock other than shares
of Company Stock, to: exercise the voting rights of such stocks, bonds, or other
securities; give general or special proxies or powers of attorney with or
without power of substitution; exercise any conversion privileges, subscription
rights or other options and to make any payment incidental thereto; consent to
or otherwise participate in corporate reorganizations or other changes affecting
corporate securities and to delegate discretionary powers to pay any assessments
or charges in connection therewith; and generally exercise any of the powers of
an owner with respect to such stocks other than Company Stock, bonds, securities
other than Company Stock or other property held in the Trust;
(3) to make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all other instruments that may
be necessary or appropriate to carry out the powers herein granted;
(4) to register any security held in the Trust in its own name
as Trustee or in the name of a nominee and to hold any security in bearer form,
but the books and records of the Trustee shall show that all such securities are
part of the Trust;
(5) to appoint an investment manager or managers to manage any
assets of the Plan other than Company Stock; and
(6) to employ suitable agents and counsel.
(b) With respect to the Company Stock held in the Plan, the Trustee
shall have the authority and power to do any of the following in accordance with
the directions of the Committee:
(1) contract or otherwise enter into transactions for the
purpose of acquiring or selling Company Stock, including any transactions with
the Company or any Company stockholder which are not prohibited transactions
under ERISA;
-5-
<PAGE>
(2) borrow from any lender (including the Company) to finance
the acquisition of Company Stock, on terms and conditions satisfying Section
5.04 of the Plan, and giving its note as the Trustee of this Trust, and such
interest and security for the Loan as may be appropriate or necessary, provided
that such Loan shall comply in full with Section 5.04 of the Plan;
(3) vote Company Stock held in the Trust as directed by the
Committee or as otherwise provided in the Plan, or otherwise consent to or
request any action on the part of an issuer of Company Stock in person or by
proxy as directed by the Committee;
(4) participate in reorganizations, recapitalizations,
consolidations, mergers and similar transactions with respect to Company Stock
held in the Plan.
Notwithstanding anything in the Plan or this Trust Agreement to the contrary,
the Trustee shall be obligated to follow any such directions from the Committee
as are consistent with the provisions of the Plan, this Agreement of Trust and
ERISA.
SECTION VIII. The Trustee shall not engage in or cause the Trust to
------------
engage in any transaction, except as permitted under section 408 of ERISA,
regulations issued thereunder or administrative exemption, if it knows, or
should know, that such transaction constitutes a direct or indirect:
(a) sale or exchange or leasing of any property between the Plan and
a party in interest, as defined in section 3(14) of ERISA ("Party in Interest");
(b) lending of money or extension of credit between the Trust and a
Party in Interest;
(c) furnishing of goods, services or facilities between the Trust and
a Party in Interest;
(d) transfer to or use by or for the benefit of a Party in Interest
of any Plan Assets; or
(e) acquisition, on behalf of the Plan, of any employer real property
or employer security other than Company Stock in violation of ERISA.
SECTION IX. The expenses incurred by the Trustee in the performance
----------
of its duties, including fees for legal services rendered to the Trustee; such
compensation to the Trustee as may be agreed upon in writing from time to time
between the Company and the Trustee; the costs of, and the premiums for, any
fiduciary bonds required by, and fiduciary insurance authorized by, ERISA; and
all other proper charges and disbursements of the
-6-
<PAGE>
Trustee, shall be paid by the Company, and if not paid by the Company, shall be
charged against the assets of the Trust. Notwithstanding the foregoing
sentence, no Trustee who receives full-time pay from the Company shall receive
compensation for his services as a Trustee, except for reimbursement of expenses
properly and actually incurred. All taxes of any and all kinds whatsoever that
may be levied or assessed under existing or future laws upon or in respect of
the Trust or the income thereof shall be paid from the Trust; provided, however,
that in the event the Company shall notify the Trustee that, in the opinion of
their counsel, any such taxes are unlawfully or excessively assessed, the
Trustee shall, at the expense of the Company, join with the Company to contest
the validity of such assessment in any manner deemed appropriate by the Company
or their counsel.
SECTION X. The Trustee shall not be liable for the making, retention,
---------
or sale of any investment or reinvestment made as herein provided nor for any
loss to or diminution of the Trust Assets, unless due to a breach of its
fiduciary duties pursuant to Title I of ERISA. The Trustee may from time to
time consult with counsel, who may be counsel to the Company, and shall be fully
protected in legal questions when acting upon the advice of such counsel.
SECTION XI. The Trustee shall keep accurate and detailed accounts of
----------
all investments, receipts, disbursements and other transactions hereunder, and
all accounts, books and records relating thereto shall be open to inspection and
audit at all reasonable times by any person designated by the Company or the
Committee. Within ninety (90) days following the close of each Plan Year of the
Trust and within ninety (90) days, unless such period be waived, after the
removal or resignation of a Trustee as provided for in this Agreement of Trust,
the Trustee shall file with the Company and the Committee a written report
setting forth all investments, receipts, disbursements and other transactions
effected by it during such Plan Year or during the period from the close of the
last Plan Year to the date of such removal or resignation including a
description of all securities and investments, purchases and sales and showing
all cash, securities and other property held at the close of such Plan Year or
other period, valued currently, and such other information as may be required of
the Trustee under any applicable law. Upon the expiration of ninety (90) days
from the date of filing such annual or other report, the Trustee shall be
forever released and discharged from all liability and accountability to anyone
with respect to the propriety of its acts and transactions shown in such report,
except with respect to any such acts or transactions as to which the Company or
the Committee shall within such ninety (90) day period file with the Trustee
written objections and except for loss to or diminution of the Trust resulting
from a violation of its fiduciary duties under Title I of ERISA.
-7-
<PAGE>
Nothing contained herein shall be construed or interpreted to deny the
Trustee the right to have its account judicially determined.
Except as otherwise provided in Section 5.02 of the Plan, the Trustee
shall determine the fair market value of the Trust Assets at such times as may
be required to carry out the provisions of the Plan but shall do so at least
annually.
All records and accounts maintained by the Trustee with respect to the
Trust shall be preserved for such period as may be required under any applicable
law. Upon the expiration of any such required retention period, the Trustee
shall have the right to destroy such records and accounts after first notifying
the Company in writing of such intention and transferring to the Company any
such records and accounts requested. The Trustee shall have the right to
preserve all records and accounts in original form, or on microfilm, magnetic
tape, or any other similar process.
SECTION XII. The Trustee shall make distributions from the Trust, at
-----------
such times and in such amounts of Company Stock and/or cash, to the person
entitled thereto under the Plan, as the Committee directs in writing. Any
undistributed portion of a Participant's Company Stock and/or Other Investment
Accounts under the Plan shall be retained in the Trust until the Committee
directs its distribution. If distribution is directed in Company Stock, the
Trustee or the Committee shall cause the Company to issue an appropriate stock
certificate to the person entitled thereto, to be delivered to such person by
the Committee; provided that the Trustee and the Company shall comply with the
provisions of Section 5.04 of the Plan relating to the repurchase of Company
Stock by the Trust or by the Company. Any cash distribution shall be made by
the Trustee furnishing its check to the Committee for delivery to the
Participant (or Beneficiary).
SECTION XIII. The Trustee may resign at any time upon thirty (30)
------------
days' notice in writing to the Company. Any Trustee may be removed by the
Company at any time upon proper appointment by the Company of an appropriate
successor trustee. Upon such resignation or removal of a Trustee, the Company
shall appoint a successor trustee or trustees, who shall have all the powers and
duties conferred upon the original Trustee hereunder and, upon acceptance of
such appointment by the successor trustee or trustees, the Trustee shall assign,
transfer, pay over and deliver to such successor trustee or trustees the total
funds and properties then constituting the Trust. The Company may appoint an
additional trustee or trustees at any time, provided that such appointment shall
be made subject to acceptance by such additional trustee or trustees of the
terms and conditions of this Agreement of Trust and subject to the execution by
such additional trustee or trustees of a joinder hereto.
-8-
<PAGE>
SECTION XIV. Any action by the Company pursuant to any of the
-----------
provisions of this Agreement of Trust shall be evidenced by a resolution of the
Board of Directors of the Company certified to the Trustee over the signature of
its Secretary or Assistant Secretary under corporate seal; the Trustee shall be
fully protected in acting in accordance with such writings. All requisitions,
orders, requests, and instructions of the Committee to the Trustee shall be in
writing and signed by the Committee and the Trustee shall be fully protected in
acting in accordance with such requisitions, orders, requests and instructions.
The Company shall at all times keep the Trustee advised of the names and
specimen signatures of all members of the Committee and the individuals
authorized to sign on behalf of the Committee.
SECTION XV. In the event of the termination of the Plan as provided
----------
herein, the Trustee shall make distribution of the Trust Assets in accordance
with the written instructions of the Company; provided such instructions are
consistent with the terms of the Plan and any applicable provisions of ERISA;
provided further that no such distribution shall be required to be made by the
Trustee prior to the time the Company receives a favorable written determination
from the Internal Revenue Service with respect to the qualified status of the
Plan, as terminated, under section 401(a) of the Code and the tax-exempt status
of the Trust under section 501(a) of the Code, or the Company agrees, in an
agreement acceptable to the Trustee, to indemnify the Trustee for any liability
it may incur, whether for taxes or otherwise, by reason of such distribution
constituting a violation of ERISA or the qualification requirements of the Code.
SECTION XVI. Subject to Section XXII (g) hereof, the Company may at
-----------
any time amend, modify, revise, change or discontinue this Agreement of Trust;
provided, however, that, subject to the provisions of Sections II and III of
this Agreement of Trust, no part of the corpus of, or the income from, the Trust
shall be recovered by the Company or be used for or diverted to purposes other
than for the exclusive benefit of the Participants under the Plan and their
beneficiaries and for the proper charges and expenses of the Plan and the Trust.
Any such action may be retroactive in effect if necessary to permit the Plan or
this Agreement of Trust to meet the requirements of the Code, or the
corresponding provisions of any subsequent revenue law, or to permit the Plan or
the Agreement of Trust to meet the requirements of ERISA.
SECTION XVII. The income and principal of the Trust are for the sole
------------
use and benefit of the Participants under the Plan and their beneficiaries and,
to the extent permitted by law, shall be free, clear and discharged of and from,
and are not to be in any way liable for, debts, contracts or agreements now
contracted or which may hereafter be contracted, and from all claims and
liabilities now or hereafter incurred by any Participant or his beneficiary. No
participant under the Plan or
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<PAGE>
his beneficiary shall have the right to commute, withdraw, surrender, encumber,
alienate or assign any of the income or principal of the Trust or any of the
benefits to become due under this Agreement of Trust or the Plan except as
specifically provided by the terms of this Agreement of Trust or the Plan.
SECTION XVIII. In any application to the courts for any
-------------
interpretation of this Agreement of Trust or for an accounting by the Trustee,
only the Trustee and the Company shall be necessary parties; and, unless
otherwise ordered by the court entertaining jurisdiction thereover, no
Participant under the Plan shall be entitled to any notice or service of
process. Any final judgment entered in such an action or proceeding shall be
conclusive upon all persons claiming under this Agreement of Trust.
SECTION XIX. The Trustee may combine and commingle all contributions
-----------
received from the Company with respect to the Plan, but the Trustee shall
maintain sufficient records for the purpose of making proper determinations and
distributions of vested interests of Participants hereunder. The interest of
any Participant in the Trust shall be as provided in the Plan and as shown upon
the books of the Committee.
SECTION XX. Any corporation or other entity into which the Company
----------
may be merged or with which it may be consolidated, or any corporation or other
entity succeeding to all or a substantial part of the business of the Company
may become a Company hereunder if it elects to assume or continue the Plan and
this Agreement of Trust and files a notice in writing to that effect with the
Trustee. In the event that the Company authorizes and directs that the assets
of another plan be merged into, consolidated with or transferred to this Trust,
the Trustee shall take no action with regard to such merger, consolidation or
transfer until it has been notified in writing by the Committee that each
participant or beneficiary covered under the plan the assets of which are to be
merged, consolidated or transferred would (if the plan had then terminated)
receive a benefit immediately after such merger, consolidation of transfer which
is no less than the benefit he would have been entitled to receive immediately
before such merger, consolidation or transfer (if the plan had then terminated).
SECTION XXI. Except as provided in ERISA, neither the Company, the
-----------
Committee, nor the Trustee shall be liable to any person whatsoever under the
provisions of this Agreement of Trust or the Plan beyond the assets of the
Trust. Nothing in this Agreement of Trust or in the Plan nor anything done in
pursuance of this Agreement of Trust or the Plan shall be held or construed to
give any Participant, or his beneficiaries, spouse, heirs at law or estate,
rights to any benefits under this Agreement of
-10-
<PAGE>
Trust or under the Plan except as specifically provided herein and in the Plan,
or to create a contract or liability against the Company.
SECTION XXII. (a) The Company hereby agrees to discharge, indemnify
------------
and hold the Trustee and its shareholders, directors, officers, employees,
representatives and agents (hereinafter collectively referred to as the
"Indemnitees") harmless from and against (i) any and all costs and expenses
incurred by any Indemnitee in the enforcement of the provisions of this Section
XXII including but not limited to attorneys' fees and court costs, except where
it has been determined that the Indemnitee has been guilty of willful misconduct
or gross negligence and (ii) except for any of the following that may result
from the willful misconduct or gross negligence of any Indemnitee any and all
past, present or future claims, demands, damages, liabilities, losses, and
expenses (including but not limited to, attorneys' fees, court costs,
judgments, fines, and excise taxes) incurred by any one or more of the
Indemnitees in connection with actions, proceedings or suits of any kind or
nature whatsoever, whether civil, criminal, administrative or investigative,
arising from or in any way relating to actions taken, or actions not taken, by
any one or more of the Indemnitees, in connection with the Trustee serving as
the trustee of the Trust, including, but not limited to, any actions taken, or
actions not taken, pursuant to the direction or request of the Committee, or of
the Board of Directors of the Company or of the participants in the Plan. In
the event that it is ultimately determined that the Indemnitees have been
guilty of willful misconduct or gross negligence, the Trustee shall cause the
Indemnitee who received any indemnity payments to reimburse the Company for
any amounts so paid by the Company pursuant to this Section XXII.
(b) Subject to the indemnity and limitation set forth in subsection
(a) above, the Company agrees to defend against any proceeding instituted,
claims brought or actions filed against or relating to any one or more of the
Indemnitees with respect to the Plan and Trust, whether the proceedings, claims
or actions are rightfully or wrongfully instituted, brought or filed. Subject
to the indemnity and limitation set forth in subsection (a) above, if a
proceeding, claim or action should be instituted, brought or filed against one
or more of the Indemnitees with respect to the Plan or Trust, such Indemnitees
shall promptly notify the Company of the institution of the proceeding, claim or
action and afford the Company a reasonable opportunity to assume control of the
defense thereof or otherwise protect its interest with respect thereto. The
Trustee and the Indemnitees involved, as applicable, shall participate in that
defense only to the extent as specifically requested by the Company, or to the
extent necessary to protect the interests of the Trustee or the Indemnitees as
applicable because of the failure of the Company to assume and conduct that
defense in a manner reasonably
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<PAGE>
acceptable to the Trustee or acknowledge its liability to the Trustee or
Indemnitees as applicable in which case the Trustee shall have the right
notwithstanding anything in this Agreement to the contrary to retain its own
separate counsel, the reasonable fees and expenses of which counsel shall be
paid by the Company.
(c) If for any reason the foregoing indemnification is unavailable
to any of the Indemnitees or is insufficient to hold any Indemnitee harmless,
the Company shall contribute to the amount paid or payable by that Indemnitee as
a result of a claim, demand, damage, liability, loss or expense in the
proportion that is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Indemnitee on the other hand,
but also the relative fault of the Company and the Indemnitee, as well as any
relevant equitable considerations.
(d) Subject to subsection (h) below, the provisions of this Section
XXII shall be binding upon and inure to the benefit of the assigns, successors
and legal representatives of the parties hereto. Notwithstanding Section XX
hereof, the Company hereby agrees that it shall not merge or consolidate with
any other entity or corporation in a transaction after which the Company is not
the surviving entity, nor shall it sell all or a significant portion of its
stock or assets to another person, corporation, or other entity until the other
person, corporation, or other entity expressly assumes the duties and
obligations of the Company under this Section XXII.
(e) The parties agree that this Section XXII shall remain in full
force and effect notwithstanding any amendments or restatements of the Plan.
(f) The parties agree that this Section XXII shall apply from the
date upon which the Trustee became trustee of the Trust and shall remain in full
force and effect with regard to any events covered hereunder, irrespective of
whether of the Trustee is then serving as trustee of the Trust.
(g) The parties agree that in the event a court of competent
jurisdiction holds that any part of this Section XXII is invalid or
unenforceable, the remaining provisions of this Section XXII shall remain in
full force and effect as if the provisions held invalid or unenforceable were
never a part hereto.
(h) This Section XII may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
(i) The parties agree that the indemnity provided by this Section
XXII relates only to the Trustee whose name appears on the signature page
hereof, its assigns, successors and legal
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<PAGE>
representatives and the Indemnitees described above. In no event shall such
indemnity extend to any successor trustee or trustees appointed pursuant to
Section XIII without the express prior written consent of the Company.
SECTION XXIII. The Agreement of Trust hereunder shall be governed by,
-------------
and construed in accordance with, the laws of the State of Georgia except to the
extent that the laws of the State of Georgia have been specifically pre-empted
by ERISA or other federal legislation.
SECTION XXIV. As used herein, each gender shall include all other
------------
genders and the singular shall include the plural and the plural shall include
the singular in all cases where such meaning would be appropriate.
SECTION XXV. The Trustee by joining in the execution of this
-----------
Agreement of Trust hereby signifies its acceptance of this Agreement of Trust,
and agrees to hold the Trust Assets in trust, subject to all the terms and
conditions of the Plan and this Agreement of Trust.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee have caused the due
execution hereof the day and year first above written.
Attest: SIMMONS COMPANY
/s/ By /s/
- ---------------------------- --------------------------------
Secretary President
(Corporate Seal)
Attest: TRUSTEE:
CITIZENS AND SOUTHERN TRUST
COMPANY (GEORGIA), N.A.,
solely as Trustee
By /s/ Ernest F. Ritter, Jr.
- ---------------------------- --------------------------------
Title: Title: Vice President
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<PAGE>
***PLEASE DO NOT TAKE OUT THIS PAGE BREAK***
-15-
<PAGE>
AMENDMENT AGREEMENT
AGREEMENT by and between Simmons Company, a Delaware corporation
("Simmons"), and Citizens and Southern Trust Company (Georgia), N.A., a
banking corporation, individually and as trustee of the Simmons Company
Employee Stock Ownership Plan (the "Trustee"), dated as of March 11, 1991.
WHEREAS, Simmons and the Trustee are parties to an Agreement of Trust
dated January 17, 1989 (the "Trust Agreement"), and
WHEREAS, Simmons and the Trustee now wish to amend the Trust Agreement.
NOW, THEREFORE, FOR DUE AND VALUABLE CONSIDERATION THE RECEIPT OF WHICH
IS HEREBY ACKNOWLEDGED IT IS AGREED:
1. Section XXII of the Trust Agreement is amended so that it reads in
its entirety as follows:
SECTION XXII. (a) The Company hereby agrees to discharge,
------------
indemnify and hold the Trustee and its shareholders, directors,
officers, employees, representatives and agents (hereinafter from time
to time referred to individually as an "Indemnitee" and collectively
as the "Indemnitees") harmless from and against (i) any and all
<PAGE>
costs and expenses ("Expenses") incurred by any Indemnitee in the
enforcement of the provisions of this Section XXII including but not
limited to attorneys' fees and court costs, except where it has been
determined that the Indemnitee has been guilty of willful misconduct or
gross negligence; provided, however, that such Expenses, together with all
-----------------
Defense Costs (as defined below), shall not exceed Two Million ($2,000,000)
Dollars in the aggregate if they were incurred enforcing these provisions
in connection with a claim for indemnification by an Indemnitee, directly
or indirectly arising out of or in connection with, the establishment or
institution of the Plan or Trust, the purchase of Company Stock by the
Trust, the extension of credit by the Company to the Trust or any other
transaction related thereto, including, without limitation, the Trustee's
execution of the Release, Covenant Not to Sue and Amendment Agreement,
dated as of March 11, 1991, executed by Citizens and Southern Trust Company
(Georgia), N.A., both in its individual capacity and as trustee for the
benefit of the individuals named at the end thereof and Simmons
(collectively, the "ESOP Transaction"), or any action taken, or omitted to
be taken, by the Trustee, the Company, the Plan, the Trust or any other
person with respect to the ESOP Transaction; and (ii) except for any of the
following that may result from the willful misconduct or gross negligence
- 2 -
<PAGE>
of any Indemnitee, any and all past, present or future claims, demands,
damages, liabilities, losses (collectively, "Losses"), and expenses
(including but not limited to, attorneys' fees, court costs, judgements,
fines, and excise taxes) (such expenses being "Defense Costs") incurred by
any one or more of the Indemnitees in connection with actions, proceedings
or suits of any kind or nature whatsoever, whether civil, criminal,
administrative or investigative, arising from or in any way relating to
actions taken, or actions not taken, by any one or more of the Indemnitees,
in connection with the Trustee serving as trustee of the Trust, including
but not limited to any actions taken or actions not taken by the Trustee
serving as trustee under the Trust pursuant to the direction or request of
the Committee, or of the Board of Directors of the Company or of the
participants in the Plan; provided, however, that all Defense
-------- -------
Costs, together with all Expenses, shall not exceed Two Million
($2,000,000) Dollars in the aggregate if they were incurred, directly or
indirectly in connection with any Losses arising out of the ESOP
Transaction, or any action taken, or omitted to be taken, by the Trustee,
the Company, the Plan, the Trust or any other person with respect to the
ESOP Transaction and provided, further, that the Company's obligation to
-------- -------
discharge, indemnify and hold the Indemnitees harmless
- 3 -
<PAGE>
pursuant to this Section XXII shall not exceed Ten Million ($10,000,000)
Dollars with respect to Losses arising out of, or in connection with, the
ESOP Transaction or any action taken, or omitted to be taken, by the
Trustee, the Company, the Plan, the Trust or any other person with
respect to the ESOP Transaction ("ESOP Losses") and an Indemnitee
shall only be entitled to such indemnification to the extent
that the Indemnitee's ESOP Losses have resulted in a payment by the Plan
or the Trust to the Company as a reduction of the Trust's indebtedness to
the Company. In the event that it is ultimately determined that the
Indemnitee has been guilty of willful misconduct or gross negligence, the
Trustee shall cause the Indemnitee who received any indemnity payments to
reimburse the Company for any amounts so paid by the Company pursuant to
this Section XXII.
(b) Subject to the indemnity and limitation set forth in subsection (a)
above, the Company agrees to defend against any proceeding instituted,
claims brought or actions filed against or relating to any one or more of
the Indemnitees with respect to the Plan and Trust, whether the
proceedings, claims or actions are rightfully or wrongfully instituted,
brought or filed. Subject to the indemnity and limitation set forth in
subsection (a) above, if a proceeding, claim or action
- 4 -
<PAGE>
should be instituted, brought or filed against one or more of the
Indemnitees with respect to the Plan or Trust, such Indemnities shall
promptly notify the Company of the institution of the proceeding, claim or
action and afford the Company a reasonable opportunity to assume control of
the defense thereof or otherwise protect its interest with respect thereto.
The Indemnitees involved, as applicable, shall participate in that defense
only to the extent as specifically requested by the Company, or to the
extent necessary to protect the interests of the Indemnitees because of the
failure of the Company to assume and conduct that defense in a manner
reasonably acceptable to the Indemnitees or acknowledge its liability to
the Indemnitees in which case the Indemnitees shall have the right
notwithstanding anything in this Agreement to the contrary to retain
their own separate counsel, the reasonable fees and expenses of which
counsel shall be paid by the Company, subject to the limitations of
subsection (a) hereof. Notwithstanding the foregoing provisions of this
subsection (b), in the case of any claims brought or actions filed with
respect to the ESOP Transaction subject to indemnification hereunder,
both the Company and the Indemnitees shall have the right to participate
fully through counsel of their own choosing in the defense of any such
proceeding, claim or action, including, without limitation, the
preparation and
<PAGE>
prosecution thereof, and the Company and the Indemnitees shall each use
their reasonable best efforts to cooperate with each other and to keep the
other fully informed as to all developments, formal or otherwise, with
respect thereto. Without limiting the foregoing, the Company shall have the
right relating to the ESOP Transaction, or any action taken, or omitted to
be taken, by the Trustee, the Company, the Plan, the Trust or any other
person with respect to the ESOP transaction, to compromise or settle any
such proceeding, claim or action subject to indemnity hereunder if (x) the
compromise or settlement results in liability to Trustee of less than $20
million, and (y) the Company has first agreed in writing that it shall not
challenge the provisions of this Section XXII. In the event that either (x)
or (y) above is not satisfied, the Company shall have no power
to compromise a proceeding, claim or action that would result
in a payment by an Indemnitee; provided, however, that
-------- -------
the Company shall not have the right to compromise or settle a
proceeding, claim or action relating to the ESOP Transaction, or any
action taken, or omitted to be taken, by the Trustee, the Company, the
Plan, the Trust or any other person with respect to the ESOP Transaction,
if the Trustee objects in writing and if such compromise or settlement
would result in a payment by an Indemnitee or Indemnitees of more than $10
million but less than $20 million, in
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<PAGE>
which case if the Indemnitees object to such a compromise or settlement,
their entitlement to reimbursement hereunder for any Defense Costs or
Expenses shall not exceed One Million ($1,000,000) Dollars, whether
incurred before or after the date of their objection. No Indemnitee shall
compromise or settle any proceeding, claim or action unless (i) such
compromise or settlement includes as an unconditional term thereof the
giving of a complete and unconditional release from liability with
respect to such claim, action or suit to the Company, (ii) no injunction,
declaratory, judgment, other order or other nonmonetary relief is to be
entered, directly or indirectly, against the Company, as a result thereof,
and (iii) no lien, claim, charge, security or other encumbrance or
restriction of any kind upon any asset of the Company, Buyer (as defined
below) or any of their affiliates will be created or exist as a direct or
indirect result thereof.
(c) Other than with respect to ESOP Losses, if for any reason the
foregoing indemnification is unavailable to any of the Indemnitees or is
insufficient to hold any Indemnitee harmless, the Company shall contribute
to the amount paid or payable by the Indemnitee as a result of a claim,
demand, damage, liability, loss or expense in the proportion that is
appropriate to reflect not only the relative benefits received by the
Company on the one
- 7 -
<PAGE>
hand and the Indemnitee on the other hand, but also the relative fault of
the Company and the Indemnitee, as well as any relevant equitable
considerations.
(d) Subject to subsection (h) below, the provisions of this Section
XXII shall be binding upon and inure to the benefit of the assigns,
successors and legal representatives of the parties hereto. Notwithstanding
Section XX hereof, the Company hereby covenants that it shall not merge or
consolidate with any other entity or corporation in a transaction after
which the Company is not the surviving entity, nor shall it sell all or a
significant portion of its stock or assets to another person, corporation,
or other entity until the other person, corporation, or other entity
expressly assumes the duties and obligations of the Company under this
Section XXII; provided, however, the preceding covenant shall not apply to
-------- -------
the sale of stock to Merrill Lynch Capital Appreciation Partnership No. B-
XI, L.P., a Delaware limited partnership, ML Offshore LBO Partnership No.
B-XI, a Cayman Islands limited partnership, Merrill Lynch Interfunding,
Inc., a Delaware corporation, and MLCP Associates L.P. No. II, a Delaware
limited partnership (collectively, "Buyer") contemplated by the Stock
Purchase Agreement between Buyer, the Company, the Junior Security Holders
(as defined
- 8 -
<PAGE>
therein) and the holder of all the outstanding Management Notes (as
defined herein), dated as of March 11, 1991 (the "Stock Purchase
Agreement").
(e) The parties agree that this Section XXII shall remain in full force
and effect notwithstanding any amendments or restatements of the Plan.
(f) The parties agree that this Section XXII shall apply from the date
upon which the Trustee became trustee of the Trust and shall remain in full
force and effect with regard to any events covered hereunder, irrespective
of whether the Trustee is then serving as trustee of the Trust.
(g) The parties agree that in the event a court of competent
jurisdiction holds that any part of this Section XXII is invalid or
unenforceable, the remaining provisions of this Section XXII shall remain
in full force and effect as if the provisions held invalid or unenforceable
were never a part hereto.
(h) This Section XXII may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
- 9 -
<PAGE>
(i) The parties agrees that the indemnity provided by this Section
XXII relates only to the Trustee whose name appears on the signature
page hereof, its assigns, successors and legal representatives and the
Indemnitees described above. In no event shall such indemnity extend
to any successor trustee or trustees appointed pursuant to Section
XIII without the express prior written consent of the Company.
(j) Each party hereto agrees that the rights and remedies of the
Trustee and any Indemnitee set forth herein constitute the Trustee's
and each Indemnitee's sole claim for, or in respect of,
indemnification, contribution or reimbursement and that the Company
shall nave no further liability to the Trustee or any Indemnitee,
including, without limitation, pursuant to the letter agreement, dated
as of November 17, 1988 between the Trustee and the Company, which is
hereby terminated and superseded in all respects.
2. Each party hereto represents and warrants to the other party hereto
as follows:
(a) Such party is a corporation duly organized and validly existing
under the laws of the state of its incorporation or the laws of the United
States and has the corporate power and authority to execute and deliver
this
- 10 -
<PAGE>
Agreement and to consummate the transactions and to perform its obligations
contemplated by this Agreement.
(b) The execution and delivery by such party of this Agreement, and the
consummation of the transactions contemplated by this Agreement, have been
duly authorized by all necessary corporate action by such party. This
Agreement constitutes the legal, valid and binding obligation of such
party, enforceable in accordance with its terms.
3. (a) Neither party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement
without the express written consent of the other party to this Agreement.
This Agreement shall be binding upon and shall inure to the benefit of the
parties to this Agreement and their respective successors and permitted
assigns.
(b) No delay on the part of any party in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall
any waiver of any right, power or privilege under this Agreement operate as
a waiver of any other right, power or privilege under this Agreement, nor
shall any single or partial exercise of any right, power or privilege under
this Agreement preclude any other or further exercise thereof or the
exercise of any other right, power or privilege under this Agreement.
Nothing herein shall be deemed to be an acknowledgement by
- 11 -
<PAGE>
Simmons of the enforceability of Section XXII of the Trust Agreement.
(c) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and supersedes all
other prior agreements or understandings of the parties and relating
thereof.
(d) This Agreement may be modified or amended only by written agreement
of the parties to this Agreement.
(e) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute a
single instrument.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia applicable to contracts made and to be
performed entirely within such State.
(g) Each party hereto shall, at the written request of any other party
hereto, at any time and from time to time execute and deliver to such other
party all such further instruments and take all such further action as may
be reasonably necessary or appropriate in order more effectively to confirm
or carry out the provisions of this Agreement.
-12-
<PAGE>
6. This Agreement shall become effective upon the Closing (as such term
is defined in the Stock Purchase Agreement, a copy of which is attached
hereto).
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
SIMMONS COMPANY
By: /s/ R. G. Magnussen
---------------------------
CITIZENS AND SOUTHERN
TRUST COMPANY (GEORGIA), N.A.,
INDIVIDUALLY AND AS TRUSTEE
By: /s/ T. Stuart Gartner
---------------------------
V.P.
Exhibit 10.5
Second Amendment
To
Simmons Company Employee Stock Ownership Amended and Restated
Plan
(As Amended and Restated Effective January 17, 1989)
WHEREAS, Section 12.01 of the Simmons Company Employee Stock Ownership Plan,
as amended and restated effective January 17, 1989 (the "Amended and Restated
Plan") reserves to Simmons Company (the "Company") the right to amend the Plan
in whole or in part by action of the Board of Directors; and
WHEREAS, Section 12.01 of the Amended and Restated Plan further provides
that no amendment shall be made that deprives any participant of any benefit to
which such participant has a nonforfeitable right under Section 6.06 or Article
IX of the Amended and Restated Plan, and provided further, or that makes it
possible for any part of the Trust Assets or its income to be used for, diverted
to, purposes other than for the exclusive benefit of the participants; and
WHEREAS, in connection with certain proposed transactions contemplated by
the terms of that certain Stock Purchase Agreement by and among NationsBank,
N.A. (South) as trustee (the "Trustee") of the Simmons Company Employee Stock
Ownership Trust (the "Trust"), Simmons Company, Merrill Lynch Capital
Appreciation Partnership No. B-XI, L.P., MLCP Associates L.P. No. II, ML IBK
Positions Inc., ML Offshore LBO Partnership No. B-XI, Merrill Lynch KECALP L.P.
1987, Merrill Lynch KECALP L.P. 1989, Merchant Banking L.P. No. IV, certain
other stockholders of Simmons Company, Simmons Holdings, Inc. and Simmons
Acquisition Corp., dated February 21, 1996 ("Acquisition Agreement"), it is
deemed desirable to amend the Amended and Restated Plan in certain respects as
set forth herein; and
WHEREAS, by execution of this Second Amendment to the Amended and Restated
Plan, each of the Company, the Trustee, and the Committee established pursuant
to Section 11.06 of the Amended and Restated Plan evidences its determination
that no provision of this amendment either deprives any plan participant of any
benefit to which such participant has a nonforfeitable right under Section 6.06
or Article IX of the Amended and Restated Plan, or makes it possible for any
part of the Trust assets or its income to be used for or diverted to, purposes
other than for the exclusive benefit of the participants;
NOW THEREFORE, the Amended and Restated Plan be and hereby is amended as
follows, effective as of the Closing Date (as such term is defined in the
Acquisition Agreement):
1. Section 1.01 is amended to read in its entirety as follows:
<PAGE>
1.01 This Plan was originally adopted by Simmons Company (the
"Company") effective January 31, 1988 and was subsequently amended and
restated in its entirety effective as of January 17, 1989. The Amended and
Restated Plan was subsequently amended effective January 17, 1989. The
purpose of this Second Amendment of the Amended and Restated Plan is to
provide for the allocation of the proceeds of the sale of Company Stock
pursuant to the Acquisition Agreement (as hereinafter defined) to the
accounts of ESOP Participants and to provide for the investment thereof.
This restatement is effective as of the Closing Date (as such term is
defined in that certain Stock Purchase Agreement by and among NationsBank,
N.A. (South), as Trustee of the Simmons Company Employee Stock Ownership
Trust, Simmons Company, Merrill Lynch Capital Appreciation Partnership No.
B-XI, L.P., MLCP Associates L.P. No. II, ML IBK Positions Inc., ML Offshore
LBO Partnership No. B-XI, Merrill Lynch KECALP L.P. 1987, Merrill Lynch
KECALP L.P. 1989, Merchant Banking L.P. No. IV, certain other stockholders
of Simmons Company, Simmons Holdings, Inc. and Simmons Acquisition Corp.,
dated February 21, 1996 (the "Acquisition Agreement") and contingent upon
the occurrence of Closing (as defined therein), provided, however, that
certain provisions of this Amended and Restated Plan may have different
effective dates as specifically set forth in the terms of the amendment
affecting such provision.
2. Section 1.02 is amended to read in its entirety as follows:
1.02 The purpose of this Plan is to enable participating Employees to
share in the growth and prosperity of the Company and to provide
participating Employees with an opportunity to accumulate capital for their
future economic security. The Plan is intended to do this without requiring
any contributions from participating Employees. As provided in Treas. Reg.
Section 54.4975-11(a)(5), this Plan shall consist of two components. The
first component of the Plan (the "Profit Sharing Component") shall consist
of a profit sharing plan as defined in Treasury Regulation Section 1.401-
(b)(1)(ii). The Profit Sharing Component shall reflect the value of Plan
assets attributable to the sale of Company Stock allocated to Participants'
Accounts as of the Closing Date (as such term is defined in the Acquisition
Agreement), as provided in Section 6.07. The second component of the Plan
(the "ESOP Component") shall consist of a stock bonus plan as defined in
Treasury Regulation Section 1.401-1(b)(1)(iii) which also is intended to
qualify as an employee stock ownership plan as defined in Section
4975(e)(7) of the Code. Except as provided in Sections 5.05 and 6.06,
Employer Contributions to the ESOP component of the Plan will be invested
primarily in Company Stock, to the extent that such stock is available
2
<PAGE>
on terms which, in the Plan Committee's judgment, constitute a prudent
investment of Trust Assets.
3. Section 2.44 is amended to read in its entirety as follows:
2.44 Total Distribution. A distribution to a Participant or
--------------------
Beneficiary, within a single taxable year of such recipient, of the entire
balance credited to the Participant's Accounts under the ESOP Component of
the Plan.
4. Section 5.04(a) is amended to read in its entirety as follows:
(a) The initial purchase of all or substantially all of the outstanding
shares of Employer Securities using the proceeds of a Loan, shall be
effected by the Trustee without direction from the Committee and pursuant
to the Trustee's determination (in the exercise of its reasonable judgment)
that such transaction is in the best interest of Participants and is in
compliance with all applicable provisions of ERISA. Any such Loan shall
meet all requirements necessary to constitute an "exempt loan" within the
meaning of Treasury Regulation Section 54.4975-7(b)(1)(iii) and shall be
used primarily for the benefit of the Participants (and their
Beneficiaries). The proceeds of any such Loan shall be used, within a
reasonable time after the Loan is obtained, only to purchase Employer
Securities, repay the Loan, or repay any prior Loan. Any such Loan shall
provide for no more than a reasonable rate of interest, as determined under
Treasury Regulation Section 54.4975-7(b)(7), and must be without recourse
against the Plan. The number of years to maturity under the Loan must be
definitely ascertainable at all times. In the event of a default on any-
such Loan, the value of Plan assets transferred in satisfaction of the Loan
must not exceed the amount of the default. If the Loan is obtained from a
disqualified person, such Loan must provide that Plan assets may be
transferred upon default only upon and to the extent of the failure of the
Plan to make payment on the Loan when due.
All Employer Securities purchased with the proceeds of a Loan shall be
held in a suspense account (a "Suspense Account"). The only assets of the
Plan that may be given as collateral for a Loan are shares of Employer
Securities acquired with the proceeds of the Loan and shares of Employer
Securities that were used as collateral on a prior Loan repaid with the
proceeds of the current Loan. No person entitled to payment under a Loan
shall have recourse against Trust Assets other than such collateral,
Employer Contributions in cash that are available under the Plan to meet
obligations under a Loan, and earnings attributable (including dividends
paid on Company Stock) to such
3
<PAGE>
collateral and the investment of such Employer Contributions. All Employer
Contributions paid during the Plan Year in which a Loan is made (whether
before or after the date the proceeds of the Loan are received), all
Employer Contributions paid thereafter until the Loan has been repaid in
full, and all earnings from investment of such Employer Contributions,
without regard to whether any such Employer Contributions and earnings have
been allocated to Participants' Other Investments Accounts, shall be
available to meet obligations under a Loan, unless otherwise provided by
the Employer at the time any such Employer Contribution is made, provided
that no amount allocated to Participants' Other Investments Settlement
Accounts (as described in Section 6.06) and no amount allocated to
Participants' Profit Sharing Accounts (as described in Section 6.07) shall
be available to meet obligations under a Loan. In accordance with
applicable law and regulations, the Trustee and the Company may agree in
writing to a reduction or elimination of the outstanding principal,
interest and/or other amounts owed under or with respect to any Loan from
the Company to the Trust. Any such action shall not constitute or result in
an Employer Contribution or Annual Addition.
Except as hereinafter provided in subsection (b), Employer Securities
held in a Suspense Account under this Section 5.04, including any Employer
Securities pledged as collateral for a Loan, must be released from the
Suspense Account and from any such pledge, as provided in this subsection
(a). For each Plan Year during the duration of the Loan, the number of
shares of Employer Securities released from the Suspense Account, and from
any pledge as collateral for a Loan, shall be determined by multiplying the
number of shares of Employer Securities held in the Suspense Account
immediately prior to the release for the current Plan Year by a fraction,
the numerator of which shall be the amount of principal and interest paid
on the Loan for the Plan Year and the denominator of which is the sum of
the numerator plus the principal and interest to be paid on the Loan for
all future years, or by any other method permitted by the Code or
regulations promulgated thereunder. The number of future years under a Loan
shall be determined without taking into account any possible extension or
renewal periods. In the event the interest rate under a Loan is variable,
the interest to be paid in future years must be computed by using the
interest rate applicable as of the end of the Plan Year. If the Employer
Securities held in the Suspense Account include more than one class of
Employer Securities, the number of shares of each class to be released for
a Plan Year must be determined by applying the same fraction to each class.
In addition to the foregoing, Employer Securities may be released from
pledge (but not from a Suspense Account) upon the mutual written agreement
of the Trustee and the pledgee.
4
<PAGE>
The Committee may, in its discretion, but with the consent of the
Trustee, elect, in lieu of the provision in the preceding paragraph
providing for the release of Employer Securities from the Suspense Account
on the basis of principal and interest paid during the Plan Year, to
release the shares of Employer Securities from the Suspense Account solely
with reference to the principal payments made during the Plan Year. If the
Committee elects to apply this principal-only method of determining the
number of Employer Securities to be released, such method shall be applied
throughout the period of the Loan and shall be applied in accordance with
the requirements imposed by Treasury Regulation Section 54.4975-7(b)(8),
including the following three rules:
(i) The Loan must provide for annual payments of principal and
interest at a cumulative rate that is not less rapid at any time than
level annual payments of such amounts for ten (10) years;
(ii) The interest included in any payment shall be disregarded
only to the extent it would be determined to be interest under
standard loan amortization tables; and
(iii) The alternative, principal-only method of release shall not
be applicable after the time at which, by reason of a renewal,
extension or refinancing of the Loan, the sum of the already expired
duration of the Loan, any extension or renewal period, and the
duration of the new Loan, exceeds ten (10) years.
5. Section 5.04(c) is amended to read in its entirety as follows:
(c) Repayment of principal and payment of interest on a Loan during a
Plan Year shall be made by the Trustee (as directed by the Committee) only
from (i) Employer Contributions, and earnings from such Employer
Contributions, made to the Trust to meet the Plan's obligation under a
Loan; (ii) any earnings attributable to Employer Securities (including, but
not limited to, cash dividends declared and paid with respect to Employer
Securities but excluding any dividends simultaneously paid with respect to
other classes of the Company's Stock) whether allocated or unallocated to
Participants' Accounts; and (iii) from the proceeds of a sale of
unallocated shares of Employer Securities held in a suspense account,
solely to the extent provided in an agreement for the pledge of such shares
in the case of a current and continuing Event of Default, as defined
therein. To the extent that there is no continuing Event of Default under
such agreement, the proceeds of such sale shall not be used to repay
principal or interest on a Loan. Such Employer Contributions and
5
<PAGE>
earnings must be accounted for separately by the Plan until a Loan is
repaid.
Employer Securities released from the Suspense Account by reason of the
payment of principal or interest on a Loan from amounts previously
allocated to Participants' Other Investments Accounts (but not Other
Investments Settlement Accounts or Participants' Profit Sharing Accounts)
shall, subject to the restriction in Section 6.01(b) concerning Eligible
Employees who have made an election under Section 1042 of the Code with
respect to the sale of the Employer Securities to the Trust, be credited
pro rata to such Participants' Company Stock Accounts at the time
corresponding reductions are made in the balances credited to the
Participants' Other Investments Accounts.
6. Section 5.04(f) is amended to read in its entirety as follows:
(f) Put Option. If shares of Employer Securities acquired with the
------------
proceeds of a Loan by the Trust are, at the time distributed, not publicly
traded within the meaning of Treasury Regulation Section 54.4975-
7(b)(1)(iv) or, if publicly traded, are subject to a "trading limitation,"
such shares shall be subject to a "put" option at the time of distribution,
whether such distribution constitutes a Total Distribution or one of a
series of periodic installments. (For purposes of this paragraph, a
"trading limitation" on a security is a restriction under any federal or
state securities law, any regulation thereunder, or an agreement affecting
the security which would make the security not as freely tradable as a
security not subject to such restriction.) The "put" option shall be
exercisable by the Participant or the Participant's Beneficiary, by the
donees of either, or by a person (including an estate or its distributee)
to whom the Employer Securities pass by reason of the Participant's or
Beneficiary's death. The "put" option shall provide that, for a period of
at least sixty (60) consecutive days immediately following the date the
shares are distributed to the holder of the "put" option and for another
sixty (60) consecutive day period during the Plan Year next following the
Plan Year in which the shares were distributed, the holder of the option
shall have the right to cause the Company, by notifying it in writing of
the holder's election to exercise the option, to purchase such shares at
their fair market value, as determined by the Committee, but subject to the
last sentence of this Section 5.04(f). The Company may, in its discretion,
cause an Affiliated Company designated by the Company for such purpose to
assume the Company's obligations to purchase Employer Securities pursuant
to any such "put" option. The Trustee may, in its discretion and with the
consent of the Company, cause the Trust to assume the rights and
obligations of the Company at the time the "put" option is
6
<PAGE>
exercised, insofar as the repurchase of Employer Securities is concerned.
The period during which the "put" option is exercisable shall not include
any period during which the holder is unable to exercise such "put" option
because the Company or an Affiliated Company designated by the Company to
assume its obligations is prohibited from honoring it by federal or state
law. The terms of payment for the purchase of such shares of Employer
Securities shall be as set forth in the "put" option. Such "put"option
shall provide that if a Participant or Beneficiary exercises the "put"
option, the Company, the Affiliated Company or the Trust, if the Trust so
elects, shall repurchase the Employer Securities as follows:
(i) If the shares of Employer Securities distributed are part of a
Total Distribution, payment of the fair market value of these Employer
Securities (as of the most recent Valuation Date) shall be made in
substantially equal installments (made not less frequently than annually)
over a period not longer than five (5) years. The first such installment
shall be paid no later than thirty (30) days after the date of exercise of
the "put" option. The unpaid installments shall bear a reasonable rate of
interest, and shall be adequately secured by the Company, Affiliated
Company or Trust.
(ii) If the shares of Employer Securities distributed are part of an
installment distribution of a Participant's Capital Accumulation, the fair
market value of the Employer Securities (as of the most recent Valuation
Date) shall be paid to the Participant (or Beneficiary) within thirty (30)
days of the exercise of the "put" option.
The "put" option provided for by this Section 5.04(f) (including the provisions
of the last sentence of this Section 5.04(f)) shall continue to apply to shares
of Employer Securities purchased by the Trustee with the proceeds of a Loan, as
described herein, notwithstanding repayment of all Loans or any amendment to or
termination of this Plan that causes the Plan to cease to be a leveraged
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code. For purposes of the "put" option provided herein, fair market value shall,
in the case of a share of the Company's Series A Preferred Stock which was
allocated to the Participant's Company Stock Account by reason of release from
the Suspense Account described in this Section 5.04 and which is subject to such
"put" option, not be less than the "Redemption Price" at the time such "put" is
exercised, as such term is defined in the Amended and Restated Certificate of
Incorporation of the Company.
7
<PAGE>
7. Section 6.01(a) is amended to read in its entirety as follows:
(a) Separate Company Stock Accounts and Other Investments Accounts,
together with Diversified Accounts for Qualified Participants making
elections pursuant to Section 5.05 (which Accounts, collectively, shall
comprise the ESOP Portion of the Plan), and Profit Sharing Accounts (which
Profit Sharing Accounts shall comprise the Profit Sharing Portion of the
Plan) shall be established to reflect each Participant's interest under the
Plan. Records shall be kept by the Plan Administrator from which can be
determined the portion of each Other Investments Account which at any time
is available to meet Loan obligations and the portion which is not so
available, as determined pursuant to Section 5.04.
8. A new Section 6.07 is added to read in its entirety as follows:
6.07 Profit Sharing Account.
-----------------------
(a) Background. Pursuant to the terms of that certain Acquisition
------------
Agreement described in Section 1.01 hereof, Employer Securities allocated
to the Accounts of Participants as of the Closing Date (as such term is
defined in such Acquisition Agreement) were sold and the Plan received a
single lump sum cash payment in consideration for such sale ("Cash
Consideration"). As described in this Section 6.07, such Cash Consideration
shall be allocated among the Profit Sharing Accounts of those Participants
in the Plan whose Accounts under this Plan as of such Closing Date held
Employer Securities which were sold and thereby became entitled to receive
an allocable share of the Cash Consideration. Such Participants are
referred to herein as "Selling Participants." The purpose of this Section
6.07 is to provide special rules regarding the allocation of the Cash
Consideration, as well as certain vesting, investment direction, and
distribution rules applicable to the Cash Consideration after allocation to
Selling Participants.
(b) Allocation of Cash Consideration. The Cash Consideration shall be
----------------------------------
allocated among the Selling Participants in proportion to their relative
Company Stock Account balances as of the Closing Date. Each Selling
Participant's share of the Cash Consideration shall be determined by
multiplying the aggregate amount to be allocated by a fraction, the
numerator of which is the balance of each such Selling Participant's
Company Stock Account in the Plan as of the Closing Date and the
denominator of which is the aggregate balances of all Selling Participants'
Company Stock Accounts as of the Closing Date. Each Selling Participant
shall receive an allocation of the Cash Consideration in accordance with
this
8
<PAGE>
subsection (b) notwithstanding the termination of his employment prior to the
date of such allocation. The Cash Consideration which is allocated to the
Selling Participants shall be held in a newly created account under the Profit
Sharing Component of the Plan, and which shall be referred to in this Plan as
the "Profit Sharing Account". All funds and assets held in the Profit Sharing
Account shall be subject to the rules of this Plan which apply to the Other
Investments Account held under the ESOP Portion of the Plan except as expressly
provided otherwise in this Section 6.07. The Cash Consideration allocated to the
Profit Sharing Accounts pursuant to this subsection (b) shall not constitute or
be deemed to be an Employer Contribution or result in an Annual Addition.
(c) Prohibition on Use of Funds. Notwithstanding Section 6.01(c) or anything
-----------------------------
else to the contrary in this Plan, no funds or assets which constitute a part of
the Profit Sharing Account may be used to repurchase Company Stock or to repay
principal or interest on any Loan.
(d) Special Vesting Rule. A Participant's interest in his Profit Sharing
----------------------
Account shall be determined under the rules generally applicable under this Plan
to the determination of a Participant's vested status (excluding the provisions
of Section 6.06).
(e) Investment Direction by Participants.
-------------------------------------
(1) Notwithstanding anything to the contrary in this Plan, each Selling
Participant shall direct how the cash allocated to his Profit Sharing
Account shall be invested, pursuant to the rules set forth in this Section
6.07(e). The investment funds which are made available to Selling
Participants and the manner of selecting those funds as described in this
Section 6.07(e) are intended to meet the requirements of Section 404(c) of
ERISA and regulations thereunder, and this Section shall be so interpreted.
(2) The Committee shall select three or more mutual funds, individually
managed investment funds, or collective or commingled investment funds
(which may include collective or commingled investment funds made available
by the Trustee) to serve as investment vehicles for the cash allocated to
the Profit Sharing Account. The Committee shall provide information
regarding such investment funds to Selling Participants, and may change,
add, or delete investment funds from time to time, provided that the
reconstituted investment funds are intended by the Committee in good faith
to meet the requirements of Section 404(c) of ERISA.
9
<PAGE>
(3) Each Selling Participant shall direct on a form provided by the
Committee to have the cash held in or received by his Profit Sharing
Account allocated among the investment funds made available by the
Committee. Such investment election shall be made in increments of five
percent (5%) of the balance of his Profit Sharing Account. A Selling
Participant's initial investment election shall allocate all of the cash
held in his Profit Sharing Account among the investment funds and all
subsequent allocations of cash to the Profit Sharing Account for so long as
the elections remain in effect. If a Selling Participant fails to make an
investment election, the cash held in his Profit Sharing Account shall be
invested among the investment funds as determined by the Committee.
(4) Investment elections will remain in effect until changed by a new
election. New elections may be made by a Selling Participant as frequently
as the Committee will permit, which shall be at least once each calendar
quarter. The new election will be effective as of the next January 1, April
1, July 1 or October 1 of each Plan Year or such earlier date as the
Committee may approve, provided that new elections must be received at
least 30 days prior to the desired effective date (unless the Committee
provides for a shorter notice period on a uniform basis). New elections
shall reallocate the Selling Participant's Profit Sharing Account among the
investment funds.
(5) Each of the investment funds shall be valued as of the last day of
each calendar quarter. As of the last day of each calendar quarter, the
Profit Sharing Account shall be credited or debited with its proportionate
share of net income, expense, appreciation or depreciation allocable to the
investment funds selected by the Selling Participant for the quarter. The
reasonable-incremental costs of offering and administering the investment
funds shall be charged pro rata against the Profit Sharing Accounts of all
Selling Participants.
(f) Special Distribution Rules. Notwithstanding anything to the contrary in
----------------------------
this Plan, a Selling Participant whose employment ends for any reason may elect
that all funds held in his Profit Sharing Account be distributed to such Selling
Participant as soon as practicable following the date on which his employment
ends. In the event that a Selling Participant's employment ends before
allocation of the Cash Consideration, such Selling Participant may elect, upon
termination of this employment, to have his allocable portion of such
unallocated Cash Consideration, determined pursuant to subsection (b) hereof,
distributed to him as soon as practicable after allocation (or after each
10
<PAGE>
allocation, if more than one) in a lump sum payment (or payments, if applicable)
9. Section 9.04(a) is amended to read in its entirety as follows:
9.04 Forfeitures.
------------
(a) Any portion of the final balances in a Participant's Accounts that is
not vested and does not become part of his Capital Accumulation shall become a
Forfeiture in accordance with the provisions of this Section 9.04. The amount of
any such Forfeiture shall first be deducted from the Participant's Other
Investments Accounts (exclusive of the Participant's Other Investments
Settlement Account). If Forfeiture of the Participant's Other Investments
Accounts (exclusive of the Participant's Other Investments Settlement Account)
is not sufficient to reduce the fair market value of his Capital Accumulation to
the percentage of the total value of his Accounts determined under Section 9.03,
the remainder of the Forfeiture shall be deducted from the Participant's Profit
Sharing Account. If Forfeiture of the Participant's Profit Sharing Accounts is
not sufficient to reduce the fair market value of his Capital Accumulation to
the percentage of the total value of his Accounts determined under Section 9.03,
the remainder of the Forfeiture shall be deducted from the Participant's Company
Stock Accounts. If a Participant's Company Stock Accounts include more than one
class of Company Stock, the Forfeiture shall consist of the same proportion of
each class of stock. All Forfeitures shall be reallocated to the Accounts of the
remaining Participants pursuant to Section 6.02 as of the Anniversary Date of
the Plan Year in which the Participant incurs a Break in Service or, if the
Participant receives a Total Distribution, as of the Anniversary Date of the
Plan Year in which the Total Distribution is completed.
10. Section 10.02 is amended to read in its entirety as follows:
10.02 Benefit Forms for Participants.
-------------------------------
(a) A Participant's Capital Accumulation, if in the amount of $50,000 or
less (exclusive of the Participant's Other Investments Settlement Account and
the Participant's Profit Sharing Account), shall be paid to him in the form of a
single lump sum, payable as provided in Section 10.01, unless the Participant
elects to receive payment in a series of annual installments as provided in
subsection (b) of this Section 10.02.
(b) A Participant's Capital Accumulation, if in excess of $50,000 (exclusive
of the Participant's Other Investments
11
<PAGE>
Settlement Account and the Participant's Profit Sharing Account) shall be paid
to him in a series of annual installments, payable over a period of five (5)
years (or such shorter period determined in accordance with Section 10.02(d) or
Section 10.03) commencing as provided in Section 10.01; provided, however, that
in the event of death, a Participant's Beneficiary may elect to receive payment
in a single lump sum. Each installment shall be in an amount equal in value to
(i) the number of shares of Company Stock credited to the Participant's Company
Stock Account and the balance credited to the Participant's Other Investments
Account and the balance credited to the Participant's Diversified Account, if
any, as of the most recent Valuation Date, each divided by (ii) the number of
installments which remain to be paid from the Participant's Capital Accumulation
(including the current installment being computed).
(c) To the extent permitted by applicable law, notwithstanding the
foregoing, the Company may, in its discretion, determine at any time, by formal
action of the Committee or amendment of the Plan, that all Participants' Capital
Accumulations (other than Other Investments Settlement Accounts) shall
henceforth be distributed, on a uniform, nondiscriminatory basis, in the form of
a single lump-sum payment, or, alternatively, that each Participant eligible to
receive a distribution may elect whether to receive his Capital Accumulation
(exclusive of his Other Investments Settlement Account) as a lump sum payment or
as a series of five (5) annual installments.
(d) Where a Participant's benefits are to be paid in installments, the
period for the installments must be such that, except when the Participant's
designated Beneficiary is his spouse, all benefits shall be paid over a period
not exceeding the life expectancy of the Participant or the joint life and last
survivor expectancy of the Participant and his designated Beneficiary (where the
Participant's life expectancy and, if the Participant's designated Beneficiary
is his spouse, his designated Beneficiary's life expectancy is redetermined as
of the first day of each Plan Year), and that in each year after the Participant
reaches age 70-1/2, the Participant shall receive at least the amount required
under Treasury Regulation Sections 1,401(a)(9)-1 and 1,401(a)(9)-2.
11. Section 10.03 is amended to read in its entirety as follows:
10.03 Benefits on a Participant's Death. If a Participant's employment
-----------------------------------
is ended by death, or if a Participant has any vested interest under the Plan
when his employment ends and he then dies before his benefits are fully paid,
his vested interest in his accounts shall be
12
<PAGE>
paid to his Beneficiary. The benefits will generally be payable as provided in
Sections 6.06, 6.07, 10.01 and 10.02. Installment distributions to a Beneficiary
pursuant to Section 10.02(b) shall be over a period not in excess of the
Beneficiary's life expectancy, as hereinafter provided, each installment being
equal to (i) the number of shares of Company Stock credited to the Participant's
Company Stock Account and the balance credited to the Participant's Other
Investments Account (exclusive of his Other Investments Settlement Account) and
the balance credited to the Participant's Diversified Account, if any, as of
the most recent Valuation Date, each divided by (ii) the number of installments
which remain to be paid (including the current installment being computed). Any
election shall be made by the Beneficiary not later than sixty (60) days after
benefits become payable as provided in Section 10.01(a).
In all events, all of the Participant's interest in this Plan shall be
completely distributed within five (5) years after the date of his death, except
(i) if benefits are payable to or for the benefit of a designated Beneficiary
and the benefit payments begin within one (1) year after the Participant's death
(or such later period as may be permitted by regulations), the designated
Beneficiary's benefits may be paid over a period not exceeding the designated
Beneficiary's life expectancy at the date of the Participant's death and (ii) if
the Participant's designated Beneficiary is his spouse, benefit payments need
not begin until the date the Participant would have reached age 70-1/2 and, if
the spouse dies before such payments begin, the Participant's interest in this
Plan shall then be distributed pursuant to this Section 10.03 applied as if the
spouse were the Participant. Further, for purposes of this Section any benefits
paid to a child of a Participant shall be treated as if they have been paid to
the Participant's spouse if the benefits will become payable to the spouse when
the child reaches majority (or upon such other designated event permitted by
regulations).
12. Section 10.04 is amended to read in its entirety as follows:
10.04 Distributions in Company Stock. A Participant's benefits shall be paid
--------------------------------
in cash. In connection with a distribution, the Committee shall cause the shares
of Company Stock credited to the Participant's Company Stock Account and units
in each investment fund under his Diversified Account which are to be
distributed to be converted into cash at the Company Stock's current fair market
value, with the resulting cash being paid to the Participant or his Beneficiary,
along with the portion of the Participant's Other Investments Account which is
being distributed. Notwithstanding the foregoing, a Participant or his
Beneficiary, as the case may be, shall have the right to request that the
Participant's benefits attributable to
13
<PAGE>
his Company Stock Account or his Other Investments Account be paid in the
form of Company Stock (but not his Diversified Account, if any, or,
subject to favorable determination by the Internal Revenue Service, his
Profit Sharing Account, if any), provided such a request is made within
such time period as is established by the Committee for such decision. In
that event, the Committee shall cause the portion of the Participants Other
Investments Account which is to be distributed to be converted into Company
Stock at its current fair market value, with the resulting Company Stock
being distributed to the Participant or his Beneficiary, along with the
shares of Company Stock credited to the Participant's Company Stock Account
which are being distributed, provided, that the value of any fractional
share of Company Stock shall be paid in cash. No distribution shall be made
in Series A Preferred Stock with respect to an asset other than Series A
Preferred Stock held in a Participant's account. In the case of a share of
the Company's Series A Preferred Stock which was allocated to the
Participant's Company Stock Account by reason of release from the Suspense
Account described in Section 5.04, at any time prior to the conversion of
such Series A Preferred Stock, fair market value for purposes of
distribution pursuant to this Article X shall not be less than the
"Redemption Price," as such term is defined in the Amended and Restated
Certificate of Incorporation of the Company, on the applicable Valuation
Date provided in this Article X.
13. A new Section 11.08 shall be added, which shall read in its entirety as
follows:
Notwithstanding any other provision of this Plan providing for the
Trustee to act in accordance with directions given by the Committee or by
the Company, in connection with those transactions contemplated by that
certain Acquisition Agreement (as such term is defined in Section 1.01
hereof), the Trustee hereunder shall serve in the capacity of an
independent corporate fiduciary. In such capacity the Trustee shall
evaluate the transactions proposed or contemplated by such Acquisition
Agreement, for the purpose of making such determinations as are necessary
or appropriate under such circumstances, may enter into such agreements,
including such Acquisition Agreement, on such terms and conditions as are
deemed by the Trustee to be prudent and in the interests of participants
and beneficiaries, and to take such further actions in connection therewith
as the Trustee deems appropriate in the exercise of its fiduciary
responsibility, in each case without direction by the Company or by the
Committee.
14. Section 12.01 is hereby amended to read in its entirety as follows:
14
<PAGE>
12.01 Company's Riqht to Amend.
-------------------------
(a) Subject to the provisions hereinafter set forth, the Company
reserves the right, at any time or from time to time, by action of the
Board of Directors, to amend in whole or in part any or all of the
provisions of this Plan; provided, however, that no such amendment shall be
made that:
(i) Would deprive any Participant of any benefit to which he has a
nonforfeitable right under Section 6.06 or Article IX of this Plan; or
(ii) Shall make it possible for any part of the Trust Assets or
its income to be used for or diverted to, purposes other than for the
exclusive benefit of the Participants. Any such amendment shall become
effective upon delivery of a written instrument, executed by order of
the Board of Directors, to the Trustee and the endorsement of the
Trustee of its receipt.
(b) Notwithstanding any other provision of this Plan or this Section
12.01 to the contrary, no amendment to Section 5.04(f), this Section
12.01(b) or the last sentence of Section 10.04 shall be effective without
the written consent of an independent corporate Trustee.
15. A new Section 14.10 shall be added to read in its entirety as follows:
14.10 Certain Dispositions of Employer Securities. In the event of a
---------------------------------------------
sale, exchange or other disposition by the Trustee of less than all
Employer Securities then held by the Trustee in connection with a
Redemption Event, as such term is used in the Amended and Restated Articles
of Incorporation of the Company, or by reason of another event described
therein or in the 1996 Stockholders' Agreement, as such instruments may
from time to time be amended, such sale, exchange or other disposition
shall first be of Employer Securities which have been allocated to the
Accounts of Participants, and thereafter, shall be of Employer Securities
which have not been so allocated and are held in a Suspense Account
described in Section 5.04.
16. Except as provided above, and except for such changes of a conforming
nature as may be required to incorporate the provisions of this Second Amendment
in a complete restatement of the Plan, all other provisions of the Plan shall
remain unchanged.
15
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IN WITNESS WHEREOF, the Company has caused this Second Amendment to the
Simmons Company Employee Stock Ownership Plan to be executed by its duly
authorized officer on this 22nd day of March, 1996.
-----
SIMMONS COMPANY
By: /s/ Zenon S. Nie
------------------------------
Name: Zenon S. Nie
------------------------------
Title: Chief Executive Officer
------------------------------
ACKNOWLEDGED AND APPROVED
NationsBank, N.A. (South), solely as Trustee of the Simmons Company Employee
Stock Ownership Trust
Date: 3/22/96 By: /s/ M. Carole Trizzino
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Date: 3/22/96 By: /s/ Ernest F. Ritter, Jr.
------------------- -------------------------
Committee, as provided in Article XI of the Simmons Company
Employee Stock Ownership Plan
Date: 3/22/96 By: /s/ Roger W. Franklin
------------------- -------------------------
Date: 3/22/96 By: /s/ Ken Barton
------------------- -------------------------
16
EXHIBIT 10.6
1996 STOCKHOLDERS' AGREEMENT
----------------------------
AGREEMENT, dated as of March 22, 1996 (this "Agreement"), by and among
Simmons Company, a Delaware corporation (the "Company"), Simmons Holdings, Inc.,
a Delaware corporation (the "Buyer") and NationsBank, N.A. (South), solely as
trustee of the Simmons Company Employee Stock Ownership Trust (the "Trust"),
established pursuant to the Agreement of Trust for the Simmons Company Employee
Stock Ownership Plan, dated as of January 17, 1989, as amended, adopted as part
of the Simmons Company Employee Stock Ownership Plan (the "Plan"), or any
successor trustee thereunder (the "Trustee"). This Agreement shall become
effective on the date (the "Effective Date") of, and simultaneously with, the
closing of the transactions under the Stock Purchase Agreement (as such term is
hereinafter defined).
The Company, the Trustee, Merrill Lynch Capital Appreciation Partnership No.
B-XI, L.P., MLCP Associates L.P. No. II, ML IBK Positions Inc., ML Offshore LBO
Partnership No. B-XI, Merrill Lynch KECALP L.P. 1987, Merrill Lynch KECALP L.P.
1989, Merchant Banking L.P. No. IV, certain stockholders listed on the signature
pages thereto, Simmons Acquisition Corp., a wholly owned subsidiary of the Buyer
("SAC"), and the Buyer have entered into a Stock Purchase Agreement, dated as of
February 21, 1996 (the "Stock Purchase Agreement"), pursuant to which, among
other things, subject to the terms and conditions thereof, SAC has agreed to
purchase shares of Common Stock of the Company from certain stockholders and the
Trustee has agreed to convert certain shares of Common Stock into shares of
Series A Preferred Stock of the surviving corporation of the merger pursuant to
the Agreement of Merger in the form of Exhibit E of the Stock Purchase
Agreement.
The Company and each of the other parties hereto deem it in their best
interests and in the best interests of the Company to enter into this Agreement.
The parties hereto also desire to restrict the sale, assignment, transfer,
encumbrance or other disposition of certain shares of capital stock of the
Company. Accordingly, in consideration of the premises and of the terms and
conditions herein contained, the parties hereto mutually agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Affiliate" of any Person shall mean any other Person directly or indirectly
controlled by, controlling or under common control with such Person. For the
purposes of this definition, "control", when used with respect to any Person,
means the power to directly or indirectly direct the management and policies of
such person, whether through the ownership of voting securities, by contract or
otherwise; the terms "controlling" and "controlled" have meanings correlative to
the foregoing.
"Agreement" shall have the meaning ascribed thereto in the Preamble hereof.
"Business Combination" means (i) any merger or consolidation of the Company
with (A) the Buyer or any of its Affiliates; or (B) any other corporation which,
after such merger or consolidation, would be an Affiliate of the Buyer,
provided, however, that the foregoing shall not apply to the merger of the
- -------------------
Company and SAC pursuant to the transactions contemplated by the Stock Purchase
Agreement; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
the Buyer or any of its Affiliates of all or substantially all the assets of the
Company.
"Business Day" means any day other than a Saturday, Sunday, federal holiday
or other day on which commercial banks in New York City are authorized or
required to close under the laws of the State of New York.
"Buyer" shall have the meaning ascribed thereto in the Preamble hereof.
"Buyer Consideration" shall have the meaning ascribed thereto in Section
2.1(a) hereof.
"Buyer IPO" shall mean the consummation of the initial underwritten public
offering of common stock of Buyer, pursuant to a registration statement that was
declared effective under the Securities Act.
"Buyer Shares" shall mean the shares of Common Stock beneficially owned by
the Buyer, any of its Affiliates or any of their respective transferees.
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<PAGE>
"Buyer's Certificate of Designations" shall mean the Certificate of
Designations of Simmons Holdings, Inc., filed March 20, 1996, with the Secretary
of State for the State of Delaware.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Simmons Company, a Delaware corporation.
"Company's Amended and Restated Certificate of Incorporation" means the
Amended and Restated Certificate of Incorporation, filed March 20, 1996, with
the Secretary of State for the State of Delaware.
"Company IPO" shall have the meaning ascribed thereto in Section 5.1 hereof.
"Covered Sale" shall have the meaning ascribed thereto in Section 2.1(a)
hereof.
"Class C Stock" shall mean the Buyer's Class C stock, as such is defined in
the Buyer's Certificate of Designations.
"Drag-Along Right" shall have the meaning ascribed thereto in Section 2.1(a)
hereof.
"Duly Endorsed" shall mean that a stock certificate is duly endorsed in
blank by the Person or Persons in whose name such certificate is registered or
that such certificate is accompanied by a duly executed stock or security
assignment, separate from the certificate itself, with the signature(s) thereon
guaranteed by a commercial bank or trust company or a member of a national
securities exchange or of the National Association of Securities Dealers, Inc.
"Effective Date" shall have the meaning ascribed thereto in the Preamble
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event Notice" shall have the meaning ascribed thereto in Section 3.1(a)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
3
<PAGE>
"Exchange Closing Date" shall have the meaning ascribed thereto in Section
3.1(a) hereof.
"Exchange Event" shall have the meaning ascribed thereto in Section 3.1(a)
hereof.
"Exchange Notice" shall have the meaning ascribed thereto in Section 3.1(b)
hereof.
"Exchange Right" shall have the meaning ascribed thereto in Section 3.1(b)
hereof.
"Exchange Shares" shall have the meaning ascribed thereto in Section 3.1(b)
hereof.
"Fair Value Price" shall mean, with respect to each share of Common Stock or
Class C Stock, an amount equal to the fair market value (valued on a going
concern basis) of a share of such stock, as determined in good faith by the
Board of Directors of the issuer of such stock, without applying any discounts
for minority interests or for legal or contractual restrictions on
transferability.
"Hart-Scott Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Management Anti-dilution Stock Option Agreements" shall mean the Anti-
dilution Stock Option Agreements, each dated on the date hereof, between the
Buyer and certain members of the Company's management individually.
"Parent Option Agreement" shall mean the Parent Option Agreement, dated on
the date hereof, between the Company and the Buyer.
"Person" shall mean an individual, partnership, joint venture, corporation,
trust, unincorporated organization, or government, or any department or agency
thereof.
"Plan" shall have the meaning ascribed thereto in the Preamble hereof.
"Registrable Securities" shall mean shares of Common Stock that are issued
or are issuable upon conversion of the Series A Preferred Stock and are held by
the Trustee and the Buyer Shares, collectively. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement,
4
<PAGE>
(ii) such securities shall have been sold in open market transactions pursuant
to Rule 144 (or any successor provision) under the Securities Act, (iii) such
securities shall have been otherwise transferred or (iv) such securities shall
have ceased to be outstanding.
"Registration Expenses" means any and all expenses incident to performance
of or compliance with Article V of this Agreement, including without limitation,
(i) all SEC and stock exchange or National Association of Securities Dealers,
Inc. ("NASD") registration and filing fees, (ii) all fees and expenses of
complying with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger and
delivery expenses, (iv) the fees and disbursements of counsel for the Company
and of the Company's independent public accountants, including the expenses of
any special audits and/or "cold comfort" letters required by or incident to such
performance and compliance, (v) any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities and the reasonable fees and
expenses of any special experts retained by the Company in connection with such
performance and compliance, including any fee payable to a qualified independent
underwriter within the meaning of the rules of the NASD, but excluding
underwriting discounts and commissions and transfer taxes, if any, and (vi)
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), provided, however, that each stockholder who beneficially owns (or
-------------------
holds, in the case of the Trustee) any Registrable Securities shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such stockholder's Registrable Securities pursuant to
a registration statement effected pursuant to this Agreement.
"Requisite Share Number" means at least 10% of the outstanding Registrable
Securities with an aggregate Fair Value Price of at least $15 million.
"Sale of the Buyer" means the sale of the Buyer, whether such sale occurs
pursuant to (i) the sale of more than fifty percent (50%) of the Buyer's voting
capital stock, (ii) a sale of all or substantially all of the assets of the
Buyer or (iii) a merger, consolidation or recapitalization of the Buyer as a
result of which the ownership of the Buyer's voting capital stock (or the voting
capital stock of the surviving corporation, if the Buyer is not the survivor) is
changed to the extent of more than fifty percent (50%).
5
<PAGE>
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the Exchange Act.
"Section 2.1 Event" shall have the meaning ascribed thereto by Section
2.1(a) hereof.
"Section 5.1 Maximum Number" shall have the meaning ascribed thereto in
Section 5.1 hereof.
"Section 5.1 Notice" shall have the meaning ascribed thereto in Section 5.1
hereof.
"Section 5.1 Request" shall have the meaning ascribed thereto in Section 5.1
hereof.
"Section 5.2 Notice" shall have the meaning ascribed thereto in Section 5.2
hereof.
"Section 5.2 Sale Number" shall have the meaning ascribed thereto in Section
5.2 hereof.
"Section 5.6 Notice" shall have the meaning ascribed thereto in Section 5.6
hereof.
"Section 5.6 Sale Number" shall have the meaning ascribed thereto in Section
5.6 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute then in effect, and a reference to a particular section
thereof shall be deemed to include a reference to the comparable section, if
any, of any such similar federal statute.
"Series A Preferred Stock" shall mean the Company's Series A Preferred
Stock, as such is defined in the Company's Amended and Restated Certificate of
Incorporation.
"Stock Purchase Agreement" shall have the meaning ascribed thereto in the
Preamble hereof.
"Stockholder Option Agreement" shall mean the Stockholder Option Agreement,
dated on the date hereof, between INVESTCORP International Inc. and the Buyer.
"Subsequent Grantee" shall have the meaning ascribed thereto in Section 5.6
hereof.
"Subsequent Stockholders" shall have the meaning ascribed thereto in Section
5.2 hereof.
6
<PAGE>
"Tag-Along Right" shall have the meaning ascribed thereto in Section 2.1(a)
hereof.
"Third Party" shall mean a Person not affiliated with the Buyer.
"Third Party Registration Right" shall have the meaning ascribed thereto in
Section 5.6 hereof.
"Trust" shall have the meaning ascribed thereto in the Preamble hereof.
"Trustee" shall have the meaning ascribed thereto in the Preamble hereof.
"Trustee Shares" shall mean the Registrable Securities held by the Trustee
in its capacity as Trustee of the Trust.
"Withdrawal Election" shall have the meaning ascribed thereto in Section 5.1
hereof.
ARTICLE II
TAG-ALONG and DRAG-ALONG RIGHTS
Section 2.1 Sale of Common Stock to a Third Party.
--------------------------------------
(a) If at any time, or from time to time, the Buyer proposes to sell for its
own account (other than in a sale pursuant to a registration statement under the
Securities Act) shares of Common Stock (a "Section 2.1 Event") to a Third Party
and, following such sale, the Buyer and its Affiliates cease to own (or to
continue to own), in the aggregate, at least fifty percent (50%) of the shares
of Common Stock acquired by the Buyer on the Effective Date (each such sale, a
"Covered Sale"), the Trustee shall have the right to participate with respect to
Common Stock issued or issuable upon the conversion of the Series A Preferred
Stock only (a "Tag-Along Right"), and Buyer or such Third Party shall have the
right to require the Trustee, to participate with respect to such shares (a
"Drag-Along Right"), in such sale on a pro rata basis (based on (i) the
aggregate number of shares of Common Stock to be sold by the Buyer in such
Covered Sale and any related transactions (but not in any other sales) compared
to (ii) the aggregate number of Buyer Shares acquired by the Buyer on the
Effective Date, as appropriately adjusted for any stock dividends, stock splits,
reverse stock splits, combinations, recapitalizations and similar events
occurring after the Effective Date) for the same consideration per share, and
otherwise on the same terms (the "Buyer
7
<PAGE>
Consideration"), as the Buyer sells its shares of Common Stock.
(b) Notwithstanding anything to the contrary contained in this Section 2.1,
the Trustee's obligation to participate in a sale on exercise of a Drag-Along
Right shall be subject to and qualified by the fiduciary duties of such Trustee
under ERISA.
(c) Prior to or within two calendar days following the occurrence of a
Section 2.1 Event, the Buyer, in its sole discretion, may notify the Trustee in
writing either of its intention to consummate or of the occurrence of such
Section 2.1 Event (which notice shall set forth the terms upon which such
Section 2.1 Event is intended to be or shall have been consummated) in the
manner and upon the terms and conditions provided in this Section 2.1(c). If the
Buyer, in its sole discretion, shall have given prior written notice to the
Trustee of its intention to engage in a Section 2.1 Event, then the Trustee
shall have 15 calendar days from the receipt of such notice within which to
exercise its Tag-Along Rights pursuant to this Section 2.1, and the failure of
the Trustee to notify the Buyer of its intention to exercise its Tag-Along
Rights within such 15 calendar days shall operate as a waiver of such Tag-Along
Rights; provided, however, that the Buyer's having delivered written notice of
-------------------
its intention to engage in a Section 2.1 Event shall not be construed as
providing any assurance that a Section 2.1 Event shall be consummated, and the
delivery of such notice shall not give rise to any rights on the part of the
Trustee, other than those expressly set forth in this Agreement. If the Buyer ,
in its sole discretion, shall not have given prior written notice of its
intention to engage in a Section 2.1 Event, then the Buyer shall notify the
Trustee in writing of the occurrence of a Section 2.1 Event not later than two
calendar days following the consummation of such Section 2.1 Event, and the
Trustee shall have 15 calendar days from the receipt of such notice within which
to exercise its Tag-Along Rights pursuant to this Section 2.1. The failure of
the Trustee to notify the Buyer of its intention to exercise its Tag-Along
Rights within such 15 calendar days shall operate as a waiver of such Tag-Along
Rights. The delivery of any notice regarding a Section 2.1 Event pursuant to the
provisions of this Section 2.1 shall not operate as a waiver of Buyer's or a
Third Party's Drag-Along Rights in respect of the Section 2.1 Event specified in
such notice. In the case of a Third Party's exercise of its Drag-Along Rights
pursuant to the provisions of this Section 2.1, the Third Party shall deliver
written notice to the Trustee, not later than two calendar days following the
occurrence of a Section 2.1 Event, with respect to which such Drag-Along Rights
have been exercised, of its intention to exercise such Drag-Along Rights in
respect of such Section 2.1 Event. The
8
<PAGE>
consummation of any transaction pursuant to the Third Party's exercise of its
Drag-Along Rights shall occur within 15 calendar days following the delivery of
the notice specified in this Section 2.1(c).
(d) The Buyer shall not enter into a transaction which would constitute a
Section 2.1 Event unless the Third Party shall have agreed in writing, prior to
the consummation of such transaction, to be bound by the Tag-Along Rights
provided in this Section 2.1; provided, however, that such agreement shall not
-------------------
be construed as providing any assurance that a Section 2.1 Event shall be
consummated and shall not give rise to any liability on the part of the Buyer to
the Trustee.
Section 2.2 Legend on Certificates. Each certificate representing shares of
------------------------
Series A Preferred Stock or Common Stock (including any shares of Common Stock
issued upon conversion of Series A Preferred Stock) from time to time issued and
outstanding shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF THE 1996 STOCKHOLDERS' AGREEMENT DATED AS OF MARCH 22,
1996 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF SIMMONS COMPANY
AND WILL BE MAILED TO A STOCKHOLDER WITHOUT CHARGE WITHIN FIVE DAYS
AFTER RECEIPT BY SIMMONS COMPANY OF A WRITTEN REQUEST THEREFOR FROM
SUCH STOCKHOLDER).
NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND ANY APPLICABLE STATE
SECURITIES AND "BLUE SKY" LAWS OR (B) IF SIMMONS COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO SIMMONS COMPANY, TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5
OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND SUCH
STATE SECURITIES AND "BLUE SKY" LAWS.
Section 2.3 Removal of Legend.
------------------
Upon termination of this Agreement, a Company IPO or a distribution pursuant
to the Plan of any of the Trustee Shares to a participant of the Plan (a
"Participant
9
<PAGE>
Transferee") the Company shall, upon request by the Trustee immediately prior to
the above events, issue a new certificate representing the shares of Common
Stock or Series A Preferred Stock held by the Trustee or to be distributed to
the Participant Transferee with the following legend:
NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND ANY APPLICABLE STATE
SECURITIES AND "BLUE SKY" LAWS OR (B) IF SIMMONS COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO SIMMONS COMPANY, TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5
OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND SUCH
STATE SECURITIES AND "BLUE SKY" LAWS.
ARTICLE III
EXCHANGE RIGHTS
Section 3.1 Exchange Rights.
----------------
(a) At least 30 Business Days prior to (i) the consummation of a transaction
which would result in a Sale of Buyer; (ii) the date that a registration
statement is declared effective for a Buyer IPO the Company or the Buyer shall
give the Trustee notice of such event (the "Event Notice"). The Event Notice
shall set forth the material terms of the event which gives rise to the Exchange
Notice, including in the event of (x) a Sale of Buyer, the purchase price (less
estimated fees and expenses to be borne by stockholders of the Buyer) of a share
of Class C Stock in connection with such Sale of Buyer (the "Sale Per Share
Paid") and(y) a Buyer IPO, the estimated range of the initial per share price to
the public and underwriting discounts and commissions of the Buyer IPO (the "IPO
Per Share Price"). Each of the events which give rise to an Event Notice and a
Section 2.1 Event shall hereinafter be defined as an "Exchange Event.
(b) Upon receipt of an Event Notice, or upon receipt by the Trustee of
notice from the Buyer or a Third Party of a Section 2.1 Event as set forth in
Section 2.1(c) of this Agreement the Trustee shall have the right (the "Exchange
Right") to exchange such holder's Common Stock for Class C Stock and/or other
consideration as provided below in this Section 3.1. The Exchange Right is
exercisable by delivery of
10
<PAGE>
a written notice (the "Exchange Notice") to the Buyer (i) in the case of a Sale
of the Buyer or a Buyer IPO within 15 Business Days of receipt of the Event
Notice; and (ii) in the case of receipt of a written notice pursuant to Section
2.1 within five Business Days of such Section 2.1 written notice. Upon receipt
of Exchange Notice from the Trustee, the Buyer shall be obligated to exchange
not less than all of the shares of Common Stock owned by the Trustee (the
"Exchange Shares") (i) in the case of a Sale of the Buyer or a Buyer IPO
immediately prior to the consummation of the transaction giving rise to the
occurrence of such Exchange Event; and (ii) in the case of receipt of a written
notice pursuant to Section 2.1, on the date specified in such Section 2.1
written notice, provided that on or prior to such date the transaction giving
rise to such Section 2.1 written notice is consummated (the times and dates
referred to in clauses (i) and (ii) of the preceding sentence hereinafter
defined as the "Exchange Closing Date").
(c) the Exchange Shares shall be exchanged for shares of Class C Stock on a
one share-for-one share basis (as appropriately adjusted for any stock
dividends, stock splits, reverse stock splits, combinations, recapitalizations
and similar events occurring after the Effective Date); provided, however, that
the number of shares of Class C Stock into which each Exchange Share shall be
exchanged shall be increased by that number of shares of Class C Stock
determined by (i) dividing the number of Exchange Shares by the total number of
shares of all Holdings capital stock then outstanding (assuming the exchange of
the Exchange Shares for shares of Class C Stock, and the exercise of all
outstanding options other than the Stockholder Option or the Management Anti-
dilution Option (which options are assumed not to be exercised), (ii)
multiplying such amount by either (A) in the event of a Sale of Buyer, the
product of (x) the difference between the Sale Per Share Price and the
Stockholder Option Exercise Price and (y) the number of Stockholder Option
Shares, or (B) in the event of a Buyer IPO, the product of (x) the difference
between the IPO Per Share Price and the Stockholder Option Exercise Price and
(y) the number of Stockholder Option Shares, (iii) dividing such amount by, in
the event of a Sale of Buyer, the Sale Per Share Price, or (B) in the event of a
Buyer IPO, the IPO Per Share Price, and (iv) dividing such amount by the
aggregate number of Exchange Shares.
(d) The closing for the exchange of the Exchange Shares by the Buyer shall
take place on the Exchange Closing Date at the principal office of the Company.
At such closing, the Buyer shall deliver to the Trustee, against delivery of
Duly Endorsed certificates representing such Exchange Shares, shares of Class C
Stock and/or the other consideration that a
11
<PAGE>
holder of the number of shares of Class C Stock into which such Exchange Shares
are exchangeable (in accordance with Section 3.1(c)) will receive upon
consummation of the transaction giving rise to the Exchange Event. Upon exchange
of the Exchange Shares, such Exchange Shares shall be canceled by the Company.
(g) The Exchange Rights and the Buyer's obligation to exchange the Exchange
Shares under this Agreement shall terminate immediately following the Exchange
Closing Date for the first occurrence of an Exchange Event, or if the Trustee
has not exercised its Exchange Right, a date on which the Exchange Closing Date
would have occurred had the Trustee exercised its Exchange Right and the Buyer
shall thereafter have no obligation to exchange any Exchange Shares upon any
subsequent Exchange Event.
ARTICLE IV
CORPORATE GOVERNANCE
Section 4.1 Directors and Officers.
-----------------------
(a) The parties to this Agreement agree that the following persons will
serve as the initial directors of the Company after the Effective Date, until
their successors are duly elected and qualified:
Savio W. Tung
Christopher J. O'Brien
Charles J. Philippin
John M. Kenney
Zenon S. Nie
Jonathan C. Daiker
Martin R. Passaglia
(b) The parties to this Agreement further agree, subject to subsection (c)
of this Section 4.1, that as long as the Trust shall be the holder of any shares
of Series A Preferred Stock (or, prior to the occurrence of an Exchange Event,
shares of Common Stock issued upon conversion thereof), the Trustee shall have
the right to designate one individual (reasonably acceptable to the Buyer) who
shall have the right to attend, but not to vote at, all meetings of the Board of
Directors of the Company and Buyer.
(c) Nothing contained in this Section 4.1 shall in any way be deemed to
limit the right or ability of the holder or holders of a majority of the
outstanding shares of Common Stock to remove and replace all directors at any
time or to
12
<PAGE>
increase or decrease the number of directors on the Board of Directors of the
Company.
(d) Prior to an Exchange Event, so long as the Trustee shall be the holder
of shares of Series A Preferred Stock (or Common Stock issued upon conversion
thereof), Buyer shall mail to the Trustee any notice or financial information
(including Buyer financial statements, reports or other similar information)
provided to the Common or Class C stockholders, solely in their capacity as
stockholders.
Section 4.2 Certificate; By-Laws. The Amended and Restated Certificate of
----------------------
Incorporation and By-Laws of the Company, in each case as such documents will be
in effect as of the Effective Date, in each case until thereafter amended in
accordance with the terms thereof, are attached hereto as Exhibits A and B,
respectively. Immediately following the Effective Date the Trustee and the Buyer
agree to vote for the approval of, or to consent to, an amendment to the
Company's Amended and Restated Certificate of Incorporation which changes the
number of authorized shares of the Series A Preferred Stock to the number of
shares issued to the Trustee on the Effective Date.
Section 4.3 Consent of Trustee Required for Certain Actions. As long as the
-------------------------------------------------
Trustee shall be the holder of any shares of Series A Preferred Stock (or, prior
to the occurrence of an Exchange Event, shares of Common Stock issued upon
conversion of Series A Preferred Stock), in addition to any vote required by law
or by the Amended and Restated Certificate of Incorporation and By-Laws of the
Company, the actions set forth in this Section 4.3 shall require the affirmative
written consent of the Trustee, notwithstanding the fact that no vote of the
stockholders of the Company may be required by law or by any agreement to which
the Company is a party:
(a) The occurrence of any Business Combination.
(b) Except as contemplated in the Parent Option Agreement, the Management
Anti-dilution Stock Option Agreement and the Stockholder Option Agreement, (i)
the issuance by the Company of any shares of Common Stock (or by the Buyer of
any shares of Class C Stock) for a consideration per share less than the Fair
Value Price on the date of issuance, other than issuances by Buyer of Class C
Stock in an outstanding amount not to exceed 3,051,465 shares to directors,
employees or consultants providing services to the Company that are approved by
the Boards of Directors of the Buyer and the Company or upon the conversion of
securities or other instruments issued in accordance with clause (ii) of this
Section 4.3(b) and other than issuances upon the exercise of
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<PAGE>
any option granted in accordance with clause (iii) of this Section 4.3(b); (ii)
the issuance by the Company or the Buyer of any security or other instrument
convertible into shares of Common Stock or Class C Stock, respectively, with a
conversion price less than the Fair Value Price on the date of issuance of such
security or other instrument other than issuances of any such security or other
instrument convertible into shares of Class C Stock in an outstanding amount not
to exceed 3,051,465 shares to directors, employees or consultants providing
services to the Company that are approved by the Boards of Directors of the
Buyer and the Company; and (iii) the grant of any option to acquire shares of
Common Stock or Class C Stock at an exercise price less than the Fair Value
Price on the date of grant, other than grants of options exercisable for shares
of Class C Stock in an outstanding amount not to exceed 3,051,465 shares to
directors, employees or consultants providing services to the Company that are
approved by the Boards of Directors of the Buyer and the Company. The value of
any consideration, other than cash or cash equivalents, pursuant to the issuance
or grant by the Company or the Buyer of any of the foregoing shall be determined
in good faith by the Board of Directors of the issuer of any of the foregoing.
(c) The payment by the Buyer of any dividend on any shares of capital stock
of the Buyer or of any other distribution in respect to such shares unless a
provision is made to pay an equivalent (on an as converted and exchanged basis)
amount on the Series A Preferred Stock upon conversion and exchange for the
Buyer's Class C Stock or Common Stock.
(d) The undertaking by Buyer of any activities other than those activities
incidental to the Buyer's ownership of Common Stock or the operations of the
Company.
(e) The alteration, amendment or restatement by the Board of Directors of
the Buyer of the Buyer's By-Laws, as such By-Laws are in effect as of the
Effective Date, or an amendment to the Buyer's certificate of incorporation or
Certificate of Designation, as in effect immediately following the Effective
Date, except for any such amendment that increases the authorized number of
shares of any class of the Buyer's capital stock.
(f) After the Effective Date, the entry of either the Company or the Buyer
into any agreement or arrangement (including the modification or any existing
agreement or arrangement) that prohibits or limits the Company's ability to
honor the "put" options as set forth in Section 5.04(f) of the Plan as is in
effect on Effective Date.
14
<PAGE>
(g) Buyer shall not consummate a transaction that constitutes a Sale of
Buyer, a Buyer IPO or a Section 2.1 Event unless the Company has legally
sufficient funds to redeem, and is not otherwise prohibited from redeeming, the
shares of Series A Preferred Stock the Company is required to redeem under the
Amended and Restated Certificate of Incorporation upon the consummation of such
transaction; provided that if the Company is unable to redeem or otherwise
prohibited from redeeming such shares, then Buyer, any of its Affiliates or any
party to such transaction may effect such redemption by purchasing such shares
from the holder thereof on the Redemption Date at the Redemption Price (as such
terms are defined in the Amended and Restated Certificate of Incorporation) and
upon such purchase Buyer shall be permitted to consummate such transaction
without the consent of the Trustee, as otherwise required under this Section
4.3(g) of this Article IV.
ARTICLE V
REGISTRATION RIGHTS
Section 5.1 Registration on Request of the Trustee.
---------------------------------------
(a) Request by the Trustee. Once the Company shall have completed an initial
------------------------
registered public offering of Common Stock for its own account (a "Company
IPO"), and only if a Company IPO shall have been completed, upon the written
request (the "Section 5.1 Request") of the Trustee that the Company effect the
registration under the Securities Act of at least the Requisite Share Number of
such Trustee's Registrable Securities, the Company will promptly give written
notice of such requested registration (a "Section 5.1 Notice") to all other
stockholders who beneficially own (or hold, in the case of the Trustee) any
Registrable Securities, and thereupon will use its best efforts to effect, as
promptly as practicable (but in no event later than 120 calendar days after the
Company receives the Section 5.1 Request), the registration under the Securities
Act of:
(i) the Registrable Securities that the Company has been requested to
register by the Section 5.1 Request, and
(ii) all other Registrable Securities that the Company has been
requested to register by any other holders of Registrable Securities by
written request given to the Company within 15 calendar days after the
giving of the Section 5.1 Notice,
15
<PAGE>
all to the extent necessary to permit the disposition of the Registrable
Securities so to be registered pursuant to an underwritten public offering;
provided, however, that (A) the Company shall not be obligated to file a
- -------------------
registration statement relating to a registration request under this Section 5.1
at a time when the Company is then in the process of registering any other
securities or within a period of 180 calendar days after the effective date of
any other registration statement of the Company (other than, in each case,
registration statements on Form S-4 or Form S-8, or any successor or similar
forms), (B) the Company shall not be obligated to effect more than one
registration statement pursuant to this Section 5.1 during the term of this
Agreement and (C) the Company may postpone filing a registration statement
relating to a registration request under this Section 5.1 for a reasonable
period (not in excess of 90 calendar days after such filing would otherwise be
required under this Section 5.1) if in its judgment such filing would require
the disclosure of material information that the Company has a bona fide business
purpose for preserving as confidential.
(b) Registration Statement Form. Registrations under this Section 5.1 shall
-----------------------------
be on such appropriate registration form of the SEC for the disposition of the
Registrable Securities in an underwritten public offering as shall be selected
by the Company and shall be reasonably acceptable to the Trustee.
(c) Expenses. The Company shall pay all Registration Expenses in connection
----------
with a registration requested pursuant to this Section 5.1.
(d) Effective Registration Statement. A registration requested pursuant to
----------------------------------
this Section 5.1 will not be deemed to have been effected unless it has become
effective; provided, however, that if, after a registration has become
-------------------
effective, the offering of Registrable Securities pursuant to such registration
is interfered with by any stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such registration will be
deemed not to have been effected.
(e) Priority in Requested Registrations. If the managing underwriter for a
-------------------------------------
requested registration pursuant to this Section 5.1 shall advise the Company in
writing that, in its opinion, the number of Registrable Securities requested to
be included in such registration exceeds the number (the "Section 5.1 Maximum
Number") that can be sold in an orderly manner in such offering within a price
range acceptable to stockholders who beneficially own (or holds, in the case of
the Trustee) Registrable Securities representing in the
16
<PAGE>
aggregate at least the Requisite Share Number, then the number of such
Registrable Securities to be included in such registration shall be allocated
first to the Trustee Shares (until the Section 5.1 Maximum Number of such shares
are registered) and, then, if the number of such Trustee Shares to be registered
is less than the Section 5.1 Maximum Number, shall be allocated pro rata among
all stockholders who beneficially own any Registrable Securities and request
that Registrable Securities be included in such registration on the basis of the
relative number of shares of such Registrable Securities each such stockholder
has requested to be included in such registration (until the Section 5.1 Maximum
Number of such shares is met). If, as a result of the proration provisions of
this subsection 5.1(e), any stockholder who beneficially owns any Registrable
Securities shall not be entitled to include all Registrable Securities in a
registration that such stockholder has requested be included, such stockholder
may elect to withdraw his request to include Registrable Securities in such
registration (a "Withdrawal Election"); provided, however.r, that a Withdrawal
---------------------
Election shall be irrevocable and, after making a Withdrawal Election, a
stockholder shall no longer have any right to include Registrable Securities in
the registration as to which such Withdrawal Election was made.
(f) Termination by the Company. If as a result of Withdrawal Elections (but
----------------------------
after the Company shall have included in such registration in place of such
withdrawn Registrable Securities such additional Registrable Securities held by
other stockholders whose Registrable Securities were excluded as a result of the
proration provisions of subsection 5.1(e)), less than the Requisite Share Number
of Registrable Securities are requested to be included in a registration, the
Company may, at its election, give written notice to all stockholders who have
requested that Registrable Securities be included in a registration and who have
not made a Withdrawal Election that the Company has determined not to proceed
with such registration and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such abandoned
registration, without prejudice, however, to the stockholders' rights to have
Registrable Securities registered pursuant to this Section 5.1 in the future.
Section 5.2 Incidental Registration.
------------------------
(a) Right to Include Registrable Securities. If the Company at any time
-----------------------------------------
proposes to register any shares of Common Stock under the Securities Act for
sale for its own account (other than a registration on Form S-4 or Form S-8, or
any successor or similar forms) in a manner that would permit registration of
Registrable Securities for sale to the public
17
<PAGE>
under the Securities Act, it will promptly give written notice to all
stockholders who beneficially own (or who hold, in the case of the Trustee) any
Registrable Securities of its intention to do so, of the registration form of
the SEC that has been selected by the Company and of such holders' rights under
this Section 5.2 (the "Section 5.2 Notice"). The Company will use its best
efforts to include in the proposed registration all Registrable Securities that
the Company is requested in writing, within 15 calendar days after the Section
5.2 Notice is given, to register by the stockholders thereof; provided, however,
------------------
that (i) if, at any time after giving written notice of its intention to
register shares of Common Stock and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such shares of Common Stock, the
Company may, at its election, give written notice of such determination to all
stockholders who beneficially own (or who hold, in the case of the Trustee) any
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such abandoned
registration, and (ii) in case of a determination by the Company to delay
registration of shares of Common Stock, the Company shall be permitted to delay
the registration of such Registrable Securities for the same period as the delay
in registering such other shares of Common Stock.
(b) Expenses. The Company shall pay all Registration Expenses in connection
----------
with a registration requested pursuant to this Section 5.2;
(c) Priority in Incidental Registrations. If the managing underwriter for a
--------------------------------------
registration pursuant to this Section 5.2 that involves an underwritten offering
shall advise the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number (the
"Section 5.2 Sale Number") that can be sold in an orderly manner in such
offering within a price range acceptable to the Company, then the Company shall
include in such offering (i) first, all the securities the Company proposes to
register, and (ii) second, to the extent that the Registrable Securities to be
included by the Company are less than the Section 5.2 Sale Number, all
Registrable Securities requested to be included by all stockholders who
beneficially own (or hold, in the case of the Trustee) any Registrable
Securities and by any other Persons to whom incidental registration rights may
be granted on or after the Effective Date (the "Subsequent Stockholders");
provided, however, that if the sum of the number of such Registrable Securities
- -------------------
and the number of such securities held by such Subsequent Stockholders exceeds
the Section 5.2 Sale Number less the number of securities included pursuant to
clause (i)
18
<PAGE>
hereof, then the number of such Registrable Securities included in such
registration shall be allocated pro rata among all requesting stockholders who
beneficially own (or hold, in the case of the Trustee) any Registrable
Securities and among all Subsequent Stockholders, on the basis of the relative
number of shares of such Registrable Securities each such stockholder and
Subsequent Stockholder has requested to be included in such registration (until
the Section 5.2 Sale Number of such shares is registered). If, as a result of
the proration provisions of this subsection 5.2(c), any such stockholder or
Subsequent Stockholder shall not be entitled to include all Registrable
Securities in a registration pursuant to this Section 5.2 that such stockholder
or Subsequent Stockholder has requested be included, such stockholder or
Subsequent Stockholder may make a Withdrawal Election; provided, however, that
-------------------
such Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, such stockholder or Subsequent Stockholder shall no longer have any
right to include Registrable Securities in the registration as to which such
Withdrawal Election was made.
Section 5.3 Registration Procedures. If and wherever the Company is required
-------------------------
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Article V, the Company
will, as soon as practicable:
(a) promptly prepare and file with the SEC (in any event within 120
calendar days after the end of the period within which requests for
registration may be given to the Company), the requisite registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become and remain
effective; provided, however, that the Company may discontinue any
-------------------
registration of its securities that is being effected pursuant to Section
5.2 at any time prior to the effective date of the registration statement
relating thereto;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for such
period (which in no event shall exceed 120 calendar days) as any seller of
such Registrable Securities shall request and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement during such period;
(c) furnish to each seller of such Registrable Securities and each
underwriter, if any, of the
19
<PAGE>
securities being sold by such seller with such number of copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the Securities Act,
and such other documents as such seller and underwriter may reasonably request
in order to facilitate the public sale of the Registrable Securities owned by
such seller;
(d) use its best efforts to register or qualify such Registrable Securities
covered by such registration statement under such other securities or "blue sky"
laws of such jurisdictions as any sellers of Registrable Securities representing
more than 15% of the total number of securities covered by such registration
statement or any managing underwriter shall reasonably request, and do any and
all other acts and things that may be necessary or advisable to enable such
seller and each managing underwriter, if any, to consummate the disposition in
such jurisdictions of such Registrable Securities owned by such seller;
provided, however, that the Company shall not for any such purpose be required
- -------------------
to qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this clause (d) be obligated to
be so qualified, to subject itself to taxation in any such jurisdiction or to
consent to general service of process in any such jurisdiction;
(e) notify each seller of any such Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and at the request of
any such seller promptly prepare and furnish to such seller a reasonable number
of copies of a prospectus supplemented or amended so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
20
<PAGE>
(f) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least 12
months, but not more than 18 months, beginning with the first day of the
Company's first calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(g) use its best efforts to cause all such Registrable Securities covered by
such registration statement to be listed on the principal securities exchange on
which similar equity securities issued by the Company are then listed or
eligible for listing, if the listing of such securities is then permitted under
the rules of such exchange;
(h) provide a transfer agent and registrar for all such Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement;
(i) in connection with any underwritten offering, enter into an underwriting
agreement with the underwriter of such offering in the form customary for such
underwriter for similar offerings, including such representations and warranties
by the Company, provisions regarding the delivery of opinions of counsel for the
Company and accountants' letters, provisions regarding indemnification and
contribution, and such other terms and conditions as are at the time customarily
contained in such underwriter's underwriting agreements for similar offerings.
Such sellers of Registrable Securities shall be required to make such
representations and warranties to and agreements with the Company and the
underwriters as maybe necessary, in the discretion of the Company or the
underwriters, to effect such registration;
(j) upon receipt of such confidentiality agreements as the Company may
reasonably request, make available for inspection by any seller of such
Registrable Securities covered by such registration statement and by any
attorney, accountant or other agent retained by any such seller, all pertinent
financial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries, and cause all of the Company's and its
subsidiaries' officers, directors and employees to supply all information
reasonably requested by any such seller, attorney, accountant or agent in
connection with such registration statement; and
21
<PAGE>
(k) permit any holder of Registrable Securities who, in the sole
judgment, exercised in good faith, of such holder, might be deemed to be a
controlling person of the Company, to participate in the preparation of
such registration or comparable statement and to require the insertion
therein of material, furnished to the Company in writing, that in the
judgment of such holder, as aforesaid, should be included.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees that upon receipt of any notice
from the Company of the happening of any event of the kind described in clause
(e) of this Section 5.3, such holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (e) of this Section
5.3, and, if so directed by the Company, such holder will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such holder's possession, of the prospectus covering such Registrable Securities
that was in effect prior to such amendment or supplement. In the event the
Company shall give any such notice, the period set forth in clause (b) of this
Section 5.3 shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to clause (e) of this
Section 5.3 to and including the date when each seller of Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by clause (e) of this Section
5.3.
Section 5.4 Indemnification. In the event of any registration of any
-----------------
securities of the Company under the Securities Act pursuant to Section 5.1 or
5.2 hereof, the Company, each seller of any Registrable Securities covered by
such registration statement, and each other Person who participates as an
underwriter, if any, in the offering or sale of such securities and each other
Person, shall enter into mutually acceptable agreements providing customary
indemnification and contribution provisions.
Section 5.5 Underwriters. The Company shall have the right, to select any
--------------
nationally recognized investment banker to act as the underwriter in any public
offering of
22
<PAGE>
Registrable Securities pursuant to Sections 5.1 or 5.2 hereof to administer the
offering.
Section 5.6 Additional Registration Rights Provisions.
------------------------------------------
(a) Nothing in this Article V shall be read to prohibit or prevent (i) the
Company from granting additional demand or incidental registration rights to any
Person after the date hereof, including the incidental registration rights set
forth in Section 5.2 hereof or (ii) the registration by the Company from time to
time of any Buyer Shares.
(b) If at any time on or following the Effective Date, the Company shall
grant to any holder of Common Stock (including Buyer) registration rights (a
"Subsequent Grantee") in respect of shares of Common Stock beneficially owned by
such holder ("Third Party Registration Rights") which rights shall have been
exercised by such Subsequent Grantee, the Company shall promptly give written
notice of the exercise of such Third Party Registration Rights to the Buyer and
to the Trustee (the "Section 5.6 Notice"), who shall have the right (subject to
the provisions of Section 5.6(c) and (d) hereof) to include in the proposed
registration all Registrable Securities beneficially owned by the Buyer or held
by the Trustee that the Company is requested in writing, within 15 days after
the Section 5.6 Notice is given, by the Buyer or by the Trustee to register;
provided, however, that (i) if, at any time after the Buyer or the Trustee shall
- -------------------
have given written notice of their intention to register shares of Common Stock
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register such shares of Common Stock, the Company may, at its election,
give written notice of such determination to the Buyer and the Trustee and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such abandoned registration, and (ii) in case of a
determination by the Company to delay registration of shares of Common Stock,
the Company shall be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such other shares of
Common Stock.
(c) Expenses. The Company shall pay all Registration Expenses in connection
----------
with each registration of Registrable Securities requested pursuant to this
Section 5.6.
(d) Priority in Incidental Registrations. If the managing underwriter for a
--------------------------------------
registration pursuant to this Section 5.6 that involves an underwritten offering
shall advise the Company in writing that, in its opinion, the number of
securities requested to be included in such registration
23
<PAGE>
exceeds the number (the "Section 5.6 Sale Number") that can be sold in an
orderly manner in such offering within a price range acceptable to the Company
and Subsequent Grantees, the Company shall include in such offering (i) first,
all the securities proposed to be registered by the Subsequent Grantee
(including Buyer or any of its Affiliates), (ii) second, to the extent that the
Registrable Securities to be included by the Subsequent Grantees (including
Buyer or any of its Affiliates) are less than the Section 5.6 Sale Number, all
Registrable Securities sought to be registered by the Company, and (iii) third,
to the extent that the sum of the Registrable Securities to be included by the
Subsequent Grantees (including Buyer or any of its Affiliates) and by the
Company are less than the Section 5.6 Sale Number, all Registrable Securities
requested to be included by the Buyer, the Trustee and by any other Person or
Persons upon whom registration rights have been conferred; provided, however,
------------------
that if the sum of the number of Registrable Securities to be registered
pursuant to clause (iii) above exceeds the Section 5.6 Sale Number, then the
number of Registrable Securities requested by the Buyer, the Trustee and by any
other Person or Persons upon whom registration rights have been conferred to be
included in such registration shall be allocated pro rata among the Buyer, the
Trustee and such other Person or Persons, on the basis of the relative number of
shares of such Registrable Securities Buyer, the Trustee and each such Person
has requested to be included in such registration. If, as a result of the
proration provisions of this subsection 5.6(d), the Buyer or the Trustee shall
not be entitled to include all Registrable Securities in a registration pursuant
to this Section 5.6 that the Buyer or the Trustee has requested be included, the
Buyer or the Trustee may make a Withdrawal Election; provided, however, that
-------------------
such Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, the Buyer or the Trustee shall no longer have any right to include
Registrable Securities in the registration as to which such Withdrawal Election
was made.
(e) Except as set forth in subsection 5.6(b) hereof and notwithstanding any
other provision of this Agreement, the grant by the Company of any additional
demand registration rights (or the registration of any Buyer Shares) shall not
give rise to any registration rights on the part of any stockholders who
beneficially own (or hold, in the case of the Trustee) any Registrable
Securities in respect of the exercise of such additional demand registration
rights by the holders thereof (or the registration of any Buyer Shares).
(f) Notwithstanding any other provision of this Agreement, (i) without the
consent of Buyer, the Company shall not be required to register any securities
unless shares of Common Stock have prior thereto been, or simultaneously
24
<PAGE>
therewith are being, registered on a Form other than Form S-4 or Form S-8 (or
any successor or similar form) (it being acknowledged by the Trustee that Buyer
shall have the exclusive right to determine when such initial registration shall
occur), and (ii) the Company may register the Buyer Shares at any time without
the consent of the Trustee.
ARTICLE VI MISCELLANEOUS
Section 6.1 Binding Effect. This Agreement shall be binding upon and shall
----------------
inure to the benefit of the parties hereto and their respective successors,
assigns and transferees except to the extent that the terms of this Agreement
limit or otherwise restrict the transferability of any rights or obligations
hereunder. The provisions of this Agreement shall be binding upon the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
Section 6.2 Waiver and Amendment. Any party hereto may waive its rights
----------------------
under this Agreement at any time, and the Company may waive its rights under
this Agreement with respect to any party hereto at any time; provided that no
---------
waiver by the Company shall operate to waive the Company's rights under this
Agreement with respect to any party hereto not named in such waiver. Any
agreement on the part of any such party to any such waiver by the Company shall
be valid only if set forth in an instrument in writing signed by such party.
This Agreement may be amended or waived only by a written instrument signed by
(a) the Company, (b) stockholders owning of record a majority of the then
outstanding Buyer Shares, and (c) so long as it owns shares of Series A
Preferred Stock (or shares of Common Stock issuable upon conversion thereof),
the trustee under the Plan which trustee shall be an independent corporate
trustee. All parties hereto shall be bound by any amendment or waiver approved
as prescribed in the foregoing sentence from and after the date of the receipt
of a written notice from the Company setting forth such amendment or waiver and
reciting its approval or waiver, as the case may be, whether or not shares of
Series A Preferred Stock or Common Stock held by any stockholder shall have been
marked to indicate such consent.
Section 6.3 Notices. All notices and other communications provided for
---------
herein shall be dated and in writing and shall be deemed to have been duly given
when delivered, if delivered personally, or when deposited in the mail, if sent
by registered or certified mail, return receipt requested, postage prepaid, and
when received, if delivered
25
<PAGE>
otherwise, to the party to whom it is directed at the following addresses:
(a) If to the Company, to:
Simmons Company
1 Concourse Parkway
Suite 600
Atlanta, Georgia 30328
Attn: Chief Executive Officer
with a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
47th Floor
New York, New York 10166-0193
Attn: Charles K. Marquis, Esq.
(b) If to the Buyer or any of its Affiliates, to:
Simmons Holdings, Inc.
c/o INVESTCORP International Inc.
280 Park Avenue, 37 West Floor
New York, New York 10017
Attn: Christopher J. O'Brien
with copies to:
INVESTCORP International Inc.
280 Park Avenue, 37 West Floor
New York, New York 10017
Attn: Christopher J. O'Brien
and
Gibson, Dunn & Crutcher
200 Park Avenue
47th Floor
New York, New York 10166-0193
Attn: Charles K. Marquis
(c) If to the Trustee, to:
NationsBank, N.A. (South)
600 Peachtree Street, N.E. 7th Floor
Atlanta, Georgia 30308
Attn: Ernest F. Ritter
26
<PAGE>
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Charles R. Smith
or at such other address as the parties hereto shall have specified by notice in
writing to the other parties.
Section 6.4 Applicable Law. The laws of the State of Delaware shall govern
----------------
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
law.
Section 6.5 Integration. This Agreement and the documents referred to herein
-------------
or delivered pursuant hereto, which form a part hereof, contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
Section 6.6 Descriptive Headings, Etc. The headings in this Agreement are
---------------------------
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, (a) words of any gender shall be deemed to include each
other gender; (b) words using the singular or plural number shall also include
the plural or singular number, respectively; and (c) references to "hereof,"
"herein," "hereby" and similar terms shall refer to this entire Agreement.
Section 6.7 Counterparts. This Agreement may be executed in two or more
--------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
Section 6.8 Severability. In the event that any one or more of the
--------------
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect and for any reason, the validity, legality and
enforceability of such provision, paragraph, word, clause, phrase or sentence in
every other respect, and
27
<PAGE>
of the other remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof, shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
Section 6.9 Term. This Agreement (other than (A) the provisions of Article V
------
hereof which shall terminate on the earlier of (i) the fifth anniversary date of
the consummation of the Company IPO or (ii) the date the Trustee no longer holds
shares of Series A Preferred Stock (or shares of Common Stock issued upon
conversion thereof) and (B) if applicable, the provisions of Section 4.3 which
shall terminate on the date the Trustee no longer holds shares of Series A
Preferred Stock (or, prior to the occurrence of an Exchange Event, shares of
Common Stock issued upon conversion thereof)) shall terminate upon the
termination of the Trustee's Exchange Right, provided, however, that upon the
-------------------
termination of this Agreement and conditioned upon the Trustee receiving shares
of Buyer capital stock as a result of such Exchange Event, Buyer and Trustee
agree to enter into a registration agreement substantially in the form attached
hereto as Exhibit C.
Section 6.10 Injunctive Relief. It is hereby agreed and acknowledged that it
-------------------
will be impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that, in the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy at law. Any such person shall
therefore be entitled to injunctive relief, including specific performance, to
enforce such obligations, without the posting of any bond, and, if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an adequate
remedy at law.
28
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be executed on its behalf as of the date first above
written.
SIMMONS COMPANY
By: /s/ Zenon S. Nie
-------------------------------
Name: Zenon S. Nie
Title: Chief Executive Officer
SIMMONS COMPANY EMPLOYEE STOCK
OWNERSHIP TRUST
By: NationsBank, N.A. (South)
solely in its capacity
as Trustee
By: /s/ M. Carole Trizzino
--------------------------------
Name: M. Carole Trizzino
Title: Vice President
SIMMONS HOLDINGS, INC.
By: /s/ John M. Kenney
--------------------------------
Name: John M. Kenney
Title: Vice President
29
<PAGE>
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------------
OF SIMMONS COMPANY
------------------
[See the Amended and Restated Certificate of Incorporation of
Simmons Company at Tab 11]
<PAGE>
EXHIBIT B
AMENDED AND RESTATED BYLAWS OF SIMMONS COMPANY
----------------------------------------------
[See the Amended and Restated Bylaws of Simmons Company
at Tab 12]
<PAGE>
EXHIBIT C
REGISTRATION AGREEMENT
----------------------
AGREEMENT, dated as of [ ], 199_ (this
"Agreement"), by and between Simmons Holdings, Inc., a Delaware
corporation (the "Company"), and NationsBank, N.A. (South), solely
as trustee of the Simmons Company Employee Stock Ownership Trust,
established pursuant to the Agreement of Trust for the Simmons
Company Employee Stock Ownership Plan, dated as of January 17,
1989, as amended, adopted as part of the Simmons Company Employee
Stock Ownership Plan (the "Plan"), or any successor trustee
thereunder (the "Trustee"). This Agreement shall become effective
upon execution by the parties hereto, provided, however, that the
-----------------
Company shall have no obligation to enter into this Agreement
prior to the consummation of a transaction giving rise to an
Exchange Event, as such term is defined in the Stock Purchase
Agreement (as such term is hereinafter defined).
Simmons Company, a Delaware corporation ("Simmons"), the
Trustee, Merrill Lynch Capital Appreciation Partnership No. B-XI,
L.P., MLCP Associates L.P. No. II, ML IBK Positions Inc., ML
Offshore LBO Partnership No. B-XI, Merrill Lynch KECALP L.P. 1987,
Merrill Lynch KECALP L.P. 1989, Merchant Banking L.P. No. IV,
certain stockholders listed on the signature pages thereto,
Simmons Acquisition Corp., a previously wholly owned subsidiary of
the Company ("SAC"), and the Company entered into a Stock Purchase
Agreement, dated as of February __, 1996 (the "Stock Purchase
Agreement"), pursuant to which, among other things, subject to the
terms and conditions thereof, SAC purchased shares of Common Stock
of the Company from certain stockholders.
The parties to this Agreement entered into a separate 1996
Stockholders' Agreement, dated March __, 1996 (the "1996
Stockholders' Agreement"), pursuant to which the Trustee agreed to
certain restrictions on the sale, assignment, transfer,
encumbrance or other disposition of certain shares of preferred
stock of Simmons (the "Series B Preferred Stock") in return for,
among other things, certain exchange rights, allowing the Trustee
to exchange shares of Series A Preferred Stock for shares of the
Company's Common Stock (as such term is hereinafter defined).
The Company has agreed to enter into this Agreement as an
inducement to, and as consideration for, the Trustee entering into
the Stock Purchase Agreement and the 1996 Stockholders' Agreement,
and each of the parties hereto deem it in their best interests to
enter into this Agreement.
<PAGE>
Accordingly, in consideration of the premises and of the terms
and conditions herein contained the parties hereto mutually agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Affiliate" of any Person shall mean any other Person directly
or indirectly controlled by, controlling or under common control
with such Person. For the purposes of this definition, "control",
when used with respect to any Person, means the power to directly
or indirectly direct the management and policies of such person,
whether through the ownership of voting securities, by contract or
otherwise; the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" shall have the meaning ascribed thereto in the
Preamble hereof.
"Board of Directors" shall mean the board of directors of the
Company.
"Certificate of Designations" shall mean the
Certificate of Designations of the Company, filed ______ __,
1996, with the Secretary of State for the State of Delaware.
"Class C Stock" shall mean the Company's Class C stock, as
such is defined in the Certificate of Designations.
"Company" shall have the meaning ascribed thereto in the
Preamble hereof.
"Common Stock" shall mean the common stock of the Company,
$.01 par value per share.
"Effective Date" shall mean March __, 1996, the effective
date of the 1996 Stockholders Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute then in effect, and a
reference to a particular section thereof shall be deemed to
include a reference to the comparable section, if any, of any such
similar federal statute.
"Fair Value Price" shall mean, with respect to each share of
Common Stock, an amount equal to the fair market
2
<PAGE>
value (valued on a going concern basis) of a share of such stock,
as determined in good faith by the Board of Directors of the
issuer of such stock, without applying any discounts for minority
interests or for legal or contractual restrictions on
transferability.
"Investor Shares" shall mean the shares of Common Stock
beneficially owned by the Investors (including any shares of
Common Stock issued or issuable upon the conversion of any other
class of the Company's capital stock), any of their Affiliates or
any of their respective transferees.
"Investors" means those Persons listed on Schedule A attached
hereto, and any transferee of any such Investor; provided that,
notwithstanding the foregoing, at any particular time a Person
shall not be treated as an Investor if the Person, both
individually and together with any shares held by others that
would, if sold, be aggregated with sales by such Person pursuant
to Rule 144(e)(3) under the Act, holds less than one percent (1%)
of the Common Stock at the time outstanding and if such shares in
the hands of such Person at the time could be sold in compliance
with Rule 144 within a three month period.
"Person" shall mean an individual, partnership, joint venture,
corporation, trust, unincorporated organization, or government, or
any department or agency thereof.
"Plan" shall have the meaning ascribed thereto in the Preamble
hereof.
"Registrable Securities" shall mean (i) shares of Common Stock
that are issued or are issuable upon conversion of the Class C
Stock and are held by the Trustee immediately prior to a
registration under the Securities Act arising from a Section 2.1
Request and (ii) the Investor Shares, collectively. As to any
particular Registrable Securities, such securities shall cease to
be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective
under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii)
such securities shall have been sold in open market transactions
pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise
transferred, or (iv) such securities shall have ceased to be
outstanding.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with this Agreement, including
without limitation, (i) all SEC and stock exchange
3
<PAGE>
or National Association of Securities Dealers, Inc. ("NASD")
registration and filing fees, (ii) all fees and expenses of
complying with securities or blue sky laws (including reasonable
fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses,
(iv) the fees and disbursements of counsel for the Company and of
the Company's independent public accountants, including the
expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance, (v)
any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities and the reasonable fees and
expenses of any special experts retained by the Company in
connection with such performance and compliance, including any fee
payable to a qualified independent underwriter within the meaning
of the rules of the NASD, but excluding underwriting discounts
bind commissions and transfer taxes, if any, and (vi) internal
expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing
legal or accounting duties); provided, however, that each
-------- -------
stockholder who beneficially owns (or holds, in the case of the
Trustee) any Registrable Securities shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of its Registrable Securities pursuant to
a registration statement effected pursuant to this Agreement.
"Requisite Share Number" means at least 10% of the outstanding
Common Stock with an aggregate Fair Value Price of at least $15
million.
"SEC" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities
Act or the Exchange Act.
"Section 2.1 Maximum Number" shall have the meaning ascribed
thereto in Section 2.1(e) hereof.
"Section 2.1 Notice" shall have the meaning ascribed thereto
in Section 2.1(a) hereof.
"Section 2.1 Request" shall have the meaning ascribed thereto
in Section 2.1(a) hereof.
"Section 2.2 Notice" shall have the meaning ascribed thereto
in Section 2.2(a) hereof.
"Section 2.2 Sale Number" shall have the meaning ascribed
thereto in Section 2.2(c) hereof.
4
<PAGE>
"Section 2.6 Notice" shall have the meaning ascribed thereto
in Section 2.6(b) hereof.
"Section 2.6 Sale Number" shall have the meaning ascribed
thereto in Section 2.6(d) hereof.
"Section 2.4 Event" shall have the meaning ascribed thereto by
Section 2.4(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a
reference to a particular section thereof shall be deemed to
include a reference to the comparable section, if any, of any such
similar federal statute.
"Stock Purchase Agreement" shall have the meaning ascribed
thereto in the Preamble hereof.
"Subsequent Grantee" shall have the meaning ascribed thereto
in Section 2.6(b) hereof.
"Subsequent Stockholders" shall have the meaning ascribed
thereto in Section 2.2(c) hereof.
"Third Party Registration Rights" shall have the meaning
ascribed thereto in Section 2.6(b) hereof.
"Trustee" shall have the meaning ascribed thereto in the
Preamble hereof.
"Trustee Shares" shall mean the Registrable Securities held by
the Trustee in its capacity as Trustee of the Trust.
"Withdrawal Election" shall have the meaning ascribed thereto
in Section 2.1(e) hereof.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 Registration on Request of the Trustee.
---------------------------------------
(a) Request by the Trustee. Once the Company shall have
----------------------
completed an initial registered public offering of Common Stock
for its own account (a "Company IPO"), and only if a Company IPO
shall have been completed, upon the written request (the "Section
2.1 Request") of the Trustee that the Company effect the
registration under the Securities Act of at least the Requisite
Share Number of such Trustee's Registrable Securities, the Company
will promptly give written notice of
5
<PAGE>
such requested registration (a "Section 2.1 Notice") to all other
stockholders who beneficially own (or hold, in the case of the
Trustee) any Registrable Securities, and thereupon will use its
best efforts to effect, as promptly as practicable (but in no
event later than 120 calendar days after the Company receives the
Section 2.1 Request), the registration under the Securities Act
of:
(i) the Registrable Securities that the Company has been
requested to register by the Section 2.1 Request, and
(ii) all other Registrable Securities that the Company
has been requested to register by any other holders of
Registrable Securities by written request given to the
Company within 15 calendar days after the giving of the
Section 2.1 Notice,
all to the extent necessary to permit the disposition of the
Registrable Securities so to be registered pursuant to an
underwritten public offering; provided, however, that (A) the
-------- -------
Company shall not be obligated to file a registration statement
relating to a registration request under this Section 2.1 at a
time when the Company is then in the process of registering any
other securities or within a period of 180 calendar days after the
effective date of any other registration statement of the Company
(other than, in each case, registration statements on Form S-4 or
Form S-8, or any successor or similar forms), (B) the Company
shall not be obligated to effect more than one registration
statement pursuant to this Section 2.1 during the term of this
Agreement and (C) the Company may postpone filing a registration
statement relating to a registration request under this Section
2.1 for a reasonable period (not in excess of 90 calendar days
after such filing would otherwise be required under this Section
2.1) if in its judgment such filing would require the disclosure
of material information that the Company has a bona fide business
purpose for preserving as confidential.
(b) Registration Statement Form. Registrations under this
---------------------------
Section 2.1 shall be on such appropriate registration form of the
SEC for the disposition of the Registrable Securities in an
underwritten public offering as shall be selected by the Company
and shall be reasonably acceptable to the Trustee.
(c) Expenses. The Company shall pay all Registration Expenses
--------
in connection with a registration requested pursuant to this
Section 2.1.
6
<PAGE>
(d) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 2.1 will not be deemed to have been
effected unless it has become effective; provided, however, that
-------- -------
if, after a registration has become effective, the offering of
Registrable Securities pursuant to such registration is interfered
with by any stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such
registration will be deemed not to have been effected.
