AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
REGISTRATION NO. 333-04841
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
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
of Classification Code Number) Identification No.)
incorporation or
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. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
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
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FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
A. INFORMATION ABOUT THE TRANSACTION
<C> <S> <C>
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. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
<C> <S> <C>
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 JULY 16, 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" COMMENCING ON PAGE 11 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. See "Risk Factors--Substantial
Leverage and Debt Service Obligations," "The Acquisition" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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."
Immediately prior to the Acquisition, the Simmons ESOP owned 11,671,663 shares
of common stock of the Company, of which 6,001,257 were allocated to participant
accounts as of the Acquisition Closing Date and 5,670,406 were unallocated as of
such date. The Simmons ESOP acquired such shares in January 1989 in connection
with its purchase of all of the Company's then outstanding common stock. See
"The Simmons ESOP."
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 Company's obligation to accept for exchange, or to issue New
Notes in exchange for, any Old Notes is subject to certain
customary conditions relating to compliance with any applicable
law, order of any governmental agency or any applicable
interpretation by any staff of the Commission, which may be
waived by the Company in its reasonable discretion. 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.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 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. Holders of Old Notes do not
have any appraisal or dissenters' rights under Delaware General Corporation Law
in connection with the Exchange Offer. 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.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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 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.
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, and 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 "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, including indebtedness under the Senior Credit
Facility. 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
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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.
8
<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
--------------------------------------------------------------------------------------- QUARTER
ENDED
PREDECESSOR -----------
------------------------------------------------------------------------ PRO FORMA PREDECESSOR
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30, APRIL 1,
1991 (A) 1992 (A) 1993 (A) 1994 (A) 1995 1995 (B) 1995
------------ ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.......... $313,180 $336,949 $391,382 $439,689 $489,815 $489,815 $ 108,653
Cost of products
sold............... ]198,904 209,189 240,125 269,741 292,825 292,750(c) 67,104
Gross profit....... 114,276 127,760 151,257 169,948 196,990 197,065 41,549
Selling, general
and administrative
expenses........... 98,531 102,943 124,452 137,791 161,202 161,202 37,518
Non-cash ESOP
expense(d)......... 12,541 14,007 14,000 4,463 4,533 4,625 1,133
Amortization of
intangible
assets............. 5,734 5,732 5,724 5,753 5,753 7,648 1,438
Interest expense,
net(e)............. 15,308 10,352 8,105 8,197 8,185 19,068 1,929
Income (loss)
before taxes,
extraordinary item
and change in
accounting
principle.......... (18,635) (6,786) (1,784) 11,227 16,917 2,952(f) (666)
Net income
(loss)............. (17,991) (12,469) (3,319) 7,994 9,411 636(g) (370)
OTHER DATA:
Gross margin....... 36.5% 37.9% 38.6% 38.7% 40.2% 40.2% 38.2%
EBITDA(h).......... $ 18,326 $ 26,720 $ 29,236 $ 33,981 $ 39,577 $ 39,407 $ 4,847
EBITDA margin...... 5.9% 7.9% 7.5% 7.7% 8.1% 8.0% 4.5%
Depreciation....... $ 3,168 $ 3,227 $ 3,141 $ 3,496 $ 4,027 $ 4,327 $ 973
Capital
expenditures....... 2,602 3,659 4,972 4,496 5,834 5,834 163
Cash interest
expense(i)......... 13,942 8,564 6,158 7,093 6,488 18,297 1,688
Ratio of EBITDA to
cash interest
expense(i)......... 1.3x 3.1x 4.7x 4.8x 6.1x 2.2x (i)
Ratio of EBITDA
less capital
expenditures to
cash interest
expense(i)......... 1.1x 2.7x 3.9x 4.2x 5.2x 1.8x (i)
Ratio of earnings
to fixed
charges(j)......... (j) (j) (j) 1.9x 2.4x 1.1x (j)
Inventory
turnover(k)........ 12.3x 15.5x 16.3x 16.8x 17.2x 17.2x 4.0x
STATEMENT OF CASH
FLOWS DATA(L):
Net cash provided
by (used in)
operating
activities......... $ 8,118 $ 13,559 $ 18,002 $ 34,380 $ 28,513 $ 13,471
Net cash provided
by (used in)
investing
activities......... (2,433) 2,628 (4,718) (4,195) (5,834) (163)
Net cash provided
by (used in)
financing
activities......... (4,045) (10,620) (9,508) (32,864) (22,030) (14,813)
<CAPTION>
COMBINED PRO FORMA
MARCH 30, MARCH 30,
1996(B) 1996(B)
--------- ------------
<S> <C> <C>
STATEMENT OF OPERAT
Net sales.......... $ 119,317 $119,317
Cost of products
sold............... 75,672 74,655(c)
Gross profit....... 43,645 44,662
Selling, general
and administrative
expenses........... 40,472 40,472
Non-cash ESOP
expense(d)......... 1,312 1,312
Amortization of
intangible
assets............. 1,442 1,897
Interest expense,
net(e)............. 1,950 4,761
Income (loss)
before taxes,
extraordinary item
and change in
accounting
principle.......... (5,936) (4,367)(f)
Net income
(loss)............. (3,907) (3,079)(g)
OTHER DATA:
Gross margin....... 36.6% 37.4%
EBITDA(h).......... $ 4,945 $ 4,845
EBITDA margin...... 4.1% 4.1%
Depreciation....... $ 970 $ 1,038
Capital
expenditures....... 1,567 1,567
Cash interest
expense(i)......... 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)
Inventory
turnover(k)........ 4.2x 4.2x
STATEMENT OF CASH
FLOWS DATA(L):
Net cash provided
by (used in)
operating
activities......... $ (7,848)
Net cash provided
by (used in)
investing
activities......... (176,182)
Net cash provided
by (used in)
financing
activities......... 182,947
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
AS OF
MARCH 30,
PREDECESSOR AS OF 1996
------------------------------------------------------------------------ ---------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994 1995 ACTUAL
------------ ------------ ------------ ------------ ------------ ---------
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 2,205 $ 7,581 $ 11,280 $ 8,477 $ 9,185 $ 8,111
Working capital, excluding current
maturities of long-term debt and
capitalized lease obligations(m)...... 8,955 10,366 25,460 23,077 20,171 27,176
Total assets.......................... 246,634 245,158 272,533 249,891 254,492 349,706
Total debt, including current
maturities............................ 164,104 149,421 141,976 109,435 93,768 191,229
Redeemable preferred stock(n)......... 500 548 592 641 680 --
Series A Preferred Stock--ESOP(o)..... -- -- -- -- -- 28,352
Unearned compensation--ESOP(o)........ -- -- -- -- -- (28,243)
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 81,530
<CAPTION>
<S> <C>
ADJUSTED FOR
THE OFFERING
------------
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 8,111
Working capital, excluding current
maturities of long-term debt and
capitalized lease obligations(m)...... 27,176
Total assets.......................... 350,925
Total debt, including current
maturities............................ 195,229
Redeemable preferred stock(n)......... --
Series A Preferred Stock--ESOP(o)..... 28,352
Unearned compensation--ESOP(o)........ (28,243)
Redeemable common stock--ESOP, net of
related unearned compensation(p)..... --
Total common stockholders' equity..... 79,863(q)
</TABLE>
See Notes to Summary Financial and Other Data.
9
<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 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.
(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, which includes amortization of debt issuance costs and
non-cash interest expense. Similarly, the ratio of EBITDA to cash interest expense differs from the
Consolidated Coverage Ratio under the indenture, which utilizes Consolidated Interest Expense as
its denominator. See "Description of Notes--Certain Definitions." Management believes that the
ratio of EBITDA to cash interest expense and the ratio of EBITDA less capital expenditures to cash
interest expense are generally accepted as useful information regarding a company's ability to
service and/or incur debt. 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) For more information regarding the Statement of Cash Flows Data see the Consolidated Financial
Statements included elsewhere in this Prospectus.
(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 "Managment'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>
10
<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) 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; (v) the Company is substantially
more leveraged than certain of its competitors, which might place the Company at
a competitive disadvantage; (vi) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; and (vii) 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. In addition,
approximately $35.0 million of term loan indebtedness and all amounts
outstanding under the revolving credit facility under the Senior Credit Facility
currently bear interest at variable rates. The Company has effectively fixed the
interest rate on approximately $40.0 million of term loan indebtedness under the
Senior Credit Facility pursuant to interest rate swap agreements that expire in
approximately two years. As a result, the Company could be vulnerable to
increases in interest rates.
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.
11
<PAGE>
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 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 COVENANTS IN SENIOR CREDIT FACILITY; SUBORDINATION OF NOTES
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
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
12
<PAGE>
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 together control
Holdings, pursuant to which Investcorp or its affiliates may be deemed to share
control of the Company. See "Ownership of Voting Securities."
CHANGE OF CONTROL
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.
13
<PAGE>
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 (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 Leggett & Platt ("L&P"). L&P, 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 continuous wire and
foundation 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 by changing the layout of the factory floor, changing
certain factory job descriptions and providing incentive compensation for
factory workers. The Company expects to complete the project by early 1998. The
implementation of the changes associated with this project will raise issues
regarding job descriptions and incentive compensation 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. See "Business--Manufacturing
and Facilities" and "--Employees."
14
<PAGE>
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 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.
SEASONALITY
The volume of the Company's sales is somewhat seasonal with generally lower
sales occurring during the first quarter of each fiscal year when compared to
the remaining three quarters of the year. The Company also experiences a
seasonal fluctuation in its profitability, with a slightly lower gross profit
percentage occurring during the first quarter of each fiscal year when compared
to margin percentages obtained in the remaining part of the year.
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
15
<PAGE>
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."
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.
16
<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
-------------------------
<S> <C> <C>
ADJUSTED
FOR
ACTUAL THE OFFERING
-------- ------------
<CAPTION>
(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> <S>
(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>
17
<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."
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED ENDED
--------------------------------------------------------------------------------------- -----------
PREDECESSOR
------------------------------------------------------------------------
PRO FORMA PREDECESSOR
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30, APRIL 1,
1991 (A) 1992 (A) 1993 (A) 1994 (A) 1995 1995 (B) 1995
------------ ------------ ------------ ------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............. $313,180 $336,949 $391,382 $439,689 $489,815 $489,815 $ 108,653
Cost of products
sold................... 198,904 209,189 240,125 269,741 292,825 292,750(c) 67,104
------------ ------------ ------------ ------------ ------------ ------------ -----------
Gross profit........... 114,276 127,760 151,257 169,948 196,990 197,065 41,549
Selling, general and
administrative
expenses............... 98,531 102,943 124,452 137,791 161,202 161,202 37,518
Non-cash ESOP expense
(d).................... 12,541 14,007 14,000 4,463 4,533 4,625 1,133
Amortization of
intangible assets...... 5,734 5,732 5,724 5,753 5,753 7,648 1,438
Interest expense, net
(e).................... 15,308 10,352 8,105 8,197 8,185 19,068 1,929
Other deductions,
net.................... 797 1,512 760 2,517 400 1,570(f) 197
------------ ------------ ------------ ------------ ------------ ------------ -----------
Income (loss) before
taxes, extraordinary
item and change in
accounting principle... (18,635) (6,786) (1,784) 11,227 16,917 2,952 (666)
Provision for income
taxes (benefit)....... -- 483 1,043 3,233 7,506 2,316 (296)
------------ ------------ ------------ ------------ ------------ ------------ -----------
Income (loss) before
extraordinary item and
change in accounting
principle.............. (18,635) (7,269) (2,827) 7,994 9,411 636 (370)
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) $ (370)
------------ ------------ ------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ ------------ ------------ -----------
OTHER DATA:
Gross margin........... 36.5% 37.9% 38.6% 38.7% 40.2% 40.2% 38.2%
EBITDA (i)............. $ 18,326 $ 26,720 $ 29,236 $ 33,981 $ 39,577 $ 39,407 $ 4,847
EBITDA margin.......... 5.9% 7.99% 7.5% 7.7% 8.1% 8.0% 4.5%
Depreciation........... $ 3,168 $ 3,227 $ 3,141 $ 3,496 $ 4,027 $ 4,327 $ 973
Capital expenditures... 2,602 3,659 4,972 4,496 5,834 5,834 163
Cash interest expense
(j).................... 13,942 8,564 6,158 7,093 6,488 18,297 1,688
Ratio of EBITDA to cash
interest expense
(j).................... 1.3x 3.1x 4.7x 4.8x 6.1x 2.2x (j)
Ratio of EBITDA less
capital expenditures
to cash interest
expense (j)............ 1.1x 2.7x 3.9x 4.2x 5.2x 1.8x (j)
Ratio of earnings to
fixed charges (k)..... (k) (k) (k) 1.9x 2.4x 1.1x (k)
Inventory turnover
(l).................... 12.3x 15.5x 16.3x 16.8x 17.2x 17.2x 4.0x
STATEMENT OF CASH FLOWS
DATA (M):
Net cash provided by
(used in) operating
activities............. $ 8,118 $ 13,559 $ 18,002 $ 34,380 $ 28,513 $ 13,471
Net cash provided by
(used in) investing
activities............. (2,433) 2,628 (4,718) (4,195) (5,834) (163)
Net cash provided by
(used in) financing
activities............. (4,045) (10,620) (9,508) (32,864) (22,030) (14,813)
<CAPTION>
COMBINED PRO FORMA
MARCH 30, MARCH 30,
1996 (B) 1996 (B)
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS
Net sales.............. $ 119,317 $119,317
Cost of products
sold................... 75,672 74,655 (c)
--------- ---------
Gross profit........... 43,645 44,662
Selling, general and
administrative
expenses............... 40,472 40,472
Non-cash ESOP expense
(d).................... 1,312 1,312
Amortization of
intangible assets...... 1,442 1,897
Interest expense, net
(e).................... 1,950 4,761
Other deductions,
net.................... 4,405 587 (f)
--------- ---------
Income (loss) before
taxes, extraordinary
item and change in
accounting principle... (5,936) (4,367 )
Provision for income
taxes (benefit)....... (2,029) (1,288 )
--------- ---------
Income (loss) before
extraordinary item and
change in accounting
principle.............. (3,907) (3,079 )
Extraordinary item..... -- --
Cumulative effect of
change in accounting
principle (g).......... -- --
--------- ---------
Net income (loss)...... $ (3,907) $ (3,079 )(h)
--------- ---------
--------- ---------
OTHER DATA:
Gross margin........... 36.6% 37.4 %
EBITDA (i)............. $ 4,945 $ 4,845
EBITDA margin.......... 4.1% 4.1 %
Depreciation........... $ 970 $ 1,038
Capital expenditures... 1,567 1,567
Cash interest expense
(j).................... 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 )
Inventory turnover
(l).................... 4.2x 4.2x
STATEMENT OF CASH FLOWS
DATA (M):
Net cash provided by
(used in) operating
activities............. $ (7,848)
Net cash provided by
(used in) investing
activities............. (176,182)
Net cash provided by
(used in) financing
activities............. 182,947
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
AS OF
MARCH
PREDECESSOR AS OF 30, 1996
---------------------------------------------------------------------------- --------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994 1995 ACTUAL
------------ ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 2,205 $ 7,581 $ 11,280 $ 8,477 $ 9,185 $ 8,111
Working capital, excluding current
maturities of long-term debt and
capitalized lease obligations
(n)............................... 8,955 10,366 25,460 23,077 20,171 27,176
Total assets...................... 246,634 245,158 272,533 249,891 254,492 349,706
Total debt, including current
maturities........................ 164,104 149,421 141,976 109,435 93,768 191,229
Redeemable preferred stock (o).... 500 548 592 641 680 --
Series A Preferred Stock - ESOP
(p)............................... -- -- -- -- -- 28,352
Unearned compensation - ESOP
(p)............................... -- -- -- -- -- (28,243)
Redeemable common stock - ESOP,
net of related unearned
compensation (q).................. 2,887 4,720 11,418 23,238 32,272 --
Total common stockholders'
equity............................ 32,714 34,042 37,878 41,936 44,372 81,530
<CAPTION>
ADJUSTED FOR
THE OFFERING
------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 8,111
Working capital, excluding current
maturities of long-term debt and
capitalized lease obligations
(n)............................... 27,176
Total assets...................... 350,925
Total debt, including current
maturities........................ 195,229
Redeemable preferred stock (o).... --
Series A Preferred Stock - ESOP
(p)............................... 28,352
Unearned compensation - ESOP
(p)............................... (28,243)
Redeemable common stock - ESOP,
net of related unearned
compensation (q).................. --
Total common stockholders'
equity............................ 79,863(r)
</TABLE>
See Notes to Selected Historical and Pro Forma Financial Data.
19
<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 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 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, which includes amortization of debt issuance costs and
non-cash interest expense. Similarly, the ratio of EBITDA to cash interest expense differs from the
Consolidated Coverage Ratio under the indenture, which utilizes Consolidated Interest Expense as
its denominator. See "Description of Notes--Certain Definitions." Management believes that the
ratio of EBITDA to cash interest expense and the ratio of EBITDA less capital expenditures to cash
interest expense are generally accepted as useful information regarding a company's ability to
service and/or incur debt. 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) For more information regarding the Statement of Cash Flows Data, see the Consolidated Financial
Statements included elsewhere in this Prospectus.
(n) Represents total current assets (excluding cash and cash equivalents) less total current
liabilities, excluding current maturities of long-term debt and capital lease obligations.
(o) This stock was issued in connection with the recapitalization of the Company in 1991 and was called
for redemption in connection with the Acquisition.
(p) 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.")
(q) 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.
(r) 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>
20
<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. Such additional
information will include the finalized results of property appraisals and
certain lease analyses which are anticipated to be available during July or
August 1996. Management believes that the actual purchase price allocation will
not differ materially from the preliminary purchase price allocation. 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.
21
<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.
22
<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.
23
<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:
<TABLE>
<C> <S>
(a) The adjustment includes the following:
</TABLE>
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Elimination of non-recurring charge resulting from write-up
of inventory at Acquisition............................... $ -- ($1,000)
Increase in depreciation expense........................... 300 68
Decrease in rent expense resulting from the recording of
leases at market.......................................... (375) (85)
-------- -------
($ 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 required to repay a portion
of the Subordinated Loan Facility.......................... 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>
Management believes that a 1/8 percent variance in interest rates will not have any
material effect on the Company's operations.
(f) The adjustment includes the following:
</TABLE>
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Amortization of annual management fee, three years of which
was prepaid at Acquisition................................ $ 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>
24
<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, while the Company
experienced a net loss of $18.0 million in 1991 and net income of $9.4 million
in 1995. As a percentage of net sales, EBITDA and net income (loss) have
improved from 5.9% and (5.7%) in 1991 to 8.1% and 1.9% in 1995, respectively.
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
25
<PAGE>
ESOP Loan was an "internal" obligation that the Simmons ESOP owed to the
Company. Initially, the 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.
26
<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
-------------------------------------------- ---------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
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
27
<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;
28
<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.
Other Deductions, Net. Other deductions, net of $2.5 million in 1994 is
comprised of a non-cash charge of $2.8 million in connection with the sale of an
idle plant facility and other normal non-
29
<PAGE>
operating expenses of $0.6 million offset, in part, by a $0.9 million gain on
the sale of a parcel of land.
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 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, which will result in an increase in interest
expense of approximately $10.0 million per year compared to interest expense
prior to 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 and
maintain historical levels of capital expenditures and operations from cash
provided by operations, available credit facilities and appropriate financings,
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
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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."
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.
In addition to the foregoing capital expenditures, the Company anticipates
that its total expenditures for UNITE, its re-engineering project to improve
overall efficiency by changing the layout of its factory floors, will be
approximately $6.0 million in 1996. While the expenditures for UNITE will have
an adverse impact on results of operations for 1996, the Company believes that
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future benefits, which should commence in the fourth quarter of 1996, will
offset implementation costs. See "Business--Manufacturing and Facilities."
SEASONALITY
The volume of the Company's sales is somewhat seasonal with generally lower
sales occurring during the first quarter of each fiscal year when compared to
the remaining three quarters of the year. The Company also experiences a
seasonal fluctuation in its profitability, with a slightly lower gross profit
percentage occurring during the first quarter of each fiscal year when compared
to margin percentages obtained in the remaining part of the 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 close outs of the prior year's product lines, which
together result in lower profit margins.
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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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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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 broker-dealer 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 holder and any
beneficial holder, that neither the holder nor any such beneficial holder 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. If
the holder is not a
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broker-dealer, the holder must represent that it is not engaged in nor does it
intend to engage in a distribution of the New Notes.
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
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<PAGE>
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 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 reasonable 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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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. Holders of Old
Notes do not have any appraisal or dissenters' rights under Delaware General
Corporation Law in connection with the Exchange Offer. 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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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 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
39
<PAGE>
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 through changing the layout of the manufacturing
process and by 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 self-replenishing raw materials purchasing
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,
40
<PAGE>
management believes that, upon completion of the scheduled re-engineering of
its manufacturing facilities, 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
YEAR WHOLESALE REVENUES
- ---- ------------------
1975 $860.4 Million
1976 946.6 Million
1977 966.2 Million
1978 1.06 Billion
1979 1.2 Billion
1980 1.3 Billion
1981 1.4 Billion
1982 1.368 Billion
1983 1.6 Billion
1984 1.7 Billion
1985 1.8 Billion
1986 1.9 Billion
1987 2.09 Billion
1988 2.26 Billion
1989 2.3 Billion
1990 2.3 Billion
1991 2.38 Billion
1992 2.56 Billion
1993 2.76 Billion
1994 3 Billion
1995 3.2 Billion
-----------------------
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
41
<PAGE>
published by ISPA. The following table sets forth certain information regarding
management's most 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.
42
<PAGE>
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, 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.
43
<PAGE>
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, 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
44
<PAGE>
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 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 for certain components.
L&P supplies the majority of certain components (including spring components,
insular 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 continuous wire and
foundation components for which alternative sources may not be 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. The Company has not experienced any interruption in supply and does
not currently expect such an interruption to occur.
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. To ensure a long-term
adequate supply of certain components, the Company and L&P have entered into
agreements, generally expiring in the year 2010, for the supply of grid tops,
innersprings and wire. Among other things, these agreements generally require
the Company to purchase a majority of its requirements of certain components
from L&P and in return, L&P will provide the Company with certain sales
allowances depending upon the volume of its purchases.
45
<PAGE>
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-- 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 grouping each phase of the manufacturing
processes into cell configurations and implementing a self-replenishing raw
materials 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.
46
<PAGE>
WARRANTIES; PRODUCT RETURNS
The Company's conventional bedding products generally offer limited
warranties of 10 years against manufacturing defects, with certain bedding
manufactured to dealer specifications for promotional purposes carrying
warranties of one year. Management believes that its warranty terms are
generally consistent with those of its primary national competitors. The
Company's historic costs of honoring warranty claims have been an immaterial
percentage of net sales. The Company, consistent with industry practice, also
experiences non-warranty returns for reasons generally related to retailer
accommodations and order entry errors, the costs of which also are considered to
be immaterial. The Company is continuing to train its retailers' sales force
personnel on merchandising and salesmanship in 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. The Company considers its trademarks,
particularly Simmons(R) and Beautyrest(R), to be of material importance to the
business of the Company since they have the effect of developing brand
identification and maintaining consumer loyalty. Management is not aware of any
fact that would negatively impact the continuing use of any of the Company's
material patents, licenses, trademarks or trade names. 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
47
<PAGE>
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.
The following table sets forth certain information regarding manufacturing
and certain other facilities operated by the Company as of March 30, 1996:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE
- -------------------------------------------------------------- -----------
<S> <C>
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
-----------
-----------
</TABLE>
- ------------
* 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
48
<PAGE>
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.
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, currently 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.
Management believes that the Company's facilities, taken as a whole, have
adequate productive capacity and sufficient manufacturing equipment to conduct
business at levels meeting current demand.
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.
49
<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, a linen
manufacturer, from 1991 to 1993. From 1981 through 1991, Mr. Nie held several
senior management positions at Serta, Inc., a bedding manufacturer, 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, a bedding manufacturer.
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, a consumer
50
<PAGE>
electronics manufacturer, as well as operating positions within its divisional
structure from 1981 to 1995. Most recently, he was Senior Vice President and
Chief Financial Officer for Philips Lighting Company, a manufacturer of
commercial and residential electrical lighting fixtures. Prior to Philips, he
was a senior manager with Price Waterhouse, an accounting firm, 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 Company, a yogurt wholesaler, 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., a
bedding manufacturer, 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, a bedding
manufacturer, 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, a wire and bedding components manufacturer, Leggett &
Platt, Inc., a manufacturer of bedding components, and May & Company, a bedding
manufacturer, 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, an accounting firm, 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, a
commercial lending institution, for four years.
51
<PAGE>
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., an
accounting firm. Mr. Philippin is a director of Saks Holdings, Inc. and The
Circle K Corporation.
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 $100,000.
The current compensation arrangements for each of these officers are described
in "Employment Arrangements" below. In connection with the Acquisition, the
Company intends to adopt new compensation arrangements, the terms of which have
not yet been finalized.
52
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION-
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------- OPTIONS/ ALL OTHER
NAME AND SALARY BONUS (A) SARS (B) COMPENSATION (C)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------------------- ---- -------- --------- ------------- ----------------
<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 1994 250,000 242,880 -- 19,909
President 1993 172,613 104,075 -- 21,688
Joseph Ulicny.................. 1995 167,200 175,962 -- 4,628
Executive Vice President-- 1994 160,210 155,383 -- 18,292
Market 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, representing the
value of such options based on their exercise prices. 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 $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 $18,810 in 1995 for Mr. Daiker.
53
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR*
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
TOTAL OF STOCK
NUMBER OF OPTIONS/ PRICE APPRECIATION
SECURITIES SARS GRANTED FOR OPTION
UNDERLYING TO EMPLOYEES EXERCISE OR TERMS
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR(C) ($/SH) DATE 5% ($) 10% ($)
- ------------------------ ----------- -------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Zenon S. Nie............ 300,000 28.8% $4.50 2005 $849,000 $2,151,000
Martin R. Passaglia..... 71,306 6.8% $4.50 2005 $201,796 $ 511,264
Robert K. Barton........ 70,500 6.8% $4.50 2005 $199,515 $ 505,485
Jonathan C. Daiker...... 150,000 14.4% $4.50 2005 $425,915 $1,079,085
</TABLE>
* All Company options outstanding on March 22, 1996 were purchased by Holdings
in connection with the Acquisition.
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
54
<PAGE>
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 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
55
<PAGE>
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, 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,
56
<PAGE>
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 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 March 22, 1998, 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
57
<PAGE>
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 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.
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<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>
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<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)
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<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
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<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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<PAGE>
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, Holdings purchased options to acquire
common stock of the Company from certain members of management of the Company
for an aggregate purchase price of approximately $6.9 million, of which
approximately $4.3 million was used by certain members of management to purchase
stock of Holdings. In addition, 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
63
<PAGE>
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 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.
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<PAGE>
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) consolidations, mergers and sales of assets; (ii) the
incurrence and existence of liens or other encumbrances; (iii) the incurrence
and existence of contingent obligations; (iv) the payment of dividends and
repurchases of common stock; (v) prepayments and amendments of certain
subordinated debt instruments and equity; (vi) investments, loans and advances;
(vii) capital expenditures; (viii) changes in fiscal year; (ix) 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.
In addition, the Senior Credit Facility also provides that the Company and
its subsidiaries may not create, incur, assume or suffer to exist any
indebtedness except: (i) indebtedness arising under the Senior Credit Facility;
(ii) indebtedness existing on the closing date of the Senior Credit Facility
that was specifically scheduled, excluding the refinancing of such indebtedness;
(iii) intercompany indebtedness between the Company and its domestic
subsidiaries and of the Company to any of its foreign subsidiaries; (iv)
indebtedness under the Subordinated Loan Facility up to $100.0 million plus
additional principal thereof issued in lieu of cash interest; (v) any Permanent
Subordinated Debt (as defined in the Senior Credit Facility), provided that the
aggregate principal amount of such indebtedness does not exceed $110.0 million
and $100.0 million of the net proceeds thereof are used to repay indebtedness
under the Subordinated Loan Facility; (vi) indebtedness under industrial revenue
bonds or similar governmental and municipal bonds and for the deferred purchase
price of newly acquired property and to finance equipment purchases if incurred
within 180 days of the acquisition of such property, subject to an aggregate
limit of $12.0 million at any one time outstanding; (vii) indebtedness under
certain financing leases, subject to Capital Expenditure (as defined in the
Senior Credit Facility) and Interest Coverage Ratio limits; (viii) other
indebtedness of the Company and its domestic subsidiaries, subject to a $10.0
million limit in the aggregate at any one time outstanding; (ix) indebtedness of
its foreign subsidiaries, subject to a $5.0 million limit in the aggregate at
any one time outstanding; (x) indebtedness under letters of credit not issued
under the Senior Credit Facility, subject to a $5.0 million limit in the
aggregate at any one time outstanding; (xi) indebtedness in connection with
permitted acquisitions, subject to a $5.0 million limit in the aggregate; (xii)
indebtedness in connection with the repurchase of shares of the capital stock of
the Company made in accordance with the terms of the ESOP; (xiii) indebtedness
in connection with workmen's compensation obligations and general liability
exposure; and (xiv) indebtedness of foreign subsidiaries to the Company or any
of its other subsidiaries, up to $5.0 million less the sum of other outstanding
indebtedness of such foreign subsidiaries and investments by the Company and its
domestic subsidiaries therein.
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
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<PAGE>
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 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
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<PAGE>
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.
67
<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:
<TABLE>
<S> <C>
Buildings and improvements.......................................... 10 - 25 years
Machinery and equipment............................................. 5 - 15 years
</TABLE>
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):
<TABLE>
<S> <C>
1996..................................................................... $2,568
1997..................................................................... 5,200
1998..................................................................... 7,200
1999..................................................................... 9,200
2000..................................................................... 11,200
Thereafter............................................................... 57,491
--------
$92,859
--------
--------
</TABLE>
The Company has entered into a series of long-term supply agreements with a
major supplier for certain raw materials. Based on various provisions of these
agreements, these commitments are currently estimated to aggregate the lesser of
$30 million or approximately 60% of the products covered by such agreements per
year, and generally expire through the year 2010.