(e) Priority in Requested Registrations. If the managing
-----------------------------------
underwriter for a requested registration pursuant to this Section
2.1 shall advise the Company in writing that, in its opinion, the
number of Registrable Securities requested to be included in such
registration exceeds the number (the "Section 2.1 Maximum Number")
that can be sold in an orderly manner in such offering within a
price range acceptable to stockholders who beneficially own (or
holds, in the case of the Trustee) Registrable Securities
representing in the aggregate at least the Requisite Share Number,
then the number of such Registrable Securities to be included in
such registration shall be allocated first to the Trustee Shares
(until the Section 2.1 Maximum Number of such shares are
registered) and, then, if the number of such Trustee Shares to be
registered is less than the Section 2.1 Maximum Number, shall be
allocated pro rata among all stockholders who beneficially own any
Registrable Securities and request that Registrable Securities be
included in such registration on the basis of the relative number
of shares of such Registrable Securities each such stockholder has
requested to be included in such registration (until the Section
2.1 Maximum Number of such shares is met). If, as a result of the
proration provisions of this subsection 2.1(e), any stockholder
who beneficially owns any Registrable Securities shall not be
entitled to include all Registrable Securities in a registration
that such stockholder has requested be included, such stockholder
may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election");
provided, however, that a Withdrawal Election shall be irrevocable
- -------- -------
and, after making a Withdrawal Election, a stockholder shall no
longer have any right to include Registrable Securities in the
registration as to which such Withdrawal Election was made.
(f) Termination by the Company. If as a result of Withdrawal
--------------------------
Elections (but after the Company shall have included in such
registration in place of such withdrawn Registrable Securities
such additional Registrable Securities held by other stockholders
whose Registrable Securities were excluded as a result of the
proration provisions of subsection 2.1(e)), less than the
Requisite Share Number of Registrable Securities are requested to
be included in a registration, the
7
<PAGE>
Company may, at its election, give written notice to all
stockholders who have requested that Registrable Securities be
included in a registration and who have not made a Withdrawal
Election that the Company has determined not to proceed with such
registration and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such
abandoned registration, without prejudice, however, to the
stockholders' rights to have Registrable Securities registered
pursuant to this Section 2.1 in the future.
Section 2.2 Incidental Registration.
------------------------
(a) Right to Include Registrable Securities. If the Company at
---------------------------------------
any time proposes to register any shares of Common Stock under the
Securities Act for sale for its own account (other than a
registration on Form S-4 or Form S-8, or any successor or similar
forms) in a manner that would permit registration of Registrable
Securities for sale to the public under the Securities Act, it
will promptly give written notice to all stockholders who
beneficially own (or who hold, in the case of the Trustee) any
Registrable Securities of its intention to do so, of the
registration form of the SEC that has been selected by the Company
and of such holders' rights under this Section 2.2 (the "Section
2.2 Notice"). The Company will use its best efforts to include in
the proposed registration all Registrable Securities that the
Company is requested in writing, within 15 calendar days after the
Section 2.2 Notice is given, to register by the stockholders
thereof; provided, however, that (i) if, at any time after giving
-------- -------
written notice of its intention to register shares of Common Stock
and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall
determine for any reason not to register such shares of Common
Stock, the Company may, at its election, give written notice of
such determination to all stockholders who beneficially own (or
who hold, in the case of the Trustee) any Registrable Securities
and, thereupon, shall be relieved of its obligation to register
any Registrable Securities in connection with such abandoned
registration, and (ii) in case of a determination by the Company
to delay registration of shares of Common Stock, the Company shall
be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such
other shares of Common Stock.
(b) Expenses. The Company shall pay all Registration Expenses
--------
in connection with a registration requested pursuant to this
Section 2.2.
(c) Priority in Incidental Registrations. If the managing
---------------------------------------
underwriter for a registration pursuant to this
8
<PAGE>
Section 2.2 that involves an underwritten offering shall advise
the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds
the number (the "Section 2.2 Sale Number") that can be sold in an
orderly manner in such offering within a price range acceptable to
the Company, then the Company shall include in such offering (i)
first, all the securities the Company proposes to register, and
(ii) second, to the extent that the Registrable Securities to be
included by the Company are less than the Section 2.2 Sale Number,
all Registrable Securities requested to be included by all
stockholders who beneficially own (or hold, in the case of the
Trustee) any Registrable Securities and by any other Persons to
whom incidental registration rights may have been granted on or
after the Effective Date (the "Subsequent Stockholders");
provided, however, that if the sum of the number of such
- -------- -------
Registrable Securities and the number of such securities held by
such Subsequent Stockholders exceeds the Section 2.2 Sale Number
less the number of securities included pursuant to clause (i)
hereof, then the number of such Registrable Securities included in
such registration shall be allocated pro rata among all requesting
stockholders who beneficially own (or hold, in the case of the
Trustee) any Registrable Securities and among all Subsequent
Stockholders, on the basis of the relative number of shares of
such Registrable Securities each such stockholder and Subsequent
Stockholder has requested to be included in such registration
(until the Section 2.2 Sale Number of such shares is registered).
If, as a result of the proration provisions of this subsection
2.2(c), any such stockholder or Subsequent Stockholder shall not
be entitled to include all Registrable Securities in a
registration pursuant to this Section 2.2 that such stockholder or
Subsequent Stockholder has requested be included, such stockholder
or Subsequent Stockholder may make a Withdrawal Election;
provided, however, that such Withdrawal Election shall be
- -------- -------
irrevocable and, after making a Withdrawal Election, such
stockholder or Subsequent Stockholder shall no longer have any
right to include Registrable Securities in the registration as to
which such Withdrawal Election was made.
Section 2.3 Registration Procedures. If and wherever the
-----------------------
Company is required to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities
Act as provided in this Article II, the Company will, as soon as
practicable:
(a) promptly prepare and file with the SEC (in any event
within 120 calendar days after the end of the period within
which requests for registration may be given to the Company),
the requisite registration statement with respect to such
Registrable Securities and use its best efforts to cause such
registration statement
9
<PAGE>
to become and remain effective; provided, however, that the
-------- -------
Company may discontinue any registration of its securities
that is being effected pursuant to Section 2.2 at any time
prior to the effective date of the registration statement
relating thereto;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective for such period (which in no
event shall exceed 120 calendar days) as any seller of such
Registrable Securities shall request and to comply with the
provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such
registration statement during such period;
(c) furnish to each seller of such Registrable
Securities and each underwriter, if any, of the securities
being sold by such seller with such number of copies of such
registration statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration
statement (including each preliminary prospectus and summary
prospectus), in conformity with the requirements of the
Securities Act, and such other documents as such seller and
underwriter may reasonably request in order to facilitate the
public sale of the Registrable Securities owned by such
seller;
(d) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement
under such other securities or "blue sky" laws of such
jurisdictions as any sellers of Registrable Securities
representing more than 15% of the total number of securities
covered by such registration statement or any managing
underwriter shall reasonably request, and do any and all
other acts and things that may be necessary or advisable to
enable such seller and each managing underwriter, if any, to
consummate the disposition in such jurisdictions of such
Registrable Securities owned by such seller; provided,
--------
however, that the Company shall not for any such purpose be
-------
required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for
the requirements of this clause (d) be obligated to be so
qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in
any such jurisdiction;
(e) notify each seller of any such Registrable
Securities covered by such registration statement, at any
10
<PAGE>
time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the Company's becoming
aware that the prospectus, as then in effect, includes an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and
at the request of any such seller promptly prepare and
furnish to such seller a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter
delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading;
(f) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least 12 months, but not more than 18 months, beginning with
the first day of the Company's first calendar quarter after
the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(g) use its best efforts to cause all such Registrable
Securities covered by such registration statement to be
listed on the principal securities exchange on which similar
equity securities issued by the Company are then listed or
eligible for listing, if the listing of such securities is
then permitted under the rules of such exchange;
(h) provide a transfer agent and registrar for all such
Registrable Securities covered by such registration statement
not later than the effective date of such registration
statement;
(i) in connection with any underwritten offering, enter
into an underwriting agreement with the underwriter of such
offering in the form customary for such underwriter for
similar offerings, including such representations and
warranties by the Company, provisions regarding the delivery
of opinions of counsel for the Company and accountants'
letters, provisions regarding indemnification and
contribution, and such other terms and conditions as are at
the time customarily contained in such underwriter's
underwriting agreements for similar
11
<PAGE>
offerings. Such sellers of Registrable Securities shall be
required to make such representations and warranties to and
agreements with the Company and the underwriters as maybe
necessary, in the discretion of the Company or the
underwriters, to effect such registration;
(j) upon receipt of such confidentiality agreements as
the Company may reasonably request, make available for
inspection by any seller of such Registrable Securities
covered by such registration statement and by any attorney,
accountant or other agent retained by any such seller, all
pertinent financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries,
and cause all of the Company's and its subsidiaries'
officers, directors and employees to supply all information
reasonably requested by any such seller, attorney, accountant
or agent in connection with such registration statement; and
(k) permit any holder of Registrable Securities who, in
the sole judgment, exercised in good faith, of such holder,
might be deemed to be a controlling person of the Company, to
participate in the preparation of such registration or
comparable statement and to require the insertion therein of
material, furnished to the Company in writing, that in the
judgment of such holder, as aforesaid, should be included.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish the
Company such information regarding such seller and the
distribution of such securities as the Company may from time to
time reasonably request in writing.
Each holder of Registrable Securities agrees that upon receipt
of any notice from the Company of the happening of any event of
the kind described in clause (e) of this Section 2.3, such holder
will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable
Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (e) of
this Section 2.3, and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such holder's possession,
of the prospectus covering such Registrable Securities that was in
effect prior to such amendment or supplement. In the event the
Company shall give any such notice, the period set forth in clause
(b) of this Section 2.3 shall be extended by the number of days
during the period from and including the date of the giving of
such notice pursuant to clause (e) of this Section 2.3 to and
including the date
12
<PAGE>
when each seller of Registrable Securities covered by such
registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by clause (e) of
this Section 2.3.
Section 2.4 Indemnification. In the event of any registration
---------------
of any securities of the Company under the Securities Act pursuant
to Section 2.1 or 2.2 hereof, the Company, each seller of any
Registrable Securities covered by such registration statement, and
each other Person who participates as an underwriter, if any, in
the offering or sale of such securities and each other Person,
shall enter into mutually acceptable agreements providing
customary indemnification and contribution provisions.
Section 2.5 Underwriters. The Company shall have the right, to
------------
select any nationally recognized investment banker(s) to act as
the underwriter in any public offering of Registrable Securities
pursuant to Sections 2.1 or 2.2 hereof to administer the offering.
Section 2.6 Additional Registration Rights Provisions.
------------------------------------------
(a) Nothing in this Article II shall be read to prohibit or
prevent (i) the Company from granting additional demand or
incidental registration rights to any Person after the Effective
Date, including the incidental registration rights set forth in
Section 2.2 hereof or (ii) the registration by the Company from
time to time of any Investor Shares.
(b) If at any time on or following the Effective Date, the
Company shall have granted to any holder of Common Stock
(including any of the Investors) registration rights (a
"Subsequent Grantee") in respect of shares of Common Stock
beneficially owned by such holder ("Third Party Registration
Rights") which rights shall have been exercised by such Subsequent
Grantee, the Company shall promptly give written notice of the
exercise of such Third Party Registration Rights to each of the
Investors and to the Trustee (the "Section 2.6 Notice"), who shall
have the right (subject to the provisions of Section 2.6(c) and
(d) hereof) to include in the proposed registration all
Registrable Securities beneficially owned by any of the Investors
or held by the Trustee that the Company is requested in writing,
within 15 days after the Section 2.6 Notice is given, by any of
the Investors or by the Trustee to register; provided, however,
-------- -------
that (i) if, at any time after any of the Investors or the Trustee
shall have given written notice of their intention to register
shares of Common Stock and prior to the effective date of the
registration statement filed in connection with such registration,
the Company shall
13
<PAGE>
determine for any reason not to register such shares of Common
Stock, the Company may, at its election, give written notice of
such determination to each of the Investors and the Trustee and,
thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such abandoned
registration, and (ii) in case of a determination by the Company
to delay registration of shares of Common Stock, the Company shall
be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such
other shares of Common Stock.
(c) Expenses. The Company shall pay all Registration Expenses
--------
in connection with each registration of Registrable Securities
requested pursuant to this Section.
(d) Priority in Incidental Registrations. If the managing
------------------------------------
underwriter for a registration pursuant to this Section 2.6 that
involves an underwritten offering shall advise the Company in
writing that, in its opinion, the number of securities requested
to be included in such registration exceeds the number (the
"Section 2.6 Sale Number") that can be sold in an orderly manner
in such offering within a price range acceptable to the Company
and Subsequent Grantees, the Company shall include in such
offering (i) first, all the securities proposed to be registered
by the Subsequent Grantee (including any of the Investors or any
of their Affiliates), (ii) second, to the extent that the
Registrable Securities to be included by the Subsequent Grantees
(including any of the Investors or any of their Affiliates) are
less than the Section 2.6 Sale Number, all Registrable Securities
sought to be registered by the Company, and (iii) third, to the
extent that the sum of the Registrable Securities to be included
by the Subsequent Grantees (including any of the Investors or any
of their Affiliates) and by the Company are less than the Section
2.6 Sale Number, all Registrable Securities requested to be
included by any of the Investors, the Trustee and by any other
Person or Persons upon whom registration rights have been
conferred; provided, however, that if the sum of the number of
-------- -------
Registrable Securities to be registered pursuant to clause (iii)
above exceeds the Section 2.6 Sale Number, then the number of
Registrable Securities requested by any of the Investors, the
Trustee and by any other Person or Persons upon whom registration
rights have been conferred to be included in such registration
shall be allocated pro rata among each of the Investors, the
Trustee and such other Person or Persons, on the basis of the
relative number of shares of such Registrable Securities each of
the Investors, the Trustee and each such Person have requested to
be included in such registration. If, as a result of the proration
provisions of this subsection 2.6(d), any of the Investors or the
Trustee shall not be entitled to include all Registrable
Securities in a registration pursuant to this Section 2.6 that any
of the
14
<PAGE>
Investors or the Trustee have requested be included, each of the
Investors or the Trustee may make a Withdrawal Election;
provided, however, that such Withdrawal Election shall be
- -------- -------
irrevocable and, after making a Withdrawal Election, an Investor
or the Trustee shall no longer have any right to include
Registrable Securities in the registration as to which such
Withdrawal Election was made.
(e) Except as set forth in subsection 2.6(b) hereof and
notwithstanding any other provision of this Agreement, the grant
by the Company of any additional demand registration rights (or
the registration of any Investor Shares) shall not give rise to
any registration rights on the part of any stockholders who
beneficially own (or hold, in the case of the Trustee) any
Registrable Securities in respect of the exercise of such
additional demand registration rights by the holders thereof (or
the registration of any Investor Shares).
(f) Notwithstanding any other provision of this Agreement, (i)
without the consent of the Investors, the Company shall not be
required to register any securities unless shares of Common Stock
have prior thereto been, or simultaneously therewith are being,
registered on a Form other than Form S-4 or Form S-8 (or any
successor or similar form) (it being acknowledged by the Trustee
that a majority of the Investors shall have the exclusive right to
determine when such initial registration shall occur), and (ii)
the Company may register the Investor Shares at any time without
the consent of the Trustee.
ARTICLE III
MISCELLANEOUS
Section 3.1 Binding Effect. This Agreement shall be
--------------
binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns and
transferees except to the extent that the terms of this
Agreement limit or otherwise restrict the transferability of
any rights or obligations hereunder. The provisions of this
Agreement shall be binding upon the parties hereto and their
respective heirs, legal representatives, successors and
assigns.
Section 3.2 Waiver and Amendment. Any party hereto may
--------------------
waive its rights under this Agreement at any time, and the
Company may waive its rights under this Agreement with
respect to any Stockholder or group of Stockholders at any
time, provided that no waiver by the Company shall operate to
--------
waive the Company's rights under this Agreement with respect
to any Stockholder or group of Stockholders not named in such
waiver.
15
<PAGE>
Any agreement on the part of any such party to any such waiver by the Company
shall be valid only if set forth in an instrument in writing signed by such
party.
Section 3.5 Notices. All notices and other communications provided for
--------
herein shall be dated and in writing and shall be deemed to have been duly given
when delivered, if delivered personally, or when deposited in the mail, if sent
by registered or certified mail, return receipt requested, postage prepaid and
when received, if delivered otherwise, to the party to whom it is directed at
the following addresses:
(a) If to the Company, to:
Simmons Holdings, Inc.
c/o INVESTCORP International Inc.
280 Park Avenue, 37 West Floor
New York, New York 10017
Attn: Christopher J. O'Brien
with a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
47th Floor
New York, New York 10166-0193
Attn: Charles K. Marquis, Esq.
(b) If to any of the Investors or any of their Affiliates, to:
c/o INVESTCORP International Inc.
280 Park Avenue, 37 West Floor
New York, New York 10017
Attn: Christopher J. O'Brien
with copies to:
INVESTCORP International Inc.
280 Park Avenue, 37 West Floor
New York, New York 10017
Attn: Christopher J. O'Brien
and:
16
<PAGE>
Gibson, Dunn & Crutcher
200 Park Avenue
47th Floor
New York, New York 10166-0193
Attn: Charles K. Marquis, Esq.
(c) If to the Trustee, to:
NationsBank, N.A. (South)
600 Peachtree Street, N.E.
7th Floor
Atlanta, Georgia 30308
Attn: Ernest F. Ritter
with a copy to:
Kirkpatrick & Lockhart L.L.P.
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Charles R. Smith
or at such other address as the parties hereto shall have specified by notice in
writing to the other parties.
Section 3.4 Applicable Law. The laws of the State
--------------
of Delaware shall govern the interpretation, validity and performance of the
terms of this Agreement, regardless of the
law that might be applied under principles of conflicts of law.
Section 3.5 Integration. This Agreement and the documents referred to herein
-----------
or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof (including, without
limitation, agreements, arrangements or understandings with respect to the
issuance, sale, purchase, redemption, conversion, exchange, registration, voting
or transfer of shares of Common Stock) other than those expressly set forth
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter (including, without
limitation, agreements, arrangements or understandings with respect to the
issuance, sale, purchase, redemption, conversion, exchange, registration, voting
or transfer of shares of Common Stock).
17
<PAGE>
Section 3.6 Descriptive Headings Etc. The headings in this Agreement are
------------------------
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, (i) words of any gender shall be deemed to include each
other gender; (ii) words using the singular or plural number shall also
include the plural or singular number, respectively; and (iii) references to
"hereof," "herein," "hereby" and similar terms shall refer to this entire
Agreement.
Section 3.7 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
Section 3.8 Severability. In the event that any one or more of the
------------
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of such provision, paragraph, word, clause, phrase or sentence in
every other respect and of the other remaining provisions, paragraphs, words,
clauses, phrases or sentences hereof shall not be in any way impaired, it being
intended that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
Section 3.9 Term. This Agreement shall terminate five years from the
-----
consummation of a Company IPO.
Section 3.10 Injunctive Relief. It is hereby agreed and acknowledged that
-----------------
it will be impossible to measure in money the damages that would be suffered if
the parties fail to comply with any of the obligations herein imposed on them
and that in the event of any such failure, an aggrieved person will be
irreparably damaged and will not have an adequate remedy at law. Any such person
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, without the posting of any bond and if
any action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
Section 3.11 Administration. Any good faith determination by the Board
--------------
of Directors with respect to any matter which is the subject of this Agreement
shall be conclusive and binding on all Stockholders.
18
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be executed on its behalf as of the date first above
written.
SIMMONS HOLDINGS, INC.
By:
--------------------
Name:
Title:
SIMMONS COMPANY EMPLOYEE STOCK
OWNERSHIP TRUST
By: NationsBank, N.A. (South), or
successor trustee solely in in its
capacity as Trustee
By:
-----------------------------
Name:
Title:
19
<PAGE>
SCHEDULE A
INVESTORS
---------
[to be supplied by Company immediately prior to an Exchange
Event]
20
EXHIBIT 10.7
EXECUTION COPY
SIMMONS COMPANY
$100,000,000
10-3/4% Senior Subordinated Notes due 2006
PURCHASE AGREEMENT
------------------
April 15, 1996
CHASE SECURITIES INC.
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Simmons Company, a Delaware corporation (the "Company"), proposes to
issue and sell $100,000,000 principal amount of its 10-3/4% Senior
Subordinated Notes due 2006 (the "Securities"). The Securities are to be
issued pursuant to an Indenture substantially in the form of Exhibit A
hereto to be dated as of April 18, 1996 (the "Indenture"), between the
Company and SunTrust Bank, Atlanta, as trustee (the "Trustee"). The Company
hereby confirms the agreement with Chase Securities Inc. (the "Initial
Purchaser" or "CSI") with respect to the sale by the Company of the
Securities.
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on an exemption therefrom. The Company has
prepared a preliminary offering memorandum dated March 25, 1996 (such
preliminary offering memorandum being hereinafter referred to as the
"preliminary offering memorandum"), and an offering memorandum dated April
15, 1996 (such offering memorandum, in the form first furnished to the
Initial Purchaser for use in connection with the offering of the
Securities, being hereinafter referred to as the "Offering Memorandum"),
setting forth information regarding the Company and the Securities. The
Company hereby confirms that it has authorized the use of the preliminary
offering memorandum and the Offering Memorandum in connection with the
offering and sale of the Securities.
Holders (including subsequent transferees) of the Securities will have
the registration rights set forth in the Exchange and Registration Rights
Agreement (the
<PAGE>
2
"Registration Rights Agreement"), to be dated the Closing Date, in
substantially the form of Exhibit B hereto, for so long as any such
Securities constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Company will agree to file with the Securities and Exchange
Commission (the "Commission") (i) a registration statement under the
Securities Act (the "Exchange Offer Registration Statement") registering an
issue of a series of senior subordinated notes (the "Exchange Securities")
identical in all material respects to the Securities (except that the
Exchange Securities will not contain terms with respect to transfer
restrictions) to be offered in exchange for the Securities (the "Exchange
Offer") and (ii) under certain circumstances, a shelf registration
statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration Statement").
Capitalized terms used herein without definition have the respective
meanings specified therefor in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. The
-----------------------------------------------------------
Company represents and warrants to and agrees with the Initial Purchaser as
of the date hereof and as of the Closing Date that:
(a) Each of the preliminary offering memorandum and the Offering
Memorandum, as of its respective date, contains all the information
that, if requested by a prospective purchaser, would be required to be
provided pursuant to Rule 144A(d)(4) under the Securities Act. The
Offering Memorandum does not, and at the Closing Date, the Offering
Memorandum and any amendment or supplement thereto will not, contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The preceding sentence does not apply to information
contained in or omitted from the Offering Memorandum (or any
supplement or amendment thereto in reliance upon and in conformity
with written information relating to the Initial Purchaser furnished
to the Company by or on behalf of the Initial Purchaser specifically
for use therein (the "Initial Purchaser's Information"). The parties
acknowledge and agree that the Initial Purchaser's Information
consists solely of
<PAGE>+
3
the third, fourth and sixth paragraphs under the caption "Plan of
Distribution" in the Offering Memorandum.
(b) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the conduct of its businesses
requires such qualification, and has all power and authority necessary
to own or hold its respective properties and to conduct the businesses
in which it is engaged as described in the Offering Memorandum, except
where the failure to so qualify or have such power or authority would
not have, singularly or in the aggregate, a material adverse effect on
the condition (financial or otherwise), results of operations,
business or prospects of the Company (a "Material Adverse Effect").
(c) The Company has an authorized capitalization as set forth in
the Offering Memorandum, and all the issued shares of capital stock of
the Company have been duly and validly authorized and issued and are
fully paid and non-assessable. The capital stock of the Company
conforms to the description thereof contained in the Offering
Memorandum.
(d) This Agreement has been duly authorized and validly executed
and delivered by the Company and is the valid and legally binding
agreement of the Company. At the Closing Date the Indenture will
conform in all respects to the requirements of the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission applicable to an indenture which is
qualified thereunder; and the Indenture and the Registration Rights
Agreement have been duly authorized by the Company and, when duly
executed and delivered in accordance with their terms by each party
thereto, will constitute valid and legally binding agreements of the
Company, enforceable against the Company in accordance with their
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of
<PAGE>
4
whether enforcement is sought in a proceeding at law or in equity).
(e) On the Closing Date, the Securities will have been duly
authorized by the Company, and the Securities, the Indenture and the
Registration Rights Agreement will have been duly executed by the
Company and will conform in all material respects to the descriptions
thereof contained in the Offering Memorandum. When the Securities are
issued, authenticated and delivered in accordance with the Indenture
and paid for in accordance with the terms of this Agreement, the
Securities will constitute valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their
terms and entitled to the benefits of the Indenture, subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
(f) The execution, delivery and performance of the Indenture, the
Securities, the Registration Rights Agreement and this Agreement by
the Company, the consummation of the transactions contemplated hereby
and thereby, and the fulfillment of the terms hereof or thereof, will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company is
bound or to which any of the property or assets of the Company is
subject (except as would not have a Material Adverse Effect), nor will
such actions result in any violation of the provisions of the charter
or by-laws of the.Company or any statute or any judgment, order,
decree, rule or regulation of any court or arbitrator or governmental
agency or body having jurisdiction over the Company or any of its
properties or assets; and no consent, approval, authorization or order
of, or filing or registration with, any such court or arbitrator or
governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required
<PAGE>
5
for the execution, delivery and performance of the Indenture, the
Securities, the Registration Rights Agreement or this Agreement by the
Company or the consummation of the transactions contemplated hereby
and thereby which shall not have been obtained or made prior to the
Closing Date (other than such consents, approvals, authorizations or
orders of, or filings or registrations with the Commission or any
state securities regulatory authorities as may be required to be
obtained or made pursuant to the Registration Rights Agreement).
(g) Coopers & Lybrand L.L.P. are independent public accountants
with respect to the Company as required by the Securities Act and the
rules and regulations thereunder for financial statements included in
a definitive prospectus forming part of a registration statement on
Form S-1 under the Securities Act. The historical financial statements
(including the related notes, if any) included in the preliminary
offering memorandum and the Offering Memorandum comply in all material
respects (except for the inclusion of financial statement schedules)
with the requirements applicable to a Registration Statement on Form
S-1 and have been prepared, and fairly present, the financial position
of the Company at the respective dates indicated and the results of
its operations and its cash flows for the respective periods
indicated, in accordance with generally accepted accounting principles
consistently applied throughout such periods; and the financial
information and financial data set forth in the Offering Memorandum
under the captions "Summary -- Summary Financial and Other Data" and
"Selected Historical and Pro Forma Financial Data" are derived from
the accounting records of the Company, and fairly present the data
purported to be shown. The pro forma financial statements contained in
----------
the Offering Memorandum have been prepared on a basis consistent with
such historical statements, except for the pro forma adjustments
----------
specified therein, include all material adjustments to the historical
financial data required by Rule 11-02 of Regulation S-X to reflect the
Transactions (as defined in the Offering Memorandum), and give effect
to assumptions made on a reasonable basis and present fairly the
historical and proposed transactions contemplated by the preliminary
offering memorandum, the Offering Memorandum and this Agreement. The
other historical financial and
<PAGE>
6
statistical information and data included in the preliminary offering
memorandum and the Offering Memorandum are, in all material respects,
accurately presented.
(h) There are no pending actions or suits or judicial, arbitral,
rule-making or other administrative or other proceedings to which the
Company is a party or of which any property or assets of the Company
is the subject which, singularly or in the aggregate, if determined
adversely to the Company, are reasonably likely to have a Material
Adverse Effect; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others.
(i) No action has been taken and no statute, rule or regulation or
order has been enacted, adopted or issued by any governmental agency
or body which prevents the issuance of the Securities or suspends the
sale of the Securities in any jurisdiction; no injunction, restraining
order or order of any nature by a federal or state court of competent
jurisdiction has been issued with respect to the Company which would
prevent or suspend the issuance or sale of the Securities, or the use
of the preliminary offering memorandum or the Offering Memorandum in
any jurisdiction; no action, suit or proceeding is pending against or,
to the best of the Company's knowledge, threatened against or
affecting the Company before any court or arbitrator or any
governmental body, agency or official, domestic or foreign, which
could reasonably be expected to interfere with or adversely affect the
issuance of the Securities or in any manner draw into question the
validity thereof or in any manner draw into question the validity of
the Indenture, the Securities, the Registration Rights Agreement or
this Agreement or any action taken or to be taken pursuant hereto or
thereto; and every request of any securities authority or agency of
any jurisdiction for additional information (to be included in the
preliminary offering memorandum or the Offering Memorandum or
otherwise) has been complied with.
(j) The Company (i) is not in violation of its charter or by-laws,
(ii) is not in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such
<PAGE>
7
a default, in the due performance or observance of any term, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which it is a
party or by which it is bound or to which any of its property or
assets is subject and (iii) is not in violation in any respect of any
law, ordinance, governmental rule, regulation or court decree to which
it or its property or assets may be subject, except any violation or
default under clauses (ii) or (iii) that would not have a Material
Adverse Effect.
(k) Except as disclosed in the Offering Memorandum, the Company
possesses all material licenses, certificates, authorizations and
permits issued by, and has made all declarations and filings with, the
appropriate state, federal or foreign regulatory agencies or bodies
which are necessary or desirable for the ownership of its properties
or the conduct of its businesses as described in the Offering
Memorandum, except where the failure to possess or make the same would
not have, singularly or in the aggregate, a Material Adverse Effect,
and the Company has not received notification of any revocation or
modification of any such license, authorization or permit and has no
reason to believe that any such license, certificate, authorization or
permit will not be renewed.
(1) Except as set forth in Schedule 1(1), all Tax Returns (as
defined below) required to be filed by the Company in any jurisdiction
have been filed, other than those filings being contested in good
faith, and all material taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due or claimed to be
due from such entities have been paid, other than those being
contested in good faith and for which adequate reserves have been
provided or those currently payable without penalty or interest. To
the best of the Company's knowledge, all Tax Returns filed by the
Company prior to the date hereof were complete and accurate, except
such as could not reasonably be expected to result, singly or in the
aggregate, in a Material Adverse Effect. Except as set forth in
Schedule 1(1), no material claim for assessment or collection of Taxes
is presently being asserted against the Company. Furthermore, the
Company is not a party to any pending action, proceeding or
investigation by
<PAGE>
8
any governmental authority for the assessment or collection of Taxes,
nor does the Company have knowledge of any such threatened action,
proceeding or investigation, except such as could not reasonably be
expected to result, singly or in the aggregate, in a Material Adverse
Effect. No waivers of statutes of limitation in respect of any Tax
Returns have been given by or requested of the Company, nor has the
Company agreed to any extension of time with respect to a Tax
assessment or deficiency. No material claim by any authority in a
jurisdiction where the Company does not currently file a Tax Return is
pending to the effect that the Company is or may be subject to
taxation by that jurisdiction. No Liens are presently imposed upon or
asserted against any of the Company's assets as a result of or in
connection with any failure, or alleged failure, to pay any Tax. As of
the Closing Date, the Company will not have any agreement, whether or
not written, providing for the payment of Tax liabilities or
entitlements to refunds with any other party other than an agreement
in the nature of a tax sharing agreement with Holdings. To the best of
the Company's knowledge, the Company has withheld and paid all Taxes
required to be withheld in connection with any amounts paid or owing
to any employee, creditor, independent contractor or other third party
with respect to the business of the Company. The unpaid Taxes of the
Company do not exceed the reserve for Tax liability (as opposed to any
reserve for deferred Taxes established to reflect timing differences
between book and tax income) set forth on the most recent balance
sheet of the Company, as adjusted for the passage of time through the
date hereof in accordance with the past custom and practice in filing
Tax Returns. For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean all federal, state, local or foreign income,
payroll, employee withholding, unemployment insurance, social
security, sales, use, service use, leasing use, excise, franchise,
gross receipts, value added, alternative or add-on minimum, estimated,
occupation, real and personal property, stamp, transfer,' workers'
compensation, severance, windfall profits, environmental (including
taxes under Section 59A of the Internal Revenue Code of 1986, as
amended (the "Code")), or other tax of the same or of a similar
nature, including any interest, penalty, or addition thereto,
whether disputed or not. The term "Tax Return" means any return,
declaration, report, form,
<PAGE>
9
claim for refund, or information return or statement relating to Taxes
or income subject to taxation, or any amendment thereto, and including
any schedule or attachment thereto.
(m) The Company is not (a) an "investment company" or a company
"controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company
Act"), and the rules and regulations of the Commission thereunder or
(b).a "holding company" or a "subsidiary company" of a holding
company, or an "affiliate" thereof within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(n) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(o) The Company has and will maintain insurance covering its
properties, operations, personnel and businesses, which insurance is
in amounts and insures against such losses and risks, in each case as
is in accordance with customary industry practice to protect the
Company and its businesses. The Company has not received notice from
any insurer or agent of such insurer that capital improvements or
other expenditures will have to be made in order to continue such
insurance, except such as could not reasonably be expected, singularly
or in the aggregate, tO have a Material Adverse Effect.
(p) There are no securities of the Company registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
listed on a national securities exchange or quoted in a U.S. automated
inter-dealer quotation system. The Company
<PAGE>
10
has been advised that the Securities have been designated as PORTAL
securities in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc. (the "NASD").
(q) The Company does not own any "margin securities" as that term
is defined in Regulations G and U of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), and none of the
proceeds of the sale of the Securities will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security
or for any other purpose which might cause any of the Securities to be
considered a "purpose credit" within the meanings of Regulation G, T,
U or X of the Federal Reserve Board.
(r) Other than this Agreement or as disclosed in the Offering
Memorandum under "Certain Transactions," the Company is not a party to
any contract, agreement or understanding with any person that would
give rise to a valid claim against the Company or the Initial
Purchaser for a brokerage commission, finder's fee or like payment in
connection with the Acquisition (as defined in the Indenture) or the
offering of the Securities.
(s) The Company owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations,
copyrights, licenses and know-how (including trade secrets and other
unpatented or unpatentable proprietary or confidential information,
systems or procedures) necessary for the conduct of its businesses and
has no reason to believe that the conduct of its businesses will
conflict with any such rights of others which might reasonably be
expected to have a Material Adverse Effect, and has not received any
notice of any claim of conflict with, any such rights of others.
(t) The Company has good and marketable title in fee simple to, or
has valid rights to lease or otherwise use, all items of real or
personal property which are material to the business of the Company,
in each case free and clear of all liens, encumbrances,
<PAGE>
11
claims and defects that may materially interfere with the condition
(financial or otherwise), results of operations, business or prospects
of the Company, other than Permitted Liens (as defined in the
Indenture).
(u) No labor disturbance by the employees of the Company exists
or, to the best of the Company's knowledge, is contemplated.
(v) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"), or
Section 4975 of the Code) or "accumulated funding deficiency" (as
defined in Section 302 of ERISA) or any of the events set forth in
Section 4043(b) of ERISA (other than events with respect to which the
30-day notice requirement under Section 4043 of ERISA has been waived)
has occurred with respect to any "employee benefit plan" (as defined
in ERISA Section 3(3)) other than a "multiemployer plan" (as defined
in ERISA Section 3(37)) (an "Employee Benefit Plan") which might
reasonably be expected to have a Material Adverse Effect; each
Employee Benefit Plan is in compliance in all material respects with
applicable law, including ERISA and the Code; the Company has not
incurred and does not expect to incur liability under Title IV of
ERISA with respect to the termination of, or withdrawal from, any
"pension plan" (as defined in ERISA Section 3(2)); and each "pension
plan" for which the Company would have any liability and that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which might reasonably be expected to
cause the loss of such qualification.
(w) Except as disclosed in the Offering Memorandum, to the best
knowledge of the Company, there has been no storage, generation,
transportation, handling, treatment, disposal, discharge, emission, or
other release of any kind of toxic or other wastes or other hazardous
substances by, due to, or caused by the Company (or, to the best of
the Company's knowledge, any other entity for whose acts or omissions
the Company is or may reasonably be expected to be liable) upon any of
the property now or, to the actual knowledge of the chief executive
officer, chief
<PAGE>
12
financial officer, treasurer or secretary of the Company, previously
owned or leased by the Company (i) in violation of any statute or any
ordinance, rule, regulation, order, judgment, decree or permit or (ii)
which would, under any statute or any ordinance, rule (including rule
of common law), regulation, order, judgment, decree or permit, give
rise to any liability, except in the case of both clauses (i) and (ii)
for any violation or liability which would not have, singularly or in
the aggregate with all such violations and liabilities, a Material
Adverse Effect; there has been no disposal, discharge, emission or
other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other
hazardous substances with respect to which the Company has knowledge,
except for any such disposal, discharge, emission, or other release of
any kind which would not have, singularly or in the aggregate with all
such discharges and other releases, a Material Adverse Effect.
(x) None of the Company, any affiliate (as such term is defined in
Rule 501(b) under the Securities Act) of the Company or any person
acting on its or their behalf has engaged or will engage in any
directed selling efforts (as that term is defined in Regulation S
under the Securities Act), and all such persons have complied and will
comply with the offering restrictions requirement of Regulation S to
the extent applicable.
(y) Neither the Company nor any affiliate (as such term is defined
in Rule 501(b) under the Securities Act) of the Company has, directly
or through any agent, sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any "security" (as defined in
the Securities Act), which is or will be integrated with the sale of
the Securities in a manner that would require the registration of the
Securities under the Securities Act.
(z) None of the Company or any affiliate (as such term is defined
in Rule 501(b) under the Securities Act) of the Company or any other
person acting on its or their behalf has engaged, in connection with
the offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the
Securities Act.
<PAGE>
13
(aa) Assuming the accuracy of the Initial Purchaser's
representations in Section 2 hereof and their compliance with the
agreements set forth therein, it is not necessary, in connection with
the issuance and sale of the Securities and the offer, resale and
delivery of the Securities in the manner contemplated by this
Agreement and the Offering Memorandum, to register the Securities
under the Securities Act or to qualify the Indenture under the Trust
Indenture Act.
(bb) The Company immediately after the Closing Date (after giving
effect to the issuance of the Securities and to the other transactions
related thereto as described in the Offering Memorandum) will be
Solvent. As used in this paragraph (bb), the term "Solvent" means,
with respect to a particular date, that on such date (A) the present
fair market value (or fair salable value) of the assets of such entity
is not less than the total amount required to pay the probable
liabilities of such entity on its total existing debts and liabilities
(including contingent liabilities) as they become absolute and
matured, (B) such entity is able to realize upon its assets and pay
its debts and other liabilities, contingent obligations and
commitments as they mature and become due in the normal course of
business, (C) assuming the sale of the Securities as contemplated by
this Agreement and as described in the Offering Memorandum, such
entity is not incurring debts or liabilities beyond its ability to pay
as such debts and liabilities mature, and such entity is not engaged
in business or a transaction, and is not about to engage in business
or a transaction, for which its property would constitute unreasonably
small capital after giving due consideration to the prevailing
practice in the industry in which such person is engaged. In computing
the amount of such contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
(cc) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
<PAGE>
14
(dd) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Rule 10b-6 under the Exchange Act
in connection with the offering of the Securities.
(ee) Except as described in the Offering Memorandum, there are no
outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings
with respect to the sale or issuance of, any shares of capital stock
of or other equity interest in the Company.
(ff) Since the date as of which information is given in the
Offering Memorandum, except as otherwise stated therein, (A) there has
been no material adverse change or any development involving a
prospective material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company, whether or not arising in the ordinary course of
business, (B) there have been no transactions entered into by the
Company, other than those in the ordinary course of business,
which are material with respect to the Company, and (C) there has
been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
2. Purchase by the Initial Purchaser. On the basis of the
-----------------------------------
representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the Company agrees to issue and
sell to the Initial Purchaser and the Initial Purchaser agrees to purchase
from the Company $100,000,000 in principal amount of Securities at a
purchase price equal to 97.00% of the principal amount thereof less the
interest for one day on such amount (calculated at the Federal Funds
Effective Rate as published on the Telerate Screen at 9:00 A.M., New York
City time, on the Closing Date).
The Company shall not be obligated to deliver any of the Securities
except upon payment for all the Securities to be purchased as provided
herein.
The Initial Purchaser has advised the Company that it is its intention,
as promptly as it deems appropriate after the Company shall have furnished
the Initial Purchaser with copies of the Offering Memorandum, to resell the
Secu-
<PAGE>
15
rities pursuant to the procedures and upon the terms set forth in the
Offering Memorandum, including not to solicit any offer to buy or offer to
sell the Securities by means of any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act. The Initial Purchaser represents, warrants and
agrees with the Company that it has solicited and will solicit offers for
Securities only from, and will offer Securities only to, persons that it
reasonably believes to be, in the case of offers inside the United States,
(i) QIBs or (ii) other Institutional Accredited Investors. The Initial
Purchaser covenants and agrees that it will obtain from each person that it
reasonably believes to be an Institutional Accredited Investor, an executed
purchaser letter prior to the acceptance of an order to purchase Securities
made by such Institutional Accredited Investor, which letter shall be
substantially in the form of Annex A to the Offering Memorandum and which
completed letters shall be made available to the Company and its counsel
for review on the Closing Date. The Initial Purchaser represents and
warrants that (i) it is either a QIB or an Institutional Accredited
Investor, in either case with such knowledge and experience in financial
and business matters as are necessary to evaluate the merits and risks of
an investment in the Securities, and is acquiring its interest in the
Securities not with a view to the distribution or resale thereof, except
resales in compliance with the registration requirements or exemption
provisions of the Securities Act, (ii) neither it, nor anyone acting on its
behalf, will offer the Securities so as to bring the issuance and sale of
the Securities within the provisions of Section S of the Securities Act,
(iii) it will be re-offering and reselling the Securities only to QIBs in
reliance on the exemption from the registration requirements of the
Securities Act provided by Rule 144A and to a limited number of persons
that it reasonably believes to be Institutional Accredited Investors that
execute and deliver a letter containing certain representations and
agreements in the form attached as Annex A to the Offering Memorandum, and
(iv) it has used no form of general solicitation or general advertising in
connection with the offer and sale of the Securities. The Company
acknowledges and agrees that the Initial Purchaser may sell Securities to
any affiliate of the Initial Purchaser and that any such affiliate may sell
Securities purchased by it to the Initial Purchaser. The Initial Purchaser
agrees that, prior to or simultaneously with the
<PAGE>
16
confirmation of sale by the Initial Purchaser to any purchaser of any of
the Securities purchased by the Initial Purchaser from the Company pursuant
hereto, the Initial Purchaser shall furnish to that purchaser a copy of the
Offering Memorandum (and any amendment thereof or supplement thereto that
the Company shall have furnished to the Initial Purchaser prior to the date
of such confirmation of sale). In addition to the foregoing, the Initial
Purchaser agrees and understands that the Company and, for purposes of the
opinions to be delivered to the Initial Purchaser pursuant to Sections 5(c)
and (d) hereof, counsel to the Company and to the Initial Purchaser,
respectively, may rely upon the accuracy and truth of the foregoing
representations, warranties and covenants in this Section 2 and the Initial
Purchaser hereby consents to such reliance.
3. Delivery of and Payment for the Securities. Delivery of and payment
--------------------------------------------
for the Securities shall be made at the office of Cravath, Swaine & Moore
("CS&M"), New York, New York, or at such other place as shall be agreed
upon by the Initial Purchaser and the Company, at 10:00 A.M., New York City
time, on April 18, 1996, or at such other date or time, not later than
seven full business days thereafter, as shall be agreed upon by the Initial
Purchaser and the Company (such date and time being referred to herein as
the "Closing Date"). On the Closing Date, the Company shall deliver or
cause to be delivered to the Initial Purchaser certificates for the
Securities against payment to or upon the order of the Company of the
purchase price by wire or book-entry transfer of immediately available
funds. Upon delivery, the Securities shall be in definitive fully
registered form, in such denominations and registered in such names, or
otherwise, as the Initial Purchaser shall have requested in writing not
less than two full business days prior to the Closing Date. The Company
shall make one or more certificates for the Securities available for
inspection by the Initial Purchaser in New York, New York, not later than
one full business day prior to the Closing Date.
4. Further Agreements of the Company. The Company agrees with the
------------------------------------
Initial Purchaser:
(a) to advise the Initial Purchaser promptly and, if requested,
confirm such advice in writing, of the happening of any event which
makes any statement of a material fact made in the Offering Memorandum
untrue or which requires the making of any additions to or
<PAGE>
17
changes in the Offering Memorandum (as amended or supplemented from
time to time) in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and not to
effect such amendment or supplementation without the consent of the
Initial Purchaser; to advise the Initial Purchaser promptly of any
order preventing or suspending the use of the preliminary offering
memorandum or the Offering Memorandum, of the suspension of the
qualification of the Securities for offering or sale in any
jurisdiction and of the initiation or threatening of any proceeding
for any such purpose; and to use best efforts to prevent the issuance
of any such order preventing or suspending the use of the preliminary
offering memorandum or the Offering Memorandum or suspending any such
qualification and, if any such suspension is issued, to obtain the
lifting thereof at the earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel for
the Initial Purchaser, without charge, as many copies of the
preliminary offering memorandum and the Offering Memorandum (and of
any amendments or supplements thereto) as may be reasonably requested;
to furnish to the Initial Purchaser on the date hereof two copies of
the independent accountants' report included in the Offering
Memorandum signed by the accountants rendering such report; and the
Company hereby consents to the use of the preliminary offering
memorandum and the Offering Memorandum, and any amendments and
supplements thereto, in connection with resales of the Securities;
(c) if the delivery of the Offering Memorandum is required at any
time in connection with the sale of the Securities and if at such time
any events shall have occurred as a result of which the Offering
Memorandum as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when the Offering Memorandum
is delivered, not misleading, or if for any other reason it shall be
necessary at such time to amend or supplement the Offering Memorandum
in order to comply with any law, to notify the Initial Purchaser
immediately thereof, and to promptly prepare and
<PAGE>
18
furnish to the Initial Purchaser an amended Offering Memorandum or a
supplement to the Offering Memorandum which will correct such
statement or omission or effect such compliance. The Initial
Purchaser's delivery of any such amendment or supplement shall not
constitute a waiver of any of the conditions set forth in Section 5
hereof;
(d) for so long as any of the Securities or the Exchange
Securities are outstanding, to furnish to the Initial Purchaser all
public reports and all reports, documents, information and financial
statements furnished by the Company to the Commission pursuant to the
Indenture or the Exchange Act or any rule or regulation of the
Commission thereunder;
(e) for so long as and at any time that it is not subject to
Section 13 or 15(d) of the Exchange Act, upon request of any holder of
the Securities, to furnish to such holder, and to any prospective
purchaser or purchasers of the Securities designated by such holder,
information satisfying the requirements of subsection (d)(4) of Rule
144A under the Securities Act. This covenant is intended to be for the
benefit of the holders from time to time of the Securities, and
prospective purchasers of the Securities designated by such holders;
(f) to use the proceeds from the sale of the Securities in the
manner described in the Offering Memorandum under the caption "Use of
Proceeds";
(g) to use reasonable best efforts to assist the Initial
Purchaser, at its request, in arranging to cause the Securities to be
designated as PORTAL securities in accordance with the rules and
regulations of the NASD;
(h) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel
reasonably available upon request by the Initial Purchaser;
(i) to do and perform all things required to be done and performed
under this Agreement by it that are within its control prior to or
after the Closing Date and to use its best efforts to satisfy all
conditions
<PAGE>
19
precedent on its part to the delivery of the Securities;
(j) except following the effectiveness of the Exchange Offer or
Shelf Registration Statement, as the case may be, to not, and to
ensure that no affiliate (as such term is defined in Rule 501(b) under
the Securities Act) of the Company will, and not authorize or
knowingly permit any person acting on its or their behalf to, solicit
any offer to buy or offer to sell the Securities by means of any form
of general solicitation or general advertising (as such terms are used
in Regulation D under the Securities Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities
Act;
(k) to not, and to ensure that no affiliate (as such term is
defined in Rule 501(b) under the Securities Act) of the Company will,
offer, sell or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the Securities Act) which could be
integrated with the sale of the Securities in a manner that would
require the registration of the Securities under the Securities Act;
(l) to not, so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company
Act, and will not be or become, or be or become owned by, a closed-end
investment company required to be registered, but not registered
thereunder;
(m) to cause each Security to bear the legend set forth in the
form of Security attached as Exhibit A to the Indenture until such
legend shall no longer be necessary or advisable because the
Securities are no longer subject to the restrictions on transfer
described therein;
(n) promptly to take from time to time such action as the Initial
Purchaser may reasonably request to qualify the Securities for
offering and sale under the securities laws of such jurisdictions as
the Initial Purchaser may request and to comply with such laws so as
to permit the continuance of sales and dealings
<PAGE>
20
therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Securities; provided, however, that
--------------------
in connection therewith the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not so qualified or so
subject. The Company will promptly advise the Initial Purchaser of the
receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose;
(o) to comply with the Registration Rights Agreement and all
agreements set forth in the representation letters of the Company to
The Depository Trust Company relating to the approval of the
Securities for "book-entry" transfer;
(p) for a period of 120 days from the date of the Offering
Memorandum, to not offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement
for, or announce any offer, sale, contract for sale of or other
disposition of any debt securities issued or guaranteed by the Company
(other than the Securities or the Exchange Securities) without the
prior written consent of the Initial Purchaser, which consent shall
not be unreasonably withheld;
(q) in connection with the offering, until the completion of the
resale of the Securities, neither the Company nor any of its
affiliated purchasers (as defined in Rule 10b-6 under the Exchange
Act), either alone or with one or more other persons, will bid for or
purchase, for any account in which it or any of its affiliated
purchasers has a beneficial interest, any Securities, or attempt to
induce any person to purchase any Securities; and neither it nor any
of its affiliated purchasers will make bids or purchases for the
purpose of creating actual, or apparent, active trading in or of
raising the price of the Securities;
(r) during the period from the Closing Date until three years
after the Closing Date, without the prior written consent of the
Initial Purchaser, to not, and not permit any of its affiliates (as
defined in Rule 144 under the Securities Act) to, resell any of
<PAGE>
21
the Securities that have been reacquired by them, except for
Securities purchased by the Company or any of its affiliates and
resold in a transaction registered under the Securities Act;
(s) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press
conference with respect to the Company, its condition, financial or
otherwise, or earnings, business affairs or business prospects (except
for routine oral marketing communications in the ordinary course of
business and consistent with the past practices of the Company and of
which the Initial Purchaser is notified), without the prior written
consent of the Initial Purchaser, unless in the judgment of the
Company and its counsel, and after notification to the Initial
Purchaser, such press release or communication is required by law;
(t) to not take any action prior to the execution and delivery of
the Indenture which, if taken after such execution and delivery, would
have violated any of the covenants contained in the Indenture; and
(u) to not take any action prior to the Closing Date which in the
Company's reasonable judgment would require the Offering Memorandum to
be amended or supplemented pursuant to Section 4(c) hereof.
5. Conditions of Initial Purchaser's Obligations. The obligations of
-----------------------------------------------
the Initial Purchaser hereunder are subject to the accuracy, when made and
on the Closing Date, of the representations and warranties of the Company
contained herein, to the accuracy of the statements of officers of the
Company made in any certificates pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to each or the
following additional terms and conditions:
(a) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchaser as promptly as practicable on or
following the date following the date of this Agreement or at such
other date and time as to which the Initial Purchaser may agree; and
no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
<PAGE>
22
(b) All corporate proceedings and other legal matters incident to
the authorization, form and validity of the Securities, the Indenture,
the Registration Rights Agreement, this Agreement and the Offering
Memorandum, and all other legal matters relating to this Agreement and
the transactions contemplated hereby shall be satisfactory in all
material respects to the Initial Purchaser, and the Company shall have
furnished to the Initial Purchaser all documents and information that
it or its counsel may reasonably request to enable them to pass upon
such matters.
(c) Gibson, Dunn & Crutcher shall have furnished to the Initial
Purchaser their written opinion, as counsel to the Company, addressed
to the Initial Purchaser and dated the Closing Date, in form and
substance reasonably satisfactory to the Initial Purchaser, to the
effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
businesses requires such qualification (other than those
jurisdictions in which the failure to so qualify would not have a
Material Adverse Effect), and has all power and authority
necessary to own or hold its properties and to conduct the
businesses in which it is engaged;
(ii) the outstanding shares of common stock and preferred
stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable;
(iii) the Company has full power and authority to execute and
deliver the Indenture, the Securities, the Registration Rights
Agreement and this Agreement and to perform its obligations
hereunder and thereunder; and all corporate action required to be
taken for the due and proper authorization, execution and
delivery of the Indenture, the Securities, the Registration
Rights Agreement and this Agreement and the consummation
<PAGE>
23
of the transactions contemplated hereby and thereby have been
duly and validly taken;
(iv) each of this Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by the
Company;
(v) the Indenture has been duly authorized, executed and
delivered by the Company and the Securities have been duly
authorized and executed by the Company;
(vi) the Company's authorized capitalization is as set forth
in the Offering Memorandum; the capital stock of the Company
conforms to the description thereof contained in the Offering
Memorandum;
(vii) the descriptions in the Offering Memorandum of
statutes, legal and governmental proceedings and contracts and
other documents are accurate in all material respects and fairly
present the information that would be required to be shown if the
Offering Memorandum were a prospectus included in a registration
statement on Form S-1 under the Securities Act; the statements in
the Offering Memorandum under the caption "Certain Federal Income
Tax Considerations" to the extent that they constitute matters of
law or regulation or legal conclusions, have been reviewed by
them and fairly summarize the matters described therein in all
material respects; and such counsel does not have actual
knowledge of any current or pending legal or governmental
actions, suits or proceedings which would be required to be
described in the Offering Memorandum if the Offering Memorandum
were a prospectus included in a registration statement on Form S-
1 which are not described as required;
(viii) as of its date and on the Closing Date, the Offering
Memorandum (except for financial statements, the notes thereto
and related schedules and other financial data included in the
Offering Memorandum, as to which no opinion need be expressed)
complies as to form in all material respects with that which
would be required by the Securities Act and the rules and
regulations of
<PAGE>
24
the Commission thereunder applicable to a definitive prospectus
forming part of a registration statement on Form S-1 under the
Securities Act;
(ix) the Indenture conforms as to form in all material
respects with the requirements of the Trust Indenture Act and the
rules and regulations of the Commission applicable to an
indenture which is qualified thereunder;
(x) no authorization, approval, consent or order of, or
filing or registration with, any governmental body or agency or,
to such counsel's best knowledge, any court that has jurisdiction
over the Company or any of its assets or properties is required
for the consummation by the Company of the transactions
contemplated by this Agreement, except such as may be required
under state securities or Blue Sky laws or regulations;
(xi) the Company is not (A) an "investment company" or a
company "controlled" by an investment company within the meaning
of the Investment Company Act and the rules and regulations of
the Commission thereunder, without taking account of any
exemption under the Investment Company Act arising out of the
number of holders of the Company's securities, or (B) a "holding
company" or a "subsidiary company" of a holding company, or an
"affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended;
(xii) the Registration Rights Agreement constitutes a valid
and legally binding agreement of the Company, enforceable against
the Company in accordance with its terms (assuming the due
execution and delivery thereof by the other parties thereto)
subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws now or hereafter
in effect relating to or affecting creditors' rights and remedies
generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in
equity) and except to the extent that indemnification or
contribution provisions may be unenforceable;
<PAGE>
25
(xiii) the Indenture constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in
accordance with its terms (assuming due execution and delivery by
the Trustee), subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws
(now or hereafter in effect relating to or affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at
law or in equity); the Securities are in the form contemplated by
the Indenture and, upon the due authentication and delivery
thereof by the Trustee pursuant to the Indenture, will be duly
and validly issued and outstanding and will constitute valid and
legally binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
similar laws now or hereafter in effect relating to or affecting
creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought
in a proceeding at law or in equity); and the Indenture, the
Securities and the Registration Rights Agreement conform in all
material respects to the descriptions thereof contained in the
Offering Memorandum;
(xiv) the execution, delivery and performance by the Company
of the Indenture, the Securities, the Registration Rights
Agreement and this Agreement, the consummation of the
transactions contemplated hereby and thereby, do not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument identified to such counsel in a certificate of the
Company as being a material instrument to which the Company is a
party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will such
actions
<PAGE>
26
result in any violation of the provisions of the charter or by-
laws of the Company or any statute, or any judgment, order,
decree, rule or regulation known to such counsel of any federal
or state court or governmental agency or body or arbitrator
having jurisdiction over the Company or any of its properties or
assets; and no consent, approval, authorization or order of, or
filing or registration with, any such court or arbitrator or
governmental agency or body is required under any such statute,
judgment, order, decree, rule or regulation for the execution,
delivery and performance of the Indenture, the Securities or the
Registration Rights Agreement by the Company or the consummation
of the transactions contemplated hereby and thereby; provided,
---------
however, that the foregoing may exclude state securities laws or
--------
Blue Sky laws and any such consents, approvals, authorizations,
or order of, or filings or registrations with, the Commission and
any state securities regulatory authorities as may be required to
be obtained or made pursuant to the Registration Rights
Agreement;
(xv) neither the consummation of the transactions
contemplated by this Agreement nor the sale, issuance, execution
or delivery of the Securities will violate Regulation G, T, U or
X of the Federal Reserve Board;
(xvi) to the best knowledge of such counsel, there is no
pending action or suit or judicial, arbitral, rule-making or
other administrative or other proceeding to which the Company is
a party or of which any property or assets of the Company is the
subject that, singularly or in the aggregate, (A) questions the
validity of this Agreement, the Registration Rights Agreement or
the Indenture or any action taken or to be taken pursuant hereto
or thereto, or (B) if determined adversely to the Company is
reasonably likely to have a Material Adverse Effect and such
counsel does not have actual knowledge that any such proceedings
are threatened or contemplated by governmental authorities or
threatened by others; and
<PAGE>
27
(xvii) assuming the accuracy of the representations,
warranties and agreements of the Company contained in paragraphs
(x), (y) and (z) of Section 1 of this Agreement and of the
Initial Purchaser in Section 2 of this Agreement, the issuance
and sale of the Securities and the offer, resale and delivery of
the Securities in the manner contemplated in the Offering
Memorandum and this Agreement, are exempt from the registration
requirements of the Securities Act and it is not necessary to
qualify the Indenture under the Trust Indenture Act.
Such counsel shall state that they have participated in
conferences with representatives of the Company, representatives of
the independent auditors of the Company and representatives of the
Initial Purchaser at which conferences the contents of the Offering
Memorandum, any amendment thereof and supplement thereto and related
matters were discussed, and, although such counsel assume no
responsibility for the accuracy or completeness or fairness of the
Offering Memorandum, any amendment thereof or supplement thereto
(except as expressly provided above), nothing has come to the
attention of such counsel to cause such counsel to believe that the
Offering Memorandum or any amendment thereof or supplement thereto
(other than the financial statements and other financial and
statistical information contained therein, as to which such counsel
need express no belief) contains any untrue statement of a material
fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials which are
furnished to the Initial Purchaser.
(d) The Initial Purchaser shall have received from CS&M, counsel
for the Initial Purchaser, such opinion or opinions, dated the Closing
Date, with respect to such matters as the Initial Purchaser may
reasonably require, and the Company shall have
<PAGE>
28
furnished to such counsel such documents as they request for enabling
them to pass upon such matters.
(e) The Company shall have furnished to the Initial Purchaser (x)
a letter of Arthur Anderson LLP, dated the date hereof, with respect
to the Company's fiscal years ended December 25, 1993, and December
31, 1994, and (y) a letter of Coopers & Lybrand L.L.P., dated the date
hereof, with respect to the Company's fiscal year ended December 30,
1995, each of which shall be in form and substance satisfactory to the
Initial Purchaser, to the effect that:
(i) they are each independent certified public accountants
with respect to the Company within the meaning of the applicable
rules and regulations thereunder and Rule 101 of the American
Institute of Certified Public Accountants' Code of Professional
Conduct and its interpretations and rulings;
(ii) based upon a reading of the latest unaudited financial
statements made available by the Company, the procedures of the
American Institute of Certified Public Accountants for a review
of interim financial information as described in Statement of
Auditing Standards No. 71, reading of minutes and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters and certain other limited
procedures requested by the Initial Purchaser and described in
detail in such letter, nothing has come to their attention that
causes them respectively to believe that (A) any unaudited
financial statements included or incorporated in the Offering
Memorandum do not comply in form in all material respects with
applicable accounting requirements or (B) any material
modifications should be made to the unaudited financial
statements included in the Offering Memorandum for them to be in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
financial statements included in the Offering Memorandum;
<PAGE>
29
(iii) with respect to the letter of Coopers & Lybrand L.L.P.
only, based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the last
available balance sheet, including reading of minutes and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing has
come to their attention that causes them to believe that (1) at a
specified date not more than five business days prior to the date
of the-letter, there was any increase in long-term debt or
decrease in net current assets as compared with the amounts shown
in the December 30, 1995, audited balance sheet included in the
Offering Memorandum or (2) for the period from December 30, 1995,
to a specified date not more than five business days prior to the
date of the letter, there were any decreases, as compared with
the corresponding period in the preceding year, in net sales,
income from operations or net income, except in all instances for
changes, increases or decreases that the Memorandum discloses
have occurred or which are set forth in such letter, in which
case the letter shall be accompanied by an explanation by the
Company as to the significance thereof unless said explanation is
not deemed necessary by the Initial Purchaser;
(iv) they have each performed certain other specified
procedures as a result of which they respectively determined that
certain information of an accounting, financial or statistical
nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company) set forth in the Offering Memorandum agrees with the
accounting records of the Company, excluding any questions of
legal interpretation; and
(v) with respect to the letter of Coopers & Lybrand L.L.P.
only, on the basis of a reading of the unaudited pro forma
financial statements included in the Offering Memorandum (the
"pro forma financial statements"); carrying out certain specified
procedures; reading of minutes and inquiries of certain officials
of the Company who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of
<PAGE>
3O
the application of the pro forma adjustments to the historical
amounts in the pro forma financial statements, nothing came to
their attention which caused them to believe that the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
(f) The Company shall have furnished to the Initial Purchaser a
letter (the "bring-down letter") of Coopers & Lybrand L.L.P.,
addressed to the Initial Purchaser and dated the Closing Date
confirming, as of the date of the bring-down letter (or, with respect
to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Offering Memorandum, as of a date not more than two days prior to the
date of the bring-down letter), the conclusions and findings of such
firm with respect to the financial information and other matters
covered by its letter delivered to the Initial Purchaser concurrently
with the execution of this Agreement and described in paragraph (e).
(g) The Company shall have furnished to the Initial Purchaser a
certificate, dated the Closing Date, of its President and its chief
financial officer stating that (A) such officers have carefully
examined the Offering Memorandum, (B) in their opinion, as of its
date, the Offering Memorandum did not include any untrue statement of
a material fact and did not omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and since its date, no event has occurred which should have
been set forth in a supplement or amendment to the Offering Memorandum
and (C) to the best of his knowledge after reasonable investigation,
as of the Closing Date, the representations and warranties of the
Company in this Agreement are true and correct, the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to the Closing
Date, and subsequent to the date of the most recent financial
statements in the Offering Memorandum, there has been no material
adverse change in the financial position or results of operation of
the Company, or any change, or any development including a prospective
change, in or affecting the condition (financial or otherwise),
results of operations, business or prospects of the
<PAGE>
31
Company, except as set forth in the Offering Memorandum.
(h) Subsequent to the execution and delivery of this Agreement or,
if earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there
shall not have been any change, or any development involving a
prospective change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the
Company, or any change specified in the letters referred to in
paragraphs (e) or (f) of this Section, the effect of which, in any
such case described above, is, in the judgment of the Initial
Purchaser, so material and adverse as to make it impracticable or
inadvisable to proceed with the offering or delivery of the Securities
on the terms and in the manner contemplated in the Offering Memorandum
(exclusive of any amendment or supplement).
(i) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance or sale of the Securities; and no injunction, restraining
order or order of any other nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance or sale of the Securities.
(j) Subsequent to the execution and delivery of this Agreement (i)
no downgrading shall have occurred in the rating accorded the
Securities or any of the Company's other debt securities or preferred
stock by any "nationally recognized statistical rating organization,"
as that term is defined by the Commission for purposes of Rule
436(g)(2) of the rules and regulations of the Commission under the
Securities Act, and (ii) no such organization shall have publicly
announced that it has under surveillance or review (other than an
announcement with positive implications of a possible upgrading), its
rating of the Securities or any of the Company's other debt securities
or preferred stock.
(k) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the
<PAGE>
32
following: (i) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the over-the-counter market
shall have been suspended or limited, or minimum prices shall have
been established on either of such exchanges or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in securities
of the Company on any exchange or in the over-the-counter market shall
have been suspended or (ii) any moratorium on commercial banking
activities shall have been declared by Federal or New York State
authorities or (iii) an outbreak or escalation of hostilities or a
declaration by the United States of a national emergency or war or
such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the
financial markets in the United States shall be such) as to make it,
in the judgment of the Initial Purchaser, impracticable or inadvisable
to proceed with the offering or the delivery of the Securities on the
terms and in the manner contemplated in the Offering Memorandum.
(l) The Company and the Initial Purchaser shall have executed and
delivered the Registration Rights Agreement.
(m) The Securities shall have been approved by the National
Association of Securities Dealers, Inc. for trading in the PORTAL
market.
(n) The Indenture shall have been duly executed and delivered by
the Company and the Trustee and the Securities shall have been duly
executed and delivered by the Company and duly authenticated by the
Trustee.
(o) If any event shall have occurred that requires the Company
under Section 4(c) hereof to prepare an amendment or supplement to the
Offering Memorandum, such amendment or supplement shall have been
prepared and copies thereof delivered to the Initial Purchaser.
(p) There shall not have occurred any invalidation of Rule 144A
under the Securities Act by any court or any withdrawal or proposed
withdrawal of any rule or regulation under the Securities Act or the
Exchange Act by the Commission or any amendment or proposed amendment
thereof by the Commission which in
<PAGE>
33
the judgment of the Initial Purchaser would materially impair the
ability of the Initial Purchaser to purchase, hold or effect resales
of the Securities as contemplated hereby.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to
6. Termination. The obligations of the Initial Purchaser hereunder may
-------------
be terminated by the Initial Purchaser, in their absolute discretion, by
notice given to and received by the Company prior to delivery of and
payment for the Securities if, prior to that time, any of the events
described in Section 5(h), 5(i), 5(j) or 5(k) shall have occurred.
7. Reimbursement of Initial Purchaser's Expenses. If for any reason
-----------------------------------------------
permitted under this Agreement the purchase of the Securities by the
Initial Purchaser is not consummated, the Company shall remain responsible
for the expenses to be paid or reimbursed by it pursuant to
Section 11 and the respective obligations of the Company and the Initial
Purchaser pursuant to Sections 8 and 9 shall remain in effect. In addition,
if the purchase of the Securities by the Initial Purchaser is not
consummated because any condition to the obligations of the Initial
Purchaser set forth in Section 5 hereof is not satisfied or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason
of a default by the Initial Purchaser, the Company will reimburse the
Initial Purchaser upon demand for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have
been incurred by them in connection with this Agreement and the proposed
purchase and sale of the Securities.
8. Indemnification. (a) The Company shall indemnify and hold harmless
-----------------
the Initial Purchaser, its affiliates, and their respective officers,
directors, employees, representatives and agents, and each person, if any,
who controls the Initial Purchaser within the meaning of the Securities Act
or the Exchange Act (collectively referred to for the purposes of this
Section 8 and Section 9 as an Initial Purchaser), to the fullest extent
lawful,
<PAGE>
34
against any loss, claim, damage, expense or liability, joint or several, or
any action in respect thereof, to which the Initial Purchaser may become
subject, whether commenced or threatened and under the Securities Act or
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the preliminary offering
memorandum or the Offering Memorandum or in any amendment or supplement
thereto or any information provided by the Company pursuant to Section 4(e)
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse the Initial Purchaser for any legal or
other expenses reasonably incurred by the Initial Purchaser in connection
with investigating or preparing to defend or defending against or appearing
as a third party witness in connection with any such loss, claim, damage,
liability, expense or action as such expenses are incurred; provided,
---------
however, that the Company shall not be liable in any such case to the
--------
extent that any such loss, claim, damage, liability or action arises out of
or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission from any of such documents in reliance upon
and in conformity with the Initial Purchaser's Information; and provided
--------
further, that with respect to any such untrue statement or omission made in
--------
the preliminary offering memorandum, the indemnity agreement contained in
this Section 8 shall not inure to the benefit of the Initial Purchaser from
whom the person asserting any such losses, claims, damages or liabilities
purchased the Securities concerned if both (A) a copy of the Offering
Memorandum was not sent or given to such personal or prior to the written
confirmation of the sale of such Securities to such person, and (B) the
untrue statement or omission in the preliminary offering memorandum was
corrected in the Offering Memorandum unless, in either case, such failure
to deliver the Offering Memorandum was a result of noncompliance by the
Company with Section 4(b).
(b) The Initial Purchaser shall indemnify and hold harmless the
Company, its affiliates, and their respective officers, directors,
employees, representatives or the Exchange Act and agents, and each person,
if any, who controls the Company within the meaning of the Securities Act
or the Exchange Act (collectively referred to for the
<PAGE>
35
purposes of this Section 8 and Section 9 as the Company) to the same extent
as the foregoing indemnity from the Company to the Initial Purchaser,
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Company may become subject, under
the Securities Act, the Exchange Act or other Federal or state statutory
law or regulation at common law or otherwise, insofar as such loss, claim,
damage, expense, liability or action arises out of or is based upon (i) any
untrue statement or alleged untrue statement of a material fact contained
in the preliminary offering memorandum or the Offering Memorandum or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the
extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with any
Initial Purchaser's Information, and shall reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection
with investigating or preparing to defend or defending against or appearing
as third party witness in connection with any such loss, claim, damage,
liability, expense or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 8(a) or 8(b), notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
------------------
party shall not relieve it from any liability which it may have under this
Section 8 except to the extent it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure;
and, provided further, that the failure to notify the indemnifying party
-----------------
shall not relieve it from any liability which it may have to an indemnified
party otherwise than under this Section 8. If any such claim or action
shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to
assume the
<PAGE>
36
defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation; provided,
---------
however, that an indemnified party will have the right to employ its own
---------
counsel in any such action, but the fees, expenses and other charges of
such counsel will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which
case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or
parties. It is understood that the indemnifying party or parties shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and other
charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties.
Each indemnified party, as a condition of the indemnity agreements
contained in Sections 8(a) and 8(b), shall use all reasonable efforts
to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall be liable for any settlement
of any such action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason
of such settlement or judgment.
The obligations of the Company and the Initial Purchaser in this
Section 8 and in Section 9 are in addition to any other liability that the
Company or the Initial
<PAGE>
37
Purchaser, as the case may be, may otherwise have, including in respect of
any breaches of representations, warranties and agreements made herein by
any such party.
9. Contribution. If the indemnification provided for in Section 8 is
--------------
unavailable or insufficient to hold harmless an indemnified party under
Section 8(a) or (b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage
or liability, or action in respect thereof, (i) in such proportion as shall
be appropriate to reflect the relative benefits received by the Company on
the one hand and the Initial Purchaser on the other from the offering of
the Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Initial
Purchaser on the other with respect to the statements or omissions that
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Initial
Purchaser on the other with respect to such offering shall be deemed to be
in the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses)
received by or on behalf of the Company bear to the total discounts
received by the Initial Purchaser with respect to the Securities purchased
under this Agreement, in each case as set forth in the table on the cover
page of the Offering Memorandum. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one
hand or to the Initial Purchaser's Information on the other, the intent of
the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company and the Initial Purchaser agree that it would not be just and
equitable if contributions pursuant to this Section 9 were to be determined
by pro rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof,
<PAGE>
38
referred to above in this Section 9 shall be deemed to include, for
purposes of this Section 9, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 9, the
Initial Purchaser shall not be required to contribute any amount in excess
of the amount by which the total price at which the Securities purchased
from the Company by it were offered to investors less the amount of any
damages which the Initial Purchaser has otherwise paid or become liable to
pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
10. Persons Entitled to Benefit of Agreement. This Agreement shall
-----------------------------------------
inure to the benefit of and be binding upon the Initial Purchaser, the
Company and their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm
or corporation, other than the Initial Purchaser, the Company and their
respective affiliates and successors and the controlling persons and
officers and directors referred to in Sections 8 and 9 and their heirs and
legal representatives and other than holders and prospective purchasers of
the Securities as provided in Section 4(e), any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision
contained herein.
11. Expenses. The Company agrees to pay (a) the costs incident to the
---------
authorization, issuance, sale, preparation and delivery of the Securities
and any taxes payable in that connection; (b) the costs incident to the
preparation, printing and distribution of any preliminary offering
memorandum, the Offering Memorandum and any amendments and supplements
thereto; (c) the costs of reproducing and distributing this Agreement, the
Registration Rights Agreement and the Indenture; (d) the preparation,
issuance and delivery of the certificates for the Securities to the Initial
Purchaser; (e) the fees and expenses of qualifying the Securities under the
securities laws of the several jurisdictions as provided in
Section 4(n) and of preparing, printing and distributing Blue Sky Memoranda
(including related fees and expenses of CS&M); (f) any fees charged by
securities rating services
<PAGE>
39
for rating the Securities; (g) all fees and expenses of the Trustee; (h)
all costs incident to and fees and expenses of the inclusion of the
Securities on the PORTAL system and the approval of the Securities for
book-entry transfer by The Depository Trust Company; and (i) all other
costs and expenses incident to the performance of the obligations of the
Company under this Agreement; provided, however, that, except as otherwise
------------------
provided in this Section 11 and in Section 7 the Initial Purchaser shall
pay its own costs and expenses, including the costs and expenses of its
counsel, any transfer taxes on the Securities that they may sell and the
expenses of advertising any offering of the Securities made by the Initial
Purchaser.
12. Survival. The respective indemnities, rights of contribution,
---------
representations, warranties and agreements made by or on behalf of the
Company and the Initial Purchaser and any of their respective affiliates,
representatives, officers, directors or controlling persons contained in
this Agreement or in any certificate delivered pursuant to this Agreement,
shall survive the delivery of and payment for the Securities and shall
remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of
any of them or any person controlling any of them.
13. Notices, etc. All statements, requests, notices and agreements
-------------
hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or sent by
mail, telex or facsimile transmission to Chase Securities Inc., 270
Park Avenue, New York, New York 10017, Attention: Thomas H. Walker;
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Offering Memorandum, Attention: Chief Financial Officer;
; provided, however, that any notice to the Initial Purchaser pursuant to
-----------------
Section 8(c) shall be delivered or sent by mail, telex or facsimile
transmission to the Initial Purchaser at its address set forth on the
signature page hereof.
Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
<PAGE>
40
14. Business Day. For purposes of this Agreement, "business day" means
-------------
any day on which the New York Stock Exchange, Inc. is open for trading.
15. Governing Law. This Agreement shall be governed by and` construed
--------------
in accordance with the internal laws of the State of New York.
16. Counterparts. This Agreement may be executed in any number of
--------------
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience of
---------
reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of the
agreement between the Company and the
<PAGE>
Initial Purchaser, kindly indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
SIMMONS COMANY,
by: /s/ Roger W. Franklin
----------------------------------
Name: Roger W. Franklin
Title: Vice-President-Finance, Treasurer
Accepted:
CHASE SECURITIES INC.,
By /s/ Robert Berk
---------------------
Name: Robert Berk
Title: V.P.
Address for Notices:
270 Park Avenue
New York, New York 10017
Attention: Legal Department
<PAGE>
Schedule 1(I)
Simmons International Holding Company, Inc., a wholly-owned subsidiary
of the Company, has paid and filed taxes, returns and reports (other than
with respect to 1985), the nonpayment and non-filing of which were stated
by the appropriate governmental authority as the reason for Simmons
International Holding Company, Inc.'s failure to be in good standing in
New York. There is uncertainty with respect to the filing of a 1985 return
and payments made in respect thereof, which, the Company believes, if not
made, would not be material.
EXHIBIT 10.8
SIMMONS ACQUISITION CORP.
(to be merged with and into Simmons Company)
CREDIT AGREEMENT
dated as of March 22, 1996
$115,000,000
Credit Facility
CHEMICAL BANK,
as Administrative Agent,
and
CHEMICAL SECURITIES INC.,
as Arranger
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . 21
SECTION 2. TRANCHE A TERM LOANS . . . . . . . . . . . . . . . 21
2.1 Tranche A Term Loans . . . . . . . . . . . . . . . 21
2.2 Repayment of Tranche A Term Loans . . . . . . . . 21
2.3 Use of Proceeds . . . . . . . . . . . . . . . . . 21
2.4 Commitment Fee . . . . . . . . . . . . . . . . . . 22
SECTION 3. TRANCHE B TERM LOANS . . . . . . . . . . . . . . . 22
3.1 Tranche B Term Loans . . . . . . . . . . . . . . . 22
3.2 Repayment of Tranche B Term Loans . . . . . . . . 22
3.3 Use of Proceeds . . . . . . . . . . . . . . . . . 22
SECTION 4. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS . . . . . . . . . . . . . . . 22
4.1 Revolving Credit Commitments . . . . . . . . . . 22
4.2 Commitment Fee . . . . . . . . . . . . . . . . . 23
4.3 Proceeds of Revolving Credit Loans . . . . . . . 23
4.4 Swing Line Commitment . . . . . . . . . . . . . . 23
4.6 Participating Interests . . . . . . . . . . . . . 25
4.7 Procedure for Opening Letters of Credit . . . . . 25
4.8 Payments in Respect of Letters of Credit . . . . 26
4.9 Letter of Credit Fees . . . . . . . . . . . . . . 26
4.10 Letter of Credit Reserves . . . . . . . . . . . . 27
4.11 Further Assurances . . . . . . . . . . . . . . . 28
4.12 Obligations Absolute . . . . . . . . . . . . . . 28
4.13 Assignments . . . . . . . . . . . . . . . . . . . 29
4.14 Participations . . . . . . . . . . . . . . . . . 29
SECTION 5. GENERAL PROVISIONS APPLICABLE TO LOANS . . . . . 29
5.1 Procedure for Borrowing . . . . . . . . . . . . . 29
5.2 Conversion and Continuation Options . . . . . . . 30
5.3 Changes of Commitment Amounts . . . . . . . . . . 31
5.4 Optional and Mandatory Prepayments;
Repayments of Term Loans . . . . . . . . . . . . 32
5.5 Interest Rates and Payment Dates . . . . . . . . . 34
5.6 Computation of Interest and Fees . . . . . . . . . 35
<PAGE>
Page
----
5.7 Certain Fees . . . . . . . . . . . . . . . . . . 36
5.8 Inability to Determine Interest Rate . . . . . . 36
5.9 Pro Rata Treatment and Payments . . . . . . . . . 36
5.10 Illegality . . . . . . . . . . . . . . . . . . . 39
5.11 Requirements of Law . . . . . . . . . . . . . . . 39
5.12 Indemnity . . . . . . . . . . . . . . . . . . . . 42
5.13 Repayment of Loans; Evidence of Debt . . . . . . 43
5.14 Interest Rate Protection . . . . . . . . . . . . 44
5.15 Replacement of Lenders . . . . . . . . . . . . . 44
SECTION 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 44
6.1 Financial Condition . . . . . . . . . . . . . . . 44
6.2 No Change . . . . . . . . . . . . . . . . . . 46
6.3 Corporate Existence; Compliance with Law . . . . . 46
6.4 Corporate Power; Authorization . . . . . . . . . 46
6.5 Enforceable Obligations . . . . . . . . . . . . . 47
6.6 No Legal Bar . . . . . . . . . . . . . . . . . . 47
6.7 No Material Litigation . . . . . . . . . . . . . 48
6.8 Investment Company Act . . . . . . . . . . . . . 48
6.9 Federal Regulation . . . . . . . . . . . . . . . 48
6.10 No Default . . . . . . . . . . . . . . . . . . . 48
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . 49
6.12 Subsidiaries . . . . . . . . . . . . . . . . . . 49
6.13 Ownership of Property; Liens . ' . . . . . . 49
6.14 ERISA . . . . . . . . . . . . . . . . . . . . . . 49
6.15 Collateral Documents . . . . . . . . . . . . . . 51
6.16 Copyrights, Permits, Trademarks and Licenses . . . 51
6.17 Environmental Matters . . . . . . . . . . . . . . 51
6.18 Accuracy and Completeness of Information . . . . . 52
SECTION 7. CONDITIONS PRECEDENT . . . . . . . . . . . . . . 53
7.1 Conditions to Initial Loans
and Letters of Credit . . . . . . . . . . . . . 53
7.2 Conditions to All Loans and
Letters of Credit . . . . . . . . . . . . . . . 56
SECTION 8. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . 57
8.1 Financial Statements . . . . . . . . . . . . . . . 57
8.2 Certificates; Other Information . . . . . . . . . 58
8.3 Payment of Obligations . . . . . . . . . . . . . . 60
8.4 Conduct of Business and Maintenance of Existence . 60
8.5 Maintenance of Property; Insurance . . . . . . . . 60
8.6 Inspection of Property; Books and Records;
Discussions . . . . . . . . . . . . . . . . . . . 61
8.7 Notices . . . . . . . . . . . . . . . . . . . . . 61
- ii -
<PAGE>
Page
----
8.8 Environmental Laws . . . . . . . . . . . . . . . . 62
8.9 Additional Collateral . . . . . . . . . . . . . . . 63
8.10 Landlord Consents . . . . . . . . . . . . . . . . . 64
SECTION 9. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 64
9.1 Indebtedness . . . . . . . . . . . . . . . . . . . 64
9.2 Limitation on Liens ... . . . . . . . . . . . . . . 66
9.3 Limitation on Contingent Obligations . . . . . . . 67
9.4 Prohibition of Fundamental Changes . . . . . . . . 68
9.5 Prohibition on Sale of Assets . . . . . . . . . . . 68
9.6 Limitation on Investments, Loans and Advances . . . 69
9.7 Capital Expenditures . . . . . . . . . . . . . . . . 70
9.8 Consolidated EBITDA . . . . . . . . . . . . . . . . 71
9.9 Debt to EBITDA . . . . . . . . . . . . . . . . . . 72
9.10 Interest Coverage . . . . . . . . . . . . . . . . . 73
9.11 Limitation on Dividends . . . . . . . . . . . . . . 74
9.12 Transactions with Affiliates . . . . . . . . . . . 74
9.13 Prepayments and Amendments of Subordinated Debt
and Equity . . . . . . . . . . . . . . . . . . . 75
9.14 Limitation on Changes in Fiscal Year . . . . . . . 75
9.15 Limitation on Lines of Business . . . . . . . . . . 75
SECTION 10. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 75
SECTION 11. THE ADMINISTRATIVE AGENT; THE ISSUING LENDER . . . 79
11.1 Appointment . . . . . . . . . . . . . . . . . . . 79
11.2 Delegation of Duties . . . . . . . . . . . . 79
11.3 Exculpatory Provisions . . . . . . . . . . . . . 79
11.4 Reliance by Administrative Agent . . . . . . . . 79
11.5 Notice of Default . . . . . . . . . . . . . . . . 80
11.6 Non-Reliance on Administrative Agent and
Other Lenders . . . . . . . . . . . . . . . . . 80
11.7 Indemnification . . . . . . . . . . . . . . . . . 81
11.8 The Administrative Agent in its Individual Capacity 81
11.9 Successor Administrative Agent . . . . . . . . . 81
11.10 Issuing Lender as Issuer of Letters of Credit . . 82
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . 82
12.1 Amendments and Waivers . . . . . . . . . . . . . 82
12.2 Notices . . . . . . . . . . . . . . . . . . . . . 84
12.3 No Waiver; Cumulative Remedies . . . . . . . . . 85
12.4 Survival of Representations and Warranties . . . 85
12.5 Payment of Expenses and Taxes . . . . . . . . . . 85
12.6 Successors and Assigns; Participations and
Assignments . . . . . . . . . . . . . . . . . 86
- iii -
<PAGE>
Page
----
12.7 Adjustments; Set-off . . . . . . . . . . . . . . . 89
12.8 Counterparts . . . . . . . . . . . . . . . . . . . 90
12.9 Governing Law; No Third Party Rights . . . . . . . 91
12.10 Submission to Jurisdiction; Waivers . . . . . . . 91
12.11 Releases . . . . . . . . . . . . . . . . . . . . . 91
12.12 Interest . . . . . . . . . . . . . . . . . . . . . 92
12.13 Special Indemnification . . . . . . . . . . . . . 92
12.14 Permitted Payments and Transactions . . . . . . . 93
SCHEDULES
Schedule I List of Addresses for Notices; Lending Offices;
Commitment Amounts
Schedule II List of Letters of Credit
Schedule 6.1(b) Capital Stock
Schedule 6.12 Subsidiaries
Schedule 6.13 Fee and Leased Properties
Schedule 6.15(b) UCC Filing Offices
Schedule 6.16 Trademarks and Copyrights
Schedule 9.1(a) Indebtedness to Remain Outstanding
Schedule 9.1(j) ESOP Plan
Schedule 9.2(h) Existing Liens
Schedule 9.3(d) Existing Contingent Obligations
EXHIBITS
EXHIBIT A Form of Revolving Credit Note
EXHIBIT B Form of Tranche A Term Loan Note
EXHIBIT C Form of Tranche B Term Loan Note
EXHIBIT D Form of Swing Line Note
EXHIBIT E Form of Assignment and Acceptance
EXHIBIT F Form of Company Security Agreement
EXHIBIT G Form of Holdings Guarantee
EXHIBIT H Form of Holdings Pledge Agreement
EXHIBIT I Form of L/C Participation Certificate
EXHIBIT J Form of Swing Line Loan Participation Certificate
EXHIBIT K Form of Subsection 5.11(d)(2) Certificate
EXHIBIT L Opinion of Gibson, Dunn & Crutcher
EXHIBIT M-1 Form of Company Closing Certificate
EXHIBIT M-2 Form of Holdings Closing Certificate
- iv -
<PAGE>
CREDIT AGREEMENT, dated as of March 22, 1996, among SIMMONS ACQUISITION
CORP., a Delaware corporation (to be merged with and into Simmons (as defined
below)) ("Acquisition Corp." or as hereinafter defined to the extent provided
-----------------
in such definition, the "Company"), the several lenders from time to time
-------
parties hereto (the "Lenders") and CHEMICAL BANK, a New York banking
-------
corporation, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
- ----------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Stock Purchase Agreement (as defined below),
Acquisition Corp. intends to acquire (the "Acquisition") approximately 84% of
the Capital Stock of Simmons from the Sellers specified therein (collectively,
the "Sellers"); and
WHEREAS, simultaneous with the funding of the initial Loans hereunder,
Acquisition Corp. shall be merged with and into Simmons (the "Merger"); and
WHEREAS, prior to the Merger, Acquisition Corp., and thereafter, Simmons
(the "Company") have requested the Lenders to make loans and other extensions of
credit available to the Company to enable the Company to finance a portion of
the Acquisition and for the other purposes set forth herein;
NOW, THEREFORE, the Company, the Administrative Agent and the Lenders
agree as follows:
SECTION 1. DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, the terms defined in the
---------------
caption hereto shall have the meanings set forth therein, and the following
terms have the following meanings:
"Acquisition": as defined in the Recitals hereto.
-----------
"Acquisition Documents": the Stock Purchase Agreement and any agreement
---------------------
entered into by any Credit Party pursuant to the Stock Purchase Agreement.
"Affiliate": of any Person (a) any Person (other than a Subsidiary)
---------
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person, or (b) any Person who is a director or officer
(i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (i) to vote 25% or more of the
securities having ordinary voting power for the election of directors of such
Person, whether by ownership of securities, contract, proxy or otherwise, or
(ii) to direct or cause the direction of the management and policies of such
Person, whether by ownership of securities, contract, proxy or otherwise.
<PAGE>
2
"Agreement": this Credit Agreement, as amended, supplemented or
---------
modified from time to time.
"Alternate Base Rate": for any day, a rate per annum (rounded upwards,
-------------------
if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1%
and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof: "Prime Rate" shall mean the rate of interest per annum
----------
publicly announced from time to time by the Administrative Agent as its prime
rate in effect at its principal office in New York City (the Prime Rate not
being intended to be the lowest rate of interest charged by the Administrative
Agent in connection with extensions of credit to debtors); "Base CD Rate" shall
------------
mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-
------
Month Secondary CD Rate" shall mean, for any day, the secondary market rate for
- -----------------------
three-month certificates of deposit reported as being in effect on such day (or,
if such day shall not be a Business Day, the next preceding Business Day) by the
Board through the public information telephone line of the Federal Reserve Bank
of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H. 15(519) during the week
following such day), or, if such rate shall not be so reported on such day or
such next preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 A.M., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business Day) by
the Administrative Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it; and "Federal Funds
-------------
Effective Rate" shall mean, for any day, the weighted average of the rates on
- --------------
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective as of the opening of business on
the effective day of such change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate, respectively.
"Alternate Base Rate Lending Office": as to each Lender, the office of
----------------------------------
such Lender located within the United States which shall be making or
maintaining Alternate Base Rate Loans.
"Alternate Base Rate Loans": Loans at such time as they are made and/or
-------------------------
being maintained at a rate of interest based upon the Alternate Base Rate.
<PAGE>
3
"Applicable Margin": for Tranche A Term Loans, Tranche B Term Loans,
-----------------
Revolving Credit Loans and Swing Line Loans of the Types set forth below, the
rate per annum set forth under the relevant column heading opposite such Loans
below:
Alternate
Base Rate Eurodollar
Loans Loans
----- -----
Tranche A Term Loans: 1.25% 2.50%
Tranche B Term Loans: 1.75% 3.00%
Revolving Credit Loans: 1.25% 2.50%
Swing Line Loans: 1.25% Not applicable
"Asset Sale": any sale, sale-leaseback, or other disposition by the
----------
Company or any Subsidiary thereof of any of its property or assets, including
the stock of any Subsidiary of the Company, except sales and dispositions
permitted by subsections 9.5(a), (b), (c), (f) and (g).
"Assignee": as defined in subsection 12.6(c).
--------
"Assignment and Acceptance": an assignment and acceptance substantially
-------------------------
in the form of Exhibit E.
"Assumption Agreement": the Assumption Agreement, dated as of March 22,
--------------------
1996, signed by Simmons.
"Available Revolving Credit Commitment": as to any Lender, at a
-------------------------------------
particular time, an amount equal to (a) the amount of such Lender's Revolving
Credit Commitment at such time less (b) the sum of (i) the aggregate unpaid
-----
principal amount at such time of all Revolving Credit Loans made by such Lender
pursuant to subsection 4.1, (ii) such Lender's Revolving Credit Commitment
Percentage of the aggregate unpaid principal amount at such time of all Swing
Line Loans, provided that for purposes of calculating the Revolving Credit
--------
Commitments pursuant to subsection 4.2 the amount referred to in this clause
(ii) shall be zero, (iii) such Lender's L/C Participating Interest in the
aggregate amount available to be drawn at such time under all outstanding
Letters of Credit issued by the Issuing Lender and (iv) such Lender's Revolving
Credit Commitment Percentage of the aggregate outstanding amount of L/C
Obligations; collectively, as to all the Lenders, the "Available Revolving
--------------------
Credit Commitments".
- --------------------
"Bankruptcy Code": Title I of the Bankruptcy Reform Act of 1978, as
---------------
amended and codified at Title 11 of the United States Code.
"Board": the Board of Governors of the Federal Reserve System, together
-----
with any successor.
<PAGE>
4
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
(a) subsection 4.4 or 5.1 as a date on which the Company requests the Swing Line
Lender or the Lenders to make Loans hereunder or (b) subsection 4.5 as a date on
which the Company requests the Issuing Lender to issue a Letter of Credit
hereunder.
"Bridge Loan Agreement": the Bridge Loan Agreement dated as of March [
---------------------
], 1996 among Acquisition Corp., Chemical Bank, as administrative agent, and the
lenders from time to time parties thereto, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with its
terms and the terms of this Agreement.
"Bridge Subordinated Debt": the subordinated bridge loans or exchange
------------------------
notes of the Company outstanding from time to time pursuant to the Bridge Loan
Agreement.
"Bridge Subordinated Debt Documents": the Bridge Loan Agreement and the
----------------------------------
notes evidencing the Bridge Subordinated Debt.
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law to
close.
"Capital Expenditures": for any period, all amounts which would, in
--------------------
accordance with GAAP, be set forth as capital expenditures (exclusive of any
amount attributable to capitalized interest) on the consolidated statement of
cash flows or other similar statement of the Company and its Subsidiaries for
such period and shall in any event include expenditures to acquire all or a
portion of the Capital Stock or assets of any Person but shall exclude (i) any
expenditures made with the proceeds of condemnation or eminent domain
proceedings affecting real property or with insurance proceeds, (ii) any
expenditures made in accordance with the terms of subsection 9.6(g)(i)(A) and
(iii) any expenditures made in connection with the SWIFT Program or the UNITE
Program; provided that any Capital Expenditures financed with the proceeds of
--------
any Indebtedness permitted hereunder (other than Indebtedness incurred
hereunder) shall be deemed to be a Capital Expenditure only in the period in
which, and by the amount which, any principal of such Indebtedness is repaid.
"Capital Stock": any and all shares, interests, participations or other
-------------
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"Cash Equivalents": (a) securities issued or directly and fully
----------------
guaranteed or insured by the United States or any agency or instrumentality
thereof having maturities of not more than six months from the date of
acquisition, (b) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having
<PAGE>
5
capital and surplus in excess of $300,000,000, (c) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (a) and (b) entered into with any financial institution
meeting the qualifications specified in clause (b) above, and (d) commercial
paper issued by any Lender or the parent corporation of any Lender, and
commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Services or P-1 or the equivalent thereof by Moody's Investors
Service, Inc. and in each case maturing within six months after the date of
acquisition.
"C/D Assessment Rate": for any day the net annual assessment rate
-------------------
(rounded upwards, if necessary, to the next 1/100 of 1%) determined by the
Administrative Agent to be payable on such day to the Federal Deposit Insurance
Corporation or any successor ("FDIC") for FDIC's insuring time deposits made in
Dollars at offices of the Administrative Agent in the United States.
"C/D Reserve Percentage": for any day as applied to any Base CD Rate,
----------------------
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board for determining maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board) in respect of
new non-personal time deposits in Dollars having a maturity of 30 days or more.
"Change in Law": with respect to any Lender, the adoption of, or change
-------------
in, any law, rule, regulation, policy, guideline or directive (whether or not
having the force of law) or any change in the interpretation or application
thereof by any Governmental Authority having jurisdiction over such Lender, in
each case after the Closing Date.
"Change of Control": shall be considered to have occurred if (i) at any
-----------------
time prior to an IPO by the Company or Holdings, Investcorp or any of its
Affiliates (provided that for purposes of this definition only the reference to
25% in the definition of Affiliate contained in subsection 1.1 shall be deemed
to be 51%) or Subsidiaries, shall cease to own, directly or indirectly, in the
aggregate, at least 51% of the issued and outstanding voting stock of Holdings,
or Holdings shall cease to own at least 84% of the issued and outstanding voting
stock of the Company, in each case free and clear of all Liens (except, in the
case of the Capital Stock of the Company owned by Holdings, for Liens created by
the Holdings Pledge Agreement) and (ii) at any time after an IPO by the Company
or Holdings, if any Person (other than Investcorp, any of its Affiliates or
Subsidiaries, any Person that is a member of the senior management of the
Company or Holdings, any entity the majority of the equity ownership interests
of which is owned by such senior management of the Company or Holdings or any
Person acting in the capacity of an underwriter), whether singly or in concert
with one or more Persons, shall, directly or indirectly, have acquired, or
acquire the power to vote or direct the voting of, 25% or more, on a fully
diluted basis, of the outstanding common stock of the Company or of the common
stock of Holdings.
"Chemical": Chemical Bank, a New York banking corporation, and its
--------
successors.
<PAGE>
6
"Closing Date": the date (which shall be on or prior to April 22, 1996)
------------
on which the Lenders make their initial Loans or the Issuing Lender issues the
initial Letter of Credit.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all assets of the Credit Parties, now owned or hereafter
----------
acquired, upon which a Lien is purported to be created by any Security Document.
"Commercial L/C": a commercial documentary Letter of Credit under which
--------------
the Issuing Lender agrees to make payments in Dollars for the account of the
Company, on behalf of the Company or a Subsidiary thereof, in respect of
obligations of the Company or such Subsidiary in connection with the purchase of
goods or services in the ordinary course of business.
"Commitment": as to any Lender at any time, such Lender's Swing Line
----------
Commitment, Tranche A Term Loan Commitment, Tranche B Term Loan Commitment and
Revolving Credit Commitment; collectively, as to all the Lenders, the
"Commitments".
-----------
"Commitment Percentage": as to any Lender at any time, its Tranche A
---------------------
Term Loan Commitment Percentage, its Tranche B Term Loan Commitment Percentage
or its Revolving Credit Commitment Percentage, as the context may require.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Company within the meaning of Section
414(b) or (c) of the Code.
"Company": as defined in the Recitals hereto.
-------
"Company Security Agreement": the Company Security Agreement,
--------------------------
substantially in the form of Exhibit F, to be made by the Company in favor of
the Administrative Agent, for the ratable benefit of the Lenders, as the same
may be amended, modified or supplemented from time to time.
"Consolidated Current Assets": at a particular date, all amounts which
---------------------------
would, in conformity with GAAP, be included under current assets on a
consolidated balance sheet of the Company and its Subsidiaries as at such date.
"Consolidated Current Liabilities": at a particular date, all amounts
--------------------------------
which would, in conformity with GAAP, be included under current liabilities on a
consolidated balance sheet of the Company and its Subsidiaries as at such date,
excluding the current portion of long-term debt and the entire outstanding
principal amount of the Revolving Credit Loans.
<PAGE>
7
"Consolidated EBITDA": for any period, the consolidated net income of
-------------------
the Company and its Subsidiaries for such period, plus, without duplication and
------
to the extent reflected as a charge in the statement of such consolidated net
income for such period, the sum of (a) taxes measured by income, (b) interest
expense, amortization or writeoff of debt discount, debt issuance, warrant and
other equity issuance costs and commissions, discounts, redemption premium and
other fees and charges associated with the Loans, Standby L/Cs, the Subordinated
Debt or the acquisition or repayment of any debt securities of the Company
permitted hereunder, and net costs associated with Interest Rate Agreements to
which the Company is a party in respect of the Loans, (c) costs of surety bonds,
(d) depreciation and amortization expense, (e) amortization of inventory write-
up under APB 16, amortization of intangibles (including, but not limited to,
goodwill and costs of interest-rate caps and the cost of non-competition
agreements) and organization costs, (f) non-cash amortization of Financing
Leases, (g) franchise taxes, (h) management fees paid as contemplated by
subsection 12.14(a), (i) any ESOP Expense, (j) any payments to, or on behalf of,
members of management of the Company or any Subsidiary made within fifteen
months of the Closing Date in connection with any tax liability of such members
of management with respect to their equity interest in the Company or its
Subsidiaries, (k) any expenses incurred in connection with the SWIFT Program and
the UNITE Program and (1) any other write-downs, write-offs, minority interests
and other non-cash charges (including all extraordinary non-cash charges) in
determining such consolidated net income for such period.
"Consolidated Funded Indebtedness": at a particular date, all
--------------------------------
Indebtedness (other than Indebtedness described in clauses (b), (c), (d) or (e)
of the definition of "Indebtedness" included in this subsection 1.1) of the
Company and its Subsidiaries determined on a consolidated basis in accordance
with GAAP at such date.
"Contingent Obligation": as to any Person, any obligation of such
---------------------
Person guaranteeing or in effect guaranteeing any Indebtedness, dividends or
other obligations ("primary obligations") of any other Person (the "primary
------------------- -------
obligor") in any manner, whether directly or indirectly, including, without
- -------
limitation, any obligation of such Person, whether or not contingent (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof; provided, however, that the
-------- -------
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount (based on the maximum reasonably anticipated net liability
in respect thereof as determined by the Company in good faith) of the primary
obligation or portion thereof in respect of which such Contingent Obligation is
made or, if not stated
<PAGE>
8
or determinable, the maximum reasonably anticipated net liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by the Company in good faith.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of the property owned by it
is bound.
"Credit Documents": the collective reference to this Agreement, the
----------------
Notes, the Pledge Agreements, the Security Agreements and the Guarantees.
"Credit Parties": the collective reference to Holdings, the Company and
--------------
each Subsidiary of the Company which may from time to time be party to a Credit
Document.
"Default": any of the events specified in Section 10, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Dollars" and "$": dollars in lawful currency of the United States.
------- -
"Domestic Subsidiary": any Subsidiary of the Company other than a
-------------------
Foreign Subsidiary.
"Drawdown Date": the date within ten Business Days of the Closing Date on
-------------
which the second borrowing of Tranche A Term Loans is made pursuant to
subsection 2.1.
"Environmental Due Diligence Memorandum": the Environmental Due
--------------------------------------
Diligence Memorandum dated March 14, 1996, by Environmental Performance, Inc.,
together with all addenda and supplements thereto, in each case, as previously
delivered to the Administrative Agent pursuant to subsection 7. l(h).
"Environmental Laws": any and all Federal, state, local or municipal
------------------
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority or requirements of law (including
court-ordered requirements of common law) regulating or imposing liability or
standards of conduct concerning environmental or public health protection
matters, including, without limitation, Hazardous Materials, as now or may at
any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ESOP": the Simmons Company Employee Stock Ownership Plan, as in effect
----
from time to time, and a trust forming a part thereof and its successors.
<PAGE>
9
"ESOP Expense": with respect to any period, the aggregate amount of
------------
expenses incurred by the Company relating to the ESOP with respect to such
period calculated in accordance with GAAP.
"Eurocurrency Reserve Requirements": as defined in the definition of
---------------------------------
Eurodollar Rate.
"Eurodollar Lending Office": as to any Lender the office of such Lender
-------------------------
which shall be making or maintaining Eurodollar Loans.
"Eurodollar Loans": Loans at such time as they are made and/or being
----------------
maintained at a rate of interest based upon a Eurodollar Rate.
"Eurodollar Rate": with respect to each day during any Interest Period
---------------
for any Eurodollar Loan, the rate per annum equal to the quotient of (a) the
average (rounded upwards to the nearest whole multiple of one sixteenth of one
percent) of the respective rates notified to the Administrative Agent by the
Reference Lenders as the rate at which each of their Eurodollar Lending Offices
is offered Dollar deposits two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the foreign currency
and exchange operations of such Eurodollar Lending Office are customarily
conducted at or about 10:00 A.M., New York City time, for delivery on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of the Eurodollar Loan of such Reference Lenders
to be outstanding during such Interest Period, divided by (b) a number equal to
1.00 minus the aggregate (without duplication) of the rates (expressed as a
decimal) of reserve requirements current on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto), as now and from time to time hereafter in effect, dealing
with reserve requirements prescribed for Eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board)
maintained by a member bank of such System (such rates of reserve requirements
being referred to herein as "Eurocurrency Reserve Requirements") (such
----------------------
Eurodollar Rate to be rounded upwards, if necessary, to the next higher 1/100 of
one percent).
"Event of Default": any of the events specified in Section 10, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Excess Cash Flow": for any fiscal year of the Company, commencing with
----------------
the fiscal year ending during December 1996, the excess of (a) the sum, without
duplication, of (i) Consolidated EBITDA for such fiscal year plus (ii) the net
----
proceeds of all property sold by the Company and its Subsidiaries during such
fiscal year over (b) the sum, without duplication, of (i) the aggregate amount
actually paid by the Company and its Subsidiaries in cash during such fiscal
year on account of capital expenditures (other than capital expenditures made
with the proceeds of eminent domain or condemnation proceedings to the extent
such proceeds are not included in the determination of
<PAGE>
10
Consolidated EBITDA for such fiscal year), (ii) the aggregate amount of payments
of principal in respect of any Indebtedness during such fiscal year (other than
any such payments of principal (w) from the Net Proceeds of an IPO pursuant to
subsection 5.4(b)(i), (x) from the Net Proceeds in excess of $100,000,000 from
the issuance of Permanent Subordinated Debt pursuant to subsection 5.4(b)(i),
(y) pursuant to subsection 5.4(b)(iii) or (z) in respect of any revolving credit
facility to the extent that there is not an equivalent reduction in such
facility), (iii) increases in working capital (calculated as Consolidated
Current Assets at the end of such fiscal year minus Consolidated Current
-----
Liabilities as at the end of such fiscal year) of the Company and its
Subsidiaries for such fiscal year (excluding any increase in cash or Cash
Equivalents above an increase deemed in good faith by the Company to be
necessary or desirable for the operation of the business of the Company and its
Subsidiaries), (iv) cash interest expense (including fees paid in connection
with Letters of Credit and surety bonds) of the Company, (v) the amount of
dividends actually paid in cash by the Company to Holdings during such fiscal
year to the extent not deducted from revenues in determining consolidated net
income of the Company and its Subsidiaries for such fiscal year, in accordance
with subsection 9.11(c)(i) and (ii), (vi) the amount of taxes actually paid in
cash by the Company and its Subsidiaries for such fiscal year either during such
fiscal year or within a normal payment period thereof, (vii) the amount of cash
actually paid to repurchase Capital Stock of Holdings pursuant to subsection
9.11(c)(iii) or of the Company pursuant to subsection 9.11(d), (viii) to the
extent added to consolidated net income of the Company and its Subsidiaries in
calculating Consolidated EBITDA for such fiscal year, the net cost of Interest
Rate Agreements, franchise taxes and management fees and any ESOP Expense, (ix)
any expenditure made in accordance with the terms of subsection 9.6(g)(i)(A) and
(x) any expenditure made in connection with the SWIFT Program or the UNITE
Program.
"Fee Property": as defined in subsection 6.13.
------------
"Financing Lease": (a) any lease of property, real or personal, the
---------------
obligations under which are capitalized on a consolidated balance sheet of the
Company and its consolidated Subsidiaries, and (b) any other such lease to the
extent that the then present value of any rental commitment thereunder should,
in accordance with GAAP, be capitalized on a balance sheet of the lessee.
"Foreign Subsidiary": any Subsidiary of the Company which is not
------------------
organized under the laws of the United States or any state thereof or the
District of Columbia.
"GAAP": generally accepted accounting principles in the United States
----
in effect from time to time.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
<PAGE>
11
"Guarantees": the collective reference to the Holdings Guarantee and
----------
any guarantee which may from time to time be executed and delivered by a
Subsidiary of the Company pursuant to subsection 8.9.
"Hazardous Materials": any hazardous materials, hazardous wastes,
-------------------
hazardous pesticides or hazardous or toxic substances, defined, listed,
classified or regulated as such in or under any Environmental Law, including,
without limitation, asbestos, petroleum, any other petroleum products (including
gasoline, crude oil or any fraction thereof), polychlorinated biphenyls and
urea-formaldehyde insulation.
"Holdings": Simmons Holdings, Inc., a Delaware corporation.
--------
"Holdings Guarantee": the Holdings Guarantee substantially in the form
------------------
of Exhibit G, to be made by Holdings in favor of the Administrative Agent, for
the ratable benefit of the Lenders, as the same may be amended, modified or
supplemented from time to time.
"Holdings Pledge Agreement": the Pledge Agreement, substantially in the
-------------------------
form of Exhibit H, to be made by Holdings in favor of the Administrative Agent,
for the ratable benefit of the Lenders, as the same may be amended, modified or
supplemented from time to time.
"Indebtedness": of a Person, at a particular date, (a) all indebtedness
------------
of such Person for borrowed money or for the deferred purchase price of property
or services, (b) the undrawn face amount of all letters of credit issued for the
account of such Person and, without duplication, all drafts drawn thereunder and
unpaid reimbursement obligations with respect thereto, (c) all liabilities
(other than Lease Obligations) secured by any Lien on any property owned by such
Person, even though such Person has not assumed or become liable for the payment
thereof, (d) Financing Leases and (e) all indebtedness of such Person arising
under acceptance facilities; but excluding (i) trade and other accounts payable
and accrued expenses payable in the ordinary course of business which are not
overdue for a period of more than 90 days or, if overdue for more than 90 days,
as to which a dispute exists and adequate reserves in conformity with GAAP have
been established on the books of such Person and (ii) letters of credit
supporting the purchase of goods in the ordinary course of business and expiring
no more than six months from the date of issuance.
"Insolvency": with respect to a Multiemployer Plan, the condition that
----------
such Plan is insolvent within the meaning of such term as used in Section 4245
of ERISA.
"Installment Payment Date": as defined in subsection 5.4(c).
------------------------
"Interest Coverage Ratio": on the last day of any fiscal quarter of the
-----------------------
Company, the ratio of (a) Consolidated EBITDA for the period of four fiscal
quarters ending on such day (or, if shorter, the period commencing on the first
day of the first fiscal quarter
<PAGE>
12
commencing on or after the Closing Date and ending on such day) to (b) cash
interest expense (excluding fees payable on account of Letters of Credit, and,
to the extent included in interest expense in accordance with GAAP, net costs
associated with Interest Rate Agreements to which the Company is party in
respect of the Loans and amortization of debt discount (including discount of
liabilities and reserves established under APB 16), costs of debt issuance and
interest expense on customer deposits) for such period net of interest income,
in each case for or during such period on a consolidated basis for the Company
and its Subsidiaries.
"Interest Payment Date": (a) as to Alternate Base Rate Loans, the last
---------------------
day of each March, June, September and December, commencing on the first such
day to occur after any Alternate Base Rate Loans are made or any Eurodollar
Loans are converted to Alternate Base Rate Loans, (b) as to any Eurodollar Loan
in respect of which the Company has selected an Interest Period of one, two or
three months, the last day of such Interest Period and (c) as to any Eurodollar
Loan in respect of which the Company has selected an Interest Period of six
months, the date which is three months after the beginning thereof and the last
day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
---------------
(a) initially, the period commencing on, as the case may be, the
Borrowing Date or conversion date with respect to such Eurodollar Loan
and ending one, two, three or six months thereafter as selected by the
Company in its notice of borrowing as provided in subsection 5.1 or its
notice of conversion as provided in subsection 5.2; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six months thereafter as selected by the Company by
irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect to such Eurodollar Loan;
provided that the foregoing provisions relating to Interest Periods are subject
- ---------
to the following:
(A) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Business
Day;
(B) any Interest Period that would otherwise extend beyond (i) in
the case of an Interest Period for a Term Loan, the final Installment
Payment Date listed on Schedule II for such Term Loan shall end on such
Installment Payment Date or, if such Installment Payment Date shall not
be a Business Day, on the next
<PAGE>
13
preceding Business Day; and (ii) in the case of any Interest Period
for a Revolving Credit Loan, the Revolving Credit Termination Date
shall end on the Revolving Credit Termination Date, or if the Revolving
Credit Termination Date shall not be a Business Day, on the next
preceding Business Day;
(C) if the Company shall fail to give notice as provided above in
clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an Alternate Base Rate Loan (which conversion shall
occur automatically and without need for compliance with the conditions
for conversion set forth in subsection 5.2);
(D) any Interest Period that begins on the last day of a calendar
month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month; and
(E) the Company shall select Interest Periods so as not to require
a prepayment (to the extent practicable) or a scheduled payment of a
Eurodollar Loan during an Interest Period for such Eurodollar Loan.
"Interest Rate Agreement": any interest rate swap agreement, interest
-----------------------
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement; provided that the amount of any such Interest Rate Agreement for
--------
purposes of Section 10(e) shall be based on calculation of payments for early
termination in a reasonable manner in accordance with customary industry
practices.
"Investcorp": Investcorp S.A., a Luxembourg corporation.
----------
"IPO": any sale by either the Company or Holdings through a public
---
offering of its common (or other voting) stock pursuant to an effective
registration statement (other than a registration statement on Form S-4, S-8 or
any successor or similar form) filed under the Securities Act of 1933, as
amended.
"Issuing Lenders": Chemical and any of its Affiliates, including
---------------
Chemical Bank Delaware, as issuer of the Letters of Credit and, solely with
respect to the Letters of Credit listed on Schedule II, the U.S. National Bank
of Oregon; with respect to any Letter of Credit, the term "Issuing Lender" shall
mean the Issuing Lender with respect to such Letter of Credit.
"L/C Application": as defined in subsection 4.5(a).
---------------
"L/C Obligations": the obligations of the Company to reimburse the
---------------
Issuing Lender for any payments made by the Issuing Lender under any Letter of
Credit that have not been reimbursed by the Company pursuant to subsection
4.8(a).
<PAGE>
14
"L/C Participating Interest": an undivided participating interest in
--------------------------
the face amount of each issued and outstanding Letter of Credit and the L/C
Application relating thereto.
"L/C Participation Certificate": a certificate in substantially the
-----------------------------
form of Exhibit I.
"Lease Obligations": of the Company and its Subsidiaries, as of the
-----------------
date of any determination thereof, the rental commitments of the Company and
its Subsidiaries determined on a consolidated basis, if any, under leases for
real and/or personal property (net of rental commitments from sub-leases
thereof), excluding however, obligations under Financing Leases.
"Leased Properties": as defined in subsection 6.13.
-----------------
"Letters of Credit": the collective reference to the Commercial L/Cs
-----------------
and the Standby L/Cs; individually, a "Letter of Credit".
----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing except for the filing of financing statements in connection
with Lease Obligations incurred by the Company or its Subsidiaries to the extent
that such financing statements relate to the property subject to such Lease
Obligations).
"Loans": the collective reference to the Swing Line Loans, the Term
-----
Loans and the Revolving Credit Loans; individually, a "Loan".
"Merger": as defined in the Recitals hereto.
------
"Merger Agreement": the Merger Agreement, dated as of the date hereof,
----------------
between Acquisition Corp. and Simmons.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001 (a)(3) of ERISA.
"Net Proceeds": the aggregate cash proceeds received by Holdings, the
------------
Company or any Subsidiary of the Company in respect of:
(a) (i) any issuance or borrowing of any debt securities or loans
by the Company or any Subsidiary other than debt or loans permitted to
be incurred or borrowed pursuant to subsection 9.1 or (ii) any issuance
of Capital Stock in an IPO;
<PAGE>
15
(b) any Asset Sale, excluding (i) any net proceeds received upon
any condemnation or exercise of rights of eminent domain to the extent
the same shall be deemed not to constitute Net Proceeds pursuant to the
proviso to subsection 9.5(d) and (ii) any proceeds of insurance received
upon any casualty or loss;
(c) any cash received in respect of substantially like-kind
exchanges of property to the extent provided in the proviso to
subsection 9.5(e); and
(d) any cash payments received in respect of promissory notes
delivered to the Company or such Subsidiary in respect of an Asset Sale;
in each case net of (without duplication) (A) the amount required to repay any
Indebtedness (other than the Loans) secured by a Lien on any assets of the
Company or a Subsidiary of the Company that are collateral for any such debt
securities or loans that are sold or otherwise disposed of in connection with
such Asset Sale, (B) the reasonable expenses (including legal fees and brokers'
and underwriters' commissions, lenders fees or credit enhancement fees, in any
case, paid to third parties or, to the extent permitted hereby, Affiliates)
incurred in effecting such issuance or sale and (C) any taxes reasonably
attributable to such sale and reasonably estimated by the Company or such
Subsidiary to be actually payable.
"Non-Funding Lender": as defined in subsection 5.9(c).
------------------
"Notes": the collective reference to the Swing Line Note, the Revolving
-----
Credit Notes and the Term Loan Notes; each of the Notes, a "Note".
-------
"Participants": as defined in subsection 12.6(b).
------------
"Participating Lender": any Lender (other than the Issuing Lender) with
--------------------
respect to its L/C Participating Interest in each Letter of Credit.
"Payment Sharing Notice": a written notice from the Company or any
----------------------
Lender informing the Administrative Agent that an Event of Default has occurred
and is continuing and directing the Administrative Agent to allocate payments
thereafter received from or on behalf of the Company in accordance with the
provisions of subsection 5.9.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA or any successor.
"Permanent Subordinated Debt": (i) unsecured notes or debentures of the
---------------------------
Company, subordinated to the prior payment of the Loans and the other
obligations under the Credit Documents, that may be issued by the Company after
the Closing Date, provided that (a) unless otherwise agreed to by the
--------
Supermajority Lenders, no part of the principal amount of any such notes or
debentures shall have a maturity date earlier than March 31, 2004, (b) unless
otherwise agreed to by the Required Lenders, the
<PAGE>
16
subordination provisions of which are as favorable to the Lenders as the
Exchange Notes issued under, and as defined in, the Bridge Loan Agreement, the
other terms and conditions thereof (including, without limitation,
subordination, covenant and events of default provisions thereof but excluding
any call protection provisions) taken as a whole shall be at least as favorable
to the Company and the Lenders as the Exchange Notes issued under, and as
defined in, the Bridge Loan Agreement and the non-default cash interest rate
thereon shall not exceed 15% per annum and the total non-default interest rate
shall not exceed 17% per annum, (c) no covenant contained in this Agreement or
any of the other Credit Documents would be violated on the proposed issuance
date after giving effect to (I) the issuance of such notes or debentures, (II)
the payment of all issuance costs, commissions, discounts, redemption premiums
and other fees and charges associated therewith, (III) the use of proceeds
thereof and (IV) the redemption, repayment, retirement and repurchase of all
Indebtedness of the Company and its Subsidiaries to be redeemed, repaid or
repurchased in connection therewith and (d) substantially final drafts of the
documentation governing any such notes or debentures, showing the terms thereof,
shall have been furnished to the Lenders at least 10 days prior to the date of
issuance of such notes or debentures and (ii) unsecured notes or debentures of
the Company, subordinated to the prior payment of the Loans and the other
obligations under the Credit Documents, that may be issued by the Company to
refinance previously issued Permanent Subordinated Debt, provided that (a)
--------
unless otherwise agreed to by the Required Lenders, the maturity date, interest
rate, scheduled amortization, final maturity and subordination provisions shall
be at least as favorable to the Company and the Lenders as such refinanced
Permanent Subordinated Debt and the other terms and conditions thereof
(including, without limitation the covenant and event of default provisions
thereof) taken as a whole shall be at least as favorable to the Company and the
Lenders as such refinanced Permanent Subordinated Debt and (b) the conditions
contained in clauses (i)(c) and (d) of this definition shall be met.
"Permitted Liens": Liens permitted to exist under subsection 9.2.
---------------
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, limited liability company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan": at any particular time, any employee benefit plan as defined in
----
Section 3(3) of ERISA and not excluded by Section 4(b) of ERISA and in respect
of which the Company or a Commonly Controlled Entity is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to the Holdings Pledge
-----------------
Agreement and any pledge agreement from time to time executed and delivered by
the Company providing for the pledge of the Capital Stock of any Subsidiary
pursuant to subsection 8.9.
<PAGE>
17
"Real Property": each Fee Property and Leased Property listed on
-------------
Schedule 6.13.
"Reference Lenders": Chemical, First Union National Bank of North
-----------------
Carolina and First National Bank of Boston.
"Refunded Swing Line Loans": as defined in subsection 4.4(b).
-------------------------
"Register": as defined in subsection 12.6(d).
--------
"Related Document": any agreement, certificate, document or instrument
----------------
relating to a Letter of Credit.
"Reorganization": with respect to a Multiemployer Plan, the condition
--------------
that such Plan is in reorganization as such term is used in Section 4241 of
ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
----------------
ERISA other than those events as to which the thirty day notice period is waived
under subsections. 13, .14, .16, .18, .19 or .20 of PBGC Reg. Sec. 2615.
"Required Lenders": at a particular time, the holders of at least 51%
----------------
of the sum of (i) the aggregate unpaid principal amount of the Term Loans, if
any, and (ii) the Revolving Credit Commitments or, if the Revolving Credit
Commitments are terminated, the aggregate unpaid principal amount of the
Revolving Credit Loans. The Term Loans and the Revolving Credit Commitments of
any Non-Funding Lender shall be disregarded in determining Required Lenders at
any time.
"Requirement of Law": as to any Person, the Articles or Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, order, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property, or to which such Person
or any of its property is subject.
"Responsible Officer": with respect to any Person, the president, chief
-------------------
executive officer, the chief operating officer, the chief financial officer,
treasurer, controller or any vice president of such Person.
"Revolving Credit Commitment": as to any Lender, its obligations to
---------------------------
make Revolving Credit Loans to the Company pursuant to subsection 4.1, and to
purchase its L/C Participating Interest in any Letter of Credit, in an aggregate
amount not to exceed the amount set forth under such Lender's name in Schedule I
opposite the caption "Revolving Credit Commitment" or in Schedule 1 to the
Assignment and Acceptance by which such Lender acquired its Revolving Credit
Commitment, as the same may be reduced from time to time pursuant to subsection
5.3 or 5.4(b) or adjusted pursuant to subsection 12.6(c); collectively, as to
all the Lenders, the "Revolving Credit Commitments".
----------------------------
<PAGE>
18
"Revolving Credit Commitment Percentage": as to any Lender at any time,
--------------------------------------
the percentage of the aggregate Revolving Credit Commitments then constituted by
such Lender's Revolving Credit Commitment.
"Revolving Credit Commitment Period": the period from and including the
----------------------------------
Closing Date to but not including the Revolving Credit Termination Date.
"Revolving Credit Loan" and "Revolving Credit Loans": as defined in
--------------------- ----------------------
subsection 4.1 (a).
"Revolving Credit Lender": any Lender with a Revolving Credit
-----------------------
Commitment.
"Revolving Credit Note": as defined in subsection 5.13(e).
---------------------
"Revolving Credit Termination Date": the earlier of (a) March 31, 2001
---------------------------------
and (b) such other earlier date as the Revolving Credit Commitments shall
terminate hereunder.
"Security Agreements": the collective reference to the Company Security
-------------------
Agreement and any security agreement which may from time to time be executed and
delivered by a Subsidiary of the Company pursuant to subsection 8.9.
"Security Documents": the collective reference to the Pledge Agreements
------------------
and the Security Agreements.
"Sellers": as defined in the Recitals hereto.
-------
"Simmons": Simmons Company, a Delaware corporation.
-------
"Single Employer Plan": any Plan which is covered by Title IV of ERISA
--------------------
and which is not a Multiemployer Plan.
"Standby L/C": an irrevocable letter of credit under which the Issuing
-----------
Lender agrees to make payments in Dollars for the account of the Company, on
behalf of the Company or any Subsidiary thereof in respect of obligations of the
Company or such Subsidiary incurred pursuant to contracts made or performances
undertaken or to be undertaken or like matters relating to contracts to which
the Company or such Subsidiary is or proposes to become a party in the ordinary
course of the Company's or such Subsidiary's business, including, without
limiting the foregoing, for insurance purposes or in respect of advance payments
or as bid or performance bonds or for any other purpose for which a standby
letter of credit might customarily be issued.
"Stock Purchase Agreement": the Stock Purchase Agreement, dated
------------------------
February 21, 1996, among the Sellers and Acquisition Corp., together with such
material amendments, waivers, supplements and other modifications thereto as
shall be satisfactory to the Administrative Agent.
<PAGE>
19
"Subordinated Debt": collectively, the Bridge Subordinated Debt and the
-----------------
Permanent Subordinated Debt.
"Subsection 5.1 l(d)(2) Certificate": as defined in subsection
----------------------------------
5.11(d).
"Subsidiary": as to any Person, any corporation of which shares of
----------
stock of each class having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation are at the time
owned by such Person or by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person. (A Subsidiary shall be
deemed wholly-owned by a Person who owns all of the voting shares of stock of
such Subsidiary having voting power under ordinary circumstances to vote for
directors, except for directors' qualifying shares.) Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Company.
"Supermajority Lenders": at a particular time, the holders of at least
---------------------
66-2/3% of the sum of (i) the aggregate unpaid principal amount of the Term
Loans, if any, and (ii) the Revolving Credit Commitments or, if the Revolving
Credit Commitments are terminated, the aggregate unpaid principal amount of the
Revolving Credit Loans. The Term Loans and the Revolving Credit Commitments of
any Non-Funding Lender shall be disregarded in determining Supermajority Lenders
at any time.
"SWIFT Program": the so-named systems integration and upgrade program
-------------
of Simmons.
"Swing Line Commitment": the Swing Line Lender's obligation to make
---------------------
Swing Line Loans pursuant to subsection 4.4.
"Swing Line Lender": Chemical in its capacity as lender of the Swing
-----------------
Line Loans.
"Swing Line Loan Participation Certificate": a certificate in
-----------------------------------------
substantially the form of Exhibit J.
"Swing Line Loans": as defined in subsection 4.4(a).
----------------
"Swing Line Note": as defined in subsection 5.13(e).
---------------
"Term Loan Notes": collectively, the Tranche A Term Loan Notes and the
---------------
Tranche B Term Loan Notes.
"Term Loans": collectively, the Tranche A Term Loans and the Tranche B
----------
Term Loans.
<PAGE>
20
"Tranche A Term Loan" and "Tranche A Term Loans": as defined in
------------------- --------------------
subsection 2.1.
"Tranche A Term Loan Commitment": as to any Lender, its obligation to
------------------------------
make a Tranche A Term Loan to the Company pursuant to subsection 2.1 in an
aggregate amount not to exceed the amount set forth under such Lender's name in
Schedule I opposite the caption "Tranche A Term Loan Commitment" or in Schedule
1 to the Assignment and Acceptance pursuant to which a Lender acquires its
Tranche A Term Loan Commitment, as the same may be adjusted pursuant to
subsection 12.6(c); collectively, as to all the Lenders, the "Tranche A Term
--------------
Loan Commitments".
- ----------------
"Tranche A Term Loan Commitment Percentage": as to any Lender at any
-----------------------------------------
time, the percentage of the aggregate Tranche A Term Loan Commitments then
constituted by such Lender's Tranche A Term Loan Commitment.
"Tranche A Term Loan Note": as defined in subsection 5.13(e).
------------------------
"Tranche B Term Loan" and "Tranche B Term Loans": as defined in
------------------- --------------------
subsection 3.1.
"Tranche B Term Loan Commitment": as to any Lender, its obligation to
------------------------------
make a Tranche B Term Loan to the Company pursuant to subsection 3.1 in an
aggregate amount not to exceed the amount set forth under such Lender's name in
Schedule I opposite the caption "Tranche B Term Loan Commitment" or in Schedule
1 to the Assignment and Acceptance pursuant to which a Lender acquires its
Tranche B Term Loan Commitment, as the same may be adjusted pursuant to
subsection 12.6(c); collectively, as to all the Lenders, the "Tranche B Term
---------------
Loan Commitments".
- ------------------
"Tranche B Term Loan Commitment Percentage": as to any Lender at any
-----------------------------------------
time, the percentage of the aggregate Tranche B Term Loan Commitments then
constituted by such Lender's Tranche B Term Loan Commitment.
"Tranche B Term Loan Note": as defined in subsection 5.13(e).
------------------------
"Transferee": as defined in subsection 12.6(f).
----------
"Type": as to any Loan, its nature as an Alternate Base Rate Loan or
----
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
and any amendments thereof.
"UNITE Program": the so-named manufacturing design and re-engineering
-------------
upgrade of Simmons.
<PAGE>
21
"United States": the United States of America.
-------------
1.2 Other Definitional Provisions . (a) Unless otherwise specified
-------------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Credit Document or any certificate or other
document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Credit Document and any
certificate or other document made or delivered pursuant hereto, accounting
terms relating to the Company and its Subsidiaries not defined in subsection 1.1
and accounting terms partly defined in subsection 1.1 to the extent not defined,
shall have the respective meanings given to them under GAAP. Unless otherwise
explicitly specified herein, all computations determining compliance with
financial covenants or terms, including definitions used therein, shall be
prepared in accordance with generally accepted accounting principles in effect
at the time of the preparation of, and in conformity with those used to prepare,
the historical financial statements delivered to the Administrative Agent
pursuant to subsection 6.1. If at any time the computations for determining
compliance with financial covenants or provisions relating thereto utilize
generally accepted accounting principles different than those then being
utilized in the financial statements then being delivered to the Administrative
Agent, such financial statements shall be accompanied by a reconciliation
statement with respect to such computations.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
SECTION 2. TRANCHE A TERM LOANS
--------------------
2.1 Tranche A Term Loans. Subject to the terms and conditions hereof,
---------------------
each Lender severally agrees to make loans in Dollars (individually, a "Tranche
-------
A Term Loan"; and collectively, the "Tranche A Term Loans") to the Company
- ----------- --------------------
(a) on the Closing Date and (b) on the Drawdown Date, in an aggregate principal
amount equal to such Lender's Tranche A Term Loan Commitment. The Tranche A Term
Loans shall be made initially as Alternate Base Rate Loans.
2.2 Repayment of Tranche A Term Loans. The Company shall repay the
---------------------------------
Tranche A Term Loans as provided in subsection 5.4(c).
2.3 Use of Proceeds. The proceeds of the Tranche A Term Loans shall be
---------------
used (a) to finance a portion of the purchase price of the Acquisition and
to pay fees, expenses and financing costs in connection therewith, and (b) to
refinance certain of the existing Indebtedness of the Company and its
Subsidiaries.
<PAGE>
22
2.4 Commitment Fee. The Company agrees to pay to the Administrative
--------------
Agent for the account of each Lender a commitment fee for the period from and
including the Closing Date to the Drawdown Date, computed at the rate of 1/2 of
1% per annum on the amount of the available Tranche A Term Loan Commitment,
payable on the Drawdown Date or such earlier date as the Tranche A Term Loan
Commitments shall terminate as provided herein, provided that no such commitment
--------
fee shall be earned or payable in respect of the Tranche A Term Loan Commitment
if all of the Tranche A Term Loans are made on the Closing Date.
SECTION 3. TRANCHE B TERM LOANS
--------------------
3.1 Tranche B Term Loans. Subject to the terms and conditions hereof,
--------------------
each Lender severally agrees to make a loan in Dollars (individually, a "Tranche
-------
B Term Loan"; and collectively, the "Tranche B Term Loans") to the Company on
- ----------- --------------------
the Closing Date, in an aggregate principal amount equal to such Lender's
Tranche B Term Loan Commitment. The Tranche B Term Loans shall be made initially
as Alternate Base Rate Loans.
3.2 Repayment of Tranche B Term Loans. The Company shall repay the
---------------------------------
Tranche B Term Loans as provided in subsection 5.4(c).
3.3 Use of Proceeds. The proceeds of the Tranche B Term Loans shall be
---------------
used for the purposes set forth in subsection 2.3 of this Agreement.
SECTION 4. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS
-----------------------------
4.1 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Lender severally agrees to the extent of its Revolving
Credit Commitment to extend credit to the Company from time to time on any
Borrowing Date during the Revolving Credit Commitment Period (i) by purchasing
an L/C Participating Interest in each Letter of Credit issued by the Issuing
Lender and (ii) by making loans in Dollars (individually, such a Loan is a
"Revolving Credit Loan", and collectively such Loans are the "Revolving Credit
--------------------- ----------------
Loans") to the Company from time to time. Notwithstanding the above, in no event
- -----
shall any Revolving Credit Loans be made, or Letter of Credit be issued, if the
aggregate amount of the Revolving Credit Loans to be made or Letter of Credit to
be issued would, after giving effect to the use of proceeds, if any, thereof,
exceed the aggregate Available Revolving Credit Commitments nor shall any Letter
of Credit be issued if after giving effect thereto the sum of the undrawn amount
of all outstanding Letters of Credit and the amount of all L/C Obligations would
exceed $12,000,000. During the Revolving Credit Commitment Period, the Company
may use the Revolving Credit Commitments by borrowing, prepaying the Revolving
Credit Loans in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof, and/or by having the Issuing Lender issue Letters
of Credit, having such Letters of Credit expire undrawn upon or if drawn upon,
reimbursing the Issuing Lender for such drawing, and having the Issuing Lender
issue new Letters of Credit.
<PAGE>
23
(b) The Revolving Credit Loans made on the Closing Date shall be made
initially as Alternate Base Rate Loans. Each borrowing of Revolving Credit Loans
pursuant to the Revolving Credit Commitments shall be in an aggregate principal
amount of the lesser of (i) $500,000 or a whole multiple of $100,000 in excess
thereof in the case of Alternate Base Rate Loans, and $2,000,000 or a whole
multiple of $500,000 in excess thereof, in the case of Eurodollar Loans and (ii)
the Available Revolving Credit Commitments, except that any borrowing of
Revolving Credit Loans to be used solely to pay a like amount of Swing Line
Loans may be in the aggregate principal amount of such Swing Line Loans.
4.2 Commitment Fee. The Company agrees to pay to the Administrative
--------------
Agent for the account of each Lender (other than any Non-Funding Lender) a
commitment fee (a) from and including the date of the allocation of such
Lender's Commitment to and excluding the Closing Date, computed at a rate of 1/2
of 1% per annum on such Lender's Commitment and (b) from and including the
Closing Date to and including the Revolving Credit Termination Date, computed at
the rate of 1/2 of 1% per annum on the average daily amount of the Available
Revolving Credit Commitment of such Lender during the period for which payment
is made (whether or not the Company shall have satisfied the applicable
conditions to borrow or for issuance of a Letter of Credit set forth in Section
7). Such commitment fee shall be payable on the Closing Date and thereafter
quarterly in arrears on the last day of each March, June, September and December
and on the Revolving Credit Termination Date, commencing on the first such date
to occur on or following the Closing Date (or, if earlier, the Revolving Credit
Termination Date).
4.3 Proceeds of Revolving Credit Loans. The Company shall use the
----------------------------------
proceeds of Revolving Credit Loans (a) as set forth in subsection 2.3 and (b)
for general corporate purposes.
4.4 Swing Line Commitment. (a) Subject to the terms and conditions
---------------------
hereof, the Swing Line Lender agrees, so long as the Administrative Agent has
not received notice that an Event of Default has occurred and is continuing, to
make swing line loans (individually, a "Swing Line Loan"; collectively, the
---------------
"Swing Line Loans") to the Company from time to time during the Revolving Credit
----------------
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed $7,500,000, provided that no Swing Line Loan may be made if the
--------
aggregate principal amount of the Swing Line Loans to be made would exceed the
aggregate Available Revolving Credit Commitments at such time. Amounts borrowed
by the Company under this subsection 4.4 may be repaid and, through but
excluding the Revolving Credit Termination Date, reborrowed. All Swing Line
Loans shall be made as Alternate Base Rate Loans and shall not be entitled to be
converted into Eurodollar Loans. The Company shall give the Swing Line Lender
irrevocable notice (which notice must be received by the Swing Line Lender prior
to 3:00 p.m., New York City time) on the requested Borrowing Date specifying the
amount of each requested Swing Line Loan, which shall be in an aggregate minimum
amount of $250,000 or a whole multiple of $100,000 in excess thereof. The
proceeds of each Swing Line Loan will be made available by the Swing Line Lender
to the Company by crediting the account of the Company at the office of the
Swing Line Lender with such proceeds. The proceeds of Swing Line Loans may be
used solely for the purposes referred to in subsection 4.3.
<PAGE>
24
(b) The Swing Line Lender at any time in its sole and absolute
discretion may, and on the fifteenth day (or if such day is not a Business Day,
the next Business Day) and last Business Day of each month shall, on behalf of
the Company (which hereby irrevocably directs the Swing Line Lender to act on
its behalf) request each Revolving Credit Lender, including the Swing Line
Lender, to make a Revolving Credit Loan in an amount equal to such Lender's
Revolving Credit Commitment Percentage of the amount of the Swing Line Loans
(the "Refunded Swing Line Loans") outstanding on the date such notice is given.
---------------------
Unless any of the events described in paragraph (f) of Section 10 shall have
occurred (in which event the procedures of paragraph (c) of this subsection 4.4
shall apply) each such Lender shall make the proceeds of its Revolving Credit
Loan available to the Swing Line Lender for the account of the Swing Line Lender
at the Alternate Base Rate Lending Office of the Swing Line Lender prior to
12:00 noon (New York City time) in funds immediately available on the Business
Day next succeeding the date such notice is given. The proceeds of such
Revolving Credit Loans shall be immediately applied to repay the Refunded Swing
Line Loans.
(c) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (b) of this subsection 4.4 one of the events described in paragraph
(f) of Section 10 shall have occurred, each Revolving Credit Lender will, on the
date such Loan was to have been made, purchase an undivided participating
interest in the Refunded Swing Line Loan in an amount equal to its Revolving
Credit Commitment Percentage of such Refunded Swing Line Loan. Each such Lender
will immediately transfer to the Swing Line Lender in immediately available
funds, the amount of its participation and upon receipt thereof the Swing Line
Lender will deliver to such Lender a Swing Line Loan Participation Certificate
dated the date of receipt of such funds and in such amount.
(d) Whenever, at any time after the Swing Line Lender has received from
any Revolving Credit Lender such Lender's participating interest in a Refunded
Swing Line Loan, the Swing Line Lender receives any payment on account thereof,
the Swing Line Lender will distribute to such Lender its participating interest
in such amount (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Lender's participating interest was
outstanding and funded) in like funds as received; provided, however, that in
-------- -------
the event that such payment received by the Swing Line Lender is required to be
returned, such Lender will return to the Swing Line Lender any portion thereof
previously distributed by the Swing Line Lender to it in like funds as such
payment is required to be returned by the Swing Line Lender.
(e) The obligation of each Revolving Credit Lender to purchase
participating interests pursuant to subsection 4.4(C) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Swing Line Lender, the Company or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of an
Event of Default; (iii) any adverse change in the condition (financial or
otherwise) of the Company; (iv) any breach of this Agreement by the Company or
any other Lender; or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
<PAGE>
25
4.5 Issuance of Letters of Credit. (a) The Company may from time to
------------------------------
time request the Issuing Lender to issue a Standby L/C or a Commercial L/C by
delivering to the Administrative Agent at its address specified in subsection
12.2 a letter of credit application in the Issuing Lender's then customary form
(the "L/C Application") completed to the satisfaction of the Issuing Lender,
---------------
together with the proposed form of such Letter of Credit (which shall comply
with the applicable requirements of paragraph (b) below) and such other
certificates, documents and other papers and information as the Issuing Lender
may reasonably request; provided that if the Issuing Lender informs the Company
--------
that it is for any reason unable to open such Letter of Credit, the Company may
request any Lender to open such Letter of Credit upon the same terms offered to
the Issuing Lender and each reference to the Issuing Lender for purposes of
subsections 4.5 through 4.14, 7.1 and 7.2 shall be deemed to be a reference to
such issuing Lender.
(b) Each Standby L/C and Commercial L/C issued hereunder shall, among
other things, (i) be in such form requested by the Company as shall be
acceptable to the Issuing Lender in its sole discretion and (ii) in the case of
each Standby L/C, have an expiry date occurring not later than 365 days after
the date of issuance of such Standby L/C and, in the case of each Commercial
L/C, have an expiry date occurring not later than 180 days after the date of
issuance of such Commercial L/C and, in all cases, have an expiry date occurring
not later than the Revolving Credit Termination Date. Each L/C Application and
each Letter of Credit shall be subject to the Uniform Customs and, to the extent
not inconsistent therewith, the laws of the State of New York.
(c) Each Lender, the Issuing Lenders and the Company hereby acknowledge
and agree that the letters of credit issued by the U.S. National Bank of Oregon,
outstanding on the date hereof, as set forth on Schedule II hereto shall, on and
after the Closing Date, be outstanding as Letters of Credit hereunder.
4.6 Participating Interests. Effective in the case of each Standby L/C
-----------------------
and Commercial L/C as of the date of the opening thereof, the Issuing Lender
agrees to allot and does allot, to itself and each other Revolving Credit
Lender, and each such Lender severally and irrevocably agrees to take and does
take in such Letter of Credit and the related L/C Application, an L/C
Participating Interest in a percentage equal to such Lender's Revolving Credit
Commitment Percentage.
4.7 Procedure for Opening Letters of Credit. The Issuing Lender will
---------------------------------------
notify each Lender after the end of each calendar month of any L/C Applications
received by the Issuing Lender from the Company during such month. Upon receipt
of any L/C Application from the Company, the Issuing Lender will process such
L/C Application, and the other certificates, documents and other papers
delivered to the Issuing Lender in connection therewith, in accordance with its
customary procedures and, subject to the terms and conditions hereof, shall
promptly open such Letter of Credit by issuing the original of such Letter of
Credit to the beneficiary thereof and by furnishing a copy thereof to the
Company and, after the end of the calendar month in which such Letter of Credit
was opened, to the other Lenders, provided that no such Letter of Credit shall
--------
be issued if subsection 4.1 would be violated thereby.
<PAGE>
26
4.8 Payments in Respect of Letters of Credit. (a) The Company agrees
----------------------------------------
forthwith upon demand by the Issuing Lender and otherwise in accordance with the
terms of the L/C Application relating thereto, (i) to reimburse the Issuing
Lender for any payment made by the Issuing Lender under any Letter of Credit
issued for the account of the Company and (ii) to pay interest on any
unreimbursed portion of any such payment from the date of such payment until
reimbursement in full thereof at a rate per annum equal to (A) on or prior to
the date which is one Business Day after the day on which the Issuing Lender
demands reimbursement from the Company for such payment, 1-1/4% plus the
Alternate Base Rate and (B) thereafter, 3-1/4% plus the Alternate Base Rate.
(b) In the event that the Issuing Lender makes a payment under any
Letter of Credit and is not reimbursed in full therefor forthwith upon demand of
the Issuing Lender, and otherwise in accordance with the terms of the L/C
Application relating to such Letter of Credit, the Issuing Lender will promptly
notify each other Revolving Credit Lender. Forthwith upon its receipt of any
such notice, each such other Lender will transfer to the Issuing Lender, in
immediately available funds, an amount equal to such other Lender's pro rata
--- ----
share (based on its Revolving Credit Commitment) of the L/C Obligation arising
from such unreimbursed payment. Promptly, upon its receipt from such other
Lender of such amount, the Issuing Lender will complete, execute and deliver to
such other Lender an L/C Participation Certificate dated the date of such
receipt and in such amount.
(c) Whenever, at any time after the Issuing Lender has made a payment
under any Letter of Credit and has received from any other Revolving Credit
Lender such other Lender's pro rata share of the L/C Obligation arising
---------
therefrom, the Issuing Lender receives any reimbursement on account of such L/C
Obligation or any payment of interest on account thereof, the Issuing Lender
will promptly distribute to such other Lender its pro rata share thereof in like
---------
funds as received; provided, however, that in the event that the receipt by the
-------------------
Issuing Lender of such reimbursement or such payment of interest (as the case
may be) is required to be returned, such other Lender will return to the Issuing
Lender any portion thereof previously distributed by the Issuing Lender to it in
like funds as such reimbursement or payment is required to be returned by the
Issuing Lender.
4.9 Letter of Credit Fees. (a) In lieu of any letter of credit commissions and
---------------------
fees provided for in any L/C Application relating to Standby L/Cs (other than
standard issuance, amendment and negotiation fees), the Company agrees to pay
the Administrative Agent, for the account of the Issuing Lender and the
Participating Lenders, with respect to each Standby L/C issued for the account
of the Company, a Standby L/C fee of 2-1/2% per annum (of which the Issuing
Lender shall retain for its own account, as the issuing bank and not on account
of its L/C Participating Interest therein, 1/4 of 1% per annum) on the daily
average amount available to be drawn under each Standby L/C payable, in arrears,
on the last day of each fiscal quarter of the Company. The Administrative Agent
will disburse any Standby L/C fees received pursuant to this subsection 4.9(a)
to the respective Lenders promptly following the receipt of any such fees.
(b) In lieu of any letter of credit commissions and fees provided for
in any L/C Application relating to Commercial L/Cs (other than standard
issuance, amendment and
<PAGE>
27
negotiation fees), the Company agrees to pay the Administrative Agent, for the
account of the Issuing Lender and the Participating Lenders, with respect to
each Commercial L/C issued for the account of the Company, a Commercial L/C fee
of 3/4 of 1% per annum (of which the Issuing Lender shall retain for its own
account, as the issuing bank and not on account of its L/C Participating
Interest therein, 1/8 of 1%), on the maximum face amount of each Commercial L/C
payable in arrears, on the last day of each fiscal quarter of the Company. The
Administrative Agent will disburse any Commercial L/C fees received pursuant to
this subsection 4.9(b) to the respective Lenders promptly following the end of
the calendar month in which such Commercial L/C fees were received.
(c) For purposes of any payment of fees required pursuant to this
subsection 4.9, the Administrative Agent agrees to provide to the Company a
statement of any such fees to be so paid; provided that the failure by the
--------
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
4.10 Letter of Credit Reserves. (a) If any Change in Law shall either
--------------------------
(i) impose, modify, deem or make applicable any reserve, special deposit,
assessment or similar requirement against letters of credit issued by the
Issuing Lender or (ii) impose on the Issuing Lender any other condition
regarding this Agreement (with respect to Letters of Credit) or any Letter of
Credit, and the result of any event referred to in clause (i) or (ii) above
shall be to increase the cost of the Issuing Lender of issuing or maintaining
any Letter of Credit (which increase in cost shall be the result of the Issuing
Lender's reasonable allocation of the aggregate of such cost increases resulting
from such events), then, upon demand by the Issuing Lender, the Company shall
immediately pay to the Issuing Lender, from time to time as specified by the
Issuing Lender, additional amounts which shall be sufficient to compensate the
Issuing Lender for such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the rate applicable to Alternate Base Rate Loans pursuant to subsection
5.5(b). The Company shall not be required to make any payments to the Issuing
Lender for any additional amounts pursuant to this subsection 4.10(a) unless the
Issuing Lender has given written notice to the Company of its intent to request
such payments prior to or within 60 days after the date on which the Issuing
Lender became entitled to claim such amounts. A certificate, setting forth in
reasonable detail the calculation of the amounts involved, submitted by the
Issuing Lender to the Company concurrently with any such demand by the Issuing
Lender, shall be conclusive, absent manifest error, as to the amount thereof.
(b) In the event that any Change in Law with respect to the Issuing
Lender shall, in the opinion of the Issuing Lender, require that any obligation
under any Letter of Credit be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
the Issuing Lender or any corporation controlling the Issuing Lender, and such
Change in Law shall have the effect of reducing the rate of return on the
Issuing Lender's or such corporation's capital, as the case may be, as a
consequence of the Issuing Lender's obligations under such Letter of Credit to a
level below that which the Issuing Lender or such corporation, as the case may
be, could have achieved but for such Change in Law (taking into account the
Issuing Lender's or such corporation's policies, as the case may be, with
respect to capital adequacy) by an amount deemed by the Issuing Lender to be
material, then
<PAGE>
28
from time to time following notice by the Issuing Lender to the Company of such
Change in Law, within 15 days after demand by the Issuing Lender, the Company
shall pay to the !ssuing Lender such additional amount or amounts as will
compensate the Issuing Lender or such corporation, as the case may be, for such
reduction. The Issuing Lender agrees that, upon the occurrence of any event
giving rise to the operation of paragraph (a) or (b) of this subsection 4.10
with respect to the Issuing Lender, it will, if requested by the Company and to
the extent permitted by law or by the relevant Governmental Authority, endeavor
in good faith to avoid or minimize the increase in costs or reduction in
payments resulting from such event; provided, however, that such avoidance or
-------- -------
minimization can be made in such a manner that the Issuing Lender, in its sole
determination, suffers no economic, legal or regulatory disadvantage. The
Company shall not be required to make any payments to the Issuing Lender for any
additional amounts pursuant to this subsection 4.10(b) unless the Issuing Lender
has given written notice to the Company of its intent to request such payments
prior to or within 60 days after the date on which the Issuing Lender became
entitled to claim such amounts. A certificate, in reasonable detail setting
forth the calculation of the amounts involved, submitted by the Issuing Lender
to the Company concurrently with any such demand by the Issuing Lender,
shall be conclusive, absent manifest error, as to the amount thereof.
(c) The Company and each Participating Lender agree that the provisions
of the foregoing paragraphs (a) and (b) shall apply equally to each
Participating Lender in respect of its L/C Participating Interest in such Letter
of Credit, as if the references in such paragraphs and provisions referred to,
where applicable, such Participating Lender or, in the case of paragraph (b),
any corporation controlling such Participating Lender.
4.11 Further Assurances. The Company hereby agrees, from time to time,
------------------
to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Lender more fully to effect the
purposes of this Agreement and the issuance of Letters of Credit hereunder.
4.12 Obligations Absolute. The payment obligations of the Company
---------------------
under this Agreement with respect to the Letters of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(i) the existence of any claim, set-off, defense or other right
which the Company or any of its Subsidiaries may have at any time
against any beneficiary, or any transferee, of any Letter of Credit (or
any Persons for whom any such beneficiary or any such transferee may be
acting), the Issuing Lender, the Administrative Agent or any Lender, or
any other Person, whether in connection with this Agreement, any Credit
Document, the transactions contemplated herein, or any unrelated
transaction;
(ii) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent or invalid or any
statement therein being untrue or inaccurate in any respect;
<PAGE>
29.
(iii) payment by the Issuing Lender under any Letter of Credit
against presentation of a draft or certificate or other document which
does not comply with the terms of such Letter of Credit or is
insufficient in any respect, except where such payment constitutes gross
negligence or willful misconduct on the part of the Issuing Lender; or
(iv) any other circumstances or happening whatsoever, whether
or not similar to any of the foregoing, except for any such
circumstances or happening constituting gross negligence or willful
misconduct on the part of the Issuing Lender.
4.13 Assignments. No Participating Lender's participation in any
-----------
Letter of Credit or any of its rights or duties hereunder shall be subdivided,
assigned or transferred (other than in connection with a transfer of part or all
of such Participating Lender's Revolving Credit Commitment in accordance with
subsection 12.6(c)) without the prior written consent of the Issuing Lender,
which consent will not be unreasonably withheld. Such consent may be given or
withheld without the consent or agreement of any other Participating Lender.
Notwithstanding the foregoing, a Participating Lender may subparticipate its L/C
Participating Interest without obtaining the prior written consent of the
Issuing Lender.
4.14 Participations. The obligation of each Revolving Credit Lender to
--------------
purchase participating interests pursuant to subsection 4.6 shall be absolute
and unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or other
right which such Lender may have against the Issuing Lender, the Company or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of an
Event of Default; (iii) any adverse change in the condition (financial or
otherwise) of the Company; (iv) any breach of this Agreement by the Company or
any other Lender; or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
SECTION 5. GENERAL PROVISIONS APPLICABLE TO LOANS
--------------------------------------
5.1 Procedure for Borrowing. (a) The Company may borrow under the
------------------------
Commitments on any Business Day, provided that, with respect to any borrowing,
--------
the Company shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 12:00 noon (or, with
respect to Swing Line Loans, 3:00 p.m.), New York City time, (i) three Business
Days prior to the requested Borrowing Date if all or any part of the Loans are
to be Eurodollar Loans and (ii) one Business Day prior to the requested
Borrowing Date (or, in the case of Swing Line Loans and, if the Closing Date
occurs on the date this Agreement is executed and delivered, Loans made on
the Closing Date, on the requested Borrowing Date) if the borrowing is to
be solely of Alternate Base Rate Loans) and specifying (A) the amount
of the borrowing, (B) whether such Loans are initially to be Eurodollar
Loans or Alternate Base Rate Loans or a combination thereof, (C) if
the borrowing is to be entirely or partly Eurodollar Loans, the length
of the Interest Period for such Eurodollar Loans and (D) whether the Loan
is a Tranche A Term Loan, a Tranche B Term Loan, a Swing Line Loan or a
Revolving Credit Loan. Upon receipt of such notice the Administrative Agent
shall promptly
<PAGE>
30
notify each Lender. Not later than 12:00 noon, New York City time, on the
Borrowing Date specified in such notice, each Lender shall make available to the
Administrative Agent at the office of the Administrative Agent specified in
subsection 12.2 (or at such other location as the Administrative Agent may
direct) an amount in immediately available funds equal to the amount of the Loan
to be made by such Lender (except that proceeds of Swing Line Loans will be made
available to the Company in accordance with subsection 4.4(a)). Loan proceeds
received by the Administrative Agent hereunder shall promptly be made available
to the Company by the Administrative Agent's crediting the account of the
Company, at the office of the Administrative Agent specified in subsection 12.2,
with the aggregate amount actually received by the Administrative Agent from the
Lenders and in like funds as received by the Administrative Agent.
(b) Any borrowing of Eurodollar Loans hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, (i) the aggregate principal amount of all Eurodollar Loans having the
same Interest Period shall not be less than $2,000,000 or a whole multiple of
$1,000,000 in excess thereof and (ii) no more than sixteen Interest Periods
shall be in effect at any one time.
5.2 Conversion and Continuation Options. (a) The Company may elect
------------------------------------
from time to time to convert Eurodollar Loans into Alternate Base Rate Loans by
giving the Administrative Agent irrevocable notice of such election, to be
received by the Administrative Agent prior to 12:00 noon, New York City time, at
least three Business Days prior to the proposed conversion date, provided that
---------
any such conversion of Eurodollar Loans shall only be made on the last day of an
Interest Period with respect thereto. The Company may elect from time to time to
convert all or a portion of the Alternate Base Rate Loans (other than Swing Line
Loans) then outstanding to Eurodollar Loans by giving the Administrative Agent
irrevocable notice of such election, to be received by the Administrative Agent
prior to 12:00 noon, New York City time, at least three Business Days prior to
the proposed conversion date, specifying the Interest Period selected therefor,
and, if no Default or Event of Default has occurred and is continuing, such
conversion shall be made on the requested conversion date or, if such requested
conversion date is not a Business Day, on the next succeeding Business Day. Upon
receipt of any notice pursuant to this subsection 5.2, the Administrative Agent
shall promptly notify each Lender thereof. All or any part of the outstanding
Loans (other than Swing Line Loans) may be convened as provided herein, provided
--------
that partial conversions of Alternate Base Loans shall be in the aggregate
principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof
and the aggregate principal amount of the resulting Eurodollar Loans outstanding
in respect of any one Interest Period shall be at least $2,000,000 or a whole
multiple of $1,000,000 in excess thereof.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Company giving
notice to the Administrative Agent, in accordance with the applicable provisions
of the term "Interest Period" set forth in subsection 1.1, of the length of the
next Interest Period to be applicable to such Loans, provided that no Eurodollar
--------
Loan may be continued as such (i) when any Event of Default has occurred and is
continuing and the Administrative Agent or the Required Lenders have, by
<PAGE>
31
written notice to the Company, determined that such a continuation is not
appropriate, (ii) if, after giving effect thereto, subsection 5.1(b) would be
contravened or (iii) after the date that is one month prior to the Revolving
Credit Termination Date (in the case of continuations of Revolving Credit Loans)
or the date of the final installment of principal of the Tranche A Term Loans or
the Tranche B Term Loans, as applicable.
(c) Notwithstanding anything in this Agreement to the contrary, unless
otherwise agreed to by Chemical, no Loan shall be made as, converted to or
continued as a Eurodollar Loan during the period commencing on the Closing Date
and ending on the 33rd day following the Closing Date; provided that all or a
--------
portion of the Loans made on the Closing Date may, at the Company's option,
subject to the other provisions of this Agreement, be converted to Eurodollar
Loans with an Interest Period of one month on or after the third day following
the Closing Date.
5.3 Changes of Commitment Amounts. (a) The Company shall have the
-------------------------------
right, upon not less than five Business Days' notice to the Administrative
Agent, to terminate or from time to time to permanently reduce the Revolving
Credit Commitments, subject to the provisions of this subsection 5.3. To the
extent, if any, that the sum of the amount of the Revolving Credit Loans, Swing
Line Loans and L/C Obligations then outstanding and the amounts available to be
drawn under outstanding Letters of Credit exceeds the amount of the Revolving
Credit Commitments as then reduced, the Company shall be required to make a
prepayment equal to such excess amount, the proceeds of which shall be applied
first, to payment of the Swing Line Loans then outstanding, second, to payment
- ----- ------
of the Revolving Credit Loans then outstanding, third, to payment of any L/C
-----
Obligations then outstanding, and fourth, to cash collateralize any outstanding
------
Letters of Credit on terms reasonably satisfactory to the Administrative Agent.
Any such termination of the Revolving Credit Commitments shall be accompanied by
prepayment in full of the Revolving Credit Loans, Swing Line Loans and L/C
Obligations then outstanding and by cash collateralization of any outstanding
Letters of Credit on terms reasonably satisfactory to the Administrative Agent.
Upon termination of the Revolving Credit Commitments, any Letter of Credit then
outstanding which has been so cash collateralized shall no longer be considered
a "Letter of Credit" as defined in subsection 1.1 and any L/C Participating
Interests heretofore granted by the Issuing Lender to the Lenders in such Letter
of Credit shall be deemed terminated (subject to automatic reinstatement in the
event that such cash collateral is returned and the Issuing Lender is not fully
reimbursed for any such L/C Obligations) but the Letter of Credit fees payable
under subsection 4.9 shall continue to accrue to the Issuing Lender and the
Participating Lenders (or, in the event of any such automatic reinstatement, as
provided in subsection 4.9) with respect to such Letter of Credit until the
expiry thereof.
(b) In the case of termination of the Revolving Credit Commitments,
interest accrued on the amount of any prepayment relating thereto and any unpaid
commitment fee accrued hereunder shall be paid on the date of such termination.
Any such partial reduction of the Revolving Credit Commitments shall be in an
amount of $2,000,000, or a whole multiple of $1,000,000 in excess thereof, and
shall, in each case, reduce permanently the amount of the Revolving Credit
Commitments then in effect.
<PAGE>
32
5.4 Optional and Mandatory Prepayments; Repayments of Term Loans.
------------------------------------------------------------
(a) The Company may at any time and from time to time prepay Loans, in whole or
in part, without premium or penalty, by irrevocable notice to the Administrative
Agent by 10:00 a.m., New York City time, on the same Business Day (or, in the
case of Swing Line Loans, by irrevocable notice to the Administrative Agent by
12:00 noon, New York City time, on the same Business Day) in the case of
Alternate Base Rate Loans, and three Business Days' irrevocable notice to the
Administrative Agent in the case of Eurodollar Loans, specifying the date and
amount of prepayment and whether the prepayment is of Revolving Credit Loans,
Tranche A Term Loans or Tranche B Term Loans, provided that Eurodollar Loans may
--------
not be optionally prepaid on other than the last day of any Interest Period with
respect thereto. Upon receipt of such notice the Administrative Agent shall
promptly notify each Lender thereof. If such notice is given, the Company shall
make such prepayment, and the payment amount specified in such notice shall be
due and payable, on the date specified therein. Partial prepayments (i) of Term
Loans shall be in an aggregate principal amount equal to the lesser of (A)
$2,000,000, or a whole multiple of $1,000,000 in excess thereof and (B) the
aggregate unpaid principal amount of the Term Loans, and (ii) of Revolving
Credit Loans shall be in an aggregate principal amount equal to the lesser of
(A) $1,000,000 or a whole multiple of $500,000 in excess thereof and (B) the
aggregate unpaid principal amount of the Revolving Credit Loans, as the case may
be. Prepayments of the Term Loans pursuant to this subsection 5.4(a) shall be
applied to the outstanding principal amounts of the Tranche A Term Loans and
Tranche B Term Loans ratably according to the outstanding principal amounts of
such Term Loans and shall be applied to the remaining installments of such Term
Loans ratably according to the amounts of such installments.
(b) (i) If, subsequent to the Closing Date, the Company or any of its
Subsidiaries shall incur or permit the incurrence of any Indebtedness (other
than Indebtedness permitted pursuant to subsection 9.1) or Holdings, the
Company or any of its Subsidiaries shall issue any Capital Stock in an IPO, 100%
of the Net Proceeds thereof shall be promptly applied toward the prepayment of
the Loans and reduction of the Commitments as set forth in clause (iv) of this
subsection 5.4(b).
(ii) If, subsequent to the Closing Date, the Company or any of its
Subsidiaries shall receive Net Proceeds from any Asset Sale, such Net Proceeds
shall be promptly applied toward the prepayment of the Loans and reduction of
the Commitments as set forth in clause (iv) of this subsection 5.4(b); provided
that such Net Proceeds need not be applied to the prepayment of the Loans and
the reduction of the Commitments until the earlier of the date that the
aggregate amount of Net Proceeds received by the Company or any of its
Subsidiaries from any Asset Sales exceeds $2,000,000 (and has not yet been
applied to the prepayment of the Loans and the reduction of the Commitments
hereunder) and the date which is six months after the last application of Net
Proceeds pursuant to this subsection 5.4(b)(ii).
(iii) If for any fiscal year, commencing with its fiscal year ending
during December 1996, there shall be Excess Cash Flow for such fiscal year, 50%
of such Excess Cash Flow shall be applied toward prepayment of the Loans and
reduction of the Commitments as set forth in clause (iv) of this subsection
5.4(b). Each such prepayment shall be made on or before the date that the
consolidated financial statements referred to in subsection 8.1(a) are
delivered,
<PAGE>
33
but in no event later than the date by which such statements are required to be
delivered pursuant to such subsection.
(iv) Prepayments made pursuant to this subsection 5.4(b) shall be
applied by the Company, first, to the prepayment of the Term Loans (applied to
-------
the remaining installments thereof ratably according to the outstanding
principal amounts thereof until paid in full) and, second, to reduce
---------
permanently the Revolving Credit Commitments. Any such reduction of the
Revolving Credit Commitments shall be accompanied by prepayment of, first, the
-------
Swing Line Loans, second, the Revolving Credit Loans and, third, the L/C
-------- -------
Obligations to the extent, if any, that the sum of the aggregate outstanding
principal amount of Revolving Credit Loans, the aggregate outstanding principal
amount of all Swing Line Loans, the aggregate amount available to be drawn under
all outstanding Letters of Credit and the aggregate outstanding amount of all
L/C Obligations, in each case of all Lenders, exceeds the amount of the
aggregate Revolving Credit Commitments as so reduced, provided that if the
---------
aggregate principal amount of Revolving Credit Loans, Swing Line Loans and L/C
Obligations then outstanding is less than the amount of such excess (because
Letters of Credit constitute a portion thereof), the Company shall, to the
extent of the balance of such excess, replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established for
the benefit of the Lenders.
(v) The Company shall give the Administrative Agent (which shall
promptly notify each Lender) at least one Business Day's notice of each
prepayment or mandatory reduction pursuant to this subsection 5.4(b) setting
forth the date and amount thereof. Except as otherwise may be agreed by the
Company and the Required Lenders, and subject to Subsection 5.4(b)(iv), any
prepayment of Loans pursuant to this subsection 5.4 shall be applied, first, to
any Alternate Base Rate Loans then outstanding and the balance of such
prepayment, if any, to the Eurodollar Loans then outstanding; provided that
--------
prepayments of Eurodollar Loans, if not on the last day of the Interest Period
with respect thereto, shall, at the Company's option, be prepaid subject to the
provisions of subsection 5.12 or the amount of such prepayment (after
application to any Alternate Base Rate Loans) shall be deposited with the
Administrative Agent as cash collateral for the Loans on terms reasonably
satisfactory to the Administrative Agent and thereafter shall be applied in the
order of the Interest Periods next ending most closely to the date such
prepayment is required to be made and on the last day of each such Interest
Period. After such application, unless an Event of Default shall have occurred
and be continuing, any remaining interest earned on such cash collateral shall
be paid to the Company.
(c) The Tranche A Term Loans shall be repaid in 10 consecutive
installments and the Tranche B Term Loans shall be repaid in 14 consecutive
installments, in each case on the dates set forth below (each such day, an
"Installment Payment Date"), in each case, commencing on September 30, 1996, in
------------------------
an aggregate amount with respect to the Tranche A Term Loans or the Tranche B
Term Loans, respectively, equal to the amount specified for each such
Installment Payment Date.
<PAGE>
34
Tranche A Term Loan Installment Payment Dates
September 30, 1996 $2,000,000
March 31, 1997 $2,000,000
September 30, 1997 $3,000,000
March 31, 1998 $3,000,000
September 30, 1998 $4,000,000
March 31, 1999 $4,000,000
September 30, 1999 $5,000,000
March 31, 2000 $5,000,000
September 30, 2000 $6,000,000
March 31,2001 $6,000,000
Tranche B Term Loan Installment Payment Dates
September 30, 1996 $ 100,000
March 31, 1997 $ 100,000
September 30, 1997 $ 100,000
March 31, 1998 $ 100,000
September 30, 1998 $ 100,000
March 31, 1999 $ 100,000
September 30, 1999 $ 100,000
March 31, 2000 $ 100,000
September 30, 2000 $ 100,000
March 31,2001 $ 100,000
September 30, 2001 $8,500,000
March 31, 2002 $8,500,000
September 30, 2002 $8,500,000
March 31, 2003 $8,500,000
Amounts repaid on account of the Term Loans pursuant to this subsection 5.4 or
otherwise may not be reborrowed. Accrued interest on the amount of any
prepayments shall be paid on the Interest Payment Date next succeeding the date
of any partial prepayment and on the date on such prepayment in the case of a
prepayment in full of any Loans.
5.5 Interest Rates and Payment Dates. (a) Eurodollar Loans shall bear
---------------------------------
interest for each day during each Interest Period applicable thereto, commencing
on (and including) the first day of such Interest Period to, but excluding, the
last day of such Interest Period, on the unpaid principal amount thereof at a
rate per annum equal to the Eurodollar Rate determined for such Interest Period
plus the Applicable Margin.
<PAGE>
35
(b) Alternate Base Rate Loans shall bear interest for the period from and
including the date such Loans are made to, but excluding, the maturity date
thereof, or to, but excluding, the conversion date if such Loans are earlier
converted into Eurodollar Loans on the unpaid principal amount thereof at a rate
per annum equal to the Alternate Base Rate plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any of the Loans or
(ii) any interest payable thereon shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise) such Loan, if a Eurodollar Loan,
shall be converted into an Alternate Base Rate Loan at the end of the then-
current Interest Period for said Eurodollar Loan (which conversion shall occur
automatically and without need for compliance with the conditions for conversion
set forth in subsection 5.2), and any such overdue amount shall, without
limiting the fights of the Lenders under Section 10, bear interest (which shall
be payable on demand) at a rate per annum which is 2% plus the Alternate Base
Rate plus the Applicable Margin (or, in the case of a Eurodollar Loan, the
Eurodollar Rate for the Interest Period plus the Applicable Margin plus 2%, if
higher) from the date of such non-payment until paid in full (as well after as
before judgment).
(d) Except as otherwise expressly provided for in subsection 5.5, interest
shall be payable in arrears on each Interest Payment Date.
5.6 Computation of Interest and Fees (a) Interest in respect of Alternate
--------------------------------
Base Rate Loans, at any time that the Alternate Base Rate is determined by
reference to the Prime Rate, and all fees hereunder shall be calculated on the
basis of a 365 (or 366 as the case may be) day year for the actual days elapsed.
Interest in respect of Eurodollar Loans and in respect of Alternate Base Rate
Loans, at any time that the Alternate Base Rate is determined by reference to
the Base CD Rate or the Federal Funds Effective Rate, shall be calculated on the
basis of a 360 day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Company and the Lenders of each
determination of a Eurodollar Rate. Any change in the interest rate on a Loan
resulting from a change in the Alternate Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change in the Alternate Base Rate is announced or such change in the
Eurocurrency Reserve Requirements becomes effective, as the case may be. The
Administrative Agent shall as soon as practicable notify the Company and the
Lenders of the effective date and the amount of each such change.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Company and the Lenders in the absence of manifest error. The Administrative
Agent shall, at the request of the Company or any Lender, deliver to the Company
or such Lender a statement showing the quotations used by the Administrative
Agent in determining the Eurodollar Rate.
(c) If at any time any Reference Lender shall cease to be a Lender
hereunder, such Reference Lender shall cease to be a Reference Lender and, if as
a result of the foregoing, there shall only be one Reference Lender remaining,
then the Administrative Agent, upon
<PAGE>
36
agreement with the Company, shall, by notice to the Company and the Lenders,
designate another Lender as a Reference Lender so that there shall at all times
be at least two Reference Lenders.
(d) Each Reference Lender shall use its best efforts to furnish quotations
of rates to the Administrative Agent as contemplated hereby. If any of the
Reference Lenders shall be unable or otherwise fails to supply such rates to the
Administrative Agent upon its request, the rate of interest shall be determined
on the basis of the quotations of the remaining Reference Lenders or Reference
Lender.
5.7 Certain Fees. The Company agrees to pay to the Administrative Agent,
--------------
for its own account, a non-refundable agent's fee in an amount previously agreed
to with the Administrative Agent, payable in advance on the Closing Date and
on the first day of each fiscal quarter of the Company thereafter.
5.8 Inability to Determine Interest Rate. In the event that the
--------------------------------------
Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Company) that (a) by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period with respect
to (i) proposed Loans that the Company has requested be made as Eurodollar
Loans, (ii) any Eurodollar Loans that will result from the requested conversion
of all or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii)
the continuation of any Eurodollar Loan as such for an additional Interest
Period, or (b) dollar deposits in the relevant amount and for the relevant
period with respect to any such Eurodollar Loan are not generally available to
the Lenders in their respective Eurodollar Lending Offices' interbank eurodollar
markets, the Administrative Agent shall forthwith give telecopy notice of such
determination, confirmed in writing, to the Company and the Lenders at least one
day prior to, as the case may be, the requested Borrowing Date, the conversion
date or the last day of such Interest Period. If such notice is given (i) any
requested Eurodollar Loans shall be made as Alternate Base Rate Loans, (ii) any
Alternate Base Rate Loans that were to have been converted to Eurodollar Loans
shall be continued as Alternate Base Rate Loans, and (iii) any outstanding
Eurodollar Loans shall be converted, on the last day of the then current
Interest Period applicable thereto, into Alternate Base Rate Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made and no Alternate Base Rate Loans shall be converted to
Eurodollar Loans.
5.9 Pro Rata Treatment and Payments. (a) Except to the extent otherwise
---------------------------------
provided herein, each borrowing of Loans by the Company from the Lenders and any
reduction of the Commitments of the Lenders hereunder shall be made pro rata
--------
according to the relevant Commitment Percentages of the Lenders with respect to
the Loans borrowed or the Commitments to be reduced.
(b) Whenever any payment received by the Administrative Agent under this
Agreement or any Note or any other Credit Document is insufficient to pay in
full all amounts then due and payable to the Administrative Agent and the
Lenders under this Agreement:
<PAGE>
37
(i) If the Administrative Agent has not received a Payment Sharing
Notice (or, if the Administrative Agent has received a Payment Sharing
Notice but the Event of Default specified in such Payment Sharing Notice
has been cured or waived in accordance with the provisions of this
Agreement), such payment shall be distributed by the Administrative Agent
and applied by the Administrative Agent and the Lenders in the following
order: First, to the payment of fees and expenses due and payable to the
-------
Administrative Agent under and in connection with this Agreement and the
other Credit Documents; Second, to the payment of all expenses due and
--------
payable under subsection 12.5, ratably among the Lenders in accordance with
the aggregate amount of such payments owed to each such Lender; Third, to
--------
the payment of fees due and payable under subsections 4.2 and 4.9, ratably
among the Lenders in accordance with the Commitment Percentage of each
Lender of the Commitment for which such payment is owed and, in the case of
the Issuing Lender, the amount retained by the Issuing Lender for its own
account pursuant to subsection 4.9; Fourth, to the payment of interest then
--------
due and payable on the Loans and on the L/C Obligations, ratably in
accordance with the aggregate amount of interest owed to each such Lender;
and Fifth, to the payment of the principal amount of the Loans and the L/C
-------
Obligations which is then due and payable, ratably among the Lenders in
accordance with the aggregate principal amount owed to each such Lender; or
(ii) If the Administrative Agent has received a Payment Sharing Notice
which remains in effect, all payments received by the Administrative Agent
under this Agreement or any Note shall be distributed by the Administrative
Agent and applied by the Administrative Agent and the Lenders in the
following order; First, to the payment of all amounts described in clauses
--------
"First" through "Third" of the foregoing clause (i), in the order set forth
-------- --------
therein; Second, to the payment of the interest accrued on all Loans and
--------
L/C Obligations, regardless of whether any such amount is then due and
payable, ratably among the Lenders in accordance with the aggregate accrued
interest plus the aggregate principal amount of all Loans and L/C
------
Obligations then due and payable and owed to such Lender; and Third, to the
-------
payment of the principal amount of all Loans and L/C Obligations,
regardless of whether any such amount is then due and payable, ratably
among the Lenders in accordance with the aggregate principal amount owed to
such Lender.
(c) If any Lender (a "Non-Funding Lender") has (x) failed to make a
--------------
Revolving Credit Loan required to be made by it hereunder, and the
Administrative Agent has determined that such Lender is not likely to make such
Revolving Credit Loan or (y) given notice to the Company or the Administrative
Agent that it will not make, or that it has disaffirmed or repudiated any
obligation to make, any Revolving Credit Loan, in each case by reason of the
provisions of the Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended, or otherwise, (i) any payment made on account of the principal
of the Revolving Credit Loans outstanding shall be made as follows:
(A) in the case of any such payment made on any date when and to the
extent that, in the determination of the Administrative Agent, the Company
would be able, under
<PAGE>
38
the terms and conditions hereof, to reborrow the amount of such payment
under the Commitments and to satisfy any applicable conditions precedent
set forth in Section 7 to such reborrowing, such payment shall be made on
account of the outstanding Revolving Credit Loans held by the Lenders other
than the Non-Funding Lender pro rata according to the respective
-----------
outstanding principal amounts of the Revolving Credit Loans of such
Lenders; and
(B) otherwise, such payment shall be made on account of the outstanding
Revolving Credit Loans held by the Lenders pro rata according to the
--- ------
respective outstanding principal amounts of such Revolving Credit Loans;
and
(ii) any payment made on account of interest on the Revolving Credit Loans shall
be made pro rata according to the respective amounts of accrued and unpaid
----------
interest due and payable on the Revolving Credit Loans with respect to which
such payment is being made. The Company agrees to give the Administrative Agent
such assistance in making any determination pursuant to subparagraph (i)(A) of
this paragraph as the Administrative Agent may reasonably request. Any such
determination by the Administrative Agent shall be conclusive and binding on the
Lenders.
(d) All payments (including prepayments) to be made by the Company on
account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Administrative Agent, for the account of
the Lenders at the Administrative Agent's office located at 270 Park Avenue, New
York, New York 10017, in lawful money of the United States and in immediately
available funds. The Administrative Agent shall promptly distribute such
payments in accordance with the provisions of subsection 5.9(b) promptly upon
receipt in like funds as received. If any payment hereunder (other than payments
on Eurodollar Loans) would become due and payable on a day other than a Business
Day, such payment shall become due and payable on the next succeeding Business
Day and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day (and with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension), unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Business Day.
(e) Unless the Administrative Agent shall have been notified in writing by
any Lender prior to a borrowing that such Lender will not make the amount which
would constitute its Commitment Percentage of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent in accordance with
subsection 5.1 and the Administrative Agent may, in reliance upon such
assumption, make available to the Company a corresponding amount. If such amount
is not made available to the Administrative Agent by the required time on the
Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on
demand, such amount with interest thereon at a rate equal to the daily average
Federal Funds Effective Rate for the period
<PAGE>
39
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this subsection 5.9(e) shall be conclusive,
absent manifest error. If such Lender's Commitment Percentage of such borrowing
is not in fact made available to the Administrative Agent by such Lender within
three Business Days of such Borrowing Date, the Administrative Agent shall also
be entitled to recover such amount with interest thereon at the rate per annum
applicable to Alternate Base Rate Loans hereunder, on demand, from the Company,
without prejudice to any rights which the Company or the Administrative Agent
may have against such Lender hereunder. Nothing contained in this subsection 5.9
shall relieve any Lender which has failed to make available its ratable portion
of any borrowing hereunder from its obligation to do so in accordance with the
terms hereof.
(f) The failure of any Lender to make the Loan to be made by it on any
Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
(g) All payments and optional prepayments (other than prepayments as set
forth in subsection 5.11 with respect to increased costs) of Eurodollar Loans
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $2,000,000
or a whole multiple of $1,000,000 in excess thereof.
5.10 Illegality. Notwithstanding any other provision herein, if any Change
------------
in Law occurring after the date that any lender becomes a Lender party to this
Agreement, shall make it unlawful for such Lender to make or maintain Eurodollar
Loans as contemplated by this Agreement, the commitment of such Lender hereunder
to make Eurodollar Loans or to convert all or a portion of Alternate Base Rate
Loans into Eurodollar Loans shall forthwith be suspended until such time, if
any, as such illegality shall no longer exist and such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall be converted automatically to
Alternate Base Rate Loans for the duration of the respective Interest Periods
(or, if permitted by applicable law, at the end of such Interest Periods) and
all payments of principal which would otherwise be applied to such Eurodollar
Loans shall be applied instead to such Lender's Alternate Base Rate Loans. The
Company hereby agrees to pay any Lender, promptly upon its demand, any amounts
payable pursuant to subsection 5.12 in connection with any conversion in
accordance with this subsection 5.10 (such Lender's notice of such costs, as
certified in reasonable detail as to such amounts to the Company through the
Administrative Agent, to be conclusive absent manifest error).
5.11 Requirements of Law. (a) In the event that any Change in Law or
-----------------------
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority
occurring after the date that any lender becomes a Lender party to this
Agreement:
(i) does or shall subject any such Lender or its Eurodollar Lending
Office to any tax of any kind whatsoever with respect to this Agreement,
any Note or any
<PAGE>
40
Eurodollar Loans made by it, or change the basis of taxation of payments to
such Lender or its Eurodollar Lending Office of principal, the commitment
fee, interest or any other amount payable hereunder (except for (x) net
income and franchise taxes imposed on the net income of such Lender or its
Eurodollar Lending Office by the jurisdiction under the laws of which such
Lender is organized or any political subdivision or taxing authority
thereof or therein, or by any jurisdiction in which such Lender's
Eurodollar Lending Office is located or any political subdivision or taxing
authority thereof or therein, including changes in the rate of tax on the
overall net income of such Lender or such Eurodollar Lending Office, and
(y) taxes resulting from the substitution of any such system by another
system of taxation, provided that the taxes payable by Lenders subject to
---------
such other system of taxation are not generally charged to borrowers from
such Lenders having loans or advances bearing interest at a rate similar to
the Eurodollar Rate);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds
by, any office of such Lender which are not otherwise included in the
determination of the Eurodollar Rate; or
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender or
its Eurodollar Lending Office of making, converting, renewing or maintaining
advances or extensions of credit or to reduce any amount receivable hereunder,
in each case, in respect of its Eurodollar Loans, then, in any such case, the
Company shall promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such additional cost or reduced amount
receivable which such Lender deems to be material as determined by such Lender
with respect to such Eurodollar Loans, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the Alternate Base Rate plus 1%.
(b) In the event that any Change in Law occurring after the date that any
lender becomes a Lender party to this Agreement with respect to any such Lender
shall, in the opinion of such Lender, require that any Commitment of such Lender
be treated as an asset or otherwise be included for purposes of calculating the
appropriate amount of capital to be maintained by such Lender or any corporation
controlling such Lender, and such Change in Law shall have the effect of
reducing the rate of return on such Lender's or such corporation's capital, as
the case may be, as a consequence of such Lender's obligations hereunder to a
level below that which such Lender or such corporation, as the case may be,
could have achieved but for such Change in Law (taking into account such
Lender's or such corporation's policies, as the case may be, with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time following notice by such Lender to the Company of such Change in
Law as provided in paragraph (c) of this subsection 5.11, within 15 days after
demand by such Lender,
<PAGE>
41
the Company shall pay to such Lender such additional amount or amounts as will
compensate such Lender or such corporation, as the case may be, for such
reduction.
(c) The Company shall not be required to make any payments to any Lender
for any additional amounts pursuant to this subsection 5.11 unless such Lender
has given written notice to the Company, through the Administrative Agent, of
its intent to request such payments prior to or within 60 days after the date on
which such Lender became entitled to claim such amounts. If any Lender has
notified the Company through the Administrative Agent of any increased costs
pursuant to paragraph (a) of this subsection 5.11, the Company at any time
thereafter may, upon at least three Business Days' notice to the Administrative
Agent (which shall promptly notify the Lenders thereof), and subject to
subsection 5.12, prepay (or convert into Alternate Base Rate Loans) all (but not
a part) of the Eurodollar Loans then outstanding. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of paragraph (a) of
this subsection 5.11 with respect to such Lender, it will, if requested by the
Company and to the extent permitted by law or by the relevant Governmental
Authority, endeavor in good faith to avoid or minimize the increase in costs or
reduction in payments resulting from such event (including, without limitation,
endeavoring to change its Eurodollar Lending Office); provided, however, that
-------------------
such avoidance or minimization can be made in such a manner that such Lender, in
its sole determination, suffers no economic, legal or regulatory disadvantage.
If any Lender requests compensation from the Company under this subsection 5.11,
the Company may, by notice to such Lender (with a copy to the Administrative
Agent), suspend the obligation of such Lender thereafter to make or continue
Loans of the Type with respect to which such compensation is requested, or to
convert Loans of any other Type into Loans of such Type, until the Requirement
of Law giving rise to such request ceases to be in effect, provided that such
---------
suspension shall not affect the right of such Lender to receive the compensation
so requested.
(d) Each Lender (and in case of an Assignee on the date it becomes a Lender)
that is not a United States Person (as defined in Section 7701(a)(30) of the
Code) for federal income tax purposes either (1) in the case of a Lender that is
a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) represents
to the Company (for the benefit of the Company and the Administrative Agent)
that under applicable law and treaties no taxes are required to be withheld by
the Company or the Administrative Agent with respect to any payments to be made
to such Lender in respect of the Loans or the L/C Participating Interests, (ii)
agrees to furnish to the Company, with a copy to the Administrative Agent,
either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 (wherein such Lender claims entitlement to complete exemption from
U.S. federal withholding tax on all interest payments hereunder) and (iii)
agrees (for the benefit of the Company and the Administrative Agent), to the
extent it may lawfully do so at such times, to provide the Company, with a copy
to the Administrative Agent, a new Form 4224 or Form 1001 upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
executed and completed by such Lender, and to comply from time to time with all
applicable U.S. laws and regulations with regard to such withholding tax
exemption or (2) in the case of a Lender that is not a "bank" within the meaning
of Section 88 l(c)(3)(A) of the Code, (i) represents to the Company (for the
benefit of the Company and the Administrative Agent) that it is not a bank
within the meaning of Section 881(c)(3)(A) of the Code, (ii) agrees to furnish
<PAGE>
42
to the Company, with a copy to the Administrative Agent, (A) a certificate
substantially in the form of Exhibit K hereto (any such certificate, a
"Subsection 5.11(d)(2) Certificate") and (B) two accurate and complete original
- -----------------------------------
signed copies of Internal Revenue Service Form W-8, certifying to such Lender's
legal entitlement at the Closing Date to an exemption from U.S. withholding tax
under the provisions of Section 881(c) of the Code with respect to all payments
to be made under this Agreement, and (iii) agrees, to the extent legally
entitled to do so, upon reasonable request by the Company, to provide to the
Company (for the benefit of the Company and the Administrative Agent) such other
forms as may be required in order to establish the legal entitlement of such
Lender to an exemption from withholding with respect to payments under this
Agreement. Notwithstanding any provision of this subsection 5.11 to the
contrary, the Company shall have no obligation to pay any amount to or for the
account of any Lender (or the Eurodollar Lending Office of any Lender) on
account of any taxes pursuant to this subsection 5.11, to the extent that such
amount results from (i) the failure of any Lender to comply with its obligations
pursuant to this subsection 5.11, (ii) any representation or warranty made or
deemed to be made by any Lender pursuant to this subsection 5.11(d) proving to
have been incorrect, false or misleading in any material respect when so made or
deemed to be made or (iii) any Change in Law or compliance by any Lender with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority, the effect of which would be to
subject to any taxes any payment made pursuant to this Agreement to any Lender
making the representation and covenants set forth in subsection 5.1 l(d)(2),
which payment would not be subject to such taxes were such Lender eligible to
make and comply with, and actually made and complied with, the representation
and covenants set forth in subsection 5.1 l(d)(1) hereinabove.
(e) A certificate in reasonable detail as to any amounts submitted by such
Lender, through the Administrative Agent, to the Company, shall be conclusive in
the absence of manifest error. The covenants contained in this subsection 5.11
shall survive the termination of this Agreement and repayment of the Loans.
5.12 Indemnity. The Company agrees to indemnify each Lender and to hold such
---------
Lender harmless from any loss or expense (but without duplication of any amounts
payable as default interest) which such Lender may sustain or incur as a
consequence of (a) default by the Company in payment of the principal amount of
or interest on any Eurodollar Loans of such Lender, including, but not limited
to, any such loss or expense arising from interest or fees payable by such
Lender to lenders of funds obtained by it in order to make or maintain its
Eurodollar Loans hereunder, (b) default by the Company in making a borrowing
after the Company has given a notice in accordance with subsection 5.1 or in
making a conversion of Alternate Base Rate Loans to Eurodollar Loans or in
continuing Eurodollar Loans as such, in either case, after the Company has given
notice in accordance with subsection 5.2, (c) default by the Company in making
any prepayment after the Company has given a notice in accordance with
subsection 5.4 or (d) a payment or prepayment of a Eurodollar Loan or conversion
(including without limitation, a conversion pursuant to subsection 5.10) of any
Eurodollar Loan into an Alternate Base Rate Loan, in either case on a day which
is not the last day of an Interest Period with respect thereto, including, but
not limited to, any such loss or expense arising from interest or fees payable
by such Lender to lenders of funds obtained by it in order to maintain
<PAGE>
43
its Eurodollar Loans hereunder (but excluding loss of profit). This covenant
shall survive termination of this Agreement and repayment of the Loans.
5.13 Repayment of Loans; Evidence of Debt. (a) The Company hereby
----------------------------------------
unconditionally promises to pay to the Administrative Agent for the account of
each Lender (i) the then unpaid principal amount of each Revolving Credit Loan
of such Lender on the Revolving Credit Termination Date, (ii) the principal
amount of the Tranche A Term Loan of such Lender, in 10 consecutive
installments, payable on each Installment Payment Date (or the then unpaid
principal amount of such Tranche A Term Loan, on the date that the Tranche A
Term Loans become due and payable pursuant to Section 10), (iii) the principal
amount of the Tranche B Term Loan of such Lender, in 14 consecutive
installments, payable on each Installment Payment Date (or the then unpaid
principal amount of such Tranche B Term Loan, on the date that the Tranche B
Term Loans become due and payable pursuant to Section 10), and (iv) the then
unpaid principal amount of the Swing Line Loans of the Swing Line Lender on the
Revolving Credit Termination Date. The Company hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 5.5.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Company to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 12.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Revolving Credit Loan and Term Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Company to each Lender hereunder and (iii) both the amount of
any sum received by the Administrative Agent hereunder from the Company and each
Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 5.13(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Company therein recorded; provided, however, that the failure
-------- -------
of any Lender or the Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Company to repay (with applicable interest) the Loans made to such Company
by such Lender or to repay any other obligations in accordance with the terms of
this Agreement.
(e) The Company agrees that, upon the request to the Administrative Agent
by any Lender, the Company will execute and deliver to such Lender (i) a
promissory note of the Company evidencing the Revolving Credit Loans of such
Lender, substantially in the form of Exhibit A with appropriate insertions
as to date and principal amount (a "Revolving Credit Note"), and/or (ii) a
------------------------
promissory note of the Company evidencing the Tranche A Term Loan of such
Lender, substantially in the form of Exhibit B with appropriate insertions
as to date and
<PAGE>
44
principal amount (a "Tranche A Term Loan Note"), and/or (iii) a promissory note
---------------------
of the Company evidencing the Tranche B Term Loan of such Lender, substantially
in the form of Exhibit C with appropriate insertions as to date and principal
amount (a "Tranche B Term Loan Note"), and/or (iv) in the case of the Swing Line
---------------------
Lender, a promissory note of the Company evidencing the Swing Line Loans of the
Swing Line Lender, substantially in the form of Exhibit D with appropriate
insertions as to date and principal amount (the "Swing Line Note").
------------
5.14 Interest Rate Protection. Within 90 days of the Closing Date, the
---------------------------
Company shall have purchased or have entered into Interest Rate Agreements
having an effective specified maximum rate of interest and other terms and with
parties satisfactory to the Administrative Agent (it being understood that any
Lender will be satisfactory), providing to the Company such effective specified
maximum rate of interest on no less than $37,500,000 for the 24 month period
following the date of acquisition of such hedging agreements, and the Company
agrees and confirms that the Company Security Agreement grants to the
Administrative Agent, for the ratable benefit of the Lenders, a first priority
perfected security interest (subject to Permitted Liens) in its rights under
such Interest Rate Agreements.
5.15 Replacement of Lenders. In the event any Lender or the Issuing Lender
-------------------------
exercises its rights pursuant to subsection 5.10 or requests payments pursuant
to subsections 4.10 or 5.11, the Company may require, at the Company's expense
and subject to subsection 5.12, such Lender or the Issuing Lender to assign, at
par plus accrued interest and fees, without recourse (in accordance with
subsection 12.6) all of its interests, rights and obligations hereunder
(including all of its Commitments and the Loans and other amounts at the time
owing to it hereunder and its Notes and its interest in the Letters of Credit)
to a bank, financial institution or other entity specified by the Company,
provided that (i) such assignment shall not conflict with or violate any law,
- ---------
rule or regulation or order of any court or other Governmental Authority, (ii)
the Company shall have received the written consent of the Administrative Agent,
which consent shall not unreasonably be withheld, to such assignment, (iii) the
Company shall have paid to the assigning Lender or the Issuing Lender all monies
other than principal, interest and fees accrued and owing hereunder to it
(including pursuant to subsections 4.10, 5.10, 5.11 and 5.12) and (iv) in the
case of a required assignment by the Issuing Lender, the Letters of Credit shall
be canceled and returned to the Issuing Lender.
SECTION 6. REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Lenders to enter into this Agreement and to make the
Loans and to induce the Issuing Lender to issue, and the Participating Lenders
to participate in, the Letters of Credit, the Company hereby represents and
warrants to each Lender and the Administrative Agent, as of the Closing Date and
as of the making of any extension of credit hereunder:
6.1 Financial Condition. (a) The consolidated audited balance sheet of the
----------------------
Company and its consolidated Subsidiaries as at December 31, 1994 and the
related consolidated statements of operations and of cash flows for the fiscal
year ended on such date, audited by
<PAGE>
45
Arthur Andersen LLP, a copy of which has heretofore been furnished to each
Lender, present fairly in accordance with GAAP the consolidated financial
condition of the Company and its consolidated Subsidiaries as at such date, and
the consolidated results of their operations and their consolidated cash flows
for the fiscal year then ended. All such financial statements have been prepared
in accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants and as disclosed therein). Neither the
Company nor any of its consolidated Subsidiaries had at the date of the balance
sheet referred to above, any material Contingent Obligation, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any material interest rate
or foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto or expressly permitted to be
incurred hereunder.
(b) The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as at November 4, 1995, certified by a Responsible
Officer of the Company, a copy of which has heretofore been furnished to each
Lender, presents fairly in accordance with GAAP the financial position of the
Company and its consolidated Subsidiaries as at such dates. Such balance sheet,
including the related schedules and notes thereto, has been prepared in
accordance with GAAP (except as approved by such Responsible Officer and
disclosed therein). The Company and its consolidated Subsidiaries did not have
at the dates of such balance sheet, any material Contingent Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency exchange transaction, which is not reflected in such
balance sheet or in the notes thereto. During the period from December 31, 1994
to the Closing Date, except as set forth in Schedule 6.1(b), no dividends or
other distributions have been declared, paid or made upon the Capital Stock of
the Company or any of its consolidated Subsidiaries nor has any of the Capital
Stock of the Company or any of its consolidated Subsidiaries been redeemed,
retired, purchased or otherwise acquired for value by the Company or any of its
consolidated Subsidiaries, respectively.
(c) The unaudited consolidated pro forma balance sheets of (i) Holdings and
----------
(ii) the Company and its consolidated Subsidiaries, in each case, as of February
3, 1996, certified by a Responsible Officer of Holdings and the Company,
respectively (the "Pro Forma Balance Sheets"), copies of which have been
---------------------
furnished to each Lender, are the unaudited balance sheets of Holdings and the
Company and its consolidated Subsidiaries, respectively, adjusted in each case
to give effect (as if such events had occurred on such date) to (i) the
Acquisition and each of the transactions contemplated by the Stock Purchase
Agreement, (ii) the Merger, (iii) the incurrence of the Loans and the issuance
of the Letters of Credit to be incurred or issued, as the case may be, on the
Closing Date and (iv) the incurrence of the Bridge Subordinated Debt and all
other Indebtedness that the Company and its consolidated Subsidiaries expect to
incur, and the payment of all amounts the Company and its consolidated
Subsidiaries expect to pay, in connection with the Acquisition. The Pro Forma
Balance Sheets, together with the notes thereto, were prepared based on good
faith assumptions in accordance with GAAP and are based on the best information
available to Holdings and the Company, respectively, as of the date of delivery
thereof, and reflect on a pro forma basis the financial position of Holdings and
----------
the Company and its consolidated Subsidiaries, respectively, as of February 3,
1996, as adjusted, as described
<PAGE>
46
above, assuming that the events specified in the preceding sentence had actually
occurred as of February 3, 1996.
6.2 No Change. If and to the extent the representations contained in this
------------
subsection 6.2 are made or deemed made on or before the Closing Date, since
December 31, 1994, or, to the extent made or deemed made after the Closing Date,
since the Closing Date (a) there has been no change, and (as of the Closing Date
only) no development or event involving a prospective change, which has had or
could reasonably be expected to have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries taken as a whole and (b) no dividends or other
distributions have been declared, paid or made upon the Capital Stock of the
Company nor has any of the Capital Stock of the Company been redeemed, retired,
repurchased or otherwise acquired for value by the Company or any of its
Subsidiaries, except as permitted by subsection 9.11 and as set forth in
Schedule 6.1(b).
6.3 Corporate Existence; Compliance with Law. Each of the Company and its
--------------------------------------------
Subsidiaries (a) is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation, (b) has full corporate power and
authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its corporate name
and to own, lease or otherwise hold its properties and assets and to carry on
its business as presently conducted other than such franchises, licenses,
permits, authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole, (c) is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure so to qualify would not
have a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, and (d) except as disclosed in the Environmental Due Diligence
Memorandum, is in compliance with all applicable statutes, laws, ordinances,
rules, orders, permits and regulations of any governmental authority or
instrumentality, domestic or foreign (including, without limitation, those
related to Hazardous Materials and substances), except where noncompliance would
not have a material adverse effect on the business, assets, condition (financial
or otherwise) or results of operations of the Company and its Subsidiaries,
taken as a whole. Except as disclosed in the Environmental Due Diligence
Memorandum, neither the Company nor any of its Subsidiaries has received any
written communication from a Governmental Authority that alleges that the
Company or any of its Subsidiaries is not in compliance, in all material
respects, with all material federal, state, local or foreign laws, ordinances,
rules and regulations.
6.4 Corporate Power; Authorization. Each of the Company and its
--------------------------------
Subsidiaries has the corporate power and authority to make, deliver and perform
each of the Credit Documents to which it is a party, and the Company has the
corporate power and authority and legal right to borrow hereunder and to have
Letters of Credit issued for its account hereunder. Each of the Company and
its Subsidiaries has taken all necessary corporate action to authorize
<PAGE>
47
the execution, delivery and performance of each of the Credit Documents to which
it is or will be a party and the Company has taken all necessary corporate
action to authorize the borrowings hereunder and the issuance of Letters of
Credit for its account hereunder. No consent or authorization of, or filing
with, any Person (including, without limitation, any Governmental Authority) is
required in connection with the execution, delivery or performance by the
Company or any of its Subsidiaries, or for the validity or enforceability
against the Company or any of its Subsidiaries, of any Credit Document except
for consents, authorizations and filings which have been obtained or made and
are in full force and effect and except (i) such consents, authorizations and
filings, the failure to obtain or perform (x) which would not have a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries taken as a whole and
(y) which would not adversely affect the validity or enforceability of any of
the Credit Documents or the rights or remedies of the Administrative Agent or
the Lenders thereunder, and (ii) such filings as are necessary to perfect the
Liens of the Lenders created pursuant to this Agreement and the Security
Documents.
6.5 Enforceable Obligations. This Agreement and the Stock Purchase Agreement
-------------------------
have been, and each of the other Credit Documents and any other agreement to be
entered into by any Credit Party pursuant to the Stock Purchase Agreement will
be and the Merger Agreement will be, duly executed and delivered on behalf of
such Credit Party that is party thereto. The Stock Purchase Agreement has been
duly executed and delivered (a) on behalf of the Company and (b) to the best
knowledge of the Company, on behalf of the parties thereto other than the
Company. This Agreement and the Stock Purchase Agreement each constitutes, and
each of the other Credit Documents and any other agreement to be entered into by
any Credit Party pursuant to the Stock Purchase Agreement will constitute upon
execution and delivery, the legal, valid and binding obligation of such Credit
Party, and is enforceable against such Credit Party in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law). The Stock Purchase Agreement
constitutes the legal, valid and binding obligation of (a) the Company
enforceable against the Company in accordance with its terms and (b) to the best
knowledge of the Company, the parties thereto other than the Company,
enforceable against such Persons in accordance with its terms, except, in each
case, as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
6.6 No Legal Bar. The execution, delivery and performance of each Credit
---------------
Document, the incurrence or issuance of and use of the proceeds of the Loans,
the Bridge Subordinated Debt, any Permanent Subordinated Debt and of drawings
under the Letters of Credit and the transactions contemplated by the Acquisition
Documents, the Credit Documents and the Bridge Subordinated Debt Documents, (a)
will not violate any Requirement of Law or any Contractual Obligation applicable
to or binding upon the Company or any Subsidiary of the Company or any of their
respective properties or assets, in any manner which, individually or in the
aggregate, (i) would have a material adverse effect on the ability of the
Company or any such Subsidiary to perform its obligations under the Credit
Documents, the Stock Purchase Agreement,
<PAGE>
48
and any other agreement to be entered into pursuant to the Stock Purchase
Agreement, to which it is a party, (ii) would give rise to any liability on the
part of the Administrative Agent or any Lender, or (iii) would have a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries taken as a whole, and
(b) will not result in the creation or imposition of any Lien on any of its
properties or assets pursuant to any Requirement of Law applicable to it, as the
case may be, or any of its Contractual Obligations, except for the Liens arising
under the Security Documents.
6.7 No Material Litigation. No litigation by, investigation known to the
--------------------------
Company by, or proceeding of, any Governmental Authority is pending against the
Company or any of its Subsidiaries (including after giving effect to the
Acquisition) with respect to the validity, binding effect or enforceability of
any Acquisition Document, any Credit Document, the Loans made hereunder, the use
of proceeds thereof, of the Bridge Subordinated Debt, any Permanent Subordinated
Debt or of any drawings under a Letter of Credit and the other transactions
contemplated hereby or by the Stock Purchase Agreement. No lawsuits, claims,
proceedings or investigations are pending or, to the best knowledge of the
Company, threatened as of the Closing Date against or affecting the Company or a
Subsidiary of the Company or any of their respective properties, assets,
operations or businesses (including after giving effect to the Acquisition), in
which there is a probability of an adverse determination, and is reasonably
likely, if adversely decided, to have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole.
6.8 Investment Company Act. Neither the Company nor any Subsidiary of the
-------------------------
Company is an "investment company" or a company "controlled" by an "investment
company" (as each of the quoted terms is defined or used in the Investment
Company Act of 1940, as amended).
6.9 Federal Regulation. No part of the proceeds of any of the Loans or any
---------------------
drawing under a Letter of Credit will be used for any purpose which violates the
provisions of Regulation G, T, U or X of the Board. Neither the Company
nor any of its Subsidiaries is engaged or will engage, principally or
as one of its important activities, in the business of extending credit
for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under said Regulation U.
6.10 No Default. The Company and each of its Subsidiaries have performed
------------
all material obligations required to be performed by them under their
respective Contractual Obligations (including after giving effect to the
Acquisition) and they are not (with or without the lapse of time or the
giving of notice, or both) in breach or default in any respect thereunder,
except to the extent that such breach or default would not have a material
adverse effect on the business, assets, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries taken as a
whole. Neither the Company nor any of its Subsidiaries (including after
giving effect to the Acquisition) is in default under any material
judgment, order or decree of any Governmental Authority, domestic or
foreign, applicable to it or any of its respective properties, assets,
operations or business, except to the extent that any such defaults would not,
<PAGE>
49
in the aggregate, have a material adverse effect on the business, assets,
condition (financial or otherwise,) or results of operations of the Company and
its Subsidiaries, taken as a whole.
6.11 Taxes. Except as set forth on Schedule 6.12, each of the Company and
-------
its Subsidiaries (including after giving effect to the Acquisition) has filed or
caused to be filed all material tax returns which, to the knowledge of the
Company, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves (or other sufficient provisions) in conformity with
GAAP have been provided on the books of the Company or its Subsidiaries
(including after giving effect to the Acquisition), as the case may be); and no
tax Lien has been filed, and, to the knowledge of the Company, no written claim
is being asserted, with respect to any such tax, fee or other charges.
6.12 Subsidiaries. After giving effect to the consummation of the
---------------
Acquisition and the Merger, the Subsidiaries of the Company, their jurisdiction
of incorporation and their approximate net book value shall be as set forth on
Schedule 6.12. As of the Closing Date, and at all times prior to any occurrence
of an IPO pursuant to which the Capital Stock of the Company is sold in a public
offering, Holdings owns no less than 84% of the issued and outstanding Capital
Stock of the Company.
6.13 Ownership of Property; Liens. As of the Closing Date and as of the
-------------------------------
making of any extension of credit hereunder (subject to transfers and
dispositions of property permitted under subsection 9.5), each of the Company
and its Subsidiaries has good and valid title to all of its material assets
(other than real property or interests in real property) in each case free and
clear of all mortgages, liens, security interests or encumbrances of any nature
whatsoever except Permitted Liens. With respect to real property or interests in
real property, as of the Closing Date, each of the Company and its Subsidiaries
has (i) fee title to all of the real property listed on Schedule 6.13 under the
heading "Fee Properties" (each, a "Fee Property"), and (ii) good and valid title
-----
to the leasehold estates in all of the real property leased by it and listed on
Schedule 6.13 under the heading "Leased Properties" (each, a "Leased Property"),
--------
in each case free and clear of all mortgages, liens, security interests,
easements, covenants, rights-of-way and other similar restrictions of any nature
whatsoever, except (A) Permitted Liens, (B) any conditions that may be shown by
a current, accurate survey or physical inspection of any Fee Property or Leased
Property, (C) as to Leased Property, the terms and provisions of the respective
lease therefor, including, without limitation, the matters set forth on Schedule
6.13, and any matters affecting the fee title and any estate superior to the
leasehold estate related thereto, and (D) title defects, or leases or subleases
granted to others, which are not material to the Fee Properties or the Leased
Properties, as the case may be, taken as a whole. The Fee Properties and the
Leased Properties constitute, as of the Closing Date, all of the real property
owned in fee or leased by the Company and its Subsidiaries.
6.14 ERISA. The "amount of unfunded benefit liabilities" (within the
-------
meaning of Section 4001(a)(18) of ERISA) of any Single Employer Plan of the
Company or any
<PAGE>
50
Commonly Controlled Entity would not result in a material liability to the
Company if any or all such Plans were terminated. None of the Company, any
Subsidiary of the Company or any Commonly Controlled Entity would be liable for
any material amount pursuant to Sections 4062, 4063, 4064 or 4069 of ERISA, if
any Single Employer Plan were to terminate. To the knowledge of the Company,
neither the Company nor any Commonly Controlled Entity has been involved in any
transaction that would cause the Company to be subject to material liability
with respect to a Plan to which the Company or any Commonly Controlled Entity
contributed or was obligated to contribute during the six-year period ending on
the date this representation is made or deemed made under Sections 4062, 4069 or
4212(c) of ERISA. Neither the Company nor any Commonly Controlled Entity has
incurred any material liability under Title IV of ERISA (other than
contributions in respect of any Plan and premiums to the PBGC, in the ordinary
course of business) which could become or remain a material liability of the
Company after the Closing Date and the consummation of the Acquisition. None of
the Company, any Subsidiary of the Company, or any director, officer or employee
thereof, or any of the Plans (to the best knowledge of the Company with respect
to any Multiemployer Plan), or any trust created thereunder, or any fiduciary
thereof, has engaged in a transaction or taken any other action or omitted to
take any action involving any Plan which could constitute a prohibited
transaction within the meaning of Section 406 of ERISA which is not otherwise
exempted and which would result in a material liability to the Company, or would
cause the Company to be subject to either a material liability or material civil
penalty assessed pursuant to Sections 409 or 502 of ERISA or a material tax
imposed pursuant to Sections 4975 or 4976 of the Code. Each of the Plans (to the
best knowledge of the Company with respect to any Multiemployer Plan) has been
operated and administered in all material respects in accordance with applicable
laws, including but not limited to ERISA and the Code. There are no material
pending or, to the best knowledge of the Company, threatened claims by or on
behalf of any of the Plans or any fiduciary, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan or fiduciary
for which the Company could have any material liability (other than routine
claims for benefits). No condition exists and no event has occurred with respect
to any Multiemployer Plan which presents a material risk of a complete or
partial withdrawal under Subtitle E of Title IV of ERISA for which the Company
could have any material liability, nor has the Company or any Commonly
Controlled Entity been notified that any such Multiemployer Plan is insolvent or
in reorganization within the meaning of Section 4241 of ERISA. Neither the
Company nor any Commonly Controlled Entity nor any Subsidiary has been a party
to any transaction or agreement to which the provisions of Section 4204 of ERISA
were applicable (a "4204 Agreement"). Neither the Company nor any Commonly
------
Controlled Entity nor any of their respective Subsidiaries will be subject to
liability on or immediately after the Closing Date in respect of any withdrawal
from the Multiemployer Plan covered by the 4204 Agreement. The liability to
which the Company, any Commonly Controlled Entity or any of their respective
Subsidiaries would become subject under ERISA if all such Persons were to
withdraw completely from all Plans on the Closing Date (after giving effect to
the Acquisition) would not be reasonably likely to subject the Company or any of
its Subsidiaries to any liability that would, in the aggregate, materially and
adversely affect the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries taken as a whole. None
of the Plans or any trust established thereunder has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, as of the last day of the
<PAGE>
51
most recent fiscal year of each of the Plans. No contribution failure has
occurred with respect to any Plan sufficient to give rise to a lien under
Section 302(f) of ERISA.
6.15 Collateral Documents. (a) Upon execution and delivery thereof by the
----------------------
parties thereto, each of the Pledge Agreements will be effective to create in
favor of the Administrative Agent, for the ratable benefit of the Lenders, a
legal, valid and enforceable security interest in the pledged stock described
therein and, when stock certificates representing or constituting the pledged
stock described in each of the Pledge Agreements are delivered to the
Administrative Agent, such security interest shall constitute a perfected first
lien on, and security interest in, all right, title and interest of the pledgor
party thereto in the pledged stock described therein.
(b) Upon execution and delivery thereof by the parties thereto, each of the
Security Agreements will be effective to create in favor of the Administrative
Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable
security interest in the collateral described therein and Uniform Commercial
Code financing statements have been filed in each of the jurisdictions listed on
Schedule 6.15(b), or arrangements have been made for such filing in such
jurisdictions, and upon such filing, and upon the taking of possession by the
Administrative Agent of any such collateral the security interests in which may
be perfected only by possession, such security interests will, subject to the
existence of Permitted Liens, constitute perfected first priority liens on, and
security interests in, all right, title and interest of the debtor party thereto
in the collateral described therein, except to the extent that a security
interest cannot be perfected therein by the filing of a financing statement or
the taking of possession under the Uniform Commercial Code of the relevant
jurisdiction.
6.16 Copyrights, Permits, Trademarks and Licenses. Schedule 6.16 sets forth
----------------------------------------------
a true and complete list of all material trademarks (registered or
unregistered), trade names, service marks and copyrights and applications
therefor owned, used or filed by or licensed to the Company and its Subsidiaries
(after giving effect to the Acquisition) and, with respect to registered
trademarks (if any), contains a list of all jurisdictions in which such
trademarks are registered or applied for and all registration and application
numbers. Except as disclosed on Schedule 6.16, the Company or a Subsidiary
(after giving effect to the Acquisition) owns or has the right to use, without
payment to any other party, trademarks (registered or unregistered), trade
names, service marks, copyrights and applications therefor referred to in such
Schedule. Except as set forth on Schedule 6.16, to the best knowledge of the
Company, no claims are pending by any Person with respect to the ownership,
validity, enforceability or the Company's or any Subsidiary's use of any such
trademarks (registered or unregistered), trade names, service marks, copyrights,
or applications therefor, challenging or questioning the validity or
effectiveness of any of the foregoing, in any jurisdiction, domestic or foreign.
6.17 Environmental Matters. Except as set forth in the Environmental Due
------------------------
Diligence Memorandum: (a) to the best knowledge of the Company after due
diligence, the Real Properties do not contain, and have not previously
contained, in, on or under, including, without limitation, the soil and
groundwater thereunder, any Hazardous Materials in amounts or
<PAGE>
52
or constituted a material violation of, or could reasonably give rise to
material liability under, Environmental Laws;
(b) to the best knowledge of the Company, the Real Properties and all
operations and facilities at the Real Properties are in material compliance with
all Environmental Laws, and there is no contamination or violation of any
Environmental Law which could materially interfere with the continued operation
of, or materially impair the fair saleable value of, the Real Property;
(c) to the best knowledge of the Company, neither the Company nor any of
its Subsidiaries has received or is aware of any complaint, notice of violation,
alleged violation, or notice of investigation or of potential liability under
Environmental Laws with regard to the Real Properties or the operations of the
Company or its Subsidiaries, nor does the Company or any of its Subsidiaries
have knowledge that any such action is being contemplated, considered or
threatened;
(d) to the best knowledge of the Company, Hazardous Materials have not been
generated, treated, stored or disposed of at, on or under the Real Property, nor
have any Hazardous Materials been transported from the Real Property, in
material violation of or in a manner that could reasonably give rise to material
liability under any Environmental Laws; and
(e) there are no governmental administrative actions or judicial
proceedings pending or, to the best knowledge of the Company and
its Subsidiaries, threatened under any Environmental Law to which the
Company or any of its Subsidiaries is a party with respect to the Real
Property, nor are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements, other than permits authorizing operations at facilities at
the Real Property, outstanding under any Environmental Law with respect to
the Real Property;
provided that each of the representations and warranties set forth in subsection
- --------------
6.17(a) through (e) is true and correct, except to the extent that the facts and
circumstances giving rise to any such failure to be so true and correct would
not have any reasonable likelihood of having a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries taken as a whole.
6.18 Accuracy and Completeness of Information. The factual statements
----------------------------------------------
contained in the financial statements referred to in subsection 6.1(a), the
Credit Documents (including the schedules thereto), the Stock Purchase Agreement
and any other certificates or documents furnished or to be furnished to the
Administrative Agent or the Lenders from time to time in connection with this
Agreement, taken as a whole, do not and will not, to the best knowledge of the
Company, as of the date when made, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which the same
were made, all except as otherwise qualified herein or therein, such knowledge
qualification being given only with respect to factual statements made by
Persons other than the Company or any of its Subsidiaries.
<PAGE>
53
SECTION 7. CONDITIONS PRECEDENT
--------------------
7.1 Conditions to Initial Loans and Letters of Credit. The obligation of
------------------------------------------------------
each Lender to make its Loans, and the obligation of the Issuing Lender to issue
any Letter of Credit, on the Closing Date are subject to the satisfaction, or
waiver by such Lender, immediately prior to or concurrently with the making of
such Loans or the issuance of such Letters of Credit, as the case may be, of the
following conditions:
(a) Agreement; Notes; Acquisition Documents; Assumption Agreement. The
----------------------------------------------------------------
Administrative Agent shall have received (i) a counterpart of this
Agreement for each Lender duly executed and delivered by a duly authorized
officer of the Company, (ii) for the account of each Revolving Credit
Lender requesting the same pursuant to subsection 5.13, a Revolving Credit
Note of the Company conforming to the requirements hereof and executed by a
duly authorized officer of the Company, (iii) for the account of each
Tranche A Lender requesting the same pursuant to subsection 5.13, a Tranche
A Term Loan Note and for the account of each Tranche B Lender requesting
the same pursuant to subsection 5.13, a Tranche B Term Loan Note, in each
case conforming to the requirements hereof and executed by a duly
authorized officer of the Company, and (iv) for the account of Chemical, a
Swing Line Note, conforming to the requirements hereof and executed by a
duly authorized officer of the Company. The Administrative Agent shall have
received, with a copy for each Lender, a copy of the Stock Purchase
Agreement, the Merger Agreement, the Assumption Agreement and any of the
other Acquisition Documents reasonably requested by the Administrative
Agent, certified by a Responsible Officer of the Company.
(b) Acquisition. The Acquisition shall have been consummated for an
--------------
aggregate purchase price not exceeding $285,000,000, including all fees,
costs and expenses incurred in connection therewith, pursuant to the
Acquisition Documents, all of the conditions precedent set forth in Article
VII of the Stock Purchase Agreement shall have been satisfied or waived by
the Sellers, and no material provision of the Stock Purchase Agreement
shall have been amended, supplemented, waived or otherwise modified by the
Company without the prior written consent of the Administrative Agent,
which consent shall not be unreasonably withheld. The Administrative Agent
shall be satisfied with the Stock Purchase Agreement and the Merger
Agreement in all respects.
(c) Merger. The Merger shall have been consummated pursuant to a merger
--------
agreement (a copy of which shall have been received by the Administrative
Agent) and the Administrative Agent shall be satisfied therewith in all
respects.
(d) Capitalization; Capital Structure. (i) The Company shall have been
-----------------------------------
capitalized with $85,000,000, of which at least $80,000,000 shall be in
cash and the remainder in Capital Stock of Simmons from the issuance of its
Capital Stock (having material terms and conditions satisfactory to the
Administrative Agent).
<PAGE>
54
(ii) Holdings shall have been capitalized with at least $85,000,000, of
which at least $80,000,000 shall be in cash from the issuance of its
Capital Stock and the balance of which shall be in Capital Stock of Simmons
from the issuance of its Capital Stock to members of management of the
Company.
(iii) The Bridge Loan Agreement shall have been executed and delivered
by the parties thereto in form and substance satisfactory to the Lenders,
shall be in full force and effect and none of the provisions thereof shall
have been amended, waived, supplemented or otherwise modified without the
prior written consent of the Administrative Agent; and the Company shall
have issued the Bridge Subordinated Debt in a principal amount of at least
$100,000,000.
(iv) The terms and conditions, and documentation, of any material
Indebtedness and all equity securities of the Company or any of its
Subsidiaries to be outstanding at or after the Closing Date, the
certificate of incorporation, by-laws, other governing documents and the
corporate and capital structure of the Company and its Subsidiaries, in
each case after giving effect to the consummation of the Acquisition, shall
be in form and substance satisfactory to the Administrative Agent (the
execution and delivery of this Agreement by the Lenders and the
Administrative Agent being deemed to evidence the satisfaction of the
Administrative Agent with such of the above-referenced matters as shall
have been disclosed and made available to the Administrative Agent prior to
the date hereof).
(e) Financial Statements. The Lenders shall have received unaudited
----------------------
interim consolidated financial statements of the Company for each fiscal
month ended during the 1995 fiscal year and for the fiscal month ended
February 3, 1996, and such financial statements shall not reflect any
material adverse change in the consolidated financial condition of the
Company as reflected in the financial statements or projections previously
delivered to the Lenders.
(f) Fees. The Administrative Agent and the Lenders shall have received
------
all fees, expenses and other consideration presented for payment required
to be paid or delivered on or before the Closing Date.
(g) Lien Searches. The Administrative Agent shall have received the
---------------
results of a search of Uniform Commercial Code, tax and judgment filings
made with respect to each of the Company and its Subsidiaries in the
jurisdictions set forth on Schedule 6.15(b), together with copies of
financing statements disclosed by such searches and such searches shall
disclose no Liens on any assets encumbered by any Security Document, except
for Liens permitted hereunder or, if unpermitted Liens are disclosed, the
Administrative Agent shall have received satisfactory evidence of the
release of such Liens.
(h) Environmental Reports. The Administrative Agent shall have
-------------------------
received, with copies for each Lender, the Environmental Due Diligence
Memorandum, which shall be
<PAGE>
55
in form and substance satisfactory to the Administrative Agent (the execution
and delivery of this Agreement by the Lenders and the Administrative Agent being
deemed to evidence the satisfaction of the Administrative Agent with such of the
above-referenced reports as shall have been disclosed and made available to the
Administrative Agent prior to the date hereof).
(i) Solvency Opinion. The Administrative Agent shall have received an
-------------------
opinion or opinions of Murray, Devine & Co. in form and substance satisfactory
to it which shall document the solvency of the Company and its Subsidiaries
after giving effect to the consummation of the transactions contemplated by the
consummation of the Acquisition and the financings contemplated hereby.
(j) Holdings Pledge Agreement. The Administrative Agent shall have received
----------------------------
the Holdings Pledge Agreement executed and delivered by a duly authorized
officer of Holdings, together with stock certificates representing at least 84%
of all issued and outstanding shares of Capital Stock of the Company, and
undated stock powers for each certificate, executed in blank and delivered by a
duly authorized officer of Holdings and the acknowledgment and consent of the
Company thereunder, in the form annexed to the Holdings Pledge Agreement.
(k) Company Security Agreement. The Administrative Agent shall have
-------------------------------
received, with an executed counterpart for each Lender, the Company Security
Agreement executed and delivered by a duly authorized officer of the Company.
(l) Holdings Guarantee. The Administrative Agent shall have received the
---------------------
Holdings Guarantee, executed and delivered by a duly authorized officer of
Holdings.
(m) Legal Opinion. The Administrative Agent shall have received, dated the
----------------
Closing Date and addressed to the Administrative Agent and the Lenders, an
opinion of Gibson, Dunn & Crotchet, counsel to the Credit Parties, in
substantially the form of Exhibit L, with such changes thereto as may be
approved by the Administrative Agent and its counsel.
(n) Closing Certificate. The Administrative Agent shall have received a
---------------------
Closing Certificate of each Credit Party dated the Closing Date, in
substantially the form of Exhibits M-1 and M-2, respectively, with appropriate
insertions and attachments, in form and substance satisfactory to the
Administrative Agent and its counsel, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Company and
Holdings, respectively.
(o) Consents, Authorizations and Filings, etc. Except for the financing
---------------------------------------------
statements contemplated by the Security Agreements, all consents, authorizations
and filings, if any, required in connection with the execution, delivery and
performance by the Credit Parties, and the validity and enforceability against
the Credit Parties, of the Credit Documents to which any of them is a party,
shall have been obtained or made, and such consents,
<PAGE>
56
authorizations and filings shall be in full force and effect, except such
consents, authorizations and filings, the failure to obtain which would not
have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
(p) Insurance. The Administrative Agent shall have received (i) a
------------
schedule describing all insurance maintained by the Company and its
Subsidiaries pursuant to subsection 8.5, and (ii) binders (or other
customary evidence as to the obtaining and maintenance by the Company of
such insurance) for each policy set forth on such schedule insuring against
casualty and other usual and customary risks.
(q) Other Agreements. The Administrative Agent shall have received
------------------
each additional document or instrument reasonably requested by the
Required Lenders.
7.2 Conditions to All Loans and Letters of Credit. The obligation of each
-------------------------------------------------
Lender to make any Loan (other than any Revolving Credit Loan the proceeds of
which are to be used to repay Refunded Swing Line Loans) and the obligation of
the Issuing Lender to issue any Letter of Credit is subject to the satisfaction
of the following conditions precedent on the relevant Borrowing Date:
(a) Representations and Warranties. Each of the representations and
----------------------------------
warranties made in or pursuant to Section 6 or which are contained in any
other Credit Document shall be true and correct in all material respects on
and as of the date of such Loan or of the issuance of such Letter of Credit
as if made on and as of such date (unless stated to relate to a specific
earlier date, in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date).
(b) No Default or Event of Default. No Default or Event of Default
----------------------------------
shall have occurred and be continuing on such Borrowing Date or after
giving effect to such Loan to be made or such Letter of Credit to be issued
on such Borrowing Date.
(c) Certificate. The Administrative Agent shall have received, with a
-------------
copy for each Lender, a certificate of a Responsible Officer of the Company
to the effect that the applicable statements contained in paragraphs (a)
and (b) above are true and correct as at the Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each Letter of
Credit by the Issuing Lender hereunder shall constitute a representation and
warranty by the Company as of the date of such borrowing or issuance that the
conditions in clauses (a) and (b) and of this subsection 7.2 have been
satisfied.
<PAGE>
57
SECTION 8. AFFIRMATIVE COVENANTS
---------------------
The Company hereby agrees that, so long as the Commitments remain in effect,
any Loan, Note or L/C Obligation remains outstanding and unpaid, any amount
(unless cash in an amount equal to such amount has been deposited to a cash
collateral account established by the Administrative Agent) remains available to
be drawn under any Letter of Credit or any other amount is owing to any Lender
or the Administrative Agent hereunder or under any of the other Credit
Documents, it shall, and, in the case of the agreements contained in subsections
8.3 through 8.6, and 8.8 through 8.10, the Company shall cause each of its
Subsidiaries to:
8.1 Financial Statements. Furnish to the Administrative Agent (with
------------------------
sufficient copies for each Lender which the Administrative Agent shall promptly
furnish to each Lender):
(a) as soon as available, but in any event within 90 days after the end
of each fiscal year of the Company, a copy of the consolidated balance
sheet of the Company and its consolidated Subsidiaries as at the end of
such fiscal year and the related consolidated statements of stockholders'
equity and cash flows and the consolidated statements of income of the
Company and its Subsidiaries for such fiscal year, setting forth in each
case (other than for the financial statements delivered with respect to the
first fiscal year of the Company ended following the Closing Date) in
comparative form the figures for the previous year and, in the case of the
consolidated balance sheet referred to above, reported on, without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, or qualification which would affect the
computation of financial covenants, by independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days after
the end of each of the first three quarterly periods of each fiscal year of
the Company, the unaudited consolidated balance sheet of the Company and
its Subsidiaries as at the end of each such quarter and the related
unaudited consolidated statements of income and cash flows of the Company
and its Subsidiaries for such quarterly period and the portion of the
fiscal year of the Company through such date, setting forth in each case
(other than for the financial statements delivered with respect to fiscal
quarters occurring during the first fiscal year of the Company ended
following the Closing Date) in comparative form the figures for the
corresponding quarter in, and year to date portion of, the previous year,
and the figures for such periods in the budget prepared by the Company and
furnished to the Administrative Agent, certified by the chief financial
officer, controller or treasurer of the Company as being fairly stated in
all material respects;
(c) as soon as practicable, and in any event within 35 days after the
end of each calendar month of each year, commencing with the first full
month ended following the Closing Date, the unaudited consolidated balance
sheet of the Company and its Subsidiaries as at the end of such month and
the related unaudited consolidated statement of income of the Company and
its Subsidiaries for such month and for the portion of the fiscal year of
the Company through such date in the form and detail similar to those
<PAGE>
58
customarily prepared by management of the Company for internal use, setting
forth in each case (other than for the financial statements delivered with
respect to calendar months occurring during the first fiscal year of the
Company ended following the Closing Date) in comparative form the
consolidated figures for the corresponding month of, and year to date
portion of, the previous year and the figures for such periods in the
budget prepared by the Company and furnished to the Administrative Agent,
certified by the chief financial officer, controller or treasurer of the
Company as being fairly stated in all material respects;
(d) as soon as available, but in any event not later than 30 days after
the beginning of each fiscal year of the Company to which such budget
relates, a preliminary consolidated operating budget for the Company and
its Subsidiaries taken as a whole; and as soon as available, any material
revision to or any final revision of, any such preliminary annual operating
budget or any such consolidated operating budget; and
(e) concurrently with the delivery of financial statements pursuant to
subsection 8.1(a) or (b), a certificate of the chief financial officer of
the Company setting forth, in reasonable detail, the computations of
Consolidated EBITDA as of the last day of the fiscal period covered by such
financial statements, Capital Expenditures as of such last day, the ratio
of Consolidated Funded Indebtedness to Consolidated EBITDA as of such last
day, and the Interest Coverage Ratio as of such last day;
all such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and (except in the case of
the statements referred to in paragraphs (c) and (d) of this subsection 8.1) in
accordance with GAAP.
8.2 Certificates; Other Information. Furnish to the Administrative Agent
----------------------------------
(with sufficient copies for each Lender which the Administrative Agent shall
promptly deliver to each Lender):
(a) concurrently with the delivery of the consolidated financial
statements referred to in subsection 8.1(a), a letter from the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary to express
their opinion on such financial statements no knowledge was obtained of any
Default or Event of Default under subsections 5.4(b)(i), (ii) and (iii),
9.1, 9.3, and 9.6 through 9.11, except as specified in such letter;
(b) within 15 days of the delivery of the financial statements referred
to in subsections 8.1 (a) and (b) (except that the certificate referred to
in clause (iii) below shall be delivered concurrently with such financial
statements), a certificate of the chief financial officer of the Company
stating that, to the best of such officer's knowledge, during such period
(i) no Subsidiary has been formed or acquired (or, if any such Subsidiary
has been formed or acquired, the Company has complied with the requirements
of subsection 8.9 with respect thereto), (ii) neither the Company nor any
of its
<PAGE>
59
Subsidiaries has changed its name, its principal place of business, its
chief executive office or the location of any material item of tangible
Collateral without complying with the requirements of this Agreement and
the Security Documents with respect thereto, (iii) each of the Company and
its Subsidiaries has observed or performed all of its respective covenants
and other agreements, and satisfied every material condition, contained in
this Agreement, the Notes and the other Credit Documents to be observed,
performed or satisfied by it, and that such officer has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate, (iv) showing in detail as of the end of the related fiscal
period the figures and calculations supporting such statement in respect of
clause (e) of subsection 9.1, clauses (b) and (e) of subsection 9.3 and
subsections 9.7 through 9.12, and (v) if not specified in the financial
statements delivered pursuant to subsection 8.1, specifying the aggregate
amount of interest paid or accrued by the Company and its Subsidiaries, and
the aggregate amount of depreciation, depletion and amortization charged on
the books of the Company and its Subsidiaries, during such accounting
period;
(c) promptly upon receipt thereof, copies of all final reports
submitted to the Company or to any of its Subsidiaries by independent
certified public accountants in connection with each annual, interim or
special audit of the books of the Company or any of its Subsidiaries made
by such accountants, including, without limitation, any final comment
letter submitted by such accountants to management in connection with their
annual audit;
(d) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available to
the public generally by the Company or any of its Subsidiaries, if any, and
all regular and periodic reports and all final registration statements and
final prospectuses, if any, filed by the Company or any of its Subsidiaries
with any securities exchange or with the Securities and Exchange Commission
or any Governmental Authority succeeding to any of its functions;
(e) concurrently with the delivery of the financial statements referred
to in subsections 8. l(a) and (b), and within 45 days following each
calendar month with respect to which the financial statements referred to
in subsection 8.1(c) are required to be delivered, a management summary
describing and analyzing the performance of the Company and its
Subsidiaries during the periods covered by such financial statements;
(f) within 45 days after the end of each fiscal quarter, a summary of
all Asset Sales during such fiscal quarter including the amount of all Net
Proceeds from such Asset Sales not previously applied to prepayments of the
Loans and reductions of the Commitments pursuant to the proviso to
subsection 5.4(b)(ii); and
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
<PAGE>
60
8.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before
------------------------
maturity or before they become delinquent, as the case may be, all its
obligations and liabilities of whatever nature, except (a) when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Company or any of its Subsidiaries, as the case may
be, (b) for delinquent obligations which do not have a material adverse effect
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole and (c) for
trade and other accounts payable in the ordinary course of business which are
not overdue for a period of more than 90 days or, if overdue for more than 90
days, as to which a dispute exists and adequate reserves in conformity with GAAP
have been established on the books of the Company or any of its Subsidiaries, as
the case may be.
8.4 Conduct of Business and Maintenance of Existence. Continue to engage in
--------------------------------------------------
businesses of the same general type as now conducted by it (after giving effect
to the Acquisition), and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all material
rights, material privileges, franchises, copyrights, trademarks and trade names
necessary or desirable in the normal conduct of its business except for rights,
privileges, franchises, copyrights, trademarks and tradenames the loss of which
would not in the aggregate have a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries taken as a whole, and except as otherwise permitted
by subsections 9.4 and 9.5; and comply with all applicable Requirements of Law
except to the extent that the failure to comply therewith would not, in the
aggregate, have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole.
8.5 Maintenance of Property; Insurance. (a) Keep all property useful and
--------------------------------------
necessary in its business in good working order and condition (ordinary wear and
tear excepted); and
(b) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks (but
including, in any event, public liability insurance) as are usually insured
against in the same general area by, companies engaged in the same or a similar
business, and furnish to each Lender, (i) annually, a schedule disclosing (in a
manner substantially similar to that used in the schedule provided pursuant to
subsection 7.1 (p)) all insurance against products liability risk maintained by
the Company and its Subsidiaries pursuant to this subsection 8.5(b) or otherwise
and (ii) upon written request of any Lender, full information as to the
insurance carried; provided that the Company may implement programs of self
----------
insurance in the ordinary course of business and in accordance with industry
standards for a company of similar size so long as reserves are maintained in
accordance with GAAP for the liabilities associated therewith.
<PAGE>
61
8.6 Inspection of Property; Books and Records; Discussions. Keep proper
----------------------------------------------------------
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities which
permit financial statements to be prepared in conformity with GAAP and all
Requirements of Law; and permit representatives of any Lender upon reasonable
notice (but no more frequently than monthly unless a Default or Event of Default
shall have occurred and be continuing), to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be requested upon reasonable
notice, and to discuss the business, operations, assets and financial and other
condition of the Company and its Subsidiaries with officers and employees
thereof and with their independent certified public accountants.
8.7 Notices. Promptly give notice to the Administrative Agent and each
---------
Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any instrument or
other agreement, guarantee or collateral document of the Company or any of
its Subsidiaries which default or event of default has not been waived and
would have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, or any other default or event of default
under any such instrument, agreement, guarantee or other collateral
document which, but for the proviso to clause (e) of Section 10, would have
constituted a Default or Event of Default under this Agreement, or (ii)
litigation, investigation or proceeding which may exist at any time between
the Company or any of its Subsidiaries and any Governmental Authority, or
receipt of any notice of any environmental claim or assessment against the
Company or any of its Subsidiaries by any Governmental Authority, which in
any such case would have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company
and its Subsidiaries taken as a whole;
(c) of any litigation or proceeding against the Company or any of its
Subsidiaries (i) in which more than $2,000,000 of the amount claimed is not
covered by insurance or (ii) in which injunctive or similar relief is
sought which if obtained would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole;
(d) of the following events, as soon as practicable after, and in any
event within 30 days after, the Company knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any
Plan which Reportable Event could reasonably result in material liability
to the Company and its Subsidiaries taken as a whole, or (ii) the
institution of proceedings or the taking of any other action by PBGC, the
Company or any Commonly Controlled Entity to terminate, withdraw or
partially withdraw from any Plan and, with respect to a Multiemployer Plan,
the Reorganization or Insolvency of such Plan, in each of the foregoing
cases which could reasonably result in material liability to the Company
and its Subsidiaries taken as a whole, and in addition to such notice,
deliver to the Administrative Agent and each Lender whichever of the
following
<PAGE>
62
may be applicable: (A) a certificate of a Responsible Officer of the
Company setting forth details as to such Reportable Event and the action
that the Company or such Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of such Reportable
Event that may be required to be filed with PBGC, or (B) any notice
delivered by PBGC evidencing its intent to institute such proceedings or
any notice to PBGC that such Plan is to be terminated, as the case may be;
(e) concurrently with the delivery of the information delivered
pursuant to subsection 8.2(f) and each prepayment required pursuant to
subsection 5.4(b)(ii), of any Asset Sale or substantially like-kind
exchange of real property by the Company or any of its Subsidiaries; and
(f) of a material adverse change known to the Company or its
Subsidiaries in the business, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries taken as a whole.
Each notice pursuant to this subsection 8.7 shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the occurrence
referred to therein and (in the cases of clauses (a) through (d)) stating what
action the Company proposes to take with respect thereto.
8.8 Environmental Laws. (a) Comply with, and use all reasonable efforts to
--------------------
insure compliance by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply with and maintain, and require that all
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, registrations or permits required by Environmental Laws,
except to the extent that failure to do so would not have any reasonable
likelihood of having a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole or on the validity or enforceability of any of
the Credit Documents or the fights and remedies of the Administrative Agent or
the Lenders thereunder;
(b) Conduct and complete all investigations, studies, sampling and testing,
and all remedial, removal and other actions, required under applicable
Environmental Laws, and promptly comply with all lawful orders and directives of
all Governmental Authorities respecting Environmental Laws, except to the extent
that the same are being contested in good faith by appropriate proceedings; and
(c) In regard to this Agreement or in any way relating to the Company or its
Subsidiaries or their current or former operations, defend, indemnify and hold
harmless the Administrative Agent and the Lenders, and their respective
employees, agents, officers and directors, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature known or unknown, contingent or otherwise, arising out
of, or in any way relating to Hazardous Material or Environmental Laws,
including, without limitation, any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
reasonable attorney's and consultant's fees, investigation
<PAGE>
63
and laboratory fees, remediation costs, court costs and litigation expenses,
except to the extent that any of the foregoing arise out of the gross negligence
or willful misconduct of the party seeking indemnification therefor. The
agreements in this subsection 8.8(c) shall survive repayment of the Loans and
all other amounts payable hereunder.
(d) Upon the reasonable request of the Administrative Agent, within 60 days
after the Closing Date, the Company will provide the Administrative Agent with
an environmental site history with respect to such leased or owned property as
reasonably requested by the Administrative Agent, and any reasonable follow-up
environmental due diligence thereto as may be reasonably required by the
Administrative Agent.
8.9 Additional Collateral. (a) With respect to any assets acquired after the
-----------------------
Closing Date by the Company or any of its Domestic Subsidiaries that are
intended to be subject to the Lien created by any of the Security Documents but
which are not so subject (other than (y) any assets described in paragraph (b)
or (c) of this subsection and (z) immaterial assets), promptly (and in any event
within 30 days after the acquisition thereof): (i) execute and deliver to the
Administrative Agent such amendments to the relevant Security Documents or such
other documents as the Administrative Agent shall deem necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a Lien on
such assets, and (ii) take all actions necessary or advisable to cause such Lien
to be duly perfected to the extent required by such Security Document in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of financing statements in such jurisdictions as may be
reasonably requested by the Administrative Agent.
(b) With respect to any Person that is or becomes a Subsidiary (other than
any Foreign Subsidiary) that has material assets, promptly upon the request of
the Administrative Agent: (i) execute and deliver to the Administrative Agent,
for the benefit of the Lenders, a new pledge agreement or such amendments to the
relevant Pledge Agreement as the Administrative Agent shall deem necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
a Lien on the Capital Stock of such Subsidiary which is owned by the Company or
any of its Subsidiaries, (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock powers
executed and delivered in blank by a duly authorized officer of the Company or
such Subsidiary, as the case may be, and (iii) cause such new Subsidiary (A)to
become a party to a subsidiary guarantee and a subsidiary security agreement, in
each case pursuant to documentation which is in form and substance reasonably
satisfactory to the Administrative Agent, and (B) to take all actions necessary
or advisable to cause the Lien created by the subsidiary security agreement to
be duly perfected to the extent required by such security agreement in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of financing statements in such jurisdictions as may be
reasonably requested by the Administrative Agent.
(c) With respect to any Person that is or becomes a Foreign Subsidiary and
that has material assets, promptly upon the request of the Administrative Agent:
(i) execute and deliver to the Administrative Agent a new pledge agreement or
such amendments to the relevant Pledge Agreement as the Administrative Agent
shall deem necessary or advisable to grant to the
<PAGE>
64
Administrative Agent, for the benefit of the Lenders, a Lien on the Capital
Stock of such Subsidiary which is owned by the Company or any of its
Subsidiaries (provided that in no event shall more than 65% of the Capital Stock
of any such Subsidiary be required to be so pledged), (ii) deliver to the
Administrative Agent any certificates representing such Capital Stock, together
with undated stock powers executed and delivered in blank by a duly authorized
officer of the Company or such Subsidiary, as the case may be, and take or cause
to be taken all such other actions under the law of the jurisdiction of
organization of such Foreign Subsidiary as may be necessary or advisable to
perfect such Lien on such Capital Stock and (iii) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i) and (ii) immediately preceding,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
8.10 Landlord Consents. Use its reasonable best efforts (though it shall not
-------------------
be obligated to pay consideration or make concessions) to obtain, within 90 days
of the Closing Date, a consent (in form and substance reasonably satisfactory to
the Administrative Agent) from each lessor of the Leased Properties, permitting
the Administrative Agent (for the ratable benefit of the Lenders), upon an Event
of Default, to enter the premises of the Leased Properties to remove any
inventory or equipment or other Collateral maintained on such premises by the
Company or its Subsidiaries.
SECTION 9. NEGATIVE COVENANTS
------------------
The Company hereby agrees that it shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly so long as the
Commitments remain in effect or any Loan, Note or L/C Obligation remains
outstanding and unpaid, any amount remains available to be drawn under any
Letter of Credit or any other amount is owing to any Lender or the
Administrative Agent hereunder or under any other Credit Document (it being
understood that each of the permitted exceptions to each of the covenants in
this Section 9 is in addition to, and not overlapping with, any other of such
permitted exceptions except to the extent expressly provided):
9.1 Indebtedness. Create, incur, assume or suffer to exist any
--------------
Indebtedness,
except:
(a) the Indebtedness outstanding on the Closing Date and reflected on
Schedule 9.1 (a), but excluding the refinancing of any such Indebtedness;
(b) Indebtedness consisting of the Loans and in connection with the
Letters of Credit and this Agreement;
(c) Indebtedness (i) of the Company to any Subsidiary, (ii) of any
Domestic Subsidiary to the Company or any other Subsidiary and (iii) of any
Foreign Subsidiary to the Company or any other Subsidiary in an aggregate
principal amount at any time outstanding not to exceed $5,000,000 less the
-----
sum of (A) the amount of any Indebtedness outstanding pursuant to
subsection 9.1(g) and (B) the amount of any investments made
<PAGE>
65
in a Foreign Subsidiary pursuant to 9.6(b)(iii), provided that such Indebtedness
---------
referred to in this clause (iii), if to the Company or any Domestic Subsidiary,
is evidenced by a promissory note or promissory notes which has or have been
pledged to the Administrative Agent on terms and conditions satisfactory to the
Administrative Agent;
(d) Indebtedness of the Company in respect of:
(i) up to $100,000,000 principal amount of Bridge Subordinated
Debt issued on the Closing Date, and additional principal amount of
Bridge Subordinated Debt issued in lieu of cash interest on the
outstanding Bridge Subordinated Debt; and
(ii) any Permanent Subordinated Debt, $100,000,000 of the net
proceeds of which are used, to prepay, redeem, retire or repurchase
the outstanding principal amount of the Bridge Subordinated Debt in
full, provided that the aggregate principal amount of such Permanent
---------
Subordinated Debt shall not exceed $110,000,000;
(e) Indebtedness of the Company and its Subsidiaries for industrial
revenue bonds or other similar governmental and municipal bonds, for the
deferred purchase price of newly acquired property and to finance equipment
of the Company and its Subsidiaries (pursuant to purchase money mortgages
or otherwise) used in the ordinary course of business (provided such
-----------
financing is entered into within 180 days of the acquisition of such
property) of the Company and its Subsidiaries in an amount (based on the
remaining balance of the obligations therefor on the books of the Company
and its Subsidiaries) which shall not exceed $12,000,000 in the aggregate
at any one time outstanding and Indebtedness of the Company and its
Subsidiaries in respect of Financing Leases to the extent subsections 9.7
and 9.10 would not be contravened;
(f) Indebtedness of the Company and its Domestic Subsidiaries in an
aggregate principal amount at any one time outstanding not in excess of
$10,000,000;
(g) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount at any time outstanding not in excess of the equivalent at the date
of each incurrence thereof of $5,000,000;
(h) Indebtedness in respect of letters of credit (other than Letters of
Credit issued hereunder) in an aggregate principal amount equal to
$5,000,000;
(i) (i) Indebtedness assumed in connection with acquisitions permitted
by subsection 9.6(g) (so long as such Indebtedness was not incurred in
anticipation of such acquisitions), (ii) Indebtedness of newly acquired
Subsidiaries acquired in such acquisitions (so long as such Indebtedness
was not incurred in anticipation of such acquisition) and (iii)
Indebtedness owed to the seller in any acquisition permitted by subsection
9.6(g) constituting part of the purchase price thereof, all of which
Indebtedness
<PAGE>
66
permitted by this subsection 9.1(i) shall not exceed in the aggregate at
any time $5,000,000;
(j) Indebtedness incurred in connection with the repurchase of shares
of the Capital Stock of the Company as permitted by subsection 9.11 (d) and
made in accordance with the terms of the ESOP, as more fully described on
Schedule 9.1(j); and
(k) Indebtedness in connection with workmen's compensation obligations
and general liability exposure of the Company and its Subsidiaries.
9.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
----------------------
upon any of its property, assets, income or profits, whether now owned or
hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Subsidiary, as the case may be, in accordance
with GAAP;
(b) carriers', warehousemen' s, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations which are not yet due or which are bonded or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or such Subsidiary, as the case may be, in accordance with GAAP;
(c) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(e) easements (including, without limitation, reciprocal easement
agreements), rights-of-way, building, zoning and similar restrictions,
utility agreements, covenants, reservations, restrictions, encroachments,
changes, and other similar encumbrances or title defects incurred, or
leases or subleases granted to others, in the ordinary course of business,
which do not in the aggregate materially detract from the aggregate value
of the properties of the Company and its Subsidiaries, taken as a whole, or
in the aggregate materially interfere with or adversely affect in any
material respect the ordinary conduct of the business of the Company and
its Subsidiaries on the properties subject thereto, taken as a whole;
(f) Liens in favor of the Administrative Agent and the Lenders pursuant
to the Credit Documents and bankers' liens arising by operation of law;
<PAGE>
67
(g) Liens on property of the Company or any of its Subsidiaries created
solely for the purpose of securing Indebtedness permitted by subsection 9.1 (e),
9.1 (g) (it being understood that such Liens shall attach only to the property
of the Foreign Subsidiaries) or subsection 9. l(i)(i) or (ii) (so long as such
Lien was not incurred in anticipation of the related acquisition), representing
or incurred to finance, refinance or refund the purchase price of property,
provided that no such Lien incurred in connection with Indebtedness pursuant to
- ---------
subsection 9.1(e) and 9.1(i)(i) or (ii) shall extend to or cover other property
of the Company or such Subsidiary other than the respective property so
acquired, and the principal amount of Indebtedness secured by any such Lien
shall at no time exceed the original purchase price of such property;
(h) Liens existing on the Closing Date after giving effect to the
consummation of the Acquisition and described in subsection 6.13 or Schedule
9.2(h);
(i) Liens on documents of title and the property covered thereby securing
Indebtedness in respect of the Commercial L/Cs;
(j) (i) mortgages, liens, security interests, restrictions, encumbrances or
any other matter of record that have been placed by any developer, landlord or
other third party on property over which the Company or any Subsidiary of the
Company has easement rights or on any Leased Property and subordination or
similar agreements relating thereto and (ii) any condemnation or eminent domain
proceedings affecting any real property;
(k) Liens in connection with workmen's compensation obligations and general
liability exposure of the Company and its Subsidiaries; and
(l) Liens on goods (and Proceeds thereof) securing reimbursement
obligations in respect of commercial letters of credit issued in accordance
with the terms of this Agreement.
9.3 Limitation on Contingent Obligations. Create, incur, assume or suffer
--------------------------------------
to exist any Contingent Obligation except:
(a) the Guarantees;
(b) other guarantees by the Company incurred in the ordinary course of
business for an aggregate amount not to exceed $2,000,000 at any one time;
(c) guarantees by the Company (i) of obligations of its Domestic
Subsidiaries and obligations of its Foreign Subsidiaries in an aggregate
principal amount not to $5,000,000;
(d) Contingent Obligations existing on the Closing Date and described in
Schedule 9.3(d);
<PAGE>
68
(e) guarantees of obligations to third parties in connection with
relocation of employees of the Company or any of its Subsidiaries, in an
amount which, together with all loans and advances made pursuant to
subsection 9.6(f), shall not exceed $2,000,000 at any time outstanding;
(f) Contingent Obligations in connection with workmen's compensation
obligations and general liability exposure of the Company and its
Subsidiaries; and
(g) subordinated guarantees in respect of the Subordinated Debt issued
by Subsidiaries of the Company which have also issued Guarantees, provided
--------
such subordinated guarantees are subordinated to the Guarantees on the same
basis as the Subordinated Debt is subordinated to the Loans.
9.4 Prohibition of Fundamental Changes. Enter into any merger or
-----------------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or engage in any type of business other
than of the same general type now conducted by it, except (a) for the
transactions otherwise permitted pursuant to clause (b) of subsection 9.5, and
(b) any Subsidiary of the Company may be merged with and into the Company or a
wholly-owned Domestic Subsidiary of the Company and (c) that Subsidiaries with a
net book value not greater than $100,000 may be dissolved.
9.5 Prohibition on Sale of Assets. Convey, sell, lease (other than a
----------------------------------
sublease of real property), assign, transfer or otherwise dispose of (including
through a transaction of merger or consolidation of any Subsidiary of the
Company) any of its property, business or assets (including, without limitation,
tax benefits, receivables and leasehold interests), whether now owned or
hereafter acquired, except:
(a) for sales or other dispositions of inventory in the ordinary
course of business;
(b) that any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation
or otherwise) to, or merge with and into, the Company or a wholly-owned
Subsidiary of the Company and any Subsidiary of the Company may sell or
otherwise dispose of, or part with control of any or all of, the stock of
any Subsidiary to a wholly-owned Subsidiary of the Company, provided that
---------
no such transaction may be effected if it would result in the transfer of
any assets of, or any stock of, a Subsidiary to, or the merger with and
into, another Subsidiary all of the Capital Stock of which owned by the
Company or any Subsidiary has not been pledged to the Administrative Agent
and which has not guaranteed the obligations of the Company, for the
benefit of the Lenders, under the Notes and this Agreement, and granted
liens or security interests in favor of the Administrative Agent, for the
benefit of the Lenders, on substantially all of its assets to secure such
guarantee, pursuant to a guarantee, security agreement and other
documentation reasonably satisfactory to the Administrative Agent;
(c) leases of Fee Properties and other real properly owned in fee;
<PAGE>
69
(d) any condemnation or eminent domain proceedings affecting any real
property, provided, however, that the parties hereto agree that the net
-----------
proceeds received in connection with such proceeding shall be deemed not to
constitute "Net Proceeds" if such net proceeds are reinvested in new or
existing properties within eighteen months;
(e) substantially like-kind exchanges of real property provided that
---------
any cash received by the Company or any Subsidiary of the Company in
connection with such an exchange (net of alI costs and expenses incurred in
connection with such transaction or with the commencement of operation of
real property received in such exchange) shall be deemed to be Net Proceeds
and shall be applied as provided for herein;
(f) for the sale or other disposition of any properly that, in the
reasonable judgment of the Company has become uneconomic, obsolete or worn
out, and which in each case is disposed of in the ordinary course of
business; and
(g) for the sale or other disposition of any property the aggregate
amount of the net proceeds received in respect of which shall not exceed
$1,000,000.
9.6 Limitation on Investments, Loans and Advances. Make any advance, loan,
------------------------------------------------
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of, or make any other investment in
(including, without limitation, any acquisition of all or any substantial
portion of the assets, and any acquisition of a business or a product line, of
other companies, other than the acquisition of inventory in the ordinary course
of business), any Person, except:
(a) the Company may make loans or advances to any Subsidiary, and any
Subsidiary may make loans or advances to the Company or any other
Subsidiary, to the extent in each case the Indebtedness created thereby is
permitted by paragraph (c) of subsection 9.1;
(b) (i) any Subsidiary may make investments in the Company (by way of
capital contribution or otherwise), (ii) the Company and any Subsidiary may
make investments in, or create, any wholly-owned Domestic Subsidiary (by
way of capital contribution or otherwise) or make investments permitted by
subsection 9.5(b), provided that, in any such case, the requirements of
subsection 8.9 are satisfied and (iii) the Company and any Subsidiary may
make investments in, or create, any wholly-owned Foreign Subsidiary (by way
of capital contribution or otherwise) or make investments permitted by
subsection 9.5(b), provided that (x) the requirements of subsection 8.9 are
---------
satisfied and (y) the aggregate amount of all investments in such Foreign
Subsidiaries shall not exceed (I) $5,000,000 (net of any dividends or
distributions, or repayments or payments of interest by such Foreign
Subsidiaries to the Company or any Domestic Subsidiary), minus (II) the
-------
amount of any Indebtedness of any Foreign Subsidiary at any such time
outstanding in accordance with subsection 9.1 (c)(iii) or 9.1(g);
<PAGE>
70
(c) the Company and its Subsidiaries may invest in, acquire and hold
Cash Equivalents;
(d) the Company or any of its Subsidiaries may make payroll advances
in the ordinary course of business;
(e) the Company or any of its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms (provided that nothing in this clause (e) shall prevent the Company
----------
or any Subsidiary from offering such concessionary trade terms, or from
receiving such investments, in connection with the bankruptcy or
reorganization of their respective suppliers or customers or the settlement
of disputes with such customers or suppliers arising in the ordinary
course of business, as management deems reasonable in the circumstances);
(f) the Company or any of its Subsidiaries may make travel and
entertainment advances and relocation and other loans to officers and
employees of the Company or any such Subsidiary, provided that the
----------
aggregate principal amount of all such loans and advances outstanding at
any one time, together with the guarantees of such loans and advances made
pursuant to subsection 9.3(e), shall not exceed $2,000,000 at any one time
outstanding;
(g) the Company and its Subsidiaries may make expenditures to acquire
all or a portion of the Capital Stock or assets of any Person, provided
--------
that (i) such expenditures do not exceed the sum of (A) $15,000,000 plus
50% of cumulative Excess Cash Flow for completed fiscal years commencing
with the fiscal year ending during December, 1996, up to a maximum amount
of $30,000,000 over the term of this Agreement plus (B) such amounts as are
-----
not prohibited by subsection 9.7, (ii) the provisions of subsection 8.9 are
satisfied and (iii) no Default or Event of Default has occurred and is
continuing or would result therefrom; and
(h) the Company and its Subsidiaries may make expenditures relating to
the SWIFT Program and the UNITE Program in an aggregate amount not to
exceed $22,500,000, provided, that such expenditures shall be made and the
----------
SWIFT Program and the UNITE Program shall be completed in all material
respects prior to June 30, 1998.