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):
<TABLE>
<S> <C>
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
-------
-------
</TABLE>
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):
<TABLE>
<S> <C>
1996..................................................................... $10,085
1997..................................................................... 8,901
1998..................................................................... 7,853
1999..................................................................... 7,204
2000..................................................................... 6,388
Thereafter............................................................... 30,852
--------
$71,283
--------
--------
</TABLE>
F-14
<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.
<TABLE>
<S> <C>
Registration fees............................................... $
Printing........................................................
Legal expenses..................................................
Trustee's fees..................................................
Accounting fees.................................................
Miscellaneous...................................................
Total....................................................... $
</TABLE>
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:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------------ ---------------------------------------------------------------------------
<S> <C>
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.
4.3 Letter of Transmittal.
5* Opinion of Gibson, Dunn & Crutcher.
8* Opinion of Gibson, Dunn & Crutcher regarding tax matters.
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 Employee Stock
Ownership Trust dated March 22, 1996.
10.3+ Consolidated Pledge Agreement between the Company and the Employee Stock
Ownership Trust dated March 22, 1996.
10.4+ Amended Agreement of Trust between the Company and NationsBank 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.
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
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 from December 10, 1995 to December 10,
1998.
10.25* Master Multi-Plan Working Ageement between the Company and The United Steel
Workers 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
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
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.
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 4, 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 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
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
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
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 L.L.P.
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
</TABLE>
- ------------
+ previously filed
* to be filed by amendment
(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
II-5
<PAGE>
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.
ITEM 22. UNDERTAKINGS
The Company undertakes to update the Registration Statement with
post-effective amendments to reflect (i) any prospectus required by Section
10(a)(3) of the Securities Act; (ii) facts or events arising after the effective
date of the Registration Statement which constitute a fundamental change; and
(iii) any material information with respect to the plan of distribution not
disclosed previously in the Registration Statement or any material change to
such information in the Registration Statement. The Company also undertakes to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
II-6
<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 July 16, 1996.
SIMMONS COMPANY
By: /s/ Zenon S. Nie
..................................
Zenon S. Nie
Chairman of the Board and Chief
Executive Officer
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)
* Director
.............................................
Savio W. Tung
* Director
.............................................
Christopher J. O'Brien
* Director
.............................................
Charles J. Philippin
* Director
.............................................
Jon P. Hedley
</TABLE>
*By /s/ ROGER W.
FRANKLIN
..................................
Roger W. Franklin
Attorney-in-Fact
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------------ ---------------------------------------------------------------------------
<S> <C>
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.
4.3 Letter of Transmittal.
5* Opinion of Gibson, Dunn & Crutcher.
8* Opinion of Gibson, Dunn & Crutcher regarding tax matters.
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.
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 4, 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 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
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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
- ------------
+ previously filed
* to be filed by amendment
Exhibit 4.3
LETTER OF TRANSMITTAL
SIMMONS COMPANY
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
PURSUANT TO THE PROSPECTUS DATED , 1996
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996,
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
BY HAND/OVERNIGHT EXPRESS/MAIL/OVERNIGHT DELIVERY
(INSURED OR REGISTERED RECOMMENDED)
SunTrust Bank, Atlanta
Corporate Trust Department
58 Edgewood Avenue
Room 400
Atlanta, Georgia 30303
Via Facsimile:
(404) 332-3966
Attn: M. Russell Smith, Jr.
For Information Call:
M. Russell Smith, Jr.
(404) 588-7811
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, will
not constitute delivery.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1996 (the "Prospectus"), of Simmons Company, a Delaware
corporation (the "Company"), and this Letter of Transmittal (this "Letter"),
which together constitute the Company's offer (the "Exchange Offer") to exchange
an aggregate principal amount at maturity of up to $100,000,000 of 10- 3/4%
Series A Senior Subordinated Notes Due 2006 (the "New Notes") of the Company for
a like principal amount at maturity of the issued and outstanding 10- 3/4%
Senior Subordinated Notes Due 2006 (the "Old Notes") of the Company from the
holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. 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. Holders of Old Notes accepted for
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Old Notes. The Company reserves the right, at any
time or from time to time, to extend the Exchange Offer at its discretion, in
which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company shall notify holders of the
Old Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. (See
Instruction 1.) Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
<PAGE>
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount at maturity of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES 1 2 3
AGGREGATE
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AT MATURITY OF MATURITY
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
<S> <C> <C> <C>
Total
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes indicated
in column 2. (See Instruction 2.) Old Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof. (See Instruction 1.)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:..............................................
Account Number:................ Transaction Code Number:.....................
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):............................................
Window Ticket Number (if any):..............................................
Date of Execution of Notice of Guaranteed Delivery:.........................
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:....................... Transaction Code Number:..............
/ / 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:....................................................................
....................................................................
2
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes 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 of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), 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
arrangements with any person to participate in the distribution of such New
Notes. 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
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old 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 New Notes;
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.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE
INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of and sent to someone other than the person
or persons whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s).........................................................................
................................................................................
(PLEASE TYPE OR PRINT)
Address:........................................................................
................................................................................
(INCLUDING ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below
............................................................................
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER, IF APPLICABLE)
SPECIAL DELIVERY
INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s).........................................................................
................................................................................
(PLEASE TYPE OR PRINT)
Address:........................................................................
................................................................................
(INCLUDING ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
DATED ................................................................, 1996
X .......................... X ........................, 1996
X .......................... X ........................, 1996
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number: ............................................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. (See Instruction 3.)
NAME(S) ........................................................................
................................................................................
(PLEASE TYPE OR PRINT)
CAPACITY: ......................................................................
................................................................................
ADDRESSS: ......................................................................
................................................................................
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by a
participant in a recognized signature guarantee medallion program:
................................................................................
(AUTHORIZED SIGNATURE)
................................................................................
(TITLE)
................................................................................
(NAME AND FIRM)
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
10 3/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2006 IN EXCHANGE FOR THE
10 3/4% SENIOR SUBORDINATED NOTES DUE 2006 OF SIMMONS COMPANY
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
Letter is to be completed by noteholders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed Letter (or manually signed facsimile hereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount of
maturity of $1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution
(as defined in Instruction 3 below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by 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, or
a Book-Entry Confirmation, and any other documents required by the Letter 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 Book-Entry Confirmation, as the case may be, and all other documents required
by this Letter, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit the delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section in the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount at maturity of Old Notes to be tendered in the box
above entitled "Description of Old Notes--Principal Amount at Maturity
Tendered." A reissued certificate representing the balance of nontendered Old
Notes will be sent to such tendering holder, unless otherwise provided in the
appropriate box on this Letter, promptly after the Expiration Date. All of the
Old Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
3. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE
OF SIGNATURES. If this Letter is signed by the registered holder of the Old
Notes tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate powers of attorney are required. If, however, the New Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted hereby
or separate powers of attorney are required. Signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names on the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in 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.
Endorsements on certificates for Old Notes or signatures on powers of
attorney required by this Instruction 3 must be guaranteed by a firm which is a
participant in a recognized signature guarantee medallion program ("Eligible
Institutions").
<PAGE>
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered (i) by a registered holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on this
Letter, or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Noteholders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires that
a tendering holder whose Old Notes are accepted for exchange must provide the
Company (as payor) with such holder's correct Taxpayer Identification Number
("TIN") on Substitute Form W-9 below, which in the case of a tendering holder
who is an individual, is his or her social security number. If the Company is
not provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such tendering holder of New Notes may be
subject to backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends, or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must provide the Company a completed Form W-8,
Certificate of Foreign Status. These forms may be obtained from the Exchange
Agent. If the Old Notes are in more than one name or are not in the name of the
actual owner, such holder should consult the W-9 Guidelines for information on
which TIN to report. If such holder does not have a TIN, such holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the box
in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter, may be directed to the Exchange Agent, at the
address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: SIMMONS COMPANY
<TABLE>
<S> <C> <C>
PART 1-- PLEASE
PROVIDE YOUR TIN TIN: _____________________
IN THE BOX AT Social Security Number or
RIGHT AND Employer Identification
CERTIFY BY Number
SIGNING AND
DATING
BELOW.
PART 2--TIN Applied For / /
CERTIFICATION:
SUBSTITUTE
UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
FORM W-9 (1) the number shown on this form is my correct
Department of the Treasury Taxpayer Identification
Internal Revenue Service Number (or I am waiting for a number to be
Payor's Request issued to me).
for Taxpayer
("TIN") and Certification (2) I am not subject to backup withholding either
because:
(a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal
Revenue Service (the
"IRS") that I am subject to backup withholding
as a result of a Identification Number
failure to report all interest or dividends,
or
(c) the IRS has notified me that I am no longer
subject to backup withholding, and
(3) any other information provided on this form is
true and correct.
SIGNATURE _______________________________ DATE __________
</TABLE>
You must cross out item(2) of the above certification if you have been
notified by IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2
OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administrative Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide the number.
SIGNATURE _____________________________________ DATE __________________________
EXHIBIT 10.21
AGREEMENT
BETWEEN
SIMMONS COMPANY
AND
UNITED FURNITURE WORKERS OF AMERICA
LOCAL 262, AFL-CIO
AUGUST 1, 1995
TO
AUGUST 1, 1998
<PAGE>
AGREEMENT
UNITED FURNITURE WORKERS OF AMERICA - LOCAL #262 A.F.L.-C.I.O
-------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I RECOGNITION AND UNION SECURITY . . . . . . . . . . . . . . . . 4
1.02 Exclusive Bargaining Representative . . . . . . . . . . . . . 4
------------------------------------
1.03 UNION Security . . . . . . . . . . . . . . . . . . . . . . . . 5
---------------
1.04 UNION Representative Seniority . . . . . . . . . . . . . . . . 6
-------------------------------
1.05 Check Off . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------
ARTICLE II GRIEVANCE AND ARBITRATION PROCEDURE . . . . . . . . . . . . . . 6
ARTICLE III BARGAINING COMMITTEE . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV HOURS OF WORK AND PREMIUM PAY . . . . . . . . . . . . . . . . . 11
4.01 Working Hours . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------
4.02 Lunch Periods . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------
4.03 Rest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
4.04 Overtime. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------
ARTICLE V WAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.01 Hiring Rate and Progression . . . . . . . . . . . . . . . . . . 13
----------------------------
5.02 Wage Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
5.03 Contract Rate for Incentive Workers . . . . . . . . . . . . . . 18
------------------------------------
5.04 Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------
5.05 Report-in Pay . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------
5.06 Temporary Transfer . . . . . . . . . . . . . . . . . . . . . . 18
-------------------
5.07 Work Wait . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
5.08 Computation of Incentive Average Hourly Earnings Rates . . . . 19
-------------------------------------------------------
ARTICLE VI STANDARD ALLOWED HOURS (S.A.H.) SETTING FORMULA . . . . . . . . 21
ARTICLE VII SENIORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.02 Seniority . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------
7.03 Job Skills Area . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------
7.04 Core Group . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------
7.05 Productivity/Training Committee . . . . . . . . . . . . . . . . 28
--------------------------------
7.06 Employee Training . . . . . . . . . . . . . . . . . . . . . . . 29
------------------
7.07 Lay Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
---------
7.08 Furlough . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------
<PAGE>
7.09 Reduction of Hours . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
7.10 Open Positions . . . . . . . . . . . . . . . . . . . . . . . . 34
---------------
7.11 Personnel Action . . . . . . . . . . . . . . . . . . . . . . . 35
-----------------
7.12 Job Skills Area Phase Out . . . . . . . . . . . . . . . . . . . 35
--------------------------
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.01 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . 35
-----------------
8.02 Jury Duty . . . . . . . . . . . . . . . . . . . . . . . . . 36
----------
ARTICLE IX PAID VACATIONS . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X PAID HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XI MILITARY CLAUSE . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XII INSURANCE PROGRAM . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XIII PENSION . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XIV MANAGEMENT RIGHTS CLAUSE . . . . . . . . . . . . . . . . . . 43
ARTICLE XV NO STRIKE - NO LOCKOUT . . . . . . . . . . . . . . . . . . . 45
ARTICLE XVI BULLETIN BOARDS . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XVII SAFETY AND SANITATION . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XVIII LEGAL CONFORMITY . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XIX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 48
19.01 Sick Days . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE XX TERMINATION, MODIFICATION AND RENEWAL . . . . . . . . . . . . 48
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
APPENDIX C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
APPENDIX D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
<PAGE>
This Agreement entered into this first day of August, 1995, by and between
SIMMONS COMPANY, a Delaware corporation, for and on behalf of its plant in San
Leandro, California, hereinafter referred to as the COMPANY,
and
The UNITED FURNITURE WORKERS OF AMERICA, LOCAL #262, A.F.L.-C.I.O, on
behalf of the COMPANY's employees in the San Leandro Works, hereinafter referred
to as the UNION
WITNESSETH
NOW, THEREFORE, in consideration of the promises of mutual covenants
and agreements of the parties hereinafter set forth, the parties do hereby agree
as follows:
ARTICLE I RECOGNITION AND UNION SECURITY
- ---------
1.01 Purpose. The intent and purpose of the parties is to promote
--------
efficiency, increase production and improve and achieve harmonious industrial
and economic relationships between the employees and the COMPANY; and to that
end the parties express their intention to cooperate in fulfilling their mutual
obligation in this basic agreement covering wages, hours of work and other terms
and conditions of employment applicable to the employees covered by this
collective bargaining agreement.
1.02 Exclusive Bargaining Representative.
-----------------------------------
The COMPANY recognizes the UNION as the exclusive bargaining representative for
all production and maintenance employees working at its San Leandro, California
plant, including the Flotation Division, covered by this agreement for the
purpose of collective bargaining, excluding executives, sales employees, office
workers, supervisors, foremen, timekeepers, watchmen and Teamsters (this term
does not include inside plant truckers). The COMPANY does not want nor will it
permit supervisors, including foremen, to do any production or maintenance work.
However, this provision shall not be construed in such fashion as to deny such
personnel the right to instruct, experiment, check or test equipment to
determine fitness or do critically necessary work when
<PAGE>
required to meet customer demands limiting to no more than forty-five (45)
minutes in a day. This clause will not be abused or misused.
1.03 UNION Security
--------------
A. It is further understood and agreed that all such employees shall, after 30
days, become members of the UNION and, as a condition of continued
employment, maintain such membership in good standing for the life of this
agreement.
B. The COMPANY shall have the sole and exclusive right to hire employees. To
assure maximum harmonious relations and in order to obtain the best
qualified employees, the COMPANY shall employ only such personnel as meet
the minimum requirement as to training, experience, and ability as
recognized by prevailing standards.
C. New employees shall be considered probationary employees until they have
completed the probationary period of sixty (60) days. The parties agree
that the sixty (60) days may be extended to ninety (90) by mutual
agreement. Such mutual agreement will not be unreasonably withheld when the
COMPANY has cause for extension. During the probationary period, an
employee may be discharged at the discretion of the COMPANY with or without
cause.
D. The UNION agrees to give the COMPANY every reasonable assistance in
recruiting employees meeting the above standards.
E. Part-time and Temporary Employees
---------------------------------
Part-time and temporary employees will receive no benefits, holidays or
vacation. At the time the COMPANY determines that a temporary position is
full-time or at the end of ninety (90) days (whichever comes first) the
temporary job will be filled in accordance with the contract.
The COMPANY will not have part-time or temporary employees working if
regular employees are not working all scheduled hours per week unless the
regular employees have refused to work on the job being performed by the
part-time or temporary employees.
The COMPANY will have the right to hire part-time employees on a permanent
basis without paying benefits, holidays or vacation. Part-time employees
will pay union dues as designated
<PAGE>
by the UNION. Part-time employees will have no seniority rights in the
contract. Probationary period will apply to permanent part-time positions.
A part-time employee is one who is hired to regularly work less than the
number of hours established as the regular work week in this agreement.
The COMPANY will have no more than six (6) temporaries at one time and no
more than four (4) part-time employees at one time.
1.04 UNION Representative Seniority
------------------------------
The COMPANY agrees that any employee leaving his/her employment to accept
elective or appointive positions with the UNION shall, at the expiration of
his/her official duties, be returned to his/her previous job at the plant.
During absence employee will continue to accrue seniority for three years after
which no seniority will be accrued. Employees serving in such positions prior to
this contract date will continue to accrue seniority as defined in previous
contract. If this job no longer exists, regular rules governing seniority will
apply.
1.05 Check Off
---------
A. The COMPANY agrees to deduct (upon receipt of written authorization for
such deductions) the initiation fees of new members, the regular monthly
dues of all such members, and any assessment authorized by the UNION in
accordance with its by-laws. Such deductions shall be made the first payday
of each month and shall be remitted to the Financial Secretary of the UNION
not later than the fifteenth (15th) day of the current month. In the event
that an individual is off and dues are not deducted for the month, the
COMPANY agrees upon written authorization from the member to deduct the
monthly dues the second month.
B. The COMPANY agrees to deduct (upon receipt of written authorization for
such deduction) from the employee salary an annual deduction for C.O.P.E.
The COMPANY shall remit to the Financial Secretary of the UNION within
fifteen (15) days all monies collected.
ARTICLE II GRIEVANCE AND ARBITRATION PROCEDURE
- ----------
2.01
<PAGE>
A. Grievances regarding the interpretation or application of this agreement
must be filed within five (5) days of their occurrence, provided, however,
that no grievance will be recognized to exist unless submitted in writing
by either the Bargaining Committee or a Department Shop Steward to the
immediate Foreman of the department involved. Prior to filing a written
grievance a complaint may be discussed by the employee with his/her
supervisor. The complaining employee shall have the option to have a Shop
Steward or committee member present. The COMPANY reserves the right to have
a Shop Steward present in addition to a committee person. If the complaint
is not then resolved, it may be submitted as a grievance in writing by the
Grievance Committee or a Shop Steward to the Supervisor. Should differences
arise between the COMPANY and the UNION or any of its members employed by
the COMPANY as to the meaning and application of the provisions of this
Agreement, or should any local trouble arise in the plant, there shall be
no suspension of work on account of these differences. Decisions by any one
of the following methods shall be retroactive to the date they took place:
FIRST: Between the Shop Steward of the department concerned and the
Superintendent or Foreman of the department.
SECOND: Between the COMPANY and Bargaining Committee designated by the
UNION.
THIRD: Between the Operations Manager or his representative and the
UNION Bargaining Committee and representative of the UNION.
FOURTH: Failing satisfactory adjustment by any of the above means a
grievance involving the interpretation or application of this
contract may be presented by either party to the Federal
Mediation and Conciliation Service and, finally, such unsettled
grievances may be submitted to an Arbitrator.
In the event that a time study dispute is not resolved at the Operations
Manager's level of the present grievance procedure, the UNION shall have
the right to retain, at UNION expense, an outside time study engineer who
shall be permitted by the COMPANY to view or study the operation in dispute
for the purpose of advising the UNION on the disputed standards. It is
understood by the parties that following the receipt of the report by the
UNION from its Engineer the UNION may then confer with COMPANY
representatives other than the local management through the offices of the
COMPANY Senior Vice President of Human Resources for the purpose of
attempting resolution at the pre-arbitration level. If the time
<PAGE>
study dispute is not resolved, then the matter may be appealed to an
Arbitrator who must be a qualified Time Study Engineer to be selected by
mutual Agreement. In order to facilitate appropriate arrangements, the
UNION shall notify the COMPANY of the date on which its Time Study Engineer
will appear at least two (2) weeks in advance. Disputes and grievances
involving questions outside the terms of this Agreement shall, if mutually
agreed, be settled by arbitration and the Arbitrator shall be selected as
provided below.
B. Unsettled grievances will be submitted to an Arbitrator from a panel of ten
(10) mutually acceptable Arbitrators which list the parties shall draw up
after the signing of this Agreement. It is mandatory such list will be
agreed to within ninety (90) days of the signing of this Agreement. This
panel will be considered a permanent panel during the life of the Agreement
and will provide Arbitrators for all cases occurring during that period.
Selection of the Arbitrator for each case will be made by the random drawing
of one of the ten (10) named Arbitrators. If the Arbitrator drawn is not
available within thirty (30) days, another drawing will be made. If no
Arbitrator on the list of ten (10) is available within thirty (30) days, the
Arbitrator with the earliest available date will be selected.
C. All steps of the Grievance and Arbitration Procedure must be initiated
(including selection of Arbitrator) within sixty (60) days of the date of
grievance if filed, or the grievance will be considered resolved with the
COMPANY's last answer.
In the event it is difficult to obtain a hearing date because of crowded
Arbitrator schedules, the parties may extend, by mutual Agreement, the
sixty (60) day limitation to accommodate to the schedule of the earliest
available Arbitrator. Mutual Agreement will not be unreasonably withheld.
The decision of the Arbitrator shall be final and binding.
The parties will pay the cost of their own presentation in an arbitration
case but will share equally the Arbitrator's fee.
D. Arbitration of disputes involving standards require that the Arbitrator not
only be skilled in incentive work measurement, but also that as a part of
his/her experience/background, he/she has actually set incentive rates in a
manufacturing operation. As proof that standards are
<PAGE>
adequate, the COMPANY is permitted to demonstrate their attainability by
using an operator outside the U.F.W.A. membership.
Prior to the time the demonstration takes place the UNION shall be afforded
an opportunity to secure the services of a qualified Time Study Engineer
with the necessary background to check the incentive effort of the operator
to ensure the fairness of his/her performance measurement. The COMPANY
shall not abuse this clause. Arbitrators are denied the possibility of
compromising standards and are limited to accepting either the COMPANY or
the UNION proposed standard on the basis of which most nearly conforms to
the formula described in Article VI.
2.02 A specified period shall be agreed upon between the Bargaining Committee
and the COMPANY for the presentation of written grievances, provided, however,
that matters pertaining to discharge or other matters that cannot be delayed
until the time of the next meeting shall be presented immediately. Article XV,
Section A provides for Expedited Arbitration designed to ensure speedy
resolution of certain grievances, including discharge and suspension of
employees.
2.03 It is understood and agreed that when the Shop Steward or Bargaining
Committee presents a written grievance to the COMPANY according to the
procedures outlined herein, for any reason or for higher rate or new wage rates
for a job or operation, such increases shall be retroactive to the date the
grievance took place. No demand for retroactive pay shall be made where it is
physically impossible to calculate such pay. Unless otherwise agreed on by the
COMPANY and the Bargaining Committee, all grievances presented to the COMPANY in
writing by the Bargaining Committee shall be mutually agreed on within one (1)
week, after which time Article II, Section 2.01 (A), third (3rd) step shall be
invoked and completed within fifteen (15) days.
2.04 The employees shall perform the work as ordered by the EMPLOYER in
accordance with the provisions of this Agreement.
2.05 No action shall be taken affecting working conditions of the employees
outside the term of the Agreement without consultation with the UNION.
<PAGE>
ARTICLE III BARGAINING COMMITTEE
- -----------
3.01
A. The Grievance Committee for the plant shall consist of no more than three
employees appointed by the UNION.
1. Wednesday afternoons starting at 2:45 p.m. or any other mutually
agreeable time shall be designated as the time for the regular weekly
grievance meetings with COMPANY representatives. The COMPANY will not
pay employees for time spent in this meeting. If overtime is scheduled
and the meeting is concluded prior to the scheduled overtime, the
employees will return to their jobs and finish the remainder of
scheduled overtime if required by the COMPANY.
2. If the above meeting is scheduled by the COMPANY prior to 2:45 p.m.,
the employees will be paid at average rate for the time spent in the
meeting prior to 2:45 p.m.
B. Any Union Steward shall have the right to visit departments other than
his/her own for a maximum of twenty (20) minutes a day after notifying
his/her department supervisor. The visits shall only be for the purpose of
investigating or discussing legitimate grievances.
Any UNION official shall have the right to visit the plant at all
reasonable times and shall be accompanied by a representative of the
COMPANY if the COMPANY so desires.
C. It is understood that when the COMPANY calls a meeting of the Bargaining
Committee the expense of such meeting shall be borne by the COMPANY.
D. It is understood that any member of the Bargaining Committee may, without
loss of working time, call to the attention of the management any violation
of an agreement previously concluded. If the management cannot settle this
grievance according to the terms of the original Agreement, then the
COMPANY shall meet with the Bargaining Committee and bear the expenses
thereof if the meeting is prior to 2:45 p.m. If the meeting is at 2:45
p.m., the COMPANY will not pay.
<PAGE>
ARTICLE IV HOURS OF WORK AND PREMIUM PAY
- -----------
4.01 Working Hours.
-------------
A. The eight (8) hour day and the forty (40) hour week, Monday to Friday
inclusive, shall be established at the plant.
B. Normal first shift schedule will be from 6:15 a.m. to 2:45 p.m.
Normal second shift schedule will be from 2:45 p.m. to 11:15 p.m.
Normal third shift schedule will be from 10:15 p.m. to 6:15 a.m.
Flex (A) Start 5:15 a.m. to 1:45 p.m.
Flex (B) Start 8:15 a.m. to 4:45 p,m.
Flex (C) Start 11:15 a.m. to 7:45 p.m.
Employees may be required to start their normal shift two (2) hours early.
C. These hours may be changed by mutual agreement between the parties.
4.02 Lunch Periods
-------------
Lunch periods will be scheduled as follows:
1st Shift 11:00 a.m. to 11:30 a.m.
2nd Shift 7:45 p.m. to 8:15 p.m.
3rd Shift 2:15 a.m. to 2:45 a.m.
Flex (C) Shift 3:15 p.m. to 3:45 p.m.
These hours may be changed by mutual Agreement.
4.03 Rest Periods
------------
A. There shall be a rest period of ten (10) minutes between the second (2nd)
and third (3rd) hours and the sixth (6th) and seventh (7th) hours in each
shift.
4.04 Overtime
--------
A. 1. All work done on Saturday, up to eight (8) hours or in excess of
eight (8) hours in any one (1) day, and in excess of forty (40)
hours in any one week, shall be paid at the rate of time-and-one-
half (1-1/2).
<PAGE>
2. Working hours will be based on an eight (8) hour time period which is
subject to being flexed for starting times for the first shift will be
6:15 a.m. (normal), 5:15 a.m. (flex), and 8:15 a.m. (flex). The
starting times for the second shift will be 2:45 p.m. (normal) and
11:15 a.m. (flex). Employee starting at 5:15 a.m., 8:15 a.m. and 11:15
a.m. will receive an hourly wage premium for the hours worked
before normal shift starting times and ending times.
Employees placed on flexed hours will be determined by seniority, and
will be notified five calendar days in advance of the Company's intent
of their placement on flex hours. Employees placed on flex hours are
not subject to change of that status without five calendar days
advance notice.
Flex Hours--employees starting at 5:15 a.m., and 11:15 a.m. will
receive an hourly wage premium of $.10 per hour for the hours worked
before normal shift starting and ending times.
Employees shall be informed, at the time of scheduling of the length
of time they are expected to start their shift early. Employees
required to work before the normal starting time without advanced
notice shall receive time-and-one-half (1-1/2) for all hours worked
before the normal starting time.
3. Double time shall be paid for all hours over eight (8) hours on
Saturday, and for all work performed on Sunday and Holidays.
B. Employees working in excess of ten (10) hours on one shift shall be allowed
twenty (20) minutes mealtime without deduction in pay.
C. Employees required to work overtime will be so notified on the working day
before the day of overtime except:
1. In cases of production emergency.
2. Quilt Machine Operators. Quilt Machine Operators shall be notified
before lunch of the day overtime is to occur. When mutually agreed,
the COMPANY and the UNION can meet to make further revisions to
accommodate the needs. The COMPANY shall first seek volunteers to work
the overtime. If there are not enough volunteers to provide the
necessary amount of work, employees shall be required to work the
overtime by rotating the mandatory overtime, beginning with the least
senior qualified employees.
3. The Company will notify employees by 11:00 a.m. on Friday if they are
required to work on Saturday. If asked after 11:00 a.m., it will be on
a volunteer basis.
<PAGE>
D. Except for the plant security, continuous shift operations, emergency,
maintenance or impaired customer service, the COMPANY will not require
production employees to work in excess of ten (10) hours per day on Monday,
Tuesday, Wednesday and Thursday and Friday. No Saturday work will be
scheduled if ten hours are scheduled for Friday. In the event Saturday is
scheduled, Friday hours will be limited to eight (8), provided however
that:
1. No overtime will be required the day before a holiday.
2. Saturday work will not be mandatory during contract holiday weekends.
Sunday and holiday work will not be mandatory.
3. An employee with a reasonable excuse for not working on a particular
Saturday, may have the Saturday off with two (2) weeks advance written
request to the COMPANY provided that another employee is available to
perform the necessary work. It is agreed that no more than two (2)
employees per job skills area may exercise such option.
4. Rotation of overtime among qualified employees will be discussed
between the Shop Steward and the appropriate Supervisor prior to
giving notice to the affected employee.
5. Employees shall not be required to work more than three (3)
consecutive Saturdays. Employees may be required to work all Saturdays
during the month of October. Annual physical inventory shall be
mandatory for all employees who are assigned to work inventory.
6. Assignment of hours before the normal starting time shall be by group.
A group is determined by the manufacturing requirements in accordance
with the production schedule.
If it is necessary to require an individual to start early he/she will
be selected on a voluntary basis. If there are no volunteers,
employees will be assigned by a rotation of seniority beginning with
the least senior employees.
ARTICLE V WAGES
- ---------
5.01 Hiring Rate and Progression
---------------------------
Regardless of the job classification:
A. The hiring rate for new incentive workers and day workers will be:
8/1/95 8/1/96 8/1/97
------ ------ ------
$6.75 $7.00 $7.25
<PAGE>
B. Each new employee shall receive an increase of thirty cents (30 cents) per
hour every two (2) weeks until the base rate for that particular Job
Classification assignment is reached.