9.7 Capital Expenditures. Make or commit to make any Capital Expenditures,
-----------------------
except that the Company and its Subsidiaries may make or commit to make Capital
Expenditures not exceeding the amount set forth below (the "Base Amount") for
------
each of the fiscal years of the Company (or other period) set forth below:
<PAGE>
Fiscal Year
or Period Base Amount
--------- -----------
Closing Date
through end of
fiscal year
1996 $6,500,000
1997 $6,500,000
1998 $7,000,000
1999 $7,000,000
2000 $7,500,000
2001 $7,500,000
2002 $8,000,000
January 1, 2003 to $4,000,000
March 31, 2003
provided, however, that for any fiscal year commencing with the 1997
----------
fiscal year of the Company the Base Amount set forth above may be
increased by a maximum of $3,000,000 for any such fiscal year by
carrying over to any such fiscal year any portion of the Base Amount
(as increased) not spent in the immediately preceding fiscal year.
9.8 Consolidated EBITDA. At the last day of any fiscal quarter set
---------------------
forth below, commencing with the first full fiscal quarter of the 1996
fiscal year of the Company beginning on or after the Closing Date,
permit Consolidated EBITDA for the period of four fiscal quarters
ending on such day to be less than the amount set forth opposite such
fiscal quarter below:
Fiscal Year Fiscal Quarter Amount
----------- -------------- ------
1996 Second $37,500,000
Third 37,500,000
Fourth 37,500,000
1997 First 37,500,000
Second 38,500,000
Third 39,500,000
Fourth 42,500,000
1998 First 42,500,000
Second 43,500,000
Third 44,500,000
Fourth 47,500,000
1999 First 47,500,000
<PAGE>
Fiscal Year Fiscal Quarter Amount
----------- -------------- ------
Second 48,500,000
Third 49,500,000
Fourth 52,500,000
2000 First 52,500,000
Second 53,500,000
Third 54,500,000
Fourth 57,500,000
2001 First 57,500,000
Second 58,500,000
Third 59,500,000
Fourth 62,500,000
2002 First 62,500,000
Second 63,500,000
Third 64,500,000
Fourth 67,500,000
9.9 Debt to EBITDA. At the last day of any fiscal quarter set forth
----------------
below, commencing with the second fiscal quarter of the 1996 fiscal
year of the Company beginning on or after the Closing Date, permit the
ratio of Consolidated Funded Indebtedness to Consolidated EBITDA for
the period of four fiscal quarters ending on such day to be greater
than the ratio set forth below for such fiscal quarter, provided that,
--------------
with respect to any acquisition permitted by subsection 9.6(g), the
last four fiscal quarters of Consolidated EBITDA (as may be adjusted
for post-acquisition cost savings reasonably agreed to by the Company
and the Agent) of the acquired company shall be added for the purposes
of calculating this ratio:
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
1996 Second 5.50 to 1
Third 5.50 to 1
Fourth 5.50 to 1
1997 First 5.50 to 1
Second 5.25 to 1
Third 5.00 to 1
Fourth 4.75 to 1
1998 First . 4.75 to 1
Second 4.50 to 1
Third 4.25 to 1
Fourth 4.00 to 1
1999 First 4.00 to 1
Second 3.75 to 1
Third 3.50 to 1
Fourth 3.25 to 1
2000 First 3.25 to 1
Second 3.00 to 1
<PAGE>
73
Fiscal Year Fiscal Quarter Ratio
-----------------------------------------------------------
Third 2.75 to 1
Fourth 2.50 to 1
2001 First 2.50 to 1
Second 2.50 to 1
Third 2.50 to 1
Fourth 2.50 to 1
2002 First - 2.50 to 1
Second 2.50 to 1
Third 2.50 to 1
Fourth 2.50 to 1
9.10 Interest Coverage. (a) At the last day of any fiscal quarter
-------------------
set forth below, permit the Interest Coverage Ratio to be less than the
ratio set forth below for such fiscal quarter:
Interest
Coverage
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
1996 Third 1.80 to 1
Fourth 1.80 to 1
1997 First 1.80 to 1
Second 1.80 to 1
Third 1.90 to 1
Fourth 2.00 to 1
1998 First 2.00 to 1
Second 2.15 to 1
Third 2.30 to 1
Fourth 2.50 to 1
1999 First 2.50 to 1
Second 2.65 to 1
Third 2.70 to 1
Fourth 3.00 to 1
2000 First 3.00 to 1
Second 3.15 to 1
Third 3.30 to 1
Fourth 3.50 to 1
2001 First 3.50 to 1
Second 3.65 to 1
Third 3.80 to 1
Fourth 4.00 to 1
2002 First 4.00 to 1
Second 4.00 to 1
Third 4.00 to 1
Fourth 4.00 to 1
<PAGE>
74
9.11 Limitation on Dividends. Declare any dividends on any shares
--------------------------
of any class of stock, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase,
redemption, retirement or other acquisition of any shares of any class
of stock, or any warrants or options to purchase such stock, whether
now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or
in obligations of the Company or any of its Subsidiaries; except that:
(a) Subsidiaries may pay dividends to the Company or to
Domestic Subsidiaries which are directly or indirectly wholly-
owned by the Company;
(b) the Company may pay or make dividends or distributions to
any holder of its capital stock in the form of additional shares
of Capital Stock of the same class and type, provided such shares
---------
of Capital Stock paid, dividended or distributed to Holdings are
pledged to the Administrative Agent for the benefit of the
Lenders;
(c) the Company may pay dividends or make other distributions:
(i) to Holdings in amounts equal to the amounts required
for Holdings to pay franchise taxes and other fees required
to maintain its corporate existence and provide for other
operating costs of up to $500,000 per fiscal year;
(ii) to Holdings in amounts equal to amounts required for
Holdings to pay Federal, state and local income taxes to the
extent such income taxes are attributable to the income of
the Company and its Subsidiaries; and
(iii) to Holdings in amounts equal to amounts expended by
Holdings to repurchase Capital Stock of Holdings owned by
former employees of the Company or its Subsidiaries or their
assigns, estates and heirs, provided that the aggregate
----------
amount paid, loaned or advanced to Holdings pursuant to this
clause (iii) shall not, in the aggregate, exceed $2,500,000
per fiscal year of the Company, up to a maximum aggregate
amount of $7,500,000 during the term of this Agreement, plus
----
any amounts contributed by Holdings to the Company as a
result of resales of such repurchased shares of Capital
Stock; and
(d) the Company may repurchase its Capital Stock (i) as set
forth on Schedule 6.1(b) and (ii) from deceased or retired
employees in accordance with the terms of the ESOP and from
employees whose employment with the Company or any of its
Subsidiaries has terminated for any other reason but only to the
extent mandatorily required by the ESOP, the Code or ERISA;
provided that in each case in respect of clause (ii) the Company
--------
shall defer making any cash payments in respect of such repurchase
obligations to the maximum extent possible under the ESOP.
9.12 Transactions with Affiliates. Enter into any transaction,
--------------------------------
including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, with any Affiliate except for
transactions which are otherwise permitted under this Agreement and
<PAGE>
75
which are in the ordinary course of the Company's or a Subsidiary's
business and which are upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than it would obtain in a
hypothetical comparable arm's length transaction with a Person not an
Affiliate, provided, however, that nothing in this subsection 9.12
--------------------
shall prohibit the Company or its Subsidiaries from engaging in the
following transactions: (x) the performance of the Company' s or any
Subsidiary' s obligations under any employment contract, collective
bargaining agreement, employee benefit plan, related trust agreement or
any other similar arrangement heretofore or hereafter entered into in
the ordinary course of business, (y) payment of compensation to
employees, officers, directors or consultants in the ordinary course of
business, and (z) maintenance of benefit programs or arrangements for
employees, officers or directors, including, without limitation,
vacation plans, health and life insurance plans, deferred compensation
plans, and retirement or savings plans and similar plans, in each case,
in the ordinary course of business.
9.13 Prepayments and Amendments of Subordinated Debt and Equity.
-------------------------------------------------------------
(a) Optionally prepay, retire, redeem, purchase, defease or exchange,
or make any mandatory prepayment of any Subordinated Debt (other than
redemption of the Bridge Subordinated Debt with proceeds of the
Permanent Subordinated Debt and any refinancing of the Permanent
Subordinated Debt contemplated in the definition thereof) or pay any
interest on Subordinated Debt in cash if such interest may be paid by
the issuance of additional Subordinated Debt or (b) amend, supplement
or otherwise modify any documentation governing any Subordinated Debt
(other than (i) amendments to such Subordinated Debt which reduce the
interest rate or extend the maturity thereof, (ii) waivers of
compliance by the Company with any of the terms or conditions of such
Subordinated Debt (except those which by their terms run to the benefit
of the Lenders) and (iii) any amendment, supplement or modification
described in clause (i) of Section 10(k)).
9.14 Limitation on Changes in Fiscal Year. Permit the fiscal year
---------------------------------------
of the Company to end on a day other than the final Saturday in any
calendar year.
9.15 Limitation on Lines of Business. Enter into any business,
------------------------------------
either directly or through any Subsidiary, except for those businesses
in which the Company is engaged on the date of this Agreement (or which
are directly related thereto).
SECTION 10. EVENTS OF DEFAULT
-----------------
Upon the occurrence and during the continuance of any of the
following events:
(a) The Company shall fail to (i) pay any principal of any
Note when due in accordance with the terms hereof or thereof or to
reimburse the Issuing Lender in accordance with subsection 4.8 or
(ii) pay any interest on any Loan or any other amount payable
hereunder within five days after any such interest or other amount
becomes due in accordance with the terms thereof or hereof; or
<PAGE>
76
(b) Any representation or warranty made or deemed made by any
Credit Party in any Credit Document shall prove to have been
incorrect in any material respect on or as of the date made or
deemed made; or
(c) The Company shall default in the observance or performance
of any agreement contained in subsection 8.7(a) or 8.9 or Section
9 of this Agreement or Holdings shall default in the observance
or performance of any agreement contained in Section 5 of the
Holdings Pledge Agreement or the Company shall default in the
observance or performance of any agreement contained in
subsections 5(a), (h) through (k) and (o) of the Company Security
Agreement or Holdings shall default in the observance or
performance of any agreement contained in Section 10 of the
Holdings Guarantee, or, with respect to any Subsidiary which
becomes a Credit Party after the Closing Date, the Company or
such Subsidiary shall default in the observance or performance of
the corresponding provisions of the pledge agreement, guarantee
and security agreement to which it is a party; or
(d) Any Credit Party shall default in the observance or
performance of any other agreement contained in any Credit
Document and such default shall continue unremedied for a period
of 30 days; or
(e) The Company or any of its Subsidiaries shall (i) default
in any payment of principal of or interest on or other amounts in
respect of any Indebtedness (other than the Loans, the L/C
Obligations and any inter-company debt) or Interest Rate Agreement
or in the payment of any Contingent Obligation, beyond the period
of grace, if any, provided in the instrument or agreement under
which such Indebtedness, Interest Rate Agreement or Contingent
Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any
such Indebtedness, Interest Rate Agreement or Contingent
Obligation or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause, with the giving
of notice if required, such Indebtedness to become due prior to
its stated maturity, any applicable grace period having expired,
or such Contingent Obligation to become payable, any applicable
grace period having expired; in each case, provided that the
---------
aggregate principal amount of all such Indebtedness, Interest Rate
Agreements and Contingent Obligations under which a default exists
or which would then become due or payable equals or exceeds
$5,000,000; or
(f) (i) The Company or any of its Subsidiaries or Holdings
shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B)
<PAGE>
77
seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
assets, or the Company or any of its Subsidiaries or Holdings
shall make a general assignment for the benefit of its creditors;
or (ii) there shall be commenced against the Company or any of its
Subsidiaries or Holdings any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded
for a period of 60 days; or (iii) there shall be commenced against
the Company or any of its Subsidiaries or Holdings any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Company or any of its Subsidiaries
or Holdings shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) the Company
or any of its Subsidiaries or Holdings shall generally not, or
shall be unable to, or shall admit in writing its inability to,
pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975
of the Code) involving any Plan which is not otherwise exempted,
(ii) any "accumulated funding deficiency" (as defined in Section
302 of ERISA), whether or not waived, shall exist with respect to
any Single Employer Plan, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to
terminate, any Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable
opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv)
any Single Employer Plan shall terminate for purposes of Title IV
of ERISA, (v) the Company or any Commonly Controlled Entity shall,
or in the reasonable opinion of the Required Lenders is likely to,
incur any material liability in connection with a withdrawal from,
or the Insolvency or Reorganization of, a Multiemployer Plan; and
in each case in clauses (i) through (v) above, such event or
condition, together with all other such events or conditions
relating to a Plan, if any, would be reasonably likely to subject
the Company or any of its Subsidiaries to any tax, penalty or
other liabilities in the aggregate material in relation to the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole;
or
(h) One or more judgments or decrees shall be entered against
the Company or any of its Subsidiaries involving in the aggregate
a liability (not paid or fully covered by insurance) of $5,000,000
or more and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within the
time required by the terms of such judgment; or
(i) Any Credit Document shall cease, for any reason, to be in
full force and effect or any Credit Party or any of its
Subsidiaries shall so assert in writing, or any Pledge
<PAGE>
78
Agreement, or Security Agreement shall cease to be effective to
grant a perfected Lien on the collateral described therein with
the priority purported to be created thereby (other than as a
result of any action or inaction on the part of the Administrative
Agent or the Lenders), subject to such exceptions as may be
permitted therein, and in the case of any Security Agreement such
condition shall continue unremedied for 30 days after notice
thereof to the Company by the Administrative Agent or any Lender;
or
(j) There shall have occurred a Change in Control; or
(k) (i) There shall have occurred any amendment, supplement or
other modification of the Bridge Subordinated Debt Documents or
the Bridge Subordinated Debt, or any other Subordinated Debt or
the documents governing such Subordinated Debt, which in any such
case shall not have been consented to in advance in writing by the
Administrative Agent and the Required Lenders, except (A) as
otherwise expressly permitted by subsection 9.13 or (B) to the
extent such amendment, supplement or modification gives effect to
any prepayment, retirement or redemption of Subordinated Debt
expressly permitted by this Agreement or (ii) the subordination
provisions of any Bridge Subordinated Debt Document or any
document governing any Subordinated Debt shall cease, for any
reason, to be valid or any Credit Party or any of its Subsidiaries
shall so assert in writing;
then, and in any such event, (a) if such event is an Event of Default
specified in clause (i) or (ii) of paragraph (f) above with respect to
the Company, automatically (i) the Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the Notes shall
immediately become due and payable, and (ii) all obligations of the
Company in respect of the Letters of Credit, although contingent and
unmatured, shall become immediately due and payable and the Issuing
Lender's obligations to issue the Letters of Credit shall immediately
terminate and (b) if such event is any other Event of Default, so long
as any such Event of Default shall be continuing, either or both of the
following actions may be taken: (i) with the consent of the Required
Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the
Company, declare the Commitments and the Issuing Lender's obligations
to issue the Letters of Credit to be terminated forthwith, whereupon
the Commitments and such obligations shall immediately terminate; and
(ii) with the consent of the Required Lenders, the Administrative Agent
may, or upon the request of the Required Lenders, the Administrative
Agent shall, by notice of default to the Company, (A) declare all or a
portion of the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and
payable forthwith, whereupon the same shall immediately become due and
payable, and (B) declare all or a portion of the obligations of the
Company in respect of the Letters of Credit, although contingent and
unmatured, to be due and payable forthwith, whereupon the same shall
immediately become due and payable and/or demand that the Company
discharge any or all of the obligations supported by the Letters of
Credit by paying or prepaying any amount due or to become due in
respect of such obligations. All payments under this
<PAGE>
79
Section 10 on account of undrawn Letters of Credit shall be made by the
Company directly to a cash collateral account established by the
Administrative Agent for such purpose for application to the Company's
reimbursement obligations under subsection 4.8 as drafts are presented
under the Letters of Credit, with the balance, if any, to be applied to
the Company' s obligations under this Agreement and the Notes as the
Administrative Agent shall determine with the approval of the Required
Lenders. Except as expressly provided above in this Section 10,
presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 11. THE ADMINISTRATIVE AGENT; THE ISSUING LENDER
--------------------------------------------
11.1 Appointment. Each Lender hereby irrevocably designates and
-------------
appoints Chemical as the Administrative Agent under this Agreement and
irrevocably authorizes Chemical as Administrative Agent for such
Lender, to take such action on its behalf under the provisions of the
Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms of the
Credit Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into the Credit Documents or otherwise exist
against the Administrative Agent.
11.2 Delegation of Duties. The Administrative Agent may execute any
----------------------
of its duties under this Agreement and each of the other Credit
Documents by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such
duties. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected
by it with reasonable care, except as otherwise provided in subsection
11.3.
11.3 Exculpatory Provisions. Neither the Administrative Agent nor
-------------------------
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted
to be taken by it or such Person under or in connection with the Credit
Documents (except for its or such Person's own gross negligence or
willful misconduct), or (ii) responsible in any manner to any of the
Lenders for any recitals, statements, representations or warranties
made by any Credit Party or any officer thereof contained in the Credit
Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent
under or in connection with, the Credit Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of
the Credit Documents or for any failure of any Credit Party to perform
its obligations thereunder. The Administrative Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or
conditions of, any Credit Document, or to inspect the properties, books
or records of any Credit Party.
11.4. Reliance by Administrative Agent. The Administrative Agent
-----------------------------------
shall be entitled to rely, and shall be fully protected in relying,
upon any Note, entries maintained in the
<PAGE>
80
Register, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified
in failing or refusing to take any action under any Credit Document
unless it shall first receive such advice or concurrence of the
Required Lenders (or, where a higher percentage of the Lenders is
expressly required hereunder, such Lenders) as it deems appropriate or
it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting,
or in refraining from acting, under any Credit Document in accordance
with a request of the Required Lenders (unless a higher percentage of
Lenders is expressly required), and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Notes.
11.5 Notice of Default. The Administrative Agent shall not be
---------------------
deemed to have knowledge or notice of the occurrence of any Default or
Event of Default hereunder unless the Administrative Agent has received
written notice from a Lender or the Company referring to this
Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the Administrative Agent
shall promptly give notice thereof to the Lenders. The Administrative
Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders;
provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders.
11.6 Non-Reliance on Administrative Agent and Other Lenders. Each
--------------------------------------------------------
Lender expressly acknowledges that neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no
act by the Administrative Agent hereafter taken, including any review
of the affairs of the Credit Parties, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender.
Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of Holdings, the Company and its Subsidiaries and
made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent or
any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action
under the
<PAGE>
81
Credit Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of Holdings, the Company and
its Subsidiaries. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative
Agent hereunder, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial
and other condition or creditworthiness of the Credit Parties which may
come into the possession of the Administrative Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
11.7 Indemnification. The Lenders agree to indemnify the
------------------
Administrative Agent in its capacity as such (to the extent not
reimbursed by the Credit Parties and without limiting the obligation of
the Credit Parties to do so), ratably according to the respective
amounts of their respective Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including without limitation at any
time following the payment of the Loans) be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or
arising out of the Credit Documents or any documents contemplated by or
referred to herein or the transactions contemplated hereby or any
action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be
---------
liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements resulting solely from the Administrative Agent's gross
negligence or willful misconduct. The agreements in this subsection
11.7 shall survive the repayment of the Loans and all other amounts
payable hereunder.
11.8 The Administrative Agent in its Individual Capacity. The
----------------------------------------------------------
Administrative Agent and its Affiliates may make loans to, accept
deposits from and generally engage in any kind of business with
Holdings, the Company and its Subsidiaries as though the Administrative
Agent were not the Administrative Agent hereunder. With respect to its
Loans made or renewed by it and any Note issued to it, the
Administrative Agent shall have the same rights and powers, duties and
liabilities under the Credit Documents as any Lender and may exercise
the same as though it were not the Administrative Agent and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its
individual capacity.
11.9 Successor Administrative Agent. The Administrative Agent may
---------------------------------
resign as Administrative Agent upon 30 days' notice to the Lenders. If
the Administrative Agent shall resign as Administrative Agent under the
Credit Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders which successor agent
shall, so long as no Event of Default has occurred and is continuing,
be approved by the Company, which shall not unreasonably withhold its
approval, whereupon such successor agent shall succeed to the rights,
powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon
such appointment and approval, and the former Administrative Agent's
fights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
<PAGE>
82
Administrative Agent or any of the parties to this Agreement or any
holders of the Notes. After any retiring Administrative Agent's
resignation hereunder as Administrative Agent, the provisions of this
Section 11 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Agent under
the Credit Documents.
11.10 Issuing Lender as Issuer of Letters of Credit. Each Lender
------------------------------------------------
which is a holder of a Revolving Credit Commitment (collectively
"Revolving Credit Lenders") hereby acknowledges that the provisions of
-------------------
this Section 11 shall apply to the Issuing Lender, in its capacity as
issuer of the Letters of Credit, in the same manner as such provisions
are expressly stated to apply to the Administrative Agent, except that
obligations to indemnify the Issuing Lender shall be ratable among the
Revolving Credit Lenders in accordance with their respective Revolving
Credit Commitments (or, if the Revolving Credit Commitments have been
terminated, the outstanding principal amount of their respective
Revolving Credit Loans and L/C Obligations and their respective
participating interests in the outstanding Letters of Credit).
SECTION 12. MISCELLANEOUS
-------------
12.1 Amendments and Waivers. Except as otherwise expressly set
-------------------------
forth in this Agreement, no Credit Document nor any terms thereof may
be amended, supplemented, waived or modified except in accordance with
the provisions of this subsection 12.1. With the written consent of the
Required Lenders, the Administrative Agent and the respective Credit
Parties or their Subsidiaries may, from time to time, enter into
written amendments, supplements or modifications hereto for the purpose
of adding any provisions to any Credit Document to which they are
parties or changing in any manner the rights of the Lenders or of any
such Credit Party or its Subsidiaries thereunder or waiving, on such
terms and conditions as the Administrative Agent may specify in such
instrument, any of the requirements of any such Credit Document or any
Default or Event of Default and its consequences; provided, however,
------------------
that:
(a) no such waiver and no such amendment, supplement or
modification shall release collateral not required or permitted by
any Credit Document to be released and which, in the aggregate
with all other collateral released pursuant to this clause (a)
(other than collateral released pursuant to the proviso to this
clause (a)) during the calendar year in which such proposed
release would be effected and the immediately preceding calendar
year, has fair market value on the proposed date of release in
excess of 20% of the fair market value of all collateral
(including any Guarantee) on such date without the written consent
of the Supermajority Lenders; provided that, notwithstanding the
---------
foregoing, this clause (a) shall not be applicable to and no
consent shall be required for (i) any release of collateral in
connection with any restructuring of the Company or any of its
Subsidiaries in which, after giving effect to such release, the
Administrative Agent, in its sole discretion, deems there to be no
material impairment of the value of the collateral taken as a
whole, (ii) releases of collateral in connection with any Asset
Sales permitted by subsection 9.5 as in effect on the Closing Date
or (iii) releases of collateral in accordance with subsection
12.11;
<PAGE>
83
(b) no such waiver and no such amendment, supplement or
modification shall extend the final maturity date of any Note or
the scheduled payment date of any installment of any Loan, or
reduce the rate or extend the time of payment of interest thereon,
or change the method of calculating interest thereon, or reduce
any fee payable to the Lenders hereunder, or reduce the principal
amount thereof, or change the amount of any Lender' s Commitment
or Commitment Percentage, or amend, modify or waive any provision
of subsection 5.9(b) or this subsection 12.1 or reduce the
percentage specified in the definition of Required Lenders or
reduce the percentage specified in the definition of Supermajority
Lenders or consent to the assignment or transfer by any Credit
Party of any of its rights and obligations under any Credit
Document, in each case, without the prior written consent of each
Lender directly affected thereby;
(c) no such waiver and no such amendment, supplement or
modification affecting the then Administrative Agent or Issuing
Lender shall amend, modify or waive any provision of Section 11
without the written consent of such Administrative Agent and
Issuing Lender;
(d) without the consent of each of the Lenders which are
holders of the Tranche B Term Loans and the Revolving Credit
Lenders only, each of the Lenders which are holders of the Tranche
A Term Loans may amend this Agreement and the Tranche A Term Loan
Notes to extend the maturities of the installments of the Tranche
A Term Loans; without the consent of each of the Lenders which are
holders of the Tranche A Term Loans and the Revolving Credit
Lenders only, each of the Lenders which are holders of the Tranche
B Term Loans may amend this Agreement and the Tranche B Term Loan
Notes to extend the maturities of the installments of the Tranche
B Term Loans; and without the consent of each of the Lenders which
are holders of the Term Loans, the Revolving Credit Lenders may
amend this Agreement and the Revolving Credit Notes to extend the
Revolving Credit Termination Date; and
(e) no such waiver, and no such amendment, supplement or
modification shall amend, modify or waive the prepayment
requirements specified in subsection 5.4(b)(i), (ii) and (iii) or
the order of application of prepayments specified in subsection
5.4(a) or 5.4(b)(iv) without the written consent of the holders of
at least 51% of each of (i) the aggregate unpaid principal amount
of the Tranche A Term Loans, if any, (ii) the aggregate unpaid
principal amount of the Tranche B Term Loans, if any, and (iii)
the Revolving Credit Commitments or, if the Revolving Credit
Commitments are terminated, the aggregate unpaid principal amount
of the Revolving Credit Loans (the Term Loans and the Revolving
Credit Commitments of any Non-Funding Lender to be disregarded in
determining such percentage at any time);
any such waiver and any such amendment, supplement or modification
described in this subsection 12.1 shall apply equally to each of the
Lenders and shall be binding upon each Credit Party and its
Subsidiaries, the Lenders, the Administrative Agent and Issuing Lender
and all future holders of the Notes and the Loans. Any extension of a
Letter of Credit by the Issuing Lender shall be treated hereunder as a
new Letter of Credit. In the case of any waiver, the Credit
<PAGE>
84
Parties, the Lenders, the Administrative Agent and Issuing Lender shall
be restored to their former position and fights hereunder and under the
outstanding Notes, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
12.2 Notices. All notices, requests and demands to or upon the
---------
respective parties hereto to be effective shall be in writing
(including by telecopy or telex, if one is listed), and, unless
otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, or three Business Days after
being deposited in the mail, postage prepaid, or, in the case of
telecopy notice, when sent, confirmation of receipt received, or, in
the case of telex notice, when sent, answerback received, addressed as
follows in the case of the Company, the Administrative Agent, and as
set forth in Schedule I in the case of any Lender, or to such other
address as may be hereafter notified by the respective parties hereto
and any future holders of the Notes:
The Company:
Simmons Company
One Concourse Parkway, Suite 600
Atlanta, Georgia 30328
Attention: Jonathan C. Daiker, Chief Financial Officer
Telecopy: (770) 392-2565
With a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Charles K. Marquis, Esq.
Telecopy: (212) 351-4035
The Administrative Agent:
Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: William J. Caggiano
Telecopy: (212) 972-0009
With a copy to:
Chemical Bank Agency Services Group
140 .East 45th Street, 29th Floor
New York, New York 10017
Attention: Andrew Stasiw
Telecopy: (212) 622-0130
provided that any notice, request or demand to or upon the
----------
Administrative Agent or the Lenders pursuant to subsections 4.4, 4.5,
5.1, 5.2, 5.3 and 5.4 shall not be effective until received and
provided that the failure to provide the copies of notices to the
----------
Company provided for in this subsection 12.2 shall not result in any
liability to the Administrative Agent.
<PAGE>
85
12.3 No Waiver; Cumulative Remedies. No failure to exercise and no
--------------------------------
delay in exercising, on the part of the Administrative Agent or any
Lender, any right, remedy, power or privilege hereunder, shall operate
as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
12.4 Survival of Representations and Warranties. All
--------------------------------------------------------
representations and warranties made hereunder and in any document,
certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement,
the Letters of Credit and the Notes.
12.5 Payment of Expenses and Taxes. The Company agrees (a) to pay
-------------------------------
or reimburse the Administrative Agent for all its reasonable out-of-
pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or
modification to, the Credit Documents and any other documents prepared
in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of one counsel to the Administrative
Agent, (b) to pay or reimburse each Lender and the Administrative Agent
for all their costs and expenses incurred in connection with, and to
pay, indemnify, and hold the Administrative Agent and each Lender
harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever arising out of or in
connection with, the enforcement or preservation of any rights under
any Credit Document and any such other documents, including, without
limitation, reasonable fees and disbursements of counsel to the
Administrative Agent and each Lender incurred in connection with the
foregoing and in connection with advising the Administrative Agent with
respect to its rights and responsibilities under this Agreement and the
documentation relating thereto, (c) to pay, indemnify, and to hold the
Administrative Agent and each Lender harmless from, any and all
recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other similar
taxes (other than withholding taxes), if any, which may be payable or
determined to be payable in connection with the execution and delivery
of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent
under or in respect of, any Credit Document and any such other
documents, and (d) to pay, indemnify, and hold the Administrative Agent
and each Lender and their respective Affiliates, officers and directors
harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever (including, without
limitation, reasonable fees and disbursements of counsel) which may be
incurred by or asserted against the Administrative Agent or the Lenders
or such Affiliates, officers or directors (x) arising out of or in
connection with any investigation, litigation or proceeding related to
this Agreement, the other Credit Documents, the proceeds of the Loans
or the Subordinated Debt and the transactions contemplated by or in
respect of such use of proceeds, or any of the other transactions
contemplated hereby, whether or not the Administrative Agent or any of
the Lenders or such Affiliates, officers or directors is a party
thereto, including, without
<PAGE>
86
limitation, any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable
to the operations of the Company, any of its Subsidiaries or any of the
facilities and properties owned, leased or operated by the Company or
any of its Subsidiaries, or (y) without limiting the generality of the
foregoing, by reason of or in connection with the execution and
delivery or transfer of, or payment or failure to make payments under,
Letters of Credit (it being agreed that nothing in this subsection
12.5(d)(y) is intended to limit the Company's obligations pursuant to
subsection 4.8) (all the foregoing, collectively, the "indemnified
------------
liabilities"), provided that the Company shall have no obligation
----------
hereunder with respect to indemnified liabilities of the Administrative
Agent or any Lender or any of their respective Affiliates, officers and
directors arising from (i) the gross negligence or willful misconduct
of such Administrative Agent or Lender or their respective directors or
officers or (ii) legal proceedings commenced against the Administrative
Agent or a Lender by any security holder or creditor thereof arising
out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such or (iii) legal proceedings
commenced against the Administrative Agent or any such Lender by any
Transferee (as defined in subsection 12.6). The agreements in this
subsection 12.5 shall survive repayment of the Loans and all other
amounts payable hereunder.
12.6 Successors and Assigns; Participations and Assignments. (a)
---------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the
Company, the Lenders, the Administrative Agent, all future holders of
the Notes and the Loans, and their respective successors and assigns,
except that the Company may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of
each Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking or lending business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any
participating interest in the Letters of Credit of such Lender, any
Note held by such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder. In the event of any such sale by a
Lender of participating interests to a Participant, such Lender's
obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for
the performance thereof, such Lender shall remain the holder of any
such Note for all purposes under this Agreement and Holdings, the
Company and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Credit Documents. The
Company agrees that if amounts outstanding under this Agreement and the
Notes are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of
its participating interest in amounts owing under this Agreement and
any Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement or
any Note; provided, that such right of setoff shall be subject to the
----------
obligation of such Participant to share with the Lenders, and the
Lenders agree to share with such Participant, as provided in subsection
12.7. The Company also agrees that each Participant shall be entitled
to the benefits of subsections 4.10, 5.11 and 5.12 with respect to its
participation in the Letters of Credit and in the Commitments and the
Loans outstanding from time to time as
<PAGE>
87
if it were a Lender; provided, that no Participant shall be entitled to
----------
receive any greater amount pursuant to any such subsection than the
transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to
such Participant had no such transfer occurred. Each Lender agrees that
the participation agreement pursuant to which any Participant acquires
its participating interest (or any other document) may afford voting
fights to such Participant, or any fight to instruct such Lender with
respect to voting hereunder, only with respect to matters requiting the
consent of either all of the Lenders hereunder or all of the Lenders
holding the relevant Term Loans or Revolving Credit Commitments subject
to such participation.
(c) Subject to paragraph (g) of this subsection 12.6, any Lender
may, in the ordinary course of its commercial banking, lending or
investment business and in accordance with applicable law, (i) at any
time and from time to time assign all or any part of its rights and
obligations under this Agreement and the Notes to any Lender or any
Affiliate thereof, provided that, in the event of a sale of less than
---------
all of such rights and obligations, such assigning Lender after any
such sale to any other Lender or any Affiliate of such Lender shall
retain Commitments and/or Loans and/or L/C Participating Interests
aggregating at least $5,000,000 (or such lesser amount as the
Administrative Agent may determine), and, (ii) with the consent of the
Company and the Administrative Agent (which in each case shall not be
unreasonably withheld or delayed) at any time and from time to time
assign to one or more additional banks, mutual funds or financial
institutions or entities (each, an "Assignee"), all or any part of its
rights and obligations under this Agreement and the Notes, pursuant to
an Assignment and Acceptance, executed by such Assignee, such
transferor Lender (and, in the case of an Assignee that is not then a
Lender or an Affiliate thereof, by the Company and the Administrative
Agent), and delivered to the Administrative Agent for its acceptance
and recording in the Register (as defined below); provided that (A)
----------
each such sale pursuant to clause (ii) of this subsection 12.6(c) shall
be in a principal amount of $5,000,000 or more unless the Assigning
Lender is transferring all of its rights and obligations and (B) in the
event of a sale of less than all of such rights and obligations, such
Lender after any such sale shall retain Commitments and/or Loans and/or
L/C Participating Interests aggregating at least $5,000,000. Upon such
execution, delivery, acceptance and recording, from and after the
effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent
of the interest transferred, as reflected in such Assignment and
Acceptance, be released from its obligations under this Agreement (and,
in the case of a Assignment and Acceptance covering all or the
remaining portion of a transferor Lender's rights and obligations
under this Agreement, such transferor Lender shall cease to be a party
hereto).
(d) The Administrative Agent, which for purposes of this
subsection 12.6(d) only shall be deemed to be the agent of the
Company, shall maintain at the address of the Administrative Agent
referred to in subsection 12.2 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the
Commitments of, and principal amounts of the Loans owing to, each
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest
<PAGE>
88
error, and the Company, the Administrative Agent and the Lenders shall
treat each Person whose name is recorded in the Register as the owner
of a Loan or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan
or other obligation hereunder shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register
shall be available for inspection by the Company or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that
is not then a Lender or an Affiliate thereof, by the Company and the
Administrative Agent), together with payment to the Administrative
Agent of a registration and processing fee of $4,000 if the Assignee is
not a Lender prior to the execution of such supplement and $1,000
otherwise, the Administrative Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the
Lenders and the Company. On or prior to such effective date, the
Company at its own expense, shall execute and deliver to the
Administrative Agent (in exchange for any or all of the Tranche A Term
Loan Notes, Tranche B Term Loan Notes or Revolving Credit Notes of the
assigning Lender, if any) new Tranche A Term Loan Notes, Tranche B Term
Loan Notes or Revolving Credit Notes, as the case may be, to the order
of such Assignee (if requested) in an amount equal to the Revolving
Credit Commitment or the Term Loans, as the case may be, assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender
has retained a Commitment or any Term Loans hereunder, new Tranche A
Term Loan Notes, Tranche B Term Loan Notes or Revolving Credit Notes,
as the case may be, to the order of the assigning Lender in an amount
equal to the Commitment or such Term Loans, as the case may be,
retained by it hereunder (if requested). Such new Notes shall be dated
the Closing Date and shall otherwise be in the form of the Notes
replaced thereby.
(f) The Lenders agree that they will use reasonable efforts to
protect the confidentiality of any confidential information concerning
Holdings, the Company and its Subsidiaries and Affiliates.
Notwithstanding the foregoing, the Company authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Lender's possession concerning Holdings, the Company and its
Subsidiaries and Affiliates which has been delivered to such Lender by
or on behalf of Holdings or the Company pursuant to this Agreement or
which has been delivered to such Lender by or on behalf of Holdings, or
the Company in connection with such Lender's credit evaluation of
Holdings, the Company and its Subsidiaries and Affiliates prior to
becoming a party to this Agreement; provided, that any such Transferee
----------
shall agree to use reasonable efforts to protect the confidentiality of
any confidential information concerning Holdings, the Company and its
Subsidiaries and Affiliates.
(g) If, pursuant to this subsection 12.6, any interest in this
Agreement or any Note is transferred to any Transferee which is
organized under the laws of any jurisdiction other than the United
States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer either
(1) in the case of a Transferee that is
<PAGE>
89
a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) to
represent to the transferor Lender (for the benefit of the transferor
Lender, the Administrative Agent and the Company) that under applicable
law and treaties no taxes will be required to be withheld by the
Administrative Agent, the Company or the transferor Lender with respect
to any payments to be made to such Transferee in respect of the Loans
or L/C Participating Interests, (ii) to furnish to the transferor
Lender (and, in the case of any Transferee registered in the Register,
the Administrative Agent and the Company) either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Transferee claims entitlement to complete exemption from U.S.
federal withholding tax on all interest payments hereunder) and (iii)
to agree (for the benefit of the transferor Lender, the Administrative
Agent and the Company) to provide the transferor Lender (and, in the
case of any Transferee registered in the Register, the Administrative
Agent and the Company) a new Form 4224 or Form 1001 upon the expiration
or obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to
comply from time to time with all applicable U.S. laws and regulations
with regard to such withholding tax exemption or (2) in the case of any
Transferee that is not a "bank" within the meaning of Section 881
(c)(3)(A) of the Code, (i) to represent to the transferor Lender (for
the benefit of the transferor Lender, the Administrative Agent and the
Company) that it is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code, (ii) to furnish to the transferor Lender
(and, in the case of any Transferee registered in the Register, to the
Company), with a copy to the Administrative Agent, (A) a Subsection 5.1
1(d)(2) Certificate and (B) two (2) accurate and complete original
signed copies of Internal Revenue Service Form W-8, certifying to such
Transferee's legal entitlement on the date of the effectiveness of such
transfer to an exemption from U.S. withholding tax under the provisions
of Section 881(c) of the Code with respect to all payments to be made
under this Agreement, and (iii) to agree (for the benefit of the
transferor Lender, the Administrative Agent and the Company), to the
extent legally entitled to do so, upon reasonable request by the
transferor Lender (or~ in the case of any Transferee registered in the
Register, the Administrative Agent or the Company), to provide to the
transferor Lender, the Administrative Agent and the Company such other
forms as may be required to establish the legal entitlement of such
Transferee to an exemption from withholding tax with respect to
payments under this Agreement.
(h) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning
assignments of Loans and Notes relate only to absolute assignments and
that such provisions do not prohibit assignments creating security
interests, including, without limitation, any pledge or assignment by a
Lender of any Loan or Note to any Federal Reserve Bank in accordance
with applicable law.
12.7 Adjustments: Set-off. (a) If any Lender (a "benefitted
------------------------ -----------
Lender") shall at any time receive any payment of all or part of any of
its Loans or L/C Participating Interests, as the case may be, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in clause (f) of Section 10, or
otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of such
other Lender's Loans or L/C Participating Interests, as the case may
be, or interest thereon, such benefitted Lender shall
<PAGE>
90
purchase for cash from the other Lenders such portion of each such
other Lender's Loans or L/C Participating Interests, as the case may
be, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided,
---------
however, that if all or any portion of such excess payment or benefits
---------
is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. The Company agrees
that each Lender so purchasing a portion of another Lender's Loans
and/or L/C Participating Interests may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such
portion. The Administrative Agent shall promptly give the Company
notice of any set-off, provided that the failure to give such notice
---------
shall not affect the validity of such set-off.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the
Company, any such notice being expressly waived by the Company to the
extent permitted by applicable law, upon the filing of a petition under
any of the provisions of the federal bankruptcy code or amendments
thereto, by or against; the making of an assignment for the benefit of
creditors by; the application for the appointment, or the appointment,
of any receiver of, or of any substantial portion of the property of;
the issuance of any execution against any substantial portion of the
property of; the issuance of a subpoena or order, in supplementary
proceedings, against or with respect to any substantial portion of the
property of; or the issuance of a warrant of attachment against any
substantial portion of the property of; the Company to set off and
apply against any indebtedness, whether matured or unmatured, of the
Company to such Lender, any amount owing from such Lender to the
Company, at or at any time after, the happening of any of the above
mentioned events, and as security for such indebtedness, the Company
hereby grants to each Lender a continuing security interest in any and
all deposits, accounts or moneys of the Company then or thereafter
maintained with such Lender, subject in each case to subsection 12.7(a)
of this Agreement. The aforesaid right of set-off may be exercised by
such Lender against the Company or against any trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receiver
or execution, judgment or attachment creditor of the Company, or
against anyone else claiming through or against the Company or such
trustee in bankruptcy, debtor in possession, assignee for the benefit
of creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender prior to the making, filing or issuance, or
service upon such Lender of, or of notice of, any such petition;
assignment for the benefit of creditors; appointment or application for
the appointment of a receiver; or issuance of execution, subpoena,
order or warrant. Each Lender agrees promptly to notify the Company and
the Administrative Agent after any such set-off and application made by
such Lender, provided that the failure to give such notice shall not
----------
affect the validity of such set-off and application.
12.8 Counterparts. This Agreement may be executed by one or more of
--------------
the parties to this Agreement on any number of separate counterparts
and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Company
and the
<PAGE>
91
Administrative Agent. This Agreement shall become effective with
respect to the Company, the Administrative Agent and the Lenders when
the Administrative Agent shall have received copies of this Agreement
executed by the Company and the Lenders, or, in the case of any Lender,
shall have received telephonic confirmation from such Lender stating
that such Lender has executed counterparts of this Agreement or the
signature pages hereto and sent the same to the Administrative Agent.
12.9 Governing Law; No Third Party Rights. This Agreement and the
---------------------------------------
Notes and the rights and obligations of the parties under this
Agreement and the Notes shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York. This
Agreement is solely for the benefit of the parties hereto and their
respective successors and assigns, and, except as set forth in
subsection 12.6, no other Persons shall have any right, benefit,
priority or interest under, or because of the existence of, this
Agreement.
12.10 Submission to Jurisdiction; Waivers. (a) Each party to this
-------------------------------------
Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any of the other Credit
Documents, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States
for the Southern District of New York, and appellate courts from
any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now
or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered
or certified mail (or any substantially similar form of mail),
postage prepaid, to such party at its address set forth in
subsection 12.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
(b) Each party hereto unconditionally waives trial by jury in any
legal action or proceeding referred to in paragraph (a) above and any
counterclaim therein.
12.11 Releases. The Administrative Agent and Lenders agree to
-----------
cooperate with the Company and its Subsidiaries with respect to any
sale or other disposition permitted by subsection 9.5 and promptly take
such action and execute and deliver such instruments and documents
necessary to release the liens and security interests created by the
Security Documents
<PAGE>
92
relating to any of the assets or property affected by any such sale
permitted by subsection 9.5, including, without limitation, any Uniform
Commercial Code amendment, release or termination or partial release or
termination statements.
12.12 Interest. Each provision in this Agreement and each other
----------
Credit Document is expressly limited so that in no event whatsoever
shall the amount paid, or otherwise agreed to be paid, by the Company
for the use, forbearance or detention of the money to be loaned under
this Agreement or any other Credit Document or otherwise (including any
sums paid as required by any covenant or obligation contained herein or
in any other Credit Document which is for the use, forbearance or
detention of such money), exceed that amount of money which would cause
the effective rate of interest to exceed the highest lawful rate
permitted by applicable law (the "Highest Lawful Rate"), and all
------------------
amounts owed under this Agreement and each other Credit Document shall
be held to be subject to reduction to the effect that such amounts so
paid or agreed to be paid which are for the use, forbearance or
detention of money under this Agreement or such other Credit Document
shall in no event exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate.
Notwithstanding any provision in this Agreement or any other Credit
Document to the contrary, if the maturity of the Loans or the
obligations in respect of the other Credit Documents are accelerated
for any reason, or in the event of any prepayment of all or any portion
of the Loans or the obligations in respect of the other Credit
Documents by the Company or in any other event, earned interest on the
Loans and such other obligations of the Company may never exceed the
Highest Lawful Rate, and any unearned interest otherwise payable on the
Loans or the obligations in respect of the other Credit Documents that
is in excess of the Highest Lawful Rate shall be cancelled
automatically as of the date of such acceleration or prepayment or
other such event and (if theretofore paid) shall, at the option of the
holder of the Loans or such other obligations, be either refunded to
the Company or credited on the principal of the Loans. In determining
whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Company and the
Lenders shall, to the maximum extent permitted by applicable law,
amortize, prorate, allocate and spread, in equal parts during the period
of the actual term of this Agreement, all interest at any time
contracted for, charged, received or reserved in connection with this
Agreement.
12.13 Special Indemnification. Notwithstanding any provision in
--------------------------
this Agreement to the contrary, (A) each Lender, or Transferee of any
Lender pursuant to subsection 12.6(g) of this Agreement, shall
indemnify the Company and the Administrative Agent, and hold each of
them harmless against any and all payments, expenses or taxes which the
Company or the Administrative Agent may become subject to or obligated
to pay if and to the extent that, (i) on the Closing Date or the
effective date of transfer, as the case may be, such Lender, or such
Transferee of a Lender pursuant to subsection 12.6(g) of this
Agreement, (a) makes the representation and covenants set forth in
subsection 5.11(d)(2) of this Agreement, or, in the case of a
Transferee, pursuant to subsection 12.6(g)(2) of this Agreement and the
Assignment and Acceptance, and (b) is not in fact also qualified to
make the representation and covenants set forth in subsection
5.11(d)(1) of this Agreement or, in the case of a Transferee, pursuant
to subsection 12.6(g)(2) of this Agreement and the Assignment and
Acceptance, and (ii) as a result of any Change in Law or compliance by
such Lender, or Transferee, with any request or directive
<PAGE>
93
(whether or not having the force of law) from any central bank or other
Governmental Authority the Company or the Administrative Agent is
required to make any additional payments on account of U.S. withholding
taxes and amounts related thereto with respect to any payments under
this Agreement, any Note, or a Eurodollar Loan, made prior to such
Change in Law or request or directive, none of which payments would
have been required if such Lender, or Transferee, was qualified on the
Closing Date or the date of the transfer, as the case may be, to make
the representation and covenants set forth in subsection 5.11(d)(1) of
this Agreement or pursuant to subsection 12.6(g)(1) of this Agreement
and the Assignment and Acceptance, as the case may be, and (B) each
Lender, or Transferee, agrees that to the extent any amount payable by
such Lender or Transferee pursuant to this subsection 12.13 remains
unpaid on any Interest Payment Date or the date on which any prepayment
is made, the Company shall have the right to set off against any
payment due to such Lender or Transferee on such date any amounts owing
to the Company pursuant to this subsection 12.13.
12.14 Permitted Payments and Transactions. Notwithstanding any
-----------------------------------------
provision to the contrary contained in this Agreement, the Company and
its Subsidiaries shall be permitted to pay fees and expenses pursuant
to or in respect of, the following agreements, and, in the case of
clause (d) below, to engage in the following transactions: (a)(i) the
Services and Expenses Agreement between Holdings and the Company dated
as of March 22, 1996, (ii) the Management Services Agreement dated as
of March 22, 1996 between Investcorp International, Inc. ("III") and
the Company, (iii) the Loan Finance and Advisory Services Agreement
dated as of March 22, 1996 between III and the Company and (iv) the
Mergers and Acquisitions Advisory Agreement dated as of March 22, 1996
between III and the Company; (b) agreements with any Person or Persons
providing for the payment of customary fees in connection with serving
as a director of the Company or any Subsidiary of the Company; (c)
agreements providing for the payment of commercially reasonable fees in
connection with any permitted financing, refinancing, sale, transfer,
sale and leaseback or other permitted disposition of any assets of the
Company or its Subsidiaries; (d) the borrowing of any Indebtedness to
the extent, and upon the terms and conditions, the same is expressly
permitted under subsection 9.1; and (e) agreements providing for
commercially reasonable fees in connection with any permitted purchase
or acquisition of assets by the Company or any of its Subsidiaries.
<PAGE>
94
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered in New York, New York by their proper
and duly authorized officers as of the day and year first above
written.
SIMMONS ACQUISITION CORP.
By: /s/ John M. Kenney
---------------------
Title:
CHEMICAL BANK, as Administrative Agent,
Issuing Lender and a Lender
By: /s/ Scott S. Ward
---------------------
Title: Vice President
<PAGE>
95
U.S. NATIONAL BANK OF OREGON
By: /s/ David Wynde
----------------------------
Title: Senior Vice President
<PAGE>
96
BANK OF SCOTLAND
By: /s/ Catherine M. Griffrey
--------------------------
Title: Vice President
<PAGE>
97
CIBC INC.
By: /s/
--------------------------
Title: Director
<PAGE>
98
FLEET BANK
By: /s/ Cynthia L. Sellover
--------------------------
Title: Vice President
<PAGE>
99
THE MITSUBISHI BANK, LIMITED
By: /s/ Randy Szuch
--------------------------
Title: Vice President
<PAGE>
100
PILGRIM PRIME RATE TRUST
By: /s/ Michael J. Bacevich
--------------------------
Title: Vice President
<PAGE>
101
THE BANK OF NEW YORK
By: /s/ Gregory L. Batson
--------------------------
Title: Vice President
<PAGE>
102
THE FIRST NATIONAL BANK OF BOSTON
By: /s/
--------------------------
Title: Vice President
<PAGE>
103
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ David H. Lerner
--------------------------
Title: President
By: /s/ Timothy L. Polvado
--------------------------
Title: Assistant Treasurer
<PAGE>
104
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/
--------------------------
Title: Vice President
<PAGE>
105
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /s/ Sasayama
--------------------------
Title: Vice President
<PAGE>
106
WELLS FARGO BANK, N.A.
By: /s/ Alan Wray
--------------------------
Title: Vice President
<PAGE>
107
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: /s/ Jeffrey W. Maillet
----------------------------
Title: Senior Vice President
Portfolio Manager
<PAGE>
SCHEDULE I
----------
LIST OF ADDRESSES FOR NOTICES; COMMITMENT AMOUNTS
CHEMICAL BANK
270 Park Avenue
New York, New York 10017
Attn: William Caggiano
Telecopy: (212) 270-1338
Commitment Amounts: $17,700,000.00
--------------------
Commitment Percentage:
----------------------
U.S. NATIONAL BANK OF OREGON
555 S.W. Oak Street, Suite 400
Portland, OR 97204
Attn: Stephen Mitchell
Telecopy: 503-275-4267
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
BANK OF SCOTLAND
565 Fifth Avenue, 5th Floor
New York, New York 10017
Attn: James Halley
Telecopy: (212) 682-5720
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
<PAGE>
2
CIBC INC. C/O CANADIAN IMPERIAL BANK OF COMMERCE
Two Paces West
2727 Paces Ferry Road
Atlanta, Georgia 30339
Attn: William C. Humphries
Telecopy: (770) 319-4954
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
FLEET BANK
56 East 42nd Street
New York, New York 10017
Attn: Cynthia Sellover
Telecopy: (212) 907-5614
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
THE MITSUBISHI BANK, LIMITED
2 World Financial Center
225 Liberty Street
New York, New York 10281
Attn: Hiroaki Fuchida
Telecopy: (212) 667-3562
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
<PAGE>
PILGRIM PRIME RATE TRUST
Two Renaissance Square
40 North Central
Phoenix, AZ 85004-4424
Attn: Howard Tiffen
Telecopy: 602-417-8327
Commitment Amounts: $7,000,000.00
--------------------
Commitment Percentage: .2000
-----------------------
THE BANK OF NEW YORK
One Wall Street
New York, New York 10286
Attn: Gregory Batson
Telecopy: (212) 635-6434
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
THE FIRST NATIONAL BANK OF BOSTON
100 Federal Street
Boston, MA 02110
Attn: Diane Exter
Telecopy: (617) 434-4929
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
<PAGE>
4
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
333 Clay Street, Suite 4340
Houston, TX 77002
Attn: David Lerner
Telecopy: 713-759-9908
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
301 South College Street
Charlotte, NC 28288
Attn: Tom Molitor
Telecopy: (704) 374-3300
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH
165 Broadway
New York, New York 10006
Attn: Koji Sasayama
Telecopy: (212) 608-2371
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
<PAGE>
WELLS FARGO BANK, N.A.
455 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attn: Alan Wray
Telecopy: 415-362-5081
Commitment Amounts: $3,300,000.00
--------------------
Commitment Percentage: .0825
-----------------------
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
One Park View Plaza
Oakbrook Terrace, IL 60181
Attn: Jeffrey Maillet
Telecopy: (708) 684-6740
Commitment Amounts: $7,000,000.00
--------------------
Commitment Percentage: .2000
-----------------------
MERRILL LYNCH ASSET MANAGEMENT
800 Scudders Mill Road
Plainsboro, NJ 08536
Attn: Douglass Henderson
Telecopy: (609) 282-2756
Commitment Amounts: $7,000,000.00
--------------------
Commitment Percentage: .2000
-----------------------
EXHIBIT 10.10
SERVICES AND EXPENSES
AGREEMENT
THIS AGREEMENT (the "Agreement") is made effective as of
the 22 day of March, 1996, by and between Simmons Holdings,
--
Inc., a Delaware corporation ("Holdings"), and Simmons Company,
a Delaware corporation ("Simmons").
WHEREAS, the parties to this Agreement have entered into a
Stock Purchase Agreement dated February 21, 1996 (the "Stock
--
Purchase Agreement") with certain stockholders of the Company
pursuant to which, together with certain related transactions,
Holdings indirectly purchased approximately 85% of the
outstanding capital stock of Simmons; and
WHEREAS, Holdings is required to pay certain taxes and will
incur fees and expenses attributable or incidental to the
operation of the business of Simmons and the holding of such
capital stock indirectly purchased by Holdings pursuant to the
Stock Purchase Agreement (the "Expenses");
WHEREAS, Holdings, as a holding company, shall be required
to perform certain administrative functions arising from its
ownership of capital stock of Simmons;
WHEREAS, Simmons deems it to be in its and its stockholders'
best interest to pay to Holdings amounts sufficient to permit
Holdings to pay the Expenses; and
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the purchase of shares under
the Stock Purchase Agreement and each of the parties hereto deem
it in their best interests to enter into this Agreement.
NOW, THEREFORE, the parties do hereby agree as
follows:
1. Payment of Expenses. For so long as Holdings and Simmons
-------------------
file consolidated federal income tax returns, Simmons shall pay
to Holdings the Expenses, promptly following receipt of an
invoice for such expenses, as follows:
(a) An amount equal to the aggregate amount of all franchise
taxes and other fees required to maintain Holdings' corporate
existence;
(b) An amount equal to the aggregate amount of any actual
operating costs incurred by Holdings incidental to or
attributable to its ownership of Simmons capital stock
<PAGE>
provided, however, that payments made under this Section 1(b)
- -------- -------
shall not exceed $250,000 per fiscal year;
(c) An amount equal to the amount of federal, state and
local income taxes paid by Holdings and attributable to the
income of Simmons and its subsidiaries, provided that such
amount shall not include taxes arising from the sale or exchange
by Holdings of Simmons Common Stock;
(d) An amount equal to the repurchase price of capital stock
or options exercisable for capital stock of Holdings owned by
former employees of Simmons or its subsidiaries or their
assigns, estates and heirs, provided that the aggregate amount
distributed to Holdings pursuant to this Section 1(d) shall not,
in the aggregate, exceed the amount permitted under the [New
Senior Credit Facility].
(e) An amount equal to the Registration Expenses incurred by
Holdings; for purposes of this Agreement "Registration Expenses"
means any and all expenses incident to a registration of any of
the capital stock of Holdings under the Securities Act of 1933,
as amended, including without limitation, (i) all SEC and stock
exchange or National Association of Securities Dealers, Inc.
("NASD") registration and filing fees, (ii) all fees and
expenses of complying with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of such
capital stock as is to be registered), (iii) all printing,
messenger and delivery expenses, (iv) the fees and disbursements
of counsel for Holdings and of Holdings' independent public
accountants, including the expenses of any special audits and/or
"cold comfort" letters required by or incident to such
performance and compliance, (v) any fees and disbursements of
underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special
experts retained by Holdings in connection with such performance
and compliance, including any fee payable to a qualified
independent underwriter within the meaning of the rules of the
NASD, but excluding underwriting discounts, bind commissions and
transfer taxes, if any, and (vi) internal expenses of Holdings
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties);
provided, however, that each stockholder who beneficially owns
- -------- -------
any such capital stock which is to be registered shall pay all
underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of such capital stock
pursuant to such registration.
2. Amendments. No amendment or waiver of any provision of
----------
this Agreement, or consent to any departure by either party from
any such provision, shall in any event be effective unless the
same shall be in writing and signed by
2
<PAGE>
the parties to this Agreement and then such amendment, waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
3. Notices. Any and all notices hereunder shall, in the
-------
absence of receipted hand delivery, be deemed duly given when
mailed, if the same shall be sent by registered or certified
mail, return receipt requested, and the mailing date shall be
deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties
at the following addresses:
If to Holdings:
Simmons Holdings, Inc.
c/o INVESTCORP International, Inc.
280 Park Avenue
37th West Floor
New York, New York 10017
Attention: Christopher J. O'Brien
If to Simmons to:
Simmons Company
One Concourse Parkway
Suite 600
Atlanta, Georgia 30328
Attn.: Chief Executive Officer
4. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the substantive law of the State of
Delaware, without giving effect to the principles of conflict of
laws thereof.
5. Counterparts. This Agreement may be executed in
------------
several counterparts, each of which shall be an original but all
of which together shall constitute one and the same agreement.
6. Effect of Headings. The section headings herein are
-------------------
for convenience only and shall not affect the construction
thereof.
[The remainder of this page has been intentionally left
blank]
3
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed and delivered by its duly authorized officer or agent as set forth
below.
SIMMONS HOLDINGS, INC.
By: /s/ John M. Kenney
-----------------------
Name: John M. Kenney
Title: Vice President
SIMMONS COMPANY
By: /s/ Zenon S. Nie
-----------------------
Name: Zenon S. Nie
Title: Chief Executive Officer
EXHIBIT 10.11
PARENT OPTION AGREEMENT
PARENT OPTION AGREEMENT, dated March 22, 1996 (the
"Agreement"), by and between Simmons Company, a Delaware
corporation (the "Company") and Simmons Holdings, Inc., a
Delaware corporation ("Holdings").
WHEREAS, the parties to this Agreement have entered into a
Stock Purchase Agreement dated February 21, 1996 (the "Stock
Purchase Agreement") with certain stockholders of the Company
pursuant to which, together with certain related transactions,
Holdings indirectly purchased approximately 85% of the
outstanding capital stock of the Company; and
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the purchase of shares under
the Stock Purchase Agreement and each of the parties hereto
deems it in its best interests to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. Definitions. Capitalized terms used herein have the
-----------
following meanings:
"Agreement" is defined in the preamble.
"Company" is defined in the preamble.
"Company Common Stock" means the common stock of the
Company, par value $.01 per share.
"Holdings" is defined in the preamble.
"Holdings Class C Stock" means the Class C stock of
Holdings, par value $.01 per share.
"Holdings Common Stock" means the common stock of Holdings,
par value $.01 per share.
"Holdings Stock" means Holdings Common Stock or Holdings
Class C Stock.
"Management Anti-dilution Option Agreements" means the Anti-dilution Stock
Option Agreements, each dated the date hereof, between Holdings and certain
members of the Company's management.
"Offsetting Option" is defined in section 2.
"Management Option" is defined in section 2.
<PAGE>
2. Grant of Option. If Holdings shall grant to any
---------------
director, employee, or consultant providing services to the
Company any security or other instrument (a "Management Option")
convertible into shares of Holdings Common Stock or shares of
Holdings Class C Stock, the Company shall grant, on the date of
such grant by Holdings, a similar option (an "Offsetting
Option") to Holdings. The Offsetting Option shall be exercisable
for a number of shares of Company Common Stock equal to the
number of shares of Holdings Stock to be received upon the
exercise of the corresponding Management Option and the per
share exercise price of the Offsetting Option shall equal the
per share exercise price of the corresponding Management Option,
subject to any adjustment as specified in Section 5 herein.
Except for the terms and conditions set forth herein, every
Offsetting Option shall contain, to the extent applicable, the
same terms and conditions as the corresponding Management
Option.
3. Exercise of Option. Subject to the terms contained
------------------
therein, an Offsetting Option shall be exercised by Holdings
only upon the exercise of the corresponding Management Option
and the payment of the option exercise price thereof, and then
only to the same extent.
4. Payment and Delivery of Certificate(s). Upon the
--------------------------------------
exercise of a Offsetting Option Holdings shall pay to the
Company the aggregate exercise price of the shares of Company
Common Stock to be acquired upon such exercise. Upon such exercise
and against payment of the exercise price thereof, the Company
shall deliver to Holdings a certificate or certificates representing
the number of shares of the Company Common Stock issuable upon such exercise.
5. Adjustment Upon Changes in Capitalization. The
-----------------------------------------
provisions of this Agreement and the terms of any Offsetting
Option shall be appropriately adjusted for any stock dividends,
stock splits, recapitalizations, combinations, exchanges of
shares or similar events affecting the capital stock of Holdings
or the Company.
6. Miscellaneous.
-------------
(a) Assignment. This Agreement shall not be assigned by any
----------
party hereto without the prior written consent of the other
party hereto.
(b) Amendments. This Agreement may not be modified, amended,
----------
altered or supplemented except upon the execution and delivery
of a written agreement executed by the parties hereto.
2
<PAGE>
(c) Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly received if so
given) by delivery, by cable, telegram or telex, or by mail
(registered or certified mail, postage prepaid, return receipt
requested) to the respective parties as follows:
If to the Company:
Simmons Company
One Concourse Parkway
Suite 600
Atlanta, GA 30328
Attn: Chief Executive Officer
If to Holdings:
Simmons Holdings, Inc.
c/o INVESTCORP International Inc.
280 Park Avenue, 37 West Floor
New York, New York 10017
Attn: Christopher J. O'Brien
with a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
47th Floor
New York, New York 10166-0193
Attn: Charles K. Marquis
or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices
of change of address shall only be effective upon receipt.
(d) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the substantive law of the State of
Delaware, without giving effect to the principles of conflict of
laws thereof.
(e) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original but all of
which together shall constitute one and the same agreement.
(f) Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction thereof.
3
<PAGE>
IN WITNESS WHEREOF, Simmons Company and Simmons Holdings,
Inc. have caused this Agreement to be duly executed on the day
and year first above written.
SIMMONS COMPANY
By: /s/ Zenon S. Nie
--------------------------------
Name: Zenon S. Nie
Title: Chief Executive Officer
SIMMONS HOLDINGS, INC.
By: /s/ John M. Kenney
--------------------------------
Name: John M. Kenney
Title: Vice-President
4
Exhibit 10.14
FORM OF STOCK PURCHASE AGREEMENT BETWEEN SIMMONS HOLDINGS, INC. AND ZENON S.
NIE; MARTIN R. PASSAGLIA; JONATHAN C. DAIKER; LEE AYERS; JOSEPH ULICNY; ROBERT
K. BARTON; GARY G. PLEASANT; CLEVE B. MURPHY; JAMES P. MAHER; AND LEO
T. BRENNAN; AND ROGER D. FRANKLIN, DATED AS OF MARCH 22, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made effective as
of March 22, 1996 (the "Effective Date") between Simmons Holdings, Inc., a
Delaware corporation (the "Issuer") and _____________ ("Employee").
R E C I T A L S
- - - - - - - - -
A. Employee is an employee of Simmons Company, a Delaware corporation
("Employer"), and desires to acquire an equity interest in Issuer.
B. Issuer is willing to sell to Employee shares of Class C Stock, par
value $.01 per share ("Class C Stock"), of Issuer, subject to the terms and
conditions of this Agreement.
AGREEMENTS
- ----------
1. Definitions. Capitalized terms used herein shall have the following
-----------
meanings:
"Act" means the Securities Act of 1933, as amended.
"Affiliate" means, with respect to any Person, any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person. For purposes of this definition, "control" of a
Person shall mean the power, directly or indirectly, (i) to vote fifty percent
(50%) or more of the securities having ordinary voting power for the election of
directors of such Person whether by ownership of securities, contract, proxy or
otherwise or (ii) to direct or cause the direction of management and policies of
such Person whether by ownership of securities, contract, proxy or otherwise.
"Agreement" means this Stock Purchase Agreement.
"Approved Retirement" means the retirement of Employee on or
after his sixty-fifth (65th) birthday or, if earlier, either for Good Reason or
approved by the Board of Directors of Issuer.
"Approved Sale" means a transaction or a series of related
transactions which results in bona fide, unaffiliated change of beneficial
---------
ownership of Employer or its business of greater than 50% (disregarding for this
purpose any disparate voting rights attributable to the outstanding stock of
Issuer), whether pursuant to the sale of the stock of Employer or Issuer, the
sale of the assets of Employer, or a merger or consolidation involving Employer
or Issuer.
"Cause" when used in connection with the termination of
employment of Employee, means (i) the conviction for the commission of, or a
plea of guilty or nolo contendere made by Employee in response to a charge
---------------
involving, a felony or a crime involving moral turpitude, (ii) the embezzlement
or misappropriation of funds or property of Issuer, Employer or any Subsidiary,
(iii) the continued use of alcohol or drugs to an extent, which, consistent with
the Substance Abuse Policy of Employer adopted October 14, 1994, would result in
Employee's Termination, (iv) the intentional, unauthorized disclosure of
proprietary information or confidential records of Issuer, Employer or
<PAGE>
any Subsidiary or (v) the willful failure or refusal to perform (unless for Good
Reason) those duties reasonably assigned or delegated to Employee by the Board
of Directors of Employer which failure or refusal continues following (A) the
Board of Directors giving Employee written notice setting forth the facts or
events constituting such failure or refusal and (B) a reasonable opportunity to
correct the deficiencies or other problems specified in such notice to the
reasonable satisfaction of such Board.
"Certificate of Designation" means the Certificate of Designation
of Issuer setting forth, inter alia, the rights, preferences and privileges of
----------
and restrictions on the Class A Stock, the Class C Stock, the Class D Stock and
the Common Stock of Issuer.
"Class C Stock" is defined in recital B.
"Cost" equals $2.6592, subject to adjustment pursuant to Section
10.
"Disability" means that Employee becomes physically or mentally
incapacitated or disabled so that he or she is unable to perform for Employer or
a Subsidiary substantially the same services as he or she performed prior to
incurring such incapacity or disability or to devote his or her full working
time or use his or her best efforts to advance the business and welfare of
Employer or a Subsidiary for an aggregate period of six months during any 12
month period.
"Effective Date" is defined in the preamble.
"Employee" is defined in the preamble.
"Employer" is defined in recital A.
"Endorsed Certificate" means a stock certificate evidencing the
shares properly endorsed for transfer, or, in the alternative, an appropriate
certification as to the lost, stolen or missing status of such stock
certificate.
"Fair Market Value" means the value of a Share, as of the
Termination Date, determined pursuant to Section 4(c).
"Fiscal Year" means the fiscal year of Issuer.
"Good Reason" means (i) the assignment to Employee of any duties
inconsistent with Employee's position (including status, offices, titles and
reporting requirements), (ii) a demotion in the job title of Employee, (iii) a
reduction in the compensation paid to Employee, unless such reduction is
comparable to an across-the-board reduction applicable to all senior management
employees of Employer due to adverse business circumstances, (iv) a request of
Employee to relocate his office to a distance of greater than seventy-five (75)
miles from the present site of his office, or (v) any other action by Employer
which results in a material diminution in the position, authority, duties or
responsibilities of Employee.
<PAGE>
"Initial Public Offering" means the effectiveness of a
registration statement under the Act covering any of the capital stock of Issuer
or Employer (other than preferred stock that is not convertible into common
stock) and the completion of a sale of such stock thereunder, if as a result of
such sale (i) the issuer becomes a reporting company under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is
traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the Nasdaq Stock Market or is traded or quoted on any other national
stock exchange or securities system.
"Issuer" is defined in the preamble.
"Issuer Note" is defined in Section 4(a)
"Lock-Up Period" means, in the case of an Initial Public
Offering, the 180-day period commencing on the effective date of the
registration statement covering capital stock of Issuer or Employer sold in such
Initial Public Offering, and, in the case of any subsequent registered offering,
the 90-day period commencing on the effective date of the registration statement
relating to such offering, or, in either case, such lesser period as may be
agreed upon with the underwriters of such offering.
"Permitted Transferee" is defined in Section 3.
"Person" means any natural person, partnership, corporation,
trust or incorporated organization.
"Repurchase Period" is defined in Section 4(a).
"Repurchase Price" is defined in Section 4(a)
"Second Repurchase Period" is defined in Section 4(a).
"Sharehotder" means SH Equity Limited, a Cayman Islands company.
"Shares" is defined in Section 2.
"Subsidiary" means any joint venture, corporation, partnership or
other entity as to which Issuer or EmpLoyer, whether directly or indirectly, has
more than 50%, of the (i) voting rights or (ii) rights to capital or profits.
"Termination Date" means the date on which Employee ceases to be
employed by Employer or any Affiliate of Employer for any reason; provided,
however, that Employee shall not be considered to have ceased to be employed by
Employer or any Affiliate of Employer if he or she continues to be employed by
Employer or any Subsidiary.
2. Purchase and Sale of Shares. On the terms and subject to the
---------------------------
conditions hereof, Issuer hereby sells and transfers to Employee
---------
shares of Class C Stock (the "Shares") in consideration of the payment by
Employee to Issuer of , receipt of which is hereby acknowledged by
---------
Issuer.
<PAGE>
3. Restrictions on Transfers of Shares. Subject to Section 4 hereof,
-----------------------------------
prior to the earlier of (i) the termination of the Lock-Up Period following an
Initial Public Offering or (ii) an Approved Sale, the Shares shall not be
transferable or transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) except that Employee may transfer the
Shares (i) to his or her spouse, child, estate, personal representative, heir or
successor or to a trust for the benefit of Employee or his or her spouse, child
or heir (a "Permitted Transferee") or (ii) pursuant to Sections 4 or 5 of the
Certificate of Designation. This Agreement shall be binding on and enforceable
against any person who is a Permitted Transferee of the Shares except a person
who acquires the Shares pursuant to Section 4 of the Certificate of Designation.
The stock certificates issued to evidence Shares hereunder shall bear a legend
referring to this Agreement and the restrictions contained herein.
4. Repurchase of Shares
---------------------
(a) In the event that Employee's Termination Date occurs for any
reason prior to an Initial Public Offering or an Approved Sale, the Shares shall
be subject to repurchase as follows:
(i) Issuer shall, during the sixty (60) days following the
Termination Date (the "Repurchase Period"), have a one-time right to purchase
all, but not less than all, of the Shares.
(ii) If Issuer does not elect to purchase the Shares during
the Repurchase Period, then Shareholder, during the thirty (30) days following
the expiration of the Repurchase Period (the "Second Repurchase Period"), shall
have a one-time right to purchase all, but not less than all, of the Shares.
(iii) The purchase price (the "Repurchase Price") for each
Share shall be the Fair Market Value.
(iv) If Issuer or Shareholder elects to purchase the Shares,
it shall notify Employee at or before the end of the Repurchase Period or, in
the case of Shareholder, the Second Repurchase Period, and the Repurchase Price
shall be paid in cash at a time set by Issuer or Shareholder, as the case may
be, which time shall be within thirty (30) days after the end of the Repurchase
Periods or Second Repurchase Period, as the case may be, provided that Employee
has presented to Issuer or Shareholder an Endorsed Certificate.
(v) The Shares shall be transferred to Issuer or
Shareholder, as applicable, free and clear of all liens, encumbrances,
mortgages, pledges, security interests, restrictions, prior assignments and
claims of any kind or nature whatsoever except those created by the Certificate
of Designation or this Agreement.
(vi) Employee shall not be obligated to transfer any Shares
to Issuer or Shareholder, as applicable, unless, concurrently with the
repurchase of Shares hereunder, Issuer or Shareholder, as the case may be,
repurchases (A) pursuant to Section 4 of the Bonus Stock Purchase Agreement
dated as of March 22, 1996 between Employee and Issuer, all of the Shares
<PAGE>
(as defined therein), (B) pursuant to Section 9 of the Stock Option Agreement
dated as of March 22, 1996, between Employee, as Optionee, and Issuer, all of
the (as defined therein) and (C) pursuant to Section 9 of the Anti-Dilution
Stock Option Agreement dated as of March 22, 1996, between Employee, as
Optionee, and Issuer, all of the Option Shares (as defined therein).
Notwithstanding Employee's failure to deliver the Endorsed
Certificate, the Shares represented thereby shall be deemed to be owned by
Issuer or Shareholder, as applicable, upon (A) the payment by Issuer or
Shareholder, as applicable, of the purchase price to Employee or his or her
Permitted Transferee or (B) notice to Employee or his or her Permitted
Transferee that Issuer or Shareholder, as applicable, is holding the purchase
price in the United States for the account of Employee or such Permitted
Transferee, and upon such payment or notice (x) Employee and such Permitted
Transferee will have no further rights in such Shares, (y) Issuer or
Shareholder, as applicable, shall be entitled to specific performance of
Employee's or such Permitted Transferee's obligation to deliver such Endorsed
Certificate and (z) Employee and his or her Permitted Transferee shall be
jointly and severally liable for all reasonable attorneys' fees and other costs
and expenses incurred by Issuer or Shareholder, as applicable, in enforcing its
right to repurchase Shares hereunder and shall pay to Issuer or Shareholder, as
applicable, promptly upon demand the amount of all such fees and expenses. If
Issuer or Shareholder does not purchase the Shares pursuant to this Section
4(a), the restrictions on transfer thereof contained in Section 3 of this
Agreement shall terminate and be of no further force and effect: provided,
however, that such Shares shall remain subject to the provisions of Sections 4
and 5 of the Certificate of Designation.
(b) If Employee's Termination Date occurs prior to an Initial
Public Offering or an Approved Sale due to Employee's death, Disability or
Approved Retirement, or in the event of an Approved Sale (substituting 75% for
50% in such definition) in which substantially all of the proceeds of such
Approved Sale are not reinvested in a similar or like business to the
manufacturing of bedding products within one (1) year of such Approved Sale,
Employee or his or her representative shall have a one-time right to require
Issuer to purchase all, but not less than all, of the Shares at Fair Market
Value, provided, that such right must be exercised within one-hundred-eighty
(180) days after the Termination Date, or, in the case of an Approved Sale, the
first anniversary of such Approved Sale. The Repurchase Price shall be paid in
the form of cash or, at the option of Issuer in the event the purchase is
following Employee's death, disability or Approved Retirement, a combination of
an amoun~t of cash equal to the Cost of the repurchased Shares and the issuance
of an Issuer Note the principal amount of which is equal to the difference
between the Repurchase Price for the shares and the cost of the Shares, bearing
interest at a rate equal to the rate at which interest is calculated at such
time pursuant to the Revolving Credit Agreement, provided that such rate shall
in no event exceed ten percent (10%) per annum, provided further that up to
fifty percent (50%) of any interest payment shall, at the option of the Issuer,
be payable in additional Issuer Notes of like tenor. All such Issuer Notes shall
mature on the earliest to occur of (x) the third anniversary of the date on
which the Issuer Note is issued, (y) the sale of stock of the Issuer pursuant to
an Initial Public Offering, or (z) an Approved Sale. The Repurchase Price shall
be paid on the Put Date, which date shall be the later of (i) the thirtieth
(30th) day after Issuer has received notice of Employee's election to exercise
his or her put right, or (ii) the day that Employee presents to Issuer the
Endorsed certificate. The Shares shall be
<PAGE>
transferred to Issuer free and clear of all liens, encumbrances, mortgages,
pledges, security interests, restrictions, prior assignments and claims of any
kind or nature whatsoever except those created by the Certificate of Designation
or this Agreement. Notwithstanding anything to the contrary in the foregoing,
the Issuer's obligation to repurchase any of the Shares shall be suspended if
(i) such repurchase would render the Issuer unable to meet its obligations in
the ordinary course of business; (ii) the Issuer is prohibited from doing so by
applicable law restricting the purchase by a corporation of its own shares; or
(iii) such repurchase would constitute a breach of or default or event of
default under, or is otherwise prohibited by, the terms of any loan agreement or
other agreement or instrument to which the Issuer or any of its Subsidiaries is
a party, any of such events constituting a "Repurchase Disability." In the event
of a Repurchase Disability, the Issuer shall repurchase the Shares as soon as
reasonably practicable after all Repurchase Disabilities cease to exist (and the
Issuer may also elect, but shall have no obligation, to cause its nominee to
repurchase such shares while any Repurchase Disabilities continue to exist). In
the event that the Issuer suspends its obligation to repurchase Shares pursuant
to a Repurchase Disability, then, upon repurchase of the shares, the Issuer
shall pay to Employee or his or her representative (as applicable) an additional
amount equal to interest on the original repurchase price calculated at the
Applicable Federal Rate (as set forth in Section 1274 of the Code or the
Treasury Regulations promulgated thereunder) from the date the repurchase would
have occurred but for such Repurchase Disability to (but not including) the date
such repurchase actually occurs.
(c) The Fair Market Value shall be determined in good faith by
Issuer's Board of Directors. If the Board determination is challenged by
Employee, a mutually acceptable investment banker or appraiser shall establish
the Fair Market Value. If Employee and Issuer cannot agree upon an investment
banker or appraiser, Employee and Issuer shall each choose an investment banker
or appraiser and the two investment bankers or appraisers shall choose a third
investment banker or appraiser who alone shall establish the Fair Market Value.
The Fair Market Value shall be based on an assumed sale of 100% of the
outstanding capital stock of Issuer (without reduction for minority discount or
lack of liquidity of the shares) and shall be determined using customary
criteria generally employed within the investment banking community at the time
such determination is made for valuing an entity similar to Issuer. The
investment banker's or appraiser's determination shall be conclusive and binding
on Shareholder, Issuer and Employee. Issuer shall bear all costs incurred in
connection with the services of such investment banker or appraiser unless the
Fair Market Value established by such investment banker or appraiser is (i) less
than or equal to 110% of the Board of Directors' determination, in which case
Employee shall promptly pay or reimburse Issuer for such costs or (ii) greater
than 110% but less than 125% of the Board of Directors' determination, in which
case Employee shall promptly pay or reimburse Issuer for 50% of such costs.
(d) For so long as Employee or his or her Permitted Transferee
owns the Shares, Issuer agrees that it shall, upon the written request of
Employee, provide Employee with annual financial statements of Issuer promptly
upon the completion of the preparation of such statements. Such annual financial
statements shall be accompanied by an audit report by Issuer's independent
accountants.
<PAGE>
5. Representations and covenants of Issuer. Issuer represents and
---------------------------------------
warrants to Employee as follows:
(a) Issuer is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware.
(b) Issuer has full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated herein. This Agreement is a valid and binding
agreement of Issuer, enforceable against Issuer in accordance with its terms
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to or
affecting creditors' rights, and for the limitations imposed by general
principles of equity.
(c) Issuer is the lawful record and beneficial owner of all of
the Shares and is hereby transferring the Shares being purchased hereunder to
Employee free and clear of all liens, encumbrances, mortgages, pledges, security
interests, restrictions, prior assignments and claims of any kind or nature
whatsoever, except those created by the Certificate of Designation or this
Agreement.
6. Representations, Acknowledgments and Covenants of Employee.
----------------------------------------------------------
(a) Employee hereby represents and warrants to Issuer as follows:
(i) Employee is acquiring the Shares for investment for his
or her own account and without a view to further distribution of the Shares.
(ii) Employee is either (A) an executive officer (as defined
in Rule 501 promulgated under the Act) of Employer or (B) has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the Shares.
(iii) Employee is solely responsible for making his or her
own independent decision to make an investment in the Shares and is under no
express or implied obligation to Employer or Issuer to acquire the Shares.
(b) Employee hereby acknowledges to Issuer as follows:
(i) The Shares are being transferred to Employee without
registration under the Act pursuant to exemptions from registration thereunder.
Employee cannot transfer the Shares except pursuant to an effective registration
statement or an exemption from registration under the Act.
(ii) The Shares are nonvoting in the election of directors
and certain other matters and are subject to the terms and restrictions of the
Certificate of Designation.
(c) If (i) the Board of Directors of Issuer determines pursuant
to Section 9 of the Certificate of Designation that the Initial Public Offering
shall include a secondary offering of
<PAGE>
outstanding shares of stock of Issuer and (ii) the managing underwriter, if any,
of such Initial Public Offering is of the opinion that the inclusion of shares
of stock held by officers and employees of Employer and its Subsidiaries may
adversely affect the success of such offering, Employee hereby covenants and
agrees that in such event he or she will not elect to include any Shares in such
offerings. Employee further acknowledges and agrees that shares of stock of
Issuer held by stockholders that are neither officers nor employees of Employer
or a Subsidiary may be included in the Initial Public Offering to the extent
such inclusion would not adversely affect the success of such offering despite
the exclusion from such offering of shares held by Employee or other
stockholders who are officers or employees of Employer or a Subsidiary.
7. Governing Law. All terms of and rights under this Agreement shall
-------------
be governed by and construed in accordance with the internal law of the State of
New York, without giving effect to principles of conflicts of law.
8. Notices. All notices, requests, demands and other communications
-------
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given if personally delivered, telexed or telecopied to, or, if mailed,
when received by, the other party, if to Issuer at its principal executive
offices, addressed to the attention of Issuer's Secretary; if to Shareholder at
its principal executive offices, addressed to the attention of Shareholder's
Secretary; and if to Employee at his or her address as it appears on the books
of his or her employer (or at such other address as shall be given in writing by
Employee or his or her Permitted Transferee to Issuer).
9. Amendments and Waivers. This Agreement may be amended, and any
----------------------
provision hereof may be waived, only by a writing signed by the party to be
charged.
10. Capitalizations, Exchanges, Etc. Affecting Shares; Adjustment of
----------------------------------------------------------------
Cost; Dilution.
- --------------
(a) The provisions of this Agreement shall apply to any and all
shares of capital stock of Issuer or any successor or assign of Issuer that may
be issued in respect of, in exchange for, or in substitution of, the Shares by
reason of any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise, other than an Approved Sale.
(b) In the event of any reorganization, stock dividend, stock
split, stock issuance, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation or similar event, other than an Approved
Sale, as a result of which Employee holds a lesser or greater number of Shares
and/or other securities, the Cost of a Share or other security shall be
appropriately adjusted, provided that the aggregate Cost of all Shares and
securities held by Employee immediately after such event shall remain equal to
the aggregate Cost of all Shares held by Employee immediately prior to such
event.
(c) Except as specifically provided in the Certificate of
Designation, nothing herein shall prohibit or restrict Issuer from taking any
corporate action or engaging in any corporate transaction of any kind,
including, without limitation, the issuance and sale of additional shares of
capital stock of Issuer or any merger, consolidation, liquidation or sale of
assets, or
<PAGE>
create in Employee or his or her Permitted Transferee any rights to
acquire or receive additional shares of capital stock of Issuer or otherwise be
protected against dilution.
11. Legends. All certificates representing the Shares shall, in
-------
addition to other legends that may be required by state or federal securities
laws, bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY BE REOFFERED AND SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
"THESE SECURITIES ARE SUBJECT TO MANDATORY REDEMPTION BY THE
CORPORATION. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH
CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS."
"THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCK
PURCHASE AGREEMENT, DATED EFFECTIVE AS OF MARCH 22, 1996, BY AND
BETWEEN THE CORPORATION AND THE STOCKHOLDER WHICH, AMONG OTHER THINGS,
SUBSTANTIALLY RESTRICTS THE TRANSFERABILITY OF THE SECURITIES. A COPY
OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION. THE SALE, TRANSFER, OTHER DISPOSITION, AND VOTING OF THE
SECURITIES ARE SUBJECT TO THE TERMS OF SUCH AGREEMENT AND THESE
SECURITIES ARE TRANSFERABLE ONLY UPON PROOF TO THE CORPORATION OF
COMPLIANCE THEREWITH."
12. Entire Aqreement. This Agreement sets forth the entire agreement
----------------
and understanding between the parties as to the subject matter hereof and
supersedes all prior oral and written and all contemporaneous oral discussions,
agreements and understandings of any kind or nature.
13. Headings. The headings preceding the text of the sections hereof
--------
are inserted solely for convenience of reference, and shall not constitute a
part of this Agreement, nor shall they affect its meaning, construction or
effect.
14. Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement.
15. Not An Employment Contract. Nothing in this Agreement or any other
--------------------------
instrument executed pursuant hereto shall confer upon Employee any right to
continue in the employ of
<PAGE>
Employer or any Subsidiary or shall affect the right
of Employer or any Subsidiary to terminate the employment of Employee with or
without Cause.
16. Arbitration. The parties shall endeavor to settle all disputes by
-----------
amicable negotiations. Except as otherwise provided in Section 4(c) hereof, any
claim, dispute, disagreement or controversy that arises among the parties
relating to this Agreement that is not amicably settled shall be resolved by
arbitration, as follows:
(a) Any such arbitration shall be heard in The City of New York,
New York, before a panel consisting of one (1) to three (3) arbitrators, each of
whom shall be impartial. Upon the written Request for Arbitration by either
party hereto to commence arbitration hereunder, the parties shall attempt to
mutually agree as to the number and identity of the arbitrator(s) within thirty
(30) days of the date of such Request. Except as the parties may otherwise
agree, all arbitrators (if not selected by the parties hereto within thirty (30)
days of a written Request for Arbitration) shall be appointed pursuant to the
commercial arbitration rules of the American Arbitration Association. In
determining the number and appropriate background of the arbitrators, the
appointing authority shall give due consideration to the issues to be resolved,
but his or her decision as to the number of arbitrators and their identity shall
be final.
(b) An arbitration may be commenced by any party to this
Agreement by the service of a written Request for Arbitration upon the other
affected parties. Such Request for Arbitration shall summarize the controversy
or claim to be arbitrated.
(c) All attorneys' fees and costs of the arbitration shall in the
first instance be borne by the respective party incurring such costs and fees,
but the arbitrators shall award costs and attorneys' fees to the prevailing
party. The parties hereby expressly waive punitive damages, and under no
circumstances shall an award contain any amount that in any way reflects
punitive damages.
(d) Judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to
arbitration under this Section 16 shall remain confidential, and to that end it
is agreed by the parties that neither the facts disclosed in the arbitration the
issues arbitrated, nor the views or opinions of any persons concerning them,
shall be disclosed to third persons at any time, except to the extent necessary
to enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
(f) Any arbitration under this Section 16 shall be conducted
pursuant to the commercial arbitration rules of the American Arbitration
Association.
17. Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective permitted successors and
assigns.
<PAGE>
IN WITNESS WHEREOF, this Agreement is made effective as of the date
first above written.
SIMMONS HOLDINGS, INC
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Name:
----------------------------
EXHIBIT 10.15
FORM OF STOCK OPTION AGREEMENT BETWEEN SIMMONS HOLDINGS, INC
AND ZENON S. NIE; MARTIN R. PASSAGLIA; JONATHAN C. DAIKER; LEE AYERS;
JOSEPH ULICNY; ROBERT K. BARTON; GARY G. PLEASANT; CLEVE B. MURPHY;
JAMES P. MAHER; AMD LEO T. BRENNAN; AND ROGER D. FRANKLIN,
DATED AS OF MARCH 22, 1996
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made effective as of
March 22, 1996 (the "Effective Date"), between Simmons Holdings, Inc., a
Delaware corporation ("Issuer"), and ________________________________
("Optionee").
RECITALS
A. Issuer has adopted the Simmons 1996 Management Stock Incentive Plan
(the "Plan"), a copy of which is attached hereto as Exhibit 1.
B. Issuer desires to grant Optionee the opportunity to acquire a
proprietary interest in Issuer to encourage Optionee's contribution to the
success and progress of Issuer and Simmons Company, a Delaware corporation
("Employer").
C. In accordance with the Plan, the Committee (as defined in the Plan)
has as of the Effective Date granted to Optionee a non-qualified stock
option to purchase shares of Class C Stock, $.01 par value, of Issuer (the
"Class C Stock") subject to the terms and conditions of the Plan and this
Agreement.
AGREEMENTS
1. Definitions. Capitalized terms used herein shall have the
-----------
following meanings:
"Act" is defined in Section 10.
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with such Person. For purposes of this definition,
"control" of a Person shall mean the power, directly or indirectly, (i) to
vote fifty percent (50%) or more of the securities having ordinary voting
power for the election of directors of such Person whether by ownership of
securities, contract, proxy or otherwise; or (ii) to direct or cause the
direction of management and policies of such person whether by ownership
of securities, contract, proxy or otherwise.
"Agreement" means this Stock Option Agreement.
"Approved Retirement" means the retirement of Optionee on or after his
sixty-fifth (65th) birthday or, if earlier, either for Good Reason or
approved by the Board of Directors of Issuer.
"Approved Sale" means a transaction or a series of related
transactions which results in a bona fide unaffiliated change of
beneficial ownership of Employer or its business of greater than 50%
(disregarding for this purpose any disparate voting rights attributable to
the
<PAGE>
outstanding stock of Issuer), whether pursuant to the sale of the stock of
Employer or Issuer, the sale of the assets of Employer, or a merger or
consolidation involving Employer or Issuer.
"Cause," when used in connection with the termination of employment of
Optionee, means (i) the conviction for the commission of, or a plea of
guilty or nolo contendere made by Optionee in response to a charge
involving, a felony or a crime involving moral turpitude, (ii) the
embezzlement or misappropriation of funds or property of Issuer, Employer
or any Subsidiary, (iii) the continued use of alcohol or drugs to an
extent which, consistent with the Substance Abuse Policy of Employer
adopted October 14, 1994, would result in Optionee's Termination, (iv) the
intentional, unauthorized disclosure of proprietary information or
confidential records of Issuer, Employer or any Subsidiary or (v)
the willful failure or refusal to perform (unless for Good Reason) those
duties reasonably assigned or delegated to Optionee by the Board of
Directors of Employer which failure or refusal continues following (A) the
Board of Directors giving optionee written notice setting forth the facts
or events constituting such failure or refusal and (B) a reasonable
opportunity to correct the deficiencies or other problems specified in
such notice to the reasonable satisfaction of such Board.
"Certificate of Designation" means the Certificate of Designation of
Issuer setting forth, inter alia, the rights, preferences and privileges
of and restrictions on the Class A Stock, the Class C Stock, the Class D
Stock and the Common Stock of Issuer.
"Class C Stock" is defined in recital c.
"Disability" means that Optionee becomes physically or mentally
incapacitated or disabled so that he or she is unable to perform for
Employer or a Subsidiary substantially the same services as he or she
performed prior to incurring such incapacity or disability or to devote
his or her full working time or use his or her best efforts to advance the
business and welfare of Employer or a Subsidiary for an aggregate period
of six months during any 12 month period.
"EBITDA" is defined in Section 3(a). "Effective Date" is
defined in the preamble. "Employer" is defined in recital B.
"Endorsed Certificate" means a stock certificate evidencing the shares
properly endorsed for transfer, or, in the alternative, an appropriate
certification as to the lost, stolen, or missing status of such stock
certificate.
"Exercise Price" is defined in Section 2.
"Fair Market Value" means the value of a Share, as of the Termination
Date, calculated pursuant to Section 9(d).
"Fiscal Year" means the fiscal year of Issuer.
<PAGE>
"Good Reason" means (i) the assignment to Optionee of any duties
inconsistent with Optionee's position (including status, offices, titles
and reporting requirements). (ii) a demotion in the job title of Optionee,
(iii) a reduction in the compensation paid to Optionee, unless such
reduction is comparable to an across-the-board reduction applicable to all
senior management employees of Employer due to adverse business
circumstances, (iv) a request of Optionee to relocate his office to a
distance of greater than seventy-five (75) miles from the present site of
his office. or (v) any other action by Employer which results in a
material diminution in the position, authority, duties or responsibilities
of Optionee.
"Initial Public Offering" means the effectiveness of a registration
statement under the Act covering any of the capital stock of Issuer or
Employer (other than preferred stock that is not convertible into common
stock) and the completion of a sale of such stock thereunder, if as a
result of such sale (i) the issuer becomes a reporting company under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended,
and (ii) such stock is traded on the New York Stock Exchange or the
American Stock Exchange, or is quoted on the Nasdaq Stock Market or is
traded or quoted on any other national stock exchange or securities
system.
"Initial Stockholders" means the stockholders of Issuer that purchased
shares of Issuer upon the closing of the acquisition of Employer by issuer
and their Permitted Transferees.
"Issuer" is defined in the preamble.
"Issuer Note" is defined in Section 9(a).
"Lock-Up Period" means, in the case of an Initial Public Offering, the
180-day period commencing on the effective date of the registration
statement covering capital stock of Issuer or Employer sold in such
Initial Public Offering, and, in the case of any subsequent registered
offering, the 90-day period commencing on the effective date of the
registration statement relating to such offering, or, in either case, such
lesser period as may be agreed upon with the underwriters of such
offering.
"Option" is defined in Section 2.
"Optionee" is defined in the preamble.
"Option Shares" is defined in Section 2.
"Permitted Transferee" is defined in Section 5.
"Person" means any natural person, partnership,
corporation, trust or incorporated organization.
"Plan" is defined in recital A. "Purchase Date" is defined in
Section 9(a).
"Put Date" is defined in Section 9(b).
<PAGE>
"Qualifying Approved Sale" is defined in Section 3(c).
"Repurchase Period" is defined in Section 9(a).
"Repurchase Price" is defined in Section 9(a).
"Second Repurchase Period" is defined in Section 9(a).
"Shareholder" means SH Equity Limited, a Cayman Islands
company.
"Stock Purchase Agreement" is defined in Section 9(d).
"Subsidiary" means any joint venture, corporation, partnership, or
other entity as to which Issuer or Employer, whether directly or
indirectly, has more than 50% of the (i) voting rights or (ii) rights to
capital or profits.
"Termination Date" means the date on which Optionee ceases to be
employed by Employer or any Affiliate of Employer for any reason;
provided, however, that Optionee shall not be considered to have ceased to
be employed by Employer or any Affiliate of Employer if he or she
continues to be employed by Employer or any Subsidiary.
2. Grant of Option. Issuer grants to Optionee the right and option
---------------
(the "Option") to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of shares of Class C Stock (the
"Option Shares"), at the purchase price of $2.6592 per Share (as such
amount may be adjusted as herein provided, the "Exercise Price"), on
the terms and conditions set forth herein.
3. Exercisability.
--------------
(a) Optionee's right to exercise the Option shall vest to the extent
of one-fifth (1/5) of the number of Option Shares as of 90 days following
the end of each Fiscal Year set forth on Exhibit 2 of this Agreement if
Issuer's consolidated Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"), as defined on Exhibit 2, equals or exceeds the
Target annual EBITDA amount set forth in column (A) of Exhibit 2 with
respect to such Fiscal Year. If for any such Fiscal Year the Issuer's
cumulative annual EBITDA amount for that and the preceding Fiscal Years
equals or exceeds the Cumulative Target EBITDA amount set forth in column
(B) of Exhibit 2 with respect to such Fiscal Year, and Issuer's
consolidated annual EBITDA amount for that Fiscal Year equals or exceeds
85% but is less than 100% of the Target annual EBITDA amount set forth in
column (A) of Exhibit 2 with respect to such Fiscal Year, the Optionee's
right to exercise the Option shall vest to the extent that it would have
vested had the Issuer achieved its Target annual EBITDA amounts for that
and each of the preceding Fiscal Years; provided, however, that
notwithstanding the Issuer's cumulative EBITDA amount equaling or
exceeding the Cumulative Target EBITDA amount, the Option shall not vest
(subject to Section 3(b)) as to any year in which the Issuer's EBITDA did
not equal or exceed the 85% of the Target Annual EBITDA amount set forth
in column (A) of Exhibit 2 with respect to such Fiscal Year.
<PAGE>
(b) Notwithstanding Section 3(a), the right to exercise the Option
shall immediately vest in full, subject to Section 4, upon the tenth
(10th) anniversary of the Effective Date, provided that Optionee remains
continuously employed by Employer or a Subsidiary through such
anniversary.
(c) In the event of a Qualifying Approved Sale, the right to
exercise the Option shall immediately vest in full, subject to Section 4,
upon the occurrence of such Qualifying Approved Sale. A "Qualifying
Approved Sale" shall occur if the Board of Directors of Issuer determines
in connection with an Approved Sale or an Initial Public Offering that the
annual compounded rate of return expected to be realized by the Initial
Stockholders, based upon an initial base cost of the shares of $2.6592 per
share, from (i) March 22, 1996 through (ii) (A) in the case of an Approved
Sale, the date on which it is estimated that the Initial Stockholders will
receive the net proceeds from such Approved Sale, or (B) in the case of an
Initial Public Offering, the closing date of such initial public offering
(either such date, a "Realization Date"), equals or exceeds 20% per annum,
assuming the exercise of all then outstanding options that are exercisable
(whether upon the occurrence of such Qualifying Approved Sale or for any
other reason). In the case of an Approved Sale, the amount used in
determining the rate of return on the Realization Date shall be
the net proceeds from such Approved Sale (including the proceeds
attributable to any outstanding options). In the case of an Initial Public
Offering, the amount used in determining the rate of return on the
Realization Date shall be equal to the per share offering price to the
public. In both cases such amount shall be reduced by the estimated fees
and expenses of the Approved Sale or the Initial Public Offering, as the
case may be, including without limitation investment banking, legal and
accounting fees.
4. Expiration.
----------
(a) The vested portion of the Option shall expire upon the thirtieth
(30th) day following the tenth (10th) anniversary of the Effective Date
unless (i) at any time prior to a Qualifying Approved Sale, Optionee is
terminated without Cause or ceases to be employed by Employer or a
Subsidiary due to death, Disability or Approved Retirement, in which case
the vested portion of the Option shall expire 180 days following the
Termination Date, (ii) Optionee resigns or is terminated for Cause from
employment by Employer, in which case the vested portion of the Option
shall expire on the Termination Date, or (iii) Issuer, Shareholder or
Optionee exercises the purchase or put right pursuant to Section 9 hereof,
in which case the vested portion of the Option shall expire on the
business day immediately preceding the Purchase Date or the Put Date, as
the case may be.
(b) The invested portion of the option shall expire on the
Termination Date except in the case where Optionee is terminated from
employment by Employer without Cause or ceases to be so employed due to
death, Disability or Approved Retirement, in which case the invested
portion of the Option shall terminate 180 days following the end of the
Fiscal Year during which the Termination Date occurred, subject to the
vesting of any portion of the Option as of 90 days following the end of
such Fiscal Year pursuant to Section 3(a). In the event that any portion
of the Option vests pursuant to this Section 4(b), such portion shall
expire 180 days following the end of the Fiscal Year during which the
Termination Date occurs unless Issuer, Shareholder or Optionee exercises
the purchase or put right pursuant to Section 9 hereof, in
<PAGE>
which case the vested portion of the Option shall expire on the business
day immediately preceding the Purchase Date or the Put Date, as the case
may be.
5. Nontransferability. Subject to Section 9 hereof, the Option shall
------------------
not be transferable by Optionee otherwise than to his or her spouse,
child, estate, personal representative, heir or successor or to a trust
for the benefit of Optionee or his or her spouse, child or heir (a
"Permitted Transferee"), and the Option shall be exercisable, during
Optionee's lifetime, only by him or her or by any of the foregoing
Permitted Transferees, or in the event of Optionee's Disability, his or
her guardian or legal representative. More particularly (but without
limiting the generality of the foregoing), the Option may not be assigned,
transferred (except as aforesaid), pledged or hypothecated in any way
(whether by operation of law or otherwise), and shall not be subject to
execution, attachment or similar process. Any assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions,~ hereof, and the levy of any attachment or similar process
upon the Option that would otherwise effect a change in the ownership of
the Option, shall terminate the Option; provided, however, that in the
case of the involuntary levy of any attachment or similar involuntary
process upon the Option, Optionee shall have thirty (30) days after notice
thereof to cure such levy or process before the Option terminates. This
Agreement shall be binding on and enforceable against any person who is a
Permitted Transferee of the Option pursuant to the first sentence of this
Section.
6. Effect of Merger; Adjustments.
-----------------------------
(a) In the event of an Approved Sale that is a merger or other
form of corporate reorganization and notwithstanding any other provisions
of this Agreement, the unexercised portion of the Option shall be subject
to the terms of the agreement or plan of merger or reorganization effecting
such merger or reorganization and shall be converted, redeemed, exchanged,
canceled or otherwise treated as provided in such agreement or plan of
merger or reorganization, provided that Optionee shall be given at least 20
days' prior notice of the proposed merger or reorganization and shall
(notwithstanding anything else herein to the contrary) be entitled to
exercise the vested portion of the Option at any time during such 20 day
period up to and until the close of business on the day immediately
preceding the date of consummation of such merger or reorganization (which
exercise may be expressly contingent upon completion of the Approved Sale
if the unexercised portion of the Option were to vest as a result of such
sale being a Qualifying Approved Sale) and upon exercise of the Option the
Option Shares shall be treated in the same manner as the shares of any
other stockholder of Issuer.
(b) Subject to Section 6(a), in the event of any one or more
reorganizations, recapitalization, mergers, acquisitions, stock splits,
reverse stock splits, stock dividends or similar events, an appropriate
adjustment shall be made in the number and kind of shares or other
securities subject to the Option, and the Exercise Price for each Option
Share or other unit of any securities subject to this Agreement, in
accordance with Section 14 of the Plan. No fractional interests shall be
issued on account of any such adjustment unless the Committee (as defined
in the Plan) specifically determines to the contrary; provided, however,
that in lieu of fractional interests, Optionee, upon the exercise of the
Option in whole or part, shall receive cash in an amount equal to the
amount by which the Fair Market Value of such fractional interests exceeds
the Exercise Price attributable to such fractional interests.
<PAGE>
7. Exercise of the Option. Prior to the expiration thereof, Optionee
----------------------
may exercise the vested portion of the Option from time to time in whole or
in part. Upon electing to exercise the Option, Optionee shall deliver to
the Secretary of Issuer a written and signed notice of such election
setting forth the number of Option Shares Optionee has elected to purchase
and shall at the time of delivery of such notice tender cash or a cashier's
or certified bank check to the order of Issuer for the full Exercise Price
of such Option Shares and any amount required pursuant to Section 17
hereof. The Committee may, in its discretion, also permit payment of the
Exercise Price in such form or in such manner as may be permissible under
the Plan and under any applicable law.
8. Restrictions on Transfers of Option Shares. Subject to Section 9
------------------------------------------
hereof, prior to the earlier of (a) the termination of the Lock-Up Period
following an Initial Public Offering or (b) an Approved Sale, the Option
Shares shall not be transferable or transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) except
that Optionee may transfer the Option Shares (i) to a Permitted Transferee
or (ii) pursuant to Sections 4 or 5 of the Certificate of Designation. This
Agreement shall be binding on and enforceable against any person who is a
Permitted Transferee of the Option Shares except a person who acquires the
Option Shares pursuant to Section 4 of the Certificate of Designation. The
stock certificates issued to evidence Option Shares upon exercise of the
Option hereunder shall bear legends referring to this Agreement and the
restrictions contained herein.
9. Purchase of Option Shares.
-------------------------
(a) In the event that the Termination Date occurs for any reason prior
to an Initial Public Offering or an Approved Sale, subject to Section 9(b)
below, the Option Shares shall be subject to repurchase as follows:
(i) Issuer, during the sixty (60) days following the
Termination Date (the "Repurchase Period"), shall have a one-
time right to purchase all, but not less than all, of the Option
Shares.
(ii) If Issuer does not elect to purchase the Option Shares
during the Repurchase Period, than Shareholder, during the
thirty (30) days following the expiration of the Repurchase
Period (the "Second Repurchase Period"), shall have a one-time
right to purchase all, but not less than all, of the Option
Shares.
(iii) In the event that Optionee does not own any Option
Shares on the Termination Date, Issuer or Shareholder (as
applicable) may notify Optionee that Issuer or Shareholder (as
applicable) will purchase any Option Shares that Optionee may
thereafter become entitled to acquire upon the exercise of the
Option and shall set the Purchase Date (as hereinafter defined)
and shall purchase such Option Shares, if any, pursuant to the
terms of this Agreement.
(iv) The purchase price (the "Repurchase Price") for each
Option Share shall be the Fair Market Value. If Issuer or
Shareholder elects to purchase the Option shares, it shall
notify Optionee at or before the end of the Repurchase Period
or, in the
<PAGE>
case of Shareholder, the Second Repurchase Period, and the
Repurchase Price shall be paid in cash at a time set by Issuer or
Shareholder, as the case may be, which time shall be within
thirty (30) days after the end of the Repurchase Period or
Second Repurchase Period, as the case may be, provided that
Optionee has presented to Issuer or Shareholder an Endorsed
certificate.
(v) The Option Shares shall be transferred to Issuer or
Shareholder, as applicable, free and clear of all liens,
encumbrances, mortgages, pledges, security interests,
restrictions, prior assignments and claims of any kind or nature
whatsoever except hose created by the Certificate of Designation
or this Agreement. If Issuer or Shareholder does not purchase the
Option Shares, the restrictions on transfer thereof contained in
Sections 5 and 8 of this Agreement shall terminate and be of no
further force and effect; provided, however, that such Option
Shares shall remain subject to the provisions of Sections 4 and
5 of the Certificate of Designation. Notwithstanding Optionee's
failure to deliver the Endorsed Certificate, the Option Shares
represented thereby shall be deemed to be owned by Issuer or
Shareholder, as applicable, upon (A) the payment by Issuer or
Shareholder, as applicable, of the purchase price to Optionee or
his or her Permitted Transferee or (B) notice to Optionee or
such Permitted Transferee that Issuer or Shareholder, as
applicable, is holding the purchase price in the United States
for the account of Optionee or such Permitted Transferee, and
upon such payment or notice (x) Optionee and such Permitted
Transferee will have no further rights in or to such Option
Shares, (y) Issuer or Shareholder, as applicable, shall be
entitled to specific performance of Optionee's or such Permitted
Transferee's obligation to deliver such Endorsed Certificates,
and (z) Optionee and his or her Permitted Transferee shall be
jointly and severally liable for all reasonable attorneys' fees
and other costs and expenses incurred by Issuer or Shareholder,
as applicable, in enforcing its right to repurchase the Option
Shares hereunder and shall pay to Issuer or Shareholder, as
applicable, promptly upon demand the amount of all such fees and
expenses.
(vi) Optionee shall not be obligated to transfer any
Option Shares to Issuer or Shareholder, as applicable, unless,
concurrently with the repurchase of Option Shares hereunder,
Issuer or Shareholder, as the case may be, repurchases (A)
pursuant to Section 4 of the Stock Purchase Agreement dated as of
March 22, 1996 between Employee and Issuer, all of the Shares
(as defined therein), (B) pursuant to Section 4 of the Bonus
Stock Purchase Agreement dated as of March 22, 1996, between
Employee and Issuer, all of the Shares (as defined therein) and
(C) pursuant to Section 9 of the Anti-Dilution Stock Option
Agreement dated as of March 22, 1996, between Employee, as
Optionee, and Issuer, all of the Option Shares (as defined
therein).
(b) If Optionee's Termination Date occurs prior to an Initial Public
Offering or an Approved Sale due to Optionee's death, Disability or
Approved Retirement, or in the event of an Approved Sale (substituting 75%
for 50% in such definition) in which substantially all of the proceeds of
such Approved Sale are not reinvested in a similar or like business to the
manufacturing of bedding products within one (1) year of such Approved
Sale, Optionee or his or her representative shall have a one-time right to
require Issuer to purchase all, but not less than all, of the Option
shares at Fair Market Value, provided, that such right must be exercised
within
<PAGE>
one-hundred-eighty (180) days after the Termination Date, or, in the case
of an Approved Sale, the first anniversary of such Approved Sale. The
Repurchase Price shall be paid on the Put Date, which date shall be the
later of (i) the thirtieth (30th) day after issuer has received notice of
Optionee's election to exercise his or her put right, or (ii) the day that
Optionee presents to Issuer the endorsed Certificate, and shall be paid in
the form of cash or, at the option of Issuer in the event the purchase is
following Employee's death, disability or Approved Retirement, a
combination of an amount of cash equal to the Cost of the repurchased
Shares and the issuance of an Issuer Note the principal amount
of which is equal to the difference between the Repurchase
Price for the Shares and the Cost of the Shares, bearing
interest at a rate equal to the rate at which interest is calculated
at such time pursuant to the Revolving Credit Agreement,
provided that such rate shall in no event exceed ten percent (10%) per
annum, provided further that up to fifty percent (50%) of any interest
payment shall, at the option of the Issuer, be payable in additional
Issuer Notes of like tenor. All Issuer Notes shall mature on the earliest
to occur of (x) the third anniversary of the date on which the Issuer Note
is issued, (y) the sale of stock of the Issuer pursuant to an Initial
Public Offering, or (z) an Approved Sale. The Option Shares shall be
transferred to Issuer free and clear of all liens, encumbrances, mortgages,
pledges, security interests, restrictions, prior assignments and claims of
any kind or nature whatsoever except those created by the Certificate of
Designation or this Agreement. Notwithstanding anything to the contrary in
the foregoing, the Issuer's obligation to repurchase any of the Option
Shares shall be suspended if (i) such repurchase would render the Issuer
unable to meet its obligations in the ordinary course of business; (ii) the
Issuer is prohibited from doing so by applicable law restricting the
purchase by a corporation of its own shares; or (iii) such repurchase would
constitute a breach of or default or event of default under, or is
otherwise prohibited by, the terms of any loan agreement or other agreement
or instrument to which the Issuer or any of its Subsidiaries is a party,
any of such events constituting a "Repurchase Disability." In the event
of a Repurchase Disability, the Issuer shall repurchase the Option Shares
as soon as reasonably practicable after all Repurchase Disabilities cease
to exist (and the Issuer may also elect, but shall have no obligation, to
cause its nominee to repurchase such shares while any Repurchase
Disabilities continue to exist). In the event that the Issuer suspends its
obligation to repurchase Option Shares pursuant to a Repurchase Disability,
then, upon repurchase of the shares, the Issuer shall pay to Optionee or
his or her representative (as applicable) an additional amount equal to
interest on the original repurchase price calculated at the Applicable
Federal Rate (as set forth in Section 1274 of the Code or the Treasury
Regulations promulgated thereunder) from the date the repurchase would
have occurred but for such Repurchase Disability to (but not including)
the date such repurchase actually occurs.
(c) In the event an unvested portion of the Option becomes exercisable
pursuant to Section 4(b), for purposes of Sections 9(a) and 9(b), the
Repurchase Period shall commence as of the date notice of the Option's
exercisability is provided to Optionee.
(d) The Fair Market Value shall be determined in good faith by
Issuer's Board of Directors. If the Board determination is challenged by
Optionee, a mutually acceptable investment banker or appraiser shall
establish the Fair Market Value. If Optionee and Issuer cannot agree upon
an investment banker or appraiser each shall choose an investment banker
or appraiser and the two investment bankers or appraisers shall choose a
third investment banker or appraiser who alone shall establish the Fair
Market Value. The Fair Market Value shall be based
<PAGE>
on an assumed sale of 100% of the outstanding capital stock of Issuer
(without reduction for minority discount or lack of liquidity of the
Option Shares) and shall be determined using customary criteria generally
employed within the investment banking community at the time such
determination is made for valuing an entity similar to Issuer. The
investment banker's or appraiser's determination shall be conclusive and
binding on Shareholder, Issuer and Optionee. Issuer shall bear all costs
incurred in connection with the services of such investment banker or
appraiser unless the Fair Market Value established by the investment
banker or appraiser is (i) less than or equal to 110% of the Board of
Directors' determination, in which case Optionee shall promptly pay or
reimburse Issuer for such costs (less any amount paid by Optionee pursuant
to Section 4(c) of the Stock Purchase Agreement date as of March 22, 1996
among Shareholder, Issuer and Optionee (the "Stock Purchase Agreement"))
or (ii) greater than 110% but less than 125% of the Board of Directors'
determination, in which case Optionee shall promptly pay or reimburse
Issuer for 50% of such costs (less any amount paid by Optionee pursuant to
Section 4(c) of the Stock Purchase Agreement).
(e) For so long as Optionee or his or her Permitted Transferee owns
the Option Shares, Issuer agrees that it shall, upon the written request
of Optionee, provide Optionee with annual financial statements of Issuer
promptly upon the completion of the preparation of such statements. The
annual financial statements shall be accompanied by an audit report by
Issuer's independent accountants.
10. Compliance with Legal Requirements.
----------------------------------
(a) No Option Shares shall be issued or transferred pursuant to this
Agreement unless and until all legal requirements applicable to such
issuance or transfer have, in the opinion of counsel to Issuer, been
satisfied. Such requirements may include, but are not limited to,
registering or qualifying such Shares under any state or federal law,
satisfying any applicable law relating to the transfer of unregistered
securities or demonstrating the availability of an exemption from
applicable laws, placing a legend on the Option Shares to the effect that
they were issued in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), and may not be transferred
other than in reliance upon Rule 144 or Rule 701 promulgated under the
Act, if available, or upon another exemption from the Act, or obtaining
the consent or approval of any governmental regulatory body. Issuer shall
use its best efforts to comply with all legal requirements applicable to
the issuance or transfer of Option Shares.
(b) Optionee understands that Issuer intends for the offering and sale
of Option Shares to be effected in reliance upon Rule 701 or another
available exemption from registration under the Act and intends to file a
Form 701 as appropriate, and that Issuer is under no obligation to
register for resale the Option Shares issued upon exercise of the Option,
subject to Section 9 of the Certificate of Designation. In connection with
any such issuance or transfer, the person acquiring the Option Shares
shall, if requested by Issuer, provide information and assurances
satisfactory to counsel to Issuer with respect to such matters as Issuer
reasonably may deem desirable to assure compliance with all applicable
legal requirements. Issuer hereby covenants and agrees to register all of
the Option Shares on a Form S-8 (or any successor form thereto) following
the Initial Public Offering.
<PAGE>
11. Capitalizations, Exchanges Etc. Affecting Shares; Dilution.
----------------------------------------------------------
(a) The provisions of this Agreement shall apply to any and all shares
of capital Stock of Issuer or any successor or assign of Issuer that may be
issued in respect of, in exchange for, or in substitution of, the Option
Shares by reason of any stock dividend, stock split, stock issuance,
reverse stock split, combination, recapitalization, reclassification,
merger, consolidation or otherwise, other than an Approved Sale.
(b) Except as may be specifically provided herein or in the
Certificate of Designation, nothing herein shall prohibit or restrict
Issuer from taking any corporate action or engaging in any corporate
transaction of any kind, including, without limitation, the issuance and
sale of additional shares of capital stock of Issuer, any merger,
consolidation, liquidation or sale of assets, or create in Optionee or his
or her Permitted Transferee any rights to acquire or receive additional
shares of capital stock of Issuer or otherwise to be protected against
dilution.
12. Subject to Certificate of Designation. Optionee acknowledges that
-------------------------------------
the Option Shares are subject to the terms of the Certificate of
Designation.
13. No Interest in Shares Subject to Option. Neither Optionee
---------------------------------------
(individually or as a member of a group) nor any beneficiary or other
person claiming under or through Optionee shall have any right, title,
interest, or privilege in or to any shares allocated or reserved for the
purpose of the Plan or subject to this Agreement except as to such Option
Shares, if any, as shall have been issued to such person upon exercise of
this Option or any part of it.
14. Plan Controls. The Option hereby granted is subject to, and Issuer
-------------
and Optionee agree to be bound by, all of the terms and conditions of the
Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option
without Optionee's consent insofar as it may adversely affect Optionee's
rights under this Agreement.
15. Not an Employment Contract. Nothing in the Plan, in this Agreement
--------------------------
or any other Instrument executed pursuant thereto shall confer upon
Optionee any right to continue in the employ of Employer or any Subsidiary
or shall affect the right of Employer or any Subsidiary to terminate the
employment of Optionee with or without Cause.
16. Governing Law. All terms of and rights under this Agreement shall
-------------
be governed by and construed in accordance with the internal law of the
State of New York, without giving effect to principles of conflicts of
law.
17. Taxes. The Committee may, in its discretion, make such provisions
-----
and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local and other taxes required by law
to be withheld with respect to the issuance or exercise of the Option
including, but not limited to, deducting the amount of any such
withholding taxes from any other amount then or thereafter payable to
Optionee, requiring Optionee to pay to Issuer the amount required to be
withheld or to execute such documents as the Committee deems necessary or
desirable to enable it to satisfy its withholding obligations, or any
other means provided in the
<PAGE>
Plan. Optionee shall have the right to satisfy the withholding obligation
in whole or in part by the delivery of shares of the Issuer previously
issued to Optionee or by the withholding of the delivery of Option Shares
otherwise to be received upon the Option exercise.
18. Notices. All notices, requests, demands and other communications
-------
pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given if personally delivered, telexed or telecopied to, or, if
mailed, when received by, the other party, if to Issuer at its principal
executive offices addressed to the attention of Issuer's Secretary, and if
to Optionee at his or her address as it appears on the books of his or her
employer (or at such other address as shall be given in writing by
Optionee or his or her Permitted Transferee to Issuer).
19. Amendments and Waivers. This Agreement may be amended and any
----------------------
provision hereof may be waived, only by a writing signed by the party to
be charged.
20. Entire Agreement. This Agreement, together with the Plan, sets
----------------
forth the entire agreement and understanding between the parties as to the
subject matter hereof and supersedes all prior oral and written and all
contemporaneous oral discussions, agreements and understandings of any
kind or nature.
21. Headings.The headings preceding the text of the sections
--------
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
22. Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement.
23. Arbitration. The parties shall endeavor to settle all disputes by
-----------
amicable negotiations. Except as otherwise provided in Section 9(d)
hereof, any claim, dispute, disagreement or controversy that arises among
the parties relating to this Agreement that is not amicably settled shall
be resolved by arbitration, as follows:
(a) Any such arbitration shall be heard in The City of New York, New
York, before a panel consisting of one (1) to three (3) arbitrators, each
of whom shall be impartial. Upon the written Request for Arbitration by
either party hereto to commerce arbitration hereunder, the parties shall
attempt to mutually agree as to the number and identity of the arbitrators
within thirty (30) days of such Request. Except as the parties may
otherwise agree, all arbitrators (if not selected by the parties hereto
within thirty (30) days of a written Request for Arbitration) shall be
appointed pursuant to the commercial arbitration rules of the American
Arbitration Association. In determining the number and appropriate
background of the arbitrators, the appointing authority shall give due
consideration to the issues to be resolved, but his or her decision as
to the number of arbitrators and their identity shall be final.
(b) An arbitration may be commenced by any party to this Agreement by
the service of a written request for arbitration upon the other affected
parties. Such request for arbitration shall summarize the controversy or
claim to be arbitrated.
<PAGE>
(c) All attorneys' fees and costs of the arbitration shall in the
first instance be borne by the respective party incurring such costs and
fees, but the arbitrators shall award costs and attorneys' fees to the
prevailing party. The parties hereby expressly waive punitive damages, and
under no circumstances shall an award contain any amount that in any way
reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to
arbitration under this Section 23 shall remain confidential, and to that
end it is agreed by the parties that neither the facts disclosed in the
arbitration, the issues arbitrated, nor the views or opinions of any
persons concerning them, shall be disclosed to third persons at any time,
except to the extent necessary to enforce an award or judgment or as
required by law or in response to legal process or in connection with such
arbitration.
(f) Any arbitration under this Section 23 shall be conducted pursuant
to the commercial arbitration rules of the American Arbitration
Association.
24. Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective permitted
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
SIMMONS HOLDINGS, INC.
By:_________________________
Name:_______________________
Title:______________________
----------------------------
Name:
FORM OF BONUS STOCK PURCHASE AGREEMENT BETWEEN SIMMONS HOLDINGS, INC. AND
ZENON S. NIE; MARTIN R. PASSAGLIA; JONATHAN C. DAIKER; LEE AYERS; JOSEPH ULICNY;
ROBERT K. BARTON; GARY G. PLEASANT; CLEVE B. MURPHY; JAMES P. MAHER; AND LEO
T. BRENNAN; AND ROGER D. FRANKLIN, DATED AS OF MARCH 22, 1996.
<PAGE>
BONUS STOCK PURCHASE AGREEMENT
THIS BONUS STOCK PURCHASE AGREEMENT (this "Agreement") is made
effective as of March 22, 1996 (the "Effective Date") between Simmons Holdings,
Inc., a Delaware corporation (the "Issuer") and ("Employee").
----------------
R E C I T A L S
A. Employee is an employee of Simmons Company, a Delaware corporation
("Employer"), and desires to acquire an equity interest in Issuer.
B. Issuer is willing to sell to Employee shares of Class C Stock, par
value $.01 per share ("Class C Stock"), of Issuer, subject to the terms and
conditions of this Agreement.
AGREEMENTS
1. Definitions. Capitalized terms used herein shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended.
"Affiliate" means, with respect to any Person, any other
Person which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person. For purposes of the definition,
"control" of a Person shall mean the power, directly or indirectly, (i) to vote
fifty percent (50%) or more of the securities having ordinary voting power for
the election of directors of such Person whether by ownership of securities,
contract, proxy or otherwise or (ii) to direct or cause the direction of
management and policies of such Person whether by ownership of securities,
contract, proxy or otherwise.
"Agreement" means this Stock Purchase Agreement.
"Approved Retirement" means the retirement of Employee on or
after his sixty-fifth (65th) birthday or, if earlier, either for Good Reason or
approved by the Board of Directors of Issuer.
"Approved Sale" means a transaction or series of related
transactions which results in a bona fide, unaffiliated change of beneficial
ownership of Employer or its business of greater that 50% (disregarding for this
purpose any disparate voting rights attributable to the outstanding stock of
Issuer), whether pursuant to the sale of the stock of Employer of Issuer, the
sale of the assets of Employer, or a merger or consolidation involving Employer
or Issuer.
"Cause" when used in connection with the termination of
employment of Employee, means (i) the conviction for the commission of, or a
plea of guilty or nolo contendere made by Employee in response to a charge
involving, a felony or a crime involving moral turpitude, (ii) the embezzlement
or misappropriation of fund or property of Issuer, Employer or
<PAGE>
any Subsidiary, (iii) the continued use of alcohol or drugs to an extent which,
consistent with the Substance Abuse Policy of Employer adopted October 14, 1994,
results in Employee's Termination, (iv) the intentional, unauthorized disclosure
of proprietary information or confidential records of Issuer, Employer or
any Subsidiary of (v) the willful failure or refusal to perform (unless for Good
Reason) those duties reasonably assigned or delegated to Employee by the Board
of Directors of Employer which failure or refusal continues following (A) the
Board of Directors giving Employee written notice setting forth the facts or
events constituting such failure or refusal and (B) a reasonable opportunity to
correct the deficiencies or other problems specified in such notice to the
reasonable satisfaction of such Board.
"Certificate of Designation" means the Certificate of
Designation of Issuer setting forth, inter alia, the rights, preferences and
privileges of and restrictions on the Class A Stock, the Class C Stock, the
Class D Stock and the Common Stock of Issuer.
"Class C Stock" is defined in recital B.