5.02 Wage Rates
----------
A. The base rates for computing Standard Allowed Hours values of incentive
workers are as follows:
<PAGE>
GROUP DESCRIPTION JOB 8-1-95 8-1-96 8-1-97
JSA I Matt Finish Hogring 8.71 8.96 9.21
Tuft 8.41 8.66 8.91
Close 9.45 9.70 9.95
Material Handler 10.20 10.50 10.80
JSA II Sewing Flat Sew 8.41 8.66 8.91
Tack/Join 8.41 8.66 8.91
Material Handler 10.20 10.50 10.80
JSA III Matt Pre- Quilt Operator 8.51 8.76 9.01
assemble Border Machine Opr. 8.51 8.76 9.01
Slitter 10.66 10.96 11.26
Flat Cutter 10.66 10.96 11.26
Material Handler 10.20 10.50 10.80
JSA IV Box Spring Frame Assemb. 8.41 8.66 8.91
Pre-Uph. Staplers 8.71 8.96 9.21
Top Off 8.71 8.96 9.21
Material Handler 10.20 10.50 10.80
JSA V Box Spring Upholsterers 8.71 8.96 9.21
Finish United Packers 10.20 10.50 10.80
Material Handler 10.20 10.50 10.80
JSA VI Maintenance Mechanics See Attached
Apprentices See Attached
JSA VII Ship. Recv.*** All Handlers 10.70 11.00 11.30
JSA VIII Contourflex Coil Operator 8.51 8.76 9.01
Countourflex Opr. 8.51 8.76 9.01
Baler 9.64 9.94 10.24
Material Handler 10.20 10.50 10.80
JSA X Janitorial Janitors 9.49 9.79 10.09
The Inventory and General Shop Rate of
pay shall be: 9.80 10.10 10.40
per hour.
* Incentive Base Rates
** Receiving Clerk additional duties $.50/hour
*** Effective with this contract, base rates for hogringers who are presently
skilled in closing will be increased to the closing rate. Going forward, the
closing and hogring jobs will be combined in a split classification paid at
the closing rate. Any new employees will be hired in the split
classification.
<PAGE>
B. The COMPANY and the UNION agree to the establishment of four mechanic job
classifications:
1. Master Journeyman-- new mechanic classifications with a $.50 per hour
increase over journeyman's hourly rate.
2. Journeyman
3. Technical
4. Entry Level
Each job classification will have its own wage rate.
By joint committee the COMPANY and UNION will determine the mechanic job
classification an individual will be placed in. All employees presently holding
a maintenance mechanic job will receive their current rate of pay or their new
job classification rate which ever is higher.
The COMPANY agrees to provide maintenance mechanics a tuition
reimbursement plan of one hundred percent (100%) for furthering their skills.
The COMPANY will pay the tuition cost upon successful completion of the studies.
The cost of books, equipment and tools will be the responsibility of the
individual. The COMPANY also agrees to implement the apprenticeship program of
the International Union of Electronics, Electrical, Salaried Machine and
Furniture Workers, AFL-CIO.
The wage rates for the mechanics job classifications are:
ANNIVERSARY DATES
JOB CLASSIFICATIONS
8-1-95 8-1-96 8-9-97
Entry Level 14.05 14.35 14.65
After completion of 6 months 14.26 14.56 14.86
After completion of 12 months 14.46 14.76 15.06
Alter completion of 18 months 14.67 14.97 15.27
After completion of 24 months 14.87 15.17 15.47
Alter completion of 30 months 15.08 15.38 15.68
<PAGE>
ANNIVERSARY DATES
JOB CLASSIFICATIONS
8-1-95 8-1-96 8-9-97
After completion of 36 months 15.28 15.58 15.88
After completion of 42 months 15.49 15.79 16.09
After completion of 48 months 15.69 15.99 16.29
Technical 15.71 16.01 16.31
Fifth Year 16.13 16.43 16.73
Journeyman 16.55 16.85 17.15
To be classified under the technical job classification an individual must
possess: (one of the following)
* twenty hours of college courses in machine shop technology, electrician,
electronics, welding; or any other trade applicable to SIMMONS work
environment.
* or a certified job skill applicable to SIMMONS work environment.
* or 4 years of approved work experience.
* or be employed by SIMMONS and classified a maintenance mechanic as of
--------------------
July 1, 1989.
Quarterly, the joint COMPANY and UNION committee will meet to review
progress of apprentices and the movement of individuals between job
classification.
A. Additional explanation of mechanic job classifications establish a fourth
classification for mechanics:
1. Master Journeyman--possess all the skills and knowledge of a
journeyman, plus additional expertise in electrical,
mechanical, ability to train, lead others, and communicate
with management and outside sources.
Individual(s): D. (Joe) Colbert
2. Journeyman
Individual(s): H. (Danny) Chan and A. Zarragoza
3. Technical
Individual(s): A. Hernandez and S. Fong
4. Entry Level
Individual(s): E. Munoz
<PAGE>
5.03 Contract Rate for Incentive Workers
-----------------------------------
8-1-95 8-1-96 8-1-97
------ ------ ------
All Incentive Workers 8.41 8.66 8.91
The above rates, or actual incentive work average hourly earnings rates,
whichever is lower, will be used wherever reference is made to "Contract Rates"
in this Agreement. It is understood by and between the parties that the rates
for payment of "Contract Rates" as shown above, are not to be construed as
maximum earnings rates. These rates, or actual incentive work average hourly
earnings rates, whichever is lower, will also be used to compensate incentive
workers for work performed other than those jobs on which the rate of the job is
paid.
5.04 Wages
-----
Fifteen cents (15 cents) per hour shall be paid for second shift work.
Fifteen cents (15 cents) per hour shall be paid for third shift. The
third shift shall receive a paid one-half(1/2) hour lunch.
5.05 Report-in Pay
-------------
A. Employees who report for work, and who have not been otherwise instructed
on the previous day, shall be paid for a minimum of four (4) hours for such
day.
B. The COMPANY will not be responsible for wage payments for the time not
worked when production is interrupted because of unforeseen emergencies
arising from conditions outside of the plant. In the event of such
emergency, the COMPANY and the UNION representatives shall meet immediately
to determine any necessary change of work schedule.
5.06 Temporary Transfer
------------------
A. A temporary transfer is defined as the movement of an employee from one
position to another position. An employee shall not be reassigned positions
more than two times in one day under the provisions of this article.
Employees temporarily transferred shall be paid as follows:
1. Dayworkers who are temporarily transferred to another daywork
position shall be paid at the base rate of their job or the base rate
of the new job, whichever is higher.
2. Incentive workers who are temporarily transferred to another incentive
position shall work on an incentive basis and be paid at the higher of
the two base rates for that day's work.
3. Incentive workers who are temporarily transferred to a daywork
position shall be transferred at the General Shop Rate (contained in
Article 5.02).
<PAGE>
4. Dayworkers who are temporarily transferred to an incentive position
shall receive their piece work earnings or their daywork rate
whichever is higher.
B. An employee who is reassigned more than two times in one day shall receive
his/her quarterly average until he/she returns to his/her primary job
function. A return to the primary job function as the third move shall
qualify the employee to receive his/her quarterly average.
5.07 Work Wait.
----------
If for any reason beyond the employee's control he/she is required to wait
for a period of time amounting to twenty (20) minutes or more during any working
day, he/she shall be compensated for all such lost time at his/her Contract Rate
in accordance with Article V, Section 5.03 of this Agreement. If the time
amounts to nineteen (19) minutes or less, he/she will not be eligible for
payment. In all cases the time will be measured from the time the employee
notifies his/her Supervisor or, in the absence of said Supervisor, any other
available supervisor. It is understood and agreed that any waiting time of two
(2) minutes or less will not be included in the computation of total work wait
time for the working day.
5.08 Computation of Incentive Average Hourly Earnings Rates.
-------------------------------------------------------
A. Incentive work average hourly earnings rates shall be established on a
calendar quarter basis and shall change and become effective one month
after the close of each calendar quarter. Such average will apply in all
cases where incentive work average hourly earnings rates are referred to in
this Agreement. The four calendar quarters of the year shall be as follows:
1st Quarter January, February, March
2nd Quarter April, May, June
3rd Quarter July, August, September
4th Quarter October, November, December
B. Incentive work average hourly earnings rates will not be established for
employees who have worked less than eighty (80) hours as incentive workers
in the preceding quarter except that employees transferred to incentive
work during the last eighty (80) hours of any quarter shall receive an
incentive work average rating. If an employee has been legitimately away
from work because of illness, accident, or on a leave of absence, and has
not been able to establish an incentive work average hourly earnings rate,
it is agreed that his/her incentive work average
<PAGE>
hourly earnings rate for the quarter preceding his/her absence will be
carried forward until such time as he/she is able to return to work.
C. Incentive work average hourly earnings rates shall be computed by dividing
the sum of the number of hours in the calendar quarter worked on incentive
work, worked at average rate, and worked at contract rate into the total
earnings for said hours worked during the calendar quarter. The total
earnings used in the computation of the incentive work average hourly
earnings rates shall not include vacation pay, holiday pay, jury service
pay, shift or overtime premium pay.
D. Where an incentive worker without published quarterly incentive work
average hourly rate is assigned to a job without an incentive work price
he/she will be paid at the average of his/her incentive work hourly
earnings rate for the preceding four (4) weeks.
5.09 Employees receiving higher wages or other benefits than herein provided
shall not suffer any reduction in such wages or loss of any benefits by reason
of the signing of this Agreement.
5.10 In no case shall any employee be paid less than the established rate of
wages.
5.11 Payment During Treatment of Work Related Accident
-------------------------------------------------
A. In the event an employee suffers an industrial injury and is referred to
the medical office, outside clinic, outside hospital, or outside doctor for
treatment during working hours, the COMPANY shall pay for the time spent in
treatment of such injury at his/her contract rate if a pieceworker, or
his/her hourly rate if an hourly worker. If the treating agency certifies
that such injured employee is unable to continue work because of such
injury the COMPANY will pay for the balance of the eight (8) hours.
B. If the treating agency requests a subsequent visit for treatment of this
injury during working hours, and provided the employee has returned to
work, the COMPANY will pay for the time spent in this treatment at either
of the above mentioned rates dependent on whether the employee was an
incentive worker or an hourly worker.
1. On the above date of this scheduled visit the employee must notify the
Supervisor at the beginning of his/her shift as to the time the
appointment is scheduled.
2. The employee will be clocked out in sufficient time to make the
scheduled appointment.
<PAGE>
3. When the employee leaves the treating agency's office, he/she will
receive a release form that will show the completion time of the
appointment.
4. Upon returning to his/her department the employee will present this
form to his/her Supervisor and will be clocked back in for work.
C. None of the sections of this paragraph are to be so construed that benefits
will incur in addition to or pyramid on disability payments under Worker's
Compensation Law.
5.12 Payment While Training Inexperienced Team Member
------------------------------------------------
Where an experienced team member on an incentive work operation is
required to train an inexperienced team member on that operation, the
experienced employee will receive his/her incentive work average hourly
earnings rate for a period equal to one half (1/2) the established
Learner's Curve period for breaking in on that job classification. When
the experienced team member has been working on incentive work for less
than the preceding calendar quarter or has no published average rate,
he/she will be paid at the average of his incentive work hourly earnings
rate for the preceding four weeks.
5.13 Maintenance Mechanic
--------------------
Awarding of Maintenance Mechanic jobs through the Job Bidding Procedure
will be limited to employees with the necessary aptitudes and skills as
determined by the COMPANY.
ARTICLE VI STANDARD ALLOWED HOURS (S.A.H.) SETTING FORMULA
- ----------
6.01 When it becomes necessary to establish an incentive worker rate on a new
operation or a variation of an old operation, the following procedure shall be
followed:
A. The operator shall be paid the average hourly earnings rate for such job
until such time as an incentive worker rate is submitted in writing by the
COMPANY to the department Shop Steward, Operator and Bargaining Committee
as provided in Paragraph D of this Section.
B. If possible, normal production will be determined from standard task times,
if available, or a time study analysis shall be made of the operation for
the purpose of determining the normal hourly or daily production.
<PAGE>
1. A UNION representative may be present when the time study of an
operation is being made.
2. Prior notice of the time study of an operation shall be given to the
interested parties.
3. A time study shall not be made until such job is properly set up and
functioning.
C. The normal production expectancy (S.A.H.) shall then be multiplied by the
base rate as listed in Article V, Section 5.02, to determine the incentive
earnings.
1. A normal hour or daily production shall be defined as that amount of
production attained by a normal proficient operator working at a normal
pace which may be consistently followed throughout the working period.
D. A written description of the operation, together with the time study
results and incentive S.A.H., will then be submitted by the COMPANY to the
departmental Shop Steward, the Operator or Operators, and Bargaining
Committee.
E. Such Standard Allowed Hours shall become effective immediately upon
submission as provided above in Paragraph (A) and (D) of this Section.
F. Complaints arising as to the accuracy of any time studies shall be
handled as grievances in accordance with Article II of this Agreement.
1. Any adjustments made as a result of such grievance shall be retroactive
to the date the Standard Allowed Hour value was first submitted.
2. Complaints arising from the procedure must be submitted within sixty
(60) days on continuous operations, or within thirty (30) production
days on broken or short run operations.
3. No grievance on a time study will be recognized until the operation
has been performed for forty (40) hours on continuous operations or
eight (8) hours on short or intermittent runs.
6.02 Productivity
------------
A. All employees who have completed the training program and who have
qualified for incentive are expected to reach and maintain efficient
----- --------
productivity levels.
<PAGE>
B. The withholding of productivity shall subject an employee to the following
corrective disciplinary procedures:
1. Verbal Reprimand
2. Written Reprimand
3. Suspension without Pay
4. Discharge
C. Base rate is intended as pay for one hundred percent (100%) effort. History
indicates that incentive employees' plant average pace is approximately
twenty-five percent (25%) over base; consequently, the parties agree that
levels of production below the plant average will be investigated by the
COMPANY.
1. If after investigation the COMPANY can show, either through earnings
of others or through a demonstration by supervisors, Simmons Institute
for Technology and Education (S.I.T.E.) employees, or operators from a
sister plant that adequate incentive opportunity exits, the COMPANY
will have proved its case against the employee charged with
withholding productivity.
2. Prior to the time the demonstration takes place, the UNION shall be
afforded an opportunity to secure the services of a qualified time
study engineer with the necessary background to check the incentive
effort of the operator to ensure the fairness of his/her performance
evaluation.
3. The COMPANY shall not abuse this clause.
D. Employees who are marginal, i.e., who earn between base rate and one
hundred fifteen percent (115%) may be removed from the operation at the
discretion of the COMPANY.
1. Such employees may be placed in a job at which they can perform at an
efficient level consistent with Section 6.03 below.
2. The COMPANY shall not abuse this clause.
6.03
A. Individuals who consistently fail to produce on an incentive basis, i.e.,
at one hundred fifteen percent (115%) of base or more, within the period of
time provided by the COMPANY's Learner's Curves or thereafter, shall be
removed from the job on which they are failing to remain qualified. Such
employees may then be assigned to a job requiring less dexterity or skill
so that they may have an opportunity of being more successful in the future
assignments.
<PAGE>
1. In making such assignments, the Bargaining Committee will select the
job to which the employee will be transferred, but selection shall be
limited to those jobs which are currently open.
a. If no such job is available, the employee shall be placed on
layoff until an opening exists.
2. Employees with more than one (1) year but less than five (5) years of
service shall be limited to one (1) such transfer.
3. Employees with more than five (5) but less than ten (10) years of
service shall be limited to two (2) such transfers.
4. Employees with more than ten (10) years of service shall be limited to
three (3) such transfers.
5. Subsequent disqualifications will subject the employee involved to
termination of employment.
B. Any actions taken under this Section are subject to the Grievance and
Arbitration procedures in Article II of this Agreement.
ARTICLE VII SENIORITY
- -----------
7.01 Purpose
-------
This seniority provision has been developed to provide an equitable means
of enhancing the "Make To Order System," providing the COMPANY with trained
employees that are responsive to production schedule variations and to provide
job security for senior employees.
7.02 Seniority
---------
A. Definition: An employee's unbroken service with the COMPANY in years,
months, and days, since the employee's most recent date of hire. Seniority
shall be established on a plant basis, and separately, within Core and Skill
Group areas.
B. If two employees have the same amount of unbroken service, the employee
with the earliest hire date, will have the greatest seniority.
C. Seniority List: The COMPANY will furnish the UNION with a seniority list on
a quarterly basis, and/or on the request of the Chairperson of the
Bargaining Committee.
<PAGE>
D. Seniority shall govern in the following areas:
1. Training
2. Vacations
3. Overtime
4. Lay-offs
5. Job Bidding
6. Recall
7. Job Shift
8. Temporary Transfer
9. Reduction of Hours
10. Furlough
E. As described in various sections of the contract, none of the language in
this section will change the governing of seniority in other sections of
this contract.
If there is a conflict in any of these areas, the COMPANY and UNION must
meet to seek a solution of the conflict.
7.03 Job Skills Area
---------------
A. Due to the similarities of positions, the parties have agreed to establish
the following Job Skill Areas:
JSA I Matt Finishing
JSA II Sewing
JSA III Matt Pre-Assemble
JSA IV Box Spring Pre-Uph
JSA V Box Spring Finishing
JSA VI Maintenance
JSA VII Shipping/Receiving
JSA VIII Contour-flex(R)
JSA X Janitorial
B. All employees will be assigned a primary job function, individual position,
and their corresponding wage rates are contained in Article V, Wages,
Section 5.02.
<PAGE>
C. Except for the application of the job bidding procedure, other applications
of seniority, such as new hirings, lay offs, recalls, and job transfers in
one Job Skill Area will not affect or be affected by those in another Job
Skill Area unless otherwise provided.
7.04 Core Group
----------
A. The definition of "Core Group" is the versatile, skilled manpower
combination required to produce in eight (8) hours the production schedule
mandated by the incoming customer orders. An employee shall become part of
the "Core Group," by possessing five (5) years of seniority and being
currently capable of delivering the skills and talents required to satisfy
the present production schedule.
The parties recognize the need to satisfy the customer demands which vary
on a day-to-day basis; consequently, specific manpower will vary, depending
on incoming customer orders, product mix, technology, versatility of
employee skills, as well as customer made to order demands. These variables
will be considered by the Productivity/Training Committee described in 7.05
below as well as in the decisions required by 7.07 Lay Off and 7.09
Reduction of Hours below.
The "Core Group" is designed to be flexible to the extent that as the
schedule varies, the "Core Group" employees shall be qualified to provide
the quality and service required. "Core Group" employees shall be provided
first opportunity to be trained in other job skills so as to protect
his/her "Core Group" status as described in 7.06 below. The
Productivity/Training Committee as referred to in 7.05 below, shall use the
following manning schedule as a guideline when selecting "Core Group"
employees for additional training.
<PAGE>
MANNING SCHEDULE GUIDE
PRODUCTION SCHEDULE (PIECES PER DAY AVERAGE)
1000 800 600
---- --- ---
JSA I
HOGRINGERS 14 10 8
CLOSERS 7 5.5 4
TUFTERS 1 1 1
SUPPORT TECHNICIAN 2 2 2
----- ----- -----
SUB TOTAL 24 18.5 15
JSA II
FLAT SEWERS 6 5 4.5
QUILT SEWERS 3 2.2 2
BECHNIK/CONVEXCO 2 1.5 1.5
QUILT REPAIR 1 .5 1.5
SUPPORT TECHNICIAN 6 5 4.5
----- ----- -----
SUB TOTAL 18 14.5 14
JSA III
QUILT MACH OPER 9 7 5.5
UNTD BOARDER
MACHINE OPER 2 1.5 1
ANDERSON CUTTER 1 1 1
ROLL SLITTER 1 1 1
FLAT CUTTER 2 1.5 1
QUILT CHANGE OVR 2 1.5 1
----- ----- -----
SUB TOTAL 17 13.5 10.5
JSA IV
FRAME ASSEMBLERS 2 1.5 1
STAPLERS 4 3 3
TOP OFF 4 3.5 3
SUPPORT TECHNICIAN 1 1 1
SUB TOTAL 11 9 8
1000 800 600
----- ----- -----
JSA V
BOXSPRING UPHOL 6 4 3
SUPPORT TECHNICIAN 3 2 2
PACKERS 2 2 2
----- ----- -----
SUB TOTAL 11 8 7
JSA VI
MAINTENANCE 5 5 4
----- ----- -----
GRAND TOTAL 86 68.5 58.5
<PAGE>
7.04 (continued)
The above manning schedule is intended to be used as a guideline for the
purpose of protecting senior employees to the greatest extent possible
consistent with customer service and COMPANY profitability. To that end, the
Productivity/Training Committee will use the above manning charts as a guide to
satisfying employee seniority and job security needs, without sacrificing
customer demands or COMPANY profits. Critical elements in the consideration will
be product variations, e.g., Pillow Tops and SLP'S, product mix, changing
technology and consolidation of jobs.
Establishment of New Classifications
------------------------------------
B. In the event it becomes necessary to establish a new classification,
the COMPANY and the UNION shall meet for the purpose of discussing the
rate for such classification.
The COMPANY and the UNION, in an attempt to reach an understanding shall
take into consideration similar classifications in the plant previously or
presently in existence.
The COMPANY will assign a temporary employee at his average rate to the
new classification who shall perform the operation until such time as a
rate is developed. When the rate of the classification is agreed upon or
resolved as provided above, the job will be filled in accordance with the
contract.
If the parties cannot agree using the above procedure, the grievance and
arbitration procedure in the contract will be followed.
7.05 Productivity/Training Committee
-------------------------------
A. All employees who are cross trained will be given a two-hour transition
period at his or her average whenever moved to any of the job skills
which they have been cross trained. This transition pay will be given
once in a three-month period.
B. A four member training committee shall be established immediately. The
Committee shall be made up of two Company representatives and two
Union representatives.
C. The Committee shall meet at least once each quarter to determine which
employees need further training to avoid a lay off.
<PAGE>
D. Additional Productivity/Training Committee meetings may be held when
necessary at the request of either party. The requesting party shall bear
the expense.
E. The first Productivity/Training Committee Meeting shall be held no later
than three (3) working days after the acceptance of the Agreement.
F. The initial Productivity/Training Committee meeting and any regularly
scheduled monthly meetings will be at the expense of the COMPANY for
COMPANY employees and the expense of the UNION for UNION employees.
7.06 Employee Training
-----------------
A. The parties agree to favor training of senior employees so that when
reduction in manpower is required, the most senior will be retained because
they have the skills needed to satisfy customer requirements. It is also,
in the interest of the parties to provide opportunity to the most senior
employees who desire to improve their income when and if customer
requirements mandate an increase in the production schedule. The
"Productivity/Training Committee" will meet from time to time to determine
the number and identity of the senior employees seeking such training.
In the event the most senior candidate or candidates refuse selection they
must sign a formal waiver form, indicating such, whereby the committee has
no further obligation to again offer the same job opportunity to the
refusing candidates.
It is the intent of both the COMPANY and the UNION to train dayworkers on
critical incentive jobs so as not only to provide a bank of substitutes
when needed but also a bank of critical skills when the production schedule
increases. This section is not intended to allow other sections of this
Agreement to be abused.
B. Employee training for lay off avoidance shall occur as follows:
Step I Core Group Employees @ 800 Pieces of Bedding
--------------------------------------------
A. Employees who would be subject to lay off at the production level of 800
pieces shall be trained within six (6) months after selection, for lay off
avoidance. Training on individual jobs will be consistent with established
learning curves.
<PAGE>
B. Eligibility for Step I training shall be determined by the
"Productivity/Training Committee" at its first meeting.
Step II Core Group Employees @600 Pieces of Bedding
-------------------------------------------
A. Employees who would be subject to lay off at the production level of
600 pieces shall be trained within six (6) months after selection, for
lay off avoidance. Training on individual jobs will be consistent with
established learning curves.
B. Determination of eligibility for Step II training shall be determined
by the "Productivity/Training Committee" at the 2nd quarter meeting,
Step III Core Group Employees @ 400 Pieces of Bedding
--------------------------------------------
A. Employees who are members of the "Core Group" and would be subject to
lay off at the production level of 400 pieces shall be trained within
six (6) months after selection. Training in individual jobs will be
consistent with established learning curves.
B. Determination of eligibility for Step III training shall be determined
by the "Productivity/Training Committee" in the second year of the
Agreement.
Step I Training Review
---------------
A. The Productivity/Training Committee shall continuously review the
seniority list to determine training requirements necessary due to the
ever changing work force. Employees trained in Step I shall be by
Agreement of the Productivity/Training Committee. Training shall be
completed within six (6) months after selection. Training on
individual jobs will be consistent with established learning curves.
B. An employee has the right to refuse training as offered by the
Productivity/Training Committee. When an employee refuses training,
he/she shall be subject to lay off in accordance with his/her
seniority as provided by Section 7.07.
C. Once an employee has started training he/she shall not be laid off due
to the incomplete training, if the completion of that training would
allow him/her to displace a less senior employee.
<PAGE>
D. An employee in training shall be paid the rate of the job while
training. Piece workers shall be guaranteed the base rate for the
length of the Learner's Curve.
E. Cross training will be done as needed as time permits during slow
periods.
7.07 Lay Offs
--------
A. In the event of a reduction in the work force, employees shall be laid
off by Job Skills Area. Employees with the least seniority within a
Job Skills Area shall be laid off first provided that the remaining
employees possess the job knowledge and skills to perform the work
required within the Job Skills Area. Senior employees not possessing
the required knowledge of the job function shall be subject to lay
off.
B. Employees being laid off shall be notified two (2) working days prior
to the lay off.
C. Employees subject to lay off shall have the following rights:
1. a. Displace any employee with less seniority provided he/she
can do the job without further training.
b. Elect to take a lay off instead of replacing a less senior
employee. The COMPANY will not contest the employee filing
for unemployment benefits if he/she exercises the lay off
option.
2. If the laid off employee is not recalled within twelve (12)
months from the day of lay off, the employee shall be
terminated.
D. In order to eliminate the shifting of older employees, a new employee
shall, for one (1) year, according to hiring date, be available for
transfer, to any Job Skill Area needed by changes in the production
schedules.
E. The COMPANY will not break the continuity of service of any employee
who has been laid off, due to reasons beyond his/her control, if the
employee returns to work within twelve (12) calendar months (one (1)
year). Employees who are absent for illness or accident shall notify
the COMPANY that day, except under extenuating circumstances.
<PAGE>
F. Recognized Shop Stewards shall have super seniority for the purposes of
this section. The UNION must periodically and regularly provide the COMPANY
with an up-to-date list of Shop Stewards.
G. Lay offs shall be conducted in the presence of a UNION Representative. It
is the responsibility of the UNION Representative to notify the UNION
office as to the results of the meeting.
7.08 Furlough. In order to provide a more reasonable work schedule for senior
---------
employees when hours are shortened due to lack of orders, the plant or
operations manager will have the responsibility of placing on furlough by
classification those junior employees who are not needed to fill the daily
production schedule. The furloughed employees will be placed on surplus labor so
as to make them eligible for unemployment benefits during such furlough period,
if otherwise eligible. It is understood that a furlough may be for any length of
time provided such does not exceed four (4) continuous weeks at any given time,
unless the furlough occurs on the first work day of a given month, in which case
the furlough cannot exceed three (3) consecutive weeks. For recordkeeping
purposes, the business manager for Local 262, AFL-CIO will be notified of such
furlough by letter signed by the involved plant or operations manager.
In the event variation in customer demands requires employees to return from
furlough earlier than announced, such return shall be by seniority unless the
senior employees are unavailable. In such event, the COMPANY liability shall be
limited to notification to the UNION that such employee either could not be
reached by telephone or was unavailable because of other commitments. Because
State Unemployment rules pay reduced benefits for partial unemployment, the
plant or operations manager will project furlough time in multiples of five (5)
working days. Any furlough can be triggered at any day of the week. For example,
if a holiday falls on Tuesday, the COMPANY will declare the furlough to begin
Wednesday and continue through for a continuous minimum of five (5) working
days.
7.09 Reduction of Hours
------------------
A. In order to retain qualified employees, the parties agree that a reduction
of hours may be more equitable rather than to lay off employees.
<PAGE>
B. When a reduction of hours is necessary, the reduction of hours shall be
within Job Skills Areas as outlined in 7.03. Hours within the Job Skills
Area shall be shared as equally as possible. Senior employees shall have
the first choice of either working or reducing their hours. Should senior
employees not volunteer, the least senior employees shall be required to
reduce their hours first.
C. When further retrenchment necessitates a general reduction in hours to a
level between thirty (30) and forty (40) hours per week, adjustment shall
be made in such a manner that each and every employee in his/her respective
Job Skills Area receive a just and equal share of work as long as reduction
in work per employee does not fall below a minimum of thirty (30) hours per
week.
1. The COMPANY retains the right at all times to do necessary maintenance
work regardless of the number of hours worked.
D. If work falls below thirty (30) hours per week, the COMPANY shall reduce
the plant work force in accordance with Section 7.07, to maintain thirty
(30) hours per week for the remaining force.
E. In the event that there is an increase in work above the level of thirty
(30) hours per week, the COMPANY agrees to recall additional employees by
Job Skill Area.
F. The parties agree that the above provisions shall not apply under the
following conditions:
1. A temporary reduction in hours to less than forty (40) but more than
thirty (30) may be made provided that during the third (3rd) week of
reduced hours it is determined that such reduction is to continue and
steps are taken to adjust the number of hours and employees. This
adjustment is to be effective not later than Monday of the fourth (4th)
week.
2. When there is in effect a reduction in hours per week and it becomes
necessary to increase hours in certain Job Skills Areas in order to
provide prompt service to customers, the hours may be temporarily
increased to, but no more than, forty (40) hours per week for a period
of not longer than three (3) consecutive weeks.
3. In the event that the general level of hours worked shall remain less
than forty (40) hours per week for more than two (2) continuous months
the parties hereto agree to renegotiate at the request of either party
the terms of Section 7.08.
<PAGE>
4. It is also understood that where mutually agreed upon between the
COMPANY and the Bargaining Committee, individuals may be laid off
without regard to their seniority rights or rating.
G. Work Sharing Program
--------------------
Production employees will be assigned to the following six groups:
Mattress, Box Springs, HMB, Mechanics, and General (shipping, receiving and
janitorial).