"Cost" equals $2.6592, subject to adjustment pursuant to
Section 10.
"Disability" means that Employee becomes physically or
mentally incapacitated or disabled so that he or she is unable to perform for
Employer or a Subsidiary substantially the same services as he or she performed
prior to incurring such incapacity or disability or to devote his or her full
working time or use his or her best efforts to advance the business and welfare
of Employer or a Subsidiary for an aggregate period of six months during any 12
month period.
"Effective Date" is defined in the preamble.
"Employee" is defined in the preamble.
"Employer" is defined in recital A.
"Endorsed Certificate" means a stock certificate evidencing
the shares properly endorsed for transfer, or, in the alternative, an
appropriate certification as to the lost, stolen or missing status of such stock
certificate.
"Fair Market Value" means the value of a Share, as of the
Termination Date, determined pursuant to Section 4(c).
"Fiscal Year" means the fiscal year of Issuer.
"Good Reason" means (i) the assignment to Employee of any
duties inconsistent with Employee's position (including status, offices, titles
and reporting requirements), (ii) a demotion in the job title of Employee (iii)
a reduction in the compensation paid to Employee, unless such reduction is
comparable to an across-the-board reduction applicable to all senior management
employees of Employer due to adverse business circumstances, (iv) a request of
Employee to relocate his office to a distance of greater than seventy-five (75)
miles from the present site of his office, or (v) any other action by Employer
which results in a material diminution in the position, authority, duties or
responsibilities of Employee.
2
<PAGE>
"Initial Public offering" means the effectiveness of a
registration statement under the Act covering any of the capital stock of Issuer
or Employer (other than preferred stock that is not convertible into common
stock) and the completion of a sale of such stock thereunder, if as a result of
such sale (i) the issuer becomes a reporting company under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is
traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the Nasdaq Stock market or is traded or quoted on any other national
stock exchange or securities system.
"Issuer" is defined in the preamble.
"Issuer Note" is defined in Section 4(a).
"Lock-Up Period" means, in the case of an Initial Public
Offering, the 180-day period commencing on the effective date of the
registration statement covering capital stock of Issuer of Employer sold in such
Initial Public Offering, and, in the case of any subsequent registered offering,
the 90-day period commencing on the effective date of the registration statement
relating to such offering, or, in either case, such lesser period as maybe
agreed upon with the underwriters of such offering.
"Permitted Transferee" is defined in Section 3.
"Person" means any natural person, partnership, corporation, trust or
incorporated organization.
"Repurchase Period" is defined in Section 4(a).
"Repurchase Price" is defined in Section 4(a).
"Second Repurchase Period" is defined in Section 4(a).
"Shareholder" means SH Equity Limited, a Cayman Islands company.
"Shares" is defined in Section 2.
"Subsidiary" means any joint venture, corporation, partnership,
or other entity as to which Issuer or Employer, whether directly or indirectly,
has more than 50% of the (i) voting rights or (ii) rights to capital or profits.
"Termination Date" means the date on which Employee ceases to
be employed by Employer or any Affiliate of Employer for any reason; provided,
however, that Employee shall not be considered to have ceased to be employed by
Employer or any Affiliate of Employer if he or she continues to be employed by
Employer or any Subsidiary.
2. Purchase and Sale of Shares. On the terms and subject to
the condition hereof, Issuer hereby sells and transfers to Employee
----------
shares of Class C Stock (the "Shares") in consideration of the payment by
Employee to Issuer of , receipt of which is hereby acknowledged by
------
Issuer.
3
<PAGE>
3. Restrictions on Transfers of Shares. Subject to Section 4 hereof,
prior to the earlier of (i) the termination of the Lock-Up Period following an
Initial Public Offering or (ii) an Approved Sale, the Shares shall not
be transferable or transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) except that Employee may transfer the
Shares (i) to his or her spouse, child, estate, personal representative, heir or
successor or to a trust for the benefit of Employee or his or her spouse, child
or heir (a "Permitted Transferee") or (ii) pursuant to Sections 4 or 5 of the
Certificate of Designation. This Agreement shall be binding on and enforceable
against any person who is a Permitted Transferee of the Shares except a person
who acquires the Shares pursuant to Section 4 of the Certificate of Designation.
The stock certificates issued to evidence Shares hereunder shall bear a legend
referring to this Agreement and the restrictions contained herein.
4. Repurchase of Shares.
(a) In the event that Employee's Termination Date occurs for
any reason prior to an Initial Public offering or an Approved Sale, the Shares
shall be subject to repurchase as follows:
(i) Issuer shall, during the sixty (60) days
following the Termination Date (the "Repurchase Period"), have a one-time right
to purchase all, but not less than all, of the Shares.
(ii) If Issuer does not elect to purchase the Shares
during the Repurchase Period, then Shareholder, during the thirty (30) days
following the expiration of the Repurchase period (the "Second Repurchase
Period"), shall have a one-time right to purchase all, but not less than all,
of the Shares.
(iii) The purchase price for each Share shall be the
$.01, or, if Employee is terminated without Cause, of if Employee's Termination
Date occurs due to Employee's death, Disability or Approved Retirement, Fair
Market Value.
(iv) If Issuer or Shareholder elects to purchase the
Shares, Issuer or Shareholder (as applicable) shall notify Employee of Such
election at or before the end of the Repurchase Period or, in the case of
Shareholder, the Second Repurchase Period, and the Repurchase Price shall be
paid in cash at a time set by Issuer or Shareholder, as the case may be, which
time shall be within thirty (30) days after the end of the Repurchase Period or
the Second Repurchase Period, as the case may be, provided in either case that
Employee has presented to Issuer or Shareholder a stock certificate evidencing
the shares properly endorsed for transfer (the "Endorsed Certificate").
(v) The Shares shall be transferred to the Issuer or
Shareholder, as applicable, free and clear of all liens, encumbrances,
mortgages, pledges, security interests, restrictions, prior assignments and
claims of any kind or nature whatsoever except those created by the Certificate
of Designation of this Agreement.
4
<PAGE>
(vi) Employee shall not be obligated to transfer any
Shares to Issuer or Shareholder, as applicable, unless, concurrently with the
repurchase of Shares hereunder, Issuer or Shareholder, as the case may be,
repurchases (A) pursuant to Section 4 of the Stock Purchase Agreement dated as
of March 22, 1996 between Employee and Issuer, all of the Shares (as defined
therein), (B) pursuant to Section 9 of the Stock Option Agreement dated as of
March 22, 1996, between Employee, as Optionee, and issuer, all of the Option
shares (as defined therein), and (C) pursuant to Section 9 of the Anti-Dilution
Stock Option Agreement dated as of March 22, 1996, between Employee, as
Optionee, and Issuer, all of the Option Shares (as defined therein).
Notwithstanding Employee's failure to deliver the Endorsed
Certificate, the Shares represented thereby shall be deemed to be owned by
Issuer or Shareholder, as applicable, upon (A) the payment by Issuer or
Shareholder, as applicable, of the purchase price to Employee or his or her
Permitted Transferee or (B) notice to Employee or his or her Permitted
Transferee that Issuer or Shareholder, as applicable, is holding in the United
States the purchase price for the account of Employee or such Permitted
Transferee, and upon such payment or notice (x) Employee and such Permitted
Transferee will have no further rights in such Shares, (y) Issuer or
Shareholder, as applicable, shall be entitled to specific performance of
Employee's or such Permitted Transferee's obligation to deliver such Endorsed
Certificate and (z) Employee and his or her Permitted Transferee shall be
jointly and severally liable for all reasonable attorney's fees and other costs
and expenses incurred by Issuer or Shareholder, as applicable, in enforcing its
right to repurchase Shares hereunder and shall pay to Issuer or Shareholder , as
applicable, promptly upon demand the amount of all such fees and expenses. If
Issuer or Shareholder does not purchase the Shares pursuant to this Section
4(a), the restrictions on transfer thereof contained in Section 3 of this
Agreement shall terminate and be of no further force and effect; provided,
however, that such Shares shall remain subject to the provisions of Sections 4
and 5 of the Certificate of Designation.
(b) If Employee's Termination Date occurs prior to an Initial
Public Offering or an Approved Sale due to Employee's death, Disability or
Approved Retirement, or in the event of an Approved Sale (substituting 75% for
50% in such definition) in which substantially all of the proceeds of such
Approved Sale are not reinvested in a similar or like business to the
manufacturing of bedding products within one (1) year of such Approved Sale,
Employee or his or her representative shall have a one-time right to require
Issuer to purchase all, but not less than all, of the Shares at Fair Market
Value, provided that such right must be exercised within one-hundred-eighty
(180) days after the Termination Date, or in the case of an Approved Sale, the
first anniversary of such Approved Sale. The Repurchase Price shall be paid in
the form of cash or, at the option of Issuer in the event the purchase is
following Employee's death, disability or Approved Retirement, a combination of
an amount of cash equal to the Cost of the repurchased Shares and the issuance
of an Issuer Note the principal amount of which is equal to the difference
between the Repurchase Price for the Shares and the Cost of the Shares, bearing
interest at a rate equal to the rate at which interest is calculated at such
time pursuant to the Revolving Credit Agreement, provided that such rate shall
in no event exceed 10 percent (10%) per annum, provided further that up to
fifty percent (50%) of any interest payment shall, at the option of the Issuer,
be payable in additional Issuer Notes of like tenor. All such Issuer Notes shall
mature on the earliest to occur of (x) the third anniversary of the date on
which the Issuer Note is issued, (y)
5
<PAGE>
the sale of stock of the Issuer pursuant to an Initial Public Offering, or (z)
an Approved Sale. The Repurchase Price shall be paid on the Put Date, which date
shall be the later of (i) the thirtieth (30th) day after Issuer has received
notice of Employee's election to exercise his or her put right, or (ii) the day
that Employee presents to Issuer the Endorsed Certificate. The Shares shall be
transferred to Issuer free and clear of all liens, encumbrances, mortgages,
pledges, security interests, restrictions, prior assignments and claims of any
kind or nature whatsoever except those created by the Certificate of Designation
or this Agreement. Notwithstanding anything to the contrary in the foregoing,
the Issuer's obligation to repurchase any of the Shares shall be suspended if
(i) such repurchase would render the Issuer unable to meet its obligations in
the ordinary course of business; (ii) the Issuer is prohibited from doing so by
applicable law restricting the purchase by a corporation of its own shares; or
(iii) such repurchase would constitute a breach of or default or event of
default under, or is otherwise prohibited by, the terms of any loan agreement or
other agreement or instrument to which the Issuer or any of its Subsidiaries is
a party, any of such events constituting a "Repurchase Disability." In the event
of a Repurchase Disability the Issuer shall repurchase the Shares as soon as
reasonably practicable after all Repurchase Disabilities cease to exist (and the
Issuer may also elect, but shall have no obligation, to cause its nominee to
repurchase such shares while any Repurchase Disabilities continue to exist). In
the event that the Issuer suspends its obligation to repurchase Shares pursuant
to a Repurchase Disability, then, upon repurchase of the shares, the Issuer
shall pay to Employee or his or her representative (as applicable) an additional
amount equal to interest on the original repurchase price calculated at the
Applicable Federal Rate (as set forth in Section 1274 of the Code or the
Treasury Regulations promulgated thereunder) from the date the repurchase would
have occurred but for such Repurchase Disability to (but not including) the date
such repurchase actually occurs.
(c) The Fair Market Value shall be determined in good faith by
Issuer's Board of Directors. If the Board determination is challenged by
Employee, a mutually acceptable investment banker or appraiser shall establish
the Fair Market Value. If Employee and Issuer cannot agree upon an investment
banker or appraiser and the two investment bankers or appraisers shall choose a
third investment banker or appraiser who alone shall establish the Fair Market
Value. The Fair Market Value shall be based on an assumed sale of 100% of the
outstanding capital stock of Issuer (without reduction for minority discount or
lack of liquidity of the Shares) and shall be determined using customary
criteria generally employed within the investment banking community at the time
such determination is made for valuing an entity similar to Issuer. The
investment banker's or appraiser's determination shall be conclusive and binding
on Shareholder, Issuer and Employee. Issuer shall bear all costs incurred in
connection with the services of such investment banker or appraiser unless the
Fair Market Value established by such investment banker or appraiser is (i) less
than or equal to 110% of the Board of Directors' determination, in which case
Employee shall promptly pay or reimburse Issuer for such costs or (ii) greater
than 110% but less than 125% of the Board of Directors' determination, in which
case Employee shall promptly pay or reimburse Issuer or such costs or (ii)
greater than 110% but less than 125% of the Board of Directors' determination,
in which case Employee shall promptly pay or reimburse Issuer for 50% of such
costs.
(d) For so long as Employee or his or her Permitted Transferee
owns the Shares, Issuer agrees that it shall, upon the written request of
Employee, provide Employee with annual financial statements of Issuer promptly
upon the completion of the preparation of such
6
<PAGE>
statements. Such annual financial statements shall be accompanied by an audit
report by Issuers' independent accountants.
5. Representations and Covenants of Issuer. Issuer represents and
warrants to Employee as follows:
(a) Issuer is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware.
(b) Issuer has full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated herein. This Agreement is a valid and binding
agreement of Issuer, enforceable against Issuer in accordance with its terms
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization moratorium or similar laws of general application relating to or
affecting creditors' rights, and for the limitations imposed by general
principles of equity.
(c) Issuer is the lawful record and beneficial owner of all of
the Shares and is hereby transferring the Shares being purchased hereunder to
Employee free and clear of all liens, encumbrances, mortgages, pledges, security
interests, restrictions, prior assignments and claims of any kind or nature
whatsoever, except those created by the Certificate of Designation or this
Agreement.
6. Representations, Acknowledgements and Covenants of Employee.
(a) Employee hereby represents and warrants to Issuer as
follows:
(i) Employee is acquiring the Shares for investment for his or
her own account and without a view to further distribution of the Shares.
(ii) Employee is either (A) an executive officer (as defined
in Rule 501 promulgated under the Act) of Employer or (B) has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the Shares.
(iii) Employee is solely responsible for making his or her own
independent decision to make an investment in the Shares and is under no express
or implied obligation to Employer or Issuer to acquire the Shares.
(b) Employee hereby acknowledges to Issuer as follows:
(i) The Shares are being transferred to Employee without
registration under the Act pursuant to exemptions from registration thereunder.
Employee cannot transfer the Shares except pursuant to an effective registration
statement or an exemption from registration under the Act.
(ii) The Shares are nonvoting in the election of directors and
certain other matters and are subject to the terms and restrictions of the
Certificate of Designation.
7
<PAGE>
(c) If (i) the Board of Directors of Issuer determines pursuant
to Section 9 of the Certificate of Designation that the Initial Public Offering
shall include a secondary offering of outstanding shares of stock of Issuer and
(ii) the managing underwriter, if any, of such Initial Public Offering is of the
opinion that the inclusion of shares of stock held by officers and employees of
Employer and its Subsidiaries may adversely affect the success of such offering,
Employee hereby covenants and agrees that in such event he or she will not elect
to include any Shares in such offerings. Employee further acknowledges and
agrees that shares of stock of Issuer held by stockholders that are neither
officers nor employees of Employer or a Subsidiary may be included in the
Initial Public Offering to the extent such inclusion would not adversely affect
the success of such offering despite the exclusion from such offering of shares
held by Employee or other stockholders who are officers or employees of Employer
or a Subsidiary.
7. Governing Law. All terms of and rights under this Agreement
shall be governed by and construed in accordance with the internal law of the
State of New York, without giving effect to principles of conflicts of law.
8. Notices. All notices, requests, demands and other communications
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given if personally delivered, telexed or telecopied to, or, if mailed,
when received by, the other party, if to Issuer at its principal executive
offices, addressed to the attention of Issuer's Secretary; if to Shareholder at
its principal executive offices, addressed to the attention of Shareholder's
Secretary; and if to Employee at his or her address as it appears on the books
of his or her employer (or at such other address as shall be given in writing by
Employee or his or her Permitted Transferee to Issuer).
9. Amendments and Waivers. This Agreement may be amended, and any
provision hereof may be waived, only by a writing signed by the party to be
charged.
10. Capitalizations, Exchanges, Etc. Affecting Shares; Adjustment of
Cost; Dilution.
(a) The provisions of this Agreement shall apply to any and all
shares of capital stock of Issuer or any successor or assign of Issuer that may
be issued in respect of, in exchange for, or in substitution of, the Shares by
reason of any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise, other than an Approved Sale.
(b) In the event of any reorganization, stock dividend, stock
split, stock issuance, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation or similar event, other than an Approved
Sale, as a result of which Employee holds a lesser or greater number of Shares
and/or other securities, the Cost of a Share or other security shall be
appropriately adjusted, provided that the aggregate Cost of all Shares and
securities held by Employee immediately after such event shall remain equal to
the aggregate Cost of all Shares held by Employee immediately prior to such
event.
(c) Except as specifically provided in the Certificate of
Designation, nothing herein shall prohibit or restrict Issuer from taking any
corporate action or engaging in any corporate transaction of any kind,
including, without limitation, the issuance and sale of additional
8
<PAGE>
shares of capital stock of Issuer or any merger, consolidation, liquidation or
sale of assets, or create in Employee or his or her Permitted Transferee any
rights to acquire or receive additional shares of capital stock of Issuer or
otherwise be protected against dilution.
11. Legends. All certificates representing the Shares shall, in
addition to other legends that may be required by state or federal securities
laws, bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE AND MAY BE REOFFERED AND SOLD ONLY IF
SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
"THESE SECURITIES ARE SUBJECT TO MANDATORY REDEMPTION BY THE CORPORATION.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES
AND/OR RIGHTS."
"THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCK
PURCHASE AGREEMENT, DATED EFFECTIVE AS OF MARCH 22, 1996, BY AND BETWEEN
THE CORPORATION AND THE STOCKHOLDER WHICH, AMONG OTHER THINGS,
SUBSTANTIALLY RESTRICTS THE TRANSFERABILITY OF THE SECURITIES. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION. THE
SALE, TRANSFER, OTHER DISPOSITION, AND VOTING OF THE SECURITIES ARE SUBJECT
TO THE TERMS OF SUCH AGREEMENT AND THESE SECURITIES ARE TRANSFERABLE ONLY
UPON PROOF TO THE CORPORATION OF COMPLIANCE THEREWITH."
12. Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter
hereof and supersedes all prior oral and written and all contemporaneous oral
discussions, agreements and understandings of any kind or nature.
13. Headings. The headings preceding the text of the sections
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
14. Further Assurances. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out
the provisions and purposes of this Agreement.
15. Not An Employment Contract. Nothing in this Agreement or any
other instrument executed pursuant hereto shall confer upon Employee any right
to continue in the employ of
9
<PAGE>
Employer or any Subsidiary or shall affect the right of Employer or any
Subsidiary to terminate the employment of Employee with or without Cause.
16. Arbitration. The parties shall endeavor to settle all disputes
by amicable negotiations, Except as otherwise provided in Section 4(c) hereof,
any claim, dispute, disagreement or controversy that arises among the parties
relating to this Agreement that is not amicably settled shall be resolved by
arbitration, as follows:
(a) Any such arbitration shall be heard in The City of New York,
New York, before a panel consisting of one (1) to three (3) arbitrators,
each of whom shall be impartial. Upon the written Request of Arbitration by
either party hereto to commence arbitration hereunder, the parties shall attempt
to mutually agree as to the number and identity of the arbitrator(s) within
thirty (30) days of the date of such Request. Except as the parties may
otherwise agree, all arbitrators (if not selected by the parties hereto within
thirty (30) days of written Request for Arbitration) shall be appointed
pursuant of the commercial arbitration rules of the American Arbitration
Association. In determining the number and appropriate background of the
arbitrators, the appointing authority shall give due consideration to the issues
to be resolved, but his or her decision as to the number of arbitrators and
their identity shall be final.
(b) An arbitration may be commenced by any party to this
Agreement by the service of a written Request for Arbitration upon the other
affected parties. Such Request for Arbitration shall summarize the controversy
or claim to be arbitrated.
(c) All attorney's fees and cost of the arbitration shall in
the first instance be borne by the respective party incurring such costs and
fees, but the arbitrators shall award costs and attorney's fees to the
prevailing party. The parties hereby expressly waive punitive damages, and under
no circumstances shall an award contain any amount that in any way reflects
punitive damages.
(d) Judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to
arbitration under this Section 16 shall remain confidential, and to that end it
is agreed by the parties that neither the facts disclosed in the arbitration,
the issues arbitrated, nor the views or opinions of any persons concerning them,
shall be disclosed to third persons at any time, except to the extent necessary
to enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
(f) Any arbitration under this Section 16 shall be conducted
pursuant to the commercial arbitration rules of the American Arbitration
Association.
17. Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective permitted successors and
assigns.
10
<PAGE>
IN WITNESS WHEREOF, this Agreement is made effective as of the date
first above written.
SIMMONS HOLDINGS, INC
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
------------------------------
Name:
11
EXHIBIT 10.17
FORM OF ANTI-DILUTION STOCK OPTION AGREEMENT ENTERED INTO
BETWEEN SIMMONS HOLDINGS, INC. AND ZENON S. NIE; MARTIN R.
PASSAGLIA; JONATHAN C. DAIKER; LEE AYERS; JOSEPH ULICNY; ROBERT K.
BARTON; GARY G. PLEASANT; CLEVE B. MURPHY; JAMES P. MAHER; AND LEO
T. BRENNAN; AND ROGER D. FRANKLIN, DATED AS OF MARCH 22, 1996
<PAGE>
ANTI-DILUTION STOCK OPTION AGREEMENT
THIS ANTI-DILUTION STOCK OPTION AGREEMENT (this "Agreement") is made
effective as of March 22, 1996 (the "Effective Date"), between Simmons Holdings,
Inc., a Delaware corporation ("Issuer"), and ___________ ("Optionee").
RECITALS
A. Issuer has adopted the Simmons 1996 Management Stock Incentive
Plan (the "Plan"), a copy of which is attached hereto as Exhibit 1.
B. Issuer desires to grant Optionee the opportunity to acquire a
proprietary interest in Issuer to encourage Optionee's contribution to the
success and progress of Issuer and Simmons Company, a Delaware corporation
("Employer").
C. In accordance with the Plan, the Committee (as defined in the
Plan) has as of the Effective Date granted to Optionee a non-qualified stock
option to purchase shares of class C Stock, $.01 par value, of Issuer (the
"Class C Stock") subject to the terms and conditions of the Plan and this
Agreement.
AGREEMENTS
1. Definitions. Capitalized terms used herein shall have the
-----------
following meanings:
"Act" is defined in Section 10.
"Affiliate" means, with respect to any Person, any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person. For purposes of this definition, "control" of
a Person shall mean the power, directly or indirectly, (i) to vote fifty
percent (50%) or more of the securities having ordinary voting power for the
election of directors of such Person whether by ownership of securities,
contract, proxy or otherwise; or (ii) to direct or cause the direction of
management and policies of such person whether by ownership of securities,
contract, proxy or otherwise.
"Agreement" means this Stock Option Agreement.
"Approved Retirement" means the retirement of Optionee on or
after his sixty-fifth (65th) birthday or, if earlier, either for Good Reason or
approved by the Board of Directors of Issuer.
"Approved Sale" means a transaction or a series of related
transactions which results in a bona fide, unaffiliated change of beneficial
---------
ownership of Employer or its business of greater than 50% (disregarding for
this purpose any disparate voting rights attributable to the
<PAGE>
outstanding stock of Issuer), whether pursuant to the sale of the stock of
Employer or Issuer, the sale of the assets of Employer, or a merger or
consolidation involving Employer or Issuer.
"Cause," when used in connection with the termination of
employment of Optionee, means (i) the conviction for the commission of, or a
plea of guilty or nolo contendere made by Optionee in response to a charge
---------------
involving, a felony or a crime involving moral turpitude, (ii) the embezzlement
or misappropriation of funds or property of Issuer, Employer or any Subsidiary,
(iii) the continued use of alcohol or drugs to an extent which, consistent with
the Substance Abuse Policy of Employer adopted October 14, 1994, would result
in Optionee's Termination, (iv) the intentional, unauthorized disclosure of
proprietary information or confidential records of Issuer, Employer or any
Subsidiary or (v) the willful failure or refusal to perform (unless for Good
Reason) those duties reasonably assigned or delegated to Optionee by the Board
of Directors of Employer which failure or refusal continues following (A) the
Board of Directors giving Optionee written notice setting forth the facts or
events constituting such failure or refusal and (B) a reasonable opportunity to
correct the deficiencies or other problems specified in such notice to the
reasonable satisfaction of such Board.
"Certificate of Designation" means the Certificate of
Designation of Issuer setting forth, inter alia, the rights, preferences and
privileges of and restrictions on the Class A Stock, the Class C Stock, the
Class D Stock and the Common Stock of Issuer.
"Class C Stock" is defined in recital C.
"Disability" means that Optionee becomes physically or mentally
incapacitated or disabled so that he or she is unable to perform for Employer
or a Subsidiary substantially the same services as he or she performed prior to
incurring such incapacity or disability or to devote his or her full working
time or use his or her best efforts to advance the business and welfare of
Employer or a Subsidiary for an aggregate period of six months during any 12
month period.
"EBITDA" is defined in Section 3(a).
"Effective Date" is defined in the preamble.
"Employer" is defined in recital B.
"Endorsed Certificate" means a stock certificate evidencing the
shares properly endorsed for transfer, or, in the alternative, an appropriate
certification as to the lost, stolen or missing status of such stock
certificate.
"Exercise Price" is defined in Section 2.
"Fair Market Value" means the value of a Share, as of the
Termination Date, calculated pursuant to Section 9(d).
"Fiscal Year" means the fiscal year of Issuer.
<PAGE>
"Good Reason" means (i) the assignment to Optionee of any duties
inconsistent with Optionee's position (including status, offices, titles and
reporting requirements), (ii) a ~demotion in the job title of Optionee, (ii) a
reduction in the compensation paid to Optionee, unless such reduction is
comparable to an across-the-board reduction applicable to all senior management
employees of Employer due to adverse business circumstances, (iv) a request of
Optionee to relocate his office to a distance of greater than seventy-five (75)
miles from the present site of his office, or (v) any other action by Employer
which results in a material diminution in the position, authority, duties or
responsibilities of Optionee.
"Initial Public Offering" means the effectiveness of a
registration statement under the Act covering any of the capital stock of Issuer
or Employer (other than preferred stock t~hat is not convertible into common
stock) and the completion of a sale of such stock thereunder, if as a result of
such sale (i) the issuer becomes a reporting company under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is
traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the Nasdaq Stock Market or is traded or quoted on any other national
stock exchange or securities system.
"Initial Stockholders" means the stockholders of Issuer, other
than stockholders who are natural persons and who also are management employees
of Employer, that purchased shares of Issuer upon the closing of the acquisition
of Employer by Issuer and their Permitted Transferees.
"Issuer" is defined in the preamble.
"Issuer Note" is defined in Section 9(a).
"Lock-Up Period" means, in the case of an Initial Public
Offering, the 180-day period commencing on the effective date of the
registration statement covering capital stock of Issuer or Employer sold in
such Initial Public Offering, and, in the case of any subsequent registered
offering, the 90-day period commencing on the effective date of the
registration statement relating to such offering, or, in either case, such
lesser period as may be agreed upon with the underwriters of such offering.
"OIO Exercise" is defined in Section 3.
"Option" is defined in Section 2.
"Optionee" is defined in the preamble.
"Option Shares" is defined in Section 2.
"Original Investor Option" means the option granted to an
Affiliate of Investcorp S.A., a Luxembourg corporation, to acquire 1,731,690
shares of Class C stock of Holdings at a price per share of $3.57.
<PAGE>
"Performance Stock Option Agreement" means the Stock Option
Agreement between Optionee and Issuer dated as of March 22, 1996, pursuant to
which the Optionee was granted an option to acquire stock of the Issuer at a
price per share of $2.6592.
"Permitted Transferee" is defined in Section 5.
"Person" means any natural person, partnership, corporation,
trust or incorporated organization.
"Plan" is defined in recital A.
"Purchase Date" is defined in Section 9(a).
"Put Date" is defined in Section 9(b).
"Qualifying Approved Sale" is defined in Section 3(c).
"Repurchase Period" is defined in Section 9(a).
"Repurchase Price" is defined in Section 9(a).
"Second Repurchase Period" is defined in Section 9(a).
"Shareholder" means SH Equity Limited, a Cayman Islands
company.
"Stock Purchase Agreement" is defined in Section 9(d).
"Subsidiary" means any joint venture, corporation, partnership
or other entity as to which Issuer or Employer, whether directly or indirectly,
has more than 50% of the (i) voting rights or (ii) rights to capital or
profits.
"Termination Date" means the date on which Optionee ceases to be
employed by Employer or any Affiliate of Employer for any reason: provided,
however, that Optionee shall not be considered to have ceased to be employed by
Employer or any Affiliate of Employer if he or she continues to be employed by
Employer or any Subsidiary.
2. Grant of Option. Issuer grants to optionee the right and option
---------------
(the "Option") to purchase, on the terms and conditions hereinafter set forth,
all or any part of an aggregate of _____ shares of Class C Stock (as such
number may be adjusted as herein provided) the Option Shares"), at the purchase
price of $3.57 per Share (as such amount may be adjusted as herein provided,
the "Exercise Price"), on the terms and conditions set forth herein.
3. Exercisability.
--------------
(a) Optionee's right to exercise the Option shall vest upon the
tenth (10th) anniversary of the Effective Date, provided that Optionee remains
continuously employed by Employer or a Subsidiary through such anniversary.
<PAGE>
(b) In the event the Original Investor Option is exercised (an
"OIO Exercise") prior to the tenth (10th) anniversary of the Effective Date,
upon the occurrence of such OIO Exercise the right to exercise the Option shall
vest as follows:
(i) If an OIO Exercise occurs in connection with a Qualifying
Approved Sale (as such term is defined in the Performance Stock Option
Agreement), the right to exercise the Option shall immediately vest in full;
(ii) If an OIO Exercise occurs other than in connection with a
Qualifying Approved Sale, the portion of the Option with respect to which the
right to exercise shall immediately vest shall be determined by multiplying the
total number of Option Shares the Optionee has been granted pursuant to Section
(2) by a fraction, the numerator of which is the sum of the total number of
Options granted pursuant to the Performance Option Agreement then exercisable
and the total number of shares of stock of Issuer owned by Optionee (or a
Permitted Transferee) and the denominator of which is the sum of the total
number of Options granted pursuant to the Performance Option Agreement and the
total number of shares of stock of Issuer owned by Optionee (or a Permitted
Transferee).
(iii) To the extent the right to exercise any portion of the
Option remains unvested following an OIO Exercise, if any portion of the option
granted pursuant to the Performance Option Agreement becomes exercisable prior
to the tenth anniversary of the Effective Date, an additional portion of the
Option immediately shall become exercisable, such portion to be determined by
multiplying the remaining number of Options the Optionee has been granted
pursuant to Section (2) with respect to which the right to exercise has not yet
vested by a fraction, the numerator of which is the sum of the total number of
Options granted pursuant to the Performance Option Agreement then exercisable
and the total number of shares of stock of Issuer owned by Optionee (or a
Permitted Transferee) and the denominator of which is the sum of the total
number of Options granted pursuant to the Performance Option Agreement and the
total number of shares of stock of Issuer owned by Optionee (or a Permitted
Transferee).
4. Expiration. The Option shall expire upon the thirtieth (30th)
----------
day following the tenth (10th) anniversary of the Effective Date unless (i) at
any time prior to OIO Exercise, Optionee is terminated without Cause or ceases
to be employed by Employer or a Subsidiary due to death, Disability or Approved
Retirement, in which case the Option shall expire 180 days following the end of
the Fiscal Year during which the Termination Date occurs, (ii) Optionee resigns
or is terminated for Cause from employment by Employer, in which case the
Option shall expire on the Termination Date, or (iii) Issuer, Shareholder or
Optionee exercises the purchase or put right pursuant to Section 9 hereof, in
which case the Option shall expire on the business day immediately preceding
the Purchase Date or the Put Date, as the case may be.
5. Nontransferability. Subject to Section 9 hereof, the Option
------------------
shall not be transferable by Optionee otherwise than to his or her spouse,
child, estate, personal representative, heir or successor or to a trust for the
benefit of Optionee or his or her spouse, child or heir (a "Permitted
Transferee"), and the Option shall be exercisable, during Optionee's lifetime,
only by him or her or by any of the foregoing Permitted Transferees, or in the
event of Optionee's Disability, his or her guardian or legal representative.
More particularly (but without
<PAGE>
limiting the generality of the foregoing), the Option may not be assigned,
transferred (except as aforesaid), pledged or hypothecated in any way (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any assignment, transfer, pledge, hypothecation
or other disposition of the Option contrary to the provisions hereof, and the
levy of any attachment or similar process upon the Option that would otherwise
effect a change in the ownership of the Option, shall terminate the Option;
provided, however, that in the case of the involuntary levy of any attachment or
similar involuntary process upon the Option, Optionee shall have thirty (30)
days after notice thereof to cure such levy or process before the Option
terminates. This Agreement shall be binding on and enforceable against any
person who is a Permitted Transferee of the Option pursuant to the first
sentence of this Section.
6. Effect of Merger; Adjustments.
-----------------------------
(a) In the event of an Approved Sale that is a merger or other
form of corporate reorganization and notwithstanding any other provisions of
this Agreement, the unexercised portion of the Option shall be subject to the
terms of the agreement or plan of merger or reorganization effecting such
merger or reorganization and shall be converted, redeemed, exchanged, canceled
or otherwise treated as provided in such agreement or plan of merger or
reorganization, provided that Optionee shall be given at least 20 days' prior
notice of the proposed merger or reorganization and shall (notwithstanding
anything else herein to the contrary) be entitled to exercise the vested
portion of the Option at any time during such 20 day period up to and until the
close of business on the day immediately preceding the date of consummation of
such merger or reorganization (which exercise may be expressly contingent upon
completion of ~the Approved Sale if the unexercised portion of the Option were
to vest as a result of such sale being a Qualifying Approved Sale) and upon
exercise of the Option the Option Shares shall be treated in the same manner as
the shares of any other stockholder of Issuer.
(b) Subject to Section 6(a), in the event of any one or more
reorganizations, recapitalizations, mergers, acquisitions, stock splits,
reverse stock splits, stock dividends or similar events, an appropriate
adjustment shall be made in the number and kind of shares or other securities
subject to the Option, and the Exercise Price for each Option Share or other
unit of any securities subject to this Agreement, in accordance with Section 14
of the Plan. No fractional interests shall be issued on account of any such
adjustment unless the Committee (as defined in the Plan) specifically
determines to the contrary; provided, however, that in lieu of fractional
interests, Optionee, upon the exercise of the Option in whole or part, shall
receive cash in an amount equal to the amount by which the Fair Market Value of
such fractional interests exceeds the Exercise Price attributable to such
fractional interests.
7. Exercise of the Option. Prior to the expiration thereof,
----------------------
Optionee may exercise the vested portion of the Option from time to time in
whole or in part. Upon electing to exercise the Option, Optionee shall deliver
to the Secretary of Issuer a written and signed notice of such election setting
forth the number of Option Shares Optionee has elected to purchase and shall at
the time of delivery of such notice tender cash or a cashier's or certified
bank check to the order of Issuer for the full Exercise Price of such Option
Shares and any amount required pursuant to Section 17 hereof. The Committee
may, in its discretion, also permit payment of the Exercise
<PAGE>
Price in such form or in such manner as may be permissible under the Plan and _
under any applicable law.
8. Restrictions on Transfers of Option Shares. Subject to
Section 9 hereof, prioir to the earlier of (a) the termination of the Lock-Up
Period following an Initial Public Offering or (b) an Approved Sale, the Option
Shares shall not be transferable or transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) except that
Optionee may transfer the Option Snares (i) to a Permitted Transferee or (ii)
pursuant to Sections 4 or 5 of the Certificate of Designation. This Agreement
shall be binding on and enforceable against any person who is a Permitted
Transferee of the Option Shares except a person who acquires ~the Option Shares
pursuant to Section 4 of the Certificate of Designation. The stock certificates
issued to evidence Option Shares upon exercise of the Option hereunder shall
bear legends referring to this Agreement and the restrictions contained herein.
9. Purchase of Option Shares.
(a) In the event that the Termination Date occurs for any reason
prior to an Initial Public Offering or an Approved Sale, subject to Section
9(b) below, the Option Shares shall be subject to repurchase ss follows:
(i) Issuer, during the sixty (60) days following the
Termination Date (the "Repurchase Period"), shall have a one-time
right to purchase all, but not less than all, of the Option Shares.
(ii) If Issuer does not elect to purchase the Option Shares
during the Repurchase Period, than Shareholder, during the thirty
(30) days following the expiration of the Repurchase Period (the
"Second Repurchase Period"), shall have a one-time right to purchase
all, but not less than all, of the Option Shares.
(iii) In the event that Optionee does not own any Option
Shares on the Termination Date, Issuer or Shareholder (as applicable)
may notify Optionee that Issuer or Shareholder (as applicable) will
purchase any Option Shares that Optionee may thereafter become
entitled to acquire upon the exercise of the Option and shall set the
Purchase Date (as hereinafter defined) and shall purchase such Option
Shares, if any, pursuant to the terms of this Agreement.
(iv) The purchase price (the "Repurchase Price") for each
Option Share shall be the Fair ~Market Value. If Issuer or Shareholder
elects to purchase the Option Shares, it shall notify Optionee at or
before the end of the Repurchase Period or, in the case of
Shareholder, the Second Repurchase Period, and the Repurchase Price
shall be paid in cash at a time set b~y Issuer or Shareholder, as the
case may be,~which time shall be within thirty (30) days after the
end of the Repurchase Period or Second Repurchase Period, as the case
may be provided that Optionee has presented to Issuer or Shareholder
an Endorsed Certificate.
<PAGE>
(v) The Option Shares shall be transferred to Issuer or
Shareholder, as applicable, free and clear of all liens,
encumbrances, mortgages, pledges, security interests, restrictions,
prior assignments and claims of any kind or nature whatsoever except
hose created by the Certificate of Designation or this Agreement. If
Issuer or Shareholder does not purchase the Option Shares, the
restrictions on transfer thereof contained in Sections 5 and 8 of
this Agreement shall terminate and be of no further force and effect;
provided, however, that such Option Shares shall remain subject to
the provisions of Sections 4 and 5 of the Certificate of Designation.
Notwithstanding Optionee's failure to deliver the Endorsed
Certificate, the Option Shares represented thereby shall be deemed to
be owned by Issuer or Shareholder, as applicable, upon (A) the
payment by Issuer or Shareholder, as applicable, of the purchase
price to Optionee or his or her Permitted Transferee or (B) notice to
Optionee or such Permitted Transferee that Issuer or Shareholder, as
applicable, is holding the purchase price in the United States for
the account of Optionee or such Permitted Transferee, and upon such
payment or notice (x) Optionee and such Permitted Transferee will
have no further rights in or to such Option Shares, (y) Issuer or
Shareholder, as applicable, shall be entitled to specific performance
of Optionee's or such Permitted Transferee's obligation to deliver
such Endorsed Certificates, and (z) Optionee and his or her Permitted
Transferee shall be jointly and severally liable for all reasonable
attorneys' fees and other costs and expenses incurred by Issuer or
Shareholder, as applicable, in enforcing its right to repurchase the
Option Shares hereunder and shall pay to Issuer or Shareholder, as
applicable, promptly upon demand the amount of all such fees and
expenses.
(vi) Optionee shall not be obligated to transfer any Option
Shares to Issuer or Shareholder, as applicable, unless, concurrently
with the repurchase of Option Shares hereunder, Issuer or
Shareholder, as the case may be, repurchases (A) pursuant to Section
4 of the Stock Purchase Agreement dated as of March 22, 1996 between
Employee and Issuer, all of the Shares (as defined therein) (B)
pursuant to Section 4 of the Bonus Stock Purchase Agreement dated as
of March 22, 1996, between Employee and Issuer, all of the Shares (as
defined therein) and (C) pursuant to section 9 of the Stock Option
Agreement dates as of March 22, 1996, between Employee and Issuer,
all of the Option Shares (as defined therein).
(b) If Optionee's Termination Date occurs prior to an Initial
Public Offering or an Approved Sale due to Optionee's death, Disability or
Approved Retirement or in the event of an Approved Sale (substituting 75% for
50% in such definition) in which substantially all of the proceeds of such
Approved Sale are not reinvested in a similar or like business to the
manufacturing of bedding products within one (1) year of such Approved Sale,
Optionee or his or her representative shall have a one-time right to require
Issuer to purchase all, but not less than all, of the Option Shares at Fair
Market Value, provided, that the right must be exercised within
one-hundred-eighty (180) days after the end of the fiscal year which includes
the Termination Date, or, in the event of an Approved Sale, the first
anniversary of such Approved Sale. The Repurchase Price shall be paid on the
Put Date, which date shall be the later of (i) the thirtieth (30th) day after
Issuer has received notice of Optionee's election to exercise his or her put
right, or (ii) the day that Optionee presents to Issuer the endorsed
Certificate, and shall be paid in the form of cash or, at the option of Issuer
in the event the purchase is following Employee's death,
<PAGE>
disability or Approved Retirement, a combination of an amount of cash equal to
the Cost of the repurchased Shares and the issuance of an Issuer Note the
principal amount of which is equal to the difference between the Repurchase
Price for the Shares and the cost of the Shares, bearing interest at a rate
equal to the rate at which interest is calculated at such time pursuant to the
Revolving Credit Agreement, provided that such rate shall in no event exceed ten
percent (10%) per annum, provided further that up to fifty percent (50%) of any
interest payment shall, at the option of the Issuer, be payable in additional
Issuer Notes of like tenor. All Issuer Notes shall mature on the earliest to
occur of (x) the third anniversary of the date on which the Issuer Note is
issued, (y) the sale of stock of the Issuer pursuant to an Initial Public
Offering, or (z) an Approved Sale. The Option Shares shall be transferred to
Issuer free and clear of all liens, encumbrances, mortgages, pledges, security
interests, restrictions, prior assignments and claims of any kind or nature
whatsoever except those created by the Certificate of Designation or this
Agreement. Notwithstanding anything to the contrary in the foregoing, the
Issuer's obligation to repurchase any of the Option Shares shall be suspended if
(i) such repurchase would render the Issuer unable to meet its obligations in
the ordinary course of business; (ii) the Issuer is prohibited from doing so by
applicable law restricting the purchase by a corporation of its own shares; or
(iii) such repurchase would constitute a breach of or default or event of
default under, or is otherwise prohibited by, the terms of any loan agreement or
other agreement or instrument to which the Issuer or any of its Subsidiaries is
a party, any of such events constituting a "Repurchase Disability." In the event
of a Repurchase Disability, the Issuer shall repurchase the Option Shares as
soon as reasonably practicable after all Repurchase Disabilities cease to exist
(and the Issuer may also elect, but shall have no obligation, to cause its
nominee to repurchase such shares while any Repurchase Disabilities continue to
exist). In the event that the Issuer suspends its obligation to repurchase
Option shares pursuant to a Repurchase Disability, then, upon repurchase of the
shares, the Issuer shall pay to Optionee or his or her representative (as
applicable) an additional amount equal to interest on the original repurchase
price calculated at the Applicable Federal Rate (as set forth in Section 1274 of
the Code or the Treasury Regulations promulgated thereunder) from the date the
repurchase would have occurred but for such Repurchase Disability to (but not
including) the date such repurchase actually occurs.
(c) The Fair Market Value shall be determined in good faith by
Issuer's Board of Directors. If the Board determination is challenged by
Optionee, a mutually acceptable investment banker or appraiser shall establish
the Fair Market Value. If Optionee and Issuer cannot agree upon an investment
banker or appraiser each shall choose an investment banker or appraiser and the
two investment bankers or appraisers shall choose a third investment banker or
appraiser who alone shall establish the Fair Market Value. The Fair Market
Value shall be based on an assumed sale of 100% of the outstanding capital
stock of Issuer (without reduction for minority discount or lack of liquidity
of the Option Shares) and shall be determined using customary criteria
generally employed within the investment banking community at the time such
determination is made for valuing an entity similar to Issuer. The investment
banker's or appraiser's determination shall be conclusive and binding on
Shareholder, Issuer and Optionee. Issuer shall bear all costs incurred in
connection with the services of such investment banker or appraiser unless the
Fair Market Value established by the investment banker or appraiser is (i) less
than or equal to 110% of the Board of Directors' determination, in which case
Optionee shall promptly pay or reimburse Issuer for such costs (less any amount
paid by Optionee pursuant to
<PAGE>
Section 4(c) of the Stock Purchase Agreement dated as of March 22, 1996 among
Shareholder, Issuer and Optionee (the "Stock Purchase Agreement"~) or (ii)
greater than 110% but less than 125% of the Board of Directors' determination,
in which case Optionee shall promptly pay or reimburse Issuer for 50% of such
costs (less any amount paid by Optionee pursuant to Section 4(c) of the Stock
Purchase Agreement).
(d) For so long as Optionee or his or her Permitted Transferee
owns the Option Shares, Issuer agrees that it shall, upon the written request
of Optionee, provide Optionee with annual financial statements of Issuer
promptly upon the completion of the preparation of such statements. The annual
financial statements shall be accompanied by an audit report by Issuer's
independent accountants.
10. Compliance with Legal Requirements.
(a) No Option Shares shall be issued or transferred pursuant to
this Agreement unless and until all legal requirements applicable to such
issuance or transfer have, in the opinion of counsel to Issuer, been satisfied.
Such requirements may include, but are not limited to, registering or qualifying
such Shares under any state or federal law, satisfying any applicable law
relating to the transfer of unregistered securities or demonstrating the
availability of an exemption from applicable laws, placing a legend on the
Option Shares to the effect that they were issued in reliance upon an exemption
from registration under the Securities Act of 1933, as amended (the "Act"), and
may not be transferred other than in reliance upon Rule 144 or Rule 701
promulgated under the Act, if available, or upon another exemption from the
Act, or obtaining the consent or approval of any governmental regulatory body.
Issuer shall use its best efforts to comply with all legal requirements
applicable to the issuance or transfer of Option Shares.
(b) Optionee understands that Issuer intends for the offering
and sale of Option Shares to be effected in reliance upon Rule 701 or another
available exemption from registration under the Act and intends to file a Form
701 as appropriate, and that Issuer is under no obligation to register for
resale the Option Shares issued upon exercise of the Option, subject to Section
9 of the Certificate of Designation. In connection with any such issuance or
transfer, the person acquiring the Option Shares shall, if requested by Issuer,
provide information and assurances satisfactory to counsel to Issuer with
respect to such matters as Issuer reasonably may deem desirable to assure
compliance with all applicable legal requirements. Issuer hereby covenants and
agrees to register all of the Option Shares on a Form S-8 (or any successor
form thereto) following the Initial Public Offering.
11. Capitalizations, Exchanges, Etc. Affecting Shares; Dilution.
(a) The provisions of this Agreement shall apply to any and all
shares of capital stock of Issuer or any successor or assign of Issuer that may
be issued in respect of, in exchange for, or in substitution of, the Option
Shares by reason of any stock dividend, stock split, stock issuance, reverse
stock split, combination, recapitalization, reclassification, merger,
consolidation or otherwise, other than an Approved Sale.
<PAGE>
(b) Except as may be specifically provided herein or in the
Certificate of Designation, nothing herein shall prohibit or restrict Issuer
from taking any corporate action or engaging in any corporate transaction of
any kind, including, without limitation, the issuance and sale of additional
shares of capital stock of Issuer, any merger, consolidation, liquidation or
sale of assets, or create in Optionee or his or her Permitted Transferee any
rights to acquire or receive additional shares of capital stock of Issuer or
otherwise to be protected against dilution.
12. Subject to Certificate of Designation. Optionee acknowledges
that the Option Shares are subject to the terms of the Certificate of
Designation.
13. No Interest in Shares Subject to Option. Neither Optionee
(individually or as a member of a group) nor any beneficiary or other person
claiming under or through Optionee shall have any right, title, interest, or
privilege in or to any shares allocated or reserved for the purpose of the Plan
or subject to this Agreement except as to such Option Shares, if any, as shall
have been issued to such person upon exercise of this Option or any part of it.
14. Plan Controls. The Option hereby granted is subject to, and
Issuer and Optionee agree to be bound by, all of the terms and conditions of
the Plan as the same may be amended from time to time in accordance with the
terms thereof, but no such amendment shall be effective as to the Option
without Optionee's consent insofar as it may adversely affect Optionee's rights
under this Agreement.
15. Not an Employment Contract. Nothing in the Plan, in this
Agreement or any other instrument executed pursuant thereto shall confer upon
Optionee any right to continue in the employ of Employer or any Subsidiary or
shall affect the right of Employer or any Subsidiary to terminate the
employment of Optionee with or without Cause.
16. Governing Law. All terms of and rights under this Agreement
shall be governed by and construed in accordance with the internal law of the
State of New York, without giving effect to principles of conflicts of law.
17. Taxes. The Committee may, in its discretion, make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local and other taxes required by law to be
withheld with respect to the issuance or exercise of the Option including, but
not limited to, deducting the amount of any such withholding taxes from any
other amount then or thereafter payable to Optionee, requiring Optionee to pay
to Issuer the amount required to be withheld or to execute such documents as
the Committee deems necessary or desirable to enable it to satisfy its
withholding obligations, or any other means provided in the Plan. Optionee
shall have the right to satisfy the withholding obligation in whole or in part
by the delivery of shares of the Issuer previously issued to Optionee or by the
withholding of the delivery of Option Shares otherwise to be received upon the
Option exercise.
18. Notices. All notices, requests, demands and other
communications ursuant to this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered, telexed or telecopied
to, or, if mailed, when received by, the other party, if to Issuer at its
principal executive offices addressed to the attention of Issuer's Secretary,
and if to Optionee at
<PAGE>
his or her address as it appears on the books of his or her employer (or at such
other address as shall be given in writing by Optionee or his or her Permitted
Transferee to Issuer).
19. Amendments and Waivers. This Agreement may be amended, and
any provision hereof may be waived, only by a writing signed by the party to be
charged.
20. Entire Agreement. This Agreement, together with the Plan,
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and supersedes all prior oral and written and all
contemporaneous oral discussions, agreements and understandings of any kind or
nature.
21. Headings. The headings preceding the text of the sections
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
22. Further Assurances. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out
the provisions and purposes of this Agreement.
23. Arbitration. The parties shall endeavor to settle all
disputes by amicable negotiations. Except as otherwise provided in Section 9(d)
hereof, any claim, dispute, disagreement or controversy that arises among the
parties relating to this Agreement that is not amicably settled shall be
resolved by arbitration, as follows:
(a) Any such arbitration shall be heard in The City of New York,
New York, before a panel consisting of one (1) to three (3) arbitrators, each
of whom shall be impartial. Upon the written Request for Arbitration by either
party hereto to commerce arbitration hereunder, the parties shall attempt to
mutually agree as to the number and identity of the arbitrators within thirty
(30) days of such Request. Except as the parties may otherwise agree, all
arbitrators (if not selected by the parties hereto within thirty (30) days of a
written Request for Arbitration) shall be appointed pursuant to the commercial
arbitration rules of the American Arbitration Association. In determining the
number and appropriate background of the arbitrators, the appointing authority
shall give due consideration to the issues to be resolved, but his or her
decision as to the number of arbitrators and their identity shall be final.
(b) An arbitration may be commenced by any party to this
Agreement by the service of a written request for arbitration upon the other
affected parties. Such request for arbitration shall summarize the controversy
or claim to be arbitrated.
(c) All attorneys' fees and costs of the arbitration shall in
the first instance be borne by the respective party incurring such costs and
fees, but the arbitrators shall award costs and attorneys' fees to the
prevailing party. The parties hereby expressly waive punitive damages, and
under no circumstances shall an award contain any amount that in any way
reflects punitive damages.
(d) Judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
<PAGE>
(e) It is intended that controversies or claims submitted to
arbitration under this Section 23 shall remain confidential, and to that end
it~ is agreed by the parties that neither the facts disclosed in the
arbitration, the issues arbitrated, nor the views or opinions of any persons
concerning them, shall be disclosed to third persons at any time, except to the
extent necessary to enforce an award or judgment or as required by law or in
response to legal process or in connection with such arbitration.
(f) Any arbitration under this Section 23 shall be conducted
pursuant to the commercial arbitration rules of the American Arbitration
Association.
24. Binding Effect. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective permitted
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
SIMMONS HOLDINGS, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
----------------------------------
Name:
EXHIBIT 10.18
FORM OF BONUS AGREEMENT BETWEEN SIMMONS ACQUISITION CORP. AND ZENON S.
NIE; MARTIN R. PASSAGLIA; JONATHAN C. DAIKER; LEE AYERS; JOSEPH ULICNY;
ROBERT K. BARTON; GARY G. PLEASANT; CLEVE B. MURPHY; JAMES P. MAHER;
AND LEO T. BRENNAN; AND ROGER D. FRANKLIN,
DATED AS OF MARCH 22, 1996.
<PAGE>
BONUS AGREEMENT
This Bonus Agreement (the "Agreement") is made as of the 21st day
of March, 1996, by and between Simmons Acquisition Corporation, a
Delaware corporation (together with its successor, the "Company"), and
________________ ("Employee").
WHEREAS, on March 22, 1996, the Company will acquire (the
"Acquisition") approximately 84.9% of the issued and outstanding stock
of Simmons Company ("Simmons"); and
WHEREAS, Employee currently is an employee of Simmons, and the
company desires that Employee continue in the employ of Simmons or its
affiliates after the Acquisition, on terms mutually agreeable to
Employee and Simmons; and
WHEREAS, the Company desires to compensate Employee for agreeing to
continue in the employ of Simmons.
NOW, THEREFORE, in consideration of the mutual promises set forth
hereinafter, the above named parties have entered into this Agreement,
agreeing as follows:
1. Employee shall continue to be employed by Simmons after
the closing (the "Closing") of the Acquisition, on terms to be agreed
upon by Employee and Simmons.
2. The Company shall pay to Employee the amount of ______________
(the "Bonus"), which amount shall be paid as set forth in Paragraph 3.
3. Subject to Paragraph 4, the Bonus shall be payable as follows:
(a) _________________________ shall be paid on behalf of the
Employee to the Internal Revenue Service and the appropriate state and
local taxing authorities (collectively, the "Taxing Authorities") on
the next date following the Closing on which withholding tax payments
are required to be made in respect of the Bonus payment.
(b) _________________________ shall be paid to the Employee on
January 14, 1997.
(c) _________________________ shall be paid on behalf of
the Employee to the Taxing Authorities on the next date following
January 14, 1997, on which withholding tax payments are required to be
made.
4. In the event that the Employee ceases to be employed by Simmons
for any reason prior to January 14, 1997, the payment referred to in
Paragraph 3(b) shall be paid on the
<PAGE>
date on which such employment is terminated (the "Termination Date"),
and the payment referred to in Paragraph 3(c) shall be paid on behalf
of the Employee to the Taxing Authorities on the next date following the
Termination Date on which withholding tax payments are required to be
made.
5. This Agreement shall be construed in accordance with and
governed by the laws of the State of Georgia, applicable to payments
made and to be enforced in that state.
6. This Agreement may be signed in counterparts, each of which
shall be deemed to be an original and together both of which shall be
considered one and the same instrument.
IN WITNESS WHEREOF, the Company and Employee have signed this
Agreement as of the date first above written.
SIMMONS ACQUISITION CORPORATION
By:________________________________
________________________________
Name:
EXHIBIT 10.19
FORM OF STOCK ACQUISITION AGREEMENT BETWEEN SIMMONS HOLDINGS, INC. AND MARTIN R.
PASSAGLIA; LEO T. BEENNAN; AND ROBERT K. BARTON, DATED AS OF MARCH 22, 1996
<PAGE>
STOCK ACQUISITION AGREEMENT
THIS STOCK ACQUISITION AGREEMENT (this "Agreement") is made effective as of
March 22, 1996 (the "Effective Date") between Simmons Holdings, Inc., a Delaware
corporation (the "Issuer") and _________________________ ("Employee").
R E C I T A L S
- - - - - - - - -
A. Employee is an employee of Simmons Company, a Delaware
corporation ("Employer"), and desires to acquire an equity interest in Issuer.
B. Employee currently owns ___________________ shares of Common
Stock of Employer ("Employer Common Stock").
C. In connection with the acquisition of Employer by Issuer, Issuer is
willing to transfer to Employee shares of Class C Stock, par value $.01 per
share ("Class C Stock"), of Issuer, subject to the terms and conditions of this
Agreement.
AGREEMENTS
- ----------
1. Definitions. Capitalized terms used herein shall have the
-----------
following meanings:
"Act" means the securities Act of 1933, as amended.
"Affiliate" means, with respect to any Person, any other
Person which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person. For purposes of this definition,
"control" of a Person shall mean the power, directly or indirectly, (i) to vote
fifty percent (50%) or more of the securities having ordinary voting power for
the election of directors of such Person whether by ownership of securities,
contract, proxy or otherwise or (ii) to direct or cause the direction of
management and policies of such Person whether by ownership of securities,
contract, proxy or otherwise.
"Agreement" means this Stock Purchase Agreement.
"Approved Retirement" means the retirement of Employee on or
after his sixty-fifth (65th) birthday or, if earlier, either for Good Reason or
approved by the Board of Directors of Issuer.
"Approved Sale" means a transaction or a series of related
transactions which results in a bona fide, unaffiliated change of beneficial
ownership of Employer or its business of greater than 50% (disregarding for this
purpose any disparate voting rights attributable to the outstanding stock of
Issuer), whether pursuant to the sale of the stock of Employer or Issuer, the
sale of the assets of Employer, or a merger or consolidation involving Employer
or Issuer.
<PAGE>
"Cause" when used in connection with the termination of
employment of Employee, means (i) the conviction for the commission of, or a
plea of guilty or nolo contendere made by Employee in response to a charge
---------------
involving, a felony or a crime involving moral turpitude, (ii) the embezzlement
or misappropriation of funds or property of Issuer, Employer or any Subsidiary,
(iii) the continued use of alcohol or drugs to an extent, which, consistent with
the Substance Abuse Policy of Employer adopted October 14, 1994, would result in
Employee's Termination, (iv) the intentional, unauthorized disclosure of
proprietary information or confidential records of Issuer, Employer or any
Subsidiary or (v) the willful failure or refusal to perform (unless for Good
Reason) those duties reasonably assigned or delegated to Employee by the Board
of Directors of Employer which failure or refusal continues following (A) the
Board of Directors giving Employee written notice setting forth the facts or
events constituting such failure or refusal and (B) a reasonable opportunity to
correct the deficiencies or other problems specified in such notice to the
reasonable satisfaction of such Board.
"Certificate of Designation" means the Certificate of
Designation of Issuer setting forth, inter alia, the rights, preferences and
----------
privileges of and restrictions on the Class A Stock, the Class C Stock, the
Class D Stock and the Common Stock of Issuer.
"Class C Stock" is defined in recital C.
"Cost" equals $2.6592, subject to adjustment pursuant to
Section 10.
"Disability" means that Employee becomes physically or
mentally incapacitated or disabled so that he or she is unable to perform for
Employer or a Subsidiary substantially the same services as he or she performed
prior to incurring such incapacity or disability or to devote his or her full
working time or use his or her best efforts to advance the business and welfare
of Employer or a Subsidiary for an aggregate period of six months during any 12
month period.
"Effective Date" is defined in the preamble.
"Employee" is defined in the preamble.
"Employer" is defined in recital A.
"Employer Common Stock" is defined in recital B.
"Endorsed Certificate" means a stock certificate evidencing
the shares properly endorsed for transfer, or, in the alternative, an
appropriate certification as to the lost, stolen or missing status of such stock
certificate.
"Fair Market Value" means the value of a Share, as of the
Termination Date, determined pursuant to Section 4(c).
"Fiscal Year" means the fiscal year of Issuer.
"Good Reason" means (i) the assignment to Employee of any
duties inconsistent with Employee's position (including status, offices, titles
and reporting requirements), (ii) a
2
<PAGE>
demotion in the job title of Employee, (iii) a reduction in the compensation
paid to Employee, unless such reduction is comparable to an across-the-board
reduction applicable to all senior management employees of Employer due to
adverse business circumstances, (iv) a request of Employee to relocate his
office to a distance of greater than seventy-five (75) miles from the present
site of his office, or (v) any other action by Employer which results in a
material diminution in the position, authority, duties or responsibilities of
Employee.
"Initial Public Offering" means the effectiveness of a
registration statement under the Act covering any of the capital stock of Issuer
or Employer (other than preferred stock that is not convertible into common
stock) and the completion of a sale of such stock thereunder, if as a result of
such sale (i) the issuer becomes a reporting company under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such stock is
traded on the New York Stock Exchange or the American Stock Exchange, or is
quoted on the Nasdaq stock Market or is traded or quoted on any other national
stock exchange or securities system.
"Issuer" is defined in the preamble.
"Issuer Note" is defined in Section 4(a)
"Lock-Up Period" means, in the case of an Initial Public
Offering, the 180-day period commencing on the effective date of the
registration statement covering capital stock of Issuer or Employer sold in such
Initial Public Offering, and, in the case of any subsequent registered offering,
the 90-day period commencing on the effective date of the registration statement
relating to such offering, or, in either case, such lesser period as may be
agreed upon with the underwriters of such offering.
"Permitted Transferee" is defined in Section 3.
"Person" means any natural person, partnership, corporation,
trust or incorporated organization.
"Repurchase Period" is defined in Section 4(a).
"Repurchase Price" is defined in Section 4(a)
"Second Repurchase Period" is defined in Section 4(a).
"Shareholder" means SH Equity Limited, a Cayman Islands
company.
"Shares" is defined in Section 2.
"Subsidiary" means any joint venture, corporation,
partnership or other entity as to which Issuer or Employer, whether directly or
indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital
or profits.
"Termination Date" means the date on which Employee ceases
to be employed by Employer or any Affiliate of Employer for any reason;
provided, however, that Employee shall
3
<PAGE>
not be considered to have ceased to be employed by Employer or any Affiliate of
Employer if he or she continues to be employed by Employer or any Subsidiary.
2. Purchase and Sale of Shares. On the terms and subject to
---------------------------
the conditions hereof; Issuer hereby sells and transfers to Employee
____________ shares of Class C Stock (the "Shares") in consideration of the
transfer by Employee to Issuer of __________ shares of Employer Common Stock,
receipt of which is hereby acknowledged by Issuer.
3. Restrictions on Transfers of Shares. Subject to Section
-----------------------------------
4 hereof, prior to the earliar (i) the termination of the Lock-Up Period
following an Initial Public Offering or (ii) an Approved Sale, the Shares shall
not be transferable or transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) except that Employee may transfer the
Shares (i) to his or her spouse, child, estate, personal representative, heir or
successor or to a trust for the benefit of Employee or his or her spouse, child
or heir (a "Permitted Transferee") or (ii) pursuant to Sections 4 or 5 of the
Certificate of Designation. This Agreement shall be binding on and enforceable
against any person who is a Permitted Transferee of the Shares except a person
who acquires the Shares pursuant to Section 4 of the Certificate of Designation.
The stock certificates issued to evidence Shares hereunder shall bear a legend
referring to this Agreement and the restrictions contained herein.
4. Repurchase of Shares.
---------------------
(a) In the event that Employee's Termination Date occurs for
any reason prior to an Initial Public Offering or an Approved Sale, the Shares
shall be subject to repurchase as follows:
(i) Issuer shall, during the sixty (60) days following the
Termination Date (the "Repurchase Period"), have a one-time right to purchase
all, but not less than all, of the Shares.
(ii) If Issuer does not elect to purchase the Shares
during the Repurchase Period, then Shareholder, during the thirty (30) days
following the expiration of the Repurchase Period (the "Second Repurchase
Period"), shall have a one-time right to purchase all, but not less than all, of
the Shares.
(iii) The purchase price (the "Repurchase Price") for
each Share shall be the Fair Market Value.
(iv) If Issuer or Shareholder elects to purchase the
Shares, it shall notify Employee at or before the end of the Repurchase Period
or, in the case of Shareholder, the Second Repurchase Period, and the Repurchase
Price shall be paid in cash at a time set by Issuer or Shareholder, as the case
may be, which time shall be within thirty (30) days after the end of the
Repurchase Periods or Second Repurchase Period, as the case may be, provided
that Employee has presented to Issuer or Shareholder an Endorsed Certificate.
(v) The Shares shall be transferred to Issuer or
Shareholder, as applicable, free and clear of all liens, encumbrances,
mortgages, pledges, security interests,
4
<PAGE>
restrictions, prior assignments and claims of any kind or nature whatsoever
except those created by the Certificate of Designation or this Agreement.
(vi) Employee shall not be obligated to transfer any
Shares to Issuer or Shareholder, as applicable, unless, concurrently with the
repurchase of Shares hereunder, Issuer or shareholder, as the case may be,
repurchases (A) pursuant to Section 4 of the Bonus Stock Purchase Agreement
dated as of March 22, 1996 between Employee and Issuer, all of the Shares (as
defined therein), (B) pursuant to Section 4 of the Stock Purchase Agreement
dated as of March 22, 1996 between Employee and Issuer, all of the Shares (as
defined therein), (C) pursuant to Section 9 of the Stock Option Agreement dated
as of March 22, 1996, between Employee, as Optionee, and Issuer, all of the
Option Shares (as defined therein) and (D) pursuant to Section 9 of the Anti-
Dilution Stock Option Agreement dated as of March 22, 1996, between Employee, as
Optionee, and Issuer, all of the Option Shares (as defined therein).
Notwithstanding Employee's failure to deliver the Endorsed Certificate, the
Shares represented thereby shall be deemed to be owned by Issuer or Shareholder,
as applicable, upon (A) the payment by Issuer or Shareholder, as applicable, of
the purchase price to Employee or his or her Permitted Transferee or (B) notice
to Employee or his or her Permitted Transferee that Issuer or Shareholder, as
applicable, is holding the purchase price in the United States for the account
of Employee or such Permitted Transferee, and upon such payment or notice (x)
Employee and such Permitted Transferee will have no further rights in such
Shares, (y) Issuer or Shareholder, as applicable, shall be entitled to specific
performance of Employee's or such Permitted Transferee's obligation to deliver
such Endorsed Certificate and (z) Employee and his or her Permitted Transferee
shall be jointly and severally liable for all reasonable attorneys' fees and
other costs and expenses incurred by Issuer or Shareholder, as applicable, in
enforcing its right to repurchase Shares hereunder and shall pay to Issuer or
Shareholder, as applicable, promptly upon demand the amount of all such fees and
expenses. If Issuer or Shareholder does not purchase the Shares pursuant to
this Section 4(a), the restrictions on transfer thereof contained in Section 3
of this Agreement shall terminate and be of no further force and effect;
provided, however, that such Shares shall remain subject to the provisions
of sections 4 and 5 of the Certificate of Designation.
(b) If Employee's Termination Date occurs prior to an
Initial Public Offering or an Approved Sale due to Employee's death, Disability
or Approved Retirement, or in the event of an Approved Sale (substituting 75%
for 50~% in such definition) in which substantially all of the proceeds of such
Approved Sale are not reinvested in a similar or like business to the
manufacturing of bedding products within one (1) year of such Approved Sale,
Employee or his or her representative shall have a one-time right to require
Issuer to purchase all, but not less than all, of the Shares at Fair Market
Value, provided, that such right must be exercised within one-hundred-eighty
(180) days after the Termination Date, or, in the case of an Approved Sale, the
first anniversary of such Approved Sale. The Repurchase Price shall be paid in
the form of cash or, at the option of Issuer in the event the purchase is
following Employee's death, disability or Approved Retirement, a combination of
an amount of cash equal to the Cost of the repurchased Shares and the issuance
of an Issuer Note the principal amount of which is equal to the difference
between the Repurchase Price for the Shares and the Cost of the Shares, bearing
interest at a rate equal to the rate at which interest is calculated at such
time pursuant to the Revolving Credit
5
<PAGE>
Agreement, provided that such rate shall in no event exceed ten percent (10%)
per annum, provided further that up to fifty percent (50%) of any interest
payment shall, at the option of the Issuer, be payable in additional Issuer
Notes of like tenor. All such Issuer Notes shall mature on the earliest to occur
of (x) the third anniversary of the date on which the Issuer Note is issued, (y)
the sale of stock of the Issuer pursuant to an Initial Public Offering, or (z)
an Approved Sale. The Repurchase Price shall be paid on the Put Date, which date
shall be the later of (i) the thirtieth (30th) day after Issuer has received
notice of Employee's election to exercise his or her put right, or (ii) the day
that Employee presents to Issuer the Endorsed Certificate. The Shares shall be
transferred to Issuer free and clear of all liens, encumbrances, mortgages,
pledges, security interests, restrictions, prior assignments and claims of any
kind or nature whatsoever except those created by the Certificate of Designation
or this Agreement. Notwithstanding anything to the contrary in the foregoing,
the Issuer's obligation to repurchase any of the Shares shall be suspended if
(i) such repurchase would render the Issuer unable to meet its obligations in
the ordinary course of business; (ii) the Issuer is prohibited from doing so by
applicable law restricting the purchase by a corporation of its own shares; or
(iii) such repurchase would constitute a breach of or default or event of
default under, or is otherwise prohibited by, the terms of any loan agreement or
other agreement or instrument to which the Issuer or any of its Subsidiaries is
a party, any of such events constituting a "Repurchase Disability." In the event
of a Repurchase Disability, the Issuer shall repurchase the Shares as soon as
reasonably practicable after all Repurchase Disabilities cease to exist (and the
Issuer may also elect but shall have no obligation, to cause its nominee to
repurchase such shares while any Repurchase Disabilities continue to exist). In
the event that the Issuer suspends its obligation to repurchase shares pursuant
to a Repurchase Disability, then, upon repurchase of the shares, the Issuer
shall pay to Employee or his or her representative (as applicable) an additional
amount equal to interest on the original repurchase price calculated at the
Applicable Federal Rate (as set forth in Section 1274 of the Code or the
Treasury Regulations promulgated thereunder) from the date the repurchase would
have occurred but for such Repurchase Disability to (but not including) the date
such repurchase actually occurs.
(c) The Fair Market Value shall be determined in good faith
by Issuer's Board of Directors. If the Board determination is challenged by
Employee, a mutually acceptable investment banker or appraiser shall establish
the Fair Market Value. If Employee and Issuer cannot agree upon an investment
banker or appraiser, Employee and Issuer shall each choose an investment banker
or appraiser and the two investment bankers or appraisers shall choose a third
investment banker or appraiser who alone shall establish the Fair Market Value.
The Fair Market Value shall be based on an assumed sale of 100% of the
outstanding capital stock of Issuer (without reduction for minority discount or
lack of liquidtry of the Shares) and shall be determined using customary
criteria generally employed within the investment banking community at the time
such determination is made for valuing an entity similar to Issuer. The
investment banker's or appraiser's determination shall be conclusive and binding
on Shareholder, Issuer and Employee. Issuer shall bear all costs incurred in
connection with the services of such investment banker or appraiser unless the
Fair Market Value established by such investment banker or appraiser is (i) less
than or equal to 110% of the Board of Directors' determination, in which case
Employee shall promptly pay or reimburse Issuer for such costs or (ii) greater
than 110% but less than 125% of
6
<PAGE>
the Board of Directors' determination, in which case Employee shall promptly pay
or reimburse Issuer for 50% of such costs.
(d) For so long as Employee or his or her Permitted Transferee owns the
Shares, Issuer agrees that it shall, upon the written request of Employee,
provide Employee with annual financial statements of Issuer promptly upon the
completion of the preparation of such statements. Such annual financial
statements shall be accompanied by an audit report by Issuer's independent
accountants.
5. Representations and Covenants of Issuer. Issuer represents
---------------------------------------
and warrants to Employee as follows:
(a) Issuer is a corporation duly organized, validly existing
and in good standi(ng under the laws of the state of Delaware.
(b) Issuer has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and to consummate
the transactions contemplated herein. This Agreement is a valid and binding
agreement of Issuer, enforceable against Issuer in accordance with its terms
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to or
affecting creditors' rights, and for the limitations imposed by general
principles of equity.
(c) Issuer is the lawful record and beneficial owner of all
of the Shares and is hereby transferring the Shares being purchased hereunder to
Employee free and clear of all liens, encumbrances, mortgages, pledges, security
interests, restrictions, prior assignments and claims of any kind or nature
whatsoever, except those created by the Certificate of Designation or this
Agreement.
6. Representations, Acknowledgments, and Covenants of Employee
-----------------------------------------------------------
(a) Employee hereby represents and warrants to Issuer as
follows:
(i) Employee is acquiring the Shares for investment for his
or her own account and without a view to further distribution of the Shares.
(ii) Employee is either (A) an executive officer (as
defined in Rule 501 promulgated under the Act) of Employer or (B) has such
knowledge and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of an investment in the Shares.
(iii) Employee is solely responsible for making his or her
own independent decision to make an investment in the Shares and is under no
express or implied obligation to Employer or Issuer to acquire the Shares.
7
<PAGE>
(b) Employee hereby acknowledges to Issuer as follows:
(i) The Shares are being transferred to Employee without
registration under the Act pursuant to exemptions from registration thereunder.
Employee cannot transfer the Shares except pursuant to an effective registration
statement or an exemption from registration under the Act.
(ii) The Shares are nonvoting in the election of directors
and certain other matters and are subject to the terms and restrictions of the
Certificate of Designation.
(c) If (i) the Board of Directors of Issuer determines
pursuant to Section 9 of the Certificate of Designation that the Initial Public
Offering shall include a secondary offering of outstanding shares of stock of
Issuer and (ii) the managing underwriter, if any, of such Initial Public
Offering is of the opinion that the inclusion of shares of stock held by
officers and employees of Employer and its Subsidiaries may adversely affect the
success of such offering, Employee hereby covenants and agrees that in such
event he or she will not elect to include any Shares in such offerings. Employee
further acknowledges and agrees that shares of stock of Issuer held by
stockholders that are neither officers nor employees of Employer or a Subsidiary
may be included in the Initial Public Offering to the extent such inclusion
would not adversely affect the success of such offering despite the exclusion
from such offering of shares held by Employee or other stockholders who are
officers or employees of Employer or a Subsidiary.
7. Governing Law. All terms of and rights under this
-------------
Agreement shall be governed by and construed in accordance with the internal law
of the State of New York, without giving effect to principles of conflicts of
law.
8. Notices. All notices, requests, demands, and other
-------
communications pursuant to this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered, telexed or telecopied
to, or, if mailed, when received by, the other party, if to Issuer at its
principal executive offices, addressed to the attention of Issuer's Secretary;
if to Shareholder at its principal executive offices, addressed to the
attention of Shareholder's Secretary; and if to Employee at his or her address
as it appears on the books of his or her employer (or at such other address
as shall be given in writing by Employee or his or her Permitted Transferee
to Issuer).
9. Amendments and Waivers. This Agreement may be amended,
----------------------
and any provision hereof may be waived, only by a writing signed by the party to
be charged.
10. Capitalizations, Exchanges, Etc Affecting Shares;
-------------------------------------------------
Adjustment of Cost; Dilution.
- ----------------------------
(a) The provisions of this Agreement shall apply to any
and all shares of capital stock of Issuer or any successor or assign of Issuer
that may be issued in respect of, in exchange for, or in substitution of, the
Shares by reason of any stock dividend, stock split, stock issuance, reverse
stock split, combination, recapitalization, reclassification, merger,
consolidation or otherwise, other than an Approved Sale.
(b) In the event of any reorganization, stock dividend,
stock split, stock issuance, reverse stock split, combination, recapitalization
reclassification, merger, consolidation
8
<PAGE>
or similar event, other than an Approved Sale, as a result of which Employee
holds a lesser or greater number of Shares and/or other securities, the Cost of
a Share or other security shall be appropriately adjusted, provided that the
aggregate Cost of all Shares and securities held by Employee immediately after
such event shall remain equal to the aggregate Cost of all Shares held by
Employee immediately prior to such event.
(c) Except as specifically provided in the Certificate
of Designation, nothing herein shall prohibit or restrict Issuer from taking any
corporate action or engaging in any corporate transaction of any kind,
including, without limitation, the issuance and sale of additional shares of
capital stock of Issuer or any merger, consolidation, liquidation or sale of
assets, or create in Employee or his or her Permitted Transferee any rights to
acquire or receive additional shares of capital stock of Issuer or otherwise be
protected against dilution.
11. Legends. All certificates representing the Shares shall, in
-------
addition to other legends that may be required by state or federal securities
laws, bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY BE REOFFERED AND SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
"THESE SECURITIES ARE SUBJECT TO MANDATORY REDEMPTION BY THE
CORPORATION. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH
CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS,
OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS."
"THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCK
PURCHASE AGREEMENT, DATED EFFECTIVE AS OF MARCH 22, 1996, BY AND
BETWEEN THE CORPORATION AND THE STOCKHOLDER WHICH, AMONG OTHER THINGS,
SUBSTANTIALLY RESTRICTS THE TRANSFERABILITY OF THE SECURITIES. A COPY
OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION. THE SALE, TRANSFER, OTHER DISPOSITION, AND VOTING OF THE
SECURITIES ARE SUBJECT TO THE TERMS OF SUCH AGREEMENT AND THESE
SECURITIES ARE TRANSFERABLE ONLY UPON PROOF TO THE CORPORATION OF
COMPLIANCE THEREWITH."
12. Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding between the parties as to the subject matter hereof
and supersedes all prior oral and written and all contemporaneous oral
discussions, agreements, and understandings of any kind or nature.
9
<PAGE>
13. Headings. The headings preceding the text of the sections
--------
hereof are inserted sole1y for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
14. Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement.
15. Not An Employment Contract. Nothing in this Agreement or any
--------------------------
other instrument executed pursuant hereto shall confer upon Employee any right
to continue in the employ of Employer or any Subsidiary or shall affect the
right of Employer or any Subsidiary to terminate the employment of Employee with
or without Cause.
16. Arbitration. The parties shall endeavor to settle all
-----------
disputes by amicable negotiations. Except as otherwise provided in Section 4(c)
hereof, any claim, dispute, disagreement or controversy that arises among the
parties relating to this Agreement that is not amicably settled shall be
resolved by arbitration, as follows:
(a) Any such arbitration shall be heard in The City of New
York, New York, before a panel consisting of one (1) to three (3) arbitrators,
each of whom shall be impartial. Upon the written Request for Arbitration by
either party hereto to commence arbitration hereunder, the parties shall attempt
to mutually agree as to the number and identity of the arbitrator(s) within
thirty (30) days of the date of such Request. Except as the parties may
otherwise agree, all arbitrators (if not selected by the parties hereto within
thirty (30) days of a written Request for Arbitration) shall be appointed
pursuant to the commercial arbitration rules of the American Arbitration
Association. In determining the number and appropriate background of the
arbitrators, the appointing authority shall give due consideration to the issues
to be resolved, but his or her decision as to the number of arbitrators and
their identity shall be final.
(b) An arbitration may be commenced by any party to this
Agreement by the service of a written Request for Arbitration upon the other
affected parties. Such Request for Arbitration shall summarize the controversy
or claim to be arbitrated.
(c) All attorneys' fees and costs of the arbitration shall
in the first instance be borne by the respective party incurring such costs and
fees, but the arbitrators shall award costs and attorneys' fees to the
prevailing party. The parties hereby expressly waive punitive damages, and under
no circumstances shall an award contain any amount that in any way reflects
punitive damages.
(d) Judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
(e) It is intended that controversies or claims submitted to
arbitration under this Section 16 shall remain confidential, and to that end it
is agreed by the parties that neither the facts disclosed in the arbitration,
the issues arbitrated, nor the views or opinions of any persons concerning them,
shall be disclosed to third persons at any time, except to the extent necessary
to
10
<PAGE>
enforce an award or judgment or as required by law or in response to legal
process or in connection with such arbitration.
(f) Any arbitration under this Section 16 shall be conducted
pursuant to the commercial arbitration rules of the American Arbitration
Association.
17. Binding Effect. This Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective permitted successors
and assigns.
IN WITNESS WHEREOF, this Agreement is made effective as of the date
first above written.
SIMMONS HOLDINGS, INC
By:
----------------------------
Name:
--------------------------
Title:
--------------------------
--------------------------------
Name:
11
EXHIBIT 10.30
AGREEMENT OF LEASE
------------------
FOR AND IN CONSIDERATION of the mutual covenants herein
contained, the parties hereto do hereby agree as follows:
1. Incorporated Terms. The following terms are
------------------
incorporated by reference into this Agreement:
(a) DATE OF LEASE: September 16, 1988
(b) NAME AND ADDRESS OF LANDLORD:
287 Industrial Park, a New Jersey limited partnership
c/o The Sudler Companies
75 Eisenhower Parkway
Roseland, New Jersey 07068
(c) NAME AND ADDRESS OF TENANT:
Simmons Company, a Delaware corporation
#6 Executive Park Drive
Atlanta, Georgia 30329
(d) DESCRIPTION OF PROPERTY:
A parcel of land known as 365 South Randolphville Road,
Piscataway, New Jersey (Block 461B, Lot 1B) upon which
is located a building containing 264,908 square feet,
more or less.
(e) TERM OF LEASE:
Fifteen (15) years and three (3) months, commencing
October 1, 1988 and expiring December 31, 2003.
(f) PERMITTED USE:
Manufacture and distribution of mattresses, upholstered
furniture, other related products, and general offices
incidental thereto.
(g) SECURITY DEPOSIT: $83,666.78
(h) BROKER:
Edward S. Gordon Company of New Jersey, Inc.; commission
to be paid by Landlord.
(i) RIDERS TO LEASE:
Rent Rider
Extension Options Rider
2. Description of Property. Landlord hereby leases to
-----------------------
Tenant and Tenant hereby hires from Landlord, the land (the "Land"),
building (the "Building") and other improvements described in
Section l(d) (collectively the "Property").
<PAGE>
3. Term. The term of the Lease (the "Term") shall commence
----
on the date set forth in Section l(e) (the "Commencement Date") and
terminate on the date set forth in Section l(e) (the "Expiration
Date"), except as hereinafter provided.
The first Lease year shall be the period commencing on the
Commencement Date and ending on December 31, 1989. Each succeeding
twelve calendar month period thereafter shall be a Lease Year.
4. Fixed Rent. Tenant shall pay to Landlord at the address
----------
set forth in Section l(b), or to such other person or at such other
place as Landlord may from time to time designate, without previous
demand therefor and without counterclaim, deduction or set-off, the
rent ("Fixed Rent") set forth on the Rent Rider annexed hereto, such
Fixed Rent to be payable in monthly installments as set forth on the
Rent Rider in advance on the first day of each month during the term
of the Lease, except no Fixed Rent shall be payable for the period
from the Commencement Date to December 31, 1988. If the Commencement
Date shall be other than the first day of a calendar month, Tenant
shall pay Landlord on the Commencement Date the proportionate amount
of Fixed Rent for the balance of such month.
5. Net Lease. Except as provided in Section 11, it is the
---------
intention of Landlord and Tenant that this is a net lease and that the
Fixed Rent shall be absolutely net to Landlord and that Tenant shall
be solely responsible for and pay all costs for the use, operation,
maintenance, care and repair of the Property. All obligations with
respect to the Property payable by Tenant other than the Fixed Rent
are additional rent under this Lease. The term "rent" means the Fixed
Rent and additional rent.
6. Real Property Taxes. (a) Tenant shall pay all real
-------------------
property impositions during the Term, such payment to be made to
Landlord in installments in accordance with Section 38(k). As used
herein, the term "real property impositions" means (i) any tax,
assessment or other governmental charge of any kind which at any time
during the Term may be assessed, levied, imposed upon or become due
and payable with respect to the Property; (ii) any tax on the
Landlord's right to receive, or the receipt of rent or income from the
Property, or against Landlord's business of leasing the Property;
(iii) any tax or charge for fire protection, refuse collection,
streets, sidewalks or road maintenance or other services provided to
the Property by any governmental agency; and (iv) any tax replacing or
supplementing in whole or in part any tax previously included within
the definition of real property impositions under this Lease. During
the first and last years of the Term, the real property impositions
payable by Tenant shall be prorated for the fraction of the tax fiscal
year included in the Term.
(b) If an assessment for public improvements is levied
against the Property, Landlord shall be deemed to have elected to pay
such assessment in the maximum number of installments then permitted
by law (whether or not Landlord actually so elects), and Tenant shall
pay the installments payable during or attributable to the Term,
together with any interest due as a result of the installment
payments. Any installment for a period during which the Commencement
Date or Expiration Date occurs shall be prorated for the fraction of
the period included in the Term.
(c) Notwithstanding anything herein to the contrary, real
property impositions do not include Landlord's federal, state or local
income, franchise, inheritance or estate taxes.
7. Insurance. (a) Throughout the Term, Tenant shall
---------
procure and maintain, at its own expense, the following policies of
<PAGE>
insurance: (i) insurance covering all risk of physical loss or damage
to the Building in the full amount of its replacement value (including
agreed amount endorsement) (Such policy shall provide protection
against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended
perils, including demolition and increased cost of construction, water
damage, sprinkler leakage, and any other perils which Landlord or any
mortgagee of the Property ("Landlord's Mortgagee") deems necessary);
(ii) rental income insurance in an amount equal to one year's Fixed
Rent, percentage rent, estimated real property impositions and
insurance premiums; (iii) insurance against loss or damage by boiler
or machinery or internal explosion or breakdown of boilers, equipment
or electrical appurtenances, in an amount reasonably required by
Landlord or any Landlord's Mortgagee; (iv) insurance against breakage
of all plate glass on the Property; and (v) such other insurance as
Landlord or Landlord's Mortgagee may reasonably require and which is
customary with respect to similar properties in central New Jersey.
All proceeds payable under any such policy shall be paid to Landlord
or Landlord's Mortgagee, as their respective interests may appear.
At Tenant's option, Tenant may elect to have Landlord procure
the insurance required by this Section 7(a), and Tenant shall
reimburse Landlord for the cost of obtaining such insurance in monthly
installments in accordance with Section 38(k).
(b) Throughout the Term, Tenant shall procure and maintain,
at its expense, a policy of comprehensive public liability insurance,
including contractual liability coverage insuring Landlord, Sudler
Construction Co., Inc., Landlord's Mortgagee and Tenant against
liability arising out of the ownership, use, occupancy or maintenance
of the Property or in any manner related to the Property or any act or
omission of Tenant. The initial amount of such insurance shall be at
least $5,000,000 in combined single limit with respect to injury or
death in any one accident, and at least $1,000,000 for damage to
property. Such amount shall be subject to periodic increase as
reasonably required by Landlord and which is customary with respect to
similar properties in central New Jersey. However, the amount of such
insurance shall not limit Tenant's liability hereunder.
(c) Each insurance policy shall name as insureds Landlord,
Sudler Construction Co., Inc. and any Landlord's Mortgagee, as their
respective interests may appear. Each policy shall contain standard
mortgagee endorsement clauses. All insurance policies shall be
maintained with insurance companies authorized to transact insurance
business in the state in which the Property is located and holding a
"General Policyholder's Rating" of A or better, as set forth in the
most current issue of "Best's Insurance Guide". The original all risk
insurance policy (or copy thereof certified by the insurer) and
certificates evidencing other insurance Tenant is required to maintain
hereunder shall be deposited with Landlord at least ten (10) days
prior to the Commencement Date. Evidence of renewals of all policies
(but not necessarily the actual certificate or policy) shall be
deposited with Landlord not less than twenty (20) days prior to the
end of the term of each such policy. Original and renewal policies or
certificates shall be accompanied by proof of payment of the premiums
therefor. Such insurance shall not be subject to cancellation except
after at least thirty (30) days prior written notice to Landlord and
Landlord's Mortgagee, and any loss shall be payable notwithstanding
any act or negligence of Tenant or Landlord.
(d) Landlord and Tenant shall each obtain for each insurance
policy procured by it regarding the Property or any property located
thereon, an appropriate clause therein or endorsement thereto pursuant
to which each such insurance company waives its subrogation rights
against Landlord and Tenant. If waiver of subrogation shall not be
<PAGE>
obtainable except at additional charge, Tenant shall pay the insurer's
additional charge therefor.
8. Utilities. Tenant shall pay, directly to the
---------
appropriate supplier, the cost of all light, power, natural gas, fuel,
oil, sewer service, sprinkler stand-by service, water, telephone,
refuse disposal and other utilities and services supplied to the
Property. Landlord shall not be liable to Tenant, and Tenant's
obligations under the Lease shall not be abated, in the event of any
interruption or inadequacy of any utility or service supplied to the
Property.
9. Use of Property. (a) The Property may only be used for
---------------
the use set forth in Par. l(f).
(b) Notwithstanding the foregoing, Tenant shall not use or
permit the Property to be used for (i) any unlawful purpose; (ii) in
violation of any certificate of occupancy covering the Property; or
(iii) any use which may constitute a public or private nuisance or
make voidable any insurance in force relating to the Property.
(c) Tenant shall not cause or permit any overloading of the
floors of the Building. Tenant shall not install any equipment or
other items upon or through the roof, or cause openings to be made in
the roof, without Landlord's prior written consent.
(d) No storage of any goods, equipment or materials shall be
permitted outside the Building on the Property, except on the elevated
platform at the rear of the Building provided the items stored are
adequately screened from view from adjoining properties. Tenant may
store goods, equipment or materials up to a height of twelve feet on
the elevated platform at the rear of the Building without screening by
canopy or roof, and without additional screening along the easterly
boundary line of the Property. No additional screening shall be
required on the north or south sides of the elevated platform. Trucks
may be parked overnight on the Property.
10. Existing Conditions. Tenant accepts the Property in its
-------------------
"as is" condition as of the date hereof, except Landlord shall perform
the following work prior to and/or during the first three months of
the Term: (i) convert oil heating units to natural gas heating units:
(ii) put all dock shelters in good order and repair; (iii) put all
lighting in good working order; (iv) place elevated platform at the
rear of the Building in good order and repair; and (v) remove
free-standing heating, ventilation and air-conditioning unit from the
computer area and restore any damage caused by such removal. Tenant
acknowledges that Landlord has not made any representation as to the
condition of the Property or the suitability of the Property for
Tenant's intended use.
11. Maintenance and Repairs. (a) Landlord shall maintain
-----------------------
and keep in good repair the structural components and foundations of
the Building, except that Tenant shall repair any damage thereto
caused by Tenant's negligence, Tenant's acts or performance by Tenant
of any construction on the Property. Except as above provided, Tenant
shall keep and maintain the Property (including all non-structural,
exterior, interior and landscaped areas, and systems and equipment) in
good order, condition and repair during the Term. Tenant shall
promptly replace any portion of the Property or any systems or
equipment thereof which cannot be fully repaired. All repairs and
replacements shall be performed in a good and workmanlike manner. All
of Tenant's obligations to maintain and repair the Property shall be
accomplished at Tenant's sole expense.
(b) Tenant shall keep and maintain all portions of the
Property and the parking areas, sidewalks and landscaped areas, in an
<PAGE>
attractive and clean condition free of dirt and rubbish, and clear the
parking areas and sidewalks of accumulations of snow and ice.
(c) During the Term, Tenant shall procure and maintain the
following service contracts: (i) contract for inspection and
maintenance of the roof of the Building (the inspections pursuant to
such contract shall be made at least semi-annually); (ii) contract for
the inspection, service, maintenance and repair of all heating,
ventilating and air conditioning equipment installed in the Building
(the inspection pursuant to such contract shall be made at least
quarterly); and (iii) contract for maintenance of the landscaped areas
of the Property. The identity of each contractor and each contract
shall be subject to Landlord's reasonable approval. Copies of reports
of inspections made hereunder shall be promptly supplied to Landlord.
(d) Notwithstanding anything herein to the contrary, in the
event the roof on the Building is required to be replaced during the
Term, Landlord shall replace the roof and the cost thereof shall be
apportioned between Landlord and Tenant as follows: The roof shall be
deemed to have a twelve year useful life. Tenant shall pay to
Landlord such portion of the cost equal to the ratio of the period
remaining in the Term to twelve years, except that if twelve or more
years remain in the Term, Tenant shall pay the entire cost of
replacing the roof. If less than twelve years remain in the Term and
Tenant exercises its option to extend the Term, Tenant's portion of
the roof cost shall be recomputed to be equal to the ratio of the
period remaining in the Initial Term and Extension Term to twelve
years, and Tenant shall pay to Landlord at the time it exercises its
option the difference between its share of the roof cost as recomputed
and the amount previously paid.
12. Alterations and Improvements. (a) Tenant shall not
----------------------------
make any alterations, additions or improvements to the Property (the
"Alterations") without Landlord's prior written consent, except for
non-structural Alterations which do not exceed $25,000 in cost and
which are not visible from the outside of the Building. In no event
shall Alterations reduce the size or cubic content of the Building or
reduce the value of the Property. Tenant shall submit to Landlord
detailed plans and specifications for Alterations requiring Landlord's
consent and reimburse Landlord for all reasonable expenses incurred by
Landlord in connection with its review thereof, except that Tenant
shall not be required to reimburse Landlord for its expenses in
reviewing plans and specifications for Alterations required for
Tenant's initial fit-up of the Building. Tenant shall also provide to
Landlord for its reasonable approval the identity of the contractor
Tenant proposes to employ to construct the Alterations. All
Alterations shall be accomplished in accordance with the following
conditions:
(1) Tenant shall procure all governmental permits and
authorizations for the Alterations, and obtain and provide to Landlord
an official certificate of occupancy and/or compliance upon completion
of the Alterations, if appropriate.
(2) Tenant shall arrange for extension of the general
liability insurance provided for in Section 7(b) to apply to the
construction of the Alterations. Further, Tenant shall procure and
maintain Builders Risk Casualty Insurance in the amount of the full
replacement cost of the Alterations and statutory Workers Compensation
Insurance covering persons employed in connection with the work. All
such insurance shall conform to the requirements of Section 7(c).
(3) Tenant shall construct the Alterations in a good and
workmanlike manner utilizing new materials similar in quality to
materials then in the Building and in compliance with all laws and
governmental regulations.
<PAGE>
of this Lease or sublease of a substantial portion of the Property, to
terminate this Lease as of the effective date of such proposed
assignment or sublease. In the event of a proposed sublease of less
than a substantial portion of the Property, Landlord shall have the
right to terminate this Lease with respect to the portion of the
Property to be sublet, and this Lease shall continue with respect to
the remaining portion of the Property. Landlord may enter into a
direct lease with the proposed assignee or sublessee, if Landlord so
elects. Landlord's acceptance of rent from a proposed assignee or
sublessee shall not be construed to constitute its consent to an
attempted assignment or subletting.
(c) in the event of a permitted assignment or subletting,
Tenant shall remit to Landlord as additional rent each month during
the remainder of the Term any rent or other sums received by Tenant
from its assignee or sublessee in excess of the Fixed Rent and other
charges paid by Tenant allocable to the Property or portion thereof
sublet, as the case may be.
(d) No assignment or subletting hereunder, whether or not
with Landlord's consent, shall release Tenant from any obligations
under this Lease, and Tenant shall continue to be primarily liable
hereunder. If Tenant's assignee or sublessee defaults under this
Lease, Landlord may proceed directly against Tenant without pursuing
its remedies against the assignee or sublessee. Consent to one
assignment or subletting shall not be deemed a consent to any
subsequent assignment or subletting. Landlord may consent to
subsequent assignments or modifications of this Lease or sublettings
without notice to Tenant and Tenant shall not be relieved of liability
under this Lease.
(e) Tenant shall pay to Landlord upon demand all costs,
including reasonable legal fees, which Landlord shall incur in
reviewing any proposed assignment or subletting.
19. Casualty. If the Building is damaged by fire or other
--------
casualty, and (i) the insurance proceeds received by Landlord on
account of such damage are sufficient to pay for the necessary
repairs, (ii) Landlord's Mortgagee permits Landlord to utilize the
insurance proceeds to repair such damage, and (iii) the Building can
be fully repaired within one hundred eighty days (180) days after such
casualty occurred, this Lease shall remain in effect and Landlord
shall repair the damage as soon as reasonably possible. If any of the
foregoing conditions requiring Landlord to repair the Building is not
met, Landlord may elect either to (i) terminate this Lease; or (ii)
repair the damage as soon as reasonably possible, in which event this
Lease shall remain in full force and effect (but Tenant shall then
have the right to terminate this Lease if the Building cannot be fully
repaired within one hundred eighty (180) days after such casualty
occurred). Landlord shall notify Tenant of its election within thirty
(30) days after Landlord receives notice of the occurrence of the
casualty. Tenant's notification. if any, shall be required within ten
(10) days thereafter. In the event this Lease shall remain in full
force and effect following a casualty, there shall be no abatement of
the Fixed Rent or additional rent payable hereunder, but the proceeds
of the rental income insurance described in Section 7 shall be applied
against Tenant's rental obligations as received by Landlord. Tenant
waives the protection of any law which grants a tenant the right to
terminate a lease in the event of the destruction of a leased
property, and agrees that the provisions of this paragraph shall
govern in the event of any destruction of the Building. Landlord
shall not be required to repair improvements or alterations to the
Property made by Tenant, except to the extent Landlord receives
insurance proceeds therefor.
<PAGE>
20. Condemnation. If more than five (5%) percent of the
------------
Land and/or Building shall be taken under the power of eminent domain
or sold under the threat thereof ("Condemnation") and Tenant's use of
the Property is materially adversely affected in the reasonable
opinion of Tenant exercised in good faith, this Lease shall terminate
on the date on which title to the Property or portion thereof shall
vest in the condemning authority. If this Lease shall remain in
effect as to the portion of the Property not taken, Landlord shall
restore the improvements of the Property not taken as nearly as
reasonably practicable to their condition prior to the Condemnation,
and the Fixed Rent shall be reduced proportionately in accordance with
the reduction in the square foot area of the Building following the
Condemnation. Landlord shall be entitled to receive the entire award
in any Condemnation proceeding relating to the Property, except that
Tenant may assert a separate claim to an award for its moving expenses
and for fixtures and personal property installed by Tenant at its
expense. It is understood that Tenant shall have no claim against
Landlord for the value of the unexpired Term of this Lease or any
options granted under this Lease. Landlord shall not be required to
restore improvements or alterations to the Property made by Tenant.
21. Surrender of Property. Upon termination of the Lease,
---------------------
Tenant shall surrender the Property to Landlord, broom clean, and in
good order and condition, except for ordinary wear and tear, and
damage by casualty which Tenant was not obligated to remedy under
Section 19. Tenant shall remove its machinery and equipment and
repair any damage to the Property caused by such removal. Tenant
shall not remove any power wiring or power panels, lighting or
lighting fixtures, wall coverings, blinds or other window coverings,
carpets or other floor coverings, heaters or air conditioners or
fencing or gates, except if installed by Tenant and required by
Landlord to be removed from the Property. ALL personal property of
Tenant remaining on the Property after Tenant's removal shall be
deemed abandoned and at Landlord's election may either be retained by
Landlord or may be removed from the Property at Tenant's expense.
22. Holdover. In the event Tenant remains in possession of
--------
the Property after the expiration of the term of this Lease (the
"Holdover Period"), in addition to any damages to which Landlord may
be entitled or other remedies Landlord may have by law, Tenant shall
pay to Landlord a rental for the Holdover Period at the rate of twice
the annual rent payable during the last lease year of the term, plus
all items of additional rent and other charges with respect to the
Property payable by Tenant during the last lease year of the Term.
Nothing herein contained shall be deemed to give Tenant any right to
remain in possession of the Property after the expiration of the Term
of this Lease. The sum due to Landlord hereunder shall be payable by
Tenant upon demand.
23. Events of Default; Remedies. (a) Tenant shall be in
---------------------------
default upon the occurrence of one or more of the following events (an
"Event of Default"): (i) Tenant fails to pay rent required to be paid
by Tenant hereunder within ten (10) days of the date when due; (ii)
Tenant fails to pay any sum other than rent to Landlord or fails to
perform any of Tenant's non-monetary obligations under this Lease for
a period of thirty (30) days after written notice thereof from
Landlord; except that if more than thirty (30) days are required to
cure such non-monetary default, Tenant shall not be in default if such
cure is commenced within such thirty (30) day period and thereafter
diligently pursued to completion; (iii) Tenant abandons the Property
for thirty (30) days or more; provided Tenant shall not be deemed in
default if it temporarily ceases operations due to market conditions;
or (iv) Tenant makes an assignment for the benefit of creditors, or if
a petition for adjudication of bankruptcy or for reorganization is
filed by or against Tenant and is not dismissed within forty-five (45)
<PAGE>
days, or if a receiver or trustee is appointed for a substantial part
of Tenant's property and such appointment is not vacated within
forty-five (45) days.
(b) On the occurrence of an Event of Default, without
limiting any other right or remedy Landlord may have, without notice
or demand, Landlord may:
(i) Terminate this Lease and Tenant's right to possession
of the Property by any lawful means, in which event Tenant shall
immediately surrender possession of the Property to Landlord. At its
option, Landlord may occupy the Property or cause the Property to be
redecorated, altered, divided, consolidated with other adjoining
property, or otherwise prepared for reletting, and may relet the
Property or any part thereof for a term or terms to expire prior to,
at the same time or subsequent to the original Expiration Date, and
receive the rent therefor, applying the sums received first to the
payment of such expenses as Landlord may have incurred in connection
with the recovery of possession, preparing for reletting and the
reletting itself, including brokerage and attorneys' fees, and then to
the payment of damages in amounts equal to the rent hereunder and to
the cost and expense of performance of the other covenants of Tenant
under this Lease. Tenant agrees to pay to Landlord damages equal to
the rent and other sums payable by Tenant under this Lease, reduced by
the net proceeds of the reletting, if any, as ascertained from time to
time. In reletting the Property, Landlord may grant rent concessions,
and Tenant shall not be entitled to any credit therefor. Tenant shall
not be entitled to any surplus resulting from any reletting. If
Landlord elects to occupy the Property or any part thereof, there
shall be allowed against Tenant's obligation for rent during the
period of Landlord's occupancy, the reasonable value of such
occupancy, not to exceed in any event the rent payable hereunder for
such portion of the Property. Such occupancy shall not be construed
as a release of Tenant's liability hereunder.
(ii) Permit Tenant to remain in possession of the
Property, in which event this Lease shall continue in effect.
Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to receive the rent as
it becomes due under this Lease.
(iii) Pursue any other remedy now or hereafter available
under the laws of the jurisdiction in which the Property is located.
(c) The remedies available to Landlord herein specified are not
intended to be exclusive and prevent Landlord from exercising any
other remedy or means of redress to which Landlord may be lawfully
entitled. In addition to other remedies provided in this Lease,
Landlord shall be entitled to restraint by injunction of any violation
or threatened violation by Tenant of any of the provisions of this
Lease as a court may deem appropriate. Landlord's exercise of any
right or remedy shall not prevent Landlord from exercising any other
right or remedy.
(d) To the extent permitted by law, Tenant, for itself and
any person claiming through or under Tenant, waives any equity or
right of redemption provided by any law.
24. Service Fee; Interest. (a) Tenant's failure to pay
---------------------
rent promptly or make other payments required under this Lease may
cause Landlord to incur unanticipated costs, which are impractical to
ascertain. Therefore, if Landlord does not receive any payment of
Fixed Rent, additional rent or other sums due from Tenant to Landlord
within five (5) days after it becomes due, Tenant shall pay Landlord
as additional rent a service fee equal to six (6%) percent of the
<PAGE>
overdue amount. Such service fee shall not apply to sums other than
rent unless unpaid for more than thirty (30) days. This service fee
shall be in addition to reasonable legal fees and costs incurred by
Landlord in enforcing this Lease.
(b) Any amount owed by Tenant to Landlord which is not paid
when due shall bear interest at the rate of eighteen (18%) percent
per annum ("Default Interest") from the due date of such amount. The
payment of Default Interest on such amounts shall not extend the due
date of any amount owed. If the interest rate specified in this Lease
shall exceed the rate permitted by law. the Default Interest shall be
deemed to be the maximum legal interest rate permitted by law.
25. Indemnification by Tenant. Tenant shall indemnify and
-------------------------
hold harmless Landlord and Sudler Construction Co., Inc. from and
against all liability, claims or costs including reasonable legal
fees, arising from (i) Tenant's use of the Property; (ii) any breach of
this Lease by Tenant; (iii) any other act or omission of Tenant
related to the Property; or (iv) any injury to person or damage to
property occurring on the Property. Tenant shall defend Landlord and
Sudler Construction Co., Inc. against any such claim of a third party,
with counsel reasonably acceptable to Landlord or at Landlord's
election, Tenant shall reimburse Landlord for reasonable legal fees
incurred by Landlord's employment of its own counsel.
26. Landlord's Right to Cure Tenant's Default. If Tenant
-----------------------------------------
fails to make any payment or perform any act on its part to be made or
performed, then Landlord, without waiving or releasing Tenant from
such obligation, may make such payment or perform such act on Tenant's
part, and the costs incurred by Landlord in connection with such
payment or performance, together with Default Interest thereon, shall
be paid on demand by Tenant to Landlord as additional rent.
27. Waiver of Liability. Landlord shall not be liable for
-------------------
any injury or damage to the business, equipment, merchandise or other
property of Tenant or any of Tenant's employees or invitees or any
other person on or about the Property, resulting from any cause,
including, but not limited to: (i) fire, steam, electricity, water,
gas or rain; (ii) leakage, obstruction or other defects of pipes,
sprinklers, wires, plumbing, air conditioning, boilers or lighting
fixtures; or (iii) condition of the Property. The provisions of this
Section shall not exempt Landlord from liability for Landlord's
negligence or willful misconduct, except where covered by any of
Tenant's insurance policies.
28. Force Majeure. If either party is unable to perform any
-------------
of its obligations due to events beyond such party's reasonable
control, the time provided to such party for performing such
obligations shall be extended by a period of time equal to the
duration of such events, and the other party shall not be entitled to
any claim against such party by reason thereof. Events beyond a
party's reasonable control include, but are not limited to, acts of
God, war, civil commotion, labor disputes, strikes, casualty, weather
conditions, labor or material shortages, or government regulation or
restriction. Nothing herein shall delay or affect Tenant's obligation
to pay Fixed Rent, real property impositions or other items of
additional rent payable by Tenant under this Lease as the same becomes
due.
29. Notice of Landlord's Default. Tenant shall give written
----------------------------
notice of any failure by Landlord to perform any of its obligations
under this Lease to Landlord and any ground lessor or Landlord's
Mortgagee whose name and address have been furnished to Tenant.
Landlord shall not be in default under this Lease unless Landlord (or
such ground lessor or Landlord's Mortgagee) fails to cure such
<PAGE>
non-performance within thirty (30) days after receipt of Tenant's
notice. If more than thirty (30) days are required to cure such
non-performance, Landlord shall not be in default if such cure is
commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
30. Landlord's Liability Limited. There shall be no
----------------------------
personal liability of the Landlord or any partner, stockholder,
officer. director or other principal of Landlord in connection with
this Lease. Tenant agrees to look solely to the interest of Landlord
in the Property for the collection of any judgment or other judicial
process requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to this Lease or in any way
relating to the Property. No other assets of Landlord or any
principal of Landlord shall be subject to levy, execution or other
procedures for the satisfaction of Tenant's remedies.
31. Estoppel Statement; Financial Statement. (a) Upon
---------------------------------------
Landlord's request, Tenant shall execute, acknowledge and deliver to
Landlord a written statement certifying: (i) the Commencement Date;
(ii) the Expiration Date; (iii) that this Lease is in full force and
effect and unmodified (or if modified, stating the modifications):
(iv) the last date of payment of the Fixed Rent and other charges and
the time period covered by each payment; and (v) that Landlord is not
in default under this Lease (or, if Landlord is claimed to be in
default, stating the nature of the default). Tenant shall deliver
such statement to Landlord within fifteen (15) days after Landlord's
request. Any such statement may be given to and relied upon by any
prospective purchaser or encumbrancer of the Property.
(b) Within ten (10) days after Landlord's request, Tenant
shall deliver to Landlord such financial statements as are reasonably
required to verify the net worth of Tenant. Any such statement may be
given by Landlord to any Landlord's Mortgagee or prospective
encumbrancer of the Property, and shall be kept confidential by each
of them. Tenant represents to Landlord that each such financial
statement is a true and accurate statement in all material respects as
of the date of such statement.
32. Quiet Enjoyment. (a) Landlord covenants that as long as
---------------
Tenant pays the Fixed Rent and additional rent and performs its other
obligations under this Lease. Tenant shall peaceably and quietly have,
hold and enjoy the Property for the term provided by this Lease,
subject to the provisions of this Lease, any mortgage or other
agreement to which this Lease is subordinate.
(b) Landlord reserves to itself such access and utility
easements over, under and across the Property as may be required by
Landlord from time to time in connection with the ownership, use or
operation of any other property of Landlord or any affiliated party of
Landlord. No such easement shall materially interfere with Tenant's
use of the Property.
33. Subordination; Attornment. (a) This Lease is subject
-------------------------
and subordinate to any ground lease or mortgage which may now or
hereafter encumber the Property, and any renewals, modifications,
consolidations, replacements or extensions thereof.
(b) If Landlord's interest in the Property is acquired by
any ground lessor, Landlord's Mortgagee, or purchaser at a foreclosure
sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or
successor as landlord under this Lease. Such transferee or successor
shall not be liable for any act or omission of any prior landlord, or
be subject to any offsets or defenses which Tenant might have against
<PAGE>
any prior landlord, or be bound by any Fixed Rent which Tenant might
have paid for more than the current month to any prior landlord, or be
liable for any security deposit under this Lease unless actually
transferred to such transferee or successor.
(c) Landlord agrees to use its best efforts to obtain from
the present Landlord's Mortgagee, and shall obtain from any future
ground lessor or future Landlord's Mortgagee its agreement that as
long as Tenant is not in default under this Lease, if the ground lease
is terminated or mortgage foreclosed, the ground lessor or Landlord's
Mortgagee will not disturb Tenant's possession and use of the Property
in accordance with this Lease.
(d) The foregoing provisions shall be self-operative and no
further instrument or act on the part of Tenant shall be necessary to
effect the same. Tenant shall nevertheless sign and deliver any
document reasonably necessary or appropriate to evidence the
subordination, attornment or agreement above provided.
(e) Until such time as Landlord obtains a non-disturbance
agreement from the present Landlord's Mortgagee as described in
Section 33(c) above, and provided that Tenant is not in default under
this Lease, then landlord, David S. Steiner and Samuel Sudler
personally shall indemnify, defend and hold Tenant harmless from and
against any and all losses, costs, damages, liabilities and expenses
incurred by Tenant in connection with (i) any foreclosure or other
action brought by the present Landlord's Mortgagee to enforce its
rights under the mortgage existing and enforceable as of the date
hereof, or (ii) any action brought by the present Landlord's Mortgagee
under the mortgage existing and enforceable as of the date hereof to
void this Lease.
34. Brokerage. Each party represents to the other that it
---------
did not deal with any real estate broker in connection with this
Lease, other than the real estate broker (if any) whose identity is
set forth in Section l(h). The commission of such broker (if any)
shall be paid by the party as set forth in Section l(h). Each party
shall indemnify and hold the other harmless from any claim for a
commission or other fee made by any broker with whom the indemnifying
party has dealt, other than the broker identified in Section l(h).
35. Security Deposit. Upon execution of this Lease, Tenant
----------------
shall deposit with Landlord the sum set forth in Par. l(g) as security
for the performance by Tenant of its obligations under this Lease (the
"Security Deposit"). Landlord shall place the Security Deposit in an
interest bearing account. Landlord shall have the right to use the
Security Deposit to cure any default of Tenant hereunder, including,
but not limited to, payment of Fixed Rent, additional rent, service
fees or other debts of Tenant due Landlord, or repair or restoration
of the Property. If Landlord uses any part of the Security Deposit,
Tenant shall restore the Security Deposit to its full amount within
thirty (30) days after Landlord's demand therefor. Provided Tenant
has fully complied with all of the terms of this Lease, Landlord shall
return the Security Deposit to Tenant with interest on the date thirty
(30) days after the surrender of the Property by Tenant. Landlord may
deliver the Security Deposit to the purchaser or other transferee of
Landlord's interest in the Property in the event the Property is sold
or otherwise transferred, and Landlord shall be discharged from any
further liability with respect to the Security Deposit.
36. Notices. All notices in connection with this Lease or
--------
the Property shall be in writing and shall be personally delivered or
sent by certified mail, return receipt requested, postage prepaid or
by recognized courier service (e.g., Federal Express, Purolater).
Notices to Landlord shall be delivered to the address specified in
<PAGE>
Par. l(b). Notices to Tenant shall be delivered to the address
specified in Par. 1(c), marked to the attention of Tenant's General
Counsel. All notices shall be effective upon delivery or attempted
delivery in accordance with this provision. Either party may change
its notice address upon written notice to the other party given in
accordance with this provision. All invoices and similar
communications as well as a copy of all Notices, shall also be sent to
Tenant at the Property.
37. Memorandum of Lease. Tenant shall not record this
-------------------
Lease. However, either Landlord or Tenant may require that a
memorandum of this Lease executed by both parties be recorded. Such
memorandum shall include such portions of this Lease as either party
may reasonably require, but shall not specify the amount of Fixed Rent
payable hereunder.
38. Miscellaneous. (a) The failure of either party to
-------------
insist on strict performance of any provision of this Lease, or to
exercise any right contained herein, shall not be construed as a
waiver of such provision or right in any other instance. All
amendments to this Lease shall be in writing and signed by both
parties.
(b) The captions in this Lease are intended to assist the
parties in reading this Lease and are not a part of the provisions of
this Lease. Whenever required by the context of this Lease, the
singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each
include the other.
(c) This provision intentionally deleted.
(d) The laws of the state in which the Property is located
shall govern this Lease.
(e) If Tenant is a corporation or partnership. each person
signing this Lease on behalf of Tenant represents that he has full
authority to do so and that this Lease binds the corporation or
partnership, as the case may be.
(f) This Lease is binding upon any party who legally
acquires any rights or interest in this Lease from Landlord or Tenant:
provided, however, Landlord shall have no. obligation to Tenant's
successor unless the interest of Tenant's successor in this Lease is
acquired in accordance with Section 18.
(g) The submission of this Lease to Tenant shall not be
deemed to be an offer and shall not bind either party until duly
executed by Landlord and Tenant.
(h) This Lease may be executed in counterparts, and, when
all counterpart documents are executed, the counterparts shall
constitute a single binding instrument.
(i) A determination by a court of competent jurisdiction
that any provision of this Lease or any part thereof is illegal or
unenforceable shall not invalidate the remainder of this Lease or such
provision, which shall continue to be in effect.
(j) Tenant represents to Landlord that the present net
worth of Simmons Company, the named Tenant herein, is in excess of
$25,000,000.
(k) At the request of Landlord, Tenant shall pay real
property impositions or other expenses of the Property to Landlord in
<PAGE>
monthly installments on an estimated basis as determined by
Landlord. Landlord may adjust such estimate at any time and from time
to time based upon Landlord's experience and anticipation of costs.
No more than thirty (30) days after the end of each calendar year
during the term, Landlord shall deliver to Tenant a statement setting
forth the actual real property impositions or other expenses of the
Property for such calendar year for which estimated payments were
made, the amount paid by Tenant on account thereof, and the amount due
to or from Tenant. If Tenant has paid less than the actual amount
due, Tenant shall pay the difference to Landlord within thirty (30)
days after Landlord's request therefor. Any amount paid by Tenant
which exceeds the amount due shall be credited against the next
succeeding estimated payments due hereunder, unless the term has then
expired, in which event the excess amount shall be refunded to
Tenant.
The riders enumerated in Section l(i) are attached hereto and
made a part of this lease as fully as if set forth herein at length.
The terms used in the rider have the same meanings as set forth in the
Lease. The provisions of a rider shall prevail over any provisions of
the lease which are inconsistent or conflict with the provisions of
the rider.
IN WITNESS WHEREOF, the parties hereby have duly executed
this Lease as of the date set forth in Section l(a).
LANDLORD:
WITNESS OR ATTEST: 287 INDUSTRIAL PARK
__________________ By: /s/ David Steiner
-------------------------
Its: General Partner
------------------------
TENANT:
WITNESS OR ATTEST: SIMMONS COMPANY
__________________ By: /s/
-------------------------
Its: Executive Vice President
------------------------
/s/ Samuel Sudler
-----------------------------
Samuel Sudler
as to Section 33(e)
of the Lease only
/s/ David S. Steiner
-----------------------------
David S. Steiner
as to Section 33(e) of
the Lease only
<PAGE>
RENT RIDER
----------
Date of Lease: September 16, 1988
Landlord: 287 Industrial Park
Tenant: Simmons Company
Property: 365 South Randolphville Road
Piscataway, New Jersey
The Fixed Rent payable by Tenant to Landlord during the Term
shall be at the annual amounts and for the periods and be payable in
the monthly installments as follows:
Period Monthly Installment Annual Amount
- ------ ------------------- -------------
Lease Years 1-5 * $ 83,666.78 $1,004,001.30
Lease Years 6-10 $100,444.28 $1,205,331.40
Lease Years 11-15 $120,533.13 $1,446,397.60
* No Fixed Rent installments shall be payable for the period
from October 1, 1988 to December 31, 1988.
Initials:
-----------------------
For Landlord
-----------------------
For Tenant
<PAGE>
EXTENSION OPTIONS RIDER
-----------------------
Date of Lease: September 16, 1988
Landlord: 287 Industrial Park
Tenant: Simmons Company
Property: 365 South Randolphville Road
Piscataway, New Jersey
1. Grant of Option. Subject to the provisions of Section 3
---------------
of this Rider, Landlord hereby grants to Tenant one (1) option (such
option is hereunder referred to as the "Option") to extend the Term
following the expiration of the original term hereof (the "Initial
Term") for an additional term of five (5) years (such additional term
is hereinafter referred to as the "Extension Term").
2. Exercise of Option. The Option shall be exercised only
------------------
by written notice (the "Extension Notice") delivered to Landlord in
accordance with Section 36 of the Lease at least one (1) year before
the expiration of the Initial Term. Time shall be of the essence
with respect to delivery of the Extension Notice and if Tenant fails
to deliver any Extension Notice within the specified time period, the
Option related thereto shall lapse, and Tenant shall have no further
right to extend the Term.
3. Conditions Precedent to Option. The Option shall be
------------------------------
exercisable by Tenant and the Lease shall continue for the Extension
Term on all of the following conditions:
(a) At the time Landlord receives the Extension Notice and
at the commencement of the Extension Term related thereto, Tenant
shall not be in continuing default under any of the provisions of the
Lease.
(b) At the time Landlord receives the Extension Notice and
at the commencement of the Extension Term related thereto, the Tenant
named in Section 1(c) of the Lease shall not have assigned the Lease
or sublet any portion of the Property, except as permitted in Section
18(a) of the Lease.
4. Extension Term Provisions. The Extension Term shall be
-------------------------
on all of the same terms and conditions set forth in the Lease and
applicable to the Initial Term, except as follows:
The Fixed Rent payable by Tenant during the Extension Term
shall be at the annual amounts and for the periods and be payable in
the monthly installments as follows:
Period Monthly Installment Annual Amount
------ ------------------- -------------
Lease Years 16-20 $150,776.80 $1,809,321.60
Initials:
-----------------------
For Landlord
-----------------------
For Tenant
<PAGE>
SIMMONS COMPANY
#6 Executive Park Drive Atlanta, Georgia, 30329
December , 1989
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
RE: Premises: 365 South Randolphville Road
Piscataway, New Jersey
Gentlemen:
The undersigned is Lessee of a 264,908 square foot building
located at the above address, under a lease dated September 16, 1988.
The undersigned has been informed that you are the holder of
a mortgage loan on 365 South Randolphville Road, Piscataway, New
Jersey, and that you will be receiving an Assignment of all leases,
including this one, as collateral security for said mortgage loan, and
that you are acting in reliance upon this letter. We agree not to
subordinate our lease to any second mortgage without your written
consent.
The undersigned has been requested to, and does hereby
certify to you that it has accepted possession of the premises in the
above building and is in possession of same, and that the lease
commenced on the 1st day of October, 1988, and the lease terminates on
the 31st day of December, 2003.
The building has been erected and the parking area completed
in accordance with the terms of the lease. There is no offset of
rent; to the undersigned's knowledge, there has been no violation of
or default under any of the lease terms on the part of the Landlord
or the Tenant as of this date.
We have no knowledge of any circumstances giving rise to any
credit or set-off against the obligation for present or future
rentals, and we have no notices of any prior assignment,
hypothecation, or pledge of the rents under the lease.
We agree to give to you written notice of any default or
defaults by Landlord under the lease concurrently with the giving of
<PAGE>
Massachusetts Mutual Life Insurance Company
December , 1989
Page 2
any such notice to the Landlord. You will have an opportunity to cure said
default from the date of the notice to a time prior to the exercising of our
rights, if any, arising under the lease in accordance with Section 29 of the
lease. Such a notice shall be sent to the following address:
Real Estate Investment Division
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Vice President
Real Estate Investment Division
For Ten Dollars in hand paid, the receipt whereof is hereby
acknowledged, and other good and valuable consideration the
undersigned hereby subordinates all of its right, title and interest
under the terms of its lease to the lien, operation and effect of any
mortgage or mortgages (as modified or extended) of your Company, or
the first lien resulting from any other method of financing or
refinancing, now or hereafter in force against the land and/or 264,908
square foot building or against any improvements hereafter placed upon
the land of which the leased premises are a part, and to all advances
hereafter to be made upon the security hereof under any first lien.
In the event your Company or third party becomes the owner of
365 Randolphville Road. Piscataway, New Jersey, including land and
improvements, by foreclosure or otherwise, the undersigned agrees to
attorn to your Company or any purchaser and to recognize either your
Company or any purchaser as the Landlord. Your Company agrees that by
accepting this Tenant's Acceptance Letter Agreement, that it will not
disturb or interfere with the possession of the undersigned during the
term of the lease or any extension or renewal thereof, except as otherwise
permitted by the terms of the lease.
Very truly yours,
SIMMONS COMPANY
By:___________________
Exhibit 10.35
COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
THIS LEASE is made this 4th day of December, 1987 by and between
--- --------
Bluefin Associates, a Missouri General Partnership, LESSOR, and Simmons U.S.A.
Corporation, a Georgia Corporation, LESSEE, hereinafter referred to as the
"Lease".
LESSOR hereby leases to LESSEE, and LESSEE hereby leases from LESSOR,
the following described premises, hereinafter referred to as "the Premises", TO-
WIT:
125,000 SQUARE FEET of warehouse/manufacturing space, including 8,000 square
feet of ground-level or mezzanine-level office space, more particularly
described on Exhibit "A" and in Special Stipulation A attached hereto and
incorporated herein by reference.
1. TERM: The term shall be for a period of ten (10) years, from
Commencement Date (as defined in special Stipulation B.) The term of this lease
shall expire, unless sooner terminated or extended as in this Lease provided, on
the day immediately preceding the tenth (10) anniversary of the Commencement
Date. After the Commencement Date, the LESSEE shall upon demand, execute and
deliver to LESSOR a letter of acceptance of delivery of the Premises.
1a. OPTION TO RENEW. Providing LESSEE is not in default of any of
the material terms and conditions of this lease on the date of exercise of the
option then ripe for exercise as herein provide, LESSEE shall have the option,
exercisable on each occasion by written notice to LESSOR given at least 180 days
prior to the expiration of the then current term, to renew this Lease for two
periods of five years, which each option term commencing upon expiration of the
immediately preceding term, said option being granted only to the original
LESSEE executing this Lease and, notwithstanding anything to the contrary
contained in this Lease, the rights contained in this renewal option are not
assignable or transferable by such original LESSEE other than to a subsidiary,
parent, or division of LESSEE, with LESSEE remaining liable to LESSOR hereunder
(an "Affiliate") or to a permitted assignee pursuant to Paragraph 7.
1b. RENTAL ADJUSTMENT YEARS SIX THROUGH TEN. The base rent shall be
adjusted as of the first day of the sixth year of this lease. As of such date,
the base rent shall be adjusted upward to a minimum of $115% and the maximum of
125% of the base rent paid for the first five years of the term of this lease.
Subject to such minimum and maximum increases the base rent for the second five
years of the term hereof shall be an amount equal to the product of:
(a) the base rent in effect during the first five year term
multiplied by:
(b) a fraction the numerator of which is the Consumer Price
Index for all items (CPI) U.S. cities average published for
the month immediately preceding the first month of the sixth
year of the term hereof and the denominator of which is the
Consumer Price Index for all items (CPI) U.S. cities
average published for the month in which the commencement
date of this lease falls.