Administrators for this program will be the Plant Human Resources Manager
and the UNION Chief Steward.
H. In the case of a dispute pertaining to who should work on the night shift or
on the third shift, plant seniority shall be the deciding factor.
I. Any employee assigned to an inspectors' job shall demonstrate his/her
capability to perform the work satisfactorily.
1. Seniority shall govern in the selection of inspectors where there is
equal ability.
2. Any dispute over who shall be assigned the job shall be mutually
resolved between the UNION Committee and the COMPANY.
7.10 Open Positions. When a vacancy occurs or a new position is created, the
----------------
position shall be filled in the following order:
A. Recall From Lay Off
-------------------
1. The most senior employee who can perform the job without further
training shall be recalled from lay off and placed in the position.
The employee should retain rights to his/her laid off position for one
year from the day of the lay off. This placement shall not be
considered a job bid.
B. Job Bidding
-----------
1. In the event that there is not an employee on the recall list who can
perform the job without further training, the COMPANY shall post the
position on the bulletin board for 48 hours.
2. The COMPANY will accept a bid by a UNION officer for someone on
vacation or lay off.
3. The COMPANY will review the applications from the employees who have
submitted their names for consideration and fill the job opening by
transferring the applicants, if any, on the basis of plant seniority
(min. 1 yr.) and ability to perform the job.
<PAGE>
Because of the delays inherent in successive job openings, the COMPANY
may elect to fill, without posting, job vacancies resulting from the
assignment of an applicant to the job originally posted.
4. Any employee transferred pursuant to the above shall, if qualified,
remain on that job for a period of twelve (12) months before having
the right to bid on another job vacancy. In the event the job is
discontinued before the successful applicant completes twelve (12)
months on the job, he/she may bid on another vacancy.
5. Any employee transferred pursuant to the above and who fails to attain
a satisfactory level of progress on his/her new assignment within the
normal limits of the COMPANY's established experience factors, will
be given the opportunity to qualify for an open job within the plant.
7.11 Personnel Action
----------------
A. The UNION shall receive written notice of all transfers, disciplinary
actions, new hires, terminations and lay offs.
B. The UNION shall be provided with a seniority list upon request.
7.12 Job Skills Area Phase Out. It is further agreed that if any of the Job
---------------------------
Skill Areas are phased out or closed down permanently, the employees affected by
such permanent closing will have the following options:
1. In the event a Job Skill Area is permanently phased out, the employee
so affected shall have the right to replace any employee within the
Job Skill Area with less seniority provided he/she is qualified
(without further training) to perform the job.
2. In the event the affected employee cannot or does not exercise the
above options, such employee shall have the right to choose an open
job or exercise his/her plant seniority over the equivalent number of
employees in the plant with less plant seniority.
ARTICLE VIII
- ------------
8.01 Leave of Absence
----------------
A. Personal leaves of absence shall be granted to employees for a period
of 30 days increments on mutual consent of Company and Union each
thirty (30) days. Leaves of absences as
<PAGE>
referred to in this paragraph shall not exceed a total of 12 months.
Employees shall continue to accrue seniority during the period, but
will only be paid for the first (1st) holiday following the beginning
date of leave.
B. Employees shall be granted leave without deductions from pay for the
purpose of voting on election day, in accordance with the laws of the
State of California.
1. A schedule for this leave shall be drawn up by mutual Agreement.
C. Any employee who has been on the payroll one (1) year or more will be
entitled to receive three (3) days off with pay in the case of death
in his/her immediate family (husband, wife, natural mother, father,
brother, sister, children, step-mother, step-father, step-children)
upon presentation of evidence of the above.
D. The COMPANY will grant emergency leave without pay for the death of
other relatives, or for attendance of a relative's funeral.
8.02 Jury Duty
---------
A. The COMPANY will make up differential in pay for those employees
called for jury duty, providing the employee was scheduled for work on
that day, as follows:
1. Incentive workers - Eight (8) hours at average rate less pay
received for jury duty.
2. Dayworkers - Eight (8) hours at hourly rates less pay received
for jury duty.
B. In no event will overtime be paid because of jury duty.
C. In order to qualify for jury duty pay the employee must give advance
notice of reporting to jury duty and bring in to the COMPANY a signed
statement from the Court Clerk showing the amount of time spent on
duty and the pay received.
D. Those reporting for jury duty and who are excused in time to report
for their regular work for a minimum of three (3) hours shall do so or
forfeit any pay for those hours.
<PAGE>
The month for which the contribution is due is referred to as the
"benefit month" and the month immediately preceding the benefit month is
referred to as the "wage month". The employer shall each and every benefit month
make the following monthly contribution to the FUND on each and every eligible
employee who elects benefit coverage.
Effective 11/1/94
-----------------
UIU PLAN COMPANY UNION TOTAL
-------- ------- ----- -----
Single $ 200.76 $ 25.24 $226.00
Single Plus One 363.13 43.87 407.00
Family 469.58 60.42 530.00
DENTAL PLAN COMPANY UNION TOTAL
----------- ------- ----- -----
Single $ 6.30 $.70 $ 7.00
Single Plus One 13.50 1.50 15.00
Family 18.00 2.00 20.00
The Employer and the Union agree that in the event of an increase in
the above stated premiums in 1995 and 1996, the company and the employee will
share proportionately in the increase up to 6.5% (percent) each year at the
same percentage of premium. Should either plan premium increase exceed 6.5%
(percent), the Company and the Union reserve the right to review the plan and
mutually determine continuation of the plan or replacement of the plan with
another plan offering comparable coverage.
13.03 - ELIGIBILITY
Eligible employees are all full-time employees employed within the
Union's Bargaining Unit who have completed thirty (30) days employment prior to
the first calendar day of the Benefit Month. The term also includes eligible
employees who did not work at all during the wage month for any of the following
reasons:
<PAGE>
ARTICLE IX PAID VACATIONS
- ----------
9.01 The following vacations shall be granted annually during plant
vacation period for the duration of the Agreement to employees who are on the
active COMPANY payroll (active employees are defined as employees who worked at
least 1000 hours in the previous calendar year) at the time the vacation is
granted:
A. Employees who have between one (1) and three (3) years of service shall be
entitled to one (1) week of vacation.
B. Employees who have more than three (3) years but less than eight (8)
years shall receive two (2) weeks of vacation.
C. Employees who have more than eight (8) but less than eighteen (18)
years shall receive three (3) weeks of vacation.
D. Employees who have more than eighteen (18) shall receive the seniority
bonus.
E. Employee hired on or before December 01, 1983 shall receive the
seniority bonus after 15 years of service.
F. All active employees with twenty-five (25) years of service or more,
employed as of November 30 of that year, will receive in December pay
for a fifth week of vacation.
9.02 The COMPANY retains the right to determine whether vacations will be
staggered on the basis of preference by seniority consistent with operational
needs during the period January 1 through December 31, or on the basis of plant
shutdown. In the event of plant shutdown, the COMPANY has the right to continue
operating the Shipping Department as well as manning those functions needed to
maintain satisfactory customer service.
9.03
A. Plant closing for remaining vacation purposes may be determined by the
COMPANY at any time during the calendar year.
<PAGE>
1. In determining crews during a plant closing the COMPANY will ask for
qualified volunteers.
2. Should there be an inadequate number of volunteers the COMPANY will
select its manpower from the least senior qualified employees.
3. Those who work during a plant closing may select vacations on a
seniority basis.
9.04
A. Vacation schedules for the coming year will be determined during the
preceding November/December.
1. Vacations will be staggered throughout the year and selections for
specific time will be by job classification and seniority within Job
Skill Area, as approved by the Employer.
2. The COMPANY reserves the right to allow only two (2) weeks at one time
and the balance of vacation due at another time. Consideration will be
given to justifiable requests by employees eligible for more than two
(2) weeks vacation that additional time be granted consecutively with
the initial two (2) weeks. Employees may split their vacation into one
(1) week segments.
3. Employees shall indicate, in writing, on a form provided by the
COMPANY, their preference for vacation during the month of November.
Once finalized, the COMPANY will post the approved schedule by
December 31.
4. Up to five (5) days of vacation may be held and scheduled one day at a
time with two weeks notice and approval.
5. Due to production needs, the COMPANY shall be able to set certain
restrictions on the number of employees allowed off at one time.
9.05 An employee eligible for a seniority bonus may take a fourth week of
vacation in lieu of the seniority bonus during the months of December and/or
January provided that production requirements so permit as determined by the
COMPANY.
9.06
<PAGE>
A. Employees terminated for any reason, laid off, or out of work on a personal
leave of absence shall receive prorated vacation based upon number of days
worked divided by 260. Employees, employed less than one (1) year are not
eligible for pro-ration.
B. Vacation hours of pay will be established on the basis of the employees'
average number of hours worked during the preceding quarter.
1. It is understood and agreed that his/her weekly average will not be
less than forty (40) hours nor more than forty eight (48) hours times
his/her average straight time hourly earnings rate.
2. Employees shall receive the shift premium in computing vacation pay.
C. Vacation pay shall be payable on the Friday preceding the vacation period
of the individual.
D. UNION officers and delegates to UNION conventions shall not suffer any
reduction in their average hours worked for purposes of computing vacation
pay.
9.07 Employees will not be required to work the Saturday immediately
preceding their vacation unless they volunteer to do so.
9.08 If the COMPANY forces early vacation selection, the employee will
receive full eligibility even though his/her anniversary date falls later in the
year.
9.09 The COMPANY agrees to pay all vacations and holidays at the employee's
previous quarter's average rate, even in the event of temporary transfer.
9.10 In the event the COMPANY closes the plant for two (2) consecutive
weeks of vacation, those employees who are not eligible for two (2) weeks
vacation will be considered for work as part of the skeleton crew. If they do
not so work, the COMPANY will not contest their right to file for unemployment.
<PAGE>
ARTICLE X PAID HOLIDAYS
- ---------
10.01
A. It is mutually agreed that twelve regular holidays with pay shall be
observed annually. All employees working on a daywork basis shall
receive pay at straight time rates for eight (8) hours, and all
employees working on an incentive basis shall receive pay at their
respective published average hourly earning rate for eight (8) hours
for the following holidays when not worked:
New Year's Day Washington's Birthday
Good Friday Day After Easter
Memorial Day Independence Day
Labor Day Thanksgiving Day
Day After Thanksgiving Day Before Christmas
Christmas Day Day Before New Year's Day
*It is agreed that Veteran's can take off Veteran's Day without pay.
The Company must be notified by September 1, if an employee wants that
day off. It is also agreed that an employee each year who worked on
November 11, (Veteran's Day) has earned holiday pay for the Day before
New Year's Day.
Incentive workers who do not have a published rate will be paid the
base rate. Employees required to work on the above holidays shall be
paid double time in addition to the compensation provided in this
Section. Employees will receive the shift premium in computing holiday
pay if otherwise eligible.
B. When a holiday falls on a Saturday, it shall be celebrated on either
the preceding Friday, or the following Monday, or some other day as
mutually agreed upon by the COMPANY and the UNION.
C. Any of the above holidays that fall on Sunday shall be observed on
Monday, which shall then be considered a holiday under the terms of
this Agreement. All holidays prescribed in Article X will be observed
in conformance with the Federal Law.
<PAGE>
D. If one or part of the above holidays occurs during a vacation period,
the employee shall be compensated in accordance with Article X Section
10.01, in addition to his/her regular vacation pay.
E. It is agreed that if an employee is absent from his/her regular
scheduled work day before and/or following a regular paid holiday,
without the COMPANY's permission, he/she shall not receive pay for
that holiday, except in cases of illness or accident. Any doubtful
cases are to be settled according to Article II, of this Agreement. It
is further agreed that if an employee is laid off within the preceding
five working days before a regular paid holiday, he/she shall receive
pay for that holiday, In the event of illness or accident causing the
employee to be away from work thirty (30) days or more, the employee
shall receive pay for those paid holidays which fall within the
initial thirty (30) day period, or if there are no paid holidays
within the thirty (30) day period, the employee shall receive pay for
one (1) paid holiday occurring during illness or accident lasting more
than thirty (30) days.
F. To be eligible for holiday pay employees must have been employed by
the COMPANY thirty (30) days.
G. Except for plant security, continuous shift operations, emergency or
maintenance, the COMPANY will not require production employees to work
on Saturday when the following Monday is a paid holiday as listed
under Section 10.01, Paragraph A.
ARTICLE XI MILITARY CLAUSE
- ----------
11.01
A. Any employee drafted for military service and/or any employee who
volunteers for military service shall be reemployed with full seniority
rights in accordance with Federal and State laws at the time the employee
requests reemployment.
<PAGE>
B. The employee shall have to fulfill all provisions of the law regarding
his/her right to qualify under Federal and State laws.
ARTICLE XII INSURANCE PROGRAM
- -----------
12.01
A. The COMPANY agrees to the continuance of the insurance program for the
benefit of its employees covered by this Agreement, such insurance to
include group life insurance, group accidental death and dismemberment,
medical reimbursement benefit, surgical benefit, hospitalization benefits,
and dental care.
1. Such insurance will be purchased through and administered by the
United Furniture Workers Insurance Fund as established by an Agreement
and Declaration of Trust in the State of New York and dated May 28,
1944.
2. The COMPANY will remit to the Insurance Fund a sum equal to 14.25%
effective August 1, 1995, 14.50 % effective August 1, 1996 and 14.50%
effective August 1, 1997, of the gross payroll of employees covered by
this Agreement for the purpose of paying premiums on said insurance.
Employee contribution will be:
1st contract year ending 8/1/95 $15.00 per month
2nd contract year ending 8/1/96 $15.00 per month
3rd contract year ending 8/1/97 $15.00 per month
B. It is further agreed that premium payments by the COMPANY for its employees
shall be made for the purpose and administration of insurance for SIMMONS
employees who are members of U.F.W.A., Local 262, and in the event that the
contributions are not used for the benefit of said employees, the COMPANY
shall withhold any further payments into the designated insurance fund and
shall immediately negotiate with the accredited representatives of Local
262 as to the disposition of contributions of the EMPLOYER and the
continuance of insurance coverage. Any insurance plan effected shall
conform to all applicable State and Federal laws.
C. If an employee is off work for an industrial injury for a period in excess
of one (1) month and no contribution is owed because of a lack of earned
hours, the COMPANY will nevertheless
<PAGE>
make one (1) monthly contribution in his/her behalf based on his/her last
working month's earnings.
D. If an employee is out on layoff over thirty one (31) days, the COMPANY
will make one (1) payment to the U.F.W.A. Insurance Program on his/her
behalf based on the employee's previous month's earnings.
E. Employees may purchase life insurance at the rate of sixty-five (.65) per
thousand ($1,000) up to a maximum of five thousand ($5,000) for this
contract period (8/1/95 through 7/31/98).
ARTICLE XIII PENSION
- ------------
13.01
A. Effective August 1, 1995 the COMPANY shall contribute to the United
Furniture Workers Pension Plan A, one-and-one-quarter percent (1-1/4%) of
the gross payroll of employees covered by this Agreement for this contract
period (8/1/95 through 7/31/98) for the purpose of pension benefits. The
parties agree, however, that the coverage of a newly employed employee
should not begin until the first day of the first calendar month following
the expiration of twelve (12) months from the commencement of this
employment. In calculating the contribution due for the first twelve (12)
months of coverage, his/her total gross earnings for the entire preceding
twelve (12) months shall be considered. Thereafter, the employer will make
contributions each calendar month.
B. Employees shall participate in the SIMMONS COMPANY Employee Stock Ownership
Plan as provided by the plan. Participation in the Employee Stock Ownership
Plan shall be effective on October 1, 1989 as provided for by the Plan.
ARTICLE XIV MANAGEMENT RIGHTS CLAUSE
- -----------
14.01
A. The UNION agrees that the MANAGEMENT of the COMPANY and the direction of
the working force shall be in the sole discretion and is the sole
responsibility of the COMPANY.
<PAGE>
It further agrees that all rights, powers, authority, privileges and
prerogatives not expressly abridged or modified by the Agreement including,
but not limited to, those exercised unilaterally by the COMPANY in the
past, are reserved to the COMPANY to exercise unilaterally in its sole
discretion without regard to any effect upon the working force; however,
such rights shall not be exercised arbitrarily or capriciously.
B. Without in any way limiting the generality of the foregoing and solely by
way of example, the COMPANY may, in its sole discretion and judgment:
determine the number and location of plants, departments, divisions or
subdivisions thereof; relocate or close plants, departments, divisions or
subdivisions thereof; discontinue or reorganize or combine any plant,
department, division or subdivision thereof, or other branch operations;
determine the efficiency, usefulness and practicality of machines,
processes; determine whether or not the COMPANY is financially or otherwise
able to continue operations and the extent thereof; decide the method or
place of manufacture; determine the processes of manufacturing or
assembling, together with the designing, engineering, and control of raw
materials, semi-manufactured and finished parts which may be incorporated
in a product manufactured; introduce new, improved or different production
maintenance, service or distribution methods or facilities, or otherwise
change, amend, delete or combine such existing methods or facilities;
determine the size of the working force; subcontract any work which the
COMPANY may deem desirable; create new classifications, or abolish or
combine existing classifications; hire, lay off, assign or transfer or
promote employees, determine the qualifications of employees and their
ability to perform jobs; determine, redetermine or alter job content;
determine all machines, tools and equipment to be used; determine the goods
to be manufactured; determine the schedules of production; establish
quantitative and qualitative standards of production; assign employees
temporarily out of classification; maintain order and efficiency in the
COMPANY's plant and operations; discipline or discharge employees for just
cause; make and enforce, after advance notice to the UNION and the
employees, such reasonable rules and regulations as the COMPANY may from
time to time deem appropriate for the purpose of maintaining order, safety
or the effective operation of its facilities; terminate, merge or sell the
business or any part thereof.
C. In the event there is a conflict between this section and any other section
of this Agreement, this section shall govern unless the other sections are
expressly stated to be in derogation of this section and the parties have
agreed to such derogation in writing.
<PAGE>
D. It is understood that the COMPANY shall not exercise such rights
arbitrarily or capriciously.
E. This clause is not intended to take away any rights guaranteed in this
collective bargaining Agreement.
ARTICLE XV NO STRIKE - NO LOCKOUT
- ----------
15.01 Neither the UNION nor any of the employees in the bargaining unit covered
by this Agreement will collectively, concertedly or individually encourage,
engage in or participate in, directly or indirectly, any strike, deliberate
slowdown, stoppage or other interference with production of work during the term
of this Agreement; and the COMPANY during the term of this Agreement will not
lockout any of the employees covered by this Agreement.
A. In the event that there be such an occurrence or occurrences as described
in Article XV, Section 15.01, then either the UNION or the COMPANY may
invoke the Expedited Grievance Procedure provided in this section as
distinguished from the ordinary Grievance-Arbitration Procedure.
1. This procedure may also be invoked by either party in the event an
employee is discharged, suspended, disqualified from a job,
disciplined for failure to meet production standards, or in the event
there is a seniority dispute.
a. Such dispute or grievance shall be asserted by notice in writing
by registered mail, return receipt requested, or Federal Express,
given to the other party.
b. A copy of such notice shall be sent simultaneously to the person
designated as the permanent Arbitrator, or such other person
designated as Arbitrator, as hereinbefore set forth.
B. The COMPANY and the UNION shall attempt to have drawn up and ready for
selection a list of mutually acceptable Arbitrators who may be contacted
directly for the Expedited Arbitration.
1. Should this not have been done, or should no Arbitrator on the list be
available, and should the parties within twenty-four (24) hours be
unable to agree upon an Arbitrator, they shall immediately contact the
local office of the American Arbitration Association to request the
first available Arbitrator who can hear the case within forty-eight
(48) hours.
<PAGE>
C. In the event of death, disability, or subsequent unavailability of the
selected or designated Arbitrator within the time limits prescribed in this
provision, the parties shall select another Arbitrator within twenty-four
(24) hours, and failing such mutual selection, either party may request
that the American Arbitration Association make a designation of an
available Arbitrator within forty-eight (48) hours of the request.
D. The Arbitrator shall hold an arbitration hearing as expeditiously as
possible but in no event later than twenty-four (24) hours after receipt of
said notice.
1. The decision of the Arbitrator shall issue forthwith and in no event
later than three (3) hours after the conclusion of the hearing unless
the grieving party agrees to waive this time limitation with respect
to all or part of the relief requested.
2. The Arbitrators WRITTEN opinion will follow within thirty (30) days.
E. In those situations involving discipline of employees for other than
violation of the No Strike Clause, it is understood that the Arbitrator
will hold an arbitration hearing within five (5) working days after receipt
of said notice.
1. The decision of the Arbitrator shall issue forthwith and in no event
later than forty-eight (48) hours after the conclusion of the hearing.
2. The Arbitrator's WRITTEN opinion will follow within thirty (30) days.
F. The arbitration proceedings pursuant heretofore shall be held in Alameda
County, California, but not on the COMPANY's premises.
G. All costs for the hearing and service of the Arbitrator designated herein,
or for any other person selected pursuant to the aforementioned procedure
shall be borne by the companies jointly.
H. Each party will bear the expense of its representatives and for the
presentation of its own case.
ARTICLE XVI BULLETIN BOARDS
- -----------
16.01 The COMPANY grants the UNION the right to place bulletin boards in
agreed upon places in the plant for the purpose of posting UNION notices, copies
of this Agreement, and other official
<PAGE>
papers. All such matters must be posted only upon the authority of officially
designated representatives of the UNION.
ARTICLE XVII SAFETY AND SANITATION
- ------------
17.01
A. The COMPANY shall continue to make reasonable provisions for the safety and
health of its employees at the plant during the hours of their employment.
B. Protective devices and other equipment necessary to protect its employees
properly from injury shall be provided by the COMPANY.
1. Employees shall cooperate with MANAGEMENT in the proper maintenance
and use of these provisions and devices.
C. The COMPANY will maintain safety and sanitation at acceptable health and
safety standards in compliance with State and Local requirements.
D. The COMPANY will carry out disciplinary action in accordance with the
Collective Bargaining Agreement, all Federal and State OSHA Guidelines,
State of California (SB 198) Guidelines, and Company Safety Rules and
Policies. The Employee's safety record, type and nature of violations, plus
endangerment of self and others will be major factors in the determination
of the corrective action to be taken.
ARTICLE XVIII LEGAL CONFORMITY
- -------------
18.01
A. It is the intention and desire of both the COMPANY and the UNION to conform
to all laws of the State and Federal government and orders issued by the
President of the United States.
B. It is intended that such laws or regulations which now exist or may later
be enacted or issued shall supersede the requirements of this Agreement
while they are in effect, and upon
<PAGE>
expiration of such laws and regulations, provisions of the Agreement which
have been modified shall come into full force and effect.
18.02 It is agreed by the parties that in the employment practices of the
COMPANY and in the membership and practices of the UNION, there shall be no
discrimination against any person on account of race, creed, color, sex,
handicap or national origin.
ARTICLE XIX MISCELLANEOUS
- -----------
19.01 Sick Days:
A. 1. Effective January 1, 1995 employees shall be eligible for one (1) day
of pay at $80.00 per day, for lost time, per calendar quarters.
Employees cannot receive payment before the quarter begins.
2. Any days earned but unused shall be paid to the employee on the last
pay period of December of each year.
B. The COMPANY will sponsor and finance an annual picnic for all employees and
families.
ARTICLE XX TERMINATION, MODIFICATION AND RENEWAL
- ----------
20.01
A. This Agreement shall remain in full force and effect until August 1, 1998,
and thereafter annually; provided, however, that either party may terminate
this Agreement or give notice of a desire to modify any portion thereof on
the date of expiration, or at the end of any subsequent yearly period, by
notifying the other party in writing to that effect no less than sixty (60)
days prior to the date of expiration, or at the end of any subsequent
yearly period.
B. Negotiations upon a new or modified Agreement shall commence not later than
twenty (20) days next following the receipt of said written notice of
termination or modification.
1. Not later than five (5) days after sending such notice the sending
party shall present in writing to the other party the proposed new
Agreement of modification.
2. Ten (10) days after receipt of said proposals the recipient party
shall present in writing to the other party its counter or other
proposal.
<PAGE>
3. Neither party shall be prevented from presenting any other proposals
during negotiations.
C. During negotiations this Agreement shall remain in full force and effect.
1. The provisions of the new or modified Agreement shall be retroactive
to the expiration date of the then current Agreement.
2. Either party may terminate said negotiations and Agreement by giving
notice in writing to the other party not later than fifteen (15) days
before the effective date of said desired termination.
20.02 In the event SIMMONS COMPANY closes the plant and the COMPANY cannot
recognize the U.F.W.A., Local #262 as the bargaining agent in the new location,
the COMPANY will be willing to sit with the UNION to negotiate severance
compensation.
<PAGE>
SIGNED THIS 24 DAY OF JAN, 1996.
-- --- ----
FOR SIMMONS COMPANY FOR THE UNITED FURNITURE
- ------------------- WORKERS OF AMERICA,
LOCAL 262, AFL-CIO
/S/ KEN BARTON /S/ ULISES VERGARA
- -------------------------------- ---------------------------------
- -------------------------------- ---------------------------------
- -------------------------------- ---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
<PAGE>
APPENDIX A
LETTER OF AGREEMENT
In the event the COMPANY retools, redesigns or reengineers the plant and the
COMPANY determines, in its opinion, that such changes require alteration to the
rates of pay for employees, then the COMPANY will give the UNION notice of the
jobs affected and the proposed new rates of pay for said jobs. Should the UNION
desire to bargain with regard to the proposed rates of pay the UNION shall
request such bargaining within ten days and the contract shall be reopened
solely for the purpose of bargaining with respect to said rates of pay. During
such reopener all other provisions of the contract remain in full force and
effect until the expiration date set forth in this contract.
A two person committee will be allowed to go to another plant to review the new
system. Videos will be allowed as long as they remain company property. United
Furniture Workers may have three meetings with members before implementing this
program. When rates are implemented, negotiations will remain open for a ninety-
day period to review any significant variations from plan.
This agreement is entered into and becomes effective on the 1995 contract date.
/S/ KEN BARTON /S/ ULISES VERGARA 1/24/96
- ------------------------------- ----------------------------------------
Simmons Company Date U.F.W.A. Date
- ------------------------------- ----------------------------------------
Simmons Company Date U.F.W.A. Date
<PAGE>
APPENDIX B
This agreement is entered into between Simmons Company and the U.F.W.A. Local
262. This agreement continues the position of Production Coordinator. In regards
to the positions of Production Coordinator, the parties agree to the following:
1. The responsibilities of the position shall consist of, but not be
limited to, the following items:
1. assigning work
2. organizing of the specific area
3. training of employees
4. completing necessary paper and reporting work
5. Other functions as required.
2. The Production Coordinator shall not:
1. hire
2. fire
3. implement discipline
4. schedule employees.
3. Employees assigned the position of production coordinator shall be
compensated at the present pay plus negotiated increase.
4. This position of production coordinator and method payment may be
implemented when an employee provides vacation relief for a
supervisor.
5. Selection of production coordinator shall be at the discretion of
management, subject to review by the cross-training committee.
6. This agreement will become a part of the contract.
7. This agreement in no way negates our right to change, delete or add
classifications as outlined in Section 7.03B.
/S/ KEN BARTON 1/24/96 /S/ ULISES VERGARA 1/24/96
- ------------------------------- ----------------------------------------
Simmons Company Date U.F.W.A. Date
- ------------------------------- ----------------------------------------
Simmons Company Date U.F.W.A. Date
<PAGE>
APPENDIX C
LETTER OF AGREEMENT
This letter of agreement is entered into between the U.F.W.A. Local 262 and the
Simmons Company. This agreement effects the implementation of Article VI,
Standard Allowed Hours (S.A.H.) setting formula, Section 6.03.
The parties agree to the following procedure for disqualifying employees from
their position:
1. All employees productivity shall be reviewed on a weekly basis.
2. Employees who fail to make 115% of the established base rate shall be
given the following corrective measures:
A. First Offense - Verbal Warning
B. Second Offense - Written Warning
C. Third Offense - Final Warning
D. Fourth Offense - Disqualification from their current position.
3. The progression steps for disqualification will be limited to two
warnings at Steps A through C. It is understood that employee cannot
go back to the earlier warning level after receiving the second
warning at the present level.
4. Employees who are disqualified from their position shall be granted
their rights as contained in Article 6.03.
This agreement is entered into and becomes effective on the 1995 contract date.
/S/ KEN BARTON 1/24/96 /S/ ULISES VERGARA 1/24/96
- ------------------------------- ----------------------------------------
Simmons Company Date U.F.W.A. Date
- ------------------------------- ----------------------------------------
Simmons Company Date U.F.W.A. Date
XIV/002.53
<PAGE>
APPENDIX D
SIMMONS COMPANY - POLICY date issued effective date number page of
AND PROCEDURES 12-1-95 12-1-95 6
Subject
SUBSTANCE ABUSE POLICY supersedes approval
AND INTERNAL GUIDELINES All Previous Policies
--LOCAL 262 - UFWA--
I. PURPOSE
-------
As a Company, we are concerned about the adverse effect that drugs and
alcohol can have upon our employee's safety and health. Alcoholism and the
illegal use of drugs lead to increased accidents and medical claims and can
lead to the destruction of an employee's health, adversely affect an
employee's family life, and jeopardize an employee's job.
In light of these concerns, the Company intends to maintain a workplace
free from the problems associated with the illegal use of drugs and the
abuse of alcohol. Our policy is to help employees with problems associated
with the abuse of drugs and alcohol and to encourage their rehabilitation.
No part of this policy, nor any of the procedures is, however, intended to
affect the Company's right to manage its workplace or to discipline its
employees. Also, this policy does not guarantee employment or continued
employment, nor does it modify any terms or conditions of employment.
II. SCOPE
-----
This policy will apply to all employees of Simmons Company covered by Local
262 contract.
Applicants: All applicants for employment at Simmons Company will be
required to undergo a drug screening test as part of the hiring process
after a conditional offer of employment has been extended. Employment will
be denied to any applicant whose drug screen test reveals the presence of
illegal drugs or prescription drugs without a valid prescription.