<PAGE>
1c. RENTAL ADJUSTMENT FIRST FIVE YEAR OPTION. The base rent shall be
adjusted as of the first day of the first option period (years eleven through
fifteen) of this lease if the first option to renew is exercised. The base rent
for such option period shall be adjusted as of the first day of the option
period upward to a minimum of 115% and a maximum of 125% of the base rent paid
for years six through ten of the term of this lease. Subject to such minimum
and maximum increases the base rent for the first option period hereof shall
be an amount equal to the product of:
(a) the base rent in effect during years six through ten
multiplied by
(b) a fraction the numerator of which is the Consumer Price
Index for all items (CPI) U.S. cities average published for
the month immediately preceding the first month of the firs
option period (the 120th month of this lease) and the
denominator of which is the Consumer Price Index for all
items (CPI) U.S. cities average published for the month
immediately preceding the first month of the sixth lease
year hereof.
1d. RENTAL ADJUSTMENT SECOND FIVE YEAR OPTION. The rental for the
second option period shall be a ninety (90%) percent of the then prevailing
market rate for similar properties in the market area in which the Premises is
located. If LESSOR and LESSEE are unable to agree upon the market rental for
such space within two hundred ten (210) days prior to the expiration of the
initial term or renewal term as the case may be, they will jointly notify the
President of the New England Chapter of the Society of Industrial Realtors to
appoint a committee of there (3) active members, who regularly engage in the
industrial market in the Springfield/Hartford/Boston area and who shall be
wholly independent, to determine the market rental. The parties will be bound
by the findings of said panel whose report will be in writing presented to both
LESSOR and LESSEE simultaneously no later than (30) thirty days after the
request for said opinion is made to the President of the Chapter. The cost to
obtain said opinion will be equally shared between LESSEE and LESSOR. In the
event the report of the panel is not delivered prior to the date by which LESSEE
must give notice of exercise of its option, the date shall be extended for a
period ending two business days after the date LESSEE receives a copy of the
panel's report.
2. BASE RENT: LESSEE agrees to pay LESSOR a Base Rent of Four
Hundred Thirty Seven Thousand Three Hundred Fifty-Two DOLLARS ($437,352.00) per
year as rent for the Premises, in monthly installments of Thirty Six Thousand
Four Hundred Forty Six DOLLARS ($36,446.00) for the first five (5) years of the
lease, to be adjusted in the sixth through the tenth year of the term hereof by
the formula described in paragraph 1b above, each due and payable commencing on
the Commencement Date and continuing on the first day of each and every month of
the demised term hereof at Kessinger/Hunter & Co. 1102 Grand Avenue, Suite 300
Kansas City, MO 64106 or at such other place as LESSOR may designate from time
to time, in writing. The rental as defined above has been derived by
multiplying the total building space by $3.39 per square foot and the total
office space by $1.70 per square foot. In the event the final plans for the
building result in the building have a different ration of office space, the
Base Rent shall be adjusted to reflect such variation. The rental payment for
any fractional calendar month at the commencement or end of the lease period
shall be prorated. Except for the provisions of the special stipulations and
paragraphs 12 or 13 hereunder, this Lease is intended, and is hereby declared to
be a "net" lease, it being the intention of the parties hereto that the LESSOR
shall have and enjoy the rent herein reserved to it without deduction therefrom
and LESSEE agrees, subject to the provisions of this Lease to pay and to
discharge, as additional rent, punctually as and when the same shall become due
and payable, each and
Page 2
<PAGE>
every cost, expense and obligation of every kind and nature, foreseen or
unforseen, for the payment of which LESSOR or LESSEE shall become liable by
reason of its estate of interest in the Premises or any portion thereof, or by
reason of any right or interest of LESSOR or LESSEE in or under this Lease, or
by reason or in any manner connected with or arising out of the possession,
operation, maintenance, alteration, repair, rebuilding, use or occupancy of the
Premises. Nothing herein contained, however, shall be construed so as to
require the LESSEE to pay or be liable for any gift, inheritance, estate,
franchise, income, profit, capital or similar tax, or any other tax in lieu of
any of the foregoing, imposed upon the LESSOR, or the successor or assign of the
LESSOR, unless such tax shall be imposed or levied upon or with respect to rents
payable to the LESSOR hereunder in lieu of real estate taxes upon the Premises.
Any payment to LESSOR not received within 15 days after it is due
shall bear interest, from its original due date through the date received by
LESSOR in legal tender, at the lesser of: (i) the annual rate of 18%, calculated
on the basis of a 365-day year for the number of days actually outstanding, or
(ii) the maximum annual rate permitted by any applicable usury law of the state
where the Property is situated. Any advances properly made, or costs or
expenses properly paid by LESSOR after any Event of Default and written notice
to LESSEE of the making of such advance, shall bear such interest from the
respective dates of advance or payment, as the case may be, if not reimbursed
within 15 days after demand.
No abatement, diminution or reduction of the base rent or other
charges payable by the LESSEE under this Lease shall be claimed by or allowed to
the LESSEE for any inconvenience, interruption, cessation or loss of business or
otherwise caused directly or indirectly by any present or future laws, rules,
requirements, orders, directions, ordinance or regulations of the United States
of America or of the state, county or city government or any other municipal,
governmental or other lawful authority whatsoever or by priorities, rationing or
curtailment of labor or materials or by war or any matter of things resulting
therefrom or by any other cause shall abate to the extent of actual proceeds
received by the LESSOR from any rent insurance in force at the time of such
occurrence.
3. SECURITY DEPOSIT. Intentionally deleted.
4. USE: LESSEE shall use and occupy the Premises only for use for
office, manufacturing and warehousing and shall not use or occupy the Premises
for any other purpose. LESSEE shall comply in all material respects with all
applicable governmental laws, ordinances and regulation applicable to the use of
the Premises, including the Protective Restrictions for the Agawam Regional
Industrial Park, as recorded in the Hampden County Registry of Deeds, and shall
promptly comply with all applicable governmental orders and directives for the
correction, prevention and abatement of nuisances in or upon, or connected with,
the Premises, all at LESSEE sole expense. Without LESSOR's prior written
consent, LESSEE shall not receive, store or otherwise handle any product,
(including tires, agricultural chemicals and pesticides), material or
merchandise which is explosive or highly flammable which would render the
Insurance thereon void. LESSEE will not permit the Premises to be used for any
other purpose or in any manner (including without limitation any method of
storage) which would render the insurance thereon void or the insurance risk
more hazardous or cause tn insurance authority to disallow any sprinkler credit.
Except as provided in paragraphs 12 and 13 and the Special stipulations, LESSEE
shall be liable for any and all costs and expenses, including without
limitation, the cost of improvements and alterations (subject to Paragraph 15
hereto) required for the Premises to comply with the requirements of this
Paragraph 4 and Paragraph 5 below. See Special Stipulation E.
5. INSURANCE:
(A) LESSEE shall comply in all material respects with all
provisions of the code regulations of the city in which the Premises is located
and all covenants and conditions of insurance policies pertaining to the
Property and nothing shall be done or kept in or on the Premises by
Page 3
<PAGE>
bumpers, fixtures, appliances, and sprinkler system, and shall keep the Premises
and the approaches, and sidewalks adjacent thereto clean and sightly and free
from ice and snow (including policing the grounds). In the event LESSEE does
not make said repairs, LESSOR may give LESSEE written notice to make such
repairs and if LESSEE does not make said repairs within 60 days thereafter,
LESSOR may perform such work and bill LESSEE for same. LESSEE shall be
obligated to repay LESSOR as additional rent the contract amount of said
reasonable repairs within thirty (30) days after receipt of said billing. At
the expiration of the term, LESSEE shall surrender the Premises broom clean, in
as good condition as the reasonable use thereof will permit, ordinary wear and
tear and loss by casualty excepted. All damage to glass, windows and doors
shall be promptly repaired by the LESSEE. All other damage or injury to the
Premises shall be promptly repaired by LESSEE unless expressly provided
otherwise in Paragraph 12 of this Lease or unless the damage was caused by fire
or other casualty or by the negligence or intentional misconduct of LESSOR, its
employees, agents and contractors. LESSOR agrees to use its best efforts to
prevent any unnecessary inconvenience to LESSEE in exercising any of its rights
of access.
10. LESSOR'S RIGHT OF ENTRY: LESSOR or LESSOR's agent may enter the
Premises at reasonable hours upon twenty-four (24) hours prior written notice to
LESSEE (other than in case of emergency) to examine the same and to do anything
LESSOR may be required to do hereunder or which LESSOR may deem reasonably
necessary for the good of the Premises and, during the last ninety (90) days of
this lease, LESSOR may display a "For Rent" sign or, and show, the Premises.
LESSOR agrees to use its best efforts to prevent any unnecessary inconvenience
to LESSEE in exercising any of it rights of access.
11. GROUNDS AND PARKING LOT MAINTENANCE: LESSEE shall be responsible
for the cost of maintenance of the parking lot including snow removal, landscape
maintenance, cleaning, repainting and repairs. LESSEE shall insure that the
parking lot is not damaged by placement or movement of trash containers or the
dollies on semi-trailer trucks, and LESSEE shall be responsible for the cost of
repair of same during the terms of this Lease and upon termination thereof other
than those caused by LESSOR's negligence or misconduct.
12. MAINTENANCE AND REPAIR BY LESSOR: LESSOR shall keep in
reasonably good repair, ordinary wear and tear excepted, foundation and
structural portions of the exterior walls (exclusive of inside surfaces), and
shall maintain the roof in good repair and condition, free from leaks, except as
to damage arising from the negligence of the LESSEE, but nothing herein shall be
construed as requiring LESSOR to repair any fixtures installed by the LESSEE.
LESSOR shall be under no obligation and shall not be liable for any failure to
make any such repairs until and unless LESSEE notifies LESSOR in writing, of the
necessity therefore, in which LESSOR shall have a reasonable time thereafter to
make such repairs. LESSOR reserves the right to the exclusive use of the roof
and exterior walls which LESSOR is so obligated to repair subject to LESSEE's
rights to affix signs as provided in paragraph 8 above.
13. DAMAGE BY CASUALTY: In case, during the term of this lease the
Premises hereby let shall be destroyed or shall be so damaged by fire or other
casualty, as to become untenantable in the reasonable opinion of LESSOR, then in
such event, at the option of LESSOR, the term hereby created shall cease and
this Lease shall become null and void from the date of such damage or
destruction and the LESSEE shall immediately surrender said Premises and all
interest therein, to LESSOR, and LESSEE shall pay rent within said term only to
the time of such damage; provided however, that LESSOR shall exercise such
option to so terminate this Lease by notice in writing delivered to LESSEE
within thirty (30) days after such damage or destruction. In case LESSOR shall
not so elect to terminate this lease, in such event, this Lease shall continue
in full force and effect and the LESSOR shall repair the Premises with all
reasonable promptness and in any event within one hundred eighty (180) days
following the date of the event requiring LESSOR's action, placing the same in
as good a condition as they were at the time of the damage or destruction, and
for that purpose may enter said Premises and rent shall abate in proportion to
the extent and
Page 6
<PAGE>
duration of untenantability. In either event LESSEE shall remove its rubbish,
debris, merchandise, furniture, equipment and other of its personal property
within five (5) days after the request of the LESSOR. If the Premises shall be
but slightly injured, by fire or other casualty, so as not to render the same
untenantable or unfit for occupancy, or, in LESSEE's reasonable opinion, use in
LESSEE's operations as conducted immediately preceding such event, then LESSOR
shall repair the same with all reasonable promptness, and in that case the rent
shall not abate. No compensation or claim shall be made by or allowed to the
LESSEE by reason of any inconvenience or annoyance arising from the necessity of
repairing any portion of the building or the Premises, however the necessity may
occur. If the Premises are not restored within such 180-day period, LESSEE may
terminate this lease upon written notice to LESSOR.
14. PERSONAL PROPERTY: LESSOR shall not be liable for any loss or
damage to any merchandise or personal property in or about the Premises,
regardless of the cause of such loss or damage other than as a result of the
negligence or intentional misconduct of LESSOR, its agents, employees or
contractors.
15. ALTERATIONS: The parties hereto agree that LESSEE is permitted
to make alterations and additions to the Premises that total less than $50,000,
provided that said alterations and additions do not affect the structural
integrity of the building nor involve the penetration of the roof. LESSEE shall
not make any alterations or additions in excess of $50,000.00, without the
prior written consent of LESSOR, which consent shall not be unreasonably
withheld.
16. UTILITIES AND SERVICES: LESSEE shall pay for all electricity,
gas, water, fuel and any services or utilities used in or assessed against the
Premises, unless otherwise herein expressly provided. LESSOR represents nd
warrants that all such utilities will be available to the Premises at Delivery.
17. PUBLIC REQUIREMENTS: LESSEE shall comply in all material aspects
with all laws, orders, ordinances and other public requirements now or hereafter
affecting the Premises or the use thereof, and save LESSOR harmless from expense
or damage resulting from failure to do so.
18. FIXTURES: All buildings, repairs, alterations, additions,
improvements, installations and any other fixtures by whomsoever installed or
erected (except such business trade fixtures, personal property and equipment
belonging to LESSEE as can be removed without leaving damaged or incomplete the
Premises or Property) shall belong to LESSOR and remain on and be surrendered
with the Premises as a part thereof at the expiration of this Lease or any
extension thereof without any compensation of LESSOR.
At LESSOR's option, and upon written notice to LESSEE at least ten
(10) days prior to the termination date of this Lease or upon earlier vacating
of the Premises, all unauthorized alterations, additions, improvements,
installations, and other fixtures by whomsoever installed or erected shall be
removed by the termination date of this Lease or upon earlier vacating of the
Premises. All such removal, including business trade fixtures and equipment
belonging to LESSEE shall be accomplished in a good workmanlike manner so as not
to damage and leave unrepaired the primary structure and structural qualities
of the building and other improvements situated on the Premises.
19. REAL ESTATE TAXES: LESSEE shall, at its own cost and expense,
pay the real estate taxes, both general and special, and any assessments levied
against the Premises, beginning at the commencement of the term hereunder and
continuing until the final termination of this Lease. LESSEE shall pay all
personal property taxes and assessments levied against its contents and personal
property on the Premises. LESSOR shall provide LESSEE with a copy of each tax
notice before the due date indicated thereon. LESSOR agrees to cooperate with
LESSEE in contesting any taxes or assessments imposed with respect to the
Premises or LESSEE's personal property upon request from LESSEE and receipt by
LESSOR of reasonable assurance that provision for payment of such taxes has been
made if such contest is unsuccessful.
Page 7
<PAGE>
20. EMINENT DOMAIN: If the Premises or any substantial part thereof
shall be taken by any competent authority under the power of eminent domain or
be acquired for any public or quasi-public use or purpose, the term of this
Lease shall cease and terminate upon the date when the possession of said
Premises or the part thereof so taken shall be required for such use or purpose
and without apportionment of the award, and LESSEE shall have no claim against
LESSOR for the value of any unexpired term of this Lease. If any condemnation
proceeding shall be instituted in which it is sought to take or damage any part
of LESSOR's building or the land under it or if the grade of any street or alley
adjacent to the Property is changed by any competent authority, such that, in
LESSEE's reasonable opinion, LESSEE's operations at the Premises would be
adversely affected, LESSOR or LESSEE shall have the right to cancel this Lease
after having given written notice of cancellation to the other not less than one
hundred eighty (180) days prior to the date of cancellation designated in the
notice. In either of said events rent at the then current rate shall be
apportioned as of the date of the termination or loss of possession by LESSEE,
if earlier to occur. No money or other consideration shall be payable by the
LESSOR to the LESSEE for the right of cancellation, and the LESSEE shall have no
right to share in the condemnation award or in any judgment for damages caused
by the taking or the change of grade. Nothing in this paragraph shall preclude
an award being made to LESSEE for loss of business or depreciation to and cost
of removal of equipment or fixtures.
21. WAIVER OF SUBROGATION; LIMITATION OF LIABILITY: Anything in this
Lease to the contrary notwithstanding, it is agreed that each party (the
"Releasing Party") hereby releases the other (the "Released Party") from any
liability which the Released Party would, but for this paragraph, have had to
the Releasing Party during the term of this Lease, resulting from the occurrence
of any accident or occurrence or casualty (i) which is or would be covered by a
fire and extended coverage policy (with a vandalism and malicious mischief
endorsement attached) or by a sprinkler leakage, boiler and machinery or water
damage policy in the State of Massachusetts, or (ii) covered by any other
casualty or property damage insurance being carried by the Releasing Party at
the time of such occurrence, which accident, occurrence or casualty may have
resulted in whole or in part from any act or neglect of the Released Party, its
officers, agents or employees; PROVIDED HOWEVER, the release hereinafter set
forth shall not become operative and shall become null and void if the Releasing
Party places the appropriate insurance with an insurance company which (y) takes
the position that the existence of such release vitiates or would adversely
affect any policy so insuring the Releasing Party in a substantial manner and
notice thereof is given to the Released Party, or (z) requires the payment of a
higher premium by reason of the existence of such release, unless in the latter
case the Released Party within 10 days after notice thereof from the Releasing
pays such increase in premium.
22. DEFAULT AND REMEDIES: In the event (a) LESSEE shall fail to pay
the rent reserved herein within five (5) days after notice from LESSOR that said
rent has not been paid, or fails to pay to LESSOR other amounts provided herein
to be paid to LESSOR within ten (10) days after rendition of a statement
therefor; (b) LESSEE defaults in the prompt and full performance of any of
LESSEE's covenants and agreements hereunder, and said default is not corrected
within thirty (30) days after notice from LESSOR of said default (or if such
default is of such a nature that it cannot be cured completely within such
thirty (30) day period, if LESSEE shall not have promptly commenced to cure the
default within said thirty (30) day period or shall have not diligently
prosecuted the curative work to completion); (c) any voluntary or involuntary
petition or similar pleading under ny Act of Congress relating to bankruptcy
shall be filed by or against LESSEE and, if involuntary, shall remain unstayed
or undischarged, sixty (60) days thereafter, or if any voluntary or involuntary
proceedings in any court or tribunal shall be instituted by or against LESSEE to
declare LESSEE insolvent or unable to pay the debts of LESSEE and, if
involuntary shall remain unstayed or undischarged, sixty (60) days thereafter;
(d) LESSEE makes an assignment for the benefit of creditors or a transfer in
fraud of creditors; (e) a receiver be
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appointed for LESSEE or any property of LESSEE and not discharged within thirty
days (30); of (f) if LESSEE abandons the Premises, then in any of such events,
LESSEE shall be in default and LESSOR shall have the option to doe any one or
more of the following in addition to and not in limitation of any other remedy
permitted by law; to enter upon the Premises or any part thereof either with or
without process of law, and to expel, remove and put out LESSEE or any other
persons who might be thereon, together with all personal property found therein
provide that LESSOR shall provide to LESSEE five (5) days prior written notice
of LESSEE's intention to remove LESSEE's personal property; and, LESSOR may
terminate this Lease or it may from time to time, without terminating this
Lease, rent said Premises or any part thereof for such term or terms (which may
be for a term extending beyond the term of this Lease) and as such rental or
rentals and upon such other terms and conditions as LESSOR in its sole
reasonable discretion may deem advisable, with the right to repair, renovate,
remodel, redecorate, alter and change said Premises. At the option of LESSOR,
rents received by LESSOR from such reletting shall be applied first to the
payment oaf any indebtedness from LESSOR to LESSOR or other than rent and
additional rent due hereunder; second, to payment of any costs and expenses of
such reletting, including but not limited to reasonable attorney's fees,
advertising fees and brokerage fees, and to the payment of any repairs,
renovation, remodeling, redecorations, alterations and changes in the Premises
necessary to put the Premises in the condition required pursuant to paragraph 9
above; third to the payment of rent and additional rent and interest due and
payable hereunder and interest thereon, and, if after applying said rents there
is any deficiency in the rent and additional rent and interest to be paid by
LESSEE under this Lease, LESSEE shall pay any such deficiency to LESSOR and such
deficiency shall be calculated and collected by LESSOR monthly. No such re-
entry or taking possession of said Premises shall be construed as an election on
LESSOR's part to terminate this Lease unless a written notice of such intention
to be given to LESSEE. Upon taking possession of the Premises and thereafter
LESSOR agrees to act in good faith to mitigate damages and to use reasonable
efforts to relet the Premises.
Notwithstanding any such reletting without termination, LESSOR may at
any time thereafter elect to terminate this Lease for such previous breach and
default upon written notice to LESSEE. Should LESSOR at any time terminate this
Lease by reason of default, in addition to any other remedy it may have, it may
recover from LESSEE the worth at the time of such termination of the excess of
the amount of rent and additional rent reserved in this Lease for the balance of
the term hereof over the then reasonable rental value of the Premises for the
same period, subject to LESSOR's obligation to act in good faith to mitigate
damages. LESSOR shall have the right and remedy to seek redress in the courts
at any time to correct or remedy any default of LESSEE by injunction or
otherwise, without such resulting or being deemed a termination of this Lease,
and LESSOR, whether this Lease has been or is terminated or not, shall have the
absolute right by court action or otherwise to collect any and all amounts of
unpaid rent or unpaid additional rent or any other sums due from LESSEE to
LESSOR under this Lease, to consult or place said Lease or any amount payable by
LESSEE hereunder with an attorney concerning or for the enforcement of any of
LESSOR's rights hereunder, the LESSEE agrees in each and any such case to pay to
LESSOR, LESSOR,s reasonable attorney's fees.
23. WAIVER: The rights and remedies of the LESSOR under this Lease,
as well as those provided or accorded by law, shall be cumulative, and none
shall be exclusive of any other rights or remedies hereunder or allowed by law.
A waiver by LESSOR of any breach or breaches, default or defaults of LESSEE
hereunder shall not be deemed or construed to be a continuing waiver of such
breach or default not as a waiver of or permission, expressed or implied, for
any subsequent breach or default, and it is agreed that the acceptance by LESSOR
of any installment of rent subsequently to the date the same would have been
paid hereunder, shall in no manner alter or affect the covenant and obligation
of LESSEE to pay subsequent installments of rent promptly upon the due date
thereof. No
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receipt of money by LESSOR after the termination in any way of this Lease shall
reinstate, continue or extend the terms above demised.
24. HOLDING OVER: LESSEE will, at the termination of this Lease by
lapse of time or otherwise, yield up immediate possession to LESSOR. If LESSOR
agrees in writing that LESSEE may hold over after the expiration or termination
of this Lease, unless the parties hereto otherwise agree in writing on the terms
of such holding over, the hold over tenancy shall be subject to termination by
LESSOR at any time upon not less than thirty (30) days advance written notice,
and all of the other terms and provisions of this Lease shall be applicable
during that period, except that LESSEE shall pay LESSOR from time to time upon
demand, as rental for the period of any hold over, and amount equal to one and
one-half (1-1/2) the rent in effect on the termination date, computed on a daily
basis for each day of the hold over period. No holding over by LESSEE, whether
with or without consent of LESSOR, shall operate to extend this Lease except as
otherwise expressly provide. The preceding provisions of this paragraph 24
shall not be construed as LESSOR's consent for LESSEE to hold over.
25. NOTICES: Any notice hereunder shall be sufficient if sent by
registered or certified mail, addressed to LESSEE at the Premises, and to LESSOR
where rent is payable. See Special Stipulation F.
26. SUBORDINATION; ATTORNMENT: LESSEE's rights under this Lease are
and shall always be subordinate to the operation and effect of any lease of land
only or of land and buildings in sale-leaseback transaction, any mortgage, deed
or trust or other security instrument now or hereafter placed upon the building,
or any part or parts thereof by LESSOR; provided that any such mortgage or other
agreement provides in substance that if by foreclosure or otherwise such
mortgagee or successor in interest shall come into possession of the Premises or
become owner of the same or take over the rights of LESSOR, it will not disturb
the possession, use or enjoyment of the Premises by LESSEE, its successors or
assigns, nor disaffirm this Lease or LESSEE;a rights hereunder, so long as the
obligations of LESSEE are performed in accordance with the terms of the Lease.
This clause shall be self-operative and no further instrument of subordination
shall be required. LESSEE agrees to attorn to any successor in interest to
LESSOR whether by purchase, foreclosure, sale in lieu of foreclosure; power of
sale, termination of any lease of land only or land and buildings in a sale-
leaseback transaction. If any person shall succeed to all or part of LESSOR's
interest in the Premises upon the exercise of any remedy provide for in any
mortgage of the Premises now or hereafter recorded, LESSEE shall attorn and
recognize such person as LESSEE's landlord as above provided and this Lease
shall continue in full force and effect as a direct lease between such person
and LESSEE as fully and with the same force and effort as if this Lease had
originally been entered into by such person and LESSEE.
LESSEE shall at any time hereafter on demand execute any instruments,
releases or other documents which may be required by any mortgagee for the
purpose of subjecting and subordinating this Lease to the lien of any such
mortgage. LESSEE shall also deliver to LESSOR, from time to time as may be
reasonably requested, within fifteen (15) days after receipt by LESSEE of a
request, an estoppel certificate stating that this Lease is in full force and
effect, the date to which rent has been paid, the unexpired term of this Lease
and such other matters pertaining to this Lease as may be reasonably requested
by LESSOR. It is understood and agreed that LESSEE's obligation to furnish such
estoppel certificates in a timely fashion is a material inducement for LESSOR's
execution of this Lease.
27. SUCCESSORS: The provisions, covenants and conditions of this
Lease shall bind and inure to the benefit of the legal representatives, heirs,
successors and assigns of each of the parties hereto, except that other than as
provided in Paragraph 7 no assignment or subletting by LESSEE without the
written consent of LESSOR shall vest any right in the assignee or subLESSEE of
the LESSEE.
28. QUIET POSSESSION: LESSOR agrees that so long as LESSEE fully
complies with all of the terms, covenants and conditions herein contained on
LESSEE's part to be kept and performed, LESSEE shall and may
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peaceably and quietly have, hold and enjoy the said Premises for the term
aforesaid, it being expressly understood and agreed that the aforesaid covenant
of quiet enjoyment shall be binding upon the LESSOR, its heirs, successors, or
assigns. LESSOR further covenants and represents that LESSOR has full right,
title power and authority to make, execute and deliver this Lease and to perform
its obligations hereunder.
29. BANKRUPTCY: Subject to the federal Bankruptcy Code and
applicable state laws, neither this Lease or any interest therein nor any estate
hereby created shall pay sot any trustee or receiver in bankruptcy or to any
other receiver or assignee for the benefit of creditors by operation of law or
otherwise during the term of the Lease or any renewal thereof.
30. MECHANIC'S LIENS: LESSEE shall have no authority, express or
implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of LESSOR in the
Premises or to charge the rentals payable hereunder for any claim in favor of
any person dealing with LESSEE, including those who may furnish materials or
perform labor for any construction or repairs, and each such claim shall affect
and each such lien shall attach to, if at all, only the leasehold interest
granted to LESSEE by this instrument. LESSEE covenants and agrees that it will
pay or cause to be paid or procure appropriate of any labor performed or
materials furnished in connection with any work performed on the Premises on
which any lien is or can be validly and legally asserted against its leasehold
interest in the Premises or the improvement thereon and that it will save and
hold LESSOR harmless from any and all loss, cost or expense based on or arising
out of asserted claims or liens against the leasehold estate or against the
right, title and interest of the LESSOR in the premises under the terms of this
Lease.
31. ENTIRE AGREEMENT: This lease contains the ENTIRE AGREEMENT
between the parties, and no modification of this Lease shall be binding upon the
parties unless evidenced by an agreement in writing signed by the LESSOR and
LESSEE after the date hereof. If there is more than one LESSEE named herein,
the provisions of this Lease shall be applicable to and binding upon such
LESSEES, jointly and severally.
32. MISCELLANEOUS:
(A) Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
(B) The captions inserted in this Lease are for convenience only
and in now way define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the interpretation of this
lease.
(C) This Lease may not be altered, changed or amended except by
an instrument in writing signed by both parties hereto.
(D) All obligations of LESSEE hereunder not fully performed as
of the expiration or earlier termination of the term of this lease shall survive
the expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the Premises. LESSEE shall prior to
vacating the Premises, pay to LESSOR the amount, as estimated by LESSOR based
upon the most current available tax bill and insurance premiums, of LESSEE's pro
rata obligation hereunder for real estate taxes and insurance premiums for the
year in which the Lease expires or terminates. All such amounts shall be used
and held in trust pending disbursement by LESSOR for payment of such obligations
of LESSEE hereunder, with LESSEE being liable for any additional costs therefor
upon demand by LESSOR accompanied by an accounting from LESSOR, or with any
excess to be returned to LESSEE after all such obligations have been determined
and satisfied, as the case may be. Any security deposit held by LESSOR shall be
credited against the amount payable by LESSEE under this Paragraph 32(D).
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(E) If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remained of this Lease shall not be affected thereby.
(F) Because the Premises are on the open market and are
currently being shown, this Lease shall be treated as an offer with the Premises
being subject to prior lease and such offer subject to withdrawal or
nonacceptance by LESSOR or to other use of the Premises without notice, and the
Lease shall not be valid or binding unless and until accepted by LESSOR in
writing and a fully executed copy delivered to both parties hereto. If not
accepted by LESSOR within three (3) days after presentation to LESSOR of a
signed counterpart by LESSEE, this offer shall automatically expire and be of no
force or effect.
33. MORTGAGE APPROVAL. LESSOR intends to procure from one or more
financing institutions some part or all of the funds to finance the construction
of the improvements on the property of which the Premises are a part. If any
such financing institution requires any modification of the terms and provisions
of this Lease as a condition to such financing, LESSEE agrees to cooperate with
LESSOR as LESSOR reasonably may request to make any reasonable changes in this
Lease required by such financing institution provided they do not in LESSEE's
sole determination affect the economic conditions of this Lease or the use of
the Premises or operations intended to be conducted by LESSEE thereon or the
scope of LESSEE's obligations hereunder, or the quality or size of the
improvements to be constructed thereon; or the term including renewal options
under this Lease.
34. FORCE MAJEURE. In the event either party hereto shall be delayed
or hindered in or prevented from the performance of any act required under this
Lease by reason of strikes, lockouts, labor troubles, inability to procure
materials, failure of power, restrictive governmental law or regulations, riots,
insurrection, war or other reason of a like nature not the fault of the party
delayed in performing work or doing acts required under this Lease, then
performance of such act shall be excused for the period of the delay, and the
period for the performance of such act shall be extended for a period equivalent
to the period of such delay. In the event such condition shall continue for a
period of one hundred eighty (180) days, then LESSEE shall have the option to
terminate this Lease by written notice to LESSOR given at any time after the
expiration of such 180-day period. The provisions of this section shall not (a)
operate to excuse LESSEE from prompt payment of Annual Base Rent or any other
payment required by the terms of this Lease, and (b) be applicable to delays
resulting from the inability of a party to obtain financing or to proceed with
its obligations under this Lease because of a lack of funds.
35. CONSTRUCTION OF IMPROVEMENTS. LESSOR shall construct
improvements upon the Premises for the use and benefit of LESSEE as set forth in
the special stipulations attached hereto.
36. SPECIAL STIPULATIONS. The special stipulations attached hereto
shall be a part hereof in all respects. In the event of any conflict with the
other terms and provisions of this Lease, the Special Stipulations shall
control.
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<PAGE>
IN WITNESS WHEREOF, said parties hereunto subscribe their names.
Executed in 6 originals.
-----------
LESSOR: LESSEE:
Bluefin Associates Simmons U.S.A. Corporation
a Missouri General Partnership A Delaware Corporation
BY: /s/ Charles H. Hunter BY: /s/ H B Smith
__________________________ __________________________
ITS: General Partner ITS: Senior Vice President
------------------------- -------------------------
ADDRESS: 1102 GRAND, SUITE 300 ADDRESS: 6 EXECUTIVE PARK DRIVE, NE
KANSAS CITY, MO 64106 ATLANTA, GEORGIA 30329
PHONE NO.: (816) 842-2690 PHONE NO.: (404) 321-3030
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SPECIAL STIPULATIONS
TO
COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
BETWEEN
BLUEFIN ASSOCIATES AND SIMMONS U.S.A. CORPORATION
DATED AS OF ____________________, 1987
A. CONSTRUCTION:
------------
LESSOR hereby agrees to cause to be constructed upon the real estate
constituting a portion of the Premises an office and warehouse facility in
accordance with the plans and specifications prepared by LESSOR and submitted
for approval in writing by LESSEE (the "Building"). The plans and
specifications prepared by LESSOR shall be based upon Exhibit "A" attached
hereto (the "Preliminary Plans") as prepared by LESSOR and submitted to LESSEE.
The plans and specifications as approved in writing by LESSEE shall constitute
the final plans and specifications for the construction of the Building and
shall not be modified in any material respect without the LESSEE's prior written
consent (the "Final Plans"). The Final Plans shall be delivered by LESSOR to
LESSEE for LESSEE's written approval on or before December 31, 1987.
LESSEE shall notify LESSOR in writing of any objections to the Final
Plans within fifteen (15) calendar days from and after the date of receipt by
the LESSEE of the Final Plans. Failure to give written notice to LESSOR of
objections to the Final Plans within such fifteen day period shall be deemed
approval of the Final Plans by LESSEE. LESSEE's approval of the Final Plans
shall not be unreasonably withheld, and any objection by LESSEE to the Final
Plans must be based upon the fact that the plans and specifications as contained
in the Final Plans alter or differ from the Preliminary Plans or materially
adversely affect LESSEE's intended operations on the Premises.
LESSOR shall cause a general contractor acceptable to LESSEE to
commence construction of the Building promptly after LESSEE's approval of the
Final Plans and LESSOR shall cause the construction to be diligently pursued and
promptly completed thereafter. All work and construction of the Building shall
be in accordance with the Final Plans and shall be performed in a good and
workmanlike manner in accordance with all regulations, codes and ordinances of
any local, municipal, state or federal authority having jurisdiction thereof.
All permits, licenses, or approvals required for said work shall be obtained and
maintained by LESSOR.
LESSOR shall deliver possession of the Premises to LESSEE upon
substantial completion of the Building (hereinafter "Delivery"). Delivery shall
be accomplished when:
1. LESSOR's architect certifies in writing that the Building has
been completed in substantial accordance with the Final Plans;
and
2. LESSOR notifies LESSEE in writing that the Building is ready for
LESSEE's fixtures; and
3. LESSOR delivers keys to the Building to LESSEE; and
4. LESSOR obtains a certificate of occupancy for the Building.
LESSOR and LESSEE agree to conduct jointly a final walkthrough
inspection of the Building on the date of Delivery and to create a mutually
agreed upon punch list of items which LESSOR shall repair or cause to be
repaired within sixty (60) days from and after Delivery. LESSEE shall have the
right to supplement such punch list during such 60 day period. In order to
facilitate Delivery, LESSOR and LESSEE hereby agree to conduct
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jointly a walk-through inspection of the Building approximately every week
during the term of construction.
From and after Delivery of the Building to LESSEE, LESSEE shall
promptly commence and prosecute to completion the fixturing and decorating of
the Building, at LESSEE's sole cost and expense except as otherwise provided in
the Final Plans (including the payment for all utilities consumed by LESSEE and
all application fees or deposits required for the utilities serving the
Premises, except as may otherwise be agreed between LESSOR and LESSEE) to enable
LESSEE to properly use the Premises for the purposes set forth in this Lease.
All work to be performed by LESSEE shall be performed in a good and workmanlike
manner, in accordance with all rules, regulations, codes and ordinances of any
local, municipal, state or federal authority having jurisdiction thereof. All
permits, licenses or approvals required for said work shall be obtained by
LESSEE at its sole cost and expense. LESSOR agrees, at its sole cost and
expense to acquire all necessary licenses and other approvals, including but not
limited to a permanent certificate of occupancy, which may be required to open
and operate the Premises by any authority with jurisdiction over the Premises.
LESSOR hereby agrees to make fully available to LESSEE the benefits of
any warranty LESSOR receives or may receive from any contractor or subcontractor
constructing the Building. In addition, LESSOR agrees to make fully available
to LESSEE the benefit of any warranty received by LESSOR which covers any
equipment, including the HVAC system, within the Building. LESSOR shall
cooperate with LESSEE in processing any warranty claims as LESSEE may reasonably
request.
LESSOR and LESSEE hereby agree to make all good faith, reasonable
efforts to accommodate the other in completing their respective obligations
under this Lease and in particular, this Special Stipulation A. Without
limiting the generality of the foregoing, LESSOR agrees to make available to
LESSEE, without charge, space for storage of LESSEE's fixtures and other items
necessary for LESSEE to open the Premises as soon as practical. Furthermore, to
assist LESSEE in its timely opening of the Premises, LESSOR agrees that prior to
Delivery, LESSOR shall, to the extent practicable,give to LESSEE at LESSEE's
sole risk, reasonable access to the Premises for the purpose of inspecting,
measuring, receiving, storing and installing or arranging for the installation
of, its trade fixtures and equipment, but only to the extent that any such
occupancy by LESSEE shall not violate any applicable government codes or
requirements or hamper LESSOR's contractors, subcontractors and their respective
employees as determined by LESSOR in its reasonable discretion, and provided
further that LESSEE's liability insurance is then in full force and effect.
Subject to the limitations of paragraph 21 of this lease, LESSOR and
LESSEE each expressly agrees to protect, indemnify and save harmless the other
from and against any liability for damage to any person or property as a result
of the work or repairs undertaken by such indemnitor from time to time under the
terms of this Lease.
LESSEE's entry into the Premises prior to Delivery shall not
constitute acceptance of the Building.
B. Commencement Date:
-----------------
The commencement date of the term of this lease (the "Commencement
Date") shall be the date which is the earlier of the date on which LESSEE opens
for business on the Premises or thirty (30) days after Delivery but in no event
earlier than May 1, 1988. If the Commencement Date is other than the first day
of the, the termination date of the term shall be the appropriate (i.e., tenth,
fifteenth, or twentieth) anniversary of the last day of the first month
following the Commencement Date. LESSOR shall make good faith efforts to cause
Delivery to occur at the earliest possible date.
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C. Rent Abatement and LESSOR's Repairs
-----------------------------------
In the event that Delivery does not occur on or before July 1, 1988,
LESSEE's rent shall be abated by the amount of $1,214.87 per day for each day
beyond July 1, 1988 that Delivery has not occurred. In the event that Delivery
does not occur on or before October 1, 1988, LESSEE, at LESSEE's sole option,
may terminate this Lease immediately upon written notice to LESSOR, in which
event LESSEE shall have no further obligations hereunder. Said rent abatement
and termination provisions of the lease will be subject to paragraph 34 of this
agreement.
For a period of two (2) years from and after the date of Delivery, in
the event of any defect in materials and workmanship in construction of the
Building or other work done on the Premises by or on behalf of LESSOR, LESSEE
agrees to give prompt written notice to LESSOR specifying such defect and
specifying the estimated cost of repair of such defect. LESSEE further agrees
to give written notice to LESSOR of any failure by LESSOR to maintain the
Premises as required under Paragraph 12 of this Lease, specifying the necessary
repairs and estimating the cost thereof. If LESSOR does not cause such repairs
to be undertaken and completed with due diligence upon receipt of such notice,
LESSEE shall then have the right to perform, or cause to be performed, any and
all necessary repairs to cure such defect or make such repair and LESSOR shall
pay to LESSEE, within seven (7) days following receipt of a statement therefor,
accompanied by reasonable evidence of all such costs and expenses reflected on
such statement, the amount of costs and expenses reasonably incurred by LESSEE
in repairing such defect or making such repairs. LESSEE's obligation to pay
rent shall not be abated during any period of repair hereunder except as
otherwise provided in paragraph 13 of this Lease.
D. Use
---
In the event any future laws, rules, requirements, orders, directions,
ordinances or regulations of the United States of America or of the state,
county or city government or any other municipal, governmental or other lawful
authority whatsoever prohibit LESSEE's use of the Premises as provided in
Paragraph 4 above, LESSEE shall have the right to convert the use of the
Premises to any other lawful use then permitted, upon written notice to LESSOR
of such fact, provided that LESSOR, upon receipt of such notice, may, if it so
elects, terminate this Lease whereupon LESSEE shall have no further obligations
hereunder for events arising subsequent to the date of such termination. LESSOR
represents and warrants to LESSEE that the use of the Premises for office,
manufacturing of bedding, upholstered furniture and related products and
warehousing of the same is a permissible use under all applicable zoning and
land use ordinances now in effect and restrictions of record, including, without
limitation, the Protective Restrictions for the Agawam Regional Industrial Park.
E. Notices
-------
Whenever it shall be necessary or desirable for LESSOR to serve any
notice or demand upon LESSEE, such notice or demand shall be deemed sufficiently
given or made hereunder if it is in writing and delivered to LESSEE by hand at
the Premises or sent by registered or certified mail, return receipt requested,
addressed to LESSEE at the Premises and the time of the giving or making of such
notice or demand shall be deemed to be the time when the same is so delivered
to LESSEE, the date of the executed return receipt if mailed, or the date it
is left at the Premises as herein provided. A copy of any such notice
simultaneously shall be given to LESSEE by certified mail, return receipt
requested, at the following address:
Simmons U. S. A. Corporation
6 Executive Park Drive
Atlanta, GA 30329
Attn.: Mr. Harlan Smith
Any notice by LESSEE to LESSOR must be delivered by hand or sent by registered
or certified mail, return receipt requested, addressed to LESSOR at the address
where the last previous rental payment was paid with the date of the giving or
making of such notice being determined as provided above. Either party may, at
any time, change its address for notices by giving the other party notice of
such change in the manner above provided for the giving of notices.
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FIRST AMENDMENT TO
COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
This first amendment to the Commercial and Industrial Lease Agreement
is made this 5th day of October, 1993 by and between Bluefin Associates, a
--- -------
Massachusetts General Partnership, LESSOR, and Simmons Company (formerly Simmons
USA Corporation), a Delaware Corporation, LESSEE.
WHEREAS, Bluefin Associates, as LESSOR, and Simmons Company (formerly
Simmons USA Corporation), as LESSEE, entered into a Commercial and Industrial
Lease Agreement dated the 4th day of December, 1987 (the "LEASE");
WHEREAS LESSOR and LESSEE desire to amend said LEASE to revise the
options to renew, to extend the term thereof, modify the rent, grant LESSEE an
option on certain property rights in the Premises and other matters as
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows.
1. Effective Date. The Effective Date of this Amendment is the day
----------------
LESSOR closes its Permanent Loan to refinance the Premises. If such refinancing
has not occurred prior to February 28, 1994 (unless the parties agree in writing
to extend such date), then this Amendment and the option to purchase granted in
Paragraph 4 hereof shall be of no force or effect and the original LEASE shall
remain in full force and effect as if this amendment had never existed.
2. Term and Options.
-----------------
Paragraph "1. TERM:" of the Lease is hereby amended in its entirety to
read as follows:
"1. TERM: The Term shall be for a period of Twelve years and Six months
commencing October 1, 1993, and ending March 31, 2006."
Paragraph "1a. OPTION TO RENEW." of the Lease is not modified and
remains in full force and effect, such option to apply to the Term as above
revised.
Page 1
<PAGE>
Lease paragraphs "1b. RENTAL ADJUSTMENT YEARS SIX THROUGH TEN", "1c.
RENTAL ADJUSTMENT FIRST FIVE YEAR OPTION", and "1d. RENTAL ADJUSTMENT SECOND
FIVE YEAR OPTION" are deleted in their entirety and the following paragraphs 1b
and 1c are substituted in their place:
"1b. BASE RENT ADJUSTMENT FIRST FIVE YEAR OPTION. The Base Rent for
the first five year option period which commences April 1, 2006, and ending
March 31, 2011 shall be the same as the Base Rent during the 12 year, six
month term set forth in Paragraph 2, below (Five Hundred Thirty Thousand
Seven Hundred Two Dollars Seventy Six Cents [$530,702.76] per year, Forty
Four Thousand Two Hundred Twenty Five Dollars Twenty Three Cents
[$44,225.23] per month).
1c. RENTAL ADJUSTMENT SECOND FIVE YEAR OPTION. The Base Rent for the
second five year option period shall be the greater of: (i) the then
prevailing market rate for similar properties in the market area in which
the premises is located; or (ii) the rate for the preceding (first five
year) option period. If LESSOR and LESSEE are unable to agree upon the
market rental for such space within two hundred ten days prior to the
expiration of the first renewal term, they will jointly notify the
President of the New England Chapter of the Society of Industrial Realtors
to appoint a committee of three (3) active members who regularly engage in
the industrial market in the Springfield\Hartford\Boston area and who shall
be wholly independent, to determine the market rental. The parties will be
bound by the findings of said panel whose report will be in writing
presented to both LESSOR and LESSEE simultaneously no later than thirty
(30) days after the request for said opinion is made to the President of
the Chapter. The cost to obtain said opinion will be equally shared between
the LESSEE and LESSOR. In the event the report of the panel is not
delivered prior to the date by which LESSEE must give notice of exercise of
its option, the date shall be extended for a period ending two business
days after the date LESSEE receives a copy of the panel's report."
3. Base Rent.
----------
Paragraph "2. Base Rent:" of the Lease is hereby amended in its
entirety to read as follows:
"2. BASE RENT: LESSEE agrees to pay (LESSOR) a Base Rent, for such 12
year 6 month term of the LEASE, of
Page 2
<PAGE>
$530,702.76 per year, payable in monthly installments of $44,225.23 per month
due and payable commencing the first day of October, 1993 through March 31, 2006
at Kessinger/Hunter and Company, Suite 700, 2600 Grand Avenue, Kansas City, MO
64108, or at such other place as LESSOR may designate from time to time, in
writing. Except for the provisions of the special stipulations and paragraph 12
or 13 hereunder, this Lease is intended, and is hereby declared to be a "net"
lease, it being the intention of the parties hereto that the LESSOR shall have
and enjoy the rent herein reserved to it without deduction therefrom and LESSEE
agrees, subject to the provisions of this Lease, to pay and to discharge, as
additional rent, punctually as and when the same shall become due and payable,
each and every cost, expense and obligation of every kind and nature, foreseen
or unforeseen, for the payment of which LESSOR or LESSEE is or shall become
liable by reason of its estate of interest in the Premises or any portion
thereof, or by reason of any right or interest of LESSOR or LESSEE in or under
this Lease, or by reason or in any manner connected with or arising out of the
possession, operation, maintenance, alteration, repair, rebuilding, use or
occupancy of the Premises. Nothing herein contained, however, shall be construed
so as to require the LESSEE to pay or be liable for any gift, inheritance,
estate, franchise, income, profit, capital or similar tax, or any other tax in
lieu of any of the foregoing, imposed upon the LESSOR, or the successor or
assign of the LESSOR, unless such tax shall be imposed or levied upon or with
respect to rents payable to the LESSOR hereunder in lieu of real estate taxes
upon the Premises.
"Any payment to LESSOR not received with 15 days after it is due shall
bear interest, from its original due date through the date received by LESSOR in
legal tender, at the lesser of: (i) the annual rate of 1%, calculated on the
basis of 365-day year for the number of days actually outstanding, or (ii) the
maximum annual rate permitted by any applicable usury law of the state where the
Property is situated. Any advances properly made, or costs or expenses
properly paid, by LESSOR after any Event of Default and written notice to LESSEE
of the making of such advance, shall bear such interest from the respective
dates of advance or payment, as the case may be, if not reimbursed with 15 days
after demand.
"No abatement, diminution or reduction of the base rent or other
charges-payable by the LESSEE under this Lease shall be claimed by or allowed to
the LESSEE for any inconvenience,
Page 3
<PAGE>
interruption, cessation or loss of business or otherwise caused directly or
indirectly by any present or future laws, rules, requirements, orders,
directions, ordinances or regulations of the United States of America or of
the state, county or city government or any other municipal, governmental
or other lawful authority whatsoever or by priorities, rationing or
curtailment of labor or materials or by war or any matter of things
resulting therefrom or by any other cause or causes; except if otherwise
specifically provided in this Lease. Rent shall abate to the extent of
actual proceeds received by the LESSOR from any rent insurance in force at
the time of such occurrence."
4. Option. Provided that LESSEE is not then in default under any
------------
of the terms of this LEASE and LESSEE has validly exercised the First Option to
Renew for the period beginning April 1, 2006 and ending March 31, 2011, LESSEE
is hereby granted an option to purchase a Twenty-Five Percent (25%) Subordinated
Interest in the Premises for One Thousand Dollars ($1,000.00) during the period
commencing the date that is Twelve (12) years six (6) months and One (1) day
following the Effective Date hereof and ending with the close of business One
Hundred Eighty (180) days thereafter. Such option may be exercised by written
notice sent certified mail, return receipt requested, prior to expiration of
such 180 day period, and accompanied by certified funds, cashier's check or wire
transfer of funds to LESSOR to the address then in effect for payment of rent.
During such purchase option period 'LESSEE' shall have the right to review all
relevant financial information of 'LESSOR' pertaining to the leased property and
other information and records of 'LESSOR' necessary for 'LESSEE' to conduct such
due diligence as 'LESSEE' deems necessary to evaluate the value of such
Subordinated Interest.
5. Definitions:
-----------
(a) Permanent Loan. The Permanent Loan as used herein means
----------------
the permanent loan secured by the premises as closed by LESSOR as
Borrower on the Effective Date.
(b) Preferential Equity. Preferential Equity means on any
---------------------
date, One Million Five Hundred Twenty-Five Thousand Dollars
($1,525,000.00) plus any ongoing capital expenditures related to
maintenance of the Premises as provided for elsewhere in this
LEASE.
(c) Return on Preferential Equity. Return on
-------------------------------------
Preferential Equity means on any given date, an amount which,
when added to all cash flow distributions from the Premises in
excess of mortgage payments, operating expenses and capital
expenditures, between the Effective
Page 4
<PAGE>
Date and such date equals nine percent (9%) per annum on the
Preferential Equity from time to time outstanding during such
period.
(d) Subordinated Interest in the Premises. Subordinated
-------------------------------------
Interest in the Premises means the right to receive cash flow
from the Premises operations from and after the date LESSOR has
received cash flow from operations in the sum of: (i) an amount
equal to all of its Preferential Equity; plus (ii) an additional
amount equal to all of its Return on Preferential Equity computed
to such date.
6. Reaffirmation. All other terms and provisions of said LEASE not
---------------
specifically modified hereby including but not limited to provisions for payment
of additional rent as set forth in the original Lease, Paragraph 2, 12 or 13,
remain and continue in full force and effect and are hereby ratified and
reaffirmed by LESSOR and LESSEE.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the LEASE the day and the year first above written.
LESSOR: LESSEE:
Bluefin Associates, Simmons Company (formerly
a Massachusetts Simmons USA Corporation), a
General Partnership Delaware Corporation
BY: /s/ Charles H. Hunter BY: /s/
--------------------- ----------------------------
Charles H. Hunter
ITS: Managing Partner ITS: EVP Finance
---------------------------
ADDRESS: SUITE 700 ADDRESS: ONE CONCOURSE PARKWAY
2600 GRAND AVENUE SUITE 600
KANSAS CITY, MO 64106 ATLANTA,
GEORGIA 30328
PHONE NO: (816) 842-2690 PHONE NO: (404) 512-7700
Page 5
<PAGE>
[LOGO] KANSAS COMMERCE CENTER
15377 WEST 95TH STREET
LENEXA, KANSAS 66219
(913) 492-8401
FAX (913) 492-8715
TAMPA
200 SOUTH HOOVER STREET
BLDG. 201, SUITE 110
TAMPA, FLORIDA 33409
2600 GRAND AVENUE (813) 260-3040
SEVENTH FLOOR FAX (813) 369-3041
KANSAS CITY, MISSOURI 64108
(816) 542-2690 WEST PALM BEACH
FAX:(816) 421-5659 1801 FORUM PLACE
WEST PALM BEACH, FLORIDA 33401
CHARLES H. HUNTER (407) 640-7865
PRESIDENT
July 23, 1993
Mr. Roger W. Franklin
Vice President, Treasurer
Simmons Company
One Concourse Parkway Suite 600
Atlanta, Georgia
Dear Roger:
Please take note that the rent on your facility in Agawam increased to
$44,225.23 on August 1, 1993 per the terms of the lease.
The rent increase calculation was based on the language in Paragraph 1-b of the
lease, which reads in part ...."the base rent in effect during the first five
years shall be multiplied by a faction, the numerator of which is the CPI....for
the month immediately preceding the first month of the sixth year of the term
and the denominator is the CPI for the month in which the commencement date of
the lease occurs".
The CPI index for August, 1988 (lease commencement date) is 119.0. The latest
CPI index for June 1993 is 144.4. Applying the fraction 144.4/19.0 to the base
rent of $36,446.00 results in a new rent of $44,225.23 per month.
You should note there could be a very minor adjustment to this number once the
July 1993 CPI is published in mid August.
With regard to the negotiations on the refinancing and possible recasting of the
lease, we should be hearing from the Prudential in a few days and I will be in
touch.
Please call me if you have any questions.
Sincerely
Charles H. Hunter
CHH/ls
EXHIBIT 10.37
LEASE AGREEMENT
BETWEEN
JOHN W. ROOKER
AND
SIMMONS COMPANY,
A DELAWARE CORPORATION
"TENANT"
AND FOLLOWING EXHIBITS
SITE PLAN SPECIFICATIONS
<PAGE>
LEASE INDEX
-----------
PARAGRAPH
1. PREMISES PAGE 1
2. TERMS PAGE 1
3. RENTAL PAGE 1 - 2
4. AGENT'S COMMISSION PAGE 2 - 3
5. UTILITY BILLS PAGE 3
6. USE OF PREMISES PAGE 3
7. REPAIRS BY LANDLORD PAGE 3 - 4
8. REPAIRS BY TENANT PAGE 4
9. TAXES PAGE 4 - 7
10. DESTRUCTION OF OR DAMAGE TO PREMISES PAGE 7 - 8
11. INSURANCE & INDEMNITY PAGE 8 - 9
12. GOVERNMENTAL ORDERS PAGE 10
13. CONDEMNATION PAGE 10-11
14. ASSIGNMENT AND SUBLETTNG PAGE 11
15. REMOVAL OF FIXTURES PAGE 11
16. EVENTS OF DEFAULT PAGE 11 - 12
17. REMEDIES UPON DEFAULT PAGE 12 - 13
18. EXTERIOR SIGN PAGE 13
19. ENTRY FOR CARDING, ETC. PAGE 13 - 14
20. EFFECT OF TERMINATION OF LEASE PAGE 14
<PAGE>
LEASE INDEX (CONTINUED)
PARAGRAPH PAGE #
--------- ------
21. MORTGAGEE'S RIGHTS PAGE 14
22. NO ESTATE IN LAND PAGE 14
23. HOLDING OVER PAGE 14 - 15
24. ATTORNEY'S FEES AND HOMESTEAD PAGE 15
25. RIGHTS CUMULATIVE PAGE 15
26. WAIVER OF RIGHTS PAGE 15
27. DISCLOSURE OF OWNERSHIP PAGE 15
28. COMPREHENSIVE ENVIRONMENTAL RESPONSE PAGE 15 - 16
29. TIME OF ESSENCE PAGE 16
30. DEFINITIONS PAGE 16
31. LEASEHOLD IMPROVEMENTS PAGE 16
32. PROMPT PAYMENTS PAGE 16-17
33. RENEWAL OPTIONS PAGE 17
34. DEPOSIT PAGE 17
35. IRB PARAGRAPH PAGE 17 - 18
36. SUBJECT TO IRB FINANCING PAGE 18
37. NOTICES PAGE 18 - 19
<PAGE>
THIS LEASE, made this 23rd day of October, 1991, by and between John W.
Rooker, an individual, first party (hereinafter called "Landlord"); and
Simmons Company, A Delaware Corporation, second party, (hereinafter
called "Tenant'):
WITNESSETH:
PREMISES
--------
1. The Landlord, for and in consideration of the rents, covenants,
agreements, and stipulations hereinafter mentioned, provided for and
contained, to be paid, kept and performed by the Tenant, has leased and
rented, and by these presents leases and rents unto the said Tenant, and
said Tenant hereby leases and takes upon the terms and conditions which
hereinafter appear, the following described property (hereinafter called
"Premises"), to wit: approximately 148,300 S.F.
office/warehouse/manufacturing facility located on ten acres in
Discovery Park, Cobb County, Georgia, as described in Exhibit "A"
attached hereto, which shall be constructed in accordance with the
Preliminary Outline Specifications and General Conditions attached as
Exhibit "B" hereto.
No easement for light or air is included in the Premises.
TERM
----
2. The Tenant shall have and hold the Premises for a term of fifteen
(15) years, beginning on the 1st day of June, 1992 and ending on the
31st day of May, 2007 at midnight, unless sooner terminated as
hereinafter provided.
RENTAL
------
3. Tenant agrees to pay to Landlord rental as follows:
June 1, 1992 - May 31, 1997 $36,815.00 mo./$441,780.00 yr.
<PAGE>
June 1, 1997 - May 31, 2002 $41,016.00 mo./$492,192.00 yr.
June 1, 2002 - May 31, 2007 $44,058.34 mo./$528,700.08 yr.
which shall be paid promptly on the first day of each month in
advance during the term of this Lease.
AGENT'S COMMISSION
------------------
4. Landlord shall pay the commission due Cushman & Wakefield
("Broker") in accordance with that certain Commission Agreement
Lease dated May 31, 1991 between John W. Rooker and Cushman &
Wakefield of Georgia, Inc. (the "Commission Agreement"). Broker has
and does hereby relieve and release Landlord and Tenant from any
liability for commissions, fees or otherwise in connection with the
transaction contemplated by this Lease or the purchase of the Land
other than under the Commission Agreement. Broker acknowledges that
it has represented Tenant and not Landlord. Subject to the
foregoing, Landlord represents and warrants, that it has not
engaged any broker, finder or any other person who would be
entitled to any commission or fee in respect of the execution of
this Lease and any other transaction contemplated by this Lease;
and agrees to indemnify and hold harmless Tenant against and in
respect of any and all losses, liabilities or expenses which may
be incurred by Tenant as a result of any claim which may be
asserted by any such broker, finder or other person on the basis of
any arrangements or agreements made or alleged to have been made on
behalf of Landlord. Tenant represents and warrants, that it has not
engaged any broker, finder or any other person who would be
entitled to any commission or fee in respect of the execution of
this Lease and any other transaction contemplated by this Lease;
and agrees to indemnify and
2
<PAGE>
expenses which may be incurred by Landlord as a result of any claim
which may be asserted by any such broker, finder or other person on
the basis of any arrangements or agreements made or alleged to have
been made on behalf of Tenant other than the Commission Agreement.
UTILITY BILLS
-------------
5. Tenant shall pay all utility bills, including, but not limited to,
water, sewer, gas, electricity, fuel, light and heat bills for the
Premises, and Tenant shall pay all charges for garbage collection
services or other sanitary services rendered to the Premises or used by
Tenant in connection therewith. If Tenant fails to pay any of said
utility bills or charges for garbage collection or other sanitary
services, Landlord may pay the same and such payment shall be added to
and become part of the next rental payment due under this Lease.
USE OF PREMISES
---------------
6. Premises shall be used for office/warehouse/manufacturing purposes
and no other. Premises shall not be used for any illegal purposes, nor
in any manner to create a nuisance or trespass, nor in any manner to
change its current operation the result of which would be to materially
change the insurance rating on the Premises.
REPAIRS BY LANDLORD
-------------------
7. Landlord agrees to keep in good repair the roof, foundations and
exterior walls of the premises (exclusive of all glass and exclusive of
all exterior doors), and underground utility and sewer pipes outside the
exterior walls of the building, except repairs rendered necessary by the
negligence of Tenant, its agents, employees or invitees. Landlord gives
to Tenant exclusive control of the Premises and shall be under no
obligation to inspect said Premises. Tenant shall
3
<PAGE>
promptly report in writing to Landlord any defective conditions known to
it which Landlord is required to repair and failure so to report such
conditions shall make Tenant responsible to Landlord for any liability
incurred by Landlord by reason of such conditions.
REPAIRS BY TENANT
-----------------
8. Tenant agrees to accept the Premises as constructed and as suited
for the uses intended by Tenant. Tenant shall, throughout the initial
term of this Lease and any extension or renewal thereof, at its expense,
maintain in good order and repair the Premises, including the building,
heating and air conditioning equipment (including, but not limited to,
replacement of parts, compressors, air handling units and heating
units), and other improvements located thereon, except those repairs
expressly required to be made by Landlord hereunder. Tenant further
agrees to care for the grounds around the building, including the mowing
of grass, paving, care of shrubs and general landscaping. Tenant agrees
to return the Premises to Landlord at the expiration, or prior to
termination, of this Lease in as good condition and repair as when first
received, natural or ordinary wear and tear, damage by storm, fire
lightning, earthquake or other casualty alone excepted.
TAXES
-----
9. Tenant shall, without notice or demand, as additional rent, pay and
discharge on or before the last day on which the same may be paid
without penalty, all taxes, assessments, rates and charges, sanitary
assessments, and other governmental impositions and charges of every
kind and nature whatsoever, extraordinary as well as ordinary, and each
and every installment thereof, together with all interest and penalties
hereon, which shall or may during the term of this Lease be levied,
assessed or imposed on or become a lien upon or grow due or payable out
4
<PAGE>
of or for or by reason of the Premises or any part thereof, or Landlord's
interest in the real property described on Exhibit "A" hereto and the
improvements located thereon, or any buildings, appurtenances, or equipment
now or hereafter erected or placed thereon or therein or any part thereof,
or the sidewalks or streets in front of or adjoining the premises in each
case which has been approved by Tenant in writing. All taxes assessed or
imposed in lieu of or in addition to the foregoing, shall be paid by
Tenant, together with all interest and penalties thereon, under or by
virtue of all present or future laws, ordinances, requirements, orders,
directions, rules or regulations of the federal, state, county and city or
local governments and of all other governmental authorities whatsoever.
Tenant shall pay all taxes and assessments which shall, prior to or during
the term of this Lease be levied, assessed or imposed on or become a lien
upon the personal property of Tenant located upon the Premises. To the
extent that same may be permitted by law, Tenant shall have the right to
apply for the conversion of any assessment for local improvements to make
the same payable in annual or other periodic installments, but not longer
than over a ten (10) year period, and upon such conversion Tenant shall pay
and discharge punctually during the term hereof only such of said
installments as shall become due and payable during the term hereof. Tenant
shall be deemed to have complied with the covenants of this paragraph if
payment of such rents, taxes, assessments, rates and charges, sanitary
assessments, and other governmental impositions and charges, shall have
been made within any grace period allowed by law or by the governmental
authority imposing the same during which payment is permitted without
penalty or interest, and either before the same shall become a lien upon
the Premises or shall become delinquent. Tenant shall, within thirty (30)
days after the time above provided for the payment by Tenant thereof,
produce and deliver to
5
<PAGE>
Landlord reasonably satisfactory evidence of such payment.
All such rents, taxes, rates and charges, sanitary assessments, and other
governmental impositions and charges and the current installment of any
assessment (except the taxes and assessments levied on the personal property of
Tenant) which become due and are payable in the calendar year in which the term
commences or expires, shall be apportioned pro rata between Landlord and Tenant
in accordance with the respective portions of such period during which the term
shall be in effect. Upon the commencement of the Term of the Lease, Landlord
shall pay to Tenant or for the account of Tenant the said pro rata portion of
the taxes payable by Landlord in the calendar year in which the term of this
Lease commences.
Tenant shall have the right to contest or review in good faith by legal
proceedings, or in such other manner as it may deem suitable (which, if
instituted, Tenant shall conduct at its own expense, and free of any expense to
Landlord, and, if necessary, in the name of Landlord), any taxes, assessment,
rate or charge, sanitary assessment, or other governmental imposition or charge
aforementioned. Notwithstanding the foregoing Tenant shall promptly pay all such
items if at any time the Premises or any part thereof shall be in reasonable
danger of being foreclosed upon by reason of such nonpayment of taxes. The legal
proceedings herein referred to shall include appropriate proceedings for review
of tax assessments and appeals from orders therein and appeals from any
judgment, decrees or orders, but all such proceedings shall be begun as soon as
reasonably possible after the imposition or assessment of any contested items
and shall be prosecuted to final adjudication with reasonable dispatch. In the
event of any reduction, cancellation or discharge, Tenant shall pay the amount
finally levied or assessed against the Premises or adjudicated to be due and
payable on any such contested items and if there shall be
6
<PAGE>
any refund with respect thereto, the party paying the same shall be entitled to
the same.
It is the intention of the parties that Landlord shall receive the rent
refered to hereinabove free from all additional rents, charges and taxes that,
by the provisions of this paragraph, are made payable by Tenant and that Tenant
shall pay all costs, charges, expenses and damages which, except for the
execution and delivery hereof, would or could have been chargeable against or
payable by Landlord as owner of the real property described on Exhibit "A" and
any improvements thereon.
Nothing here'm contained shall be construed to require Tenant to pay any
inheritance, estate, succession, transfer, gift, franchise, income, profit or
excess profit, capital stock, capital level, corporate or incorporated business
tax or other similar tax that is or may be imposed upon Landlord, its successors
or assigns, or upon the rent payable by Tenant unless such taxes shall be levied
instead and in lieu of real estate taxes upon the real property and improvements
hereby demised.
Tenant covenants and agrees to file the ad valorem tax return each year
within the time provided by law, covering the interest of Landlord and Tenant in
the real property described on Exhibit "A" hereto.
DESTRUCTION OF OR DAMAGE TO PREMISES
- ------------------------------------
10. If the Premises are totally destroyed whether by storm, fire, lightning,
earthquake or other casualty or otherwise, this Lease shall terminate as of the
date of such destruction, and rental shall be accounted for as between Landlord
and Tenant as of that date. If the Premises are damaged but not wholly destroyed
by any such casualties, rental shall abate in such proportion as use of the
Premises has been destroyed, and Landlord shall restore Premises to
7
<PAGE>
substantially the same condition as before damage as speedily as is practicable,
whereupon full rental shall recommence. If however the premises cannot
reasonably be expected to be completely repaired within one hundred eighty (180)
days Tenant may immediately terminate this Lease.
INSURANCE AND INDEMNITy
- -----------------------
11. Throughout the term of this Lease, Tenant, at Tenant's own cost and expense
and as additional rent shall:
(a) Keep the buildings and all other improvements, including all fixtures but
excluding trade fixtures, insured against loss or damage by fire with
extended coverage, all such insurance to be in an aggregate amount which
shall be not less than one hundred percent (100%) of the full replacement
value, without deduction for depreciation, and all such insurance to be
carried with such insurance companies and in such form as shall be
reasonably satisfactory companies and in such form as shall be reasonably
satisfactory to Landlord, and Tenant shall provide Landlord with a
certificate of insurance evidencing such coverage.
(b) Provide and keep in force a general public liability insurance policy with
an insurance company authorized to do business in the State of Georgia.
Such policy shall name the Landlord as an additional insured, and shall be
in the amount of not less than One Million Dollars ($1,000,000) with
respect to any one accident, One Million Dollan ($1,000,000) with respect
to injury or death of any one person and Two Hundred Fifty Thousand Dollars
($250,000) with respect to damage to property; provided, however, that such
policy may be in a lesser
8
<PAGE>
amount if an excess liability policy or policies are carried by Tenant
in such amounts that the effect of the aggregate coverage is as stated
above. Such policy shall cover the entire Premises as well as the
streets, roads, avenues and sidewalks included therein, and the Tenant
shall provide the Landlord with a certificate of such insurance.
All insurance provided by Tenant as required by this Paragraph shall include
the interest of the Landlord and any first mortgagee of the Premises, as their
respective interests may appear, and in such form as shall be reasonably
satisfactory to Landlord and Tenant. All policies shall provide that loss, if
any, payable thereunder with regard to Premises coverage, shall be payable to
Landlord and to the holder of such mortgage, as their respective interests may
appear.
At least thirty (30) days prior to the expiration of each such policy,
Tenant shall deliver to Landlord the new certificate for renewal insurance.
Tenant shall not violate or knowingly permit to be violated any of the
conditions or provisions of such policy. Tenant and Landlord shall cooperate in
connection with the collection of any insurance monies that may be due in the
event of loss.
Each such policy (including renewal insurance) or certificate therefor
issued by the insurer shall contain an agreement by the insurer that such policy
shall not be canceled without at least thirty (30) days prior written notice to
Landlord.
Any insurance provided for in this Paragraph may be effected by a policy or
policies of blanket insurance; provided, however, that the amount of the total
insurance allocated to the Premises shall be such as to furnish in protection
the equivalent of separate policies in the
9
<PAGE>
amounts herein required, and provided further that in all other respects, any
such policy or policies shall comply with the other provisions of this Lease.
GOVERNMENTAL ORDERS
- -------------------
12. Tenant agrees, at its own expense, promptly to comply with all
requirements of any legally constituted public authority made necessary by
reason of Tenant's occupancy of the Premises. Landlord agrees promptly to comply
with any such requirements relating to the Premises not made necessary by reason
of Tenant's occupancy. It is mutually agreed, however, between Landlord and
Tenant, that if in order to comply with such requirements the cost to Landlord
or Tenant, as the case may be, shall exceed a sum equal to one year's rent, then
Landlord or Tenant who is obligated to comply with such requirements may
terminate this Lease without further obligation hereunder for either party by
giving written notice of termination to the other party, by registered mail,
which termination shall become effective ninety (90) days after receipt of such
notice, and which notice shall eliminate necessity of compliance with such
requirement by party giving such notice unless the party receiving such notice
of termination shall, before termination becomes effective, pay to party giving
notice all cost of compliance in excess of one year's rent, or secure payment of
said sum in manner satisfactory to party giving notice.
CONDEMNATION
- ------------
13. If the whole of the Premises, or such portion thereof as will in Tenant's
reasonable judgement make the Premises unusable for Tenant's purposes, be
condemned by any legally constituted authority for any public use or purpose,
then in either of said events the term hereby granted shall cease from the date
when possession thereof is taken by public authorities, and
10
<PAGE>
rental shalll be accounted for as between Landlord and Tenant as of said
date. Such termination, however, shall be without prejudice to the rights
of either Landlord or Tenant to recover compensation and damage caused by
condemnation from the condemnor. It is further understood and agreed that
neither the Tenant nor Landlord shall have any rights in any award made to
the other by any condemnation authority notwithstanding the termination of
the Lease as herein provided.
ASSIGNMENT AND SUBLETTING
- -------------------------
14. Tenant shall not assign or sublease the Premises, or any part thereof,
to others without the written consent of Landlord, which consent shall not
be unreasonably withheld or delayed. Assignees or sublessees of Tenant may,
at option of Landlord without further notice from Landlord, become directly
liable to Landlord jointly and severally with Tenant for all assignee's or
sublessee's occupancy in the Premises. Tenant will be responsible for
notifying assignees or sublessee's of the provisions of this Stipulation.
Notwithstanding the foregoing provision mandating written consent of the
Landlord for assignments or subleases, Tenant may assign or sublease all or
any part of the Premises without obtaining such consent to any corporation
or entity which controls or is controlled by or under common control with
Tenant, or any corporation or entity which results from the merger or
consolidation with Tenant or to which Tenant sells all or substantially all
of its assets.
REMOVAL OF FIXTURES
- -------------------
15. Tenant may (if not in default hereunder), prior to the expiration of
this Lease or any extension or renewal thereof, remove all fixtures and
------
equipment which he has placed in the Premises, provided Tenant repairs all
damage to the Premises caused by such removal.
11
<PAGE>
EVENTS OF TENANT DEFAULT
- ------------------------
16. The happening of any one or more of the following events (hereinafter
any one of which may be referred to as an "Event of Tenant Default") during
the term of this Lease, or any renewal or extension thereof, shall
constitute a breach of this Lease on the part of the Tenant: (1) Tenant
fails to pay the rental as provided for herein; (2) Tenant permanently
abandons or vacates the Premises; (3) Tenant fails to comply with or abide
by and perform any other obligation imposed upon Tenant under this Lease;
(4) Tenant is adjudicated bankrupt; (5) A permanent receiver is appointed
for Tenant's property and such receiver is not removed within sixty (60)
days after written notice from Landlord to Tenant to obtain such removal;
(6) Tenant, either voluntarily or involuntarily, takes advantage of any
debtor relief proceedings under any present or future law, whereby the rent
or any part thereof is, or is proposed to be, reduced or payment thereof
deferred; (7) Tenant makes an assignment for benefit of creditors; or (8) A
material portion of Tenant's effects are levied upon or attached under
process against Tenant, which is not satisfied or dissolved within thirty
(30) days after written notice from Landlord to Tenant to obtain
satisfaction thereof.
REMEDIES UPON DEFAULT
- ---------------------
17. Upon the occurrence of any Event of Default, Landlord may pursue any
one or more of the following remedies, separately or concurrently, without
any notice (except as specifically provided hereafter) and without
prejudice to any other remedy herein provided or provided by law: If the
Event of Tenant Default involves nonpayment of rental, and Tenant fails to
cure such default within ten (10) days after receipt of written notice
thereof from Landlord, or if the Event of Tenant Default involves a default
in performing any of the terms or provisions of this Lease
12
<PAGE>
other than the payment of rental, and Tenant fails to cure such default
within sixty (60) days after the receipt of written notice of default from
Landlord or a longer period as long as Tenant diligently pursues to cure,
Landlord may: (a) terminate this Lease by giving written notice to Tenant
and, upon such termination shall be entitled to recover from the Tenant
damages in an amount equal to all rental which is then due and which would
otherwise have become due throughout the remaining term of this Lease
without regard to any renewal option not exercised by Tenant, and (b)
Tenant's agent, without terminating this Lease, may lawfully enter upon and
rent the Premises, in whole or in part, at the best price obtainable by
reasonable effort, without advertisement and by private negotiations and
for any term Landlord deems proper, with Tenant being liable to Landlord
for the deficiency, if any, between Tenant's rent hereunder and the price
obtained by Landlord on reletting; provided, however, that Landlord shall
not be considered to be under any duty by reason of this provision to take
any action to mitigate damages by reason of Tenant's default.
EXTERIOR SIGNS
- --------------
18. Tenant shall place no signs upon the outside walls or roof of the
Premises except with the written consent of the Landlord. Any and all signs
placed on the Premises by Tenant shall be maintained in compliance with
rules and regulations governing such signs, and the Tenant shall be
responsible to Landlord for any damage caused by installation, use or
maintenance of said signs. Tenant, upon the expiration of this Lease and
any extension or renewal thereof, shall remove such signs and agrees upon
removal of said signs to repair all damage incident to such removal.
ENTRY FOR CARDING ETC.
- ----------------------
13
<PAGE>
19. Landlord may card the Premises "For Rent" or "For Sale" sixty (60) days
before the termination of this Lease. Landlord may enter the Premises at
reasonable hours to exhibit same to prospective purchasers or tenants and
to make repairs required of Landlord under the terms hereof, or to make
--------
repairs to Landlord's adjoining property, if any.
EFFECT OF TERMINATION OF LEASE
- ------------------------------
20. No termination of this Lease prior to the normal ending thereof, by
lapse of time or otherwise shall affect Landlord's right to collect rent
for the period prior to termination thereof.
MORTGAGEE'S RIGHTS
- ------------------
21. Tenant's rights shall be subject to any bona fide mortgage or deed to
secure debt which is now, or may hereafter be placed upon the Premises by
Landlord. Tenant shall, if requested by Landlord, execute a separate
agreement reflecting such subordination in a form reasonably acceptable to
Tenant.
NO ESTATE IN LAND
- -----------------
22. This Lease shall create the relationship of Landlord and Tenant between
the parties hereto; no estate shall pass out of Landlord. Tenant has only a
usufruct, not subject to levy and sale ancl not assignable by Tenant except
by Landlord's consent as otherwise permitted in this Lease.
HOLDING OVER
- ------------
23. If Tenant remains in possession of the Premises after the expiration of
the term hereof, with Landlord's acquiescence and without any express
agreement of parties, Tenant shall be a tenant at will at the rental rate
which is in effect at end of Lease; and there shall be no renewal of this
Lease by operation of law. If Tenant remains in possession of the Premises
after
14
<PAGE>
expiration of the term hereof without Landlord's acquiescence, then Tenant
shall be a tenant sufferance and, commencing on the date following the
date of such expiration, the monthly rental payable under Paragraph 3
hereof shall, for each month or fraction thereof during which Tenant so
remains in possession, be twice the monthly rental otherwise payable under
Paragraph 3 hereof.
ATTORNEY'S FEES AND HOMESTEAD
- -----------------------------
24. If any rent or other sum owing under this Lease is collected by or
through an attorney at law, Tenant agrees to pay reasonable attorney's
fees. Tenant waives all homestead rights and exemptions which he may have
under any law as against any obligation owing under this Lease.
RIGHTS CUMULATIVE
- -----------------
25. All rights, powers and privileges conferred hereunder upon parties
hereto shall be cumulative and not restrictive of those given by law.
WAIVER OF RIGHTS
- ----------------
26. No failure of Landlord to exercise any power given Landlord hereunder,
or to resist upon strict compliance by Tenant of his obligations hereunder
and no custom or practice of the parties at variance with the terms hereof
shall constitute a waiver of Landlord's right to demand exact compliance
with the terms hereof.
DISCLOSURE OF OWNERSHIP
- -----------------------
27. The owner of the Premises is John W. Rooker, whose address is 4920
North Royal Atlanta Drive, Tucker, Georgia 30084, and the person authorized
to manage the Premises is Elbert Riven, whose address is 4920 North Royal
Atlanta Drive, Tucker, Georgia. Service of process and demands and notices
as to the Landlord shall be made on John W. Rooker, whose
15
<PAGE>
address is 4920 North Royal Atlanta Drive, Tucker, Georgia.
COMPREHENSIVE ENVIRONMENTAL RESPONSE
- ------------------------------------
28. Tenant agrees to conduct its operations in accordance with applicable
environmental regulations and will indemnify Landlord against any damages
resulting from Tenant's violation of any environmental regulation.
Landlord will indemnify Tenant against any damages resulting from
violations of any environmental regulations which are not caused by Tenant.
TIME OF ESSENCE
- ---------------
29. Time is of the essence of this Lease.
DEFINITIONS
- -----------
30. "Landlord" as used in this Lease shall include first party, its heirs,
representatives, assigns and successors in title to the premises. "Tenant"
shall include second party, and if this Lease shall be validly assigned or
sublet, shall include also Tenant's assignees or sublessees, as to the
Premises covered by such assignment or sublease. "Agent" shall include
third party, his successors, assigns, heirs and representatives.
"Landlord", "Tenant", and "Agent" include male and female, singular and
plural, corporation, partnership or individual, as may fit the particular
parties.
LEASEHOLD IMPROVEMENTS
- ----------------------
31. All improvements to the Premises by Tenant, other than those
specifically referred to in this Lease, shall be constructed by the
Landlord or by a contractor approved in writing by the Landlord, consent
not to be unreasonably withheld, and on request of Landlord be removed upon
the termination of the Lease and the Premises restored to their original
condition (except usual or ordinary wear and tear) at Tenant's expense.
16
<PAGE>
PROMPT PAYMENTS
- ---------------
32. All rental payments are expected to be paid promptly and are due within
ten (10) days of the stated date. Rental payments not received in the
office of the Landlord by the 10th day following the due date will be
assessed a late charge of 5% of the monthly payment or no less than a
minimum of $25.00.
RENEWAL OPTIONS
- ---------------
33. Tenant shall have the option to renew this Lease for additional terms
of five (5) years each, commencing upon the expiration of the initial term,
with One Hundred Eighty (180) days prior written notice to Landlord of
Tenant's intent to exercise this option. The agreed upon
option rates are as follows:
A) Years 16 - 20 $3.74 S.F. $46,178.00 monthly / $554,136.00 yearly
B) Years 21 - 25 $3.96 S.F. $48,949.00 monthly / $587,388.00 yearly
DEPOSIT
- -------
34. As security for the faithful performance by Tenant of all of the terms
and conditions upon the Tenant's part to be performed, Tenant has
deposited with Landlord this day the sum of $36,815.00 representing
prepayment of the first month's rent. Upon the faithful performance
of this Lease, Tenant shall be credited $36,815.00 for the first month's
rent as due.
IRB PARAGRAPH
- -------------
35. Tenant acknowledges that Landlord has stated to Tenant that the
premises are financed with the proceeds of an industrial development bond,
the interest of which is exempt from Federal income taxation, under Section
103 of the Internal Revenue Code of 1954, as amended (the "Code") and
specifically Section I03(b)(6) of the Code and an election fled pursuant to
17
<PAGE>
Section 103(b)(6)(D) of the Code. Tenant covenants, represents, warrants
and agrees that: (i) Tenant is not a governmental unit, nor an organization
described in Section 501 (c)(3) of the Code; (ii) Tenant is not the
principal user of any facilities financed with the proceeds of industrial
development bonds located in the same incorporated municipality or in the
same county (but not in any incorporated municipality) (the "Jurisdiction")
as the Premises: (iii) Tenant is not a test period beneficiary, as defined
in Section 103(b)(15)(D) of the Code, of any industrial development bond
issued; and (iv) In regard to this graph Tenant will not, without the prior
written consent of Landlord which consent may be withheld in the sole and
absolute discretion of Landlord transfer, assign or sublease all or any
---
part of the premises. As used in this section, the term "Tenant" includes
any related person and the terms "industrial development bond, governmental
unit, principal user, facilities, capital expenditures, and related person,
shall have the meanings ascribed to them in Section (103)(b)(6) of the Code
and the cases, rulings and regulations issued thereunder.
IRB FINANCING
- -------------
36. This Lease is contingent on Landlord obtaining Industrial Revenue Bond
Financing. If such financing is not committed by November 1, 1991 this
Lease is void; otherwise terms of this Lease will be in full force and
effect after November 1, 1991. Simmons Company shall cooperate with the
Landlord to such extent necessary to obtain IRB Financing.
NOTICES
- -------
37. Any formal notices which any party may or must give to any other party
under this agreement shall be in writing and shall be sent by certified or
registered mail, return receipt requested to:
18
<PAGE>
John W. Rooker
4920 North Royal Atlanta Drive
Tucker, Georgia 30084
TENANT:
Simmons Company
6 Executive Park Drive
Atlanta, Georgia 30329
Atn: General Counsel
SPECIAL STIPULATIONS
- --------------------
In so far as the following stipulations conflict with any of the
foregoing provisions, the following shall control:
This Lease contains the entire agreement of the parties hereto and no
representations, inducements, promises or agreements, oral or otherwise,
between the parties not embodied herein, shall be of any force or effect.
19
<PAGE>
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals the day and year first above written.
Signed, sealed and delivered as LANDLORD:
to Landlord on this 28th day of
October, 1991, in the presence of: JOHN W. ROOKER
BY: /s/ JOHN W. ROOKER
--------------
/s/
- ---------------------------
Witness
/s/
- ---------------------------
Notary Public
Notary Public
Winnett County, Georgia
My Commission Expires Oct. 17, 1992
Date Signed: 10-28-91
--------
Signed, sealed and delivered as TENANT:
to Tenant on this __ day of
_____ , 19 , in the presence of: SIMMONS COMPANY
BY: /s/
----------------
Title: /s/
--------------
- ----------------------
Witness (CORPORATE SEAL)
- --------------------------
Notary Public
Commission Expires:
-------------
Date Signed:
------------------
Signed, sealed and delivered as BROKER:
to Tenant on this __ day of
________, 19__, in the presence of: CUSHMAN & WAKEFIELD
OF GEORGIA
BY: /s/
------------------
Title: Managing Director
- --------------------- --------------------
Witness
(CORPORATE SEAL)
ATTEST:
- --------------------------- -------------------
Notary Public Title:
-------------------
Commission Expires:
-----------
Date Signed: (CORPORATE SEAL)
------------------
20
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "First Amendment") is
made as of the 10th day of December, 1991, by and between JOHN W. ROOKER
(hereinafter referred to as "Landlord") and SIMMONS COMPANY, A DELAWARE
CORPORATION (hereinafter referred to as "Tenant").
WITNESSETH:
-----------
WHEREAS, Landlord and Tenant have previously entered into a Lease
Agreement (the "Lease") dated October 23, 1991, pertaining to the lease
of certain premised located in Discovery Park, Cobb County, Georgia; and
WHEREAS, Landlord and Tenant desire to make certain amendments to
the Lease;
NOW, THEREFORE, in consideration of ONE DOLLAR ($1.00) and of the
mutual promises herein contained and of other good and valuable
consideration, the receipt and sufficiency whereof are
hereby acknowledged, Landlord and Tenant hereby covenant and agree as
follows:
1.
Terms used herein which are defined in the Lease shall have the same
meanings ascribed to them in the Lease.
<PAGE>
Whereas, with Paragraph 14 of the Lease "Assignment and
Subletting" and Paragraph 35 of the Lease "IRB Paragraph" having
conflicting wording concerning assignment and subletting, it is
agreed that Paragraph 14 of the Lease shall supersede Paragraph 35;
provided, however, that any proposed sublease or assignment shall
not cause the industrial revenue bonds described in Paragraph 35 of
the Lease to lose their exemption from Federal income taxation
under Section 103 of the Code.
3.
Whereas, Paragraph 17 of the Lease "Remedies upon Default"
Section B has a typographical error and which now reads "Tenant's
Agent..." is corrected to read "Landlord's Agent..." and is now
made a permanent and corrected part of this agreement.
4.
Whereas, Paragraph 21 of the Lease "Mortgagee's Rights" shall be
amended to include that Tenant shall yearly, upon their completion,
provide the Landlord and mortgagee with a copy of the latest
company financial statement.
5.
Except as modified hereby, all terms and conditions of the Lease
shall continue in full force and effect, and Landlord and Tenant
hereby ratify and confirm the Lease, as amended hereby. As of the
date of this First Amendment, Landlord and Tenant acknowledge each
to the other that, to the best of their knowledge, no default
exists under the Lease.
2
<PAGE>
6.
This First Amendment to Lease Agreement shall bind and inure to
the benefit of Landlord and Tenant and their respective permitted
successors and assigns under the Lease.
7.
This First Amendment is a Georgia contract and shall be
interpreted, construed and enforced under the laws of the State of
Georgia.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
First Amendment to Lease under seal as of the date first above
written.
Signed, sealed and delivered LANDLORD:
in the presence of:
/s/
---------------------------- JOHN W. ROOKER
Witness
/s/ Edna C. Niekles BY: /s/ John W. Rooker
---------------------------- -------------------
Notary Public
Date Notarized: 12/12/91
--------
Signed, sealed and delivered TENANT:
in the presence of:
/s/Claudia
----------------------------- SIMMONS COMPANY,
Witness A DELAWARE CORPORATION
/s/ Debora A. DeCoster
----------------------------- BY: /s/
Notary Public --------------------
Date Notarized: 12/10/91 Title: Sr. V.P.
------------- ----------------
(CORPORATE SEAL)
(NOTARIAL SEAL)
3
<PAGE>
STATE OF GEORGIA
COUNTY OF DEKALB
SECOND AMENDMENT TO LEASE AGREEMENT
-----------------------------------
THIS SECOND AMENDMENT TO LEASE AGREEMENT (the "Second
Amendment") is made as of the 14th day of July, 1992, by and
between JOHN W. ROOKER (hereinafter referred to as "Landlord")
and SIMMONS COMPANY, A DELAWARE CORPORATION (hereinafter jointly
and severally referred to as "Tenant").
W I T NE S S E T H:
-------------------
WHEREAS, Landlord and Tenant have previously entered into a
Lease Agreement (the "Lease") dated October 23, 1991 and First
Amendment to Lease Agreement dated December 10, 1991, pertaining
to the lease of certain premises located at 7131 Discovery
Boulevard, Mableton, Cobb County, Georgia; and
WHEREAS, Landlord and Tenant desire to make certain
amendments to the Lease;
NOW, THEREFORE, in consideration of ONE DOLLAR ($1.00) and of
the mutual promises herein contained and of other good and
valuable consideration, the receipt and sufficiency whereof are
hereby acknowledged, Landlord and Tenant hereby covenant and
agree as follows:
1.
Terms used herein which are defined in the Lease shall have
the same meanings ascribed to them in the Lease.
2.
WHEREAS, Tenant has requested that extra work be completed as
outlined in letter dated 2/24/92; 3/23/92; 4/24/92; 5/14/92;
6/2/92; 7/7/92; and verbal commitment of 7/7/92. The Landlord has
completed this work totaling $43,958.30 as requested to be added
to the current lease payment.
3.
Paragraph 3 of the Lease, "Rental", shall be amended to
provide for ADDITIONAL monthly rental in the amount of FOUR
HUNDRED NINETY-FOUR AND 34/100 DOLLARS ($494.34) per month,
payable promptly on the first day of each month, in
advance, commencing on June 1, 1992.
4.
Except as modified hereby, all terms and conditions of the
Lease Agreement shall continue in full force and effect, and
Landlord and Tenant hereby ratify and confirm the Lease, as
amended hereby.
<PAGE>
As of the date of this Second Amendment, Landlord and Tenant acknowledge
each to the other that, to the best of their knowledge, no default exists
under the Lease.
5.
This Second Amendment to Lease Agreement shall bind and inure to the
benefit of Landlord and Tenant and their respective permitted successors
and assigns under the Lease.
6.
This Second Amendment is a Georgia contract and shall be interpreted,
construed and enforced under the laws of the State of Georgia.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Amendment to Lease Agreement under seal as of the date first above written.
Signed, sealed and delivered LANDLORD:
in the presence of:
____________________________
Witness JOHN W. ROOKER
____________________________ BY: ____________________________
Notary Public
Date Notarized: ____________
Signed,sealed and delivered
in the presence of: TENANT:
____________________________
Witness SIMMONS COMPANY, A DELAWARE
CORPORATION
____________________________
Notary Public BY: ____________________________
Date Notarized: ____________ TITLE:__________________________
(NOTARIAL SEAL) (CORPORATE SEAL)
<PAGE>
December 10, 1991
Wachovia Bank of Georgia, N.A.
Two Peachtree Street
Suite 1810, Two Peachtree Tower
Atlanta, Georgia 30383
Attn: Real Estate Finance Department
Re: Lease dated October 23, 1991, as amended by First Amendment
to Lease Agreement dated December 6, 1991 (the "Lease") by
and between John W. Rooker ("Landlord") and Simmons Company,
a Delaware corporation ("Tenant") with respect to certain
premises located in Discovery Park, Cobb County, Georgia
-----------------------------------------------------------
Gentlemen:
The undersigned Tenant hereby acknowledges receipt of notice that the
above-referenced Lease, which leases to Tenant certain premises described
therein (the "Premises"), will be assigned to you by the Landlord as
collateral security for certain credit facilities extended by you to
Landlord and as additional security for Landlord s obligations to you under
a Deed to Secure Debt, Assignment and Security Agreement to be executed and
delivered on or about December 11, 1991.
In connection therewith, the undersigned Tenant hereby represent to you
and agrees with you as follows:
1. All rental payments under the Lease shall be paid as therein
provided until we have been otherwise notified by you or your successors
and assigns, and thereafter all such payments shall be made in accordance
with said notice.
2. No cancellation, modification, assignment, renewal, extension or
amendment of the Lease shall be made without your written consent and
approval.
3. Tenant will not modify, amend or supplement the Lease without the
prior written consent of Wachovia Bank of Georgia, N.A., provided Wachovia
Bank of Georgia, N.A. recognizes Tenant as the Tenant of the Premises under
the Lease.
4. Neither you nor your successors and assigns assume any liability
or obligations whatsoever under the Lease or any extension or renewal
thereof either by virtue of its assignment by Landlord or any receipt or
collection of rents under the Lease.
<PAGE>
5. The Lease is presently in full force and effect and is
unmodified except as indicated at the end of this certificate.
6. The Premises leased by Tenant under the Lease consist of
approximately 148,300 rentable square feet located on approximately 10
acres of land.
7. The term of the Lease commences on June 1, 1992, and
terminates on May 31, 2007.
8. Tenant has two (2) options to renew and extend the
Lease for a term of five (5) years each.
9. Rental payments under the Lease commence on June 1, 1992, in the
amount of $36,815.00 per month ($441,780.00 per year) through May 31, 1997,
in the amount of $41,016.00 per month ($492,192.00 per year) from June 1,
1997 through May 31, 2002, and in the amount of $43,564.00 per month
($552,768.00 per year) from June 1, 2002 through May 31, 2007.
10. Tenant's security deposit under the Lease is $36,815.00 and has
been paid in full and is presently held by the Landlord. Tenant shall not
look to you (or your successors and assigns) for the return of the security
deposit except to the extent actually received from Landlord by you (or
your successors and assigns, respectively).
11. As of the date of this certificate, Tenant has no charge, lien,
cause of action, claim or right of offset, under the Lease or otherwise,
against Landlord or against rents or other charges due or to become due
under the Lease.
12. To the best of Tenant's knowledge, Landlord has not defaulted in
its obligations under the Lease to Tenant.
13. There are no subleases with respect to the Premises.
14. Tenant has not received any concession, rental or otherwise which
is presently in effect with respect to the Lease, except as follows: NONE
----
(if none, so state).
15. Tenant shall promptly deliver to you a copy of all notices
served on or received from Landlord by Tenant.
16. Tenant has not (i) made a general assignment for the benefit of
creditors; (it) filed any voluntary petition in bankruptcy or suffered the
filing of a petition by Tenant's creditors; (iii) had a receiver appointed
with respect to its assets; (iv) suffered an attachment or levy of its
assets; (v) admitted in writing its inability to pay its debts as they
become due; or (vi) made an offer of settlement, extension or composition
to its creditors generally.
17. You are hereby given the right (but not the obligation) to cure
Landlord's defaults under the Lease within thirty (30) days after your
receipt of written notice by the undersigned of Landlord's failure
2
<PAGE>
to cure the same; provided, however, that said thirty (30) day period shall
be extended: (i) so long as within the thirty (30) day period you have
commenced and are diligently proceeding to cure said defaults; or (ii) so
long as you are proceeding with a foreclosure action against the Landlord
and you commence and diligently proceed to cure said defaults upon the
resolution of said foreclosure action; provided, however, in no event shall
the default cure period exceed ninety (90) days after your receipt of
written notice of default.
18. In the event of a foreclosure of your Deed to Secure Debt,
Assignment and Security Agreement against the Premises (or a deed or
assignment in lieu thereof), neither you nor your successors or assigns
shall be liable to Tenant for any act or omission of Landlord, nor be
subject to any claims or offsets or defenses of the Tenant arising under
the Lease before you (or your successors or assigns) become the owner of
the Premises nor after you have sold the Premises.
19. The copy of the Lease attached to this certificate is true,
correct and complete and includes all riders, exhibits, modifications and
amendments thereto, if any.
This 11th day of December, 1991
---- --------
SIMMONS COMPANY, a Delaware corporation
By:
-------------------------------
Name: Jeffrey J. Lewis
Title: Senior Vice President
(CORPORATE SEAL)
EXHIBIT 10.38
STANDARD WAREHOUSE LEASE AGREEMENT 5100 West W. T. Harris Boulevard
-----------------------------------
Charlotte Industrial/1989
Charlotte, North Carolina
-----------------------------------
Approximately 113,400 square feet
-----------------------------------
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between CK-CHILDRESS KLEIN #8
---------------------
LIMITED PARTNERSHIP, a Texas limited partnership hereinafter referred to as
- ---------------------------------------------------
"Landlord," and SIMMONS COMPANY hereinafter referred to as "Tenant";
---------------
W I T N E S S E T H :
1. PREMISES AND TERM. In consideration of the obligation of Tenant to pay
rent as herein provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby accepts and leases from Landlord certain premises situated within the
County of Mecklenburg, State of North Carolina, more particularly described on
-----------
Exhibit "A" attached hereto and incorporated herein by reference, together with
all rights, privileges, easements, appurtenances, and amenities belong to or in
any way pertaining to the premises and together with the buildings and other
improvements situated or to be situated upon said premises (said real property,
building and improvements being hereinafter referred to as the "premises").
TO HAVE AND TO HOLD the same for a term commencing on the "commencement
date", as hereinafter defined, and ending One Hundred Twenty (120) months
--------------------------
thereafter (THE "PRIMARY LEASE TERM"); provided however, that in the event the
commencement date is a date other than the first day of a calendar month, said
term shall extend for said number of months in addition to the remainder of the
calendar month following the commencement date.
A. The commencement date shall be May 1, 1993. Tenant acknowledges that it
------------
has inspected and, except for the work to be performed by Landlord pursuant to
Exhibit B, accepts the premises SUBJECT TO SECTION 1C BELOW, and specifically
the buildings and improvements comprising the same, in their present condition,
as suitable for the purpose for which the premises are leased. Taking of
possession by Tenant shall be deemed conclusively to establish that said
buildings and other improvements are in good and satisfactory condition as of
when possession was taken. Tenant further acknowledges that no representations
as to the repair of the premises, nor promises to alter, remodel or improve the
premises have been made by Landlord, unless such are expressly set forth in this
lease.
1
<PAGE>
B. LANDLORD SHALL COMMENCE AND COMPLETE THE WORK TO BE PERFORMED BY
LANDLORD AS GENERALLY DESCRIBED IN THE OUTLINE SPECIFICATIONS AND PRELIMINARY
DRAWINGS ATTACHED AS EXHIBIT B, PURSUANT TO SUCH SPECIFIC PLANS, SPECIFICATIONS
AND COST ESTIMATES TO BE MUTUALLY AGREED UPON BETWEEN TENANT AND LANDLORD.
LANDLORD SHALL COMMENCE LANDLORD'S WORK AS PROMPTLY HEREAFTER AS POSSIBLE, AND
LANDLORD SHALL COMPLETE SUCH WORK NO LATER THAN SIXTY (60) DAYS AFTER EITHER
PLANS HAVE BEEN APPROVED BY TENANT OR THE FINAL BUILDING PERMIT IS RECEIVED,
WHICHEVER IS LATER (THE "COMPLETION DATE"). IN THE EVENT LANDLORD FAILS TO
SUBSTANTIALLY COMPLETE ITS WORK PRIOR TO THE COMPLETION DATE, THE RENTAL
COMMENCEMENT DATE SHALL BE POSTPONED BY A NUMBER OF DAYS EQUAL TO THE NUMBER OF
DAYS BETWEEN THE COMPLETION DATE AND SUBSTANTIAL COMPLETION OF THE PREMISES.
LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY DELAY IN THE COMMENCEMENT OR
COMPLETION OF THE WORK WHICH RESULTS FROM (I) TENANT'S MATERIAL CHANGES IN
PLANS, IN MASTER OR (II) THE PERFORMANCE OR COMPLETION OF TENANT'S WORK BY
TENANT OR ITS REPRESENTATIVES. LANDLORD ACKNOWLEDGES THAT TENANT MAY COMMENCE
TENANT'S WORK AND MOVE-IN OPERATIONS PRIOR TO THE COMPLETION OF LANDLORD'S WORK,
PROVIDED THAT TENANT'S ACTIVITIES ARE COORDINATED WITH LANDLORD'S CONTRACTOR.
TENANT SHALL BE DEEMED TO HAVE ACCEPTED LANDLORD'S WORK ONLY UPON EXECUTION
BY TENANT OF A CERTIFICATE OF ACCEPTANCE, OR THE FAILURE TO OBJECT TO
LANDLORD'S WORK WITHIN FIVE (5) DAYS AFTER RECEIPT BY TENANT OF A NOTICE BY
LANDLORD THAT SUCH WORK HAS BEEN SUBSTANTIALLY COMPLETED. LANDLORD AND TENANT
AGREE TO USE THEIR BEST EFFORTS NOT TO UNREASONABLY INTERFERE WITH THE WORK
OR OPERATIONS OF THE OTHER PRIOR TO COMPLETION OF LANDLORD'S WORK. TENANT SHALL
HAVE IMMEDIATE ACCESS TO THE PREMISES FOR THE PURPOSES OF PREPARING FOR,
PERFORMING AND COMPLETING TENANT'S WORK.
C. LANDLORD REPRESENTS THAT TO THE BEST OF ITS KNOWLEDGE, THE PREMISES, ALL
EXISTING SYSTEMS, AND ALL PAVED AREAS AROUND THE PREMISES ARE IN GOOD CONDITION
AND REPAIR. TENANT SHALL HAVE A PERIOD OF FORTY-FIVE (45) DAYS AFTER THE DATE
OF THIS LEASE TO INSPECT SAME AND TO ADVISE LANDLORD OF ANY OF THE FOREGOING
WHICH REQUIRE REPAIR IN ORDER TO BE PLACED IN GOOD OPERATING CONDITION, AND
LANDLORD WILL PROMPTLY THEREAFTER UNDERTAKE SUCH REPAIRS.
2. BASE RENT AND SECURITY DEPOSIT.
A. COMMENCING TWO (2) MONTHS AFTER THE PREMISES ARE SUBSTANTIALLY COMPLETED
OR SEPTEMBER 1, 1993, WHICHEVER IS LATER (THE "RENTAL COMMENCEMENT DATE"),
TENANT AGREES TO PAY LANDLORD RENT FOR THE PREMISES, IN ADVANCE, WITHOUT DEMAND,
DEDUCTION OR SETOFF, AT THE RATE OF TWENTY-SIX THOUSAND TWO HUNDRED FIFTY-SIX
DOLLARS ($26,256) PER MONTH THROUGH MONTH SIXTY (60) OF THE PRIMARY LEASE TERM
(THE "BASE RENT").
FOR MONTHS SIXTY-ONE (61) THROUGH ONE HUNDRED TWENTY (120), THE BASE RENT
WILL BE ADJUSTED BY TAKING SIXTY PERCENT (60%) OF THE PERCENTAGE INCREASE IN THE
CONSUMER PRICE INDEX OVER THE FIRST FIVE (5) YEARS OF THE PRIMARY LEASE TERM.
THE ADJUSTMENT SHALL AT LEAST BE EQUAL TO THE BASEMENT OR, AT MOST, A TWENTY
PERCENT (20%) INCREASE IN THE BASE RENT. THE ADJUSTMENT SHALL BE CALCULATED IN
THE MANNER SET FORTH BELOW:
THE CONSUMER PRICE INDEX (THE "INDEX") IS DEFINED AS THE CONSUMER
PRICE INDEX FOR ALL URBAN CONSUMERS FOR THE ATLANTA METROPOLITAN AREA
(ALL ITEMS) AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR
BUREAU OF LABOR STATISTICS. THE PERCENTAGE OF ANY INCREASE IN THE
INDEX SHALL BE DETERMINED BY SUBTRACTING THE INDEX FOR THE MOST RECENT
DATE PRIOR TO THE COMMENCEMENT DATE FROM THE INDEX FOR THE MOST RECENT
DATE PRIOR TO THE SIXTIETH (60TH) MONTH OF THE PRIMARY LEASE TERM AND
THEN DIVIDING THAT DIFFERENCE BY THE INDEX FOR THE MOST RECENT DATE
PRIOR TO THE COMMENCEMENT DATE. THAT PERCENTAGE INCREASE SHALL THEN
BY MULTIPLIED BY SIXTY PERCENT (60%) TO ARRIVE AT THE PERCENTAGE
INCREASE IN THE RENTAL RATE FOR MONTHS SIXTY-ONE (61) THROUGH ONE
HUNDRED TWENTY (120). NOTWITHSTANDING THE ABOVE, IN NO EVENT SHALL
THE MONTHLY RENT AFTER SAID FIFTH (5TH) ANNIVERSARY DATE BE LESS THAN
THE BASE RENT. NOTWITHSTANDING THE FOREGOING, THE BASE RENT FOR
MONTHS SIXTY-ONE (61) THROUGH ONE HUNDRED TWENTY (120), AS ADJUSTED
PURSUANT HERETO, SHALL NOT EXCEED THE RESULT OBTAINED BY INCREASING
THE BASE RENT BY TWENTY PERCENT (20%). IN THE EVENT SAID INDEX IS
DISCONTINUED OR REVISED DURING THE TERM OF THIS LEASE SUCH OTHER
COMPARABLE GOVERNMENTAL INDEX OR COMPUTATION AS DETERMINED BY THE
PARTIES WITH WHICH IT IS REPLACED SHALL BE DEEMED THE BASIS FOR
COMPUTATION.
EACH MONTHLY INSTALLMENT FOR THE MONTHS FOLLOWING THE RENTAL COMMENCEMENT DATE
shall be due and payable on or before the first day of each calendar month
succeeding the RENTAL Commencement Date recited above during the hereby demised
term, except that the rental payment for any fractional calendar
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month at the end of the lease period shall be prorated.
B. In addition, Tenant agrees to deposit with Landlord on the date hereof
the sum of Fifteen Thousand Dollars ($15,000.00), which sum shall be held by
---------------- ------------
Landlord, without obligation for interest, as security for the performance of
Tenant's covenants and obligations under this lease, it being expressly
understood and agreed that such deposit is not an advance rental deposit or a
measure of Landlord's damages in case of Tenant's default. Upon the occurrence
of any event of default by Tenant, Landlord may, from time to time, without
prejudice to any other remedy provided herein or provided by law, use such fund
to the extent necessary to make good any arrears of rent or other payments due
Landlord hereunder, and any other damage, injury, expense or liability caused by
such event of default; and Tenant shall pay to Landlord on demand the amount so
applied in order to restore the security deposit to its original amount.
Although the security deposit shall be deemed the property of the Landlord, any
remaining balance of such deposit shall be returned by Landlord to Tenant at
such time after termination of this lease that all of Tenant's obligations under
this lease have been fulfilled. NOTWITHSTANDING THE FOREGOING, IF, DURING THE
FIRST THREE (3) YEARS OF THE PRIMARY LEASE TERM, THERE ARE NO EVENTS OF DEFAULT
(AS DEFINED IN PARAGRAPH 17 HEREOF), UPON WRITTEN NOTICE FROM TENANT, LANDLORD
AGREES TO REIMBURSE TENANT'S DEPOSIT.
3. USE.
A. The demised premises shall be used only for the purpose of general
office, receiving, storing, MANUFACTURING, WAREHOUSING, shipping and selling
(other than retail) products, materials and merchandise made and/or distributed
by Tenant and for such other lawful purposes as may be incidental thereto, and
subject to any building or building complex rules and regulations, WHICH HAVE
BEEN DISCLOSED TO TENANT. Outside storage, including without limitation, trucks
and other vehicles, is prohibited without Landlord's prior written consent.
Tenant shall at its own cost and expense obtain any and all licenses and permits
necessary for any such use. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the premises, and shall
promptly comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances in or upon, or connected with, the
premises, all at Tenant's sole expense. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the premises, nor take any other action which would constitute a
nuisance or would disturb or endanger any other tenants of the building in which
their premises are situated or unreasonably interfere with their use of their
respective premises. Without Landlord's prior written consent (WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED), Tenant shall not receive, store
or otherwise handle any product, material or merchandise which is explosive or
highly flammable. Tenant will not permit the premises to be used for any
purpose or in any manner (including without limitation any method of storage)
which would render the insurance thereon void or the insurance risk more
hazardous or cause the State Board of Insurance or other insurance authority to
disallow any sprinkler credits.
B. Tenant agrees that the point pressure resulting from Tenant's racking
system, inventory, forklifts and equipment pertaining to Tenant's use of the
premises shall not exceed allowable design floor loading for floor slabs on
grade. Tenant shall hold harmless Landlord from any loss, liability, and
expenses, both real and alleged, arising out of such damage or repair caused by
Tenant's negligence or failure to comply with this paragraph.
4. TAXES.
A. Landlord agrees to pay before they become delinquent all taxes,
assessments and governmental charges of any kind and nature whatsoever
(hereinafter collectively referred to as "taxes") lawfully levied or assessed
against the building and the grounds, parking areas, driveways and alleys around
the building; provided however, that the maximum amount of taxes to be paid by
Landlord hereunder during any one real estate tax year shall be Zero Dollars
----
($.00 ). If, in any real estate tax year during the term hereof or any renewal
- -------
or extension, the taxes levied or assessed against the building and the grounds,
parking areas, driveways and alleys around the building during such tax year
shall exceed the sum set forth in the preceding sentence, Tenant shall pay to
Landlord as additional rental, upon demand, the amount of such excess. In the
event any such amount is not paid within twenty (20) days after the date of
Landlord's invoice to Tenant, the unpaid amount shall bear interest at the rate
of WACHOVIA BANK & TRUST COMPANY'S PRIME INTEREST RATE PLUS FOUR PERCENT (4%)
per annum from the date of such invoice until payment by Tenant. In the event
the premises constitute a portion of a multiple occupancy building, Tenant
agrees to pay to Landlord, as additional rental, upon demand, the amount of
Tenant's "proportionate share" (as defined in subparagraph 27B below) of the
excess taxes referred to in this subparagraph. Landlord reserves the right to
require Tenant during each month of the lease term to pay an escrow deposit to
Landlord equal to one-twelfth of its proportionate share of the estimated taxes.
If the Tenant's total tax escrow payments are less than Tenant's actual
proportionate share of such taxes, Tenant shall pay to Landlord upon demand the
tax payment shortage; if the total tax escrow payments of Tenant are more than
Tenant's actual proportionate share of such taxes, Landlord shall retain such
excess and credit it to Tenant's next accruing tax escrow payment.
B. If at any time during the term of this lease, the present method of
taxation shall be changed so that, in lieu of the whole or any part of any
taxes, assessments or governmental charges levied, assessed or imposed on real
estate and the improvements thereon, there shall be levied, assessed or imposed
on
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Landlord, a capital levy or other tax directly on the rents received
therefrom and/or a franchise tax, assessment, levy or charge measured by or
based, in whole or in part, upon such rents for the present or any future
building or buildings on the premises, then all such taxes, assessments, levies
or charges, or the part thereof so measured or based, shall be deemed to be
included within the term "taxes" for the purposes hereof.
C. The Landlord shall have the right to employ a tax consulting firm to
attempt to assure a fair tax burden on the building and grounds within the
applicable taxing jurisdiction. Tenant shall pay to Landlord upon demand from
time to time, as additional rent, the amount of Tenant's proportionate share of
the cost of such service. LANDLORD AGREES TO EMPLOY SAID TAX CONSULTING FIRM ON
A CONTINGENCY BASIS ONLY.
D. Any payment to be made pursuant to this paragraph 4 with respect to the
real estate tax year in which this lease commences or terminates shall be
prorated.
5. LANDLORD'S REPAIRS AND OBLIGATIONS. Landlord shall at its expense
maintain only the roof foundation and the structural soundness of the exterior
walls of the building in good repair, reasonable wear and tear excepted. Tenant
shall repair and pay for any damage caused by the negligence of Tenant, or
Tenant's employees, agents or invitees, or caused by Tenant's default hereunder.
The term "walls" as used herein shall not include windows, glass or plate glass,
doors, store fronts or office entries. Tenant shall give Landlord written
notice of defect or need for repairs PROMPTLY AFTER DISCOVERING SAME, after
which Landlord shall PROMPTLY repair same or cure such defect. IN THE ABSENCE
OF NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD, ITS REPRESENTATIVES,
CONTRACTORS OR EMPLOYEES, Landlord's ability with respect to any defects,
repairs or maintenance for which Landlord is responsible under any of the
provisions of this lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect.
6. TENANT'S REPAIRS AND OBLIGATIONS.
A. Tenant shall at its own cost and expense keep and maintain all parts of
the premises (except those for which Landlord is expressly responsible under the
terms of this lease) in good condition, promptly making all repairs, repainting,
and replacements, including but not limited to, windows, glass and plate glass,
doors, any office entries, interior walls and finish work, floors and floor
covering, downspouts, gutters, heating and air conditioning systems, dock
levelers, truck doors, dock bumpers, paving, plumbing work and fixtures,
termites and pest extermination inside the building, regular removal of trash
and debris. Tenant shall not be obligated to repair any damage caused by fire,
tornado or other casualty covered by the insurance to be maintained by Landlord
pursuant to subparagraph 12A below, except that Tenant shall be obligated to
repair all wind damage to glass except with respect to tornado or hurricane
damage. LANDLORD SHALL ASSIGN TO TENANT THE BENEFIT OF ALL GUARANTEES OR
WARRANTIES, IF ANY, RECEIVED BY LANDLORD IN CONNECTION WITH THE HEATING AND AIR-
CONDITIONING SYSTEMS, AND ANY OTHER IMPROVEMENTS MADE BY LANDLORD PURSUANT TO
EXHIBIT B HEREOF.
B. The cost of maintenance and repair of any NON-LOAD-BEARING common party
walls (any wall, divider, partition or any other structure separating the
premises from any adjacent premises) shall be shared equally by the Tenant and
the tenant or tenants occupying the adjacent premises, unless damage is
attributable to the actions of a specific tenant in which case the responsible
tenant shall bear all costs of repair. Tenant shall not damage any demising
wall or disturb the integrity and support provided by any demising wall and
shall, at its sole cost and expense, promptly repair any damage or injury caused
to any demising wall caused by Tenant or its employees, agents or invitees.
C. In the event the premises constitute a portion of a multiple occupancy
building, Tenant and its employees, customers and licensees shall have the
exclusive right to use the parking areas, if any, as may be designated by
Landlord in writing, subject to such reasonable rules and regulations as
Landlord may from time to time prescribe and subject to rights of ingress and
egress of other tenants. Landlord shall not be responsible for enforcing
Tenant's exclusive parking rights against any third parties. LANDLORD
ACKNOWLEDGES THAT THE PARKING AREAS LINED OFF IN THE EXISTING TRUCK COURT AND
THE PARKING LOTS TO BE CONSTRUCTED BY LANDLORD IN ACCORDANCE WITH EXHIBIT B
SHALL BE FOR THE EXCLUSIVE USE OF TENANT.
D. Landlord shall perform grounds maintenance, regular mowing of any grass,
trimming, weed removal, general landscape maintenance, common sewage line
plumbing, common exterior lighting (if applicable), common dumpster removal (if
applicable) and other exterior maintenance obligations of the building,
including but not limited to rail spur areas, (if applicable), keeping the
parking areas, driveways, alleys and the whole of the premises in a clean and
sanitary condition, and maintaining any spur track serving the premises and
provide all or any part of Tenant's repairs and obligations under subparagraph
6A above, and Tenant shall, pay monthly as additional rent due under
subparagraph 2A for its proportionate share of the cost and expense, including
reasonable overhead, for those items; provided however that Landlord shall have
the right to require Tenant to pay such other reasonable proportions of said
repairs and obligations as may be determined by Landlord (ALL OF THE FOREGOING
REFERRED TO AS "OPERATING EXPENSES") and further provided that if Tenant or any
other particular tenant of the building can be clearly identified as being
responsible for obstructions or stoppage of the common sanitary sewage line,
then Tenant, if Tenant is responsible, shall pay the entire cost thereof, upon
demand, as additional
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rent. THE TERM "OPERATING EXPENSES" SHALL NOT INCLUDE ANY UTILITIES (OTHER THAN
SEWER, WATER, OUTSIDE LIGHTING AND OTHER SHARED UTILITIES), CAPITAL
IMPROVEMENT TO THE BUILDING WHICH IS NOT DESIGNED TO EFFECT COST SAVINGS, NOR
SHALL IT INCLUDE REPAIRS, RESTORATION OR OTHER WORK OCCASIONED BY FIRE,
WINDSTORM OR OTHER CASUALTY, INCOME AND FRANCHISE TAXES OF THE LANDLORD,
EXPENSES INCURRED IN LEASING TO OR PROCURING OF TENANTS, LEASING
COMMISSIONS, ADVERTISING EXPENSES, OR THE RENOVATING OF SPACE OF NEW TENANTS,
INTEREST OR PRINCIPAL PAYMENTS ON ANY MORTGAGE OR OTHER INDEBTEDNESS OF
LANDLORD, OR DEPRECIATION ALLOWANCE OR EXPENSE OR ANY OTHER COST OR EXPENSE NOT
GENERALLY OR SPECIFICALLY DESCRIBED ABOVE. TENANT SHALL PAY TO LANDLORD AN
ESTIMATE OF THE OPERATING EXPENSES FOR THE REMAINING PORTION OF THE CURRENT
CALENDAR YEAR AND ALL SUBSEQUENT YEARS OF THE TERM OR PORTION THEREOF, BASED ON
LANDLORD'S NOTICE GIVEN ON OR BEFORE FIFTEEN (15) DAYS PRIOR TO THE COMMENCEMENT
OF EACH SUCH CALENDAR YEAR (THE "ESTIMATED OPERATING EXPENSES"), WHICH PAYMENTS
TENANT SHALL PAY TO LANDLORD MONTHLY IN AN AMOUNT EQUAL TO ONE-TWELFTH (1/12) OF
THE ESTIMATED OPERATING EXPENSES, WITH AN ADJUSTMENT TO BE MADE BETWEEN THE
PARTIES AT A LATER DATE AS PROVIDED HEREINAFTER. WITHIN NINETY (90) DAYS AFTER
THE CLOSE OF THE CURRENT CALENDAR YEAR AND EACH SUBSEQUENT CALENDAR YEAR,
LANDLORD SHALL GIVE TENANT AN INVOICE WHICH SHALL INCLUDE IN REASONABLE DETAIL
ALL COMPUTATIONS OF ACTUAL OPERATING EXPENSES (THE "OPERATING EXPENSES
COMPUTATION"), WHICH SHALL REFLECT THE DIFFERENCE, IF ANY, BETWEEN THE OPERATING
EXPENSES AND THE ESTIMATED OPERATING EXPENSES (ALREADY PAID BY TENANT IN
ACCORDANCE WITH THIS PARAGRAPH) FOR SUCH YEAR. TO THE EXTENT THAT THE OPERATING
EXPENSES FOR ANY PERIOD COVERED BY SUCH STATEMENT ARE GREATER THAN THE ESTIMATED
OPERATING EXPENSES WHICH TENANT PREVIOUSLY PAID, TENANT SHALL PAY TO LANDLORD
THE DIFFERENCE IN CASH WITHIN THIRTY (30) DAYS FOLLOWING RECEIPT OF SAID
STATEMENT FROM LANDLORD. TO THE EXTENT THAT OPERATING EXPENSES FOR THE PERIOD
COVERED BY THE STATEMENT ARE LESS THAN THE ESTIMATED OPERATING EXPENSES WHICH
TENANT PREVIOUSLY PLAID, LANDLORD SHALL, AT TENANT'S OPTION, REFUND SUCH
DIFFERENCE WITHIN THIRTY (30) DAYS AFTER THE STATEMENT OR CREDIT THE DIFFERENCE
AGAINST THE ESTIMATED OPERATING EXPENSES FOR THE NEW CALENDAR YEAR AND SUCH
CREDIT WILL BE APPLIED TO THE NEXT PAYMENT OR PAYMENTS OF ESTIMATED OPERATING
EXPENSES DUE FROM TENANT TO LANDLORD. LANDLORD REPRESENTS THAT THE OPERATING
EXPENSES SHALL INCLUDE ONLY TENANT'S SHARE OF COSTS ACTUALLY INCURRED BY
LANDLORD AND DOES NOT INCLUDE ANY MARK-UP, ADMINISTRATIVE OR MANAGEMENT FEES.
E. In the event the premises constitute a portion of a multiple occupancy
building, Landlord shall have the right to coordinate any repairs and other
maintenance of any rail tracks serving the building and if Tenant uses such rail
tracks, Tenant shall reimburse Landlord from time to time upon demand, as
additional rent, for a share of the costs of such repairs and maintenance and
any other sums specified in any agreement to which Landlord is a party
respecting such tracks, such share to be a fraction, the numerator of which is
the space contained in the premises, and the denominator of which is the entire
space occupied by rail users in the building.
F. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
for servicing all hot water, heating and air conditioning systems and equipment
within the premises. The maintenance contractor and the contract must be
approved by Landlord. The service contract must include all services suggested
by the equipment manufacturer within the operation/maintenance manual and must
become effective (and a copy thereof delivered to the Landlord) within thirty
(30) days of the date Tenant takes possession of the premises.
7. ALTERATIONS. Tenant shall not make any alternations, additions or
improvements to the premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord, WHICH CONSENT OR
APPROVAL WILL NOT BE UNREASONABLY WITHHELD OR DELAYED. In the event Landlord
consents to the making of any such alterations, additions or improvements by
Tenant, the same shall be made by Tenant, at Tenant's sole cost and expense, in
accordance with all applicable laws, ordinances and regulations, and all
requirements of Landlord's and Tenant's insurance policies and only in
accordance with plans and specifications approved by Landlord, WHICH CONSENT OR
APPROVAL WILL NOT BE UNREASONABLY WITHHELD OR DELAYED; and any contractor or
person selected by Tenant to make the same and all subcontractors must first be
approved in writing by Landlord, WHICH CONSENT OR APPROVAL WILL NOT BE
UNREASONABLY WITHHELD OR DELAYED, or, UPON AGREEMENT OF THE PARTIES, the
alterations, additions, or improvements shall be made by Landlord for Tenant's
account and Tenant shall fully reimburse Landlord for the entire cost thereof
within twenty (20) days after written notification of Tenant by Landlord
providing Tenant with an invoice or other request (or statement). Tenant may,
without the consent of Landlord, but at its own cost and expense and in a good
workmanlike manner erect such shelves, bins, machinery and trade fixtures as it
may deem advisable, without altering the basic character of the building or
improvements and without overloading or damaging such building or improvements,
and in each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. All alterations, additions, improvements
and partitions erected by Tenant shall be and remain the property of Tenant
during the term of this lease and Tenant shall, unless Landlord otherwise elects
as hereinafter provided, remove all alterations, additions, improvements and
partitions erected by Tenant and restore the premises to their original
condition by the date of termination of this lease or upon earlier vacating of
the premises; provided, however, that if
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TENANT FAILS TO VACATE AND SURRENDER THE PREMISES UPON EXPIRATION OR
TERMINATION OF THIS LEASE, THEN AT LANDLORD'S OPTION, such alterations,
additions, improvements and partitions shall become the property of Landlord
as of the date of termination of this lease and shall be delivered up to
the Landlord with the premises. Notwithstanding the foregoing sentence,
all shelves, bins, machinery and trade fixtures installed by Tenant may be
removed by Tenant prior to the termination of this lease if Tenant so elects,
and shall be removed by the date of termination of this lease or upon earlier
vacating of the premises if required by Landlord. Upon any such removal
Tenant shall restore the premises to their original condition. All such
removals and restoration shall be accomplished in a good workmanlike manner so
as not to damage the primary structure or structural qualities of the building
and other improvements situated on the premises.
8. SIGNS. Tenant agrees to conform to Landlord's signage program for the
building; however, all costs and expenses for the sign, sign installation,
removal and repair shall be paid by Tenant. Tenant shall have the right to
install standard signs upon the premises only where first approved in writing by
Landlord (SUCH APPROVAL NOT TO BE UNREASONABLY WITHHELD OR DELAYED) and subject
to any applicable governmental laws, ordinances, regulations and other
requirements. Tenant shall remove all signs prior to the termination of this
lease. Such installations and removals shall be made in such a manner as to
avoid injury or defacement of the building and other improvements, and Tenant
shall repair any injury or defacement caused by installation and/or removal.
9. INSPECTION AND RIGHT OF ENTRY. Landlord and Landlord's agents and
representatives shall have the right to enter the premises at any time in the
event of an emergency and to enter and inspect the premises at any reasonable
time during business hours, SUBJECT TO TWENTY-FOUR (24) HOURS' PRIOR NOTICE,
for the purpose of ascertaining the condition of the premises or in order to
make such repairs as may be required or permitted to be made by Landlord under
the terms of this lease. During the period that is six (6) months prior to the
end of the term hereof, Landlord and Landlord's agents and representatives shall
have the right to enter the premises at any reasonable time during business
hours, SUBJECT TO TWENTY-FOUR (24) HOURS' PRIOR NOTICE, for the purpose of
showing the premises and shall have the right to erect on the premises a
suitable sign indicating the premises are available. Tenant shall give written
notice to Landlord at least thirty (30) days prior to vacating the premises and
shall arrange to meet with Landlord for a joint inspection of the premises prior
to vacating. In the event of Tenant's failure to give such notice or arrange
such joint inspection, Landlord's inspection at or after Tenant's vacating the
premises shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
10. UTILITIES. Landlord agrees to provide at its cost water, electricity
and gas (when applicable) service connections into the premises in accordance
with the specifications, if any, attached hereto; but Tenant shall pay for all
water, gas, heat, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or from the premises, together with any taxes,
penalties, surcharges or the like pertaining thereto, and any maintenance
charges for utilities, and shall furnish all electric light bulbs and tubes. If
any such services are not separately metered to Tenant, Tenant shall pay a
reasonable proportion as determined by Landlord of all charges jointly metered
with other premises AS OPERATING EXPENSES, PAYABLE AS DESCRIBED IN PARAGRAPH 6D
HEREOF, provided however, Landlord shall have the right to require Tenant to pay
such other reasonable proportion of said jointly metered charges as may be
determined by Landlord in its sole discretion. Landlord shall in no event be
liable for any interruption or failure of utility services on or at the premises
UNLESS CAUSED BY OR RESULTING FROM THE NEGLIGENCE OR MISCONDUCT OF THE LANDLORD.
11. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not sell, assign, encumber or otherwise transfer by
operation of law or otherwise, this lease or any interest herein, sublet the
premises or any portion thereof, or suffer any other person to occupy or the use
of the premises or any portion thereof, without the prior written consent of
Landlord as provided herein, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD OR
DELAYED, nor shall Tenant permit any lien to be placed on the Tenant's interest
by operation of law. NOTWITHSTANDING THE FOREGOING, THE TENANT MAY ASSIGN OR
SUBLET ALL OR ANY PORTION OF THE PREMISES WITHOUT LANDLORD'S CONSENT TO ANY
ENTITY WHICH CONTROLS, IS CONTROLLED BY OR UNDER COMMON CONTROL WITH TENANT OR
ANY CORPORATION WHICH RESULTS FROM THE MERGER OR CONSOLIDATION WITH TENANT OR TO
WHOM TENANT SELLS ALL OR SUBSTANTIALLY ALL OF ITS ASSETS. IN THE EVENT OF AN
ASSIGNMENT OR SUBLEASE WHICH REQUIRES LANDLORD'S CONSENT HEREUNDER, TENANT
SHALL, BY WRITTEN NOTICE, ADVISE LANDLORD OF ITS DESIRE FROM AND AFTER A STATED
DATE (WHICH SHALL NOT BE LESS THAN THIRTY (30) DAYS OR MORE THAN NINETY (90)
DAYS AFTER THE DATE OF TENANT'S NOTICE) TO SUBLET THE PREMISES OR ANY PORTION
THEREOF FOR ANY PART OF THE TERM THEREOF; AND IN SUCH EVENT, LANDLORD SHALL
EITHER CONSENT TO OR DISAPPROVE THE SUBLEASE WITHIN FIFTEEN (15) DAYS AFTER ITS
RECEIPT OF NOTICE. IN THE EVENT THAT LANDLORD CONSENTS TO A PROPOSED SUBLEASE,
AND IN THE EVENT THAT THE MONTHLY BASE RENT PAYABLE UNDER SUBLEASE BY THE
SUBLESSEE EXCEEDS THE MONTHLY BASE RENT PAYABLE BY TENANT HEREUNDER
(PROPORTIONATE TO THE SPACE SUBLEASED, IF LESS THAN ALL OF THE PREMISES), THEN
TENANT SHALL PAY TO LANDLORD FIFTY PERCENT (50%) OF SUCH EXCESS. IN THE EVENT
TENANT'S NOTICE IS FOR A SUB LEASE FOR THE ENTIRE PREMISES FOR THE REMAINING
TERM
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OF THE LEASE, Landlord shall have the right, to be exercised by giving
written notice to Tenant within ten (10) days after receipt of Tenant's notice,
to terminate this lease as described in Tenant's notice and such notice shall,
if given, terminate this lease as of the date stated in Tenant's notice. Said
notice by Tenant shall state the name and address of the proposed subtenant, and
Tenant shall deliver to Landlord a true and complete copy of the proposed
sublease with said notice. Tenant shall, at Tenant's sole cost and expense,
discharge in full any outstanding commission obligation on the part of Landlord
with respect to this lease, and any commission which may be due and owing as a
result of any proposed assignment or subletting.
B. Any subletting hereunder by Tenant shall not result in Tenant being
released or discharged from any liability under this lease. As a condition to
Landlord's prior written consent as provided for in subparagraph 11A above, the
subtenant or subtenants shall agree in writing to comply with and be bound by
all of the terms, covenants, conditions, provisions and agreements of this
lease, and Tenant shall deliver to Landlord promptly after execution, an
executed copy of each sublease and an agreement of said compliance by each
sublessee.
C. Landlord's consent to any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent occurrence.
Any sale, assignment, encumbrance, subletting, occupation, lien or other
transfer of this lease which does not comply with the provisions of this
paragraph 11 shall be null and void.
12. FIRE AND CASUALTY DAMAGE.
A. Landlord agrees to maintain insurance covering the building of which the
premises are a part in an amount not less than eighty (80%) percent (or such
greater percentage as may be necessary to comply with the provisions of any co-
insurance clauses of the policy) of the replacement cost thereof, insuring
against the perils of Fire, Lightning, Extended Coverage, Vandalism and
Malicious Mischief, extended by Special Extended Coverage Endorsement to insure
against all other Risks of Direct Physical Loss, such coverages and endorsements
to be as defined, provided and limited in the standard bureau forms prescribed
by the insurance regulatory authority for the state in which the premises are
situated for use by insurance companies admitted in such state for the writing
of such insurance on risks located within such state. Subject to the provisions
of subparagraphs 12C, 12D and 12E below, such insurance shall be for the sole
benefit of Landlord and under its sole control. If during the second full lease
year after the commencement date of this lease, or during any subsequent year of
the primary term or any renewal or extension, Landlord's cost of maintaining
such insurance shall exceed Landlord's cost of maintaining such insurance for
the first full lease year of the term hereof. Tenant agrees to pay to Landlord,
as additional rental, the amount of such excess (or in the event the premises
constitute a portion of a multiple occupancy building, Tenant's full
proportionate share of such excess). Said payment shall be made to Landlord
within twenty (20) days after presentation to Tenant of Landlord's statement
FROM ITS INSURER setting forth the amount due. Any payment to be made pursuant
to this subparagraph 12A with respect to the year in which this lease commences
or terminates shall bear the same ratio to the payment which would be required
to be made for the full year as part of such year covered by the term of this
lease bears to a full year.
B. If any increase in the fire and extended coverage insurance premiums
paid by Landlord or other Tenants for the building in which Tenant occupies
space is caused SOLELY by Tenant's use and occupancy of the premises, or if
Tenant vacates the premises and causes an increase in such premiums, then Tenant
shall pay as additional rental the amount of such increase to Landlord.
C. If the buildings situated upon the premises should be damaged or
destroyed by fire, tornado or other casualty, Tenant shall give immediate
written notice thereof to Landlord.
D. If the buildings situated upon the premises should be totally destroyed
by fire, tornado or other casualty, or if they should be so damaged thereby that
rebuilding or repairs cannot in Landlord's REASONABLE estimation be completed
within ONE HUNDRED TWENTY (120) days after the date upon which Landlord is
notified by Tenant of such damage, this lease shall terminate and the rent shall
be abated during the unexpired portion of this lease, effective upon the date of
the occurrence of such damage.
E. If the buildings situated upon the premises should be damaged by any
peril covered by the insurance to be provided by Landlord under subparagraph 12A
above, but only to such extent that rebuilding or repairs can in Landlord's
REASONABLE estimation be completed within ONE HUNDRED TWENTY (120) days after
the date upon which Landlord is notified by Tenant of such damage, this lease
shall not terminate, and Landlord shall at its sole cost and expense thereupon
proceed with reasonable diligence to rebuild and repair such buildings to
substantially the condition in which they
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existed prior to such damage, except that Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures, additions
and other improvements which may have been placed in, on or about the premises
by Tenant and except that Tenant shall pay to Landlord upon demand any amount
by which Landlord's cost of such rebuilding, repair and/or replacement exceeds
net insurance proceeds paid to Landlord in connection with such damage
(PROVIDED THAT TENANT SHALL HAVE NO OBLIGATION TO PAY TO LANDLORD ANY EXCESS
OVER NET INSURANCE PROCEEDS PAID TO LANDLORD WHICH RESULT FROM A BREACH BY
LANDLORD OF PARAGRAPH 12A ABOVE) and except that Landlord may elect not to
rebuild if such damage occurs during the last year of the term of the lease
exclusive of any option which is unexercised at the time of such damage. If
the premises are untenantable in whole or in part following such damage, the
rent payable hereunder during the period in which they are untenantable shall
be reduced (OR ABATED, AS THE CASE MAY BE) to such extent as may be fair or
reasonable under all of the circumstances. In the event that Landlord should
fail to complete such repairs and rebuilding within ONE HUNDRED TWENTY (120)
days after the date upon which Landlord is notified by Tenant of such damage,
Tenant may at its option terminate this lease by delivering written notice of
termination of Landlord as Tenant's exclusive remedy, whereupon all rights and
obligations hereunder shall cease and terminate, EFFECTIVE AS OF THE DATE OF
THE OCCURRENCE OF SUCH DAMAGE.
F. Notwithstanding anything herein to the contrary, in the event the holder
of any indebtedness secured by a mortgage or deed of trust covering the premises
requires that the insurance proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon all rights and obligations hereunder shall
cease and terminate, EFFECTIVE AS OF THE DATE OF CASUALTY.
G. Each of Landlord and Tenant hereby releases the other from any loss or
damage to property caused by fire or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have been
caused by the fault or negligence of the other party, or anyone for whom such
party may be responsible; provided, however, that this release shall be
applicable and in force and effect only with respect to loss or damage occurring
during such times as the releasor's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair said policies or prejudice the right of the releasor to recover
thereunder and then only to the extent of the insurance proceeds payable under
such policies. Each of the Landlord and Tenant agrees that it will request its
insurance carriers to include in its policies such a clause or endorsement. If
extra cost shall be charged therefore, each party shall advise the other thereof
and of the amount of the extra cost, and the other party, at its election, may
pay the same, but it shall not be obligated to do so.
13. LIABILITY. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any BODILY injury to person or damage to property on or about the premises,
resulting from and/or caused in part or whole by the negligence or misconduct of
Tenant, its agents, servants or employees, or of any other person entering upon
the premises, or caused by the buildings and improvements located on the
premises becoming out of repair, or caused by leakage of gas, oil, water or
steam or by electricity emanating from the premises, or due to any cause
whatsoever, and Tenant hereby covenants and agrees that it will at all times
indemnify and hold safe and harmless the property, the Landlord (including
without limitation the trustee and beneficiaries if Landlord is a trust),
Landlord's agents and employees from any loss, liability, claims, suits, costs,
expenses, including without limitation attorney's fees and damages, both real
and alleged, arising out of or relating to any such damage or injury; except ANY
OF THE FOREGOING TO THE EXTENT CAUSED BY the negligence of Landlord or the
failure of Landlord to repair any part of the premises which Landlord is
obligated to repair and maintain hereunder within a reasonable time after the
receipt of written notice from Tenant of needed repairs. Tenant shall procure
and maintain throughout the term of this lease a policy or policies of
insurance, at its sole cost and expense, insuring both Landlord and Tenant
against all claims, demands or actions arising out of or in connection with: (i)
Tenant's operations in and maintenance and use of the premises; and (ii)
Tenant's liability assumed under this lease, the limits of such policy or
policies to be in the amount of not less than $500,000 per occurrence in respect
to property damage or destruction, including loss of use thereof. All such
policies shall be procured by Tenant from responsible insurance companies
REASONABLY satisfactory to Landlord. Certified copies or certificates of such
policies, together with receipt evidencing payment of premiums therefor, shall
be delivered to Landlord prior to the commencement date of this lease. UPON
REQUEST, certified copies of the renewals thereof (bearing notations evidencing
the payment of renewal premiums) shall be delivered to Landlord. Such policies
shall further provide that not less than thirty (30) days written notice shall
be given to Landlord before such policy may be canceled or changed to reduce
insurance provided thereby.
14. CONDEMNATION.
A. If the whole or any substantial part of the premises should be taken for
any public or quasi-public use under governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof, and the
taking would prevent or materially interfere with the use of the premises for
the purpose for which they are being used, this lease shall terminate and the
rent shall be abated
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during the unexpired portion of this lease, effective when
the physical taking of said premises shall occur.
B. If part of the premises shall be taken for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this lease is not terminated
as provided in subparagraph 14A above, this lease shall not terminate but the
rent payable hereunder during the unexpired portion of this lease shall be
reduced to such extent as may be fair and reasonable under all of the
circumstances.
C. All compensation awarded for any taking (or the proceeds of private sale
in lieu thereof) of the premises, buildings or other improvements, or any part
thereof, shall be the property of Landlord and Tenant AS THEIR RESPECTIVE
INTERESTS SHALL APPEAR. Landlord shall have no interest in any award made to
Tenant for loss of business or for the taking of Tenant's fixtures and
improvements if a separate award for such items is made to Tenant.
15. HOLDING OVER. Tenant will, at the termination of this lease by lapse
of time or otherwise, yield up immediate possession to Landlord with all repairs
and maintenance required herein to be performed by Tenant completed. If
Landlord agrees in writing that Tenant may hold over after the expiration or
termination of this lease, unless the parties hereto otherwise agree in writing
on the terms of such holding over, the hold over tenancy shall be subject to
termination by Landlord or by Tenant at any time upon not less than thirty (30)
days advance written notice, and all of the other terms and provisions of this
lease shall be applicable during that period, except that Tenant shall pay
Landlord from time to time upon demand, as rental for the period of any hold
over, UNLESS OTHERWISE AGREED, an amount equal to one and one half (1 1/2) the
rent in effect on the termination date, computed on a daily basis for each day
of the hold over period. No holding over by Tenant, whether with or without
consent of Landlord, shall operate to extend this lease except as otherwise
expressly provided. The preceding provisions of this paragraph 15 shall not be
construed as consent for Tenant to hold over.
16. QUIET ENJOYMENT. Landlord covenants that it now has, or will acquire
before Tenant takes possession of the premises, good title to the premises, free
and clear of all liens and encumbrances, excepting only the line for current
taxes not yet due, such mortgage or mortgages as are permitted by the terms of
this lease, zoning ordinances and other building and fire ordinances and
governmental regulations relating to the use of such property, and easements,
restrictions and other conditions of record. In the event this lease is a
sublease, then Tenant agrees to take the premises subject to the provisions of
their prior leases. Landlord represents and warrants that it has full right and
authority to enter into this lease and that Tenant, upon paying the rental
herein set forth and performing its other covenants and agreements herein set
forth, shall peaceably and quietly have, hold and enjoy the premises for the
term hereof without hindrance or molestation from Landlord, ITS SUCCESSORS AND
ASSIGNS, subject to the terms and provisions of this lease.
17. EVENTS OF DEFAULT. The following events shall be deemed to be events
of default by Tenant under this lease:
A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any other payment of reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days from the date
TENANT RECEIVES WRITTEN NOTICE THAT such payment was due; or
B. Tenant shall vacate all or a substantial portion of the premises whether
or not Tenant is in default of the rental payments due under this lease; or
C. Tenant shall fail to discharge any lien placed upon the premises in
violation of paragraph 22 hereof within THIRTY (30) days after any such lien or
encumbrance is filed against the premises, or
D. Tenant shall fail to comply with any term, provision or covenant of this
lease (other than the foregoing in this paragraph 17), and shall not cure such
failure within THIRTY (30) days after written notice thereof to Tenant OR, IF
SUCH FAILURE CANNOT BE READILY CURED WITHIN SUCH THIRTY (30) DAY PERIOD, OR
TENANT SHALL FAIL TO COMMENCE CURING SUCH FAILURE WITHIN SUCH THIRTY (30) DAY
PERIOD, AND DILIGENTLY PURSUE REMEDYING SUCH FAILURE THEREAFTER.
E. Default by any guarantor of this Lease of the terms of its guaranty, or
the bankruptcy or insolvency of any guarantor.
18. REMEDIES.
A. Upon each occurrence of any event of default, Landlord shall have the
option to pursue any one or more of the following remedies without any notice or
demand;
(1) Terminate this lease; and/or
(2) Enter upon and take possession of the premises with or without terminating
this lease; and/or
(3) Alter all locks and other security devices at the premises with or without
terminating this lease, and
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pursue, at Landlord's option, one or more remedies
pursuant to this lease, and in any such event Tenant immediately shall surrender
its premises to Landlord, and if Tenant fails to do so, Landlord, without
waiving any other remedy it may have, may enter upon and take possession of the
premises or any part thereof, USING ANY LAWFUL MEANS, WITHOUT BEING LIABLE FOR
PROSECUTION OR ANY CLAIM OF DAMAGES THEREFORE, EXCEPT FOR THOSE RESULTING FROM
OR ARISING OUT OF LANDLORD'S NEGLIGENCE OR MISCONDUCT IN CONNECTION THEREWITH.
B. In the event Tenant fails to pay any installment of rent hereunder as
and when such installment is due, to help defray the additional cost to Landlord
for processing such late payments, Tenant shall pay to Landlord on demand a late
charge in an amount equal to five (5%) percent of such installment; and the
failure to pay such amount within TEN (10) days after demand therefor shall be
an event of default hereunder. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner.
C. Exercise by Landlord of any one or more remedies hereunder granted or
otherwise shall not be deemed to be an acceptance of surrender of the premises
by Tenant, whether by agreement or by operation of law, it being understood that
such surrender can be effected only by the written agreement of Landlord and
Tenant. No such alteration of locks or other security devices and no removal or
other exercise of dominion by Landlord over the property of Tenant or others at
the premises IN ACCORDANCE WITH APPLICABLE LAWS shall be deemed unauthorized or
constitute a conversion, Tenant hereby consenting, after any event of default to
the aforesaid exercise of dominion over Tenant's property within the premises IN
ACCORDANCE WITH APPLICABLE LAWS. All claims for damages by reason of such re-
entry and/or repossession and/or alteration of locks or other security devices
are hereby waived, as are all claims for damages by reason of any distress
warrant, forcible detainer proceedings, sequestration proceedings or other legal
process, EXCEPT FOR DAMAGES RESULTING FROM OR ARISING OUT OF LANDLORD'S
NEGLIGENCE OR WILLFUL MISCONDUCT IN CONNECTION WITH THE FOREGOING. Tenant
agrees that any re-entry by Landlord may be pursuant to judgment obtained in
forcible detainer proceedings or other legal proceedings or OTHERWISE AS
PERMITTED BY APPLICABLE LAW as Landlord may elect, and Landlord shall not be
liable for trespass or otherwise.
D. In the event Landlord elects to terminate the lease by reason of an
event of default, then notwithstanding such termination, Tenant shall be liable
for and shall pay to Landlord, at the address specified for notice to Landlord
herein, the sum of all rental and other indebtedness accrued to the date of such
termination, plus, as damages, an amount equal to the greater of (i) the total
rental hereunder for the remaining portion of the lease term (had such term not
been terminated by Landlord prior to the date of expiration stated in paragraph
1).
E. In the event that Landlord elects to repossess the premises without
terminating the lease, or in the event Landlord elects to terminate the lease,
then Tenant, at Landlord's option, shall be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, all rental and
other indebtedness accrued to the date of such repossession, plus rental
required to be paid by Tenant to Landlord during the remainder of the lease term
until the date of expiration of the term as stated in paragraph 1 diminished by
any net sums thereafter received by Landlord through reletting the premises
during said period (after deducting expenses incurred by Landlord as provided in
subparagraph 18F below). In no event shall Tenant be entitled to any excess of
any rental obtained by letting over and above the rental herein reserved.
Actions to collect amounts due by Tenant to Landlord under this subparagraph may
be brought from time to time, on one or more occasions, without the necessity of
Landlord's waiting until expiration of the lease term.
F. In case of any event of default or breach by Tenant, or threatened or
anticipatory breach of default, Tenant shall also be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, in addition to
any sum provided to be paid above, broker's fees incurred by Landlord in
connection with reletting the whole or any part of the premises; the costs of
removing and storing Tenant's or the occupant's property; the costs of RESTORING
THE PREMISES TO ITS CONDITION AS DELIVERED TO TENANT and all reasonable expenses
incurred by Landlord in enforcing or defending Landlord's rights and/or remedies
including reasonable attorney's fees.
G. In the event of termination or repossession of the premises for an event
of default, the Landlord shall not have any obligation to relet or to attempt to
relet the premises, or any portion thereof, or to collect rental after
reletting, BUT SHALL USE ITS REASONABLE BEST EFFORTS TO DO SO; and in the event
of reletting, Landlord may relet the whole or any portion of the premises for
any period to any tenant and for any use and purpose.
H. If Tenant should fail to make any payment or cure any default hereunder
within the time herein permitted, Landlord, without being under any obligation
to do so and without hereby waiving such default, may make such payment and/or
remedy such other default for the account of Tenant (and enter the premises for
such purpose), and thereupon Tenant shall be obligated to, and hereby agrees to
pay
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Landlord upon demand, all costs, expenses and disbursements (including
reasonable attorney's fees) incurred by Landlord in taking such remedial action.
I. In the event that Landlord shall have taken possession of the premises
pursuant to the authority herein granted, then Landlord shall have the right to
keep in place and use all of the furniture, fixtures and equipment at the
premises, including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
lessor thereof or third party having a lien thereon. Landlord shall also have
the right to remove from the premises (without the necessity of obtaining a
distress warrant, writ of sequestration or other legal process, BUT OTHERWISE IN
ACCORDANCE WITH APPLICABLE LAW), all or any portion of such furniture, fixtures,
equipment and other property located thereon and to place same in storage at any
premises within the County in which the premises is located; and in such event,
Tenant shall be liable to Landlord for REASONABLE costs incurred by Landlord in
connection with such removal and storage. Landlord shall also have the right to
relinquish possession of all or any portion of such furniture, fixtures,
equipment and other property to any person ("Claimant") claiming to be entitled
to possession thereof who presents to Landlord a copy of any instrument
represented to Landlord by Claimant to have been executed by Tenant (or any
predecessor Tenant) granting Claimant the right under various circumstances to
take possession of such furniture, fixtures, equipment or other property,
without the necessity on the part of Landlord to inquire into the authenticity
of said instrument's copy of Tenant's or Tenant's predecessor's signature(s)
thereon and without the necessity of Landlord making any investigation or
inquiry as to the validity of the factual or legal basis upon which Claimant
purports to act; and Tenant agrees to indemnify and hold Landlord harmless from
all cost, expense, loss, damage and liability incident to Landlord's
relinquishment of possession of all or any portion of such furniture, fixtures,
equipment or other property to Claimant. The right of Landlord herein stated
shall be in addition to any and all other rights which Landlord has or may
hereafter have at law or in equity.
19. MORTGAGES.
A. Tenant accepts this lease subject and subordinate to any mortgage(s)
and/or deed(s) of trust now or at any time hereafter constituting a lien or
charge upon the premises or the improvements situated thereon, provided however,
that if the mortgagee, trustee, or holder of any such mortgage or deed of trust
elects to have Tenant's interest in this lease superior to any such instrument,
then by notice to Tenant from such mortgagee, trustee or holder, this lease
shall be deemed superior to such lien, whether this lease was executed before or
after said mortgage or deed of trust. Tenant shall at any time hereafter on
demand execute any instruments, releases or other documents which may be
required by any mortgagee for the purpose of subjecting and subordinating this
lease to the lien of any such mortgage, PROVIDED THAT LANDLORD USES REASONABLE
EFFORTS TO OBTAIN FROM SUCH MORTGAGEE A NON-DISTURBANCE AGREEMENT REASONABLY
SATISFACTORY TO TENANT TO THE EFFECT THAT AS LONG AS TENANT IS NOT IN DEFAULT
HEREUNDER, SUCH MORTGAGEE WILL OBSERVE ALL OF LANDLORD'S OBLIGATIONS HEREUNDER.
All mortgages or deeds of trust referred to in this subparagraph 19A refer to
first mortgages or deeds of trust only.
B. Tenant agrees not to look to the mortgagee, as mortgagee, mortgagee in
possession, or successor entitled to the property, for accountability for any
security deposit required by the Landlord hereunder, unless said sums have been
received by said mortgagee as security for Tenant's performance of this lease.
20. LANDLORD'S DEFAULT. In the event Landlord should become in default in
any payments due
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on any such mortgage described in Paragraph 19 hereof or in the payment of taxes
or any other items which might become a lien upon the premises and which Tenant
is not obligated to pay under the terms and provisions of this lease, Tenant is
authorized and empowered after giving Landlord five (5) days prior written
notice of such default and Landlord's failure to cure such default, to pay
any such items for and on behalf of Landlord, and the amount of any item so
paid by Tenant for or on behalf of Landlord, together with any interest or
penalty required to be paid in connection therewith, shall be payable on
demand by Landlord to Tenant; provided however, that Tenant shall not be
authorized and empowered to make any payment under the terms of this
Paragraph 20 unless the item paid shall be superior to Tenant's
interest hereunder. In the event Tenant pays any mortgage debt in full, in
accordance with this paragraph, it shall, at its election, be entitled to
the mortgage security by assignment or subrogation.
21. MECHANICS LIEN AND OTHER TAXES. Tenant shall have no authority, express
or implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind the interests of Landlord in the
premises or to charge the rentals payable hereunder for any claim in favor of
any person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs, and each such claim shall affect
and each such lien shall attach to, if at all, only the leasehold interest
granted to Tenant by this instrument. Tenant covenants and agrees that it will
pay or cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed on
the premises on which any lien is or can be validly and legally asserted against
its leasehold interest in the premises or the improvements thereon and that it
will save and hold Landlord harmless from any and all loss, cost or expense
based on or arising out of asserted claims or liens against the leasehold estate
or against the right, title and interest of the Landlord in the premises or
under the terms of this lease. Tenant agrees to give Landlord immediate written
notice if any lien or encumbrance is placed on the premises.
22. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
A. All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set forth or
at such other address as Landlord may specify from time to time by written
notice delivered in accordance herewith. Tenant's obligations to pay rent and
any other amounts to Landlord under the terms of this lease shall not be deemed
satisfied until such rent and other amounts have been actually received by
Landlord.
B. All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address hereinbelow set forth, or at such other
address within the continental United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.
C. Any notice or document required or permitted to be delivered hereunder
shall be deemed to be delivered whether actually received or not when deposited
in the United States Mail, postage prepaid, Certified or Registered Mail,
address to the parties hereto at the respective addresses set out below, or at
such other address as they have theretofore specified by written notice
delivered in accordance herewith:
LANDLORD: TENANT:
CK-Childress Klein #8 Limited Partnership Simmons Company
- ----------------------------------------- ---------------
c/o Childress Klein Properties One Concourse Parkway, Suite 600
- ----------------------------------------- --------------------------------
2800 One First Union Center Atlanta, Georgia 30328
- ----------------------------------------- --------------------------------
Charlotte, North Carolina 28202-6021 Attention: President/Chief
- ----------------------------------------- --------------------------
Executive Officer
-----------------
If and when included within the term "Landlord", as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address for the receipt of notices and payments to
Landlord; if and when included within the term "Tenant", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectively, shall be bound
by notices given in accordance with the provisions of this paragraph to the same
effect as if each had received such notice.
23. HAZARDOUS MATERIALS.
A. For purposes of this section, "Hazardous Materials" shall include all
solid, liquid or gaseous materials defined or regulated as wastes under any
federal statute or regulation or any state or local law,
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regulation or ordinance and shall further include all other substances
defined or regulated as pollutants or as hazardous, toxic, infectious, or
radioactive substances under any federal statute or regulation or any state
or local law, regulation or ordinance, all as amended from time to time.
B. Tenant shall not cause or permit any Hazardous Materials to be used,
generated, stored or disposed of on, under or about, or transported to or from
the premises (collectively, "Hazardous Materials Activities") except in
compliance with all applicable federal, state, and local laws, regulations,
ordinances and orders governing such Hazardous Materials or Hazardous Materials
Activities, which compliance shall be at Tenant's sole cost and expense.
Additionally, Tenant shall not cause or permit any Hazardous Materials to be
disposed of on, under or about the premises without the express prior written
consent of the Landlord, which may be withheld for any reason and may be revoked
at any time.
C. Landlord shall not be liable to Tenant or to any other party for any
Hazardous Materials Activities conducted or permitted on, under or about the
premises by Tenant or by Tenant's employees, agents, contractors, licensees or
invitees, and Tenant shall indemnify, defend and hold Landlord harmless from any
claims, damages, fines, penalties, losses, judgments, costs and liabilities
arising out of or related to any Hazardous Materials Activities conducted or
permitted on, under or about the premises by Tenant or by Tenant's employees,
agents, contractors, Licensees or invitees, regardless of whether Landlord shall
have consented to approved of, or had notice of such Hazardous Materials
Activities. The provisions of this paragraph shall survive the expiration or
termination of this lease.
D. At the expiration or earlier termination of this lease, Tenant shall
remove from the premises, at Tenant's sole expense, all Hazardous Materials
located, stored and disposed of on, under or about the premises. Tenant shall
close, remove or otherwise render safe any buildings, tanks, containers or other
facilities related to the Hazardous Materials Activities conducted or permitted
on the premises in the manner required by all applicable laws, regulations,
ordinances or orders.
E. LANDLORD SHALL INDEMNIFY, DEFEND AND HOLD TENANT HARMLESS FROM ANY
CLAIMS, DAMAGES, FINES, PENALTIES, LOSSES, JUDGMENTS, COSTS AND LIABILITIES
ARISING OUT OF OR RELATED TO ANY HAZARDOUS MATERIALS ACTIVITIES CONDUCTED OR
PERMITTED ON, UNDER OR ABOUT THE PREMISES BY LANDLORD, OR THEIR RESPECTIVE
EMPLOYEES, AGENTS OR CONTRACTORS.
24. INSOLVENCY OR BANKRUPTCY. The appointment of a receiver to take
possession of all or substantially all of the assets of Tenant, or an assignment
of Tenant for the benefit of creditors, or any action taken or suffered by
Tenant under any insolvency, bankruptcy, or reorganization act, WHICH ACTION, IF
TAKEN AGAINST TENANT INVOLUNTARILY, IS NOT DISCHARGED OR DISMISSED WITHIN SIXTY
(60) DAYS AFTER THE FILING THEREOF, shall at Landlord's option constitute a
breach of this Lease by Tenant. Upon the happening of any such event or at any
time thereafter, this Lease shall terminate five (5) days after written notice
of termination from Landlord to Tenant. In no event shall this Lease be
assigned or assignable by operation of law or by voluntary or involuntary
bankruptcy proceedings or otherwise and in no event shall this Lease or any
rights or privileges hereunder be an asset of Tenant under any bankruptcy,
insolvency, or reorganization proceedings.
25. Any liability of Landlord hereunder shall be enforceable only out of
the Building or Property and in no event out of the separate assets of any
constituent partner of Landlord. No holder or beneficiary of any mortgage or
deed of trust on any part of the Property shall have any liability to Tenant
hereunder for any default of Landlord.
26. MISCELLANEOUS.
A. Words of any gender used in this lease shall be held and construed to
include any other gender and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
B. In the event the premises constitutes a portion of a multiple occupancy
building or building complex, Tenant's "proportionate share", as used in this
lease, shall mean a fraction, the numerator of which is the space contained in
the premises and the denominator of which is the entire space contained in the
building or building complex.
C. The terms, provisions and covenants and conditions contained in this
lease shall apply to, inure to the benefit of, and be binding upon the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise herein expressly provided. Landlord
shall have the right to assign any of its rights and obligations under this
lease. Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such party to
enter into this lease.
13
<PAGE>
D. The captions inserted in this lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way effect the interpretation of this lease.
E. Tenant agrees from time to time within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee a certificate of
occupancy (if applicable) and an estoppel certificate stating that this lease is
in full force and effect, the date to which rent has been paid, the unexpired
term of this lease and such other matters pertaining to this lease as may be
requested by Landlord. It is understood and agreed that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Landlord's execution of this lease.
F. This lease may not be altered, change or amended except by an instrument
in writing signed by both parties hereto.
G. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the premises. Upon the expiration or
earlier termination of the term hereof, and prior to Tenant vacating the
premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the premises, including without limitation all
heating and air conditioning systems and equipment therein, in good condition
and repair. Tenant shall also, prior to vacating the premises, pay to Landlord
the amount, as estimated by landlord, of Tenant's obligation hereunder for real
estate taxes and insurance premiums for the year in which the lease expires or
terminates. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as the case may be. Any security deposit held by Landlord shall be
credited against the amount payable by Tenant under this subparagraph 26G.
H. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this lease shall not be affected thereby, and it is also the
intention of the parties to this lease that in lieu of each clause or provision
of this lease that is illegal, invalid or unenforceable, there be added as a
part of this lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
I. Because the premises are on the open market and are presently being
shown, this lease shall be treated as an offer with the premises being subject
to prior lease and such offers subject to withdrawal or non-acceptance by
Landlord or to other use of the premises without notice, and this lease shall
not be valid or binding unless and until accepted by Landlord in writing and a
fully executed copy delivered to both parties hereto.
J. All references in this lease to "the date hereof" or similar references
shall be deemed to refer to the last date, in point of time, on which all
parties hereto have executed this lease.
K. Time is of the essence of this lease and all of its provisions. This
lease in all respects shall be governed by the laws of the State of North
Carolina.
L. Tenant shall not be permitted to install drapes, curtains, blinds or any
window treatment without Landlord's prior written approval, WHICH APPROVAL SHALL
NOT BE UNREASONABLY WITHHELD.
M. The duties and obligations of Tenant herein shall be binding upon all or
any of them. The duties and obligations of Tenant shall run and extend not only
to the benefit of the Landlord, as named herein, but to the following, at the
option of the following or any of them: (i) any person by, through or under
which Landlord derives the right to lease the premises; (ii) the owner of the
premises; and (iii) holders of mortgage or rent assignment interests in the
premises, as their respective interests may appear; provided, however, nothing
contained herein shall be construed to obligate Tenant to pay rent to any person
other than the Landlord until such time as Tenant has been given written notice
of either an exercise of a rent assignment or the succession of some other party
to the interests of Landlord.
27. ADDITIONAL PROVISIONS. See Additional Provisions, Paragraph 28
attached hereto and made a part hereof as if fully incorporated herein and when
in conflict with the printed portion of this lease, said Additional Provisions
shall prevail.
EXECUTION PAGE FOLLOWS
14
<PAGE>
EXECUTED BY LANDLORD, this 5 day of May, 1993.
-- --- --
ATTEST/WITNESS: LANDLORD:
CK-CHILDRESS KLEIN #8 LIMITED
PARTNERSHIP, a Texas limited partnership
By: ______________________________ By: _______________________________
Fred W. Klein, General Partner
Its: ______________________________
EXECUTED BY TENANT, this ____ day of ________, 19__.
ATTEST/WITNESS TENANT:
SIMMONS COMPANY
By: ______________________________ By: _____________________________
Its: ______________________________ Its: _____________________________
15
<PAGE>
ADDITIONAL PROVISIONS
28. RENEWAL OPTIONS.
So long as the Tenant is not in default of the terms hereunder Tenant shall
have the option to renew this lease for four (4) consecutive terms of five (5)
years each at the then fair market rates for comparable facilities by notifying
Landlord of its intent not less than one hundred eighty (180) days prior to the
expiration of the primary term. These terms shall be consecutive; that is,
should Tenant fail to exercise a renewal option in accordance with this
paragraph 28, then the option so failed and any subsequent options shall be
null and void. If Tenant exercises such option as provided for above, the lease
extension shall be at the same terms as contained herein with the exception of
the new rental rate. In no event shall the rent for THE SECOND OR any
subsequent renewal period be less than the rent for the previous renewal period.
16
<PAGE>
EXHIBIT A
HARRIS BOULEVARD
Approximately 113,400 square feet as outlined in red on Exhibit "C" attached
hereto and made a part hereof, out of a larger warehouse building situated on a
tract of ground, the legal description of which is:
That certain tract or parcel of land located in Mallard Creek Township,
Mecklenburg County, North Carolina, being more particularly described as
follows:
BEGINNING at a point located the following courses and distances from the
intersection of the northerly margin of the right-of-way of W.T. Harris
Boulevard with the centerline of the Southern Railway track: With the aforesaid
northerly margin of the right-of-way of W.T. Harris Boulevard in eight (8) calls
as follows: (1) South 78 degrees 35' 17" East 147.05 feet to a point [(said
point also being situated South 78 degrees 35' 17" East 351.34 feet from the
intersection of the northerly margin of the right-of-way of W.T. Harris
Boulevard with the easterly right-of-way of Old Statesville Road (N.C. Highway
115)]; thence (2) South 70 degrees 43' 44" East 600.76 feet to a point; thence
(3) South 73 degrees 38' 28" East 380 feet to a new iron pin; thence (4) North
16 degrees 31' 32" East 60.0 feet to a point; thence (5) South 73 degrees 38'
28" East 60.0 feet to a point; thence (6) South 16 degrees 21' 32" West 60.0
feet to a point; thence (7) South 73 degrees 35' 39" East 660.99 feet to a
point; thence (8) South 77 degrees 42' 06" East 264.03 feet to a point; thence
North 7 degrees 31' 30" East 414.30 feet to the point or place of Beginning; and
running thence from said Beginning Point North 7 degrees 31' 30" East 324.84
feet to a point; thence North 82 degrees 28' 30" West 1.94 feet to a point;
thence North 2 degrees 21' 30" East 135.61 feet to a point; thence North 87
degrees 37' 30" West 100.2 feet to a point; thence in a northwesterly direction
with arc of a circular curve to the right having a radius of 67.1 feet, an arc
distance of 64.8 feet to a point located in the southeasterly margin of a 60
foot wide right-of-way of David Cox Road; thence with the margin of said right-
of-way in a northeasterly direction with the arc of a circular curve to the left
having a radius of 667.20 feet, an arc distance of 34 feet to a point; thence in
a southeasterly direction with the arc of a circular curve to the left having a
radius of 33.1 feet, an arc distance of 31.46 feet to a point; thence South 87
degrees 37' 30" East 108.2 feet to a point; thence in a southerly direction with
the arc of a circular curve to the right having a radius of 44 feet, an arc
distance of 62.3 feet to a point; thence South 87 degrees 37' 30" East 3039.02
feet to a point; thence South 2 degrees 21' 30" West 456.0 feet to a point;
thence North 87 degrees 38' 30" West 387.82 feet to the point or place of
Beginning; containing 175,074 square feet or 4.0191 acres, all as shown on a
survey for Trammell Crow Company by R.B. Pharr & Associates, P.A., dated June
10, 1985, last revised November 20, 1985, which above-described property is
hereinafter referred to as the "Fee Parcel."
<PAGE>
EXHIBIT "B"
STANDARD SPECIFICATIONS FOR OFFICE/WAREHOUSE
--------------------------------------------
AND SERVICE CENTER BUILDINGS
----------------------------
The following are standard specifications for office/warehouse and service
center buildings constructed by Childress Klein Properties. Individual buildings
may vary in some details as indicated on the specific working drawings.
Childress Klein Properties reserves the right to change these specifications
with written notice.
1. OFFICE AREA
-----------
A. THE LAYOUT. Per attached plan, Simmons drawing NCOFF204.
Building to comply with all codes including ADA.
Specifications, quantities, etc. not specifically mentioned
will be revised as necessary per drawing NCOFF204.
B. Signs may be mounted at Tenant's office entry only upon
Landlord's written approval and depending upon the program
developed for the individual building and/or park.
C. PARTITIONS AND WALLCOVERINGS. Partitions to be TAPED AND
PAINTED 5/8" sheetrock on metal studs. Partitions
separating office area from warehouse to be insulated.
Brick walls to be exposed, EXCEPT SHOWROOM FLOOR PORTION
FIRRED, SHEETROCK, TAPED AND PAINTED. The standard ceiling
height shall be 9'-0". Colors meeting building standard may
be selected by Tenant. (Landlord reserves the right of
final approval).
D. VINYL BASE. Four inch (4") vinyl base to be installed in
all office areas.
E. DOORS. All interior doors shall be 3' x 6'-8" solid core,
prefinished, PAINTED OR STAINED, with metal frames.
F. HARDWARE. All hardware shall be Schlage "A" series ball
design or equivalent, brushed chrome hardware. All doors to
have three 4" hinges. All office doors to have passage
locks. All doors from air conditioned area to have closers
and ball bearing hinges.
G. CEILING LIGHTING AND INSULATION. Suspended lay-in ceiling
9' above finished floor complete with 2' x 4' recessed
lighting fixtures. Finished rooms, other than restrooms and
storage rooms up to size 8' x 8' will be lighted with one 2'
x 4' recessed fixture with acrylic lens. Rooms up to 12' x
12' will be lighted with two (2) 2' x 4' recessed fixtures
with acrylic lens. ADDITIONAL TRACK LIGHTING FOR SHOWROOM
FLOOR TO BE SPECIFIED.
Rooms up to 12' x 14' will be lighted with three 2' x 4' recessed
fixtures with acrylic lens. Larger rooms will be lighted with the
same type of fixtures with a sufficient number to provide 75'
foot candles of light at desk height. Four inch (4") batt
insulation will be installed above all suspended ceilings.
H. FLOOR COVERING. Allow $12.00 per square yard carpeting
allowance installed.
I. AIR CONDITIONING AND HEATING. Office areas shall be
equipped with a complete roof-mounted summer and winter air
conditioning and heating system based upon the following
performance specifications:
To be provided by gas-fired heating (when available) and
electric air conditioning system sufficient to maintain 68
degrees Fahrenheit inside when 15 degrees outside and cool
to 78 degrees Fahrenheit inside when 95 degrees Fahrenheit
outside. Air conditioning returns are to be ducted with an
individual return air duct at each private office.
When Outside Conditions Are: Offices Shall Be:
---------------------------- -----------------
Summer: 95 degrees Fahrenheit 78 degrees Fahrenheit
Winter: 15 degrees Fahrenheit 68 degrees Fahrenheit
Computer Room to have separate HVAC System and Controls.
<PAGE>
Exhibit "B"
Standard Specifications
Page Two of Five
J. ELECTRIC. Standard electrical service provided to the
building is 120/208 volt, three-phase, four-wire (or as
limited by local utility's supplies). No additional service
will be provided for Tenant machines or Equipment unless
specifically noted. Each Tenant shall have an individual
meter. The entire electrical wiring system shall be
designed and installed in accordance with the national
electric code and all other applicable codes. Tenant must
apply directly to the power company to initiate electrical
service.
Rooms up to size 14' x 14' (other than warehouse, storage
rooms and restrooms) to have one electrical outlet on each
wall and one telephone outlet for the room. Restrooms to
have one electrical outlet. Rooms which have a wall longer
than 14' to have additional electrical outlets on all walls
which are longer than 14'. The spacing of such wall outlets
will be approximately 10'. Telephone outlets are not
provided in rooms designed as shop or shop working areas.
Storage rooms, mezzanine and warehouse receive no wall or
floor outlets. SIMMONS TO SPECIFY LOCATIONS OF OUTLETS FOR
ELECTRIC, PHONES.
K. PLUMBING. All plumbing shall be installed in accordance
with applicable local building codes. RESTROOMS PER SIMMONS
DRAWING NCOFF204. WATER COOLERS INSTALLATION AND OTHER SINK
INSTALLATIONS AND CONNECTIONS PER SIMMONS DRAWING NCOFF204.
L. TELEPHONE. Each Tenant must directly acquire telephone
service from the appropriate telephone company.
2. RESTROOMS
---------
A. WALLCOVERINGS. Standard interior partitions are to be non-
load bearing wood or metal studs with 5/8" gypsum board to
be painted with two coats of enamel wall paint. ALL WET
WALLS TO BE SUPPLIED WITH FIBERGLAS WAINSCOT COVER.
B. DOORS. To be the same as those in office area and equipped
with convenience locks AND DOOR CLOSERS.
C. CEILINGS. Ceiling to be the same as specified in office
area or water resistant sheet rock. Ventilation to meet
local code.
D. FLOOR COVERING. Floor to be 1/8" vinyl composition tile
complete with vinyl base.
E. LIGHTING. SAME OF OFFICE AREA PARAGRAPH G.
F. ELECTRIC. Restrooms to have one electrical outlet.
G. PLUMBING FIXTURES. Provide standard white restroom fixtures
TO BE APPROVED BY SIMMONS.
H. RESTROOM ACCESSORIES. FORMICA TOP AROUND ALL LAVATORIES;
MIRRORS ABOVE EACH LAVATORY. Toilet paper dispenser within
EACH WATER CLOSET.
I. GENERAL. QUANTITIES, specifications, ACCESSORIES, ETC.,
other than specifically mentioned above shall be in
accordance with that of the office area AND WITH SIMMONS
DRAWING NCOFF204 AND COMPLY WITH ADA REGULATIONS.
<PAGE>
Exhibit B
Standard Specifications
Page Three of Five
3. FIRE SPRINKLER SYSTEM
---------------------
The building is designed as "fully sprinklered". A
complete, fully-calculated wet pipe sprinkler system shall
be installed. This system shall be designated for general
warehouse storage defined as Ordinary Hazard Group 3
Commodities providing density of.3/3000 plus 500 gpm for
hose demand. Existing sprinkler systems in new shell
buildings shall be modified to accommodate lease finish
improvements. Pendant type sprinklers to be installed in
the office area to meet local code. It is the
responsibility of each Tenant to conform to the regulations
of the State board of insurance and City fire codes during
the occupancy.
4. WAREHOUSE
---------
A. HEATING AND VENTILATION. Heat to be provided by gas-fired
(when available) suspended unit heater(s) sufficient to
maintain 50 degrees Fahrenheit inside when 15 degrees
Fahrenheit outside. Thermostats used in the warehouse area
to have a low range of 35 degrees Fahrenheit.
B. LIGHTING. THE WAREHOUSE WILL BE LIGHTED WITH THE EXISTING
SYSTEM OF SODIUM VAPOR LIGHTS AND 96" INDUSTRIAL-TYPE
FLUORESCENT FIXTURES. All fixtures will be provided
initially with lamps.
C. ROOF FRAMING AND DECK. All roof penetrations and flashing
curbs, etc. are to be done by Roofing Contractor approved by
Landlord.
D. PARTY WALL. To be 8" block or as required by local code.
5. MISCELLANEOUS
-------------
A. All rooftop HVAC units are to be placed over an interior row
of beams and at least 25' back from the building's front or
side.
B. Exterior soffit light to be controlled by photocell.
C. One front, side or rear man door to the warehouses shall
have one circuit of the warehouse light switched at the
door. One man door from office to warehouse shall have one
circuit of the warehouse light switched at the door.
D. A 4" wood base to be installed on warehouse side of
partitions separating office from warehouse. On same wall,
extend sheetrock 6" above the stud wall plate and finish
with edge mold.
E. Office finishouts greater than 50 percent of the total
leased area shall have a full height, insulated partition
separating office from warehouse.
F. 1200 AMPS OF 277/480 VOLT ELECTRICAL SERVICE WILL BE
PROVIDED TO A TROUGH WITH TAILS.
G. FLOORS ARE TO POWER SCRUBBED AND SEALED WITH LANDLORD'S
STANDARD SEALER.
H. FOUR (4) 8' X 10' DOCK-HIGH DOORS, TWO (2) WITH MANUALLY
OPERATED PIT-TYPE LEVELERS WILL BE PROVIDED ON THE HARRIS
BOULEVARD SIDE OF THE BUILDING. SEALS/SHELTERS TO BE
MATCHED WITH EXISTING DOORS.
I. 110 FEET (MEASURED FROM THE TRUCK DOCK) OF TRUCK MANEUVERING
AREA WILL BE PROVIDED TO ACCESS THE TRUCK DOORS ON THE
HARRIS BOULEVARD SIDE OF THE BUILDING. FIRST 50' TO BE
CONCRETE.
<PAGE>
Exhibit "B"
Standard Specifications
Page Four of Five
J. PARKING FOR 100 CARS.
- CONSTRUCTION OF A NEW PARKING LOT ON THE HARRIS
BOULEVARD SIDE OF THE BUILDING FOR TWENTY-SIX (26)
CARS. PARKING SPACES WILL NOT BE IN TRUCK
MANEUVERING AREA IN FRONT OF DOCK DOORS OR IN
TRAILER STORAGE AREA.
- PARKING FOR TWENTY-SIX (26) CARS WILL BE PROVIDED
BY LINING OFF SPACE IN THE EXISTING TRUCK COURT ON
THE DAVID COX ROAD SIDE OF THE BUILDING.
- CONSTRUCTION OF A NEW PARKING LOT FOR FORTY-EIGHT
(48) CARS BETWEEN DAVID COX ROAD AND THE EXISTING
TRUCK COURT.
K. SIMMONS TO APPROVE ALL EXTERIOR AND INTERIOR PRELIMINARY
PLANS AND SPECIFICATIONS INCLUDING ACCESS ROADS TO TRUCK
AREAS AND PARKING AREAS. ALL PARKING AREAS AND ACCESS ROADS
TO HAVE SUITABLE EXTERIOR LIGHTING.
L. 40 LINEAL FEET OF 9' HIGH GLASS INCLUDING ENTRY DOORS WITH A
STOOP AND STEPS FOR THE OFFICE SPACE TO INCLUDE HANDICAP
ACCESS PER ADA.
M. ONE (1) 12' X 12' SHIPPING OFFICE WITH UNIT HEATING/AIR
CONDITIONING ADJACENT TO EXISTING WAREHOUSE BATHROOM.
N. LANDLORD TO BE RESPONSIBLE FOR APPROPRIATE LINE SIZE AND
CONNECTION TO CITY SEWER.
<PAGE>
FIRST LEASE AMENDMENT AGREEMENT
THIS FIRST LEASE AMENDMENT AGREEMENT, made and entered into this
-----
day of , 1996, by and between CK-CHILDRESS KLEIN #8 LIMITED
----------
PARTNERSHIP (hereinafter called "Landlord") and SIMMONS COMPANY
(hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS, by Lease Agreement dated May 5, 1993 (the "Lease"), Landlord
leased to Tenant approximately 113,400 square feet at 5100 West W.T. Harris
Boulevard, Charlotte, North Carolina (the "Premises"); and
WHEREAS, Tenant is desirous of expanding into approximately 30,780
square feet at 5100 West W.T. Harris Boulevard ("First Expansion Premises")
for a term commencing December 1, 1995, and terminating April 30, 2003.
NOW THEREFORE, in consideration of the mutual promises given one to
the other, the parties hereto intending to be legally bound, do hereby
covenant and agree as follows:
1. The lease term for the First Expansion Premises (the "Lease
Term") shall commence on December 1, 1995, and extend through
April 30, 2003.
2. The base monthly rental amount for the First Expansion Premises
(the "Base Rent") shall be Seven Thousand Four Hundred and No/100
Dollars ($7,400.00).
3. As part of this agreement, Landlord shall erect a fence
representing approximately 30,780 square feet as outlined in red
on Exhibit "A" until such time as a new tenant leases the
adjacent 30,780 square feet.
4. The Premises as defined in the Lease shall include the First
Expansion Premises.
5. CPI ADJUSTMENT
a. As of May 1, 1998, Tenant's Base Rent will be adjusted by
taking sixty percent (60%) of the percentage increase in the
Consumer Price Index over the first twenty nine (29) months of
the Lease Term. The adjustment shall be at least equal to the
Base Rent, or at most a twenty percent (20%) increase in the Base
Rent. The adjustment shall be calculated in the manner set forth
below:
b. The Consumer Price Index (the "Index") is defined as the
Consumer Price Index for all urban consumers for the Atlanta
metropolitan Area (All Items) as published by the United States
Department of Labor Bureau of Labor Statistics. The percentage
of any increase in the Index shall be determined by subtracting
the Index for the most recent date prior to December 1, 1995,
from the Index for the most recent date prior to May 1, 1998, and
then dividing that difference by the Index for the most recent
date prior to December 1, 1995. That percentage increase shall
then be multiplied by sixty percent (60%) to arrive at the
percentage increase in the rental rate for the remaining term.
Notwithstanding the above, in no event shall the monthly rent
after this adjustment be less than the Base Rent.
Notwithstanding the foregoing, the Base Rent for the remaining
term, as adjusted pursuant hereto, shall not exceed the result
obtained by increasing the Base Rent by twenty percent (20%). In
the event said Index is discontinued or revised during the Lease
Term such other comparable governmental Index or computation as
determined by the parties with which it is replaced shall be
deemed the basis for computation.
6. RIGHT OF FIRST REFUSAL
a. Landlord is the owner of the 30,780 square foot space
outlined in blue on Exhibit "A" ("Second Expansion Premises").
Tenant shall have the right to match any bona fide offer that
Landlord will accept on all, or any portion, of the Second
Expansion Premises ("Right of First Refusal"). Tenant shall have
five (5) business days after receiving written notice from
Landlord that Landlord has received a bona fide offer on all, or
<PAGE>
any portion, of the Second Expansion Premises in which to
exercise Tenant's Right of First Refusal.
b. If Tenant exercises its Right of First Refusal, then the
lease of the Second Expansion Space will be consummated according
to the terms set forth in the bona fide offer. Tenant's written
acceptance shall be binding and Tenant shall have ten (10) days
in which to execute a Lease Agreement on the Second Expansion
Premises. In the event Tenant fails to give Landlord written
notice of Tenant's election to lease the Second Expansion
Premises within five (5) business days from notification, then
Tenant's rights under this Paragraph 5 to lease the Second
Expansion Premises shall terminate and expire.
<PAGE>
c. If Tenant does not exercise the Right of First Refusal as
referenced above, then Tenant's Base Rent shall increase by
$1,200 per month at the commencement date of the lease to a third
party on the Second Expansion Space.
7. RENEWAL OPTIONS
This renewal option pertains to the First Expansion Premises or
the First Expansion Premises and Second Expansion Premises
combined, depending upon Tenant's occupancy at the time they
exercise this renewal option. So long as the Tenant is not in
default of the terms hereunder Tenant shall have the option to
renew this lease on the appropriate expansion premises for four
(4) consecutive terms of five (5) years each at the then fair
market rates for comparable facilities by notifying Landlord of
its intent not less than one hundred eighty (180) days prior to
the expiration of the primary term. These terms shall be
consecutive; that is, should Tenant fail to exercise a renewal
option in accordance with this paragraph 6, then the option so
failed and any subsequent options shall be null and void. If
Tenant exercises such option as provided for above, the lease
extension shall be at the same terms as contained herein with the
exception of the new rental rate. In no event shall the rent for
the second or any subsequent renewal period be less than the rent
for the previous renewal period. The renewal option on the
appropriate expansion premises shall be independent of the
renewal option for the Premises; that is, Tenant may exercise the
renewal option on the Premises and decline the renewal option on
the appropriate expansion premises.
8. All of the terms and conditions of the Lease unless expressly
modified in this First Lease Amendment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the said parties have executed this First Lease
Amendment Agreement in triplicate, the day and year first above written.
EXECUTED BY LANDLORD this day of , 19 .
----- ---------- --
ATTEST/WITNESS: LANDLORD:
CK-CHILDRESS KLEIN #8 LIMITED PARTNERSHIP, a
Texas limited partnership
By: Childress Klein Industrial-Charlotte #3,
Inc., its general partner
By: By:
--------------------- ---------------------------
[Seal] Landon R. Wyatt, III
President
EXECUTED BY TENANT this 6 day of February , 1996.
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ATTEST/WITNESS: TENANT:
SIMMONS COMPANY
By: /s/ Deborah Y. Negley By: /s/ George W. Franklin
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[seal]
Its: Vice President-Finance, Treasurer
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Exhibit 10.40
LEASE
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THIS LEASE made this 30th day of November, 1992, by and between MOON
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& HART, a Hawaii general partnership, whose principal place of
business and post office address is at Century Center, 1750 Kalakaua
Avenue, Suite 909, Honolulu, Hawaii 96826 ("Landlord"), and SIMMONS
COMPANY, a Delaware corporation, whose principal place of business and
post office address is at One Concourse Parkway, Suite 600, Atlanta,
Georgia 30328 ("Tenant");
WITNESSETH:
That Landlord, in consideration of the rent herein reserved and of
the covenants herein contained and on the part of Tenant to be observed
and performed and upon and subject to the terms and conditions
hereinafter set forth, does hereby lease unto Tenant, and Tenant does
hereby lease from Landlord, that certain warehouse and office space (the
"Premises") located within the Campbell Industrial Park (the "Park") and
situate with the building (the "Building") shown on Exhibit "A" attached
hereto and made a part hereof for all purposes, together with the right
of access for vehicular ingress and egress shown in said Exhibit "A".
The Premises are situate within the property (the "Property") more
particularly described in Exhibit "B" attached hereto and made a part
hereof for all purposes.
Tenant shall also have the exclusive right to use the parking stalls
indicated in Exhibit "A". Tenant's right to use such parking stalls
shall be subject to such reasonable rules and regulations as Landlord
might adopt from time to time pursuant to this Lease.
I. Specific Conditions of the Lease.
---------------------------------
The following subparagraphs constitute all of the specific
conditions of this Lease as referred to elsewhere in this Lease:
(A) Approximate area of Tenant's Premises: Fifty-two thousand six
hundred fifty-five (52,655) square feet of warehouse space and
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five thousand eight hundred seventy-five (5,875) square feet of
office space, together with the exclusive right to use the
parking stalls shown in Exhibit "A".
(B) Tenant's Pro Rata Share of real property taxes, assessments and
Operating Expenses: Seventy and five thousand nine hundred eighty-
nine ten-thousandths percent (70.5989%).
<PAGE>
(C) The term of this Lease shall be ten (10) years (the "Term"),
commencing on the first (1st) day of February, 1993 (the
"Commencement Date") and ending on January 31, 2003 (the
"Termination Date").
(D) Monthly Base Rent shall be as follows:
Period Monthly Base Rent
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February 1, 1993 to
March 31, 1993 $0.
April 1, 1993
to January 31, 1996 $30,733.75
February 1, 1996 to
January 31, 1997 $31,655.76
February 1, 1997 to
January 31, 1998 $32,921.99
February 1, 1998 to
January 31, 1999 $34,238.87
February 1, 1999 to
January 31, 2000 $35,608.42
February 1, 2000 to
January 31, 2001 $37,032.76
February 1, 2001 to
January 31, 2002 $38,514.07
February 1, 2002 to
January 31, 2003 $40,054.63
(E) Amount of Security Deposit: None.
(F) (1) Uses to be made of Premises: Manufacturing,
distribution, warehousing and administrative
offices related to furniture and bedding
components and showroom facilities.
(2) Limit on average number of gallons of water to be
consumed on Premises: One thousand nine hundred
forty-eight (1,948) gallons per day.
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<PAGE>
(G) Tenant's address for notice if other than the Premises:
One concourse Parkway, Suite 600, Atlanta, Georgia 30328.
(H) Notwithstanding the provisions of Section I of this
Lease and the General Conditions set forth in Section III
of this Lease, Landlord and Tenant agree as follows:
(I) Landlord shall, prior to March 15, 1993, install the
following ("Landlord's Work"), at Landlord's sole cost and
expense:
(a) An additional six hundred (600) amperes of two hundred
forty (240) volt, three-phase power to a breaker box
within the Premises.
(b) An additional restroom on the ground floor of the
Premises.
(c) Such improvements as shall be required to conform the
Premises to the requirements of the Americans with
Disabilities Act.
(d) Such additional septic tank capacity as may be
reasonably required for Tenant's use of the Premises.
(2) Tenant shall, in accordance with periodic billings by Landlord,
pay to Landlord any increase in the premium payable for such
insurance and attributable to Tenant's use of the Premises and
Tenant's Pro Rata Share of the remaining cost of such insurance.
(3) Landlord and Tenant agree that Tenant's estimated Pro Rata Share
of Operating Expenses under Paragraph 7 of Section III of this
Lease is $4,000.00 per month. Tenant shall, on execution of this
Lease, tender to Landlord the sum of $36,181.11, representing
estimated Operating Expenses, Monthly Base Rent and General Excise
Tax for the month of April, 1993.
II. Exhibits.
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The following exhibits which are attached hereto are hereby made a
part of this Lease:
(A)Exhibit "A": Outline of Premises
(B)Exhibit "B": Description of Property.
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<PAGE>
(C) Exhibit "C-l:" Declaration of Conditions, Covenants
and Restrictions.
(D) Exhibit "C-2": Declaration of Covenants Regarding
Water Consumption and Development.
(E) Exhibit "D": Declaration of Taking.
III. General Conditions.
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The General Conditions of Lease attached to this Lease as
Section III are hereby incorporated herein by reference and
made a part hereof for all purposes.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the date first above written.
MOON & HART,
a Hawaii general partnership
By___________________________
Its General Partner
Landlord
SIMMONS COMPANY,
a Delaware corporation
By___________________________
Its Tenant
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<PAGE>
III. GENERAL CONDITIONS OF SIMMONS LEASE
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1. Landlord's Work. Landlord shall, prior to the Commencement
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Date, complete Landlord's Work more particularly described in
paragraph (H) of Section I of this Lease.
2. Structural Repairs. Landlord at Landlord's sole expense shall
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undertake and pay for all necessary repairs to the structural
portions of the Premises, including any necessary repairs to the
foundations, floors, exterior walls and interior load bearing walls
and roof; provided that such repairs are not made necessary by any
act or neglect of Tenant, its agents, employees, invitees or others
claiming by, through or under Tenant. In the event that any repairs
shall become necessary to the structural portions of the Premises,
then upon written notice from Tenant to Landlord stating the
necessity therefor and the nature thereof, Landlord shall, with
reasonable promptness, and after receipt of such written notice, make
any such reasonably necessary repairs specified in such notice.
3. Monthly Base Rent. For the period commencing on April
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1, 1993 to and including the Termination Date provided for in
paragraph (C) of Section I of this Lease, Tenant shall pay to
Landlord the Monthly Base Rent in the fixed amounts set forth in
paragraph (D) of Section I of this Lease. All payments of rent after
the first payment shall be paid at the office of Landlord, or such
other place as shall be designated in writing by Landlord, without
notice on or before the first (1st) day of each and every month
during the Term.
4. Conveyance Tax; General Excise Tax. As billed by
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Landlord, together with each payment made by Tenant hereunder, Tenant
shall pay any conveyance tax Imposed by the State of Hawaii and
execute, at Landlord's request, such affidavits and other
documentation as may be necessary or proper in connection therewith
in a form reasonably acceptable to Tenant. Tenant shall also pay to
Landlord as additional rent, together with each payment of rental,
real property taxes and other charges payable by Tenant hereunder,
which are subject to the State of Hawaii general excise tax on gross
income, as the same may be amended, and all other similar taxes
imposed upon Landlord with respect to rental or other payments in the
nature of a gross receipts tax, sales tax, privilege tax or the like,
excluding federal or state net income taxes, whether imposed by the
United States, State of Hawaii or City and County of Honolulu, an
amount which when added to such rental or other payment shall yield
to Landlord after deduction of all such tax payable by Landlord with
respect to all such payments a net amount which Landlord would have
realized from such payment had no such tax been imposed.
5. Real Property Taxes and Assessments. Tenant shall pay
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to Landlord, within ten (10) days of the receipt of Landlord's
invoice for the same (which invoice shall be rendered.
<PAGE>
by Landlord only after Landlord's receipt of the real property tax
bill for the land and Building of which the Premises are a part),
Tenant's Pro Rata Share, as established in paragraph (B) of Section I
of this Lease, of all real property taxes assessed against the land
and Building of which the Premises are a part. In the event any
assessments of whatever description shall, during the Term of this
Lease, be levied or assessed against the land or Building of which
the Premises are a part, or any part thereof under any improvement
district or betterment law or by other governmental authority, Tenant
shall also pay its Pro Rata Share of such assessments as shall be
billed with respect to the period of this Lease, both principal and
interest.
6. Other Taxes and Fees. In addition to the rental provided
--------------------
hereunder, Tenant agrees to pay all license fees taxes and increases
in taxes levied and assessed by any government bady by virtue of (a)
any special improvements made by such government body, (b) Tenant
using and conducting its business or operation on the Premises,
(c) the employment by Tenant of agents, employees or other third
parties, or (d) the bringing onto, or keeping of personal property or
chattels of whatsoever nature on the Premises by Tenant. The foregoing
is intended to bind Tenant to pay, and to promptly discharge, all
taxes and/or levies, together with related interest and penalties,
whether assessed by federal or state authority or any political
subdivision thereof, directly or indirectly related to its business,
improvements, functioning, employment, assets, existence, sales,
entertainment or the like. Tenant specifically agrees to reimburse
Landlord for any increase in ad valorem Taxes resulting from use of
fixtures or improvements by Tenant which Landlord becomes obligated
to pay.
7. Operating Expenses. Tenant will pay to Landlord in
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advance on the first (1st) day of each month throughout the Term,in
accordance with monthly billings rendered to Tenant by Landlord, but
subject to annual adjustment as hereinafter set forth, Tenant's Pro
Rata Share of the Operating Expenses for the Premises.
It is understood and agreed that the monthly billings referred to
hereinabove shall be on an estimated basis. If the aggregate payments
made by Tenant for Operating Expenses for any Lease Year (hereinafter
defined) exceed Tenant's Pro Rata share of Operating Expenses for
such Lease Year, such excess shall, at Landlord's option, be applied
as a credit against future payments to be made by Tenant for Rent and
Operating Expenses in order maturity. Landlord shall notify Tenant in
writing as soon as practicable after the end of such Lease Year, but
in no event more than ninety (90) days after the end of such Lease
Year, of such credit and the amount so credited, or refund such
amount to Tenant. If the aggregate payments made by Tenant for the
Operating Expenses with respect to any such Lease Year are less
2
<PAGE>
than Tenant's Pro Rata Share of Operating Expenses,Tenant shall pay
the amount of such deficiency to Landlord within ten (10) days after
written demand by Landlord. In the event that this Lease is
terminated prior to the end of a Lease Year, the adjustment above
will be made to apply as of the date of termination of this Lease and
any excess paid by Tenant shall be refunded by Landlord to Tenant
within thirty (30) days after the termination of the Lease. Any
deficiency owed by Tenant shall be paid as set forth above.
For purposes of this paragraph 7, the term "Operating Expenses"
means all improvement assessments applicable to the Premises
(including without limitation, any assessments levied with respect to
the Park), the total cost and expense incurred by Landlord in its
operation, maintenance and repair of the Building in which the
Premises are situate, excluding the roof and structural portions of
the Building, but including the wall ventilation system, gutters,
downspout, Building fire sprinkler system (including annual
maintenance and inspections), all exterior gates, fences, landscaped
areas (including the sprinkler system), parking areas, walkways,
ramps, driveways, fences, free-standing light standards, exterior
fixtures, trench drains and septic tanks, and interior and exterior
setback areas for the parcel within which the Premises are situate
(including keeping the same free from rubbish and debris) and the
cost of all other services, facilities or improvements provided for
by Landlord for the common or joint use and benefit of some or all
tenants of the Property of which the Premises are a part, their
employees, agents, customers and guests (provided that if said
facilities or services are provided for the common or joint use of
Tenant, its employees, agents, customers and guests and for the
common or joint use of some but not all tenants and their employees,
agents, customers and guests, Tenant's Pro Rata Share shall mean,
with respect to any such facilities or services, the percentage
obtained by dividing the floor area of Tenant's Premises by the
aggregate floor area of the premises of all tenants (including
Tenant) benefitted by such common facilities or services), insurance
provided for in paragraph 17 of this Section III on the Building and
improvements situate within the parcel of land within which the
Premises are situate, taxes upon or measured by Landlord's gross
income to the extent that such taxes have not already been recovered
under paragraph 4 of this Section III, the cost and expense of any
contest of he validity of such taxes, the cost of alterations,
additions and capital improvements required by any laws, codes,
regulations or ordinances now or hereafter in effect, or made by
Landlord to reduce expenses, which alterations, additions and capital
improvements would otherwise be included in Operating Expenses
(amortized over their reasonable useful life with interest at the
rate usually charged Landlord for borrowing on the amount of such
cost). Operating Expenses shall also include, but are not limited
to, exterior painting, washing of the Building roof and Building
exterior
3
<PAGE>
walls, the repair, replacement and maintenance of common area
plumbing and electrical systems, reasonable management fees and
office expenses (subject to the limitation set forth hereinafter),
legal, accounting and engineering fees, and the following for common
areas: janitorial services (including rubbish removal) and other
cleaning costs, pest control, supplies, security services, charges
for water, sewer and electricity, and costs of planting and
maintaining landscaped areas. Operating Expenses shall include both
costs directly incurred and costs incurred under outside contracts.
Anything herein to the contrary notwithstanding, Landlord hereby
agrees, with respect to the foregoing management and office expenses,
that for the period commencing on the Commencement Date and ending on
the fourth (4th) anniversary of said Commencement Date, management
fees and office expenses during each Lease Year shall not exceed
three percent (3.0%) of the aggregate of the following items payable
by Tenant during such Lease Year: (i) the Monthly Base Rent, (ii)
Operating Expenses (excluding such management and office expenses),
(iii) Tenant's Pro Rata Share of real property taxes and assessments,
and (iv) Hawaii general excise tax. Thereafter, from and after such
fourth (4th) anniversary of the Commencement Date, such management
fees and office expenses shall not exceed such three percent (3.0%)
limitation for so long as Landlord shall self-manage the Property; if
Landlord shall elect to have the Property managed by an independent
property management company, then such management fees and office
expenses shall in no event exceed the fees and expenses charged by
independent property management companies for the management of
similar properties.
For purposes of this paragraph 7, "Lease Year" shall be a period
of twelve (12) consecutive calendar months, with the initial Lease
Year commencing on April 1, 1993 and ending on December 31, 1993 and
each succeeding Lease Year commencing on January 1 and ending on
December 31 of each calendar year or such other twelve (12) month
period as may be established by Landlord on reasonable notice to
Tenant.
8. Utilities; Trash Removal. Tenant will make all arrangements
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for and pay for all electricity, air-conditioning, telephone service,
trash and rubbish removal in connection with Tenant's use of the
Premises and other utilities and services used by Tenant on or with
respect to the Premises and other similar charges for said Premises
prior to such charges becoming delinquent. Tenant shall also pay
Landlord, in accordance with invoices rendered by Landlord to Tenant,
for all water used by Tenant with respect to the Premises. Tenant's
usage of such water shall be determined by flow meters installed by
Landlord with respect to the Property.
4
<PAGE>
9. Laws and Ordinances; Indemnity. Tenant shall, during the whole
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of said Term, keep the Premises in a strictly safe, clean and sanitary
condition and observe and perform all laws and ordinances applicable
to the Park and improvements now or hereafter erected on the Premises
and all laws, ordinances, rules and regulations relating to health
and sanitation for the time being applicable to the Premises, and
will indemnify, defend and hold harmless Landlord, its partners,
employees, agents, successors and assigns from and against all
claims, actions, suits, damages, costs and expenses, including
reasonable attorneys' fees by whomsoever brought or made by reason of
the nonobservance or nonperformance of said laws, ordinances, rules
and regulations or of this covenant, and will reimburse Landlord for
reasonable attorneys' fees and for all other reasonable costs which
Landlord may incur in connection with the defense of any such claims.
10. Hazardous Materials; Indemnity. Tenant will keep and maintain
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the Premises in compliance with, and shall not cause or permit the
Premises or the Property to be in violation of, any Hazardous
Materials Laws (hereinafter defined), and shall not use, generate,
manufacture, treat, handle, refine, produce, process, store,
discharge, release, dispose of or allow any Hazardous Materials
(hereinafter defined) in, on or under the Premises or the
Property in violation of any Hazardous Materials Laws. Tenant shall
indemnify, defend and hold harmless Landlord, its partners,
employees, agents, successors and assigns from and against an loss,
damage, cost, expense or liability, direct or indirect, arising out
of or attributable to the violation of any Hazardous Materials Laws
or the unlawful use, generation, manufacture, treatment, handling,
refining, production, processing, storage, release, threatened
release, discharge, disposal or presence of Hazardous Materials in,
on or under the Premises or the Property caused by Tenant, including,
without limitation, all foreseeable and unforeseeable consequential
damages, the costs of any required or necessary repair, clean up or
detoxification of the Premises or of the Property, and the
preparation and implementation of any closure, remedial or other
required plans. In addition to the foregoing, Tenant shall
immediately advise Landlord, in writing, if Tenant at any time
becomes aware of any violation of any Hazardous Materials Laws or of
any claim made pursuant to any Hazardous Materials Laws in respect of
the Premises or the Property. Landlord shall immediately advise
Tenant, in writing, if Landlord at any time becomes aware of any
violation of any Hazardous Materials Laws or of any claim made
pursuant to any Hazardous Materials Laws in respect of the Premises
or the Property.
Landlord shall indemnify, defend and hold harmless Tenant, its
employees, agents, successors and assigns from and against any loss,
damage, cost, expense or liability, direct or indirect, arising out
of or attributable to the violation of, any
5
<PAGE>
Hazardous Materials Laws or the unlawful use, generation,
manufacture, treatment, handling, refining, production,
processing, storage, release, discharge, disposal or presence of
Hazardous Materials in, on or under the Premises or the Property
which were caused by Landlord or any predecessor Tenant of the
Building, including, without limitation, all foreseeable and
unforeseeable consequential damages, the cost of any required or
necessary repair, cleanup or detoxification of the Premises or
of the Property, and the preparation and implementation of any
closure, remedial or other required plans; provided, however,
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that Landlord shall not be required to so indemnify, defend and
hold harmless Tenant for any personal injury claims by Tenant's
employees resulting from any of the foregoing, unless the same
were caused by Landlord.
For purposes of this Lease, the term "Hazardous Materials
Laws" means and includes all federal, state or local laws,
ordinances or regulations, now or hereafter in effect, relating
to environmental conditions, industrial hygiene or Hazardous
Materials on, within, under or about the Premises or the
Property, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq., the Resource
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Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., the Hazardous Materials Transportation Act, 49
-------
U.S.C. Section 1251, et seq., the Clear Air Act, 42 U.S.C.
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Section 7401, et seq., the Toxic
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Substances Control Act, 15 U.S.C. Sections 2601 through 2629,
the Safe Drinking Water Act, 42 U.S.C. Section 300f through
300j, Chapter 342J of the Hawaii Revised Statutes and any
similar state or local laws or ordinances and the regulations
now or hereafter adopted, published and/or promulgated
pursuant thereto.
As used in this Lease, the term "Hazardous Materials"
means and includes any and all radioactive materials,
asbestos, organic compound: known as polychlorinated
biphenyls, chemicals known to cause cancer or reproductive
toxictry, pollutants, contaminants, hazardous wastes toxic
substances, and any and all other substances or materials
defined as or included in the definition of "hazardous
substances", "hazardous wastes" "hazardous materials" or
"toxic substances" under, or for the purposes of, the
Hazardous Materials Laws.
The foregoing covenant shall survive any termination or
cancellation of this Lease.
11. Interruption or Curtailment of Services. The
interruption or curtailment of services or utilities to be
furnished by Landlord hereunder, if the same results from causes
beyond Landlord's reasonable. control, shall not constitute
constructive eviction and shall not entitle Tenant to the
abatement of rent or to any other claims against Landlord;
but in
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<PAGE>
the case of such interruption or curtailment, Landlord shall
take all reasonable steps to restore the interrupted or
curtailed utilities or services.
12. Use. Tenant will use the Premises solely for the
---
purposes specified in paragraph (F)(1) of Section I of this Lease
and for no other purposes. If Tenant wishes to use the Premises
for any other purpose, Tenant shall obtain Landlord's prior
written consent, which consent shall not be unreasonably
withheld or delayed; provided, however, that Landlord shall
have the right to withhold such consent if the proposed use
does not qualify as a permitted use under the CC&R's or the
Declaration of Taking hereinafter described.
Tenant shall not use or occupy said Premises for the
purpose of storing junk, scrap or other offensive materials:
and will not make or suffer any strip or waste, unlawful use
of said Premises or use which creates a nuisance; nor shall
Tenant use or permit said Premises or any part thereof to be
used in any manner or for any purpose which will increase the
then existing rate of insurance upon the Building of which
the Premises are a part (unless Tenant agrees to pay such
increase), or cause a cancellation of any insurance policy
covering said Premises, or any part thereof (unless such
insurance policy can be replaced and Tenant agrees to pay
any increase in the cost of such replacement policy which
cannot be replaced without an increase in the rates), nor
shall Tenant sell, store or permit to be kept, used or sold in or
about said Premises any article which may be prohibited by any
policy or policies of fire insurance applicable to the Premises
and to the activities therein permitted. Tenant shall use and
occupy said Premises in a careful, safe and proper manner. Any
increase in premiums or surcharges or damages resulting from any
such prohibited use shall be paid by Tenant to Landlord;
provided, however, that the foregoing shall not apply to
increases in premiums or purchases which are attributable
to inflation or other price increases unrelated to the activities
of Tenant. Tenant shall, at Tenant's sole cost and expense,
comply with all requirements of all county, municipal, state and
federal authorities now in force, or which may hereafter be in
force pertaining to the Premises, and shall faithfully observe
in the use of the premises all municipal ordinances and stateand
federal statutes now in force or which may hereafter be in force.
13. Inspection; Access. Tenant will permit Landlord and
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their respective employees and agents, at all reasonable times
during said Term upon reasonable prior notice, to enter the
Premises and examine the state of repair and condition thereof,
and Tenant will repair and make good all defects which Tenant is
obligated to do under the terms of this Lease and of which
notice shall be given by Landlord, in the manner set forth in
paragraph 40 of this Section III. Without in any manner
obligating Landlord to do so, Tenant will also permit Landlord
and
<PAGE>
Landlord's agents to have access to the Premises at all
reasonable times upon reasonable prior notice for the purpose
of making repairs, posting such notices as it may deem
necessary for Landlord's protection or for the protection of
the Premises, for the purpose of lawfully repossessing the
Premises as herein provided and/or for the purpose of showing
the Premises to prospective tenants, purchasers, mortgagees
and/or others, and, in the absence of Landlord's negligence or
willful misconduct, Landlord shall not be liable for damages
resulting to Tenant from such exercise of the right of entry,
the rent stipulated hereunder shall not abate during the
period of such entry, nor shall Tenant be entitled to maintain
a setoff or counterclaim for damages against Landlord by
reason of loss or interruption of business of Tenant because
of the prosecution of any such repairs; provided, however,
that Landlord shall use reasonable efforts to minimize any
interference to Tenant's use of the Premises. During the last
ninety (90) days of the Term, Landlord shall have the right to
place and maintain in or upon the Premises in one (1) or more
conspicuous places "For Rent", "For Lease" and/or "For Sale"
signs.
Landlord, Tenant and all other tenants in the Property of
which the Premises are a part, and their respective guests,
invitees and employees, shall have ingress to and egress from
all common public areas of said Property; provided, however,
that Landlord shall have the right to reasonably regulate and
control such guests, invitees and employees with respect to
such access and the days and hours of access, and all common
areas and facilities not within the Premises, which Tenant may
be permitted to use and occupy, are to be used and occupied
under a revocable license, and if the amount of such areas
shall be diminished, Landlord shall not be subject to any
liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such diminution of
such areas be deemed constructive or actual eviction. Landlord
shall not be liable to Tenant for any inconvenience,
interferences, annoyance, loss or damage resulting from work
done in or upon the Premises or any portion of the Premises or
adjacent grounds; provided, however, that Landlord shall use
reasonable efforts to minimize interference with Tenant's use
of the Premises.
Tenant agrees that if Landlord during the Term hereby
demised shall be required by the City and County of Honolulu, the
State of Hawaii, or by any other governmental authority to
repair, alter, remove, reconstruct or improve any part of the
Premises or of said Property, then such repair, alteration,
removal, reconstruction or improvement may be made by and at the
expense of Landlord and shall not in any way affect the
obligations or covenants of Tenant herein contained, and Tenant
hereby waives all claims for damages or abatement of rent
because of such work. Landlord agrees to use reasonable efforts
to minimize interference with Tenant's use of the Premises.
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<PAGE>
14. Construction and Bond. Tenant shall, at its cost, in
---------------------
accordance with plans and specifications therefor first approved
in writing by Landlord, which approval shall not be unreasonably
withheld or delayed, construct and install such improvements
and fixtures and provide such equipment and do all other
things required to complete the Premises in a finished
condition ready for the conduct of Tenant's business at the
Premises; provided, however, that Tenant will, before
commencing such initial construction and any future
construction on the Premises, show evidence satisfactory to
Landlord that Tenant has sufficient current funds to pay for
the entire cost of construction, and post with Landlord a
contract performance and labor and material payment bond or
bonds with corporate surety satisfactory to Landlord in the
penal sum equal to one hundred percent (100%) of the cost of
construction, guaranteeing the completion thereof free from
any mechanics or materialmen's liens. Such initial
construction and any future construction or alterations shall
strictly comply with all applicable laws, ordinances, codes
and regulations. Notwithstanding the foregoing, Landlord
agrees that Landlord's approval and the bond described above
shall not be required for any construction or improvement
which individually costs less than FIVE THOUSAND DOLLARS
($5,000.00) and does not require alterations to the Building
structure.
Any violation of the foregoing provisions shall be
considered a material default of this Lease.
15. Indemnity. Tenant will indemnify, defend and hold
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harmless Landlord, its partners, employees, agents, successors
and assigns from and against all claims and demands for loss or
damage, including property damage, personal injury and
wrongful death, arising out of or in connection with the use
or occupancy of said Premises by Tenant or any other person
claiming by, through or under Tenant, or any accident or fire
on said Premises or any adjacent sidewalk or any nuisance made
or suffered thereon caused by Tenant's negligence, or any
failure by Tenant to keep said Premises or sidewalk in a safe
condition, or any failure by Tenant to comply and conform with
all laws, statutes, ordinances and regulations of the United
States, the State of Hawaii and the ,City and County of
Honolulu now or hereafter in force, or arising from any
default by Tenant in the performance of any of the covenants,
conditions or provisions of this Lease, will resist and defend
at Tenant's expense any such claim by counsel reasonably
satisfactory to Landlord, and will reimburse Landlord for all
of Landlord's costs and expenses, including reasonable
attorneys' fees with respect to any attachment, judgment,
suit, lien, charge or encumbrance whatsoever against said
Premises made or suffered by Tenant.
16. Acceptance and Maintenance of Premises. (a) Tenant
--------------------------------------
agrees that by taking occupancy of the Premises, Tenant
9
<PAGE>
shall be deemed to have accepted the Premises as being in
good, safe, tenantable and sanitary order, condition and
repair.
(b) Tenant shall, at Tenant's sole cost and expense, keep
the Premises (excluding the roof, floor and structural
portions thereof, the cost of which shall be borne by
Landlord) and every part thereof in good condition and repair,
excepting only ordinary wear and tear and unavoidable damage
not required to be insured against. Tenant hereby waives all
rights to make repairs at the expense of Landlord as provided
by any law, statute or ordinance now or hereafter in effect.
Damage caused by Tenant to all walls, doors and glass, if any,
both exterior and interior, of the Premises shall be at the
risk of Tenant; interior walls, doors and glass broken during
the Term shall be promptly replaced by Tenant at the expense
of Tenant. Tenant will not damage or deface the walls, floors,
ceilings or structural parts of the Premises, nor damage or
obstruct other common areas, nor commit any act which may
damage the structural parts of the Premises. Tenant shall not
add, disturb, or in any way change any plumbing or wiring
without first obtaining the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. All
damage or injury done to the Premises by Tenant, or by any
persons who may be in or upon the Premises with the consent of
Tenant, shall be paid for by Tenant and Tenant shall pay for
all damage to the Premises caused by Tenant's misuse of the
Premises or the appurtenances thereto. All repairs to the
Premises necessary to maintain the Premises in a tenantable
and good condition shall be done by or under the direction of
Landlord and at Tenant's expense, except as otherwise
specifically provided herein. Tenant shall pay for the
replacement of doors or windows of the Premises which are
cracked or broken. Landlord may make any alterations or
improvements which Landlord may deem necessary for the
preservation, safety or improvement of the Premises or the
Property. It is specifically understood and agreed that
Landlord has made no promises to alter, remodel, improve,
repair, decorate or paint the Premises, or any part thereof,
and that no representations respecting the condition of the
Premises, the Building or the Park are a part have been made
by Landlord to Tenant.
Any diminution or shutting off of light or air by any
structure which may be erected adjacent to the Park of which
the Premises are a part, whether by Landlord or others, shall
not affect this Lease or impose any liability on Landlord or
be construed as a constructive eviction or grounds for the
reduction of rent.
17. Fire, Liability and Business Interruption Insurance.
---------------------------------------------------
(a) Landlord will at all times during said Term keep all
improvements and Landlord's fixtures now or hereafter erected
upon the land of which the Premises are a part and all
Landlord's personal property subject hereto insured against
loss or damage
10
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by fire, with extended coverage (including vandalism and
malicious mischief, public liability and property damage), and
against risk of war, if available at reasonable cost, and such
other insurance as may be customarily carried on comparable
properties in the State of Hawaii, in an amount sufficient to
prevent Landlord and Tenant from being or becoming co-insurers
within the term of the policy or policies providing such
insurance, and, in any event, in an amount equal to the full
insurable value with one hundred percent (100%) replacement cost
endorsement and without deduction for depreciation, in the
joint names of Landlord and any mortgagee of Landlord.
(b) Landlord agrees that in case of any such loss or
damage to any buildings by fire or other such casualty herein
required to be insured against which shall have rendered
untenantable areas exceeding twenty percent (20%) of the total
floor area of the Building situated on the Property at the
time of such casualty, then the rent herein reserved shall be
abated in a proportionate amount determined as of the date of
said loss or damage and as of each successive due date for the
payment of rent during the continuance of said abatement by
mutual agreement of Landlord and Tenant or, if they fail to
reach such agreement, by the ratio which the floor area then
remaining untenantable because of such casualty bears to the
total floor area of the building immediately prior to such
casualty, until such building shall be fully reinstated by
Tenant or Landlord pursuant to this paragraph 17.
(c) Tenant will procure at its own expense and keep in
force during the entire Term: (1) a policy of comprehensive
general liability insurance (Owners' Landlords' and Tenants'
Public Liability Insurance) with single limit coverage of not
less than TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) against
claims for personal injury and property damage; and (2) a
policy of business interruption (use and occupancy) insurance
insuring that the rent received hereunder shall be paid to
Landlord for a period of up to one (1) year if the Premises are
destroyed or rendered inaccessible by a risk insured against by
a policy of standard fire and extended coverage insurance with
vandalism and malicious mischief endorsements. Said policy or
policies shall be with an insurance company or companies
authorized to do business in the State of Hawaii, shall name
Landlord and Landlord's mortgagee as additional insured, and
shall cover the entire Premises and the areas appurtenant
thereto, including the sidewalks upon which the Premises abut;
and a current certificate of said policy or policies shall be
deposited with Landlord, together with evidence or payment of
the premium thereon. The limits of said policies shall be
increased in accordance with prevailing prudent business
practices and as reasonably adequate for Landlord's and
Tenant's protection. Said insurance shall contain a provision
that it will not be canceled or substantially modified without
giving
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Landlord thirty (30) days' written notice prior to the
effective date of the proposed cancellation or modification.
(d) Tenant shall have the right to satisfy the insurance
requirements of subparagraph 17(c} and of paragraph 18 if Tenant
procures such insurance with a blanket insurance policy insuring
other property owned by Tenant.
18. Insurance on Fixtures and Equipment. Tenant shall procure
-----------------------------------
and, during the entire Term, keep in full force and effect insurance
on Tenant's fixtures and equipment in the Premises, in the full
insurable value thereof, against fire and extended coverage risks.
Tenant shall deposit a current certificate of said insurance with
Landlord, and said insurance shall contain a provision that it will
not be canceled or substantially modified without giving Landlord
thirty (30) days' written notice prior to the effective date of the
proposed cancellation or modification. Landlord agrees that Tenant
shall have the right, by written notice to Landlord, to self- insure
for the foregoing risks with respect to Tenant's equipment.
19. Risk of Loss. The storage and/or presence of all goods,
------------
wares, merchandise or other property of Tenant or anyone claiming by,
through or under Tenant on the Premises shall be at Tenant's or such
other owner's sole risk, and, in the absence of Landlord's gross
negligence or willful misconduct, Landlord shall not be responsible
for any loss or damage from fire, smoke or water damage, from
bursting, overflowing or leaking of water, gas, sewer or steam pipes
or from any fixtures, appliances or devices to the same, or from
electric wires, fixtures, appliances or devices or from odors or from
any cause whatsoever.
20. Waste and Nuisance. Tenant will not commit or suffer to be
------------------
committed any waste upon or of the Premises, or any nuisance or other
act or omission which disturbs the quiet enjoyment of any other
tenant in the Property of which the Premises are apart, and Tenant
will immediately abate any nuisance or said other act or omission
upon demand of Landlord. Tenant shall not waste or permit the waste
of water drawn through fixtures on or about the Premises.
21. Signs. Tenant shall not erect, install, paint or inscribe
-----
on any exterior door, wall or window, or on any marquee or roof, or
affix to the exterior surface of the Property or the Premises, any
signs, lettering or placards or advertising media without the prior
written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. In the event that the written consent of
Landlord is secured, Tenant shall pay all permit and license fees
which may be required to be paid for the erection and maintenance of
any and all such signs, and provided that such signs shall be legally
permitted to be installed. Tenant shall indemnify and save Landlord
harmless from and
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against any and all losses, damages, claims, suits or actions for any
damage or injury to persons or property caused by the erection and
maintenance of such signs or parts thereof, and insurance coverage
for any such sign shall be included in the public liability policy
which Landlord maintains pursuant to paragraph 17 of this Section
III.
22. Attorneys' Expenses. The losing party will pay to the
-------------------
prevailing party on demand all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party in
enforcing any of the covenants herein contained, in remedying any
breach thereof by the losing party, in recovering possession of the
Premises, in collecting any delinquent rent, taxes or other charges
hereunder payable by the losing party, or in connection with any
litigation commenced by or against the losing party (other than
condemnation proceedings) to which the prevailing party without any
fault on its part shall be made a party. In case a party, without any
fault on its part, is made a party to any litigation commenced by or
against the other party, then the other party shall pay all costs and
expenses, including reasonable attorneys' fees, incurred or imposed
on the first party by or in connection with such litigation.
23. No Assigning or Subletting. (a) Tenant shall not,
--------------------------
without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed, sell (by agreement of sale
or otherwise), assign, mortgage, pledge, encumber or otherwise
transfer this Lease or any interest herein, or sublet the Premises or
any part thereof; provided, however, that Tenant may assign or
sublease all or any part of the Premises without obtaining such
consent to any corporation or entity which controls or is controlled
by or under common control with Tenant, or any corporation or entity
which results from a merger or consolidation with Tenant or to which
Tenant sells all or substantially all of its assets; on condition,
however, that Tenant shall remain liable for the performance of all
obligations hereunder, that the assignee or sublessee shall undertake
in writing to observe and abide by the terms and provisions of this
Lease, and that Tenant shall provide Landlord with a true and
complete copy of the assignment or sublease.
(b) Notwithstanding subparagraph (a) above, if at any time
during the term of this Lease, Tenant wishes to assign or sublet all
or any portion of the Premises to a party other than to a corporation
or entity for which Landlord's consent is not required under
subparagraph (a), and Tenant will receive, as a result of such
assignment or subletting, a premium, sum or other economic
consideration in excess of the rent payable under this Lease with
respect to the Premises or portion of the Premises to be assigned or
sublet, Tenant shall, before executing any contract with such other
party, notify Landlord of the terms and conditions of the proposed
assignment or subletting and provide
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Landlord with a copy of the proposed contract. Tenant shall also
provide to Landlord such information pursuant to paragraph 45 of this
Lease as Landlord may reasonably require with respect to any proposed
assignee. Landlord shall thereafter have the right, for a period of
fifteen (15) days after such notice, to: (i) require Tenant to
surrender the Premises or portion thereof in question and to enter
into a direct lease with the proposed assignee or sublessee, provided
that Landlord shall release Tenant from any further liability with
respect to the Premises or portion thereof being surrendered; or (ii)
to consider Tenant's notice as a request for a consent to the
proposed assignment or subletting pursuant to subparagraph (a).
(c) The term "sublet" shall include, without limitation,
any use of the Premises by any party other than Tenant. Any of the
foregoing acts shall be void and constitute a default under this
Lease.
24. Subordination of Lease: Estoppel Certificates. In the
----------------------
event any mortgagee shall elect to have this Lease prior to or
subordinate to its mortgage, then and in such event, upon such
mortgagee notifying Tenant to that effect, this Lease shall have
priority over or be subordinate to the lien of such mortgage. Tenant
covenants and agrees, in the event any proceedings are brought for
the foreclosure of, or in the event of exercise of the power of sale
under, any mortgage heretofore or hereafter made by Landlord covering
the Premises (and which may or may not also cover other premises),
whether or not this Lease is terminated by such foreclosure or sale,
that Tenant will, upon request by the purchaser, attorn to the
purchaser upon any foreclosure or sale and recognize such purchaser
as the landlord under this Lease, it being the intent hereof that if
this Lease should be terminated by such foreclosure or sale, this
Lease shall, upon request by the purchaser, be reinstated as a lease
between the purchaser and Tenant, it being nevertheless understood
that such purchaser shall not be liable for any act or omission of a
prior landlord nor be subject to any offsets or defenses which Tenant
may have against any prior landlord. Tenant, upon request of any
party in interest, shall execute such instrument or instruments in a
form reasonably acceptable to Tenant as shall be requested to carry
out the requirements of this paragraph within thirty (30) days after
receipt by Tenant of written request therefor; provided, however,
that Tenant shall not be required to effectuate such subordination,
nor shall Landlord be authorized to effect such subordination on
behalf of Tenant, unless the mortgagee named in such mortgage shall
first agree in writing, for the benefit of Tenant, that so long as
Tenant is not in default under any of the provisions, covenants or
conditions of this Lease on the part of Tenant to be kept and
performed, that neither this Lease nor any of the rights of Tenant
hereunder shall be terminated or modified or be subject to
termination or modification, nor shall Tenant's possession of the
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<PAGE>
Premises be disturbed or interfered with, by an action or proceeding
to foreclose said mortgage. In the event that Tenant fails to respond
to such written request within thirty (30) days, Landlord shall have
the right to execute such instruments on behalf of Tenant. Tenant
hereby constitutes Landlord as Tenant's true and lawful
attorney-in-fact, coupled with an interest, for purposes of the
execution of the foregoing instruments.
Within fifteen (15) days of presentation, Tenant shall execute,
acknowledge and deliver to Landlord (a) any subordination or
non-disturbance agreement or other instrument that Landlord may
reasonably require to carry out the provisions of this paragraph, (b)
any agreement for attornment to a purchaser upon foreclosure, and (c)
any estoppel certificate requested by Landlord from time to time in
the standard form of any mortgagee or purchaser certifying in
writing, if such is the case, that Tenant is in occupancy, that this
Lease is unmodified and in full force and effect or that if there
have been modifications that the same is in full force and effect as
modified and stating the modifications, and the dates to which the
rent and other charges shall have been paid, and that there shall be
no rental offsets or claims. Any agreement or instrument referred to
in the preceding sentence shall be in such form as is reasonably
acceptable to Tenant.
25. Plumbing Facilities. Tenant will not use or permit to be
-------------------
used the plumbing facilities in the Premises, or such facilities
located within the demised area or such other area as may be assigned
for use by Tenant or its employees, for any purpose other than that
for which they are constructed nor throw or place, or permit to be
thrown or placed, any foreign substance of any kind therein, and the
expense of breakage, stoppage or damage resulting from Tenant's
failure to keep this covenant shall be borne by Tenant.
26. Eminent Domain. If the whole or any substantial part of
--------------
the Premises which shall make the Premises unusable for Tenant's
business shall be required, taken or condemned for any public use by
any authority having the power of eminent domain, this Lease shall at
once terminate and Landlord shall be entitled to receive and retain
all compensation for the taking thereof. Tenant shall, however, have
the right to claim and recover from the condemning authority only,
and not from Landlord, such compensation as may be separately awarded
or recovered by Tenant in its own right for or on account of any and
all damage to Tenant's business or to its improvements or fixtures,
stock in trade or equipment, or expense caused to Tenant by the
necessity of removing the foregoing items from the Premises, but in
no event shall Tenant's compensation reduce the amount of
compensation payable to Landlord.
15
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27. Nonliability of Landlord. Except where the same is caused
------------------------
by the gross negligence or willful misconduct of Landlord, Landlord
shall note liable for any damage either to person or property
sustained by Tenant or by other persons due to the Premises, or any
part thereof, or any appurtenances thereof, becoming out of repair or
due to any act or neglect of any tenant or occupant of said Premises,
or of any other person. This provision shall apply especially but not
exclusively to damage caused by water, steam, sewage, illuminating
gas, sewer gas odors or termites or the negligent accumulation of
combustible materials, accessories and supplies, and shall apply
equally whether such damage is caused by the act or neglect of other
tenants, occupants or janitors of said Premises, or of any other
persons and whether such damage is caused or occasioned by anything or
circumstances above mentioned or referred to, or by any other thing
or circumstance, whether of a like or of a wholly different nature. If
any such damage shall be caused by any act or neglect of Tenant,
Landlord may, at its option upon giving Tenant not less than two (2)
business days' prior written notice, repair such damage, whether
caused to the Premises, or to tenants thereof, and Tenant shall
thereupon reimburse Landlord for the total cost of such damage both
to the Premises and/or to the tenants thereof. Tenant further agrees
that all personal property upon the Premises shall be at the sole
risk of Tenant and that Landlord shall not be liable for any loss,
injury or damage thereto or theft thereof.
28. Disposition of Fixtures on Surrender. On the last day of
------------------------------------
the Term hereby demised or on sooner termination thereof as provided
in this Lease, Tenant will peaceably and quietly leave and surrender
and deliver up to Landlord possession of the Premises together with
all other improvements upon or belonging to the same, by whomsoever
made, in good repair, order and condition except as otherwise
expressly provided herein and Tenant shall surrender all keys for the
Premises to Landlord at the place then fixed for the payment of rent,
and shall inform Landlord of all combinations on locks, safes and
vaults, if any, in the Premises; provided, however, that if there is
no default on the part of Tenant at the termination of this Lease,
Tenant may remove all trade fixtures and equipment installed by Tenant
on the express condition that Tenant replaces and repairs all damage
to said Premises caused by or resulting from the removal of said trade
fixtures and equipment.
If Tenant shall fail to remove all effects from said Premises
upon termination of this Lease for any cause whatsoever, Landlord may,
at its option, remove the same in any manner that Landlord shall
choose, and store said effects without liability to Tenant for loss
thereof, and Tenant agrees to pay Landlord on demand any and all
expenses incurred in such removal, including court costs and
reasonable attorneys' fees and storage charges on such effects for any
length of time the same shall be in
16
<PAGE>
Landlord's possession, or Landlord may, at its option, without notice,
sell said effects, or any of the same, at private sale and without
legal process, for such price as Landlord may obtain and apply the
proceeds of such sale to payment of any amounts due under this Lease
from Tenant to Landlord and for the expense incident to the removal
and sale of said effects.
29. Liquidated Damages. If Tenant shall, at the expiration or
------------------
other termination of this Lease, fail to yield up possession to
Landlord, Landlord shall have the option to require Tenant to pay, and
Tenant shall pay as liquidated damages for each day possession is
withheld, an amount equal to double the amount of the daily rent
computed on the thirty-day-month basis.
30. Holding Over. Any holding over after the expiration of
------------
said Term, with the consent of Landlord, shall be construed to be a
tenancy from month to month at the monthly rental herein specified and
shall otherwise be on the terms and conditions herein specified, so
far as applicable.
31. Destruction of Premises. In the event of a partial or
-----------------------
total destruction of the Premises from any cause whatsoever, Landlord
shall promptly cause the same to be rebuilt or repaired unless, in
Landlord's sole discretion, Landlord determines that it would be
uneconomical or impossible to rebuild or repair the same, in which
event this Lease shall terminate as of the date of such destruction
upon written notice given by Landlord to Tenant of its intention not
to rebuild or repair, such notice to be given within sixty (60) days
from the date of such destruction. Landlord agrees to give written
notice to Tenant as soon as practicable of Landlord's decision whether
or not to rebuild or repair. Notwithstanding the foregoing, in the
event that Landlord for any reason fails to substantially rebuild or
repair the Premises to the end that Tenant shall be able to conduct
its business operations on the Premises by the end of the tenth (10th)
month after Landlord has elected to rebuild or repair the Premises,
Tenant may, in its discretion, upon written notice to Landlord,
terminate this Lease. In the event of any such termination as
aforesaid, Tenant shall forthwith surrender the Premises and shall be
relieved of all liability accruing after the date of termination, and
Landlord shall have no further liability or obligation hereunder. If
such destruction occurs and this Lease is not so terminated by
Landlord, this Lease shall remain in full force and effect and
Landlord and Tenant waive the provisions of any law to the contrary.
Landlord's obligations under this paragraph 31 shall in no event
exceed the scope of the original construction of the Park of which the
Premises are a part. Tenant agrees that during any period of
reconstruction or repair of the Premises and/or said Park, Tenant
shall continue the operation of Tenant's business in the Premises to
the extent reasonably practicable from the standpoint of good
business.
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32. Abatement of Rent. The monthly rent payable hereunder
-----------------
shall be abated proportionately during any period in which, by reason
of any damage or destruction of the Premises, there is substantial
interference with the operation of the business of Tenant in the
Premises, having regard to the extent to which Tenant may be required
to discontinue its business in the Premises. Such abatement shall
continue for the period commencing with such destruction or damage and
ending with the completion by Landlord of such work or repair and/or
reconstruction as Landlord is obligated to do.
33. Security Deposit. Landlord and Tenant acknowledge and
----------------
agree that a security deposit has not been required by Landlord in
connection with this Lease.
34. Nonwaiver. The acceptance of rent by Landlord shall not be
---------
deemed a waiver by Landlord of any breach by Tenant of any term,
covenant or condition herein contained, nor of Landlord's right to
declare and enforce a forfeiture for any such breach, and failure of
Landlord to insist upon strict performance of any term, covenant or
condition herein shall not be construed as a waiver of any subsequent
breach of the same nor of any other term, covenant or condition.
35. Default and Rights of Landlord on Default. This Lease is
-----------------------------------------
made upon the condition that, (a) if Tenant shall fail to pay said
rent or any part thereof or any other charges hereunder when due and
such failure continues for five (5) days after written notice thereof
has been given to Tenant, or (b) if Tenant shall fail to observe or
perform any of the other covenants herein contained and on Tenant's
part to be observed and performed, and such default shall continue for
thirty (30) days after written notice thereof has been given to
Tenant, or (c) if Tenant shall become bankrupt or make an assignment
for the benefit of creditors or abandon the Premises, or (d) if any
mechanics' or materialmen's lien shall attach to the Premises or
Landlord's or Tenant's estate or interest therein and the same has not
been removed or discharged after twenty (20) days, or (e) if this
Lease or any estate or interest of Tenant hereunder shall be sold
under any attachment or execution, Landlord may in any such event at
once lawfully re- enter the Premises or any part thereof in the name
of the whole and, upon or without such entry, at its option either
continue this Lease in force or terminate this Lease. Landlord may
lawfully expel and remove from the Premises Tenant and any persons
claiming by, through or under Tenant and their effects without being
deemed guilty of any trespass or becoming liable for any loss or
damage occasioned thereby, all without service of notice or legal
process and without prejudice to any other remedy or right of action,
including summary possession, which Landlord may have for arrears of
rent or for the same or any preceding or other breach of contract. No
act by Landlord purporting to terminate this Lease
18
<PAGE>
in accordance with the provisions hereof shall be effective to
terminate this Lease other than a written notice that Landlord has
elected to terminate this Lease. During the period Tenant is in
default, Landlord may enter the Premises and relet them or any part of
them to third parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all commercially reasonable costs Landlord
incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of remodeling the Premises required by
the relenting, attorneys' fees and like costs. If Landlord elects to
cancel the Lease, Landlord shall have the right to recover from Tenant
unpaid rent when due plus all damages resulting from Tenant's default
including all reasonable costs and attorneys' fees plus the worth of
the rental of the balance of the Term over the reasonable rental value
of the Premises for the remainder of the Term, which sum shall be
immediately payable to Landlord by Tenant. Following any default, if
Landlord shall bring an action for summary possession, then Tenant
hereby agrees to submit irrevocably to the jurisdiction of the
District Court of the First Circuit of the State of Hawaii and said
District Court shall have the exclusive jurisdiction to decide
Landlord's action for summary possession. No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible, be
cumulative with all other remedies at law or in equity.
Any property removed by Landlord may be stored in any
public warehouse or elsewhere at the cost and for the account of
Tenant, and Landlord shall not be responsible for the care or
safekeeping thereof, and Tenant hereby waives any and all claims for
loss destruction, damage or injury which may be occasioned by any of
the aforesaid acts.
36. Right to Issue a New Lease to a Third Party. Should Landlord
-------------------------------------------
elect to re-enter and take possession of the Premises, as hereinbefore
provided, or should Landlord take possession pursuant to legal
proceedings or pursuant to any notice provided for by law, Landlord
may either terminate this Lease, or Landlord may from time to time
without terminating this Lease make such alterations and repairs as
may be necessary to grant another lease to a third party for the use
of said Premises or any part thereof for such term or terms (which may
be for a term extending beyond the Term of this Lease) and at such
rent and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable; upon each such granting of a new lease
all rent received by Landlord from said third party shall be applied,
first, to the payment of any indebtedness other than rent due and
unpaid hereunder from Tenant to Landlord; second, to the payment of
any costs and expenses incurred in issuing a new lease, including
brokerage fees, attorneys' fees and costs of such alterations and
repairs; third, to the payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment
of future rent as the same may
19
<PAGE>
become due and payable hereunder. If such rent received from said
third party during any month is less than that required to be paid
during that month by Tenant hereunder, Tenant shall pay any such
deficiency to Landlord before the end of such month. No such re-entry
or taking possession of the Premises by Landlord shall be construed as
an election on its part to terminate this Lease unless a written
notice of such intention is given to Tenant or unless the termination
thereof is decreed by a court of competent jurisdiction.
Notwithstanding the issuance of a new-lease to a third party without
termination, Landlord may at any time thereafter elect to terminate
this Lease for such previous breach. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies
it may have, Landlord may recover from Tenant all damages Landlord may
incur by reason of such breach, including the cost of recovering the
Premises, reasonable attorneys' fees, and including the worth at the
time of such termination of the excess, if any, of the amount of rent
and charges equivalent to rent reserved in this Lease for the
remainder of the stated Term over the then reasonable rental value of
the Premises for the remainder of the stated Term, all of which
amounts shall be immediately due and payable from Tenant to Landlord.
In determining the rent which would be payable by Tenant hereunder,
subsequent to default, the rent for the unexpired Term shall be
computed pro rata upon the basis of the average aggregate rent paid or
payable for the rental period of this Lease in which the default
occurred.
37. Interest on Past Due Amounts. Any amounts owing by Tenant
----------------------------
to Landlord under the terms of this Lease shall carry interest from
the date the same become due until paid at the rate of one percent
(1%) per month and said interest shall be considered as a part of the
rental payable hereunder; provided, however, that nothing contained
herein shall be construed as authorizing Tenant to make payments of
all sums required hereunder in other than a timely fashion.
38. Late Charge. Tenant acknowledges that late payment by
-----------
Tenant to Landlord of rent will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include,
without limitation, processing accounting charges and late charges
that may be imposed on Landlord by the terms of any note secured by
any mortgage covering the Premises. Therefore, if any installment of
rent due from Tenant is not received by Landlord when due, Tenant
shall pay to Landlord an additional sum of five percent (5%) of the
overdue rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of late payment by Tenant. Acceptance of any late
charge shall not constitute a waiver of Tenant's default with respect
to the overdue amount, or prevent Landlord from exercising any of the
rights and remedies available to Landlord.
20
<PAGE>
39. Waiver of Subrogation. The parties release each other, and
---------------------
their respective authorized representatives, from any claims for
damage to any person or to the premises and to the fixtures, personal
property, Tenant's improvements and alterations of either Landlord or
Tenant in or on the Premises that are caused by or result from risks
insured against under any insurance policies carried by the parties
and in force at the time of any such damage.
Each party shall cause each insurance policy obtained by it to
provide that the insurance company waives all right of recovery by way
of subrogation against either party in connection with any damage
covered by any such policy. Neither party shall be liable to the other
for any damage caused by fire or any of the risks insured against
under any insurance policy required by this Lease. If any insurance
policy cannot be obtained with a waiver of subrogation, or is
obtainable only by the payment of an additional premium charge above
that charged by insurance companies issuing policies without waiver of
subrogation, the party undertaking to obtain the insurance shall
notify the other party of this fact. The other party shall have a
period of ten (10) days after receiving the notice either to place the
insurance with a company that is reasonably satisfactory to the other
party and that will carry the insurance with a waiver of subrogation,
or to agree to pay the additional premium if such a policy is
obtainable at additional cost. If the insurance cannot be obtained or
the party in whose favor a waiver of subrogation is desired refuses to
pay the additional premium charged, the other party shall be relieved
of the obligation to obtain a waiver of subrogation rights with
respect to the particular insurance involved.
40. Notice. All notices to be given to a party under this
------
Lease shall be in writing and delivered in person or sent by reputable
overnight delivery service or by registered or certified mail to the
party at its offices at the address specified on the first page
hereof, or to such other address as the party may designate in
writing.
41. Waiver of Jury Trial and Counterclaims. The parties hereto
--------------------------------------
shall and they hereby do waive trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, ana/or any claim of injury or damage. In
the event Landlord commences any proceedings for nonpayment of rent or
other charges payable by Tenant hereunder, Tenant will not interpose
any counterclaim of whatever nature or descriptionin any such
proceedings. This shall not, however, be construed as a waiver of
Tenant's right to assert such claims in any separate action or actions
brought by Tenant.
21
<PAGE>
42. Definitions. As used herein the terms "Landlord" and
-----------
"Tenant" shall include the respective parties and their heirs, legal
and personal representatives, successors and assigns; the
liability of Tenant, if more than one (1), shall be joint and
several; pronouns wherever used herein should be construed to
include the plural or singular or both; the use of any gender
shall include all genders as the context may reasonably
require; and each of the terms "or" and "and" has the meaning
of the other or both where the subject matter, sense and
connection require such construction.
43. Applicable Law. This Lease shall be governed and
---------------
construed in accordance with the laws of the State of Hawaii.
44. Binding Effect. This Lease shall be binding upon and inure
---------------
to the benefit of the parties hereto and their respective successors
and permitted assigns.
45. Landlord's Consent. Whenever consent or approval of either
-------------------
Landlord or Tenant is required by the terms of this Lease,
unless otherwise specifically provided for herein, such
consent or approval shall not be unreasonably withheld or
delayed. Requests for consent or approval must be made in
writing. Tenant will reimburse Landlord for reasonable
architect's, engineer's and attorney's fees and other expenses
actually incurred by Landlord in connection with the giving of
each and every consent or approval required under this Lease;
provided, however, that Landlord may without further reason
withhold approval of all alterations, additions and
improvements if the plans and specifications therefor are not
acceptable to the architect or engineer (if any) retained by
Landlord to review the same; and provided, further, Landlord
may, as a condition of giving any consent, require personal
and complete financial information of any assignee, personal
guaranties of an assignee, or other reasonable information
relevant to the transaction for which consent is being sought.
The remedy for any claim based upon unreasonable withholding
of consent or approval shall be limited to appropriate
injunctive or declaratory relief. Neither party shall be
liable for damages resulting from unreasonable withholding of
consent or approval but the prevailing party in any lawsuit
seeking such declaratory or injunctive relief shall be
entitled to an award of reasonable attorneys' fees and court
costs.
46. Excuse of Landlord's Performance. Anything in this Lease
--------------------------------
to the contrary notwithstanding, providing such cause is not due to
the willful act or gross neglect of Landlord, Landlord shall
not be deemed in default with respect to the performance of
any of the terms, covenants and conditions of this Lease if
the same shall be due to any strike, lockout, civil commotion,
war-like operation, invasion, rebellion, hostilities, military
or usurped power, sabotage, governmental regulations or
22
<PAGE>
controls, inability to obtain any material, service or financing,
through act of God or other cause beyond the control of Landlord.
47. Recordation. Tenant agrees that neither this Lease nor any
-----------
memorandum hereof shall be recorded.
48. Time of Essence. Time and performance hereof are of the
---------------
essence of this Lease.
49. Renewal. Landlord shall have no obligation to extend or renew
-------
this Lease upon termination or to enter into another lease of the
Premises with Tenant upon termination of this Lease. Upon termination of
this Lease, Landlord may lease the Premises to whoever Landlord chooses
for the operation therein of a business that is the same as or different
from that operated by Tenant in the Premises.
50. Entire Agreement. The provisions of this Lease constitute, and
----------------
are intended to constitute, the entire agreement between Landlord and
Tenant. No terms, conditions, warranties, promises or undertakings of
any nature whatever, express or implied, exist between Landlord and
Tenant except as herein expressly set forth.
51. Sale By Landlord. In the event of a sale or conveyance by
----------------
Landlord of the Premises and the land of which the Premises are a part,
the same shall operate to release Landlord from any future liability
upon any of the covenants or conditions, express or implied, herein
contained in favor of Tenant, and in such event Tenant agrees to look
solely to the successor in interest of Landlord in and to this Lease.
This Lease shall not be affected by any such sale, and Tenant agrees to
attorn to the purchaser or assignee.
52. Accord and Satisfaction. No payments by Tenant or receipt by
------------------------
Landlord of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated
rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy provided for in this Lease.
53. Rules and Regulations. Tenant shall comply with such reasonable
----------------------
rules and regulations as Landlord may prescribe which, in Landlord's
sole judgment, are required for the reputation, safety, care or
cleanliness of the Property or the Premises, or the operations and
maintenance thereof and the equipment therein, or for the comfort of
Tenant and other tenants of the Property. On delivery of a copy of such
amendments and additional rules and regulations to Tenant, Tenant shall
23
<PAGE>
thereafter comply with said rules and regulations, and a violation of
any of said rules and regulations shall constitute a default by Tenant
under this Lease. All such rules and regulations are of the essence
hereof without which this Lease would not have been entered into by
Landlord.
54. Declaration of Conditions, covenants and Restrictions and
---------------------------------------------------------
Declaration of Covenants Regarding Water Consumption and Development.
--------------------------------------------------------------------
Tenant acknowledges and agrees that the Premises are subject to a
Declaration of Conditions, Covenants and Restrictions and a
Declaration of Covenants Regarding Water Consumption and
Development (collectively, the "CC&R's"), which CC&R's are
attached hereto as Exhibits "C-1" and "C-2", respectively, and
hereby made a part hereof for all purposes. Tenant agrees to
comply with and abide by the terms of the CC&R's and all other
applicable documents adopted or promulgated in connection with
the CC&R's, including, without limitation, such rules and
regulations as may be adopted pursuant to the CC&R's, and Tenant
shall indemnify Landlord against all reasonable expenses
(including reasonable fees of legal counsel), losses, damages
(including foreseeable or unforeseeable consequential damages)
and liabilities incurred by Landlord which may arise out of or
may be directly or indirectly attributable to any breach or
claimed breach of said CC&R's or applicable documents by Tenant.
Without limiting the generality of the foregoing, Tenant
specifically acknowledges and agrees to (a) at no time consume
in excess of a daily average of the number of gallons per day of
such domestic water as is set forth in paragraph (F)(2)
Section I of this Lease; (b) at no time install or have
installed a domestic water meter of larger than four (4)
inches for water service to the Premises; (c) whenever non-
potable water is reasonably available, Tenant shall use its
best efforts to use such non-potable water for all feasible uses;
(d) develop non-potable water only in accordance with plans
and specifications approved in advance by Landlord and the
Trustees under the Will and of the Estate of James Campbell,
Deceased; (e) make no use of the Premises which results in
releasing odors, dust, smoke or other pollutants from the
Premises except as may specifically be permitted in the
CC&R's; and (f) otherwise comply with the requirements of
the CC&R's with respect to any such release. Notwithstanding
anything herein to the contrary, Landlord shall retain the
exclusive right to participate as a member in and to vote on
all matters provided for in the CC&R's.
55. Flight Clearance Glide Path Easement. Tenant
------------------------------------
acknowledges that Tenant is aware that the Premises are currently
subject to a Declaration of Taking in favor of the Department of the
Navy for flight clearance glide plane purposes and other related
easements and restrictions (collectively, the "Flight Clearance
Easement"), more particularly described in Exhibit "D"
24
<PAGE>
attached hereto and made a part hereof for all purposes.
Tenant agrees to observe and abide by the terms and provisions
of the foregoing Flight Clearance Easement. Tenant further
assumes the risk and inconvenience of noise, smoke,
vibrations, emissions, and other consequences of said Flight
Clearance Easement; Tenant agrees that Landlord shall not be
responsible for any risk, inconvenience, or consequences of
the exercise of said Flight Clearance Easement; and Tenant
agrees to save, indemnify, defend and hold Landlord harmless
from and against all loss, cost, damage or liability,
including reasonable attorneys' fees, which may result from
any claim by Tenant or any person under Tenant concerning said
Flight Clearance Easement or consequence of the exercise of
said Flight Clearance Easement.
END OF GENERAL CONDITIONS
25
<PAGE>
EXHIBIT "A"
Outline of Premises
(To be Attached)
<PAGE>
EXHIBIT "B"
All of that certain parcel of land situate at Honouliuli District of
Ewa, City and County of Honolulu, State of Hawaii, described as follows:
LOT 2488-A-1, area 3.493 acres, as shown on Map 584, filed in the
Office of the Assistant Registrar of the Land Court of the State of Hawaii
with Land Court Application No. 1069 of the Trustees under the Will and of
the Estate of James Campbell, deceased;
Being the land described in Transfer Certificate of Title No. 327,771
issued to Moon & Hart, a Hawaii general partnership.
NOTE: Lot 2488-A-1 will have access over and across Lot 425-C-1, which
leads to Kalaeloa Boulevard, a public road, as set forth by Land Court Order
No. 72368, filed January 11, 1985.
SUBJECT, HOWEVER, to the following:
1. Designation of Easement "2372" as shown on Map 515, as set forth
by Land Court Order No. 97546, filed April 12, 1990.
2. Grant to the City and County of Honolulu, Board of Water Supply
dated March 7, 1990, filed as aforesaid as Document No. 1737649, granting
an easement over said Easement "2372" for underground water meter. Consent
given by Bank of Hawaii, by instrument filed as aforesaid as Document No.
1737650.
3. Designation of Easement "3170" as shown on Map 584, as set forth
by Land Court Order No. 105508, filed January 16, 1992.
4. A (30 feet wide) setback line as shown on Map 223 as set forth by
Land Court Order No. 36694, filed January 15, 1973.
5. Easement "1360" for flight clearance glide plane purposes, in
favor of United States of America, acting through the Farmers Home
Administration, United States Department of Agriculture, as set forth in
Declaration of Taking, dated August 23, 1979, filed as aforesaid as Document
No. 1270954.
6. Restrictions and conditions set forth in Declaration of Taking
dated August 23, 1979, filed as aforesaid as Document No. 1270954.
7. Designation of Easement "1360" for flight clearance glide plane
purposes, as shown on Map 373, as set forth by Land Court Order No. 72368,
filed January 11, 1985.
<PAGE>
8. Declaration of Conditions, Covenants and Restrictions dated
March 23, 1989, filed as aforesaid as Document No. 1626169.
9. Declaration of Covenants Regarding Water Consumption and
Development dated March 23, 1989, filed as aforesaid as Document No.
1626170.
10. Those certain James Campbell Industrial Park Landlord's
Standards, a copy of which has been furnished to Dillingham
Construction Pacific,Ltd., a Hawaii corporation; as mentioned in
that certain Deed dated April 12, 1989, filed as aforesaid as
Document No. 1626171.
11. Reservation in that certain Deed dated April 12, 1989,
filed as aforesaid as Document No. 1626171, to-wit:
"Grantors' reservation of such perpetual rights of way as
Grantors, in their sole discretion, may at any time or times require
for themselves, their tenants or assigns, for pole and wire lines and
appurtenances or underground pipes, lines and appurtenances for water,
utilities, sewage, drainage or any other substances, services or
purposes whatsoever, over, across and under the setback area lying
within the lines as shown in said Land Court Order No. 36694 and also
the right (but not the obligation) from time to time to plant and
replace on the setback area such trees and shrubs as the Grantors in
their sole discretion deem suitable for landscaping, provided that said
reserved right shall be exercised in such manner as to cause the least
practicable interference with the use of the property or improvements
thereon, and after the person exercising said reserved right shall have
delivered to Grantee, in form reasonably satisfactory to Grantee, an
instrument indemnifying the Grantee from and against any and all
damages, claims or suits that may arise as a result of the exercise of
said reserved right, and provided, also, that Grantors will restore the
setback areas promptly after exercising such reserved rights. Grantee's
rights to the property shall at all times be subject to such easements
or grants to others, within said setback, as now exist or may be
granted in the future by the Grantors. If and when any grant of
easement is made by the Grantors and if Grantors request the joinder
therein by Grantee, Grantee covenants, for itself and its successors
and assigns, that it will join in any such grant of easement."
12. Mortgage and Security Agreement dated June 5, 1992, by and
between Bank of Hawaii, as Mortgagee, and Moon & Hart, as Mortgagor,
recorded as aforesaid as Document No. .
-----------
<PAGE>
13. Assignment of Rents dated June 5, 1992, by and between Bank of
Hawaii, as Assignee, and Moon & Hart, as Assignor, recorded as aforesaid as
Document No. .
-------------------
14. Financing Statement by Moon & Hart, as Debtor, in favor of Bank
of Hawaii, as Secured Party, recorded as aforesaid as Document
No. .
----------------
EXHIBIT 10.42
L E A S E
---------
This Agreement (this "Lease") is made in triplicate on this 19th day of
----
December, 1991. The parties agree to all the terms set forth below.
1. PARTIES
-------
HILL-RAAUM INVESTMENT COMPANY, a General Partnership organized
under the laws of the State of Washington, is referred to as
"Lessor". SIMMONS COMPANY, a Delaware corporation is referred to
as "Lessee".
2. RECITALS
--------
Lessor is the owner of the land (Land) described in Exhibit "A".
Lessor is constructing a building (Building) upon the Land.
The Land and Building when referred to collectively shall be
referred to as The Property.
The Building and improvements to the Land are described in
Exhibits A, B, & C.
The area to be leased hereunder shall be referred to as the Premises.
Lessor is willing to lease the Premises to Lessee and Lessee is
willing to Lease the Premises from Lessor. In addition, Lessor is
willing to grant, convey, transfer and assign an irrevocable non-
exclusive license to use the Lessee with respect to the common
Areas and Common Area Improvements including unlimited and non-
exclusive use of the property described in that Easement granted
under Easement Agreement dated October 16, 1991 by and between
Hill-Raaum Investment Company and Beadex Manufacturing Company,
and Lessee is willing to accept such grant, conveyance, transfer
and assignment of such license to use.
3. TERM
----
The term of this Lease shall be for Ten (10) years, commencing the
later of November 1, 1992 or when the Building is substantially
completed and ready for occupancy. Lessor and Lessee will agree on
completion date and commencement of occupancy for rent. Punch list
items will be handled in an expeditious manner, but will not hold
up commencement of rent.
4. RENT
----
Lessee agrees to pay Lessor at the address stated below monthly
rental as follows:
<PAGE>
From Nov. 1, 1992 (or such later date when the building is ready for
occupancy) to Oct. 31, 1997 - $ 39,159.00 per month.
From Nov. 1, 1997 to Oct. 31, 2002 - $ 47,752.00 per month in advance
and without offset, on or before the first (lst) day of each calendar
month of the Lease term to Lessor or to such other party or at such
other place as Lessor may hereafter designate.
5. SECURITY DEPOSIT
----------------
As security for full and faithful performance by the Lessee, Lessee
shall deposit with Lessor the sum of Eighty Nine Thousand Six Dollars
($89,006.00) of which Forty Four Thousand Five Hundred Three Dollars
($44,503.00), including reserves of approximately Five Thousand Three
Hundred Forty Four Dollars ($5,344.00) shall be applied to the first
month's rent and the balance shall be held by the Lessor. This amount
is payable upon execution of this Lease.
If at the end of the eighteenth (18th) month of this Lease Lessee is
not, nor has been, in default, then Lessee can require Lessor to refund
the Forty Four Thousand Five Hundred Three Dollars ($44,503.00) and
Lessee will replace it with a non-interest bearing note in like amount.
The note shall be held as a security deposit, and in the event of no
default by Lessee, the note will be returned to the Lessee at the end
of the lease.
It is agreed that in the event Lessee defaults and during any period in
which Lessor has the right to cancel this Lease as set forth in Section
24 hereof, including but not limited to the payment of rent, Lessor may
require that cash be deposited in place of the $44,503.00 note. Failure
to make this cash deposit, if required, upon five (5) days written
notice to Lessee from Lessor shall constitute a breach of the Lease and
shall be treated as a default in rental payments for remedy purposes.
Lessor may use, apply or retain the whole or any part of the security
so deposited to the extent required for the payment of any rent or any
other sum as to which Lessee is in default or for any such sum which
the Lessor may expend or may be required to expend by reason of
Lessee's default, and Lessee shall within five (5) days after written
request by Lessor deposit with Lessor an amount equal to the monies so
applied by Lessor from the security deposit of Lessee in order to cure
such default, so that at no time shall the security deposit of Lessee
be less than Forty Four Thousand Five Hundred Three Dollars ($44,503.00),
<PAGE>
Dollars, after such default until the end of the Lease term. The amount of
the security deposit shall not limit the Lessee's financial responsibility
to cure defaults under this Lease.
6. UTILITIES, FEES AND ASSESSMENTS
-------------------------------
Lessee agrees to pay all charges for heat, electricity, water, sewer,
garbage, storm water, fire monitoring service and all other public
utilities and governmental requirements used in or charged against the
Property during this Lease which are not separately metered. Lessee shall
also pay all annual governmental fees and assessments, including feature
L.I.D. assessments (which may include street widening and traffic
mitigation) imposed on the Property during the Lease term. Lessor shall
not be liable for the failure of any such services for any reason other
than Lessor's negligence or intentional acts or omissions.
TAXES
-----
(a) Personal Property - Lessee shall promptly pay when due all taxes
assessed during the term of this Lease upon Lessee's fixtures, furnishing,
equipment and stock in trade, or upon the Lessee's leasehold interest under
this Lease or upon any other personal property of Lessee situated in or
upon the business.
(b) Real Property taxes and Assessments - Lessee shall pay all real
property taxes and assessments upon the Property which are payable during
the lease term. All assessments chargeable against the real property prior
to but payable in whole or installments after the effective date of the
lease term, and all assessments charged against the property during the
term but payable in whole or installments after the lease term shall be
adjusted so that the Lessor shall pay for the period prior to and for the
period subsequent to the lease term, and Lessee shall pay for the lease
term. In addition, Lessee shall pay all charges in lieu of assessments,
all assessments shall be apportioned over the greatest amount of time
allowed by the appropriate governmental agency.
(c) Substitute Taxes - Lessee shall not be required to pay any municipal,
county, state or federal income or franchise taxes of Lessor or any
municipal, county, state or federal estate, succession, inheritance or
transfer taxes of Lessor. If at any time, however, during the term of this
Lease, the laws concerning the
<PAGE>
methods of real property taxation prevailing at the commencement of the
term are changed so that a tax or excise on rents or any other such tax,
however described, is levied or assessed against the Lessor as a direct
substitution in whole or in part for existing or additional real property
taxes, Lessee shall pay before delinquency (but only to the extent that it
can be ascertained that there has been a substitution and that as a result
Lessee has been relived from the payment of real property taxes it would
otherwise have been obligated to pay the substitute tax or excise on
rentals). Lessee's share of any tax or excise on rent shall be
substantially the same as and as a substitute for the payment of such real
property taxes as provided for in this lease.
(d) Lessee may challenge or protest any tax, assessment or other charge
which may be charged against the Property so long as Lessee diligently
pursues such challenge or protests and pays any penalty due as a result of
such challenge or protest, against the applicable municipality.
8. PROPERTY INSURANCE
------------------
Lessor agrees that at all times during the lease term it will procure and
maintain a policy or policies of insurance upon the demised Premises
insuring against all perils, included within the classifications of fire,
extended coverage, vandalism, malicious mischief, sprinkler leakage,
special extended peril (all-risk), loss of rental income, Federal Flood
Insurance, Earthquake, in an amount not less than the full insurable
replacement value of improvements and providing for consequences of
operation of building laws in excess of replacement costs. The deductible
amount in the policy at this time is $1,000.00. The deductible amount
shall not be increased to more than $10,000.00 without Lessee's prior
approval. Lessee hereby agrees to pay the deductible under Lessor's
insurance covering the demised premises upon receiving written demand and
proof of loss from Lessor. The deductible will be determined by the
insurance claims adjustor. All policies of insurance or evidence thereof
should be furnished to Lessee annually during the term of the Lease.
Lessee shall promptly reimburse Lessor upon request in an amount equal to
the cost of any such insurance policies so procured, the obligation for
payment thereof being that of the Lessee. Notwithstanding the foregoing,
the Lessee may, at its option, obtain its own insurance, including under a
blanket insurance policy, in lieu of Lessor, provided such policy
4
<PAGE>
satisfies all conditions set forth in the preceding paragraph and names
Lessor and the mortgage lender as additional insureds.
9. LIABILITY INSURANCE
-------------------
Lessee shall, during the entire term, keep in full force and effect a
policy or policies of public liability and property damage insurance with
respect to the demised Premises and the business operated by the Lessee and
require same of any sublessee's of Lessee in the demised Premises, in which
the limits of public liability shall not be less than One Million and
No/100 Dollars ($1,000,000.00) combined single limit bodily injury or
property damage for each occurrence. The policy shall name the Lessor, or
any other parties in interest, as an additional insured, and shall contain
a clause that the insurer will not change the insurance without first
giving Lessor at least ten (10) days prior written notice. Lessee shall
not cancel nor allow any policy to lapse because of non-payment without
giving Lessor thirty (30) days written notice. A copy of each policy or
certificate of insurance shall be delivered to Lessor.
10. DAMAGE BY FIRE OR OTHER CASUALTY
--------------------------------
Lessor shall not be liable for any damage or injury to the Premises or to
Lessee arising from any act or negligence on the part of the Lessee, or for
any other damage or injury to Lessee or property occasioned from or by any
cause whatsoever, except damage or injury due to the grossly negligent or
willful act of Lessor, its employees, agents or invitees. Lessee covenants
and agrees with Lessor to assume full responsibility and liability for any
injuries or damages sustained by any person or persons on the Premises
during the term of this Lease or any extensions thereof, and to save Lessor
harmless therefrom, unless such injuries or damages are due to the grossly
negligent or willful act of Lessor, its employees, agents or invitees.
In the event the Premises or the Building of which the premises are a part
is destroyed or injured by fire, earthquake or other casualty to the extent
that either is untenable in whole or in part and in the event the proceeds
of insurance received as a result of such catastrophe are adequate to
rebuild and restore the premises or such part a may be damaged, then Lessor
shall within 30 days from the event so notify Lessee of its intent to
rebuild and restore the premises and the time necessary to complete such
restoration. In the event the time required for such restoration exceeds
120 days, Lessee may, at its option, terminate this
5
<PAGE>
lease as of the date of such injury or destruction. During the period of
such rebuilding and restoration, the rent hereunder shall be abated in the
same ratio as the portion of the premises rendered for the time being unfit
for occupancy, shall bear to the entire demised premises.
11. USE
---
Lessee shall use the Premises for manufacturing, warehousing, and sales
purposes and other uses consistent with its business only, unless Lessee
obtains the prior written consent of Lessor, which consent shall not be
unreasonably withheld.
Lessee shall keep and use the Premises in accordance with the laws of the
State of Washington and city and county ordinances, and in accordance with
all applicable governmental directions, rules and regulations.
12. INDEMNIFICATION
---------------
Lessor shall not be liable for any injury to any person, or any loss or
damage to any property (including property of Lessee) that occurs on the
Premises from any cause except gross negligence or willful misconduct of
Lessor, its employees, agents or invitees. Lessee shall indemnify and hold
harmless Lessor from all claims, losses, damages and liabilities that may
arise out of any actual or alleged injury to any person or to any property
resulting from any act or omission of Lessee on the Premises. Lessor
shall indemnify and hold Lessee harmless from all claims, losses, damages
and liabilities that may arise out of any actual or alleged injury to any
person or to any property resulting from any gross negligence or willful
act or willful omission of Lessor, or any officer, agent, employee, quest,
invitee or visitor of Lessor in or about the Premises.
13. CARE OF PREMISES
----------------
The Lessor shall not be called upon to make any improvement or repair of
any kind upon said Premises, except as provided in the following Paragraph
16, and said Premises shall at all times be kept and used generally in
accordance with the laws of the State of Washington and City of Auburn and
King County ordinances, and in accordance with all directions, rules and
regulations of the health officer, fire marshall, building inspector or
other proper officer of the city or county, at the sole cost and expense of
said Lessee; and at Lessee's own cost and expense will
6
<PAGE>
keep all drainage pipes free and open and will protect water, heating and
other pipes so they will not become clogged or freeze, and will repair all
leaks, and will also repair all damages caused by leaks or by reasons of
Lessee's failure to protect and keep free, open and unfrozen any of the
pipes and plumbing on said Premises. Lessee shall be responsible to keep
the sidewalks and parking areas safe for normal vehicular and pedestrian
traffic on the Premises and the adjoining Property.
14. PREMISES
--------
The Property is shown in Exhibit "A", "B", "C" attached hereto, and by this
reference made a part hereof. The demised premises are approximately
125,160 square feet of manufacturing & warehouse space and 8,450 square
feet of office space.
15. LEASEHOLD IMPROVEMENTS AND ALTERATIONS
--------------------------------------
Lessee shall not make any structural alterations, additions or improvements
in the Demised Premises in any one case which exceeds $7,500.00 without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld, and all such structural alterations, additions and improvements
which are made shall immediately become the property of the Lessor and
shall remain in and be surrendered with the Premises as a part thereof at
the termination of this Lease, or shall be removed by Lessee at Lessor's
option.
If the Lessee shall perform work with the consent of the Lessor, as
aforesaid, Lessee agrees to comply with all laws, ordinances, rules and
regulations of the City of Auburn, Washington and any other authorized
public authority. The Lessee further agrees to save Lessor free and
harmless from damage, loss or expense arising out of said work.
Lessee agrees that such leasehold improvements, alterations and additions
are subject to and subordinated to all present and future mortgages, deeds
of trust and other encumbrances affecting the demised Premises placed by
the Lessor.
If Lessee installs trade fixtures, appliances or equipment in the Premises,
Lessee shall remove such items prior to the expiration or termination of
this Lease, provided that Lessee shall restore the Premises to the
condition that they were in prior to the installation of such items, less
reasonable wear and tear. Lessee's obligation to restore shall survive
the termination or expiration of this Lease.
7
<PAGE>
16. REPAIRS
-------
Lessee will, at all times, keep the Premises neat, clean and in a sanitary
condition. Lessor, at its sole expense, shall repair and maintain the roof
structure, walls and foundation of the demised Premises, unless Lessee is
responsible for such damage, and provided however that Lessee shall be
required to notify Lessor in the event any repairs which are the Lessor's
responsibility are necessitated. All other repairs to Lessee's Premises
shall be at Lessee's sole cost and expense. Except for reasonable wear and
tear, and damage by fire, windstorm and Acts of God, or other similar
casualty, Lessee will at all times preserve said Premises in as good repair
as they now are or may hereafter be put to. Lessee agrees that at the
expiration or sooner termination of this Lease, Lessee will quit and
surrender said Premises without notice and in a neat and clean condition
and will deliver up all keys belonging to said Premises to the Lessor or
Lessor's agent. Lessee shall have heating and ventilation equipment and
overhead doors serviced and maintained by qualified service contractors, at
its sole expense, on a regular basis.
Lessor reserves for itself and its employees or contractors, and Lessee
covenants to permit Lessor or its agents, employees or contractors, to
enter any and all portions of the Premises at any and all reasonable times
with reasonable notice to make such repairs as shall be necessary for the
safety and preservation of the Premises. Nothing herein shall imply any
duty by Lessor to make any such repairs or do any other work that under any
provision of this Lease, Lessee is required to perform, and the performance
hereof by lessor shall not constitute a waiver of Lessee's default, nor
shall the obligation of Lessee under this Lease be thereby affected in any
manner. Furthermore Lessor during the progress of such repairs or other
work may keep and store on the demised Premises all necessary material,
tools and equipment; provided such storage does not materially adversely
affect Lessee's operation. Lessor shall use his best efforts to minimize
the inconvenience to Lessee, and to perform necessary repairs in a timely
manner.
17. ASSIGNMENT
----------
Except to its parent or affiliate corporations, or in connection with a
merger consolidation, or the sale of substantially all of Lessee's assets,
Lessee shall not assign this Lease or any part thereof and shall not let or
sublet the whole or any portion of the Premises without the written consent
of Lessor or Lessor's
8
<PAGE>
agent. This Lease shall not otherwise be assignable by operation of law.
If consent is once given by the Lessor to the assignment of this Lease, or
any interest therein, Lessor shall not be barred from afterwards refusing
to consent to any further assignment. In no event shall Lessor's consent
be unreasonably withheld.
18. SUBLETTING
----------
If Lessee is unable to use the Premises for the purpose herein stated, or
if it finds the Premises undesirable for his expanded or contracted
business needs, the Lessee will so advise the Lessor in writing and if both
agree, the Lease may be cancelled or the Lessee will be permitted to sublet
all or a portion of the space to a qualified user, subject to the approval
of the Lessor, whose approval shall not be unreasonably withheld. Until
such time as the Lessor is able to find a new tenant, the rent and all
other obligations of the Lessee will continue. IF the Lessee sublets the
entire Premises to a qualified user with the approval of Lessor and
mortgage lender, and if the lease payments from the sublessee to subLessor
exceed the rental payments payable to Lessor hereunder, then in such event,
Lessor will have the option to set up a direct lease with the subLessee.
If additional rent is received over and above monthly rent for comparable
space as a direct result from improvements paid for by Lessee, Lessee shall
be entitled to such additional rent during the original term of this Lease,
excluding any renewal options. If the sublease is for the entire Premises
and is acceptable to Lessor, then Lessor will remove Lessee from any
further lease obligation.
19. HAZARDOUS MATERIALS
-------------------
(a) Lessee is in the business of handling Hazardous Materials in
manufacturing. Lessee shall hold Lessor harmless during the term of the
Lease and thereafter from any and all lawsuits, claims or demands made by
third parties, including governmental agencies, arising out of or connected
with Lessee's use or handling of such Hazardous Materials which causes an
illegal storage or contamination of the Premises, including but not limited
to the presence, escape, seepage, spillage, discharge, emission or release
on or under the Premises of any Hazardous Material. This hold harmless
provision shall have the broadest legal interpretation possible, and
includes the payment of all Lessor's reasonable legal fees incurred in any
action, demand or claim made by a third party for damages or for removal of
such substances. If Lessor has reason to believe that Lessee is in breach
of this subparagraph during the term of this Lease, or after its
termination, Lessor
9
<PAGE>
may at reasonable times upon reasonable notice to Lessee enter the Premises
to conduct soil tests or an environmental audit. If the tests or audit
reveal a breach of this subparagraph, in addition to all of the remedies
contained herein, Lessee shall be responsible to pay for the cost of such
tests or audit.
(b) To the best of Lessor's knowledge:
1. Neither Lessor nor any other person or entity has ever
caused or permitted any Hazardous Material to
be placed, held, located or disposed on,
under or at the Premises, and the Premises
has never been used as a dump site, permanent
or temporary storage site, or transfer
station for, and does not contain, any
Hazardous Material.
2. The current conditions of the Premises complies with all laws,
regulations and decisions of any kind regarding Hazardous
Material.
3. There are no pending proceedings, and no condition exists that,
with the passage of time, could give rise to any future liability
to Lessee as a result of the present or past existence of any
Hazardous Material on the Premises.
These representations shall survive the voluntary or involuntary transfer
of the Premises by Lessor and shall survive the termination of this Lease.
Lessor acknowledges that Lessee has materially relied upon these
representations in entering into this Lease.
Except to the extent that Lessee is obligated to indemnify Lessor under
Paragraph (a) above, Lessor shall hold Lessee harmless during the term of
the Lease and thereafter from any and all lawsuits, claims or demands made
by third parties, including governmental agencies, arising out of or
connected with the presence, escape, seepage, leakage, spillage, discharge,
emission or release on or under the Premises of any Hazardous Material,
other than such caused by Lessee. This hold harmless provision includes
the payment of all Lessee's reasonable legal fees incurred in any action,
demand or claim made by a third party for damages or for removal of such
substances other than those excepted herein. If Lessee has reason to
believe that Lessor is in breach of this subparagraph during the terms of
the Lease or after its termination, Lessee may conduct soil tests or an
environmental audit on the Premises. If the tests or audit reveal a breach
of this subparagraph, Lessee may terminate this Lease,
10
<PAGE>
and in addition to all remedies contained herein, Lessor shall be
responsible to pay for the costs of such tests or audit.
As used herein, "Hazardous Materials" means asbestos, urea-formaldehyde, or
any hazardous, toxic, or dangerous waste, substance, or material
detrimental to human health or safety or the environment, as defined by any
federal, state or local law, regulation, or administrative or judicial
decision, including but not limited to the Comprehensive Environmental
response, Compensation, and Liability act, or any similar state, federal or
local "Superfund".
20. LIENS AND INSOLVENCY
--------------------
Lessee shall keep the Demised Premises and the Property in which the
Demised Premises are situated free from any liens arising out of any work
performed, materials furnished or obligations incurred by Lessee. In the
event Lessee becomes insolvent, voluntarily bankrupt, or if a receiver,
assignee or other liquidating officer is appointed for the business of the
Lessee, then the Lessor may cancel this Lease at Lessor's option.
21. ACCESS
------
Lessee will allow Lessor or Lessor's agent free access at all reasonable
times upon reasonable notice to said Premises for the purpose of inspection
or of making repairs, additions, or alterations to the Premises or any
property owned by or under the control of the Lessor, but this right shall
not be construed as an agreement on the part of the Lessor to make any
repairs. The Lessor shall have the right to place and maintain "For Rent"
signs in a conspicuous place on said Premises for One Hundred Eighty (180)
days prior to the expiration date of this lease.
22. SIGNS
-----
All signs and symbols placed in the windows or doors of the premises, or
upon any exterior part of the building by the Lessee, shall be subject to
the prior approval of the Lessor or Lessor's agent, which consent shall not
be unreasonably withheld and to meet the Sign Ordinance of the City of
Auburn. Any signs so placed on the Premises shall be so placed upon the
understanding and agreement that Lessee will remove same at the termination
of the tenancy herein created and repair any damage or injury to the
Premises caused thereby, and if not so removed by Lessee, then Lessor may
have same so removed at Lessee's expense.
11
<PAGE>
23. COSTS AND ATTORNEYS FEES
------------------------
If by reason of any default on the part of either party, it becomes
necessary for the other to employ an attorney, the prevailing party shall
be entitled to reimbursement of reasonable attorney's fees, or in case of
any suit to recover any rent due hereunder, or for breach of any provisions
of this Lease or to recover possession of the Demised Premises, or if a
party shall bring any action or any relief against the other declaratory or
otherwise, arising out of this lease, then and in any of such events the
losing party shall pay the prevailing party a reasonable attorney fee and
all costs and expenses expended or incurred by the prevailing party in
connection with such default or action.
24. DEFAULT
-------
If any rents above reserved, or any part thereof, shall be and remain
unpaid ten (10) days after written default notice to lessee, or if Lessee
shall violate or default in any of the covenants and agreements herein
contained thirty (30) days after written notice, then the Lessor may cancel
this Lease in its entirety including but not limited to all options, upon
giving notice required by law, and re-enter said Premises, but not
withstanding such re-entry by Lessor, the liability of the Lessee for the
rent and other obligations provided herein shall not be extinguished for
the balance of the term of the Lease, and Lessee covenants and agrees to
make good to Lessor any deficiency arising from a re-entry and reletting of
the Premises at a lesser rental than therein agreed to. The Lessee shall
pay such deficiency each month as the amount is ascertained by Lessor. In
the event Lessor re-enters the Premises, the cost of restoration and
placing the Premises in a condition suitable for tenancy shall be added to
any deficiency arising from such re-entry (ordinary wear and tear
excepted).
25. EMINENT DOMAIN
--------------
(a) Total Condemnation - If the whole of the Demised Premises shall be
acquired or condemned by eminent domain for any public or quasi-public use
or purpose, then the term of this Lease shall cease and terminate as of the
date title or possession shall be transferred to such proceeding, whichever
shall first occur, and all rentals shall be paid up to that date and Lessee
shall have no claim against Lessor for the value of any unexpired term of
this Lease.
(b) Partial Condemnation - If any part of the Demised Premises or the
building in which the Demised Premises
12
<PAGE>
are situated shall be acquired or condemned by eminent domain for any
public or quasi-public use or purpose and in the event that such partial
taking or condemnation shall render the Demised Premises unsuitable for the
business of the Lessee, then the term of this Lease shall cease and
terminate as of the date title or possession shall be transferred in such
proceeding, whichever shall first occur, and Lessee shall have no claim
against Lessor for the value of any unexpired term of this Lease. In the
event of a partial taking or condemnation which is less than twenty percent
(20%) of the Premises and not extensive enough to render the Premises
unsuitable for the business of the Lessee, then Lessor shall promptly
restore the Demised Premises to a condition comparable to its condition at
the time of such condemnation, less the portion lost and rental adjusted
accordingly in the taking, and this Lease shall continue in full force and
effect.
(c) Lessor's Damages - In the event of any condemnation or taking as
hereinbefore provided, whether whole or partial, the Lessee shall not be
entitled to any part of the award, as damages or otherwise, for such
condemnation, and Lessor is to receive the full amount of such award, the
Lessee hereby expressly waiving any right of claim to any part thereof.
(d) Lessee's Damages - Although all damages in the event of any
condemnation are to belong to the Lessor, whether such damages are awarded
as compensation or diminution of value of the leasehold or the fee, Lessee
shall have the right to claim and recover such compensation as may be
separately awarded or recoverable by Lessee in Lessee's own right on
account of any condemnation for or on account of any cause or loss to which
Lessee might be put in removing Lessee's inventory, Leasehold improvements
or equipment.
26. WAIVE OF SUBROGATION
--------------------
Lessor hereby releases Lessee of and from every and all right, claim and
demand that Lessor may hereafter have against Lessee, or Lessee's
successors or assigns, arising out of or in connection with any loss or
losses occasioned by fire and such perils as are included in the normal
extended coverage clauses of fire insurance policies and does hereby waive
all rights or subrogation in favor of any insurance carriers against Lessee
arising out of any losses occasioned by fire and such perils as are
included under the normal extended coverage clauses of fire insurance
policies, and sustained by Lessor in or around the Premises. Lessee
13
<PAGE>
hereby releases Lessor from any and every right, claim and demand that
Lessee may hereafter or in connection with any loss or losses occasioned by
fire and such perils as are included in the normal extended coverage
clauses of fire insurance policies, and does hereby waive all rights of
subrogation in favor of insurance carriers against Lessor arising out of
any losses occasioned by fire, and such perils as are included under the
normal extended coverage clauses of fire insurance policies, and sustained
by Lessee to its trade fixtures, equipment and inventory.
27. SUBORDINATION
-------------
This Lease and the leasehold improvements therein are subject to and are
hereby subordinated to all present and future mortgages, deeds of trust and
other encumbrances affecting the demised Premises or the property of which
the demised Premises are a part; however, that the mortgagee's
beneficiaries or encumbrance holders shall agree to recognize the Lease and
all of its terms and conditions, and not to disturb the tenancy crated
hereby. The Lessee agrees to execute, at no expense to the lessor,
instruments which may be needed necessary or desirable by the Lessor which
instruments shall affect the subordination of this Lease to any mortgage,
deed of trust or encumbrance in such form as is reasonably acceptable to
Lessee.
28. HOLDOVER
--------
If the Lessee shall, with the written consent of Lessor, hold over after
the expiration of the term of this Lease, such tenancy shall be for an
indefinite period of time on a month-to-month tenancy, which tenancy may be
terminated as provided by the laws of the State of Washington. During such
tenancy, Lessee agrees to pay to the Lessor one and one-half (1 1/2) times
the rent for the last month of the base term, and to be bound by all the
terms, covenants, and conditions as herein specified, so far as applicable.
29. ESTOPPEL CERTIFICATES
---------------------
Lessee agrees at any time and from time to time upon no less than twenty
(20) days prior notice by Lessor to execute and deliver to Lessor a
statement in writing, addressed to Lessor, certifying that this Lease is
unmodified and in full force and effect, or, if there have been
modifications, that the same is in full force and effect as modified and
stating modifications, stating the dates to which rental has been paid, and
14
<PAGE>
stating whether to the best knowledge of Lessee, there is any default under
the terms and conditions of the Lease, and if so, specifying each such
defect, it being intended that any such statement delivered pursuant hereto
may be relied upon by Lessor and by mortgagee or prospective mortgagee of
any mortgage affecting the building or the building and the land.
30. ATTORNMENT
----------
If any proceedings are brought for the foreclosure of any encumbrance
affecting the Demised Premises, or the power of sale under any deed of
trust made by Lessor covering the Demised Premises, Lessee shall attorn to
the Purchaser upon any such foreclosure of sale and recognize such
Purchaser as Lessor under this Lease, provided however, that unless Lessee
shall be in default any such attornment or subordination as provided in
this Lease shall not affect the possessory or other rights of Lessee under
the terms of this Lease, and Lessee's use and quiet enjoyment of the
Premises shall continue undisturbed.
31. AUTHORITY OF PARTIES
--------------------
If Lessee is a corporation, each individual executing this Lease on behalf
of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation, in accordance
with a duly adopted resolution of the Board of Directors of said
corporation or in accordance with the bylaws of said corporation, and that
this Lease is binding upon said corporation in accordance with its terms.
32. GENERAL PROVISIONS
------------------
(a) Waiver - the waiver by either party of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant
or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by either party shall not be deemed to be a waiver of any
preceding breach by either party of any term, covenant or condition of this
Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
(b) Notices - All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by Lessor to Lessee shall be sent
15
<PAGE>
by United States Mail, or by a reputable overnight delivery services,
postage prepaid, addressed to Lessee at 6 Executive Park Drive, Atlanta,
Georgia 30329, Attention: General Counsel, or to such other place as
Lessee may from time to time designate in a notice to Lessor. All notices
and demands by Lessee to Lessor shall be sent by United States Mail, or by
a reputable overnight delivery service, postage prepaid, addressed to
Lessor at Post Office Box 700 or 7900 S.E. 28th, Suite 310, Mercer Island,
Washington 98040, or to such other person or place as Lessor may from time
to time designate in a notice to Lessee.
(c) Marginal Headings - The marginal headings and paragraph titles of this
Lease are not a part of this Lease and shall have no effect on the
construction or interpretation of any part hereof.
(d) Time - Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(e) Successors and Assigns - The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind
the heirs, successors, executors, administrators and assigns of the parties
hereto.
(f) Recordation - neither Lessor nor Lessee shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
(g) Quiet possession - Upon Lessee paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have
quiet possession of the Premises for the entire term hereof, subject to all
the provisions of this Lease.
(h) Late Charges - Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent or other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include but are not limited
to, processing and accounting charges, and late charges which may be
imposed upon Lessor by terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or of a sum due from
Lessee shall not be received by Lessor or Lessor's assignee, in the event
of rent on the tenth (10th) of the month, or in the event of any other sum
due within ten (10) days after written demand, then Lessee shall pay to
Lessor a
16
<PAGE>
late charge equal to six percent (6%) of such overdue amount. However, if
said period be extended beyond thirty (30) days, then Lessee shall pay to
Lessor a late charge equal to twelve percent (12%) per annum of such
overdue amount. The parties hereby agree that such late charges represent
a fair and reasonable estimate of the cost that Lessor will incur by reason
of the late payment by Lessee. Acceptance of such late charges by Lessor
shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder.
(i) Prior Agreements - This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the
parties hereto to their respective successors of interest. This Lease
shall not be effective or binding on any party until fully executed by both
parties hereto.
(j) Variation in Pronouns - All pronouns and variations thereof shall be
deemed to refer to the masculine, feminine, singular or plural as the
identity of the person or persons may require.
(k) Inability to Perform - This Lease and the obligations of the Lessee
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other similar cause beyond the reasonable control of the
Lessor, unless such delay extends past sixty (60) days from notice by
Lessor, after which time Lessee may, at its option, terminate this Lease.
(l) Separability - Any provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair, or invalidate any
other provisions hereof and such other provisions shall remain in full
force and effect.
(m) Cumulative Remedies - No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
(n) Choice of Law - This Lease shall be interpreted and governed by the
laws of the State of Washington as they exist on even date.
17
<PAGE>
(o) Gross Negligence-The failure to perform a duty which the party has
knowledge of in disregard of the consequences as affecting the life or
property of another
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above-written.
Lessor: Lessee:
HILL-RAAUM INVESTMENT COMPANY SIMMONS COMPANY
BY: __/s/ Gustav Raaum_________ BY: /s/_______________________
---------------- ---
Partner
BY: /s/_______________________
---
18
<PAGE>
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this 30th day of December, 1991 before me the undersigned, a Notary Public in
---- --------
and for the State of Washington, duly commissioned and qualified, personally
appeared GUSTAV RAAUM, to me known to be the partner of Hill-Raaum Investment
Co., the General Partnership that executed the within and foregoing instrument
and acknowledged said instrument to be the free and voluntary act and deed of
said Partnership, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixes my official seal,
the day and year first above written.
/s/__________________________
---
NOTARY PUBLIC, in and for the
State of Washington, residing
in Bellevue
--------
STATE OF GEORGIA )
-------
ss.
COUNTY OF DEKALB )
------
On this 19th day of December, 1991, before me the undersigned, a Notary Public
---- --------
in and for the State of Georgia, duly commissioned and sworn, appeared, to me
-------
known to be the President of SIMMONS COMPANY, the corporation that executed the
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that they are authorized to execute the said
instrument and that the seal affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
the day and year first above written.
/s/__________________________
---
NOTARY PUBLIC, in and for the
State of Georgia,
-------
residing in Cobb County.
------------
Notary Public, Cobb County, Georgia
My Commission Expires Jan. 5, 1992
19
EXHIBIT 10.44
PHASE V
- -------
LEASE BEAVER RUIN BUSINESS CENTER - PHASE V
THIS LEASE, made this 19th day of October, 1994, by and between ST. PAUL
---- -------
PROPERTIES, INC., a Delaware corporation, (hereinafter referred to as
"Landlord") and SIMMONS COMPANY, a corporation of the State of Delaware
(hereinafter referred to as "Tenant").
W I T N E S S E T H:
In consideration of the rentals, agreements and covenants set forth
hereinbelow and of the mutual promises herein contained, Landlord and Tenant
hereby agree as follows:
1. PREMISES.
1.1 Description. Landlord hereby leases to Tenant, and Tenant hereby
rents and hires from Landlord, in accordance with all the terms, conditions and
provisions of this Lease, that certain real property described in Exhibit "A"
attached hereto and incorporated herein by reference, together with a certain
office/warehouse space containing approximately 38,000 square feet of floor
space (the "Building") to be known as No. 1875 Beaver Ridge Circle, Gwinnett
County, Georgia, according to the present system of naming streets and numbering
buildings in Gwinnett County, Georgia, (said real property, the Building and any
and all other improvements to said real property being hereinafter collectively
referred to as the "Premises"). The Premises constitute a portion of Landlord's
office/warehouse center known as the "Beaver Ruin Business Center" (hereinafter
referred to as the "Center") located in Gwinnett County, Georgia and being more
particularly described on Exhibit "B" attached hereto and incorporated herein by
reference and also constitutes Phase V of the Center, said Phase being
hereinafter referred to as the "Complex". The Complex includes the Building,
together with all common areas and other buildings and improvements which are
now or may hereafter be located in the Complex.
Tenant accepts the Premises subject to and agrees to comply with and abide
by the terms, provisions and conditions contained in that certain "Declaration
of Protective Covenants and Restrictions for Beaver Ruin Business Center", dated
June 30, 1983 and recorded in Deed Book 2591, page 262, Gwinnett County, Georgia
Records, a copy of which is attached hereto as Exhibit "G" and incorporated
herein by reference.
1.2 Common Areas. During the term of this Lease, Tenant shall have
the right to use, in common with others, those common areas and facilities
within the Complex and the Center which Landlord shall designate for the
general, non-exclusive use and convenience of Tenant, Landlord, the other
tenants of Landlord and their respective employees, agents, invitees and
licensees (hereinafter collectively referred to as the "Common Areas"). The
Common Areas generally include, without limitation, driveways, parking and
loading areas, landscaped areas and other areas outside the Building and all
other buildings within the Center. Tenant's right to use the Common Areas shall
terminate upon the expiration or earlier termination of this Lease. Landlord
shall manage and maintain the Common Areas and determine the expenditures with
regard thereto as shared among tenants of the Center in the manner set forth
hereinbelow in Paragraph 5.1.
1.3 Acceptance. By taking possession of the Premises, Tenant shall
be deemed to accept the Premises in their condition existing on the date of
occupancy by Tenant, subject to all applicable zoning, municipal, county, state
and federal laws, ordinances and regulations governing and relating to the use
of the Premises. Notwithstanding the foregoing, Tenant shall not be deemed to
have accepted the Premises by taking possession thereof with respect to those
items for which Tenant submits to Landlord within twenty (20) days following
Tenant's taking possession of the Premises, a punchlist (hereinafter referred to
as the "Punchlist") of items which have not been completed or constructed in
accordance with the Plans, as defined in Exhibit "E" or are otherwise defective.
Landlord agrees to use reasonable efforts to repair or complete such items on
the Punchlist within thirty (30) days after receipt of the Punchlist. Nothing
contained in this Paragraph 1.3 shall excuse Tenant from the payment of base
monthly rental or any additional rental or other amounts due under this Lease,
during such time when Landlord is repairing the items on the Punchlist.
1.4 Landlord's Work and Tenant's Work. Any and all construction work
to be performed upon the Premises and the designation of the party financially
responsible for such work or portions thereof shall be described on the
Construction Addendum attached hereto as Exhibit "C" and incorporated herein by
reference.
2. TERM.
2.1 Length and Period; Commencement Date. The term of this Lease
shall be for a period of one hundred twenty (120) MONTHS, beginning on the
earlier to occur of (i) the date Tenant accepts delivery of the Premises or (ii)
the date on which a final Certificate of Occupancy is issued by Gwinnett County,
Georgia evidencing completion of Landlord's work as referred to in said Exhibit
"C", Landlord hereby agreeing to use reasonable efforts to give Tenant at least
thirty (30) days prior notice of such date (such date being hereinafter referred
to as the "Commencement Date"), which Commencement Date shall in no event be
later than June 1, 1995, and ending and expiring on May 31, 2005, (the
"Expiration Date"), the tenth (10th) anniversary of the Commencement Date;
provided, however, that if the Commencement Date falls on a day other than the
first (1st) day of a calendar month, the term of this Lease and all obligations
of Landlord and Tenant under this Lease shall be extended until the last day of
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the calendar month in which the Expiration Date occurs. Notwithstanding the
foregoing, Landlord shall use reasonable good faith efforts to deliver the
Premises to Tenant for occupancy on or before April 1, 1995. The Commencement
Date shall be set forth in an Addendum to this Lease to be executed by Landlord
and Tenant in accordance with the foregoing provisions of this Paragraph 2.1.
2.2 Delay in Delivery of Premises. In the event that Landlord is
unable to deliver possession of the Premises on the Commencement Date, Landlord
shall have no liability to Tenant for any consequential loss or damage, nor
shall this Lease be void or voidable but shall remain valid and continue in full
force and effect; provided, however, that Tenant shall not be obligated to begin
payment of rental hereunder until Landlord delivers possession of the Premises
to Tenant. [SEE EXHIBIT "C", SECTION D]
3. RENTAL.
3.1 Manner of Payment. Tenant shall pay to Landlord or Landlord's
managing agent all amounts due hereunder, whether for rental or otherwise,
during the entire term of this Lease in lawful money of the United States,
without deduction or setoff at the address initially furnished to Tenant by
Landlord or Landlord's managing agent or at such other address as Landlord may
from time to time designate in writing to Tenant.
3.2 Base Monthly Rental. Tenant shall pay to Landlord base monthly
rental during the entire term of this Lease, in advance, in monthly installments
in accordance with the schedule contained in Special Stipulation #1 of this
Lease, commencing on the Commencement Date and continuing thereafter on or
before the first (1st) day of each successive month during the term of this
Lease. In the event that the Commencement Date falls on a date other than the
first (1st) day of a calendar month, rental for the partial month in which the
Commencement Date falls shall be prorated. Tenant shall pay the base monthly
rental for the first (1st) month of the term of this Lease at the time of
Tenant's execution of this Lease. [See Special Stipulation #1].
3.3 Taxes and Insurance. As additional rental hereunder, Tenant
shall pay to Landlord the amount of (i) Landlord's costs of taxes, as
hereinafter defined, on the Premises and (ii) Landlord's cost of insurance, as
hereinafter defined, on the Premises. Tenant shall reimburse Landlord for such
costs of taxes and insurance within fifteen (15) calendar days after Tenant's
receipt of billings therefor from Landlord.
For the purposes of the foregoing, the terms "taxes" shall be deemed
to include, without limitation, all real and personal property taxes and
assessments and all other taxes, charges, levies and license and permit fees of
any kind or nature whatsoever, foreseen or unforeseen, general or special,
whether payable in the year assessed or payable over a period of years, which
are levied upon or assessed with respect to all or any portion of the Premises
and the improvements, fixtures, and appurtenances thereto; together with any
taxes of whatsoever nature and however characterized which become payable by
Landlord, whether or not now customary or within the contemplation of Landlord
or Tenant, which are levied in addition to or in lieu of such real or personal
property taxes or assessments (i) upon, allocable to or measured by rent or
other amounts payable to Landlord hereunder (ii) with respect to the receipt of
such rents or amounts by Landlord or (iii) with respect to any activity or right
of Tenant in the leasing, possession, occupancy, use, operation, management,
repair, maintenance, alteration or improvement of the Premises; and any
interest, penalties or delinquency charges added to such taxes, assessments and
other charges for any reason other than late payment or non-payment thereof by
Landlord; provided, however, that the term "taxes" as used hereinabove shall be
deemed not to include any taxes or assessments against the personal property of
Tenant of any other tenant within the Premises, nor to include any income tax,
franchise tax or transfer tax for which Landlord may be or become personally
liable.
For the purposes of the foregoing, the term "insurance" shall be
deemed to include all premiums or other costs to maintain (i) "All Risk" or
equivalent casualty insurance coverage (including, if Landlord deems necessary,
flood and earthquake insurance) against loss or damage to the Building and all
other improvements now or hereinafter located on the Premises; (ii) liability
insurance in the Commercial General Liability form (or reasonable equivalent
thereto) covering the Complex and the Common Areas thereof against claims for
personal injury or death, property damage and product liability occurring upon,
in or about the Complex and the Common Areas; (iii) insurance in the "All Risk"
or equivalent form against abatement or loss of rental by reason of the
occurrences covered by the insurance described in subsection (i) above; (iv)
workman's compensation insurance to the extent required by the laws of the State
of Georgia; and (v) all other insurance carried by Landlord on the Complex and
the Common Areas. All such insurance shall be in amounts and coverages and have
such deductibles as Landlord shall reasonably deem necessary.
3.4 Security Deposit. Upon executing this Lease, Tenant shall post a
deposit (the "Security Deposit") with Landlord or Landlord's managing agent in
the amount of Thirteen Thousand Nine Hundred Sixty-Five and No/100 Dollars
($13,965.00). Such Security Deposit shall secure Tenant's obligations hereunder
to pay rental and all other sums due under this Lease, to maintain the Premises
and repair all damage thereto, to surrender the Premises to Landlord in
accordance with the provisions of Paragraph 19 of this Lease and to discharge
Tenant's other obligations under this Lease fully and in a timely manner.
Landlord shall have the right to use and commingle the Security Deposit with
other funds of Landlord. If Tenant fails to perform any of its obligations
under this Lease, Landlord shall have the right, but not the obligation, to
apply all or any portion of the Security Deposit toward fulfillment of Tenant's
unperformed obligations. If Landlord does so apply any portion of the Security
Deposit, Tenant shall, upon demand by Landlord, immediately pay Landlord a
sufficient amount of money to restore the Security Deposit to its full original
amount. In no event shall Tenant have the right to designate or apply
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the Security Deposit or any portion thereof against payment of the last month's
or any other month's rental due hereunder; provided, however, that, if Tenant
has then fully paid all sums due hereunder and fully and timely performed all of
Tenant's other obligations hereunder, including, without limitation, Tenant's
obligations pursuant to this Paragraph 3.4, Landlord shall return the Security
Deposit to Tenant, with interest, no later than thirty (30) calendar days
following the expiration of the term of this Lease. [See Special Stipulation
#6]
3.5 Late Payment Charge. Tenant hereby acknowledges and agrees that
any payment of rental or other amounts due from Tenant received by Landlord at
any time after the fifth (5th) calendar day following written notice from
Landlord to Tenant that such amount is past due shall cause Landlord to incur
certain costs (including, without limitation, bookkeeping, personnel and
processing charges and any late charges and interest payable by Landlord as a
result of Landlord's late receipt of rental hereunder) and that the exact
amount of such costs may be impossible to ascertain. Accordingly, Tenant hereby
agrees with Landlord that Tenant shall pay to Landlord, in addition to any late
payment of rental or other sum due under this Lease, a late charge equal to
Twenty-Five and no/100 Dollars ($25.00) or five (5%) percent of the amount not
paid or paid late, as the case may be, whichever amount is greater.
Additionally, a charge equal to the greater of the amount then charged by
Landlord's bank or Ten and no/100 Dollars ($10.00) shall be paid by Tenant to
Landlord for each returned check.
3.6 Taxes on Tenant's Personal Property. Tenant shall pay, before
delinquency, directly to the tax collecting authority, all taxes, assessments,
license fees and public charges which become due during the term of this Lease
upon Tenant's personal property, inventory, equipment, trade fixtures and
fixtures at the Premises.
4 USE.
4.1 Permitted Use. Throughout the term of this Lease, Tenant shall
use the Premises only for office, warehouse, showroom, distribution, prototype
bedding manufacturing and research and development purposes and all uses
reasonably related thereto and for no other use or purpose whatsoever without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, delayed or conditioned. In no event shall Tenant use the Premises for
any unlawful purpose or in any way which would vitiate Landlord's insurance
coverage of the Premises, the Building, the Complex or the Center. Tenant shall
comply with the Rules and Regulations set forth in Exhibit "F" attached hereto
and incorporated herein by reference.
5 EXPENSES FOR COMMON AREAS.
5.1 Payment of Tenant's Share of Expenses for Common Areas. Tenant
shall pay to Landlord, as additional rent under this Lease, Tenant's Share of
Expenses for the Common Areas, as such expenses are defined hereinbelow, during
the term of this Lease. As used herein the term "Tenant's Share of Expenses for
the Common Areas" shall mean eight and 1/2 percent (8.5%) of the total amount of
the expenses of the Common Areas of the Center, as such expenses are referred to
hereinbelow in Paragraph 5.2 of this Lease; the parties acknowledge that
Tenant's Share of Expenses for the Common Areas of the Center is the ratio of
the square footage of the Premises to the square footage within each and every
Building in the Center. Landlord shall maintain accurate records of such
Expenses for the Common Areas, which records Tenant may examine during
Landlord's normal business hours at Landlord's office not more frequently than
quarterly.
On or about January 1, 1996, and thereafter at the beginning of
each calendar year during the term of this Lease, Landlord shall deliver to
Tenant a statement reasonably estimating Tenant's Share of Expenses for the
Common Areas for such then-existing calendar year (hereinafter referred to as
the "Current Year"). Tenant shall thereafter, on the first day of each month
during the Current Year, pay to Landlord one-twelfth (1/12) of such estimated
amount with each installment of base monthly rental due in the Current Year.
Landlord shall not be obligated to remit monthly bills to Tenant for such
charges. If for any reason such statement is not received by Tenant at the
beginning of any calendar year, Tenant shall continue to pay the previous year's
monthly estimates until Tenant receives from Landlord such new estimate. If
such new monthly estimate is lower than the previous year's monthly estimate,
Landlord shall credit any overpayment by Tenant against Tenant's next-accruing
estimated monthly payment (or promptly refund such amount to Tenant if the Lease
has expired) or, in the event of any underpayment by Tenant of such estimated
payments, on the first day of the month following Tenant's receipt of such new
estimate, Tenant shall pay to Landlord the difference between the total amount
of the estimated payments already made by Tenant and the total amount which
would have been due in the newly-estimated amount for each month having then
elapsed during the Current Year.
Within approximately one hundred (100) days following the end of
each calendar year during the term of this Lease, Landlord shall furnish Tenant
with a reconciliation of the total amount of Tenant's estimated payments during
the preceding calendar year and with the actual amount of Tenant's Share of
Expenses for the Common Areas for such preceding year. If such reconciliation
shows an overpayment by Tenant, Landlord shall credit such overpayment against
Tenant's next-accruing Expenses for the Common Areas (or promptly refund such
amount to Tenant if the Lease has expired) or, in the event of any underpayment
by Tenant of such Expenses for the Common Areas, on the first day of the month
following Tenant's receipt of such reconciliation, Tenant shall pay to Landlord
the difference between the estimated payments made by Tenant for the preceding
calendar year and the actual amount of Tenant's Share of Expenses for the Common
Areas for such preceding year. Landlord's failure to so provide an accounting
within such one hundred (100) day period shall in no way bar Landlord from
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providing Tenant any such accounting at a later date, nor limit Tenant's
liability for the Tenant's Share of Expenses for the Common Areas.
The provisions of this Lease concerning the payment of Expenses
for the Common Areas shall survive the expiration or earlier termination of this
Lease, and upon Landlord's determination of the Expenses for the Common Areas
during the final calendar year of the term hereof, Landlord shall either, as the
case may be, submit to Tenant an invoice for any amount then due from Tenant,
which amount shall be paid to Landlord within thirty (30) calendar days
following Tenant's receipt thereof, or remit to Tenant within thirty (30)
calendar days the amount of any overpayment of such Expenses for the Common
Areas made by Tenant during such final calendar year of the term hereof.
5.2 Expenses for Common Areas. As used herein the term "Expenses for
the Common Areas" shall mean the sum of the following costs:
The cost of all maintenance, replacement and repairs Landlord causes to be
performed to or for the benefit of the Common Areas (except if such cost was
incurred in connection with services provided for another tenant of the Center
for which such tenant has been billed separately); the cost of any alteration
upon or within the Center required by any governmental authority which
requirement is not attributable primarily to the particular use made by a
particular tenant or occupant of the Premises; the cost of electricity, water,
sewer, sewer service and other utilities used for the Common Areas and not
separately metered to particular tenants; the cost of periodic painting of the
exterior of any buildings in the Center; the cost of all service contracts
benefiting the Commons Areas; the cost of any service employed to attempt to
obtain accurate and equitable governmental assessment of the Center for real
property tax purposes; the cost of all landscaping and lawn grounds care and
improvements within the Common Areas; the cost, including interest, amortized
over its useful life, of any capital improvements made to the Center by Landlord
after the date of this Lease which are required under any governmental law or
regulation which was not applicable to the Center at the time of its
construction; together with the cost of all repair or replacement of any
sidewalks, driveways, parking areas and loading areas within the Common Areas;
and together with such costs of administration as are reasonably included in the
cost of maintaining, managing, repairing, replacing and operating the Common
Areas.
6. UTILITIES.
6.1 Payment by Tenant. Tenant shall pay for all gas, heat, light,
water, power, telephone and other communication services, sanitary, sewer and
sewer service charges, all janitorial services and all other utilities and
services consumed on or supplied to the Premises, whether separately metered to
the Premises or charged directly to Tenant or the Premises by the supplier of
the utility service. The Premises shall be separately metered for gas, electric
service, water and fire protection, all of which shall be billed directly to and
paid by Tenant. Landlord shall pay the cost of installing all lines in order to
bring such utility service to the Premises. Tenant shall pay any costs arising
from any initial service call to initiate utility service to the Premises and
any deposits required by such utility providers. Landlord shall not be liable
to Tenant for any loss or damage Tenant may sustain from any lack or failure of
service in connection with such utilities and services, except for lack or
failure of service resulting from the negligence or willful misconduct of
Landlord, its agents or employees.
7. MAINTENANCE REPAIRS AND ALTERATIONS.
7.1 Landlord's Obligations. Landlord, at Landlord's expenses
(subject to pass-through to Tenant in accordance with the terms of Paragraph 5
of this Lease) throughout the term of this Lease, shall maintain the exterior
walls, foundations and roof of the Building in good and sanitary order and
repair. Landlord shall, at its sole cost and expense, upon notice by Tenant
within one (1) year after the Commencement Date, repair or replace all defects
in the construction of the Premises. Landlord shall have no obligation to
maintain or repair the Premises except as specifically provided by this Lease.
7.2 Tenant's Obligations. At all times during the term of this
Lease, Tenant shall, at Tenant's expense, maintain the entirety of the Premises
(other than those portions of the Premises to be maintained by Landlord in
accordance with the terms of this Lease) in good working order and in clean and
sanitary order, condition and repair excepting only reasonable wear and tear and
damage caused by fire, condemnation or other casualty which this Lease does not
otherwise obligate Tenant to repair. Tenant's obligations of maintenance under
this Paragraph 7.2 shall be inclusive and shall extend, without limitation, to
the maintenance, repair and replacement of: (i) the interior of the Premises,
including without limitation, all floors; all loading doors, loading docks and
pads;all windows, doors and locks; all entryways; all plate glass and all
glazing (including without limitation all windows and skylights); all plumbing
systems, electrical systems and heating, air conditioning and ventilating
systems; all equipment in the Premises; (ii) all underground utility lines
within the Premises; (iii) all other improvements to the Premises; (iv) any and
all damage to the Premises, the Complex or the Center caused as a result of the
negligence or willful misconduct of Tenant or Tenant's employees and invitees;
and (v) all signs permitted by Landlord and belonging to Tenant.
7.3 Exterior Portions of the Premises. Tenant shall maintain the
aesthetic appearance of the Premises, both interior and exterior, in a neat and
attractive condition. Tenant shall not store supplies, work in process,
inventory or other materials, or waste or garbage outside the Building or in the
Common Areas. Tenant shall obtain any containers or dumpsters desired by Tenant
for trash, garbage or rubbish at Tenant's expense and shall contract and pay for
all trash, garbage and rubbish disposal and removal. Tenant shall maintain the
areas around such trash containers and any dumpster in orderly and sanitary
condition.
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7.4 Service Contracts. If Tenant shall propose to use an independent
contractor or other party to discharge Tenant's obligations under this Lease to
maintain, repair and replace portions of the Premises or any equipment therein
or to enter into a service contract with an independent contractor or other
party for such purpose, Tenant shall notify Landlord in advance of the name of
such proposed independent contractor or other party and of the terms of any such
service contract; provided, however, if such proposed independent contractor
shall be hired to perform work which does not affect in any way the structure of
the Building or the systems of the Building, such as plumbing, HVAC or electric
service, Tenant may hire such independent contractor without the necessity of
notifying Landlord as otherwise provided in this Paragraph 7.4. Each service
contract shall provide for automatic termination if and when, for any reason,
this Lease terminates and for the assignment to Landlord, upon termination of
this Lease, of any causes of action arising under the service contract against
the independent contractor.
7.5 Personal Property of Tenant. Tenant shall have the right to
install in the Premises, furniture, fixtures, equipment and machinery
(hereinafter collectively referred to as "Tenant's Trade Fixtures") necessary
for the business which this Lease permits Tenant to conduct in the Premises.
Tenant's Trade Fixtures shall be and remain the personal property of Tenant,
which Tenant may replace and remove during the term of this Lease and which
Tenant shall remove at the termination of this Lease; provided, however, that
Tenant shall not have the right to remove any such personal property of Tenant
or any of Tenant's Trade Fixtures at any time at which Tenant is in default of
any term, condition or provision of this Lease. Tenant shall, at Tenant's cost,
repair all damage to the Premises which the installation, replacement, repair or
removal of Tenant's Trade Fixtures has caused.
7.6 Alterations. Tenant shall not make or suffer any alteration,
improvement or addition ("Tenant's Alterations") to the Premises, other than
installation of Tenant's Fixtures as provided in Paragraph 7.5 of this Lease and
all maintenance and repairs to be performed by Tenant as provided in Paragraph
7.2 of this Lease, without obtaining Landlord's prior written consent, which
consent shall not be unreasonably withheld, delayed or conditioned; provided,
however, if such Tenant's Alterations shall cost less than $5,000 and do not
affect the structure of the Building or constitute a material modification to
the systems of the Building, such as plumbing, HVAC or electric service, Tenant
may perform such Tenant's Alterations without Landlord's consent, provided that
all such work is performed in accordance with any and all applicable laws,
rules, order and codes pertaining to the performance of such work. Tenant's
Alterations shall include, without limitation, any work by Tenant which affects
the exterior of the Premises or any structural, plumbing, electrical or
mechanical component of the Premises or the Building. Any and all of Tenant's
Alterations shall be deemed to be part of the Premises for the purposes of
Tenant's obligations hereunder to maintain and repair the Premises. Upon the
expiration or earlier termination of this Lease, Tenant's Alterations shall
become the property of the Landlord, which property Tenant shall surrender with
the Premises unless Landlord, by written notice to Tenant prior to installation
of such Tenant's Alterations, requires Tenant to remove all or some portion of
such Tenant's Alterations in which latter case Tenant shall, at Tenant's cost,
remove Tenant's Alterations or such portion thereof as Landlord requires, repair
any damage such removal causes, and restore the Premises to their condition
prior to installation of such Tenant's Alterations.
7.7 Mechanic's Liens. Tenant shall keep the Premises and Tenant's
leasehold hereunder free of any lien which may arise out of any work, materials
or labor furnished to the Premises for or at the instance of Tenant, by paying
or bonding off any such lien within thirty (30) days after Tenant receives
notice of such lien. If Landlord requests, Tenant shall furnish Landlord with
such security, including a performance and payment bond, as Landlord shall deem
reasonably necessary to protect the Premises against the attachment or
foreclosure of any such lien.
8. ENTRY BY LANDLORD.
8.1 Entry by Landlord. Landlord and Landlord's agents shall have the
right to enter the Premises at all reasonable times during regular business
hours after providing Tenant with reasonable notice thereof (except in cases of
emergency in which case Landlord may enter without notice, at any time) to
perform Landlord's obligations hereunder, to inspect Tenant's performance of
Tenant's obligations hereunder, to exhibit the Premises to actual or prospective
lenders or purchasers and for any other reasonable purpose. Landlord shall have
the right to place "for sale" and "for rent" signs on the Premises, which Tenant
shall neither remove nor obscure, and to exhibit the Premises to prospective
tenants during the last one hundred eighty (180) days of the term of this Lease.
The performance of work on the Premises by Landlord, whether to discharge
Landlord's obligations hereunder or to prevent waste or deterioration, including
the placement in the Premises of supplies and materials necessary for such work,
shall not be deemed to constitute a partial or total eviction of Tenant, and
neither rental nor any other obligation of Tenant hereby shall abate as a result
of any entry of work performed by Landlord hereunder. Landlord shall, however,
use its best efforts in the conduct of any such entry or work to minimize any
interference with Tenant's use of the Premises. None of Landlord's rights under
this Paragraph 8.1 shall be deemed to impose upon Landlord any obligation for
the maintenance or repair of the Premises unless specifically imposed upon
Landlord by any of the terms, provisions or conditions of this Lease.
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9. INSURANCE
9.1 LIABILITY INSURANCE. Tenant shall, at Tenant's expense,
obtain and maintain in force during the term of this Lease, liability insurance
in the Commercial General Liability form (or reasonable equivalent thereto) to
protect against any liability to the public resulting from the use of or any
accident occurring in or about the Premises. The coverage under such insurance
shall be not less than One Million and no/100 Dollars ($1,000,000.00) for any
one injury (including death), Three Million and no/100 Dollars ($3,000,000.00
for any one accident or occurrence and One Million and no/100 Dollars
($1,000,000.00) for property damage.
9.2 TENANT'S PROPERTY. Throughout the term of this Lease,
Tenant shall, at Tenant's cost, cause all Tenant's Trade Fixtures and Tenant's
other personal property in the Premises to be fully insured against loss or
damage by theft, fire and such other risks as are now or hereafter included
under general "All Risk: insurance coverage in common use for tenant business
property in the Atlanta, Georgia area in an amount equal to the full insurable
value thereof and written on a comprehensive replacement cost basis. Landlord
shall have no liability to Tnant for theft, damage or other casualty to any
property of Tenant.
9.3 FIRE AND EXTENDED COVERAGE. Throughout the term of this
Lease, Landlord shall cause the Building (but not Tenant's Trade Fixtures or any
other property of Tenant) to be insured against loss or damage by fire and such
other risks as are now or hereafter included under "All Risk" insurance coverage
in common use for commercial structures in Atlanta, Georgia area, including,
without limitation, if Landlord deems necessary, earthquake and flood insurance,
the cost of which shall be paid by Tenant in accordance with Paragraph 3.3 of
this Lease. Tenant shall have no interest in nor any right to the proceeds of
such insurance. All proceeds thereunder shall be paid to Landlord and disbursed
by Landlord if the damage is to be repaired and the affected improvements
restored, in accordance with such progress payment schedule as Landlord may
approve, or to be retained in full by Landlord if this Lease is terminated on
account of the casualty giving rise to such insurance proceeds.
9.4 FORM of POLICIES. Tenant shall carry all insurance which
this Lease requires Tenant to maintain with insurance companies with a Best
rating of A or better and licensed to do business in the State of Georgia. All
policies evidencing such coverage shall provide that: (i) any loss shall be
payable notwithstanding any act or negligence of Landlord which might otherwise
result in a forfeiture of coverage; (ii) the carrier waives the right of
subrogation against Landlord and against Landlord's agents and
representatives;(iii) the policies evidencing such coverage are primary and non-
contributing with any insurance that may be carried by Landlord, and (iv)
Landlord shall be named as an additional insured under such policy.
<PAGE>
9.5 PROCEDURES and REMEDIES. Tenant shall deliver to Landlord, in
the manner hereinafter required for notices, (a) certificates evidencing all
insurance this Lease requires Tenant to carry, and (b) proof reasonably
satisfactory to Landlord that Tenant has fully paid the premiums for the
procurement and maintenance of such coverage, all within the following time
limits:
(i) For insurance required at the Commencement Date upon
execution hereof.
(ii) For insurance required at a later date, at least thirty (30)
days before the requirement takes effect, and
(iii) For any renewal or replacement of a policy
already in existence, at least thirty (30) days before
expiration or other termination of the existing policy.
If Tenant fails or refuses to procure or to maintain the insurance coverage
required hereunder, or fails or refuses to furnish Landlord with proof that said
coverage has been produced and is in force and paid for, Landlord shall have the
right, at Landlord's election and without notice to Tenant, but without any
obligation to do so, to procure and maintain such coverage, and all costs of
such coverage expended by Landlord shall be payable by Tenant as additional
rental under this Lease. Tenant shall reimburse Landlord on demand for any
premiums so paid by Landlord, together with interest at the highest legal rate
for the period falling between the date of such payment by Landlord and such
reimbursement by Tenant.
<PAGE>
10. INDEMNITY.
10.1 WAIVER OF DAMAGES. Landlord shall not be liable to Tenant,
and Tenant hereby waives any claim against Landlord, for injury to or death of
any person or damage to any property that may result from any cause whatsoever
within the Premises, the Building, the Complex and the Center, other than where
such injury, death or damage is caused in part or in whole, directly or
indirectly by the negligence or willful misconduct of Landlord, its agents or
employees. Tenant hereby fully assumes all risk of damage, from any source, to
any property in the Premises.
10.2 INDEMNIFICATION. Tenant shall indemnify, defend and hold
Landlord harmless against any and all claims or liability for the death of or
any injury to any person and for damage to any property whatsoever, at the
Premises or any part thereof if any such death, injury or damage is caused in
part or in whole, directly or indirectly, by the negligence and willful
misconduct of Tenant or of Tenant's directors, officers, employees, agents,
contractors, invitees or licensees. Tenant's indemnity set forth in this
Paragraph 10.2 shall include, without limitation, any death, injury or damage
caused by water leakage (whether from roof, walls, floor, basement or otherwise)
or caused by gas, oil, electricity or any other matter if caused in part or in
whole, directly or indirectly, by the negligence or willful misconduct of Tenant
or of Tenant's directors, officers, employees, agents, contractors, invitees or
licensees. If any action or proceeding based on any such death, injury or
damage is brought against Landlord then, upon written request from Landlord,
Tenant shall, at Tenant's cost, defend such action or proceeding and, if
appropriate, file such counteractions or counter-proceedings as the
circumstances require, all through legal counsel reasonably acceptable to
Landlord.
Landlord shall indemnify, defend and hold Tenant harmless against any
and all claims or liability for the death or any injury to any person and for
damage to any property whatsoever, in the Common Areas or any part thereof, if
any such death, injury or damage is caused in part or in whole, directly or
indirectly, by the negligence or willful misconduct of Landlord or Landlord's
directors, officers, employees, agents, contractors, invitees or licensees. If
any action or proceeding based on any such death, injury or damage is brought
against Tenant then, upon written request from Tenant, Landlord shall, at
Landlord's cost, defend such action or proceeding and, if appropriate, files
such counteractions or counter-proceedings as the circumstances require, all
through legal counsel reasonably acceptable to Tenant.
11. DAMAGE AND DESTRUCTION.
11.1 DAMAGE AND DESTRUCTION. If the Premises are destroyed in
whole or in part by any cause, Landlord, after consulting with Tenant and
considering Tenant's recommendations, shall have the right to elect either to
restore the Premises or to terminate this Lease. Provided, however, if in
Landlord's reasonable discretion, the Premises can be restored in one hundred
eighty (180) days or less from the date of such casualty, and sufficient
insurance proceeds are available to complete such restoration, Landlord shall
<PAGE>
elect to restore the Premises. If the Premises cannot be restored, in
Landlord's reasonable discretion, within such one hundred eighty (180) day
period, this Lease shall terminate, unless Landlord and Tenant agree in writing
that Landlord shall restore the Premises, despite the fact that it shall take
longer than one hundred eighty (180) days. Landlord shall notify Tenant of its
election within sixty (60) calendar days after such casualty.
11.2 RESTORATION. If Landlord elects to restore the Premises,
Landlord shall promptly restore the same to their condition immediately prior to
such casualty, provided that such restoration can be completed within a period
of one hundred eighty (180) calendar days following such casualty, which period
shall be extended one (1) day for each day of delay resulting from causes beyond
Landlord's control after Landlord's notice of election to Tenant. Rental under
this Lease shall abate from the date of casualty in the proportion that Tenant
is, in the reasonable opinion of Landlord and Tenant, actually deprived of use
of the Premises.
11.3 TERMINATION. If Landlord elects to terminate this Lease,
rental shall terminate as of the date of such casualty, and, from the date
notice of such election is given by Landlord to Tenant, the parties shall have
no further obligations under this Lease except for obligations which arose prior
to the casualty.
In the event that Landlord elects to restore the Premises, and such
Premises are not completely restored by Landlord within two hundred seventy
(270) days from the date of such casualty, Tenant shall have the right, upon
written notice to Landlord after the end of such two hundred seventy (270) day
period, to terminate this Lease, in which case the parties shall have no further
obligations under this Lease except for obligations which arose prior to the
casualty or which expressly survive the termination of this Lease.
12. COMPLIANCE WITH LAW AND QUIET POSSESSION
12.1 COMPLIANCE WITH LAW. Throughout the term of this Lease,
Tenant shall faithfully observe and promptly comply with all present and future
requirements of all governmental authorities with jurisdiction over the Premises
and all recorded covenants, conditions and restrictions which are applicable to
the Premises. Landlord agrees that, as of the Commencement Date of this Lease,
the Premises shall comply with all requirements of all governmental authorities
with jurisdiction over the Premises and with all recorded covenants, conditions
and restrictions which are applicable to the Premises. If any modifications or
work to the exterior portion of the Premises are required by governmental
authorities with jurisdiction over the Premises subsequent to the date of this
Lease, such modifications or work shall be performed by Landlord, at Landlord's
sole cost and expense.
12.2 QUIET POSSESSION. So long as no default on the part of
Tenant exists hereunder, Landlord shall secure to Tenant the quiet and peaceful
possession of the Premises against any persons who claim a paramount interest in
the Premises through or under Landlord.
<PAGE>
13. DEFAULT.
13.1 EVENT of DEFAULT. Any of the following events or
occurrences shall constitute a breach of this Lease by Tenant and shall
constitute an "Event of Default" under this Lease, and upon the occurrence of an
Event of Default, Landlord shall have all the rights and remedies set forth in
this Paragraph 13.1 and through and including Paragraph 13.5 hereinbelow, as
well as all other rights and remedies available under this Lease and at law and
in equity. The following occurrences shall each constitute an Event of Default.
(a) The failure by Tenant to pay any rental or other amount due
under this Lease in full within five (5) calendar days after written notice from
Landlord of such failure.
(b) The failure by tenant to perform any other obligation
hereunder, if such failure has continued for a period of thirty (30) calendar
days after Landlord demands in writing that Tenant cure such failure; provided,
however, that if such default is not reasonably susceptible of cure within a
period of thirty (30) calendar days after such failure, Tenant shall cure such
default over such longer period as is reasonably necessary to cure the failure
if, and only if, Tenant has promptly commenced to cure such default within said
initial thirty (30) day period and shall thereafter diligently pursue such cure
to completion;d
(c) A general assignment by Tenant for the benefit of Tenant's
creditors; any voluntary filing, petition or application by Tenant under any law
relating to insolvency or bankruptcy, whether for a declaration of bankruptcy,
whether for a declaration of bankruptcy, a reorganization, an arrangement or
otherwise, the abandonment, vacating or surrender of the Premises by Tenant
without Landlord's prior written consent; or the dispossession of Tenant from
the Premises (other than by Landlord) by process of law or otherwise;
(d) The involuntary filing against Tenant of (i) a petition to
have Tenant declared a bankrupt, or (ii) a petition for reorganization or
arrangement of Tenant under any law relating to insolvency or bankruptcy,
unless, in the case of any involuntary filing, the same is dismissed within
sixty (60) calendar days after the filing thereof; the appointment of a trustee
or receiver to take possession of all or substantially all of Tenant's assets,
or the attachment, execution or other judicial seizure of all or substantially
all of Tenant's assets, or the attachment, execution or other judicia seizure of
all or substantially all of Tenant's assets located at the Premises, or of
Tenant's interest in this Lease, unless such appointment, attachment, execution
or seizure is discharged within forty-five (45) calendar days after the date of
appointment of such trustee or receiver; or
<PAGE>
(e) Tenant's violation of any of the (i) covenants or
restrictions contained in that certain "Declaration of Protective Covenants and
Restrictions for Beaver Ruin Business Center" more particularly described in
Paragraph 1.1 of this Lease or (ii) of any of the Rules and Regulations
promulgated by Landlord to govern the conduct of tenants within the Complex and
the Center, after notice from Landlord to Tenant and an opportunity for Tenant
to cure such violation within the time periods set forth in Paragraph 13.1(b)
above.
13.2 LANDLORD'S REMEDIES UPON AN EVENT OF DEFAULT. Upon the
occurrence of any such Events of Default, Landlord shall, in addition to any
other rights or remedies available to Landlord under this Lease and at law and
in equity, have the right immediately: (a) To terminate this Lease and all
rights of Tenant hereunder by giving Tenant written notice that this Lease is
terminated if Landlord so terminates this Lease, then Landlord may recover from
Tenant the amount of money necessary to compensate Landlord for all damage
caused by Tenant's failure to perform Tenant's obligations under this Lease; or
(b) to re-enter the Premises, without terminating this Lease, and remove all
persons and property from the Premises and either (i) recover from Tenant such
damages as allowed under Georgia law or (ii) relet the Premises or any part
thereof on behalf of Tenant for such term or terms, at such rent or rents and
pursuant to such other provisions as Landlord, in Landlord's sole discretion,
shall deem advisable, with the right, at Tenant's expense, to incur all costs of
reletting including, without limitation, rental commission and the making of
such alterations and repairs to the Premises as will reasonably place the
Premises in a more rentable condition and to receive from Tenant any deficiency
between the total amounts due Landlord under this Lease and the amounts received
by Landlord from such reletting, less the aforesaid costs of reletting.
Landlord shall have the right to cause all property of Tenant to be removed from
the Premises and either stored in a public or private warehouse or elsewhere at
the expense and for the account of Tenant or discarded, sold or otherwise
disposed of if unclaimed by Tenant within a reasonable period of time.
13.3 REMEDIES CUMULATIVE. The rights, privileges, elections and
remedies of the Landlord under this Lease shall be cumulative, and Landlord
shall have the right to exercise such remedies at any time and from time to time
singly and in combination. No provision of this Paragraph 13.3 shall be deemed
to limit or negate Landlord's rights under this Lease to indemnification from
Tenant (or Tenant's insurance carriers) for any liability asserted against or
imposed upon Landlord, whether before or after termination of this Lease, which
liability is directly or indirectly based upon death, bodily injury, property
damage or other matters occurring prior to the termination of this Lease.
13.4 INTEREST ON DEFAULT. Any amount payable by Tenant to
Landlord under this Lease and not paid when due shall bear interest at the rate
of fifteen percent (15%) per annum from the due date thereof) until the date of
full payment of such past due amount with interest. Neither the accrual nor the
payment of any such interest shall be deemed to excuse or cure any breach or
Event of Default under this Lease on the part of Tenant. In the event that any
interest paid or charged hereunder shall exceed the maximum legal rate then
applicable in the State of Georgia, then such rate so charged by Landlord shall
be automatically reduced to the current maximum legal rate of interest, and
Landlord shall promptly refund to Tenant the excess amount of interest paid
over such maximum legal rate of interest.
<PAGE>
13.5 ATTORNEY'S FEES AND COLLECTION CHARGES. In the event any
rental or other amounts of money due under this Lease are collected by or
through an attorney at law, Tenant shall pay all reasonable attorney's fees
incurred by Landlord in such collection, action or proceeding, together with all
costs and attorney's fees incurred by Landlord in connection with such
collection, action or proceeding.
14. CONDEMNATION
14.1 DEFINITION: For the purpose of this Lease.
(a) The term "Taking" shall mean a taking of the Premises or
damage thereto related to the exercise of the power of eminent domain and shall
include a sale in lieu of condemnation or court proceedings to any agency,
authority, public utility, person or corporate entity empowered to condemn
property.
(b) The term "Total Taking" shall mean the taking of the entire
Premises or so much of the Premises as prevents the use thereof by Tenant for
the uses herein specified, provided, however, that in no event shall the taking
of less than twenty-five percent (25%) of the Premises be considered a Total
Taking, unless in Landlord's and Tenant's reasonable discretion, such taking
would render the Premises untenantable for Tenant's intended use of the Premises
in accordance with Paragraph 4.1 of this Lease.
(b) The term "Partial Taking" shall mean the taking of a portion
of the Premises which does not constitute a Total Taking.
(c) The term "Date of Taking" shall mean the date upon which
title to the Premises, or a portion thereof, passes to and vests in the
condemnor.
(e) The term "Award" shall mean the amount of any award made,
consideration paid, or damages ordered as a result of a Taking.
14.2 TOTAL TAKING. In the event of a Total Taking during the
term of this Lease, all rights of Tenant under this Lease and all Tenant's
leasehold interest in and to the Premises shall terminate as of the Date of
Taking. Landlord shall thereupon refund to Tenant any prepaid rent, and Tenant
shall pay to Landlord any rent or charges due Landlord under the Lease, each of
such payments to be prorated as of the Date of Taking. Any Award shall be paid
in full to and be the property of Landlord.
14.3 PARTIAL TAKING. In the event of a Partial Taking during
the term of this Lease, the rights of Tenant under this Lease and the leasehold
estate of Tenant in and to the portion of the Premises so taken, but not the
remaining portion, shall terminate as of the Date of Taking. From and after the
Date of Taking the monthly rental payable under this Lease shall be equitably
reduced in the proportion that the square footage of the Premises taken bears to
the square footage of the Premises prior to the Taking. The total Award shall
be paid to and be the property of Landlord, and Landlord shall promptly commence
to repair any damage to Premises caused by such Partial Taking, at least to the
extent of the amount of the Award.
<PAGE>
15. SUBORDINATION.
Provided tenant receives a non-disturbance agreement from the holder of
such interest, this Lease shall automatically be subordinate to any mortgage,
security deed or any other hypothecation for security, whether existing at the
date of this Lease or subsequently placed upon the Premises or the property of
Landlord of which the Premises are a part, and to any and all advances made on
the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. If the holder of any such security deed
shall elect to have this Lease made prior to the lien and security interest of
such holder's security deed, such holder shall give written notice to Tenant to
such effect; thereupon this Lease shall be deemed prior to such security deed,
whether this Lease is dated prior to or following the date of execution or
recordation of such security deed. Tenant hereby agrees with Landlord that,
within ten (10) calendar days following request by Landlord, Tenant shall
execute a subordination agreement, in form reasonably acceptable to Tenant, with
any holder or prospective holder of such a security deed, and Landlord shall
cause the holder of such security deed to agree in writing that this Lease shall
not be terminated in the case of any foreclosure or sale of the Premises
pursuant to the terms of such security deed so long as Tenant is not then in
default of any of the terms, provisions or conditions of this Lease.
16. HOLDING OVER
If Tenant continues in possession of the Premises after expiration of the
term of this Lease, Tenant shall become a tenant from month to month of the
Premises. Either party may terminate such tenancy from month to month by giving
thirty (30) calendar days prior written notice to the other party. The
provisions of this Lease, so far as applicable, shall govern such tenancy,
except that the monthly rental for such tenancy shall be at a rate equal to one
hundred fifty percent (150%) of the rental payable by Tenant during the last
full month of the term of this Lease.
17. ASSIGNMENT AND SUBLETTING.
17.1 LANDLORD"S CONSENT REQUIRED. Tenant shall not assign,
mortgage or hypothecate this Lease or any interest herein, nor sublease nor
permit the use of the Premises by any other party without obtaining Landlord's
prior written consent to such assignment, subletting or use, which consent shall
not be unreasonably withheld, delayed or conditioned. Any transfer of this
Lease by operation of law, whether resulting from death, merger, consolidation,
liquidation or any transfer of fifty percent (50%) or more of the stock,
partnership interest or other interest of a party or parties originally
comprising Tenant under this Lease, shall constitute an assignment for purposes
of this Paragraph 17.1. Consent to any one (1) assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
17.2 NO RELEASE OF TENANT. No subletting or assignment, even
with Landlord's consent, shall relieve the original Tenant of its duties to pay
the rental and to perform all such original obligations as "tenant" under this
Lease.
<PAGE>
17.3 PERMITTED ASSIGNMENTS. Tenant may assign or sublet this
Lease without Landlord's consent to any entity (i) formed by Tenant becoming a
publicly traded company or being acquired by a publicly traded company; (ii)
which is a controlled "affiliate" of the Tenant or (iii) where Tenant is
involved in a merger transaction and Tenant is the surviving entity of such
merger; provided, however, that such publicly traded company, controlled
affiliate or merged entity shall have a net worth of not less than the net worth
of the Tenant.
18. TRANSFERS AND REFINANCING
18.1 CONVEYANCE OF LANDLORD'S INTEREST. In the event that
Landlord sells, assigns or otherwise transfers, in whole or in part, Landlord's
interest in this Lease or the reversion of such interest hereunder (other than
under a mortgage, security deed or any other hypothecation for security).
Landlord shall require the transferee to accept such interest, subject to this
Lease. Upon Landlord's furnishing Tenant with a documentation evidencing such
transfer, Landlord shall be released from any further obligations to Tenant
hereunder, and, from and after the date of any such transfer, Tenant shall look
solely to the transferee for the performance of the obligations of the Landlord
under this Lease. If Landlord transfers any security deposit or other security
Landlord holds for performance of Tenant's obligations under this Lease to such
transferee, and Landlord so notifies Tenant of such transfer in writing,
Landlord shall have no further liability to Tenant concerning such security
deposit, and Tenant shall thereafter look solely to such transferee for such
deposit.
18.2 ESTOPPEL CERTIFICATE AND FINANCIAL
STATEMENTS. Within twenty (20) calendar days after written
request from Landlord, Tenant shall execute, acknowledge and deliver to Landlord
a statement in writing (a) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect), the
dates to which rental and other charges payable by Tenant hereunder are paid in
advance, if any, and the amount of the Security Deposit, (b) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder or specifying such defaults if any are claimed and (c) in
case of a transfer of Landlord's interest, attorning to the transferee. Tenant
hereby acknowledges that prospective purchasers or encumbrances of the Premises
(or of the property of Landlord of which the Premises are a part) may incur
obligations or extend credit in reliance upon the representations of Tenant
contained in such statement. Tenant's failure to deliver such statement to
Landlord within said ten (10) calendar day period shall be conclusive evidence
of Tenant's representations and agreements as follows: that this Lease is in
full force and effect, without modification, except as Landlord may represent,
that there are no uncured defaults in Landlord's performance hereunder, and that
Landlord is not holding a Security Deposit in excess of one (1) month's rental
under this Lease.
<PAGE>
Additionally, if Tenant has failed to pay base monthly rental in a timely
manner, prior to the requirement of Landlord to give notice of such failure as
provided in Paragraph 13.1(a) of this Lease, at least two (2) times in any
calendar year, Tenant shall be required to deliver to Landlord, at any time
within thirty (30) calendar days after written request therefore from Landlord,
but not more frequently than once per calendar year, Tenant's financial
statement for Tenant's immediately preceding fiscal year, prepared in accordance
with generally accepted principles of accounting and in such reasonable detail
and with such supporting date as Landlord may request, certified by an officer
of Tenant, together with a written statement of Tenant's current income from and
expenses of the business operated within the Premises.
19. CONDITION AT TERMINATION
Upon expiration or termination of this Lease for any reason, Tenant shall
surrender the Premises to Landlord in at lease as good a condition as when
received from Landlord excepting only (a) reasonable wear and tear and (b) such
of Tenant's Alterations as Tenant is not required to remove pursuant to
Paragraph 7.6 above, and (c) damage caused by fire, condemnation or other
casualty which the Lease does not otherwise obligate Tenant to repair. Provided
Tenant is not then in default under this Lease, Tenant shall promptly discharge
its obligations hereunder to remove Tenant's Trade Fixtures and to repair any
and all damage which such removal from the Premises may cause. Any personal
property of Tenant which Tenant fails to remove from the Premises shall be
deemed abandoned within five (5) business days following the date of expiration
or termination of this Lease.
20. SIGNS AND WINDOW TREATMENTS.
Tenant covenants and agrees that no signs, advertising devices of any
nature, window treatments or blinds shall be installed, erected or maintained on
the Premises or the Building except as provided in the Sign and Window Treatment
Criteria attached hereto as Exhibit "E" or as may otherwise be approved in
writing by Landlord. Tenant shall maintain all such permitted signs in neat
condition and repair throughout the term of this Lease. Tenant shall remove all
signs belonging to Tenant from the Premises at the expiration of the term of
this Lease and shall simultaneously repair any damage which the removal of
Tenant's signs shall cause.
21. WASTE, QUIET CONDUCT, PARKING AND STORAGE.
21.1 PROHIBITED USES. Tenant shall not do or permit anything
to be done in or about the Premises, nor bring or keep anything on the Premises,
which will violate any applicable requirements of any governmental authority or
which will in any way vitiate the fire insurance on the Premises or any property
in the Premises. Tenant shall not do or suffer any act in its use and occupancy
of the Premises which will constitute waste or a public or private nuisance.
Tenant shall not use or allow the Premises to be used for any improper, immoral
or objectionable purpose or in a manner which, in Landlord's reasonable
judgment, interferes with the rights or enjoyment of visitors or other tenants
or occupants of the property of Landlord of which the Premises are a part.
21.2 PARKING AREAS AND PARKING. The Premises shall be
constructed to provide Tenant with sixty (60) non-assigned parking spaces for
the exclusive use of Tenant, its employees and invitees, and there shall be no
assigned parking within the Complex or the Center, unless Landlord so designates
in specific instances, of which designation Tenant shall be notified in writing.
Tenant shall neither park nor allow the parking or locating within the
Complex or the Center of any recreational vehicles, satellite dishes, non-
motorized vehicles or other items of equipment such areas. No lubrication,
painting or other vehicle maintenance or repair shall be allowed in the Complex
or the Center, nor shall Tenant allow any servicing of any vehicle, equipment or
machinery in such areas. No lubrication, painting or other maintenance or repair
shall be allowed within the Complex or the Center and no abandoned vehicle or
equipment shall be allowed within the Complex or the Center. This restriction
shall apply to Tenant's vehicles and equipment as well as vehicles and equipment
of Tenant's employees, agents, visitors, licensees, invitees, contractors and
customers.
<PAGE>
22. NOTICES.
22.1 NOTICES. Any notice required or desired to be given under
this Lease shall be in writing with copies directed to the indicated parties and
shall be personally served, sent by a nationally recognized overnight delivery
service (such as Federal Express), telecopied, faxed or given by certified mail,
return receipt requested. Notices shall be addressed as indicated below or as a
party may otherwise by written notice give pursuant to this paragraph:
Landlord: St. Paul Properties, Inc.
385 Washington Street
St. Paul, Minnesota 55102
Attn: Vice President/Asset Management
With a copy to: Alston & Bird, Attorneys At Law
Attn: Jeff Israel
3575 Koger Boulevard, Suite 200
Duluth, Georgia 30136-4958
and
Prentiss Properties Ltd., Inc.
Attn: Scott Farber
Suite 3600, One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Tenant: Simmons Company
Attn: Roger Franklin
One Concourse Parkway, Suite 600
Atlanta, Georgia 30328-5369
With a copy to: Jones, Day Reavis & Pogue
Attn: Lizanne Thomas, Esq.
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30328-3242
Notices shall be deemed received on the day personally delivered, the day of
receipt if by overnight courier, telecopy or fax transmission, or on the fifth
(5th) calendar day after proper posting thereof. Changes of addresses shall be
effective when provided in writing to the other parties receiving notice.
23. HAZARDOUS SUBSTANCES.
The term "Hazardous Substances" as hereinafter used in this Lease shall
mean pollutants, contaminants, toxic or hazardous wastes or any other
substances, the removal of which is required or the use of which is restricted,
prohibited or penalized by any "environmental Law," which term shall mean any
federal, state or local law or ordinance relating to pollution or protection of
the environment. Tenant hereby agrees with Landlord that during the term of
this Lease (i) Tenant its employees, licensees, invitees, agents and contractors
shall not conduct any activity on the Premises that will produce any Hazardous
Substances; (ii) Tenant, its employees, licensees, invitees, agents and
contractors will not use any portion of the Premises as a landfill or a dump;
(iii) Tenant will not install any underground tanks of any type; (iv) Tenant
will not cause any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute, a public
or private nuisance; (v) Tenant will not bring or permit Hazardous Substances to
be brought onto the Premises in violation of any Environmental Law, and if so
brought or permitted, the same shall be brought onto the Premises in violation
of any Environmental Law, and if so brought or permitted, the same shall be
immediately removed, with proper disposal thereof, and all required cleanup
procedures shall be diligently undertaken and completed pursuant to all
Environmental Laws. Tenant shall, and hereby does, indemnify and hold Landlord
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of Tenant's
failure to fulfill the foregoing obligations. The foregoing indemnification
shall survive the termination or expiration of this Lease. Landlord hereby
represents and states, to the best of Landlord's knowledge based solely on a
<PAGE>
review of that certain Report of Preliminary Environmental Site Assessment,
Limited Visual Asbestos Survey and Limited Survey for Radon Gas, dated February
1994, prepared by Law Engineering, Inc. (Project No. 579-06551.01), that there
are no Hazardous Substances located on the Premises or any portion thereof.
24. MISCELLANEOUS.
This Lease, together with all Exhibits hereto, constitutes the sole
agreement between Landlord and Tenant and supersedes all prior written or oral
agreements or understandings between such parties pertaining to the transactions
contemplated herein. All modifications hereof must be in writing and signed by
the parties hereto. Neither party has made to the other any representations,
warranties or inducements, express or implied, except as set forth herein. Time
is and shall be of the essence of this Lease. Where a party hereto consists of
more than one (1) person, each such person shall be jointly and severally liable
for the performance of such party's obligations hereunder. The captions in this
Lease are for convenience only, are not a part of this Lease and do not in any
way limit or amplify the provisions hereof. This Lease shall be interpreted and
enforced in accordance with the laws of the State of Georgia.
The provisions of this Lease shall bind and inure to the benefit of
Landlord and Tenant and their permitted successors and assigns, as such
successors and assigns of Tenant are restricted under the terms of this Lease.
The parties intend by this Lease to establish the relationship of landlord and
tenant only, and do not intend to create a partnership, joint venture, joint
enterprise, an estate for years or any business relationship other than that of
landlord and tenant. No waiver or failure by Landlord or Tenant to enforce any
provision of this Lease shall be deemed to be a waiver of any other provision of
this Lease or of any subsequent breach of the same or any other provision. If,
after the occurring of an Event of Default by Tenant, Landlord accepts rental or
performance of any other obligation by Tenant, Landlord shall not be deemed to
have waived or forgiven any breach or Event of Default unless Landlord expressly
so states in writing.
If any provision of this Lease, or the application thereof to any person or
circumstance, shall to any extent be or become invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances to than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
25. LIMITED LIABILITY.
Exculpation. Any provision of this Lease to the contrary notwithstanding,
Landlord shall have no personal liability for payment of any damages or
performance of any term, provision or condition under this Lease or under any
other instrument in connection with this Lease, and Tenant shall look for such
payment or performance to Landlord's interest in the Center, the rents, issues
and profits therefrom in satisfaction of any claim, order or judgment Tenant may
at any time obtain against Landlord in any connection with this Lease.
26. SPECIAL STIPULATIONS.
Any special stipulations to this Lease agreed upon by Landlord and Tenant
and attached hereto and made a part hereof shall, if in conflict with the
foregoing terms of this Lease, govern and control.
27. MANAGING AGENT FOR PROPERTY.
Prentiss Properties Ltd., Inc. has represented Landlord in this transaction
as an independent contractor and will be compensated by Landlord for its
services. Prentiss Properties Ltd., Inc. has not represented Tenant in this
transaction. Corporate Property Advisors has represented Tenant in this
transaction as an independent contractor and will be compensated by Landlord for
its services. Corporate Property Advisors has not represented Landlord in this
transaction.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed and sealed and their hands and seals to be set orth hereunto by duly
authorized officers thereof, the day and year first above written. UNDER SEAL.
LANDLORD
ST. PAUL PROPERTIES, INC., a
Delaware Corporation
By:__________________________
Name:_____________________
Title:____________________
TENANT:
SIMMONS COMPANY, a
Delaware Corporation
By:__________________________
Name:_____________________
Title:____________________
By:__________________________
Name:_____________________
Title:____________________
<PAGE>
SPECIAL STIPULATIONS
--------------------
1. Tenant shall pay base monthly rental in accordance with Paragraph 3.2
of this Lease and in the amount specified as follows:
MONTH PER SQUARE PER MONTH PER YEAR
===== ========== ========= ========
FOOT
====
1-12 $4.41 $13,965.00 $167,580.00
13-24 $4.58 $14,503.33 $174,040.00
25-36 $4.76 $15,073.33 $180,880.00
37-48 $4.95 $15,675.00 $188,100.00
49-60 $5.14 $16,276.67 $195,320.00
61-72 $5.37 $17,005.00 $204,060.00
73-84 $5.60 $17,333.33 $212,800.00
85-96 $5.85 $18,525.00 $222,300.00
97-108 $6.11 $19,348.33 $232,180.00
109-120 $6.37 $20,171.67 $242,060.00
2. Provided there is no event of default by Tenant under this Lease
either at the time for giving notice or at the effective date of any extension
hereunder, Tenant shall have the option to extend the Term of this Lease for two
(2) consecutive terms of three (3) years each (the "Extended Term(s)" by
Tenant's giving written notice to Landlord no later than nine (9) months prior
to the expiration of the term or the Extended Term, if applicable. Base Monthly
Rental for the Premises shall be the Market Rent for such Premises and all other
terms and conditions of this Lease shall remain the same as existed on the last
day of the term or the Extended Term, if applicable. Base Monthly Rental for
the Premises shall be the Market Rent for such Premises and all other terms and
conditions of this Lease shall remain the same as existed on the last day of the
Term hereof or the Extended Term, if applicable. For purposes of this Special
Stipulation 2, the term "Market Rent" shall mean rent which is comparable to
rent then being charged for premises of a similar size located within Class "A"
warehouse/industrial/office parks of a similar nature to the Center located in
the Gwinnett County, "I-85" area, as agreed upon by Landlord and Tenant. If
Landlord and Tenant are unable to agree on Market Rent, Landlord and Tenant
shall appoint a third party, expert in the Market Rent shall be and is hereby
deemed to be final and conclusive. If Tenant does not extend this Lease in a
timely manner, Tenant's rights with respect to the Extended Term(s) shall expire
and be of no further force and effect.
3. Tenant shall have the right at all times during this Lease, in
conjunction with Landlord (Landlord agreeing to cooperate with Tenant in such
efforts), to contest the payment of any taxes and assessments on the Premises,
provided that Tenant shall proceed to contest the same, in conjunction with
Landlord, by legal proceedings conducted in good faith and with due diligence
and, further provided, that if any lien or charge on the Premises is involved or
would be incurred by such contest, Landlord shall be furnished with such
security in respect of such lien or charge and against any loss or injury by
reason of such contest as Landlord may reasonably require.
<PAGE>
4. Notwithstanding anything contained in this Lease to the contrary
Landlord and Tenant each hereby waive any right of subrogation and right of
recovery or cause of action for injury or loss to the extent that such injury or
loss is covered by fire, extended coverage, "All Risk" or similar policies
covering real property or personal property (or which should have been covered
if Tenant and Landlord were carrying the insurance required by this Lease).
Said waiver shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Lease. Written notice of the terms of
the above mutual waiver shall be given to the insurance carriers of Landlord and
Tenant and the parties' insurance policies shall be properly endorsed, if
necessary to prevent the invalidation of said policies by reason of such
waivers.
5. Landlord hereby represents and warrants to Tenant as follows:
a. Landlord holds fee simple title to the Center, including, without
limitation, the Premises.
b. Landlord has full authority to enter into this Lease and fulfill
all of the obligations of Landlord hereunder.
c. This Lease does not violate any of the covenants contained in the
Declaration of Protective Covenants and Restrictions for Beaver Ruin Business
Center, a copy of which is attached to this Lease as Exhibit "G";
d. To the best of Landlord's knowledge, no laws, rules, regulations
or orders prohibit the intended use of the Premises by Tenant as specified in
Paragraph 4.1 of this Lease;
e. This Lease is a valid and binding obligation of Landlord.
f. All of the representations of Landlord contained in this Special
Stipulation No. 5 are true as of the date of this Lease, and
g. The Premises constitute a separate tax parcel.
6. In the event that Tenant is not in default under any of the terms and
conditions of this Lease, at the end of the fifth (5th) year of the term of this
Lease, Landlord shall return to Tenant at such time a portion of the Security
Deposit equal to $6,982.50, representing one-half (1/2) of the principal amount
of the Security Deposit.
7. Notwithstanding anything contained in this Lease to the contrary, upon
the expiration or earlier termination of this Lease, Tenant shall, at Tenant's
sole cost and expense, relocate the entry doors to the Building to their
standard location as currently located on the other buildings of the Center to
the reasonable satisfaction of Landlord, at a cost not to exceed $10,000.00.
<PAGE>
FLOOR PLAN
page 1277 is a drawing of the floor plan by SANFORD EPSTEIN & ASSOCIATES,
PC - ARCHITECT and is the last page of this set.
The beginning of this document is filed under 1263.127 and the wordprocessor
entered to and including "8. ENTRY BY LANDLORD, page 5.
This portion ----6411\1268.277 begins with 9. INSURANCE on page 6 and continues
to "1277".
<PAGE>
STATE OF GEORGIA
COUNTY OF GWINNETT
DECLARATION OF PROTECTIVE COVENANTS AND
RESTRICTIONS FOR BEAVER RUIN BUSINESS CENTER
THIS DECLARATION OF PROTECTIVE COVENANTS AND RESTRICTIONS
is made as of the 30 day of June, 1983, by WACHOVIA BANK AND TRUST COMPANY,
--
N.A., AS TRUSTEE for R. J. Reynolds Industries, Inc., and certain
affiliated companies as set forth in that Master Trust Agreement made as of
January 1, 1972, amended and restated as of January 1, 1976, as amended
(hereinafter referred to as "Declarant") to govern the ownership,
development and use of certain real property lying and being in Gwinnett
County, Georgia and being more particularly described in Exhibit "A"
attached hereto and by this reference made a part hereof and to govern the
ownership, design, construction, use and maintenance of improvements to be
constructed thereon, all as set forth hereinbelow, it being to the
interest, benefit and advantage of Declarant and each and every person or
entity who shall hereafter purchase or lease any portion of the aforesaid
real property that these protective covenants and restrictions be
established, promulgated and declared.
ARTICLE I
DECLARATION
-----------
1.00. For and in consideration of the benefits to be derived by
Declarant and each and every subsequent owner and lessee of any
portion of the aforesaid real property, Declarant does hereby
establish, promulgate, and declare the following covenants and
restrictions to govern the ownership, development and use of the
aforesaid real property and every part thereof and the ownership,
design, construction, use and maintenance of improvements to be
constructed thereon. These covenants and restrictions shall become
effective immediately, shall run with the land and shall be binding
for a period of twenty (20) years from and after the date this
Declaration is recorded, at which time this Declaration may be
terminated or extended in whole or in part as provided in Article XI
hereinbelow.
<PAGE>
ARTICLE II
DEFINITIONS
-----------
2.00. The following terms shall have the meanings set forth in
this Article II.
2.01. Architectural Guidelines. "Architectural Guidelines" shall
------------------------
mean any guidelines that may be issued from time to time by the Committee
in furtherance of the purposes of this Declaration.
2.02. Association. "Association" shall mean the non-profit
-----------
association which may be created by Site Owners pursuant to Article IV
hereinbelow.
2.03. Building. "Building" shall mean a fixed, roofed and walled
--------
structure designed for permanent use and all projections or extensions
thereof, including without limitation any outside platforms and docks,
carports, canopies, porches, and ancillary structures.
2.04. Committee. "Committee" shall mean the Review Committee
---------
which may be created pursuant to Article III hereinbelow.
2.05. Declarant. "Declarant" shall mean Wachovia Bank and Trust
---------
Company, N.A., as Trustee for R. J. Reynolds Industries, Inc., and certain
affiliated companies as set forth in that Master Trust Agreement made as of
January 1, 1972, amended and restated as of January 1, 1976, as amended,
and any entity succeeding, directly or indirectly to the fee simple
ownership interest of Wachovia Bank and Trust Company, N.A., as Trustee, in
Beaver Ruin Business Center (hereinafter referred to as "the Park"), but
excluding the Association, the purchasers of individual Sites, and all
public utility companies and governmental authorities.
2.06. Declaration. "Declaration" shall mean this Declaration of
-----------
Protective Covenants and Restrictions.
2.07. Improvements. "Improvements" shall mean all improvements to
------------
the Park or any part thereof of any type or description, including without
limitation, Buildings, underground installations, slope and fill work,
roads, driveways, parking areas, sidewalks, fences, screening walls and
barriers, retaining walls, stairs, decks, windbreaks, trees and shrubs,
poles, signs, and loading areas.
-2-
<PAGE>
2.08. Occupant. "Occupant" shall mean any person or entity that
--------
occupies a Site or a part of a Site, whether as a Site Owner or as a lessee
under a Site Owner, or otherwise.
2.09. Park. "Park" shall mean the real property described in
----
Exhibit "A" attached hereto and by this reference made a part hereof, any
and all improvements that may be constructed thereon and the business park
to be operated thereon. The name of the park shall be the "Beaver Ruin
Business Center".
2.10. Plans. "Plans" shall mean plans and specifications for
-----
the construction of Improvements in the Park, site plans, landscaping
plans, architect's renderings, engineering drawings, topographical studies,
soil test reports, and such other information of a similar nature that the
Declarant or Committee may require with respect to the development and
improvement of a Site.
2.11. Site. "Site" shall mean a parcel of land in the Park
----
owned by one Site Owner. A parcel shall not be deemed to be a Site unless
so designated by Declarant in accordance with the provisions of Paragraph
9.11 hereinbelow or unless conveyed by Declarant, for reasons other than as
security for the extension of credit, to a grantee other than a successor
Declarant.
2.12. Site Owner. "Site Owner" shall mean the owner (including
----------
Declarant) of the fee simple title to a Site; provided, however, that in
-------- -------
each situation in which the owner of the fee simple title to a Site conveys
such Site by security deed as security for the construction of permanent
financing of the improvements to be constructed on the Site, the grantee in
such security deed shall not be the Site Owner until such time as the
grantee in such security deed may acquire the underlying fee simple title
to the Site by judicial foreclosure, sale under power, or a conveyance in
lieu of foreclosure.
ARTICLE III
REVIEW COMMITTEE
----------------
3.01. Committee. Declarant hereby creates a Review Committee.
---------
The Committee shall consist initially of three persons, who may be, but do
not have to be, Site Owners. The right to appoint and remove the members
of the Committee shall be and is hereby vested solely in Declarant until
such time as Declarant shall have conveyed all of its interests in real
property in the Park to Site Owners. Once Declarant has so conveyed all of
its interests in real property in the Park, the
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<PAGE>
right to appoint and remove the members of the Committee shall
automatically vest in the Association or other comparable governing entity
created by the Site Owners pursuant to Article IV hereinbelow.
3.02. Function. It shall be the function of the Committee to
--------
approve and disapprove the overall development of the Park and the
development of and construction of Improvements upon each Site, to
establish and maintain architectural guidelines and standards to carry out
the intent of this Declaration, to review, evaluate, approve and disapprove
proposed Plans, and to review, evaluate and control the ongoing operations
of the Park.
3.03. Approval Required. No Improvements shall be constructed,
-----------------
erected, placed, altered, maintained or permitted to remain on a Site until
final Plans with respect thereto shall have been submitted to and approved
by the Committee. The Plans must be submitted in a form satisfactory to
the Committee and must be in sufficient detail to enable the Committee and
must be in sufficient detail to enable the Committee to make a reasonable
decision. All proposed changes in approved Plans must also be submitted to
the Committee for approval.
3.04. Basis for Disapproval. The Committee shall have the right
---------------------
to disapprove the Plans if the Committee in good faith makes any one or
more of the following determinations:
(i) That the Plans are incomplete or
insufficiently specific; or
(ii) That the Plans are in a form that renders them
unnecessarily difficult to interpret; or
(iii) That the Improvements contemplated by the Plans do not
conform to the provisions and intent of the Declaration; or
(iv) That the Improvements contemplated by the Plans do not
conform to the provisions and intent of the Architectural Guidelines;
or
(v) That the Improvements contemplated by the Plans are
contrary to the best interests of the Park and other Site Owners.
-4-
<PAGE>
In addition to the foregoing provisions of this Paragraph 3.04 and not in
limitation thereof, the Committee shall have the right to base its approval
or disapproval on the adequacy of Site dimensions, the conformity and
harmony of external design with neighboring structures, the effect of the
location and use of proposed Improvements on neighboring Sites, and the
relation of topography, grade and finished ground elevation of the Site
being improved to that of neighboring Sites and the proper facing of the
Improvements.
3.05. Time for Approval or Disapproval. The Committee shall
--------------------------------
approve or disapprove submitted Plans within forty-five calendar days
following the Committee's receipt thereof. The Committee shall use its
best efforts to respond to such Plans within a reasonable time not to
exceed such period of forty-five calendar days.
3.06. Expiration of Approval. If Plans for a Site have been
----------------------
approved but work has not commenced in accordance with the Plans within six
months after the date of approval, the Committee's approval shall be deemed
to have expired, unless the Committee in its sole discretion has extended
the time for commencing work. For the purposes of this Paragraph 3.06,
work shall be deemed to have commenced only if all grading and preliminary
Site work has been completed and the pouring of the foundation has begun.
ARTICLE IV
SITE OWNERS' ASSOCIATION
------------------------
4.01. Creation and Functions. Upon the first sale by Declarant of
----------------------
Site, Declarant shall have the express option to cause a non-profit
association to be incorporated under the laws of the State of Georgia with
the following functions: (i) the maintenance of any undeveloped Sites;
(ii) the enforcement of this Declaration against all parties then owning a
Site through the use of all rights available to the Association under the
laws of the State of Georgia, expressly including without limitation the
right to make assessments for work which the Association is forced to
perform on behalf of Site Owners or Occupants in an attempt to assure
uniform compliance with these Protective Covenants and Restrictions after
refusal or failure of any Site Owner or Occupant to so comply, or for other
expenditures for the benefit of the Park and properly approved by the
Association, and to place liens against any Site in the amount of such
unpaid assessments; (iii) after but only after Declarant shall have
conveyed all of its interest in the Park, the appointment and removal of
members of the Review Committee; and (iv) the
-5-
<PAGE>
performance of any other functions that may be set forth elsewhere in this
Declaration or as may be determined by the Declarant and the Site Owners at
the time of incorporation of the Association. The membership of the
Association shall consist of Site Owners only (the definition of which term
includes Declarant), and each Site Owner shall automatically be a member of
the Association. The Association shall perform its functions in a prudent
and cost-conscious manner.
4.02. Voting Rights. The Association shall consist of all the
-------------
Site Owners (the definition of which term includes Declarant). The members
shall be vested with the sole voting rights of the Association, and shall
then be entitled to one (1) vote for each Site owned by such member.
Members shall not have the right, power, or authority to expand the
functions of the Association or to implement actions detrimental to the
Association or to any Site Owner. Declarant's voting rights for
undeveloped and unsold Sites are set forth in paragraph 9.11 hereinbelow.
4.03. Conflict of Provisions. In the event of a conflict between
----------------------
the Declaration and the articles and by-laws of the Association, the
Declaration shall control.
ARTICLE V
SITE DEVELOPMENT AND IMPROVEMENTS
---------------------------------
5.01. Building Set-Back Lines. No Building shall be placed,
-----------------------
situated, constructed or located within fifty feet of the right-of-way of
any public street or highway, including without limitation the rights-of-
way of Beaver Ridge Circle, Beaver Ruin Road and Interstate Highway-85, or
within twenty feet of the side yard line of any Site, or within fifteen
feet of the rear lot line of any Site except where the side or rear line of
such Site borders a right-of-way of any public street, in which case the
above described fifty foot setback requirements shall apply.
5.02. Parking and Truck Maneuvering. The Plans shall include
-----------------------------
adequate paved off-street parking for all vehicles upon the Site, and parking
will not be permitted along any public street or in any other paved areas except
in approved parking spaces. Adequate space shall be provided for the
maneuvering of spaces. Adequate space shall be provided for the maneuvering of
trucks and other vehicles into and out of parking and loading spaces on the Site
without entering the right-of-way of any street and in no event blocking any
street or any access to other Sites. All paved areas shall be curbed.
-6-
<PAGE>
5.03. Outside Storage. No outside storage of any type will be
---------------
permitted without the approval of the Committee.
Outside storage, if permitted by the Committee, shall be adequately
screened from public view by an attractive visual barrier at least as high
as the material being stored, the construction of such barrier to be in
accordance with detailed plans approved by the Committee.
5.04. Landscaping. The entire area of a Site shall be landscaped
-----------
except for areas covered by Buildings and paved areas. A minimum strip of
landscaping ten feet wide shall be installed and maintained along any
portion of the Site bordering a public right-of-way except for entrance
driveways onto the Site. The landscaping plan submitted to the Committee
for approval as part of the Plans shall indicate such things as the
planting of trees, shrubs and the grass and the installation of screens as
appropriate. The landscaping of each Site shall be completed within ninety
calendar days of occupancy or substantial completion of the Building
thereon, whichever occurs first. Buildings built for purposes other than
prompt occupancy shall be deemed to be substantially completed when the
exterior walls and roof have been installed.
5.05. Loading Areas. No materials, supplies, merchandise or
-------------
equipment shall be stored in any area on a Site except inside of a closed
building, or behind a visual barrier screening such areas so that they are
not unsightly from the neighboring properties or public streets.
Loading doors and docks shall not be constructed facing any public
street or highway without the Committee's express prior written approval.
5.06. Signs. No permanent billboard or advertising signs shall be
-----
permitted other than those identifying the names, businesses, and products
of the Occupants. No sign shall project above the roofline, nor shall any
sign have flashing lights or moving parts. All signs of a permanent
nature, including without limitation traffic control signs, shall be
installed only upon the prior written approval of the Committee and shall
in every event comply with the Committee's standard criteria for signage as
well as with all applicable governmental requirements.
5.07. Exterior Walls. Exterior walls shall be of masonry
--------------
construction, its equivalent or better, in textures and colors approved by
the Committee. Other materials may be permitted when used in combination
with masonry construction, its equivalent or better in a fashion found to
be acceptable by the
-7-
<PAGE>
Committee when considered in context with the overall design of the
Building.
5.08. Maintenance During Construction. During construction the Site
-------------------------------
Owner shall be responsible for keeping the Site in a reasonably neat
condition, shall prevent the accumulation of trash and debris, shall
prevent soil erosion, shall prevent the runoff of water onto other Sites,
and shall not create or permit the continuance of a nuisance on or about
the Site.
5.09. Location of Improvements. The Improvements contemplated for
------------------------
each Site shall be confined within the boundaries of the Site and comply
with all requirements of the applicable zoning ordinance.
5.10. Completion of Improvements. Once construction has commenced of
--------------------------
any Improvements, the Site Owners shall pursue such construction diligently
to completion. If construction on a Site should fail to progress
materially for a period of six months, regardless of the reason, the Site
Owner shall promptly commence and complete such action as may be necessary
to beautify the Site, including without limitation the completion of
landscaping, the removal of trash, debris, materials and equipment from the
Site, and the screening or removal of partially constructed Improvements.
ARTICLE VI
PERMITTED USES
--------------
6.00. The Park shall be used only for office, warehouse,
distribution, storage, light assemblage and light manufacturing purposes
meeting the requirements of applicable zoning ordinances, provided such use
(i) is performed and carried out entirely within a Building constructed in
accordance with approved Plans, (ii) complies with all applicable
environmental laws and regulations, and (iii) does not cause or create a
nuisance (as to excessive noise, odors, dust, emissions, gas, smoke, fumes
or otherwise) or an unsafe condition. Without limiting the foregoing
provisions of this Article VI, in no event shall a Site or any portion
thereof ever be used as a junkyard, dump landfill, stockyard, tannery,
paper mill, fat rendering plant or slaughterhouse.
-8-
<PAGE>
ARTICLE VII
RESERVATIONS OF EASEMENTS
-------------------------
7.00. Declarant hereby reserves for the use and benefit of Declarant,
the Association and the Site Owners perpetual non-exclusive easements in,
onto, over, across and through all Sites as follows:
7.01. Utility Easements. Declarant hereby reserves perpetual non-
-----------------
exclusive easements as aforesaid for the installation, use, maintenance,
repair and replacement of utility lines and facilities, some of which
utility easements have been granted by Declarant prior to the date of this
Declaration. Declarant shall have the right to release from time to time
any segment or area of the easements reserved herein provided Declarant
causes any utility or utilities existing therein to be relocated without
expense to the users thereof and without any unreasonable interruption of
the utility services furnished thereby.
7.02. Drainage Easements. Declarant hereby reserves perpetual non-
------------------
exclusive easements through all Sites as aforesaid for the natural drainage
of the Park and for the installation, use, maintenance, repair and
replacement where appropriate of retention ponds, pipes and culverts to
control such natural drainage.
7.03. No Implied Release of Easements. Absent an express waiver or
-------------------------------
release, no conveyance by Declarant of any Site or any interest therein
shall be either deemed to be or construed as a waiver or release of any
easements reserved herein as to the Site so conveyed regardless of whether
such conveyance purports to convey such Site in fee simple or purports to
convey Declarant's entire interest therein.
ARTICLE VIII
GRANT OF EASEMENTS AND PROVISIONS REGARDING USE
-----------------------------------------------
8.00. Declarant grants for the use and benefit of the Site Owners
perpetual non-exclusive easements in, onto, over, across and through the
Park as follows:
8.01. Utility Easements. Declarant hereby grants perpetual non-
-----------------
exclusive easements as aforesaid for the installation, use, maintenance,
repair and replacement of utility lines and facilities, whether installed
by or with the permission
-9-
<PAGE>
of Declarant or of the Association, but with respect to Site said easements
shall pertain only to the easement areas reserved under Paragraph 7.01 of
Article VII hereinabove.
8.02. Drainage Easements. Declarant hereby grants to each of the
------------------
Site Owners perpetual non-exclusive easements as aforesaid for the natural
drainage of the Site into retention pounds constructed or to be constructed
by Declarant within the Park, and for the use of such pipes, retention
ponds, and culverts as may be in place from time to time to control the
drainage of the Park. No Site Owner may restrict or impede the free flow
of the drainage of any portion of the Park.
8.03. Appurtenances to Site. The easements granted under this
---------------------
Article VIII shall be appurtenances to each of the Sites and the non-
exclusive rights and interests created thereby for the benefit of the Site
Owners shall be deemed to be conveyed automatically with each conveyance of
a Site regardless of whether such easements are specified in the deed of
conveyance.
8.04. General Maintenance. The utility and drainage facilities
-------------------
identified respectively in Paragraphs 8.01 and 8.02 hereinabove shall be
maintained at the sole cost and expense of Declarant during such time as
Declarant owns such facilities. Should such facilities be conveyed to the
Association as part of the Common Areas pursuant to the provisions of this
Declaration, the Association shall bear the cost of maintenance of such
facilities thereafter.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.01. Site Maintenance. Landscaping shall be adequately maintained,
----------------
and landscaped areas shall be sprinklered at each Site Owner's expense in
accordance with plans for such yard sprinkler systems as shall be approved
in advance by the Committee. No rubbish or debris of any kind shall be
placed or permitted to accumulate upon or adjacent to any Site, except in
approved waste containers which shall be adequately screened from view and
be located no less than 100 feet from any public street.
9.02. Repair and Maintenance of Improvements. Each Site Owner shall
--------------------------------------
keep the Improvements on its Site in good condition and repair, properly
maintained and adequately painted or otherwise finished.
9.03. Right of Entry. During reasonable hours and subject to
--------------
reasonable security requirements, Declarant, the Committee and their
authorized representatives shall have the right to enter any part of the
Park and any Building or other
-10-
<PAGE>
Improvements therein for the purpose of ascertaining whether the
Declaration is being complied with.
9.04. Agreement Not to Apply for Rezoning. Each and every Site
-----------------------------------
Owner, tenant, lessee, licensee or Occupant, by acquiring such interest in
the use of the Park, hereby agrees to bring no action nor any suit to
change the zoning of any portion of the Park and to seek no zoning
variances with respect to the Site or any other portion of the Park without
Declarant's prior written consent.
9.05. Effect of Invalidation. If any provision of the Declaration is
----------------------
held to be invalid by any Court, the invalidity of such provision shall not
affect the validity or enforceability of the remaining provisions of the
Declaration.
9.06. Notice. Any and all notices or other communications required
------
or permitted by this Declaration or by law to be served on or given to
Declarant shall be in writing and shall be deemed duly served and given
when received by Declarant by certified United States mail, return receipt
requested with proper postage prepaid, addressed to Declarant as follows:
Declarant: Wachovia Bank and Trust Company,
N.A., as Trustee
Real Estate Investment Department
Post Office Box 3099
Winston-Salem, North Carolina 27102
Attention: N. L. Bartmess,
Vice President
With copies to: Altson & Bird, Attorneys at Law
Attention: Rawson Foreman
1200 C&S National Bank Building
35 Broad Street, N.W.
Atlanta, Georgia 30335
and
MK Management Company
Attention: E. E. Gluck
Post Office Box 19859
Atlanta, Georgia 30325-0859
For the purposes of this paragraph, Declarant may change its address by
recordation of a notice of change of address in the Office of the Clerk of
the Superior Court of Gwinnett County, Georgia as an addendum to this
instrument. Notice to any Site Owner or Occupant shall be deemed duly
served when delivered to
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<PAGE>
the Site or deposited in the United States mail, postage prepaid, addressed
to the address of the Site.
9.07. Governing Law. This Declaration and the interpretation and
-------------
enforcement hereof shall be governed by the laws of the State of Georgia.
9.08. Time of the Essence. Time is of the essence of this
-------------------
Declaration and each and every provision hereof.
9.09. Headings. The headings set forth in this Declaration are for
--------
convenience only and shall not be deemed to limit the scope or intent of
the provisions set forth herein.
9.10. No Liability. Neither Declarant nor the Committee or any
------------
member of the Committee nor any agent or representative of Declarant or of
the Committee nor their successors or assigns shall be liable to any Site
Owner or Occupant by reason of any misake in judgment, failure of
performance under the Declaration, or enforcement or failure of
enforcement of the Declaration or any part thereof. Every Site Owner and
every Occupant, by acquiring its interest in the Park, agrees not to bring
any action or suit against Declarant, its successors or assigns or the
Committee or any member thereof, or any agent or representative of
Declarant or of the Committee, or their successors and assigns to recover
any such damages or to seek equitable relief with respect to any such
mistake in judgment, failure of performance, or enforcement or failure of
enforcement of the Declaration or any part thereof.
9.11. Sites Owned by Declarant. That portion of the Park that
------------------------
Declarant may own from time to time shall be deemed to be a Site or Sites,
regardless of whether Declarant shall have designated such portion of the
Park as a Site or Sites, for each of the following purposes: (i) extending
the duration of this Declaration pursuant to Paragraph 11.01 hereinbelow;
and (ii) modifying this Declaration pursuant to Paragraph 11.03
hereinbelow; and (iii) voting rights in the Association as described in
Article IV of this Declaration, for which purpose Declarant shall be
entitled to one (1) vote for each proposed Site still owned by Declarant as
shown on Declarant's then-current plans for development of the Park.
ARTICLE X
ENFORCEMENT
-----------
10.01. General Rights and Remedies. Declarant, the Association, all
---------------------------
Site Owners and all Occupants, or any of them,
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<PAGE>
may proceed at law or in equity against any Site Owner or Occupant to
prevent or correct a breach or violation of the Declaration. All Site
Owners and Occupants shall comply both with all provisions of the
Protective Covenants and Restrictions set forth in this Declaration and
with all provisions of the applicable zoning ordinance and any other
statue, law, code or ordinance affecting their Site or Sites. In the event
any use, requirement, condition or other matter restricted or prohibited by
this Declaration is or may in the future be permitted under such applicable
zoning ordinance or any other such statute, law, code or ordinance, the
more restrictive provisions of this Declaration shall nonetheless apply.
10.02. Declarant's and Association's Additional Rights and Remedies.
------------------------------------------------------------
Declarant and the Association, or either of them, by and through their duly
authorized agents, shall have the right, at any time and from time to time
during a continuing breach or violation of the Declaration to enter upon
the Site as to which the breach or violation exists and to correct such
breach or violation at the expense of the Site Owner who owns the Site, all
without liability for trespass.
10.03. Cumulative Remedies. The rights and remedies hereby granted
-------------------
are cumulative and are not mutually exclusive.
10.04. Failure to Enforce or to Seek Remedy Not a Waiver of Rights.
-----------------------------------------------------------
No delay or failure to seek or to invoke any available remedy with respect
to a violation of the Declaration shall be deemed to be a waiver by or to
work an estoppel against any party having rights under the Declaration with
respect to the recurrence or continuance of such violation or the
occurrence of a different violation.
10.04. Failure to Enforce or to Seek Remedy Not a Waiver of Rights.
-----------------------------------------------------------
No delay or failure to seek or to invoke any available remedy with respect
to a violation of the Declaration shall be deemed to be a waiver by or to
work an estoppel against any party having rights under the Declaration
with respect to the recurrence or continuance of such violation or the
occurrence of a different violation.
10.05. No Duty to Seek Remedies. Anything contained herein to the
------------------------
contrary notwithstanding, Declarant shall have no duty or obligation
whatsoever to enforce the Declaration or to seek or invoke remedies with
respect to any violation of the Declaration.
ARTICLE XI
DURATION AND MODIFICATION OF DECLARATION
----------------------------------------
11.01. Duration. The Declaration shall continue and remain in full
--------
force and effect at all times with respect to the Park and each part
thereof (subject, however, to the right to amend and repeal as provided for
herein) for a period beginning the date first above written and ending
twenty years thereafter. Upon the expiration of such twenty year period,
the Declaration
-13-
<PAGE>
may be extended upon the concurrence of the Site Owners who collectively
own at least seventy-five (75%) percent of the total area of the Sites;
provided, however, that as long as Declarant owns any interest in the Park,
-------- -------
no such extension shall be effective without prior written consent of
Declarant. Such an extension shall be effected by the execution of an
extension agreement by the Site Owners who collectively own at least
seventy-five (75%) percent of the total area of the Sites, and by Declarant
if required as provided above in this paragraph, and the recording of such
agreement in the Office of the Clerk of the Superior Court of Gwinnett
County, Georgia.
11.02. Variances. The Committee is hereby authorized and empowered
---------
to grant variances in good faith from the provisions of the Declaration in
order to overcome practical difficulties and to prevent unnecessary
hardship in the application of the provisions contained herein; provided,
--------
however, that such variances shall not materially affect any of the Sites
-------
or Improvements in the Park. No variance granted pursuant to this
paragraph shall constitute a waiver of the applicability of any provision
of the Declaration except with respect to the specific Site and
circumstance for which such variance is granted, and no such variance shall
have the effect of varying the provisions of any applicable zoning
ordinance or other applicable statute, code ordinance.
11.03. Modification. The Declaration and any provisions hereof may
------------
be modified upon the concurrence of the Site Owners who collectively own at
least seventy-five (75%) percent of the total area of the Sites; provided,
--------
however, that so long as Declarant owns any interest in the Park, no such
-------
modification shall be effective without the prior written consent of
Declarant. Such a modification shall be effect by the execution of a
modification agreement by the Site Owners who collectively own at least
seventy-five (75%) percent of the total area of the Sites, and by Declarant
if required as provided above in this Paragraph, and the recording of such
agreement in the Office of the Clerk of the Superior Court of Gwinnett
County, Georgia. The foregoing provisions of this Paragraph 11.03 to the
contrary notwithstanding, no modification may be made to this Declaration
without the unanimous consent of the Site Owners (the definition of which
term includes Declarant) if such modification would materially affect any
of the Sites or Improvements in the Park.
-14-
<PAGE>
ARTICLE XII
ACCEPTANCE COVENANTS RUNNING WITH LAND
--------------------------------------
12.01. Acceptance. By accepting title to or possession of its Site,
----------
each Site Owner and each Occupant shall be deemed to have taken title to
its respective Site and all portions thereof subject to this Declaration
and every provision hereof, and to have covenanted and agreed with
Declarant, the Association, and every other Site Owner, to keep, observe
and comply with all provisions of the Declaration, whether or not any
reference to the Declaration is contained in the instrument conveying such
title of creating such interest. Every person or entity who now or
hereafter owns or acquires any right, title, or interest in or to any
portion of the Park is and shall be conclusively deemed to have consented
and agreed to the Declaration whether or not any reference to the
Declaration is contained in the instrument by which such person or entity
acquired an interest in the Park. Site Owners and Occupants hereby agree
nevertheless to refer to the Declaration in deeds, leases and licenses made
or granted by such Site Owners or Occupants and covering any Site or
portion thereof and to make the Declaration binding upon all Site Owners
and Occupants.
12.02. Covenants Running with Land. The provisions of the
---------------------------
Declaration as originally recorded and as amended of record from time to
time shall operate as covenants running with the land for the benefit of
all portions of the Park and shall be binding upon and inure to the benefit
of Declarant, Site Owners, Occupants and their respective successors and
assigns.
ARTICLE XIII
REFERENCES TO DECLARANT
-----------------------
13.01. All references in this Declaration to Wachovia Bank and Trust
Company, N.A., as Trustee, shall be deemed to refer to Wachovia Bank and
Trust Company, N.A., only in its fiduciary capacity acting as trustee for
R. J. Reynolds Industries, Inc., and certain affiliated companies as set
forth in Master Trust Agreement made as of January 1, 1972, amended and
restated as of January 1, 1976, as amended. In no event shall Wachovia
Bank and Trust Company, N.A., have any personal liability under this
Declaration, as acknowledged in this Article XIII and in Paragraph 9.10
hereinabove.
IN WITNESS WHEREOF, Declarant has caused this Declaration to be
executed by duly authorized officers thereof
-15-
<PAGE>
and its seal to be affixed hereunto, the day and year first above written.
UNDER SEAL.
DECLARANT:
WACHOVIA BANK AND TRUST COMPANY,
N.A., AS TRUSTEE for R.J. Reynolds
Industries, Inc., and certain
affiliated companies as set forth in
Master Trust Agreement made as of
January 1, 1972, amended and
restated as of January 1, 1976, as
amended
Signed, sealed and delivered
in the presence of: By:/s/ N. L. Bartmess (SEAL)
-----------------------------
N. L. Bartmess, Vice President
/s/ Carolyn A. Richardson
- ----------------------------
Unofficial Witness
/s/ Diane Jester
- ----------------------------
Notary Public (Affix Seal
and date of expiration of
commission)
[ STAMP ]
-16-
EXHIBIT 12
<TABLE>
<CAPTION>
Simmons Company and Subsidiaries
Computation of Earnings to Fixed Charges
(dollars in thousands)
For the fiscal Year For the fiscal Year
ended December ended December
28, 1991 26, 1992
------------------- ------------------
<S> <C> <C> <C>
1 Earnings:
(a) Income from continuing operations before
deductions for taxes (A) (A)
(b) Interest Expense
(c) Portion of rental expense representative
of interest factor
Total
2 Fixed Charges:
(a) Interest
(b) Portion of rental expense representative
of interest factor
(c) Preferred Stock dividend requirements
Total
Ratio (1 divided by 2)
(A) Earnings were insufficient to cover fixed charges for the above referenced
periods.
<CAPTION>
For the fiscal Year For the fiscal Year
ended December ended December
25, 1993 31, 1994
------------------- ------------------
<S> <C> <C> <C>
1 Earnings:
(a) Income from continuing operations before
deductions for taxes (A) $11,227
(b) Interest Expense 9,042
(c) Portion of rental expense representative
of interest factor 3,381
------
Total 23,650
2 Fixed Charges:
(a) Interest $ 9,042
(b) Portion of rental expense representative
of interest factor 3,381
(c) Preferred Stock dividend requirements 77
------
Total 12,500
Ratio (1 divided by 2) 1.9
</TABLE>
(A) Earnings were insufficient to cover fixed charges for the above referenced
periods.
<PAGE>
<TABLE>
<CAPTION>
For the fiscal Year Pro Forma
ended December December 30, 1995
30, 1995
------------------- ------------------
<S> <C> <C> <C>
1 Earnings:
(a) Income from continuing operations before
deductions for taxes $16,917 $ 1,576
(b) Interest Expense 8,347 19,924
(c) Portion of rental expense representative
of interest factor 3,542 3,542
------- ------
Total 28,806 25,042
2 Fixed Charges:
(a) Interest $ 8,347 $19,924
(b) Portion of rental expense representative
of interest factor 3,542 3,542
(c) Preferred Stock dividend requirements 116 116
------- ------
Total 12,005 23,582
Ratio (1 divided by 2) 2.4 1.1
(A) Earnings were insufficient to cover fixed charges for the above referenced
periods.
<CAPTION>
Predecessor Successor
December 31, 1995 March 22, 1996
to March 21, 1996 to March 30, 1996
----------------- ------------------
<S> <C> <C> <C>
1 Earnings:
(a) Income from continuing operations before
deductions for taxes (A) (A)
(b) Interest Expense
(c) Portion of rental expense representative
of interest factor
Total
2 Fixed Charges:
(a) Interest
(b) Portion of rental expense representative
of interest factor
(c) Preferred Stock dividend requirements
Total
Ratio (1 divided by 2)
(A) Earnings were insufficient to cover fixed charges for the above referenced
periods.
</TABLE>
Exhibit 23.1
Coopers & Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
of our report, dated March 13, 1996, except for Notes 8 and 15 which are as
of March 22, 1996, which includes an explanatory paragraph discussing the
acquisition of the Company, on our audit of the consolidated financial
statements of Simmons Company and subsidiaries as of December 30, 1995 and
for the year then ended. We also consent to the reference to our firm under
the caption "Experts."
/s/ Coopers & Lybrand LLP
Atlanta, Georgia
May 30, 1996
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we agree to the inclusion in this
Registration Statement on Form S-4 of Simmons Company and Subsidiaries of our
report dated March 17, 1995 (except with respect to Notes 6 and 14 which are
as of May 4, 1995 [not presented herein]) related to the financial statements
of the Simmons Company and Subsidiaries as of and for the years ended December
31, 1994 and 1993. It should be noted that we have not audited any financial
statements of the Company subsequent to December 31, 1994 or performed any
audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> MAR-22-1996
<PERIOD-END> MAR-30-1996
<CASH> 8,111
<SECURITIES> 0
<RECEIVABLES> 61,426
<ALLOWANCES> 7,845
<INVENTORY> 17,574
<CURRENT-ASSETS> 92,005
<PP&E> 28,003
<DEPRECIATION> 96
<TOTAL-ASSETS> 349,706
<CURRENT-LIABILITIES> 61,246
<BONDS> 186,701
109
0
<COMMON> 320
<OTHER-SE> 81,210
<TOTAL-LIABILITY-AND-EQUITY> 349,706
<SALES> 12,886
<TOTAL-REVENUES> 12,886
<CGS> 9,042
<TOTAL-COSTS> 9,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 461
<INCOME-PRETAX> (5,779)
<INCOME-TAX> (2,311)
<INCOME-CONTINUING> (3,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,468)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