III. RESPONSIBILITY
--------------
A. Simmons Company will not be responsible for any cost related to
alcohol or drug rehabilitation treatment beyond that covered under the
company's medical insurance.
B. Corporate Human Resources Department
------------------------------------
Responsible for issuing the Substance Abuse Policy and for modifying
or amending the policy when necessary with notification and
negotiation with Union.
<PAGE>
SIMMONS COMPANY - POLICY date issued effective date number page of
AND PROCEDURES 12-1-95 12-1-95 6
Subject
SUBSTANCE ABUSE POLICY supersedes approval
AND INTERNAL GUIDELINES All Previous Policies
-LOCAL 262 - UFWA--
Responsible for the education and training of personnel by acquiring
training and education materials and assisting the plant management
with scheduling and implementation of training for all employees.
Responsible for the communication of the policy and procedures to all
Plant Management and all employees at the Corporate location.
Responsible for counseling and assisting plant management or corporate
management when problems arise.
Responsible for selecting and posting authorized drug/alcohol testing
laboratory.
C. Plant Management/General Manager or Operations Manager
------------------------------------------------------
Responsible for the drug screening of all applicants as part of the
hiring process.
Responsible for communication of the policy to all plant personnel and
for scheduling and implementing periodic training to all personnel
with the guidance and assistance of the corporate human resource
department.
Responsible for following policy guidelines in the event of a
substance abuse problem and for taking necessary disciplinary action.
D. Supervisors and Managers:
-------------------------
Responsible for knowing and understanding the substance abuse policy
and its guidelines.
Responsible for immediately notifying plant management or corporate
human resources when a substance abuse problem is suspected with an
employee.
IV. POLICY
------
IT IS THE COMPANY'S POLICY TO IDENTIFY AND HELP THOSE EMPLOYEES WITH
SUBSTANCE ABUSE PROBLEMS AND TO ENCOURAGE THEM TO SEEK HELP ON THEIR OWN.
APPLICANTS IDENTIFIED AS BEING SUBSTANCE ABUSERS WILL BE DENIED EMPLOYMENT
AND ENCOURAGED TO SEEK HELP. EMPLOYEES WHO ARE IDENTIFIED AS BEING
SUBSTANCE ABUSERS MAY BE REFERRED FOR COUNSELING OR REHABILITATION AS
APPROPRIATE.
<PAGE>
SIMMONS COMPANY - POLICY date issued effective date number page of
AND PROCEDURES 12-1-95 12-1-95 6
Subject
SUBSTANCE ABUSE POLICY supersedes approval
AND INTERNAL GUIDELINES All Previous Policies
-LOCAL 262 - UFWA--
HOWEVER, THE POSSESSION, USE, TRANSFER, MANUFACTURE, OR SALE OF ALCOHOL, ILLEGAL
DRUGS, OR LEGAL DRUGS WITHOUT A VALID PRESCRIPTION ON COMPANY PROPERTY OR ON
COMPANY TIME WILL RESULT IN DISCIPLINARY ACTION, UP TO AND INCLUDING
TERMINATION.
TESTING OF APPLICANTS
- ---------------------
All applicants will be required to undergo a drug screening test as part of the
hiring process. Employment will be denied to any applicant whose drug screen
test reveals the presence of illegal drugs or prescription drugs without a valid
prescription or alcohol in excess of the sobriety level as established by state
law.
TESTING OF EMPLOYEES
- --------------------
Reporting for duty or working with drugs present in the body or while affected
by alcohol will be handled as a disciplinary matter.
Testing may be required under the following circumstances:
* When an employee is involved in an accident resulting in injuries during
working hours or on Company property requiring medical treatment off site.
* When the Company has reasonable cause and suspicion. Circumstances that could
be indicators of a substance abuse problem and considered reasonable
suspicion are:
A. Observed alcohol or drug abuse during work hours on company premises.
B. Apparent physical state of impairment.
C. Incoherent mental state.
D. Marked changes in personal behavior that are otherwise unexplainable.
E. Deteriorating work performance that is not attributable to other
factors.
F. Accidents or other actions that provide reasonable cause to believe
the employee may be under the influence.
* When an employee has had a positive test and been referred for counseling or
rehabilitation under this policy.
* When an employee requests a test (if approved by management).
The Company intends to utilize the most accurate and reliable testing method
available.
<PAGE>
SIMMONS COMPANY - POLICY date issued effective date number page of
AND PROCEDURES 12-1-95 12-1-95 6
Subject
SUBSTANCE ABUSE POLICY supersedes approval
AND INTERNAL GUIDELINES All Previous Policies
-LOCAL 262 - UFWA--
Failure or refusal by an employee to cooperate with the program or to submit to
such a test when requested will be grounds for termination of employment.
DRUG SCREEN LIMITS
- ------------------
The cut-off levels set forth below will be used for the initial screening of
specimens to determine whether they are negative for the following drugs:
AMPHETAMINES 1000
BARBITURATES 200
BENZODIAZEPINES 200
CANNABINOIDS 50
COCAINE METABOLITE 300
METHAQUALONE 300
OPIATE METABOLITE 300
PHENCYCLIDINE (PCP) 25
PROPOXYPHENE 300
METHADONE 300
ALCOHOL In excess of the sobriety level as established
by state law.
Any urine specimen identified as positive on the initial test screen will be
confirmed by a second analytical procedure independent from the initial test and
which uses a different chemical technique and procedure.
DISCIPLINARY ACTION
- -------------------
An employee who is considered impaired will be sent home or to a medical
facility for testing (by taxi or other safe transportation alternative depending
on the determination of the observed impairment, accompanied by the supervisor
or another employee if necessary). An impaired employee should not be allowed to
drive.
An employee who is considered impaired will be suspended pending the results of
the test.
If the test results are positive, the employee will be terminated.
<PAGE>
SIMMONS COMPANY - POLICY date issued effective date number page of
AND PROCEDURES 12-1-95 12-1-95 6
Subject
SUBSTANCE ABUSE POLICY supersedes approval
AND INTERNAL GUIDELINES All Previous Policies
-LOCAL 262 - UFWA--
COUNSELING AND REHABILITATION
- -----------------------------
Voluntary Referral: Employees are encouraged to voluntarily request counseling
or rehabilitation before the substance abuse leads to disciplinary or other
work-related problems. A request may be made by contacting the Human Resources
Department. No employee will have job security jeopardized by such a good faith
request. For the one-year period immediately following the employee's completion
of counseling or rehabilitation, the Company retains the right to randomly test
the employee for drugs/alcohol. If the employee test positive, the employee will
be terminated.
Any employee suffering from an alcohol or drug problem who rejects treatment or
who leaves a treatment program prior to being properly discharged will be
immediately terminated. No employee will be eligible for this employee
assistance program more than one time. The recurrence of an alcohol or drug
problem will be cause for termination.
NOTIFICATION OF CONVICTIONS
- ---------------------------
Under federal law, any employee convicted of any criminal drug offense committed
on Company property or while on Company business must notify the Company of the
conviction within five days after the conviction. The Company must then notify
each federal government agency with whom we hold an applicable government
contract and advise that the conviction has occurred. The Company will then take
appropriate personnel action against the employee up to and including
termination.
CONFIDENTIALITY:
- ----------------
All information concerning medical examinations, drug or alcohol testing
results, counseling or rehabilitation of any employee will be treated
confidentially.
V. PROCEDURES
----------
All information concerning medical examinations, drug or alcohol testing results
or rehabilitation and treatment of any individual employee will be treated as
confidential information.
EXHIBIT 10.22
A G R E E M E N T
-----------------
between
SIMMONS COMPANY
and
ILWU LOCAL 142
November 8, 1991 - November 7, 1995
<PAGE>
CONTENTS
--------
Section
Number TITLE Page
1 Union Recognition and Union Security . . . . . . . 5
Collective Bargaining . . . . . . . . . . . . 5
Company Recognition of the Union . . . . . . 6
2 Employee Coverage . . . . . . . . . . . . . . . . 7
3 Wages . . . . . . . . . . . . . . . . . . . . . . 7
4 Hours and Overtime . . . . . . . . . . . . . . . . 8
5 Reporting Time . . . . . . . . . . . . . . . . . . 9
6 Temporary Transfer . . . . . . . . . . . . . . . . 9
7 Holidays . . . . . . . . . . . . . . . . . . . . . 10
8 Vacations . . . . . . . . . . . . . . . . . . . . 11
9 Group Life Insurance . . . . . . . . . . . . . . . 14
10 Medical Plan . . . . . . . . . . . . . . . . . . . 15
11 Sick Leave and Temporary Disability Insurance . . . 16
12 Maternity Leave . . . . . . . . . . . . . . . . . 18
13 Right of Access to Company Premises . . . . . . . 19
14 Bulletin Boards . . . . . . . . . . . . . . . . . 19
15 Deduction of Union Dues From Wages . . . . . . . . 20
16 Seniority . . . . . . . . . . . . . . . . . . . . 21
17 Grievance Procedure . . . . . . . . . . . . . . . 22
First Step . . . . . . . . . . . . . . . . . . . . 22
Second Step . . . . . . . . . . . . . . . . . . . 22
Arbitration . . . . . . . . . . . . . . . . . . . 23
18 Leave of Absence for Union Business . . . . . . . 24
19 Discrimination . . . . . . . . . . . . . . . . . . 24
20 No Strikes or Lockouts . . . . . . . . . . . . . . 25
21 Discipline or Discharge . . . . . . . . . . . . . 25
22 Jury Service . . . . . . . . . . . . . . . . . . . 27
23 Funeral Leave . . . . . . . . . . . . . . . . . . 28
24 Pension Plan . . . . . . . . . . . . . . . . . . . 28
25 Separation Allowance . . . . . . . . . . . . . . . 29
27 Document Contains Entire Agreement . . . . . . . . 29
28 Modification of Agreement . . . . . . . . . . . . 29
29 Duration of Agreement . . . . . . . . . . . . . . 30
Exhibit "A" - Minimum Hourly Rates . . . . . . . . . . . . . 32
Exhibit "B" - Authorization Form For Deduction of
Union Dues Out of My Wages . . . . . . . . . 33
<PAGE>
CONTENTS
---------
(ALPHABETIZED)
Section
Number Title Page
- ------ ----- ----
14 Bulletin Boards . . . . . . . . . . . . . . . . . . . 19
15 Deduction of Union Dues From Wages . . . . . . . . . 20
21 Discipline or Discharge . . . . . . . . . . . . . . . 25
19 Discrimination . . . . . . . . . . . . . . . . . . . 24
27 Document Contains Entire Agreement . . . . . . . . . 29
29 Duration of Agreement . . . . . . . . . . . . . . . . 30
2 Employee Coverage . . . . . . . . . . . . . . . . . . 7
Exhibit "A" - Minimum Hourly Rates . . . . . . . . . 32
Exhibit "B" - Authorization Form For
Deduction of Union Dues Out of My Wages . . . . . . 33
23 Funeral Leave . . . . . . . . . . . . . . . . . . . . 28
17 Grievance Procedure . . . . . . . . . . . . . . . . . 22
First Step . . . . . . . . . . . . . . . . . . . 22
Second Step . . . . . . . . . . . . . . . . . . 22
Arbitration . . . . . . . . . . . . . . . . . . 23
9 Group Life Insurance . . . . . . . . . . . . . . . . 14
7 Holidays . . . . . . . . . . . . . . . . . . . . . . 10
4 Hours and Overtime . . . . . . . . . . . . . . . . . 8
22 Jury Service . . . . . . . . . . . . . . . . . . . . 27
18 Leave of Absence for Union Business . . . . . . . . . 24
12 Maternity Leave . . . . . . . . . . . . . . . . . . . 18
10 Medical Plan . . . . . . . . . . . . . . . . . . . . 15
28 Modification of Agreement . . . . . . . . . . . . . . 29
20 No Strikes or Lockouts . . . . . . . . . . . . . . . 25
<PAGE>
24 Pension Plan . . . . . . . . . . . . . . . . . . . . 28
5 Reporting Time . . . . . . . . . . . . . . . . . . . 9
13 Right of Access to Company Premises . . . . . . . . 19
16 Seniority . . . . . . . . . . . . . . . . . . . . . 21
25 Separation Allowance . . . . . . . . . . . . . . . . 29
11 Sick Leave and Temporary Disability Insurance . . . . 16
6 Temporary Transfer . . . . . . . . . . . . . . . . . 9
1 Union Recognition and Union Security . . . . . . . . 5
Collective Bargaining . . . . . . . . . . . . . 5
Company Recognition of the Union . . . . . . . . 6
8 Vacations . . . . . . . . . . . . . . . . . . . . . 11
3 Wages . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
A G R E E M E N T
-----------------
This AGREEMENT, by and between SIMMONS COMPANY, hereinafter called the
"COMPANY," and ILWU Local 142, hereinafter called the "UNION";
WITNESSETH
SECTION 1
---------
UNION RECOGNITION AND UNION SECURITY
1.01 Collective Bargaining. The COMPANY recognizes the UNION as the
-----------------------
sole and exclusive collective bargaining agent for all full-time employees
covered by this agreement.
1.02 The agreement is signed by the UNION on behalf of all full-time
employees in the collective bargaining unit, and all such employees are required
to abide by the agreement negotiated in their behalf.
1.03 New employees shall be advised, when hired, of the provisions of
this agreement covering UNION recognition and security.
<PAGE>
1.04 COMPANY Recognition of the UNION. Each employee covered by this
---------------------------------
agreement who was a member of the UNION on the effective date thereof, or who
becomes a member thereafter, shall remain a member thereof for the duration of
such agreement.
1.05 New employees shall, immediately following the expiration of
thirty (30) days from the beginning of employment, become and remain members of
the UNION to the extent of paying the membership dues uniformly required as a
condition of acquiring or retaining membership in the UNION.
1.06 The UNION agrees to accept all present and future employees who
apply for membership and who pay the regular monthly UNION dues, as members of
the UNION without discrimination.
1.07 Nothing contained in this section shall require the COMPANY to
discriminate (a) against an employee for non-membership in the UNION if such
membership was not available to such employee on the same terms and conditions
generally applicable to the other members, or (b) against an employee with
respect to whom membership in the union shall have been denied or terminated as
a condition of acquiring or retaining membership in the UNION.
<PAGE>
SECTION 2
---------
EMPLOYEE COVERAGE
2.01 The employees covered by this agreement are all full-time
production and maintenance employees. Executives, salesmen, office and clerical
employees, confidential employees, guards and/or watchmen, professional
employees, and supervisory employees are not covered by this agreement and are
excluded from the terms thereof.
2.02 As of the date of signing this agreement, the function of product
inspection is a supervisory function. If, however, the job of inspector is
created by the COMPANY during the term of this agreement, such job shall be a
bargaining unit job, and it is agreed that such job will be filled by the
COMPANY on the basis of merit alone, and inspection standards set by the COMPANY
must be maintained if the inspector is to remain on such job.
SECTION 3
---------
WAGES
Exhibit "A," which is attached hereto and made a part hereof, sets
forth the schedule of base hourly wage rates which shall apply in accordance
with their terms.
<PAGE>
9 SECTION 4
---------
HOURS AND OVERTIME
4.01 Work performed by an employee in excess of eight (8) hours in one
(1) day or in excess of forty (40) straight time hours in one (1) week shall
constitute overtime.
4.02 Work performed by an employee which is defined hereunder as
overtime shall be compensated for at one and one-half (1-1/2) times the straight
time hourly rate of pay. Overtime shall be paid in quarter-hour units.
4.03 Work performed on Sunday will be compensated for at two (2) times
the straight time hourly rate of pay.
4.04 Work performed on Saturday will be compensated for at one and
one-half (1-1/2) times the straight time hourly rate of pay.
4.05 The COMPANY shall provide a ten (10) minute rest period for each
employee in each half shift.
4.06 If an employee is required to work longer than five (5)
continuous hours without a meal period, he/she shall be compensated at one and
one-half (1-1/2) times the straight time hourly rate of pay for work performed
after such five (5) hours until such time as a meal period is provided.
<PAGE>
4.07 Wherever two (2) or more overtime rates may appear applicable to
the same hour or hours worked by an employee, there shall be no pyramiding or
adding together of such overtime rates and only the higher of the applicable
rates shall apply.
4.08 Company agrees to notify employees verbally a minimum of two (2)
hours before the end of their shift if overtime is required on that day.
SECTION 5
---------
REPORTING TIME
An employee ordered to report to work for a regular shift and who does
so report, and no work is provided, shall receive a minimum of four (4) hours
work or four (4) hours pay at his/her straight time hourly rate of pay. The
COMPANY will not be responsible for wage payments for time not worked when
plant operation is interrupted because of circumstances beyond the COMPANY's
control.
SECTION 6
---------
TEMPORARY TRANSFER
6.01 Any employee subject to this agreement may be temporarily
transferred to another classification or may be used for relief of employees
under other classifications. Any employee temporarily transferred at COMPANY's
convenience to a lower rated job, either at the beginning of or during a shift,
shall continue to receive his/her regular rate of pay. If so transferred to a
higher rated job either
<PAGE>
at the beginning of or during the shift, he/she shall receive the rate
applicable to said higher rated job for the balance of the shift.
6.02 A transfer made for the convenience of the transferred employee
shall not be deemed a temporary transfer irrespective of its duration.
SECTION 7
---------
HOLIDAYS
7.01 Employee eligible for holiday pay shall receive eight (8) hours
pay for the holidays listed below at their straight time hourly rate:
New Years Day Thanksgiving Day
February 28th Day after Thanksgiving
Fourth of July (beginning 1992)
Memorial Day Christmas Eve Day
Kamehameha Day Christmas Day
Labor Day New Year's Eve Day
7.02 In order to be eligible for holiday pay, an employee must have
thirty (30) days or more service on the day of the holiday and have worked the
last scheduled workday before and first scheduled
<PAGE>
workday after the holiday except when the employee has been excused by the
COMPANY.
7.03 If required to work on any of the foregoing holidays, the
employee shall receive pay, in addition to his/her holiday compensation, of one
and one-half (1-1/2) times his/her straight time hourly rate of pay.
7.04 If any holiday falls on a Saturday or Sunday, the preceding
Friday or the following Monday may, at the COMPANY's option, be considered as
the holiday.
7.05 A holiday falling within an employee's regularly scheduled
workweek and upon which the employee does not work, shall be credited as
straight time work for the purpose of computing weekly overtime only.
7.06 In the event a holiday falls during an employee's vacation,
he/she shall be granted an extra day of vacation with pay or pay in lieu thereof
at the COMPANY's option.
SECTION 8
---------
VACATIONS
8.01 Employees covered by this agreement who have been in the employ
of the COMPANY for a continuous period of one (1) year, but
<PAGE>
less than (2) years, and have worked at least 1600 straight time hours during
said year of service, shall, on the anniversary date of employment, be eligible
for a vacation of one (1) week with pay computed on the basis of forty (40)
hours at their straight time hourly rate.
8.02 Employees covered by this agreement who have been in the employ
of the COMPANY for a continuous period of two (2) years, but less than ten (10)
years, and have worked at least 1600 straight time hours during the last such
year of service, shall, on the anniversary date of employment, be eligible for
an annual vacation of two (2) weeks with pay computed on the basis of eighty
(80) hours at their straight time hourly rate.
8.03 Employees covered by this agreement who have been in the employ
of the COMPANY for a continuous period of ten (10) years, or more, and have
worked at least 1600 straight time hours during the last such year of
service, shall, on the anniversary date of employment, be eligible for an
annual vacation of three (3) weeks with pay computed on the basis of 120
hours at their straight time hourly rate.
8.04 Employees covered by this agreement who have been in the
employ of the COMPANY for a continuous period of sixteen (16) years, or more,
and have worked at least 1600 straight time hours
<PAGE>
during the last such year of service, shall, on the anniversary date of
employment, be eligible for an annual vacation of four (4) weeks with pay
computed on the basis of 160 hours at their straight time hourly rate.
8.05 The COMPANY shall have the right to determine the period during
which any employee shall take his/her vacation, but the expressed preference of
the employee shall be given due consideration. In case of vacations of three
(3) weeks, the COMPANY may schedule two (2) weeks at one time and one (1) week
at another time, at its option.
8.06 After one (1) year of employment, an employee who may be
terminated for any reason prior to the completion of his/her anniversary year
who has worked more than 1000 hours but less than 1600 hours, shall be entitled
to a prorated vacation based on the ratio of his/her hours worked to 1600 hours.
If he/she has worked more than 1600 hours, he/she shall be entitled to his/her
full vacation. Vacation pay in all such cases shall be prorated on the basis of
the pay to which he/she would have been entitled if he/she had completed his/her
anniversary pay year.
8.07 Credit will be given toward accumulation of the 1600 straight time
hours required for vacation eligibility, up to
<PAGE>
maximum of 200 straight time hours, for time lost on regularly scheduled
workdays for any of the following reasons:
(a) Compensable industrial accident
(b) Sick leave which is compensable under the provisions of
Section 10 of this agreement
(c) Time spent on vacation under the provisions of Section 8 of this
agreement
(d) Holidays set forth in Section 7 of this agreement
8.08 If an employee is recalled to work during his/her scheduled
vacation period, he/she will receive one and one-half (1-1/2) times the straight
time hourly rate of pay for work performed during such scheduled vacation.
His/her vacation period will be extended by the number of days worked during
such vacation.
8.09 The provisions of the Funeral Leave section shall apply in the
event of a death in an employees immediate family while such employee is on
vacation.
SECTION 9
---------
GROUP LIFE INSURANCE
The COMPANY's Group Life Insurance Plan shall continue for the term of this
agreement. The amount of the coverage shall be $10,000 effective 11/08/91-
11/07/94 and increased to $15,000
<PAGE>
effective 11/08/94-11/07/95 and the COMPANY will pay the full cost of this
coverage.
SECTION 10
----------
MEDICAL PLAN
10.01 During the term of this agreement, the COMPANY will provide
Hawaii Medical Service Association Plan IV with Major Medical Rider and will pay
eighty-five (85%) of the monthly premium on behalf of each eligible regular
full-time participating employee and his/her dependents. Employees not enrolled
in the above-named plan and who desire to enroll shall sign enrollment cards and
authorization providing for payroll deductions of their monthly contributions.
Effective October 1, 1988, the HMSA drug rider will be provided, and the COMPANY
will pay eighty-five percent (85%) of monthly premium on behalf of each eligible
regular full-time participating employee and his/her dependent. Medical caps
will apply to the fourth year as follows:
Family: $470 company - $83 employee
Single: $166 company - $29 employee
If the costs exceed the above amount, the Company will discuss with
the Union other plans which are lower in cost. The plan which is chosen will not
cost the Company or the employees any more than the caps listed above.
<PAGE>
10.02 The COMPANY will provide a dental plan and will pay eighty-five
percent (85%) of the monthly premium on behalf of each eligible regular full-
time participating employee and his/her dependents. The employee will pay the
balance through payroll deduction.
10.03 Employees and spouses who are eligible for coverage under
another dental plan shall be excluded from coverage under the COMPANY's plan.
Employees and spouses who are covered by another medical plan shall not be
excluded from the dental plan.
SECTION 11
----------
SICK LEAVE AND TEMPORARY DISABILITY INSURANCE
11.01 Any full-time employee covered by this agreement who has been in
the continuous employment of the COMPANY for a period of one (1) or more years
and who, because of illness or injury not compensable under the State Workers'
Compensation Law, is prevented from working, shall be entitled to sick leave of
not more than twelve (12) working days in any one (1) year of employment, with
pay for a maximum of eight (8) hours of each day of sick leave computed on such
employee's then straight time hourly rate of pay; provided, however, any full-
time employee who at the end of an employment year has not used up the sick
leave allowance hereinbefore provided, may carry forward to the subsequent year
any such unused sick leave allowance, and in no event shall such
<PAGE>
employee be entitled to sick leave of more than thirty-six (36) working days in
any one (1) year of employment.
11.02 Sick leave benefits shall commence on the third working day of
each such illness and no benefits shall be paid for the first two (2) working
days of absence except that sick benefits shall commence on the first day if an
employee is hospitalized or unable to work because of broken limb or where the
sickness is of seven (7) continuous calendar days duration. Employees may use
vacation days (if eligible and due) for two-day waiting period on sick leave.
11.03 Upon each occasion of an employee's absence from work, he/she
must present a certificate on the form furnished by the COMPANY from a physician
who shall be a member of the Honolulu County Medical Society, or other proof
satisfactory to the COMPANY, certifying that his/her absence from work was
caused by such illness or injury and that such illness or injury was not caused
by the employee's own misconduct.
11.04 No employee whose illness or injury is caused by his/her own
misconduct shall be entitled to the benefits of this section. The COMPANY shall
have the right to make such investigation in connection with any illness or
injury of any employee which it may deem available.
<PAGE>
11.05 The provisions of the Funeral Leave section shall apply in the
event of a death in an employee's immediate family which such employee is on a
paid sick leave.
11.06 Temporary Disability Insurance will be provided by the COMPANY
to the extent required by State Law, the total cost of which will be paid by the
COMPANY.
11.07 If an employee is entitled to sick leave for any particular day
and TDI benefits are also payable for the same day, then sick leave benefits
will be used to supplement TDI, so that an employee may be entitled to eight (8)
hours pay for his/her straight time hourly wage lost that day, the total length
of time that such supplement will be applied will not exceed the total number of
days of sick leave provided for herein.
SECTION 12
----------
MATERNITY LEAVE
12.01 Requests for maternity leave for the period the employee is
disabled and unable to work will be treated in the same manner as any other
requests for any non-occupational temporary disability.
<PAGE>
12.02 The leave will be granted for the length of the disability during
which the employee is unable to perform the essential elements of the job.
SECTION 13
----------
RIGHT TO ACCESS TO COMPANY PREMISES
A duly certified representative of the UNION shall be permitted on the
COMPANY's premises to investigate grievances. Such representative shall see the
Manager or his/her representative, who shall permit said representative to enter
the COMPANY's operations. It is agreed that the Manager may send a
representative of the COMPANY to accompany said UNION representative, provided
such UNION representative is afforded the opportunity to interview employees
privately.
SECTION 14
----------
BULLETIN BOARDS
The COMPANY shall provide space on a bulletin board conveniently
located for the purpose of posting notices of official UNION business. The UNION
shall not be permitted to post any document containing inflammatory, scurrilous
or intemperate language, or any language derogatory to the COMPANY. No strike
notices may be posted.
<PAGE>
SECTION 15
----------
DEDUCTION OF UNION DUES FROM WAGES
15.01 Upon receipt of written authorization (Exhibit "B") for such
deductions, the COMPANY agrees to deduct from the wages (gross earnings) of such
of its employees all dues hereinafter becoming due from such employees to the
UNION and to transmit the money so deducted to the Union as hereinafter
provided. "Gross earnings" shall include holiday pay, vacation pay, overtime
pay, incentive pay, and bonuses but shall not include sick leave pay, workers'
compensation payments, lump sum severance payments or pension benefit payments.
15.02 The total amount of any such deduction shall be promptly
transmitted by the COMPANY to the UNION by check drawn to the order of
Secretary-Treasurer of ILWU Local 142. Upon the issue of such check and the
transmission of same to said UNION, all responsibility on the part of the
COMPANY shall cease with respect to any amount so deducted. The COMPANY shall
not be bound in any manner to see to the application of the proceeds of any such
check, nor to investigate the authority of any designated officer of said UNION
to sign any request, to accept any such check, or to collect the same. The
UNION hereby undertakes to indemnify and hold blameless the COMPANY from any
claim that may be made upon it for or on account of any such deduction from the
wages of any employee.
<PAGE>
SECTION 16
----------
SENIORITY
16.01 In case of layoff or recall after layoff, length of continuous
service with the COMPANY shall govern where employees are competent to perform
the job. This principle of seniority shall not apply to any employee until
he/she have completed ninety (90) days of continuous service with the COMPANY.
Seniority shall be considered broken by (a) discharge, (b) resignation, (c)
twelve (12) consecutive months of unemployment, or (d) twenty-four (24) months
of absence by reason of illness, except that seniority during such illness shall
be frozen at the end of twelve (12) months. Illnesses of longer than 24 months
will be reviewed on a case by case basis.
16.02 In making promotions or transfers to vacancies for regular jobs,
qualifications shall be determined by all relevant factors such as merit,
experience, knowledge, ability, physical and mental fitness to perform the
essential elements of the job. If there is no material difference between the
qualifications of eligible employees, the one having the greater length of
continuous service will be selected. If there is a material difference
between the qualifications of eligible employees, the best qualified employee
will be selected.
<PAGE>
16.03 Seniority shall not apply to any employee until he/she has
completed three (3) months of continuous service with the COMPANY.
SECTION 17
----------
GRIEVANCE PROCEDURE
17.01 If an employee covered by the terms of this agreement or the
UNION believes that the COMPANY has violated the express terms thereof, and that
by reason of such violation his/her or its right having been adversely affected,
he/she or it, as the case may be, shall be required to follow the procedure
hereinafter set forth in presenting the grievance and having the grievances
investigated and the merits thereof determined.
17.02 First Step: The employee or the UNION or the Unit Chairperson
---------------
shall first present the grievance either orally or in writing to the Operations
Manager within ten (10) working days of the last occurrence of the alleged of
the agreement.
17.03 Second Step: If the Operations Manager does not adjust the
--------------
grievances to the complainant's satisfactions within two (2) working days from
the time the grievance is presented to him/her, then the complainant may present
the grievances in writing to the General manager within five (5) working days
after the complainant receives the answer from the Operations Manager. If the
General
<PAGE>
Manager does not adjust the grievances to the complainant's satisfaction within
seven (7) working days from the time the grievance is presented to him/her, the
complainant may submit the grievance to Arbitrator with a copy to the COMPANY
within thirty (30) working days after receipt of the General Manager's reply.
17.05 Arbitration. Thomas Gilson, Stuart Cowan and Tamotsu Tanaka are
------------
hereby appointed as a panel of Arbitrators. One Arbitrator shall be chosen as
follows: each party may strike one name from the panel and the remaining
Arbitrator shall serve in the case. All decisions of the Arbitrator shall be
limited to the terms and provisions of this agreement, and in no event may the
terms and provisions of this agreement be altered, amended or modified by the
Arbitrator. The Arbitrator shall receive for his/her services such remuneration
as, from time to time, shall be acceptable to him/her and agreed upon by the
parties. All decisions of the Arbitrator shall be in writing and shall be
submitted to each of the parties hereto. All fees and expenses of the Arbitrator
shall be borne equally by the UNION and the COMPANY. Each party shall bear the
expenses of the presentation of its own case. The complainant in every hearing
before the Arbitrator shall present a prima facie case. In general, judicial
rules of procedure shall be followed at every hearing, but the Arbitrator need
not follow the technical rules of evidence prevailing in a court of law or
equity. The Arbitrator shall make his/her decision
<PAGE>
in the light of the whole record and shall decide the case upon the weight of
all substantial evidence presented. All decisions of the Arbitrator under this
section shall be final and binding upon the parties.
SECTION 18
----------
LEAVE OF ABSENCE FOR UNION BUSINESS
Any employee elected to office in the UNION which requires full-time
in the discharge of its duties shall be given a leave of absence without pay and
without loss of seniority; provided, that no more than one employee shall be on
such leave of absence at one time; and provided, further, that such leave of
absence shall not extend beyond the term of this agreement unless extended by
mutual consent. By mutual agreement, the COMPANY may grant temporary leaves of
absence without pay for UNION business under the circumstances that will not
unduly interfere with the COMPANY's operations.
SECTION 19
----------
DISCRIMINATION
19.01 The COMPANY will not discriminate against any employee because
of his/her membership in the UNION or for legitimate UNION activity. Such
activity, however, shall not interfere with the COMPANY's operations, nor be
conducted during working hours.
<PAGE>
19.02 The UNION agrees for itself and its members that neither will
attempt to intimidate or coerce any employee of the COMPANY for the purpose of
compelling any employee to join the UNION.
19.03 The COMPANY and UNION hereby reaffirm their commitment not to
discriminate because of race, color, religion, national origin, sex, age or
handicap. All references to employees in this agreement designate both sexes and
whenever the male gender is used, it shall be construed to mean male and female
employees.
SECTION 20
----------
NO STRIKE OR LOCKOUTS
The parties hereto agree that during the term of this agreement any
past, existing or future custom or practice of the COMPANY or the UNION, to the
contrary notwithstanding, there shall be no lockout by the COMPANY, nor any
strike, sit down, refusal to work, stoppage of work, slowdown, retardation of
production or picketing of the COMPANY on the part of the UNION or its
representatives or on the part of any employee covered by the terms of this
agreement.
SECTION 21
----------
DISCIPLINE OR DISCHARGE
21.01 Employees shall be subject to discipline or discharge by
COMPANY for insubordination, pilferage, drunkenness,
<PAGE>
incompetence, failure to perform work as required, violation of the terms of
this agreement, or failure to observe safety rules and regulations and the
COMPANY's house rules, which shall be conspicuously posted. Any discharged
employee shall, upon request, be furnished with the reason for his/her discharge
in writing; provided, however, that any employee who has not completed three (3)
months of continuous service with the COMPANY may be discharged without the
COMPANY assigning any reason therefor.
21.02 In the administration of this section the COMPANY recognizes
that a temporarily transferred employee may not be as proficient in work
performance as are employees on the same job.
21.03 The COMPANY agrees to notify the UNION of proposed changes in
house rules prior to posting such new rules and, if requested, to discuss such
changes with the union representatives prior to their application; provided
however, that the final decision on the application of such house rules will be
left to the COMPANY. In the event of conflict between the house rules and the
provisions of this agreement, the agreement will prevail.
21.04 In any case of discharge or disciplinary suspension where the
Arbitrator finds that such discharge or suspension was improper or excessive,
such discharge or suspension may be set aside, reduced or otherwise changed by
the Arbitrator under Section
<PAGE>
17. If the penalty is set aside, reduced or otherwise changed, the
Arbitrator, in his/her discretion, may award back pay to compensate the
employee, wholly or partially, for any wages lost because of the penalty. If a
back pay award is made, wages received from any other employment, or any sums
received as unemployment compensation while the penalty is in effect, shall be
deducted by the Arbitrator in determining the amount of the award.
SECTION 22
----------
JURY SERVICE
Any regular full-time employee who is summoned for jury duty or serves
on a board or commission which has been established by or under statutory
authority shall receive full pay during the period of such service up to a
maximum of thirty (30) days of jury service for each case. The COMPANY will make
up the difference, if any, between the amount paid him/her by the government
(including mileage) and the amount he/she would have earned, computed on the
basis of his/her straight time hourly earnings. The employee, however, must give
the COMPANY as much advance notice as possible of such anticipated absence. It
is understood that the employee will submit to the COMPANY proper certificate
from court officials indicating the time so spent and the amount of jury pay. It
is also understood that if the day's service is completed prior to the end of
the workday, that the employee will call the COMPANY to determine whether he/she
should return to work.
<PAGE>
SECTION 23
----------
FUNERAL LEAVE
In case of death in the immediate family of a regular employee, the
employee will be allowed full pay for three (3) working days for time lost from
work on account of such death provided the days are taken within ten (10) days
of the death of the relative. An exception will be made to allow the three-day
funeral leave to be taken within 49 days to accommodate individual and
recognized variations of religious beliefs. An extension of the ten days will be
given, if necessary, if the death occurs off the island of Oahu. Pay for such
event shall be computed on the basis of his/her straight time hourly rate.
Immediate family shall consist of spouse, parent, children, brother, sister,
grandparent, mother-in-law, father-in-law and step-parents.
SECTION 24
----------
PENSION PLAN
The three (3) individuals in the existing retirement plan will cease
making payments and an annuity will be purchased for the monthly benefit accrued
through 12/31/91. All members will be eligible for the ESOP based on the
conditions in the plan.
<PAGE>
SECTION 25
----------
SEPARATION ALLOWANCE
Employees who are permanently dismissed from employment with the
COMPANY as a result of discontinuance of business or as a result of a permanent
reduction in production, shall be paid one (1) week's pay based upon forty (40)
straight time hours, providing they have at least five (5) but less than ten
(10) years of service. Those employees who are so dismissed and who have ten
(10) or more years of service with the COMPANY, will be paid two (2) weeks pay
based upon eighty (80) straight time hours. This allowance shall not apply to
normal layoffs resulting from temporary or seasonal variations in production
requirements.
SECTION 26
----------
Section deleted
SECTION 27
----------
DOCUMENT CONTAINS ENTIRE AGREEMENT
This document contains the entire agreement of the parties and neither
party has made any representations to the other which are not contained herein.
SECTION 28
----------
MODIFICATION OF AGREEMENT
This agreement may not be amended, modified, changed, altered or
waived except by written document executed by the parties hereto.
<PAGE>
SECTION 29
----------
DURATION OF AGREEMENT
This agreement shall become effective on November 8, 1991 and shall
remain in effect through November 7, 1995. It shall be deemed renewed thereafter
from year to year unless either party hereto gives written notice to the other
party hereto of its desire to amend, modify or terminate the same, which notice
shall be served not earlier than seventy-five (75) days nor later than sixty
(60) days prior to said expiration date.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, through their duly authorized
representatives, have executed this agreement on this 3rd day of
---------------- --
August , 1992.
- -------------- ----
SIMMONS COMPANY ILWU LOCAL 142
/s/ Ken Barton /s/
- --------------------------------- ------------------------------
- --------------------------------- ------------------------------
- --------------------------------- ------------------------------
- --------------------------------- ------------------------------
<PAGE>
SIMMONS COMPANY
EXHIBIT "A"
MINIMUM HOURLY RATES
--------------------
Effective Effective Effective Effective
11/8/91 11/8/92 11/8/93 11/8/94
------- ------- ------- -------
Hiring Rate $6.90 $7.15 $7.40 $7.80
CLASS I
- -------
Border Maker $7.25 $7.50 $7.75 $8.15
Cutter
Quilting Machine
Operator
Sewer
CLASS II
- --------
Boxspring Assembler $7.70 $7.95 $8.20 $8.60
Frame Builder
Garnet Operator
Mattress Assembler
Mattress Component &
Construction Person
Production Service
Person
Upholsterer
Warehouseman
CLASS III
- ---------
Receiver $8.00 $8.25 $8.50 $8.90
Shipper
Truck Driver
CLASS IV
- --------
Closer $8.05 $8.30 $8.55 $8.95
Control Coordinator
CLASS V
- -------
Driver $10.00 $10.25 $10.50 $10.90
CLASS VI
- --------
Truck Trailer
Driver $12.00 $12.25 $12.50 $12.90
CLASS VII
- ---------
Mechanic $8.35 $8.60 $8.85 $9.25
<PAGE>
EXHIBIT "B"
-----------
AUTHORIZATION FORM FOR DEDUCTION OF
UNION DUES OUT OF WAGES
-----------------------
I, , an employee of
----------------------------------- -------------------------
voluntarily agree to have the COMPANY take out of my wages, dues in amounts
determined by the UNION in accordance with its Constitution and Bylaws, as
certified to you in writing by the UNION and to turn over to the UNION signatory
to the existing collective bargaining agreement any and all such monies.
This authorization shall become effective upon the date set forth below and
cannot be cancelled for a period of one year from this date or until the
termination of the existing collective bargaining agreement between the COMPANY
and the UNION, whichever occurs sooner.
I agree and direct that this authorization shall be irrevocable for successive
periods of one year each, or for the period of each succeeding applicable
collective bargaining agreement between the COMPANY and the UNION, whichever
shall be shorter, unless
(1) I cancel this authorization by written notice to the COMPANY within
ten days after the expiration of any such one year period; or
(2) In the case of the expiration of any applicable collective bargaining
agreement between the COMPANY and the UNION during any such one (1)
year period, I cancel this authorization by written notice to the
COMPANY at any time during the period following the expiration of the
applicable collective bargaining agreement and ten (10) days after
the effective date of any new agreement.
This authorization shall be suspended during any period in which there is no
collective bargaining agreement in effect between the COMPANY and the UNION.
This authorization shall end if my employment with the COMPANY ends.
This authorization is made pursuant to the provisions of Section 302 (c) of the
Labor-Management Relations Act of 1947.
Date Employee Signature
------------- --------------------------------------
Address SS#
------------------------------------------------------- -------------
Receipt of the foregoing is acknowledged:
Employer
----------------------------------------
Date By
--------------------- ------------------------------------------
<PAGE>
AMENDMENT OF AGREEMENT
In accordance with Section 28. MODIFICAtION OF AGREEMENT of the Collective
-------------------------
Bargaining Agreement entered into by and between SIMMONS COMPANY hereinafter the
Company, and the INTERNATIONAL LONGSHOREMEN'S AND WAREHOUSEMEN'S UNION (ILWU)
LOCAL 142, hereinafter the Union, which expires November 7, 1995, the parties
hereby agree to modify said agreement as follows:
Section 10. MEDICAL will be amended to read as follows:
-------
10.01 During the term of this agreement, the Company will provide Hawaii Medical
Service Association Preferred Provider Plan with drug plan and vision rider Plan
AI. The Company will pay eighty-five percent (85%) of the monthly premium on
behalf of each eligible regular full-time participating employee and his/her
dependents. Employees not enrolled In the above-named plan end who desire to
enroll shall sign enrollment cards and authorization providing for payroll
deductions for their monthly contributions.
All other provisions will continue to apply.
IN WITNESS WHEREOF, the parties hereto. through their duly authorized
representatives, have caused this to be executed this day of
---------
, 1994.
- --------------------
SIMMONS COMPANY ILWU LOCAL 142
- ------------------------------ --------------------------------
Exhibit 10.23
INTERNATIONAL
ASSOCIATION
OF MACHINISTS
AND AEROSPACE
WORKERS
Guy A. DeVito, Jr. District #28
Representative Region II
(614) 239-0200 2625 Winchester Pike
Columbus, Ohio 43232
I.A.M. LODGE #55
SIMMONS COMPANY
Grove City, Ohio
December 31, 1995
to
December 31, 1997
<PAGE>
INDEX TO WORKING AGREEMENT
--------------------------
Page
----
ARTICLE I - UNION RECOGNITION AND SECURITY . . . . . . . . . . . . . . . . 4
----------------------------------
1.01 Exclusive Bargaining Representative . . . . . . . . . . . . . . . 4
------------------------------------
1.02 Union Security . . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------------
1.03 Check Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------
ARTICLE II - SENIORITY AND LAY OFF . . . . . . . . . . . . . . . . . . . . . 5
----------------------
2.01 Probationary Period . . . . . . . . . . . . . . . . . . . . . . . 5
--------------------
2.03 Subcontracting of Maintenance work . . . . . . . . . . . . . . . . 6
-----------------------------------
2.04 Forfeiture of Seniority Rights . . . . . . . . . . . . . . . . . . 6
-------------------------------
2.05 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------------
ARTICLE III- WORKING HOURS . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------
3.01 Hours and Overtime . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------------
3.02 Shift Differential . . . . . . . . . . . . . . . . . . . . . . . . 9
-------------------
3.03 Overtime Work . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------
3.04 Meal Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------
ARTICLE IV - PAID HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------
4.07 Employee Birthday Pay . . . . . . . . . . . . . . . . . . . . . . 12
----------------------
ARTICLE V - VACATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
5.01 Vacations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
ARTICLE VI - GRIEVANCE PROCEDURE AND ARBITRATION . . . . . . . . . . . . . . 14
------------------------------------
6.01 Grievance Procedure . . . . . . . . . . . . . . . . . . . . . . 14
--------------------
ARTICLE VII - NO STRIKE - NO LOCKOUT . . . . . . . . . . . . . . . . . . . . 16
-----------------------
ARTICLE VIII - PICKET LINES . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------
ARTICLE IX - FLEXIBILITY IN OPERATIONS . . . . . . . . . . . . . . . . . . . 16
--------------------------
ARTICLE X - MANAGEMENT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------
10.02 Lead-Man . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------
10.03 Parts Expeditor . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------
ARTICLE XI - HEALTH AND WELFARE PLAN . . . . . . . . . . . . . . . . . . . . 17
------------------------
11.01 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
<PAGE>
ARTICILE XII - REPORT IN AND CALL IN PAY . . . . . . . . . . . . . . . . . . 18
--------------------------
ARTICLE XIII - WAGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
13.01 Wage Increases . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
13.02 Wage Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
ARTICLE XIV - JURY SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------
ARTICLE XV - FUNERAL PAY . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------
ARTICLE XVI - PENSION . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
16.0 Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------
ARTICLE XVII - DURATION OF CONTRACT . . . . . . . . . . . . . . . . . . . . 21
--------------------
17.02 No reopening of Agreement Without Mutuality . . . . . . . . . . . 21
-------------------------------------------
17.03 Extension of Contract . . . . . . . . . . . . . . . . . . . . . . 21
---------------------
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SHORT-TERM DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SUBSTANCE ABUSE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
APPENDIX A - PENSION 36
<PAGE>
PURPOSE
-------
Whereas, the parties hereto have reached an agreement as a result of collective
bargaining for the purpose of facilitating the peaceful adjustment of
differences which may arise from time to time between the Company and the Union
-----
and to promote harmony and efficiency and to the end that the employees and the
Company and the general public may mutually benefit, the parties hereto contract
and agree with each other as to the provisions as in hereafter set forth.
AGREEMENT
---------
This agreement made this day of 3l st. day of December, 1995 by and between
------- ---------------
Simmons Company, Grove City, Ohio hereinafter referred to as the "Company", and
Buckeye Lodge #55 of the International Association of Machinists and Aerospace
Workers, Columbus, Ohio hereinafter referred to as the "Union".
ARTICLE I - UNION RECOGNITION AND SECURITY
- ---------- ------------------------------
1.01 Exclusive Bargaining Representative: The Company recognizes the Union as
-----------------------------------
the exclusive bargaining representative of all employees classified as
"Maintenance Technicians" for the purpose of collective bargaining at Simmons
Company, 2960 Brookham Drive, Grove City, Ohio 43123. It is the intention of the
parties to provide an orderly procedure between the Company and the Union, and
therefore, all agreements or understandings concerning hours, wages and working
conditions between the Company and any of its employees covered by this contract
are to be made by the Company with the Union as the representative of said
employees.
1.02 Union Security: The Company agrees as a condition of employment that all
--------------
employees eligible shall become members of the Union after the sixtieth (60th)
day of their employment or sixty (60) days after the effective date of this
agreement, whichever is the later. All employees who become members of this
Union shall remain members of the Union during the term of this agreement.
The Union agrees to accept into membership and make membership available to all
employees upon the same terms and conditions generally applicable to other
members without discrimination.
<PAGE>
Within five (5) days after receipt of written notice from the Union that any
employee has failed, pursuant to the terms of this article, to tender payment of
the regular dues and initiation fee uniformly required as a condition of
acquiring or retaining membership in the Union, the Company shall discontinue
its employment of such employee. The Company shall not be required by the Union
to discontinue the employment of any employee for any other reason.
The Company shall have the exclusive right to hire and shall be the sole judge
of the requirements and qualifications of each applicant.
1.03 Check Off: The Company agrees that during the life of this agreement it
-----------
shall deduct from the employees' wages the regular monthly Union dues of all
such members of the Union who individually and voluntarily certify in writing,
on the agreed form or authorization card, that they authorize such deduction.
Said deduction of regular monthly Union dues, as certified by the Union in
writing to the Company, shall be made from the third pay period of each month.
If the employee does not receive a pay-check for the third pay period of the
month, then the deduction will be made from his next pay period. Remittance of
the total amount deducted will be made to the Financial Secretary of Buckeye
Lodge No. 55, accompanied by a list showing the names of the employees and
amount of deduction.
ARTICLE II - SENIORITY AND LAY OFF
- ----------- ---------------------
2.01 Probationary Period: New employees shall be considered probationary
-------------------
employees during the first sixty (60) calendar days of service with the Company
and may be discharged for any reason during this period. After the expiration of
the sixty (60) day probationary period, the seniority rating of new employees
shall commence with the first day of their last employment with the Company.
2.02 In layoffs and rehiring, maintenance seniority shall apply. Should the
average hours for all I.A.M. employees be less than 40 hours per week for two
successive weeks, the management will meet with the I.A.M. and will assure the
I.A.M that it will consider a lay-off unless circumstances
<PAGE>
exist in which hours would be increased in the near future. Seniority will
apply for any reduction in work hours.
In the event that transfers from one shift to another are necessary, maintenance
seniority shall apply. Temporary transfer means filling-in for an employee who
is ill, on vacation, or on leave of absence.
2.03 Subcontracting of Maintenance work: The work for "Maintenance Technicians"
----------------------------------
covers the repair, maintenance, installation of machinery/equipment and
building. Other less essential maintenance work such as painting, minor moving
of equipment may be assigned to non IAM employees as long as all Employees are
being offered forty (40) hours of work per week. If work becomes slower than
forty (40) hours, all maintenance work may be assigned to IAM employees.
2.04 Forfeiture of Seniority Rights: An employee's service shall be considered
------------------------------
to be broken and he shall lose all his seniority rights for any of the following
reasons:
(a) When the employee resigns
(b) When the employee is discharged for just cause
(c) Absence from the employer's payroll longer than eighteen (18) continuous
months due to layoff.
(d) By disregard of a certified notice from the Company to report to work
within one week from date employee received the notice. Employee is
responsible for keeping his address current.
(e) When an employee falsifies any information given in connection with his
application for employment or in connection with a leave of absence.
2.05 Leave of Absence:
----------------
(a) A request for a leave of absence must be made in writing to the Company
stating the length of the leave desired and the reason for same. A copy of
the request and the Company's answer to same will be given to the Union.
Seniority shall accumulate during such leave of absence.
<PAGE>
(b) A leave of absence will be granted for not more than six (6) months for
reasons of sickness or accident during which time seniority will
accumulate. If necessary, two additional leaves will be granted upon
request.
Special consideration will be given in leave of absence cases exceeding the
eighteen (18) month period of absence provided the employee does not have an
incurable or chronic disorder from which he is not expected to recover in a
definite period of time. Should said employee recover after he has been
terminated, he shall be reinstated with full seniority provided he passes a
physical administered by a Company appointed doctor. If employee disagrees with
Company appointed doctor's decision -- then an impartial doctor will be
appointed by agreement of the parties and his decision shall be final and
binding.
(c) A leave of absence will be granted to duly elected delegates for the
purpose of attending a Union convention provided that leave be limited to
only one member at a given time and provided further that sufficient notice
be given the management so that the affected operations may be adequately
covered.
(d) A leave of absence will be granted to an IAM member employee in the event
he should be elected to a position of a Union Business Agent for the term
of his office, subject to one renewal upon written application.
(e) In the event it is necessary to settle an estate or in the event of an
immediate family distress situation, the Company will grant a leave of
absence for such purpose up to a maximum of two (2) weeks.
In the event of a plant shut down the Company will pay for the medical and life
insurance for three (3) months past the date of the shut down or the last day of
employment, whichever occurs last. (Employees will continue to make their
contributions as described in 11.01.)
2.06 - Employees transferring into the Maintenance Technician classification
from elsewhere in the plant shall start as new employees regarding maintenance
seniority, but shall retain their service record status with the Company.
<PAGE>
2.07 - Effective January 1, 1969, any employee covered by this Agreement who is
promoted to a supervisory position or to any position outside the bargaining
unit, and is thereafter transferred back into the bargaining unit within one (1)
year from the date of leaving the bargaining unit, shall be credited with the
amount of seniority which he had acquired before his promotion, but shall not be
credited with seniority for the time spent outside the bargaining unit. He shall
not be eligible to displace any employee other than that employee with the least
amount of seniority providing his seniority is greater.
2.08 - In the event that the Company imposes a disciplinary suspension, the
employee and the Union shall be given a written notice to this effect and it
shall be made effective immediately.
ARTICLE III - WORKING HOURS
- ------------ -------------
3.01 - Hours and Overtime:
The regular starting and regular quitting time shall be as follows:
1st shift - 7:00 A.M. to 3:30 P.M. (one half-hour for lunch period).
2nd shift - 3:30 P.M. to Midnight (one half-hour for lunch period).
Starting and quitting times may be adjusted by one hour with previous day
notification without paying overtime rate except that overtime will be paid for
all time in excess of eight (8) hours per day. Except for this adjustment, any
employee scheduled to work prior to his regular starting time and past his
regular quitting time shall be paid at the overtime rate.
When three shifts are to work the schedule will be as follows:
1. The first shift will work from 7:00 a.m. until 3:30 p.m. with a one-half
hour lunch period between 11:00 a.m. and 12:30 p.m.
2. The second shift will work from 3:30 p.m. to 12:00 midnight with a one-half
hour lunch period from 7:00 p.m. to 7:30 p.m.
3. The third shift will work from 11:00 p.m. until 7:00 a.m. with a paid one-
half hour lunch period from 3:00 a.m. to 3:30 a.m.
<PAGE>
There shall be two (2) ten (10) minute rest periods each shift one before the
lunch period and one after the lunch period. The Company will provide an
additional ten (10) minute break if the work schedule exceeds nine (9) hours in
any one day.
The normal straight time work week shall consist of forty (40) hours Monday
through Friday. The normal work day shall consist of eight (8) hours exclusive
of lunch period.
Time and one-half shall be paid for all work performed on Saturday.
Double time shall be paid for all work performed on Sunday and on the paid
holidays hereinafter agreed upon.
3.02 - Shift Differential: All work performed on the second shift shall be paid
------------------
a premium of twenty (.20) cents per hour; all work performed on the third shift
shall be paid a premium of twenty (.20) cents per hour.
3.03 - Overtime Work:
-------------
(1) The Company assures the Union that they will honor the principle of
seniority that guarantees the most recently hired maintenance employee will
be the first to be laid off in the event of a reduction in work force.
(2) When selecting employees for overtime purposes, the Company will give the
option of first refusal to the most senior maintenance employee. In the
event the Company is unable to cover its operational needs by such
selection the Company retains the right to assign the least senior employee
in order to assure adequate coverage by qualified mechanics.
Employees must be available for all work as scheduled, regular or overtime.
Employees who did not receive notice of overtime on their previous shift shall
not be compelled to work overtime on that particular day. Employees who have a
valid reason may be excused by management from working regular or overtime work
at any particular time.
<PAGE>
(a) Except for plant security, continuous shift operations, emergency
maintenance, the Company will not require maintenance employees to work in
excess of 10 hours per day on Monday, Tuesday, Wednesday, and Thursday, 8
hours on Friday, and/or in excess of 8 hours on Saturday, provided however,
that no employee will be compelled to work more than two consecutive
Saturdays, except for the months of July, August, September and October. In
those four peak season months, employees shall be available for Saturday
work when production schedules so require.
In the event of serious customer service requirements of twelve (12) hours
per day Monday through Friday, the Company will first seek volunteers. If
there are not enough volunteers, then the overtime will be scheduled
according to reverse seniority and qualifications.
The Company agrees to notify one (1) hour before the end of the shift on
emergency overtime unless the emergency occurs within the last hour.
(b) Maintenance on Sundays and holidays and in excess of the hours described in
(a) above may be performed by volunteers but will not be mandatory.
There shall be no pyramiding of any premium or overtime pay under this
Agreement for the same hours worked. Where one or more premiums or overtime
rate is payable, the single higher rate shall be paid.
3.04 - Meal Allowance: Any IAM employee working eleven (11) or more continuous
--------------
hours in a day shall be granted $4.00 as an expense allowance for supper that
day.
ARTICLE IV - PAID HOLIDAYS
- ----------- -------------
4.01 - The company will pay twelve (12) paid holidays as follows:
Day Before New Year's Day Labor Day
New Year's Day Thanksgiving Day
<PAGE>
Martin Luther King's Birthday Friday After Thanksgiving
Good Friday Day Before Christmas Day
Memorial Day Christmas Day
Independence Day Employee Birthday
to all employees who have sixty (60) days or more of service on the day of the
holiday and who worked the last scheduled work day before and the first
scheduled work day after the holiday. Payment will be made at eight (8) times
the employee's regular straight time hourly rate, including shift differential.
4.02 - When one or more of the above holidays falls within an eligible
employee's approved vacation period, and he is absent from work during his
regularly scheduled work week because of such vacation, he shall have the option
of being paid for such holiday(s) or he shall be able to extend his vacation by
such holidays provided he has management's approval or he takes a day or days
off at a later date mutually acceptable to both parties.
4.03 - When an eligible employee goes on sick leave within thirty (30) days
prior to or the day following a holiday, he shall receive pay for such holiday.
4.04 - When an eligible employee is on an approved leave of absence which does
not exceed thirty (30) days and a holiday occurs during this period, he shall
receive pay for such holiday.
4.05 - In applying this procedure, when any of the above enumerated holidays
fall on Sunday and the day following is observed as the holiday by the State or
Federal government, it shall be paid for as such holiday.
4.06 - In conformance with the Federal Law enacted in 1968, effective January 1,
1971, wherein certain holidays will be observed on Mondays, Memorial Day is the
last Monday in May and Labor Day is the first Monday in September.
<PAGE>
4.07 - Employee Birthday Pay: Each employee who meets the holiday eligibility
----------------------
requirements of Sections 4.01 through Section 4.04 will receive an additional
eight (8) hours pay for his birthday. Should his birthday fall on a work day and
the employee wishes to take the day off in lieu of an extra day's pay, he may do
so provided he gives his supervisor five (5) day's advance notice. Should the
employee's birthday fall on a Saturday, Sunday or holiday, he may take off an
alternate day at Company convenience.
ARTICLE V - VACATIONS
- --------
5.01 Vacations: The Company will grant a paid vacation to employees who have the
---------
following service on their anniversary date of hire of any calendar year. All
vacations to be scheduled by January 1 of each year.
(a) One (1) week paid vacation to employees with one year of continuous
service. Two (2) weeks paid vacation to employees with two (2) years but
less than seven (7) years of continuous service.
(b) Employees who have seven (7) years or more of continuous service shall have
the option of receiving a third week of vacation or pay in lieu thereof,
provided that if they choose to take the third week of vacation, they will
-------
do so only at the discretion of the Operations Manager.
(c) Employees who have fifteen (15) years or more of continuous service shall
have the option of receiving a fourth week of vacation or pay in lieu
thereof, provided that if they choose to take the fourth week of vacation
they will do so only at the discretion of the Operations Manager.
(d) If eligible, employees are guaranteed their third and fourth week of
vacation but it must be scheduled at the discretion of the Operations
Manager.
(e) Employees who have twenty-five (25) or more years of seniority shall
receive a fifth (5th) week vacation pay which will be paid in December each
year.
<PAGE>
All employees hired on or after October 1, 1983, vacation will be granted as
follows:
Continuous Years of Service Weeks Off
- --------------------------- ---------
Less than 1 year 0
1 to 3 years 1
3 to 12 years 2
12 to 18 years 3
18 or more years 4
5.02 - All employees shall schedule their vacation in line of seniority. After
the schedule is completed and posted, no employee shall have a right to change
his scheduled vacation time, regardless of seniority, to a date previously
scheduled to another employee except by mutual agreement between the employees
involved.
Employees must take their first and second weeks of vacation when scheduled.
Hardship cases may be considered and money may be taken in lieu of vacation
provided that the Company will advise the Union of the reason for such prior to
payment of the vacation money to the employees involved.
5.03 - Employees with one (1) or more years of service, who are laid off, enter
Military service prior to their anniversary date, will be eligible for 1/12 of
their normal vacation pay for each nearest full calendar month of active
employment between their anniversary date and their departure date.
5.04 - Any employee who quits the Company will be paid 1/12 of their normal
vacation pay for each nearest full calendar month of active employment between
their anniversary date and their departure date provided the employee gives a
minimum of fifteen (15) calendar days notification of intention to leave.
Anyone discharged for just cause will not be eligible for any prorated vacation
pay.
<PAGE>
ARTICLE VI - GRIEVANCE PROCEDURE AND ARBITRATION
- ----------- -----------------------------------
6.01 - Grievance Procedure: The purpose of the hereinafter provided Grievance
-------------------
Procedure is to insure that the grievances of any employee shall be fairly and
promptly resolved. It is the further purpose of the parties hereto that no
lockouts, work stoppages, slow downs, or other suspension of work shall occur as
long as both parties fully perform all the terms and conditions of this
agreement.
6.02 - No grievance concerning any matter which is vested exclusively in the
Company shall be submitted or processed through the Grievance Procedure.
6.03 - In the event of any complaint or grievance involving any alleged
violation of this agreement with respect to the interpretation or application of
the terms of this agreement, it shall be settled by the following Grievance
Procedure and Arbitration machinery:
(a) Any employee who has been discharged shall, upon his request be granted an
interview with his Committeeman, before he is required to leave the plant.
The Company will promptly notify the Business Representative of the Union
of the reason for the discharge. If the employee believes he has been
unjustly discharged or disciplined, the grievance shall be processed
beginning at Step 3 of the grievance procedure and the employee shall be
given a hearing within forty-eight (48) hours, excluding non-working days.
In the event it is determined that the employee was discharged or
disciplined without cause, the employee will be compensated in such amount
as may be agreed upon or determined.
(b) Any employee who feels that he has a just cause for complaint may discuss
the complaint with his foreman. If the employee wishes the Shop Steward may
be present. The foreman will be allowed not more than two (2) working days
to give his decision.
(c) If the employee's complaint can be satisfactorily resolved under (b), the
grievance shall not be further processed. If it is not satisfactorily
resolved under (b), it shall be immediately reduced to writing and
submitted to the Operations Manager.
<PAGE>
(d) Within seven (7) working days after the grievance has been submitted to the
Operations Manager, he shall meet with a Union Committee of not more than
two and the Union Business Representative.
6.04 - If the grievance is not satisfactorily resolved pursuant to 6.03, it
shall be submitted to arbitration at the request of either party.
6.05 - The Board of Arbitration shall consist of one member selected by the
Union and one member selected by the Company, and these two members shall select
a third representative who shall act as the impartial chairman. In the event the
parties are unable to agree upon an impartial chairman, then the Director of the
Federal Mediation and Conciliation Service shall be forthwith requested, by
either party to submit the names of five (5) prospective arbitrators from which
the parties shall select one by alternately striking one name from the list,
beginning with the grievant, until one name remains who shall then serve as the
impartial chairman.
6.06 - The jurisdiction of the Arbitration Board shall be limited to the
particular issues involved in the grievance and it shall have no authority to
delete from, add to, or modify any of the terms of this agreement.
6.07 - The Board of Arbitration shall conduct a heating as expeditiously as is
possible and shall render its decision immediately and without undue delay. A
majority decision of the Board of Arbitration, rendered in writing, shall be
final and binding on all parties.
6.08 - The parties affected shall be afforded a full opportunity to present any
evidence, written or oral, which may be pertinent to the matter in dispute.
6.09 - Each party shall bear the expense of their own presentation of their case
to the arbitration proceedings, and the fees and expenses of the impartial
chairman shall be borne equally by both parties.
<PAGE>
6.10 - Failure to submit a matter in dispute to Arbitration in accordance with
the grievance procedure and failure to comply immediately with a decision of the
Board of Arbitration shall be deemed a violation of this agreement.
ARTICLE VII - NO STRIKE - NO LOCKOUT
- ------------ ----------------------
7.01 - It is the understanding of the Company and the Union that as long as both
parties fully perform all the terms and conditions of this agreement on their
parts to be performed, there shall be no lockout by the Company and no strike,
quitting, suspension or stoppage of work by any employee or employees during or
on account of such grievance or dispute which it is the purpose of this Section
to settle to the mutual satisfaction of both parties.
ARTICLE VIII - PICKET LINES
- ------------- ------------
8.01 - It shall not be a violation of the within agreement for members of the
I.A.M., A.W., A.F. OF L. - C. I. O. employed by the Company to refuse to cross
the picket lines established on or in front of the Company's premises by other
bona fide labor organizations representing employees of the Company's union
plants when such picket lines have been recognized as legitimate by the
International Association of Machinists, A.W., A.F. of L. - C.I.O.
ARTICLE IX - FLEXIBILITY IN OPERATIONS
- ----------- -------------------------
9.01 - The Union confirms that the contract is designed to permit Management to
make flexible job assignments by means of a central pool.
ARTICLE X - MANAGEMENT RIGHTS
- ---------- -----------------
10.01 - The Union recognizes the rights and responsibilities belonging solely to
the Company, prominent among which but by no means wholly inclusive, are the
rights to hire, promote, discharge or discipline for cause and to maintain
discipline of employees; to decide the products to be manufactured; the location
of plants; the schedule of production; the methods, processes and means of
manufacturing; and the control and selection of raw materials, semi-manufactured
and finished parts which may be incorporated into the products manufactured.
Such authority shall not be used
<PAGE>
for the purpose of discriminating against any employee nor shall it be applied
in a manner inconsistent with any of the other provisions of this contract.
10.02 - Lead-Man: The Company may establish on a voluntary basis the position of
--------
a Leadman on each shift to be selected first on seniority and second by
qualification. The additional responsibilities of the position shall consist of
coordinating project tasks with other department members, following up with or
advising the operations manager or his appointed designee of project status; and
some recordkeeping as required. Any other responsibilities which may become
necessary for this position would be discussed with the I.A.M. representative.
Persons in this position will not hire, fire, discipline or assign work. The
primary duties for persons in this position is that of a maintenance technician.
10.03 Parts Expeditor: The company may establish on a voluntary basis the
---------------
position of a parts expeditor on each shift to be selected first on seniority
and second by qualification. The additional responsibilities of the position
shall consist of taking order forms from all of the technicians and making sure
parts get ordered and any other recordkeeping required. Any other
responsibilities which may become necessary for this position would be discussed
with the I.A.M. representative. Persons in this position will not hire, fire,
discipline or assign work. The primary duties for persons in this position is
that of a maintenance technician.
ARTICLE XI - HEALTH AND WELFARE PLAN
- ----------- -----------------------
11.01 - Insurance: Medical premiums for 1996 will be as follows:
---------
Family Rates $158.00
Employee & Spouse $108.00
Employee & Children $100.00
Single $ 50.00
<PAGE>
If there is an increase in rates for January 1, 1997, the Company and the Union
will incur the same percentage increase with a maximum increase for UNION
employees of $5.00 per month single; $7.50 per month employee and child and
employee and spouse; $15.00 per month family.
Dental insurance will be offered at the following rates:
Single Coverage $12.00 per month
Family Coverage $24.00 per month
There will be no increase in 1997.
The Company will also provide the benefits below at no cost to the employee.
Life Insurance - $30,000
---------------
Weekly Indemnity Benefits for disability will be paid according to the
short-term disability policy attached as Appendix A.
Accidental Death and Dismemberment - A Maximum of $60,000.
-----------------------------------
In the event the Union is on strike or the employee-members fail to report for
work for any reason other than illness, the Company shall not be obligated to
make this contribution.
During the term of this agreement, if the medical plan is changed to any company
other than Prudential, the Company will immediately negotiate with the Union to
find an alternate plan. The Company will give the Union a copy of their cost on
any plans which cover union members or which are being negotiated.
ARTICLE XII - REPORT IN AND CALL IN PAY
- ------------ -------------------------
12.01 - When an employee reports for work at his regular starting time without
previous notice not to report, he will be given at least four (4) hours work or
pay at his regular straight time rate. This provision shall not apply in case
work is suspended by an Act of God or other conditions beyond the control of the
Company.
<PAGE>
12.02 - An employee called back to work after having completed his regular work
day will be paid a minimum of four (4) hours at time and one-half.
12.03 - Any employee who must leave the plant during his scheduled working hours
because of an industrial accident will receive pay for his scheduled hours for
the day of the injury. If the doctor requests a subsequent visit for a treatment
of this injury during working hours, the Company will pay for the time spent in
this treatment at the employee's classification rate.
ARTICLE XIII - WAGE RATES
- ------------ ----------
13.01 Wage Increases: Effective January 1, 1996, all active employees will
--------------
receive an increase of 4.5% per hour.
Effective January 1, 1997, all active employees will receive an increase of 4.0%
per hour.
13.02 Wage Rates - The established hourly rate to be paid to competent
----------
Maintenance Mechanics
January 1, 1996 $13.44/hr
January 1, 1997 $13.98/hr
Minimum hiring rate, effective January 1, 1996, will be $10.89 per hour; and in
January 1, 1997 the minimum hiring rate will be $11.33.
New employees will be in a training status for three (3) years.
New employees will receive a wage increase of equal increments every six (6)
months following the date of their employment until the top rate is reached
within the thirty-six (36) month period.
If a new employee shows advancement, acquires new skills, and utilizes these
skills during their training period, they may receive a "bump" or advancement in
the six (6) month increment pay progression. This bump or advanced progression
will be with the Company's discretion and all new employees may not be eligible.
ARTICLE XIV - JURY SERVICE
- --------------------------
14.01 - It is agreed that an employee shall be released from work for Jury Duty
but shall not suffer any reduction in pay, thereby taking into consideration
fees received for such Jury Duty and provided the employee makes every
reasonable effort to report for whatever work is available during his regularly
scheduled work hours outside of the time he is actually required for Jury
service.
<PAGE>
Any employee duly called to perform his civic duty to serve on a jury panel
shall be compensated by the Company for the difference between the daily jury
pay and his regular hourly rate based on an eight (8) hour work day. Any
employee who is excused from serving shall not be required to report to his job
to complete a partial shift. In the event an employee has been excused for a
full day, he shall report to his job and continue working until told to report
again for Jury Duty.
ARTICLE XV - FUNERAL PAY
- ---------- -----------
15.01 - To compensate employees for loss of earnings during the normal workweek,
the Company will pay a maximum of three (3) days pay for the purpose of
attending the funeral of their spouse, father, mother, sister, brother or child.
The Company reserves the right for proof of death and or relationship.
ARTICLE XVI - PENSION
- ----------- -------
16.01 - Pensions - See EXHIBIT A (Attached.)
--------
ARTICLE XVII - DURATION OF CONTRACT
- ------------ --------------------
7.01 - This contract shall become effective on December 31, 1995, and continue
in force and effect until December 31, 1997, inclusive.
17.02 - No reopening of Agreement Without Mutuality. This contract constitutes
-------------------------------------------
the entire agreement between the parties and there shall be no reopening during
its term for the purpose of amending, adding to or deleting from this agreement
unless the parties mutually agree to a reopening for such purpose.
17.03 - Extension of Contract: It is agreed that this contract will remain in
---------------------
full force and effect for an additional year after December 31, 1997, unless
either party gives notice in writing to the other sixty (60) days prior to
December 31, 1997 of its desire to negotiate a new contract.
<PAGE>
IN WITNESS WHEREOF, the parties have attached their respective hands and seals
this 29th day of February 1996.
INTERNATIONAL ASSOCIATION OF
MACHINISTS SIMMONS COMPANY
AND AEROSPACE WORKERS GROVE CITY PLANT
BUCKEYE LODGE #55
GROVE CITY, OHIO GROVE CITY, OHIO
/s/
- ---------------------------- ---------------------------
Committee Person Operations Manager
/s/ /s/
- ---------------------------- ---------------------------
Committee Person Human Resources Manager
/s/
- ----------------------------
Committee Person
/s/
- ---------------------------
Business Agent /s/
----------------------------
Senior Vice President
Human Resources,
Simmons Company
/s/
----------------------------
Vice President-Personnel
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 12-31-95 1-1-96 3
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SHORT-TERM DISABILITY SUPERSEDES APPROVAL
LEAVE -I.A.M. Lodge #55
- --------------------------------------------------------------------------------
I. PURPOSE:
--------
Establish guidelines to provide income continuance for employees with a
"serious health condition."
II. SCOPE:
------
This policy applies to all employees who are members of I.A.M. Lodge #55
who have completed sixty (60) days of service.
III. RESPONSIBILITIES:
-----------------
A. It is the responsibility of the employee to obtain the required forms
and to ensure that they are completed on a timely basis.
B. A personnel action form, with completed FMLA forms attached, should be
used for this purpose. It is the responsibility of the supervisor to
notify the Human Resources Department when an employee applies for
disability leave.
IV. POLICY:
-------
A. Income continuance during prolonged illness or disability is based on
length of continuous service. Disability leave should be approved in
advance, if possible, by the Human Resources Department.
B. The short-term disability plan administered and paid for by Simmons is
effective for a maximum of 26 weeks.
C. Certain types of elective surgery may not qualify for salary
continuance under the short-term disability policy. These items will
be reviewed on a case-by-case basis with the final authority being the
Senior Vice President of Human Resources.
D. Short-term disability plan benefits depend on:
1. An employee's length of service (see schedule below);
2. Amount of income at the time of disability; and
3. Other income benefits.
E. To receive short-term disability benefits, an employee must be on a
company approved medical leave of absence; be under the care of a
doctor or other recognized health care provider; and have a non-
occupational illness or injury which lasts more than seven (7)
consecutive days. If an injury or illness requires impatient treatment
in a hospital or is caused by a serious accident, the seven (7) day
requirement will not apply.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 12-31-95 1-1-96 3
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SHORT-TERM DISABILITY SUPERSEDES APPROVAL
LEAVE -I.A.M. Lodge #55
- --------------------------------------------------------------------------------
F. During any consecutive twelve (12) month period of time an employee cannot
receive full salary for more weeks than the benefit period specified below
based on length of service. For example, an employee with more than three
(3) but less than four (4) years of service would be eligible for a maximum
of four (4) weeks at full pay during a twelve (12) month time frame. The
twelve (12) month window will be a rolling twelve (12) months starting with
the day on which the short-term disability leave begins and going backward
for twelve (12) consecutive months.
G. Schedule of benefits:
Length of service Benefits Period Weekly Benefits
Over 60 days First week Full salary
2-4 weeks Full salary
5-26 weeks 66 2/3% of salary
Over 3 years First Week Full salary
2-5 weeks Full salary
6-26 weeks 66-2/3% of salary
Over 5 years First week Full salary
2-8 weeks Full salary
9-26 weeks 66-2/3% of salary
Over 12 years First week Full salary
2-9 weeks Full salary
10-26 weeks 66-2/3% of salary
H. Benefits will be based on a 40-hour week.
I. Employees on a leave of absence who are receiving disability benefits and
who refuse to accept an offer to return to a light duty position for which
they are medically qualified will not be entitled to continue receiving
benefits under this policy.
PROCEDURE:
A. The employee and his/her recognized health care provider must complete the
form described in the Family and Medical Leave of Absence Policy in order
to apply for disability benefits. The form is submitted to the Plant Human
Resources manager for approval. Once approved, the employee is authorized
to be absent from work for the authorized time. The employee must contact
the Human Resources Manager by telephone weekly concerning his/her medical
condition. It is the responsibility of the employee to keep the Human
Resources Manager informed of any change in return date. The Human
Resources Manager will ensure that the employee's supervisor is kept
informed.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 12-31-95 1-1-96 3
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SHORT-TERM DISABILITY SUPERSEDES APPROVAL
LEAVE -I.A.M. Lodge #55
- --------------------------------------------------------------------------------
B. The Company reserves the right to have the employee examined by a health
care provider of its choice, at the Company's expense.
C. A short-term disability claim commences when the employee becomes disabled
provided:
1. A Notice and Proof of Claim form and Personnel Action Form are
completed and approved by the Human Resources Manager.
2. A Certification of Health Care Provider form accompanies the Notice
and Proof of Claim form.
3. Any additional documentation requested to verify the claim is
submitted to the Human Resources Department for approval.
4. Upon return to work, the employee must submit to Human Resources a
fitness for duty certificate indicating the employee is able to resume
his/her job (with or without a reasonable accommodation if the
employee is disabled).
<PAGE>
TO: Simmons Company Employees - I.A.M. Lodge #55
SUBJECT: Substance Abuse Policy
EFFECTIVE DATE: January 1, 1996
IT IS THE COMPANY'S POLICY TO IDENTIFY AND HELP THOSE EMPLOYEES WITH SUBSTANCE
ABUSE PROBLEMS AND TO ENCOURAGE THEM TO SEEK HELP ON THEIR OWN. APPLICANTS
IDENTIFIED AS BEING SUBSTANCE ABUSERS WILL BE DENIED EMPLOYMENT AND ENCOURAGED
TO SEEK HELP. EMPLOYEES WHO ARE IDENTIFIED AS BEING SUBSTANCE ABUSERS MAY BE
REFERRED FOR COUNSELING OR REHABILITATION AS APPROPRIATE. HOWEVER, THE
POSSESSION, USE, TRANSFER, MANUFACTURE OR SALE OF ALCOHOL, ILLEGAL DRUGS, OR
LEGAL DRUGS WITHOUT A VALID PRESCRIPTION, ON COMPANY PROPERTY OR ON COMPANY TIME
WILL RESULT IN DISCIPLINARY ACTION, UP TO AND INCLUDING TERMINATION.
TESTING OF APPLICANTS
---------------------
All applicants will be required to undergo a drug screening test after a
conditional offer of employment has been extended. Employment will be denied to
any applicant whose drug screen reveals the presence of illegal drugs or
prescription drugs without a valid prescription or alcohol in excess of the
sobriety level as established by state law.
TESTING OF EMPLOYEES
--------------------
Reporting to duty or working with drugs present in the body or while affected by
alcohol will be handled as a disciplinary matter. Testing may be required under
the following circumstances, and where allowed by applicable state or local
laws.
* When an employee is involved in an accident resulting in injuries requiring
medical treatment offsite.
* When the Company has reasonable cause and suspicion. Circumstances that
could be indicators of a substance abuse problem and considered reasonable
suspicion are:
A. Observed alcohol or drug abuse during work hours on company premises.
B. Apparent physical state of impairment.
C. Incoherent mental state.
D. Marked changes in personal behavior that are otherwise unexplainable.
E. Deteriorating work performance that is not attributable to other
factors.
F. Accidents or other actions that provide reasonable cause to believe
the employee may be under the influence.
* When an employee has had a positive test and been referred for counseling
or rehabilitation under this policy.
* When an employee requests a test (if approved by management).
<PAGE>
The Company intends to utilize the most accurate and reliable testing methods
available. Failure or refusal by an employee to cooperate with the program or to
submit to a test under the circumstances discussed above upon request, will be
grounds for termination of employment.
DRUG SCREEN LIMITS
------------------
The cut-off levels set forth below will be used for the initial screening of
specimens to determine whether they are negative for the following drugs:
Amphetamines 1000
Barbituates 200
Benzodiazepines 200
Cannabinoids 200
Cocaine Metabolite 300
Methaqualone 300
Opiate Metabolite 300
Phencyclidine (PCP) 300
Propoxphene 300
Methadone 300
Alcohol In excess of the sobriety level as
established by state law
Any urine specimen identified as positive on the initial test screen will be
confirmed by a second analytical procedure independent from the initial test and
which uses a different chemical technique and procedure.
DISCIPLINARY ACTION
-------------------
An employee who is considered impaired will be sent home or to a medical
facility for testing (by taxi or other safe transportation alternative depending
on the determination of the observed impairment, accompanied by the supervisor
or another employee if necessary). An impaired employee should not be allowed to
drive.
An employee who is considered impaired will be suspended pending the results of
the test.
If the test results are positive, the employee will be terminated.
COUNSELING AND REHABILITATION
-----------------------------
Voluntary Referral
- ------------------
Employees are encouraged to voluntarily request counseling or rehabilitation
before their substance abuse leads to disciplinary or other work-related
problems. A request may be made by contacting the Human Resources Department.
No employee will have job security jeopardized by such a good faith request.
For the one-year period immediately following the employee's completion of
counseling or rehabilitation, the company retains the right to randomly test
that employee. If the employee has a positive test result, the employee will
be terminated.
<PAGE>
Any employee suffering from an alcohol or drug problem who rejects treatment
or who leaves a treatment program prior to being properly discharged will be
immediately terminated. No employee will be eligible for this employee
assistance program more than one time. The recurrence of an alcohol or drug
problem will be cause for termination.
NOTIFICATION OF CONVICTIONS
---------------------------
Under Federal law, any employee convicted of any criminal drug offense committed
on Company property or while on Company business must notify the Company of the
conviction within five days after the conviction. The Company must then notify
each federal government agency with whom the Company holds an applicable
government contract and advise that the conviction has occurred. The Company
will then take appropriate personnel action against the employee up to and
including termination.
CONFIDENTIALITY
---------------
All information concerning medical examinations, drug or alcohol testing
results, counseling or rehabilitation of any employee will be treated
confidentially.
OFFICIAL SUBSTANCE ABUSE POLICY
-------------------------------
This document is only a summary of the Company's official Substance Abuse
Policy. The official copy is available to all employees for their review and
should be consulted with respect to any specific questions. Neither this
Summary, nor the Company's official Policy is intended to affect the Company's
right to manage its workplace or discipline its employees.
Also, neither this Policy Summary nor the official Policy guarantees employment
or guarantees terms or conditions of employment. No contract for employment,
either expressed or implied, is created by this Summary or the official Policy.
<PAGE>
I HAVE BEEN PROVIDED A WRITTEN SUMMARY OF THE SIMMONS COMPANY SUBSTANCE ABUSE
POLICY, AND AM AWARE OF MY OBLIGATIONS UNDER THE COMPANY'S POLICY.
EMPLOYEE NAME: _____________________________________________
EMPLOYEE SIGNATURE:_________________________________________
DATE:________________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 10-15-94 10-15-94 11
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SUBSTANCE ABUSE POLICY AND SUPERSEDES APPROVAL
INTERNAL GUIDELINES All Previous Policies
- --------------------------------------------------------------------------------
I. PURPOSE
-------
As a Company, we are concerned about the adverse effect that drugs and
alcohol can have upon our employee's safety and health. Alcoholism and the
illegal use of drugs lead to increased accidents and medical claims and can
lead to the destruction of an employee's health, adversely affect an
employee's family life, and jeopardize an employee's job.
In light of these concerns, the Company intends to maintain a workplace
free from the problems associated with the illegal use of drugs and the
abuse of alcohol. Our policy is to help employees with problems associated
with the abuse of drugs and alcohol and to encourage their rehabilitation.
No part of this policy, nor any of the procedures is, however, intended to
affect the Company's right to manage its workplace or to discipline its
employees. Also, this policy does not guarantee employment or continued
employment, nor does it modify any terms or conditions of employment.
II. SCOPE
-----
This policy will apply to all union employees of Simmons Company. In
addition to this policy, any commercial driver employed by Simmons must
comply with Policy Number 4.1.1., "Commercial Truck Driver Controlled
Substance Policy," effective 12/21/90.
Applicants: All applicants for employment at Simmons Company will be
required to undergo a drug screening test as part of the hiring process
after a conditional offer of employment has been extended. Employment will
be denied to any applicant whose drug screen test reveals the presence of
illegal drugs or prescription drugs without a valid prescription.
III. RESPONSIBILITY
--------------
A. Simmons Company will not be responsible for any cost related to
alcohol or drug rehabilitation treatment beyond that covered under the
company's medical insurance.
B. Corporate Human Resources Department
------------------------------------
Responsible for issuing the Substance Abuse Policy and for modifying
or amending the policy when necessary.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 10-15-94 10-15-94 11
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SUBSTANCE ABUSE POLICY AND SUPERSEDES APPROVAL
INTERNAL GUIDELINES All Previous Policies
- --------------------------------------------------------------------------------
Responsible for the education and training of personnel by acquiring
training and education materials and assisting the plant management with
scheduling and implementation of training for all employees.
Responsible for the communication of the policy and procedures to all Plant
Management and all employees at the Corporate location.
Responsible for counseling and assisting plant management or corporate
management when problems arise.
Responsible for selecting and posting authorized drug/alcohol testing
laboratory.
C. Plant Management/General Manager or Operations Manager
------------------------------------------------------
Responsible for the drug screening of all applicants as part of the hiring
process.
Responsible for communication of the policy to all plant personnel and for
scheduling and implementing periodic training to all personnel with the
guidance and assistance of the corporate human resource department.
Responsible for following policy guidelines in the event of a substance
abuse problem and for taking necessary disciplinary action.
D. Supervisors and Managers
------------------------
Responsible for knowing and understanding the substance abuse policy and
its guidelines.
Responsible for immediately notifying plant management or corporate human
resources when a substance abuse problem is suspected with an employee.
IV. POLICY
------
IT IS THE COMPANY'S POLICY TO IDENTIFY AND HELP THOSE EMPLOYEES WITH
SUBSTANCE ABUSE PROBLEMS AND TO ENCOURAGE THEM TO SEEK HELP ON THEIR OWN.
APPLICANTS IDENTIFIED AS BEING SUBSTANCE ABUSERS WILL BE DENIED EMPLOYMENT
AND ENCOURAGED TO SEEK HELP. EMPLOYEES WHO ARE IDENTIFIED AS BEING
SUBSTANCE ABUSERS MAY BE REFERRED FOR COUNSELING OR REHABILITATION AS
APPROPRIATE.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 10-15-94 10-15-94 11
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SUBSTANCE ABUSE POLICY AND SUPERSEDES APPROVAL
INTERNAL GUIDELINES All Previous Policies
- --------------------------------------------------------------------------------
HOWEVER, THE POSSESSION, USE, TRANSFER, MANUFACTURE, OR SALE OF ALCOHOL,
ILLEGAL DRUGS, OR LEGAL DRUGS WITHOUT A VALID PRESCRIPTION ON COMPANY
PROPERTY OR ON COMPANY TIME WILL RESULT IN DISCIPLINARY ACTION, UP TO AND
INCLUDING TERMINATION.
TESTING OF APPLICANTS
---------------------
All applicants will be required to undergo a drug screening test as part
of the hiring process. Employment will be denied to any applicant whose
drug screen test reveals the presence of illegal drugs or prescription
drugs without a valid prescription or alcohol in excess of the sobriety
level as established by state law.
TESTING OF EMPLOYEES
--------------------
Reporting for duty or working with drugs present in the body or while
affected by alcohol will be handled as a disciplinary matter.
Testing may be required under the following circumstances:
* When an employee is involved in an accident resulting in injuries
requiring medical treatment offsite.
* When the Company has reasonable cause and suspicion. Circumstances
that could be indicators of a substance abuse problem and considered
reasonable suspicion are:
A. Observed alcohol or drug abuse during work hours on company
premises.
B. Apparent physical state of impairment.
C. Incoherent mental state.
D. Marked changes in personal behavior that are otherwise
unexplainable.
E. Deteriorating work performance that is not otherwise unexplainable.
F. Accidents or other actions that provide reasonable cause to
believe the employee may be under the influence.
* When an employee has had a positive test and been referred for
counseling or rehabilitation under this policy.
* When an employee requests a test (if approved by management).
The Company intends to utilize the most accurate and reliable testing
method available.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 10-15-94 10-15-94 11
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SUBSTANCE ABUSE POLICY AND SUPERSEDES APPROVAL
INTERNAL GUIDELINES All Previous Policies
- --------------------------------------------------------------------------------
Failure or refusal by an employee to cooperate with the program or to
submit to such a test when requested will be grounds for termination of
employment.
DRUG SCREEN LIMITS
------------------
The cut-off levels set forth below will be used for the initial screening
of specimens to determine whether they are negative for the following
drugs:
AMPHETAMINES 1000
BARBITURATES 200
BENZODIAZEPINES 200
CANNABINOIDS 50
COCAINE METABOLITE 300
METHAQUALONE 300
OPIATE METABOLITE 300
PHENCYCLIDINE (PCP) 25
PROPOXYPHENE 300
METHADONE 300
ALCOHOL In excess of the sobriety level as
established by state law.
Any urine specimen identified as positive on the initial test screen will
be confirmed by a second analytical procedure independent from the initial
test and which uses a different chemical technique and procedure.
DISCIPLINARY ACTION
-------------------
An employee who is considered impaired will be sent home or to a medical
facility for testing (by taxi or other safe transportation alternative
depending on the determination of the observed impairment, accompanied by
the supervisor or another employee if necessary). An impaired employee
should not be allowed to drive.
An employee who is considered impaired will be suspended pending the
results of the test.
If the test results are positive, the employee will be terminated.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 10-15-94 10-15-94 11
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SUBSTANCE ABUSE POLICY AND SUPERSEDES APPROVAL
INTERNAL GUIDELINES All Previous Policies
- --------------------------------------------------------------------------------
COUNSELING AND REHABILITATION
-----------------------------
Voluntary Referral: Employees are encouraged to voluntarily request
counseling or rehabilitation before the substance abuse leads to
disciplinary or other work-related problems. A request may be made by
contacting the Human Resources Department. No employee will have job
security jeopardized by such a good faith request. For the one-year period
immediately following the employee's completion of counseling or
rehabilitation, the Company retains the right to randomly test the employee
for drugs/alcohol. If the employee test positive, the employee will be
terminated.
Any employee suffering from an alcohol or drug problem who rejects
treatment or who leaves a treatment program prior to being properly
discharged will be immediately terminated. No employee will be eligible for
this employee assistance program more than one time. The recurrence of an
alcohol or drug problem will be cause for termination.
NOTIFICATION OF CONVICTIONS
---------------------------
Under federal law, any employee convicted of any criminal drug offense
committed on Company property or while on Company business must notify the
Company of the conviction within five days after the conviction. The
Company must then notify each federal government agency with whom we hold
an applicable government contract and advise that the conviction has
occurred. The Company will then take appropriate personnel action against
the employee up to and including termination.
CONFIDENTIALITY:
----------------
All information concerning medical examinations, drug or alcohol testing
results, counseling or rehabilitation of any employee will be treated
confidentially.
V. PROCEDURES
----------
All information concerning medical examinations, drug or alcohol testing
results or rehabilitation and treatment of any individual employee will be
treated as confidential information.
<PAGE>
- --------------------------------------------------------------------------------
Date Effective Number Page of
Issued Date
SIMMONS COMPANY - POLICY 10-15-94 10-15-94 11
AND PROCEDURES
SUBJECT
- --------------------------------------------------------------------------------
SUBSTANCE ABUSE POLICY AND SUPERSEDES APPROVAL
INTERNAL GUIDELINES All Previous Policies
- --------------------------------------------------------------------------------
A. Any new hire must have a drug screening test prior to employment at
Simmons. If the test results are positive, the person will not be hired.
B. Any current employee who is suspected of being under the influence of
alcohol or drugs during working hours must be immediately monitored by the
supervisor or personnel. This must be done at the time of the incident.
C. Reasonable cause must exist to require the employee to submit to a drug
screening. Reasonable cause may be established when there is evidence of
excessive absenteeism; increased instances of on-the-job injuries and/or
accidents; a sudden decline or change in an employee's physical appearance;
deterioration in quality or quantity of work; decline in interpersonal
relationships with other employees and supervisors; and/or direct evidence
of slurred speech, red eyes, or dizziness (by witness on the job). If any
of these can be substantially documented, request the employee to submit to
a drug test.
D. If the employee refuses to submit to an alcohol/drug test, the employee
will be terminated.
E. The employee must sign a consent form for the alcohol/drug test. Check with
your local company doctor or clinic for this form (they usually have the
employee sign it prior to the testing). If the employee refuses to sign the
consent form, the employee will be terminated.
F. Inform the employee that the results of the test will be confidential.
G. Request from the company doctor or clinic that the test results be
available within 24 hours and no later than 48 hours.
H. An employee who is considered impaired will be suspended pending the
results of the test.
I. If the test results are positive, the employee will be terminated. If the
results are negative, the employee will be returned to work and reimbursed
for lost wages.
J. In the event of referral for counseling or rehabilitation assistance,
follow the policy or contract guidelines for medical and short-term leave.
<PAGE>
COMPANY Simmons Company
---------------
EMPLOYER CODE SO6A
----------
I.A.M. NATIONAL PENSION FUND
NATIONAL PENSION PLAN
STANDARD CONTRACT LANGUAGE
"APPENDIX A - PENSIONS
A. The Employer shall contribute to the I.A.M. National Pension Fund, National
Pension Plan $ .30 for each hour/1/for which employees in all job
-----
classifications covered by this Agreement are entitled to receive pay under this
Agreement 2_/as follows:
$ .30 per hour effective Jan. 1 1993 prior C.B.A.
--- ---- ------
$ .50 per hour effective Jan. 1 1996
--- ---- ------
$ .70 per hour effective Jan. 1 1997
--- ---- ------
B. The Employer shall continue contributions based on a forty (40) hour work
week while an employee is off work due to paid vacations or paid holidays.
3/
-
C. Contributions for a new, temporary, probationary, part-time and full-time
employee are payable from the first day of employment. 4/
-
D. The I.A.M. Lodge and the Employer adopt and agree to be bound by, and
hereby assent to, the Trust Agreement, dated May 1, 1960, as amended,
creating the I.A.M. National Pension Fund and the Plan rules adopted by the
Trustees of the I.A.M. National Pension Fund in establishing and
administering the foregoing Plan pursuant to the said Trust Agreement, as
currently in effect and as the Trust and Plan may be amended from time to
time.
E. The parties acknowledge that the Trustees of the I.A.M. National Pension
Fund may terminate the participation of the employees and the Employer in
the Plan if the successor collective bargaining agreement fails to renew
the provisions of this pension Article or reduces the Contribution Rate.
The parties may increase the Contribution Rate and/or add job
classifications or categories of hours for which contributions are payable.
F. This Article contains the entire agreement between the parties regarding
pensions and retirement under this Plan and any contrary provision in this
Agreement shall be void. No oral or written modification of this Agreement
shall be binding upon the Trustees of the I.A.M. National Pension Fund. No
grievance procedure, settlement or arbitration decision with respect to the
obligation to contribute shall be binding upon the Trustees of the said
Pension Fund."
-- END OF STANDARD CONTRACT LANGUAGE --
<PAGE>
(Please complete Options Section and sign below if the Standard Contract
Language is to be signed as a separate Agreement. If the Language is included
in the Collective Bargaining Agreement, please insert options where applicable.)
Options:
1/ Trustees' policy requires that all groups entering and continuing
- - participation shall negotiate either an HOURLY or DAILY contribution rate.
------ -----
An HOURLY or DAILY contribution rate may be negotiated if the collective
------ ----- ---
bargaining agreement provides for a standard work week of at least 40 hours
based on 5 work days. An HOURLY rate must be negotiated if the standard
------ ----
work week is at least 40 hours but less than 5 days. A DAILY rate must be
------
negotiated if the standard work week is 5 days but less than 40 hours. If
contributions are on a DAILY basis, contributions are required for any day
or portion thereof for which an employee is entitled to receive pay under
this Agreement.
2/ The parties may negotiate to limit contributions to a maximum of forty (40)
- - hours per week for each employee. Yes X No
--- ---
3/ a. The parties may negotiate to exclude contributions for sickness and
- - injury time, Reserve Training Time, jury duty, bereavement pay, or lost
time for processing grievances under the Agreement. If contributions are
to be excluded for any time, please specify:
b. The parties may negotiate that contributions will continue while
employee is off work and is not receiving pay for the following time:
Industrial leave injury
----------------
Indicate for how long: twelve (12) weeks
-----------------
4/ The parties may negotiate that contributions will begin at the completion
- the employee's probationary period, but no later than sixty (60) calendar
days after date of hire. Yes X No Temporary employees
---- ---
may be excluded for a maximum period of ninety (90) calendar days.
Yes No
--- ---
If yes, for how long? Temporary employees not covered.
International Association of Machinists & Aerospace Workers Local Lodge No. 55
- --------------------------------------------------------------------------------
(Insert Name and\Number of Lodge)
By /s/ Guy A. DeVito, Jr. B.R. Date January 1, 1996
------------------------------- -----------------
(Authorized Officer and Title)
Simmons Company
______________________________________________________________
(Insert Name of Employer)
EMPLOYER'S IRS IDENTIFICATION NO. 06 1007444
Address One Concourse Parkway, Suite 600, Atlanta, Ga. 30328 Tel. 707-392-2530
----------------------------------------------------------------------
By /s/ R. K. Barton Date 1/1/96
------------------------------- -----------------
(Authorized Officer and Title)
For plants or terminals located at:
3960 Brookham Drive Grove City, Ohio 43123 Tel. 614-871-8088
- --------------------------------------------------------------------------------
(Street) (City) (State) (Zip)
- --------------------------------------------------------------------------------
Exhibit 10.28
AMENDMENT TO LEASE
------------------
This Amendment to Lease (the "Agreement") is made and entered into as of
this 1st day of April, 1988, by and between Leadership Group, Inc., an Ohio
--- -----
corporation having its principal place of business at 4150 Tuller Road, Suite
236, Dublin, Ohio 43017 (the "Lessor"), and Simmons U.S.A. Corporation, a
Delaware corporation having its principal place of business at 6 Executive Park
Drive, Atlanta, Georgia 30348 (the "Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee have entered into a certain Lease
Agreement, dated November 4, 1987 (the "Lease"), for the construction and
leasing of a certain warehouse/office building, located at Marlane Drive, Grove
City, Franklin County, Ohio (the "Premises");
WHEREAS, Lessor and Lessee desire to amend the Lease to increase the
annual rental payable thereunder in consideration for the construction of
certain additional Tenant Improvements on the Premises.
NOW, THEREFORE, in consideration of the foregoing and the terms,
covenants, conditions and provisions contained herein, the parties hereto,
intending to be mutually bound hereby, agree as follows:
1. Paragraph 3(a) of the Lease is hereby deleted in its entirety
and the following inserted therefor:
3. RENT.
-----
(a) Lessee shall pay to Lessor during each year of the first
five years of the term hereof annual fixed rental for the Premises in
the amount of Five Hundred Thirty-Seven Thousand One Hundred Forty-Six
and 16/100 Dollars ($537,146.16) per year, payable in twelve (12)
equal monthly installments of Forty-Four Thousand Seven Hundred Sixty-
Two and 18/100 ($44,762.18) each, due in advance on the first day of
each and every calendar month during the first five years of the term
of this Lease. Lessee shall pay to Lessor during each year of the
sixth through tenth years of the term of this Lease, an annual fixed
rental for the Premises in an amount equal to the lesser of
------
<PAGE>
(i) Six Hundred Seventy-One Thousand Four Hundred Thirty-Three and
00/100 Dollars ($671,433.00) or (ii) an amount determined by
multiplying the annual rental for the fifth year of the term by a
fraction, the numerator of which is the Index [as defined in paragraph
29(b)(i) below] for the calendar month immediately preceding the
commencement of the sixth year of the term and the denominator of
which is the Base Level [as defined in paragraph 29(b)(i) below],
payable in equal monthly installments on the first day of each month.
All payments of annual fixed rental shall be paid without any set-off
or deduction whatsoever. In the event that the Commencement Date of
the term of this Lease shall occur on a day other than the first day
of a calendar month, the first rental payment shall be prorated on the
basis of a thirty (30) day month and shall be due and payable on the
Commencement Date.
2. Lessor and Lessee further agree that each and every term,
condition, provision and covenant of the Lease shall be and remain unchanged,
except as specifically modified herein.
IN WITNESS WHEREOF, Lessor and Lessee have caused this instrument to
be executed by a duly authorized representative as of the date and year set
forth above.
Signed and acknowledged in
the presence of the following
two witnesses:
As to Leadership Group, Inc.: LEADERSHIP GROUP, INC.,
an Ohio corporation
/s/ By: /s/ Robert T. Taggart
- ----------------------------- ----------------------------
(signature)
/s/ Robert T. Taggart
- ----------------------------- ----------------------------
(printed name)
Its: Chairman of the Board
---------------------------
(title)
As to Simmons U.S.A. SIMMONS U.S.A. CORPORATION,
Corporation: a Delaware corporation
/s/ By: /s/ HB Smith
- ----------------------------- ---------------------------
(signature)
/s/ Harlan B. Smith
- ----------------------------- ---------------------------
(printed name)
Its: Exec. V-P
---------------------------
(title)
-2-
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 3rd day of
May, 1988 by Robert T. Taggert, the Chairman of the Board of Leadership Group
Inc., an Ohio corporation, on behalf of the corporation.
/s/ Colleen J. Busley
--------------------------
Notary Public
My commission expires 10-14-91
STATE OF Georgia )
--------
) SS:
COUNTY OF DeKalb )
--------
The foregoing instrument was acknowledged before me this 25th day
----
of April, 1988 by Harlan B. Smith, the Executive Vice President of Simmons
----- --------------- ------------------------
U.S.A. Corporation, a Delaware corporation, on behalf of the corporation.
/s/ Catherine E. Taylor
-----------------------
Notary Public
Notary Public, Georgia,
State at Large
My Commission Expires
February 13, 1991
This instrument prepared by:
J. Thomas Mason, Esq.
Vorys, Sater, Seymour and Pease
52 East Gay Street
Post Office Box 1008
Columbus, Ohio 43216-1008
JTM3082 03/24/88
-3-
<PAGE>
Exhibit I
TRIPLE NET LEASE
<PAGE>
INDEX TO TRIPLE NET LEASE
Page
----
1. DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . . . 1
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . 4
5. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. MAINTENANCE OBLIGATIONS . . . . . . . . . . . . . . . . . . . 8
7. REAL ESTATE TAXES AND ASSESSMENTS . . . . . . . . . . . . . . 10
8. NET LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. ALTERATIONS AND INSTALLATIONS . . . . . . . . . . . . . . . . 12
10. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . 14
11. SUBORDINATION TO MORTGAGES . . . . . . . . . . . . . . . . . . 15
12. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . 16
13. ACCESS TO THE PREMISES . . . . . . . . . . . . . . . . . . . . 19
14. MECHANICS' LIENS . . . . . . . . . . . . . . . . . . . . . . . 20
15. REMEDIES OF LESSOR . . . . . . . . . . . . . . . . . . . . . . 21
16. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . 27
18. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 27
19. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . 27
20. NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
22. RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . 31
23. END OF TERM . . . . . . . . . . . . . . . . . . . . . . . . . 31
24. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . 32
-i-
<PAGE>
Page
----
25. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . 32
26. LIMITATION OF LESSOR'S LIABILITY . . . . . . . . . . . . . . 32
27. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 33
(a) Applicable Law . . . . . . . . . . . . . . . . . . . . . . 33
(b) Headings . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Entire Agreement . . . . . . . . . . . . . . . . . . . . . 33
28. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . 34
29. OPTION TO RENEW . . . . . . . . . . . . . . . . . . . . . . . 34
30. ENVIRONMENTAL PROTECTION AND UTILITY REGULATION . . . . . . . 35
31. CONSTRUCTION OF IMPROVEMENTS . . . . . . . . . . . . . . . . . 37
32. SPECIAL STIPULATIONS . . . . . . . . . . . . . . . . . . . . . 37
-ii-
<PAGE>
L E A S E
---------
THIS LEASE, made as of this 4 day of Nov., 1987, by and between
- ----
Leadership Group, Inc., having its principal place of business at 4150 Tuller
Road Suite 236, Dublin, Ohio 43017, hereinafter referred to as "Lessor", and
Simmons U.S.A. Corporation, having its principal place of business at
6 Executive Park Drive, Atlanta, Georgia 30348, hereinafter referred to as
"Lessee".
W I T N E S S E T H:
--------------------
1. DEMISED PREMISES
----------------
Lessor, in consideration of the rent to be paid and the covenants
to be performed by Lessor, does hereby demise and lease unto Lessee, and Lessee
hereby rents from Lessor, a certain warehouse building with office space,
together with the real estate upon which it is located, and all improvements
located therein, located at Marlane Drive, in Grove City, County of Franklin,
and State of Ohio, as is more particularly described on "Exhibit A" attached
hereto and made a part hereof (said building, improvements, and real estate
shall be hereinafter referred to as the "Premises"). SEE SPECIAL STIPULATION A.
2. TERM
----
The term of this lease shall be for a period of ten (10) years,
commencing on the Commencement Date (as herein defined) and terminating on the
tenth anniversary of the Commencement Date, or, if the Commencement Date is
other than the
<PAGE>
first day of a month, on the tenth anniversary of the last day of the first
month following the Commencement Date, unless sooner terminated or extended as
provided herein. (See Special Stipulation B.)
3. RENT
----
(a) Lessee shall pay to Lessor during each year of the first five
years of the term hereof annual fixed rental for the Premises in the amount of
Five Hundred Seven Thousand Five Hundred Dollars ($507,500) per year, payable
in twelve (12) equal monthly installments of Forty-Two Thousand Two Hundred
Ninety-One and 67/100 ($42,291.67) each, due in advance on the first day of
each and every calendar month during the first five years of the term of this
Lease. Lessee shall pay to Lessor during each year of the sixth through tenth
years of the term of this Lease, an annual fixed rental for the Premises in an
amount equal to the lesser of (i) Six Hundred Thirty-Four Thousand Three Hundred
------
Seventy-Five Dollars ($634,375) or (ii) an amount determined by multiplying the
annual rental for the fifth year of the term by a fraction, the numerator of
which is the Index [as defined in paragraph 29(b)(i) below] for the calendar
month immediately preceding the commencement of the sixth year of the term and
the denominator of which is the Base Level [as defined in paragraph 29(b)(i)
below], payable in equal monthly installments on the first day of each month.
All payments of annual fixed rental shall be paid without any set-off or
deduction whatsoever. In the event that the Commencement Date of the term of
this Lease shall occur on a day other than the first day of a
-2-
<PAGE>
calendar month, the first rental payment shall be prorated on the basis of a
thirty (30) day month and shall be due and payable on the Commencement Date.
(b) Lessee shall pay any and all sums of money or charges
required to be paid by Lessee as additional rent under this Lease promptly when
the same are due, without any deduction or set-off whatsoever. Lessee's failure
to pay any such amounts or charges when due shall carry with it the same
consequences as the failure to pay fixed rental. All such amounts or charges
shall be payable to Lessor at the place where rent is payable.
(c) In the event that Lessee shall fail to pay fixed rental
payments within five (5) days after the date when due, or shall fail to pay any
other rental payment or charge due from Lessee to Lessor hereunder within five
(5) days after the date when due, such past due rentals or other charges shall
bear interest at the rate of Two Percent (2%) per annum above the prime rate
charged by The Huntington National Bank of Columbus, Ohio as of the due date,
from the due date thereof until paid by Lessee. In like manner, all other
obligations, benefits and moneys which may be due to Lessor from Lessee under
the terms hereof, or which are paid by Lessor because of Lessee's default
hereunder, shall bear interest at the rate of Two Percent (2%) per annum above
the prime rate charged by The Huntington National Bank of Columbus, Ohio as of
the due date, from the due date until paid, or, in the case of sums paid by
Lessor, because of Lessee's default hereunder, from
-3-
<PAGE>
the date such payments are made by Lessor until the date Lessor is reimbursed by
Lessee.
4. USE OF PREMISES
---------------
(a) Lessee shall use the premises for all opera-
tions, uses and activities connected with manufacturing of mattresses,
upholstering, furniture and related products, general warehousing of products
classified under Section 310.0 of the Ohio Basic Building Code, effective July
1, 1979, as being in either the S-1 Moderate Hazard Storage Uses or the S-2 Low
Hazard Storage Uses, or any combination of the two, and the office use
incidental thereto, and for no other purpose without the prior written consent
of Lessor which consent shall not be unreasonably withheld. Lessee shall not
make retail sales from the Premises as a regular part of its business nor shall
Lessee use or permit the Premises to be used for any unlawful or illegal
purpose.
(b) Lessee shall, at its sole expense, comply with all laws,
ordinances, orders and regulations of federal, state, county and municipal
authorities and with any direction of any public officer or officers, pursuant
to law, and with any restrictions of record, which shall impose any liability,
order or duty upon Lessor or Lessee with respect to Lessee's use or occupancy of
the Premises. Lessee agrees to and shall indemnify and save Lessor harmless from
any and all loss, damage or costs (including reasonable attorney's fees) arising
as a result of Lessee's use or occupancy of the Premises.
-4-
<PAGE>
5. INSURANCE
---------
(a) Lessee agrees that, at its own cost and expense, it shall
procure and continue in force, in the names of Lessor and Lessee, general
liability insurance against any and all claims for injuries to persons or damage
to property occurring in, about, or upon the Premises, including the interior
and exterior common areas, if any, and including all damage from signs, fixtures
or other appurtenances, now, or hereafter erected upon the Premises, during the
term of this Lease. Such insurance shall at all times be in an amount not less
than One Million Dollars ($1,000,000.00) on account of bodily injury to or death
of one (1) person and Two Million Dollars ($2,000,000.00) on account of bodily
injuries or death of more than one person as a result of any accident or
disaster, and Five Hundred Thousand Dollars ($500,000.00) for property damage in
any one accident. Such insurance shall be written by a company or companies
authorized to engage in the business of general liability insurance in the State
of Ohio with a General Policyholder's Key Rating of A or better and a financial
size class of IV or better in the most current issue of Best's Insurance Guide,
or if such Guide is no longer published, a comparable rating in a comparable
publication selected by Lessor. A certificate of all such policies procured by
Lessee in compliance herewith shall be delivered to Lessor at least fifteen (15)
days prior to the time such insurance is required to be carried by Lessee, and
thereafter at least fifteen (15) days prior to the expiration of any such
policy. Such
-5-
<PAGE>
policy shall list Lessor as an additional insured and shall bear an endorsement
stating that the insurer agrees to notify Lessor not less than ten (10) days in
advance of modification or cancellation thereof.
(b) Lessee agrees that, at its own cost and expense, it shall
procure and continue in force, for the benefit of the Lessor, insurance insuring
the building, the fixtures and other property located therein, on an all-risk
basis, including, but not limited to, the perils of fire, with full extended
coverage, vandalism and malicious mischief, sprinkler leakage, earthquake,
collapse, and falling objects, in an amount not less than One Hundred Percent
(100%) of the full insurable replacement value thereof, without credit for
depreciation, and in all events sufficient in amount to prevent the insured from
being a co-insurer within the terms of the policy or policies in question.
Lessee shall also maintain, to the extent applicable, insurance against loss or
damage from the explosion of boilers, heating apparatus or other pressure
vessels installed in the building, or any part thereof, and shall further
maintain such other insurance in such amounts and against such insurable risks
as may from time to time be reasonably required by Lessor to the extent such
coverages then are available at commercial reasonable rates. Lessee agrees to
maintain insurance coverage for loss of rents, insuring Lessor, caused by the
perils insured against damaging or destroying the building, the fixtures and
other property located therein, with such insurance liability to be in
-6-
<PAGE>
an amount not less than the Lessee's annual rental obligation contained in
Paragraph 3. All policies shall provide that loss thereunder shall be payable to
Lessor or, if Lessor should so request, to any mortgagee of Lessor, provided
that Lessor shall hold the proceeds of any such policies and make the same
available to the extent necessary for the repair or restoration of the Premises
in accordance with the terms of this Lease and that if there is a mortgage on
the Premises, Lessor agrees to use its best efforts to include in the mortgage a
provision which would likewise obligate the mortgagee to make such proceeds
available to Lessor under conditions of disbursement satisfactory to said
mortgagee and on the basis of work completed. Such insurance shall be written by
a company or companies authorized to engage in the business of fire and extended
coverage insurance in the State of Ohio, with a Best's Insurance Guide rating as
set forth above, and a certificate of all such policies procured by Lessee in
compliance herewith shall be delivered to Lessor at least fifteen (15) days
prior to the time such insurance is required to be carried by Lessee, and
thereafter at least fifteen (15) days prior to the expiration of any such
policy. Such policy shall list Lessor as an additional insured and shall bear an
endorsement stating that the insurer agrees to notify Lessor not less than ten
(10) days in advance of modification or cancellation thereof.
(c) If the Lessee at any time during the term hereof should fail
to secure or maintain the above insurance
-7-
<PAGE>
required in Paragraph 5(a) and 5(b), the Lessor shall be permitted to obtain
such insurance in the Lessee's name or as the agent of the Lessee. Any amounts
paid by the Lessor for such insurance shall become immediately due and payable
as rent by Lessee to Lessor, together with interest thereon at the rate of Two
Percent (2%) per annum above the prime rate charged by The Buntington National
Bank of Columbus, Ohio as of the date of payment, from the date of payment by
Lessor until paid by Lessee. Any such payment by Lessor shall not be deemed to
be a waiver of any other rights which the Lessor may have under the provisions
of this lease or as provided by law.
(d) Each of the parties hereby waives all causes of action and
rights of recovery against the other party, its agents, officers and employees,
for any loss or damage occurring to the Premises or the improvements, fixtures,
merchandise and personal property of every kind located in and about the
Premises resulting from any perils fully and effectively covered by insurance,
regardless of cause or origin, including negligence of either party, its agents,
officers and employees, to the extent of any recovery under any policy or
policies of insurance, provided that the same will not be invalidated in whole
or in part by reason hereof.
6. MAINTENANCE OBLIGATIONS
-----------------------
(a) Except as provided in Article 10 hereof and
the Special Stipulation, Lessor shall be under no obligation to rebuild,
replace, maintain or make repairs of any nature,
-8-
<PAGE>
structural or otherwise, to the Premises during the term of this Lease or any
extension or renewal thereof. Lessee shall, during the term of this Lease, and
any extension thereof, maintain the Premises and, at its own expense, make all
repairs and replacements, ordinary or extraordinary, structural or otherwise,
(except those required to be made by Lessor hereunder) required to keep the
Premises and all heating, air conditioning, plumbing, and electrical systems and
all fixtures and equipment, in good order and repair. All repairs and
replacements made by Lessee shall be of comparable quality to the original work.
(b) Lessee shall, at its sole cost and expense, maintain all
parking areas, driveways and access roadways situated on the Premises in good
condition and repair and reasonably clear of snow and debris, and shall at its
expense adequately illuminate the parking areas and driveways situated on the
Premises during business hours.
(c) Lessee shall, at its sole cost and expense, maintain and keep
open, free from obstruction and in good repair, all electric, water, sewer and
other utility lines and connections, conduits, pipes, catch basins, manholes,
poles, lighting fixtures and other related facilities situated in, under or on
the Premises.
(d) In the event Lessee should neglect reasonably to maintain the
Premises, Lessor shall have the right (but not the obligation) to cause repairs
or corrections to be made. Any amounts paid by the Lessor for such repairs or
corrections shall
-9-
<PAGE>
become immediately due and payable as rent by Lessee to Lessor, together with
interest thereon at the rate of Two Percent (2%) per annum above the prime rate
charged by The Huntington National Bank of Columbus, Ohio, as of the date of
payment, from the date of payment by Lessor until paid by Lessee. Any such
payments by Lessor shall not be deemed to be a waiver of any other rights which
the Lessor may have under the provisions of this Lease or as provided by Law.
7. REAL ESTATE TAXES AND ASSESSMENTS
---------------------------------
(a) Lessee shall pay as additional rent, during the term of this
Lease and any renewal or extension thereof, as promptly as the same become due
and payable, all personal property taxes and real estate taxes and assessments,
both general and special, and any other public charges of any nature, ordinary
or extraordinary, now or hereafter levied, assessed, charged or imposed upon the
Premises during the term of this Lease, or now or hereafter arising in respect
of the occupancy, use or possession of the Premises, or any part thereof, by
Lessee. Lessor agrees to reimburse Lessee for any real estate taxes and
assessments, both general and special, levied, assessed, charged or imposed upon
the Premises prior to the commencement of the term of this Lease. Lessee shall
furnish to Lessor upon demand receipts evidencing payment of all such taxes,
assessments and public charges. Upon termination of this Lease, all such taxes,
assessments and public charges for the then calendar year shall be prorated
between the parties, using in the
-10-
<PAGE>
case of taxes the rate and valuation in effect for the preceding year unless the
rate and valuation for the current year are known.
(b) Except in the case of non-payment pursuant to paragraph 7(c)
below, if Lessee fails to pay such taxes, assessments, or charges, Lessor may,
at his option, pay such taxes, assessments, or charges, together with all
penalties and interest which may have been added thereto because of Lessee's
delinquency or default, and may likewise redeem the Premises, or any part
thereof, or the buildings or improvements situated thereon, from any tax sale or
sales. Any such amounts so paid by Lessor shall become immediately due and
payable as rent by Lessee to Lessor, together with interest thereon at the rate
of Two Percent (2%) per annum above the prime rate charged by The Huntington
National Bank of Columbus, Ohio, as of the due date, from the date of payment by
Lessor until paid by Lessee. Any such payment by Lessor shall not be deemed to
be a waiver of any other rights which the Lessor may have under the provisions
of this Lease or as provided by law.
(c) Lessor agrees to cooperate with Lessee in contesting any
taxes, assessments or charges imposed with respect to the Premises upon receipt
by Lessor of reasonable assurances by Lessee that provision for payment of such
taxes has been made by Lessee.
-11-
<PAGE>
8. NET LEASE
---------
It is the purpose and intent of Lessor and Lessee that the rent
payable by Lessee hereunder shall be absolutely net to Lessee so that this Lease
shall yield, net, to Lessor, the rent specified in Article 3 hereof, and that
all costs, expenses or obligations of every kind and nature whatsoever relating
to the Premises, except interest and amortization required to be paid by Lessor
on any mortgage and except as set forth in Stipulation D, shall be paid by
Lessee. Lessee hereby agrees to and shall indemnify and save Lessor harmless
from and against any such costs, expenses and obligations.
9. ALTERATIONS AND INSTALLATIONS
-----------------------------
(a) Lessee shall not make any alterations, installations,
additions or improvements in or to the Premises at a cost in excess of Twenty
Thousand Dollars ($20,000) or which would affect the structure or exterior of
the Premises without Lessor's prior written consent in each and every instance,
which consent will not be unreasonably withheld. Any of the foregoing work
consented to by Lessor shall be done by competent contractors in a good and
workmanlike manner and at Lessee's sole expense, unless otherwise agreed to in
writing by the parties. Lessee shall, for all alterations, at its sole cost and
expense, obtain and provide Lessor with a copy of all required construction or
alteration permits and with certificates of occupancy upon completion and shall
otherwise comply with all applicable laws and regulations. If the construction
work is expected to
-12-
<PAGE>
cost in excess of Twenty Thousand Dollars ($20,000.00), Lessor shall have the
right to require Lessee to submit for approval plans and specifications and
evidence of the availability of funds for such work.
(b) Except as provided in paragraph (c) below, all alterations,
installations, additions, or improvements in or to the Premises, whether
installed by Lessor or Lessee, shall become Lessor's property and shall remain
upon and be surrendered with said Premises without disturbance or injury upon
the termination of this Lease by lapse of time or otherwise, all without payment
or credit to Lessee, unless otherwise agreed to in writing by Lessor and Lessee.
(c) All articles of personal property and trade fixtures owned or
installed by Lessee at its expense on the Premises shall remain the property of
Lessee and may be removed by Lessee at any time, provided that Lessee is not in
default hereunder and that Lessee shall promptly repair at its expense any and
all damage to the Premises caused by such removal. Lessor shall not be
responsible or liable to Lessee for any loss or damage that may be occasioned
by or through the acts or omissions of Lessor or of persons occupying adjoining
premises, or for any loss or damage resulting to the Lessee or its property
from damage or destruction to the Premises or from bursting, stoppage or
leakage of water, gas, sewer or steam pipes or any damage or loss of property
within the Premises from any causes
-13-
<PAGE>
whatsoever, except for actual damages as a result of the negligence or
intentional misconduct of Lessor.
10. DAMAGE OR DESTRUCTION
---------------------
In the event of loss or destruction of, or damage or injury to
the Premises, or any part thereof, by fire, the elements or any other cause
whatsoever, Lessee shall have no right to terminate this Lease or to surrender
the Premises, whether or not the Premises are thereby rendered untenantable or
unfit for occupancy, and Lessee's obligation to pay rent hereunder shall not
abate. Lessor shall promptly repair, restore or rebuild the damaged portions of
the Premises to a condition as nearly as reasonably possible to the condition
they were in immediately prior to such damage or destruction, or with such
changes and alterations as may be agreed to by Lessor and Lessee and Lessor
shall have the benefit of all insurance proceeds (other than proceeds
attributable to Lessee's trade fixtures and personal property) for such purpose.
Lessor and Lessee shall have the right to reasonably approve all such
construction plans. Lessee agrees to immediately pay to Lessor, all insurance
proceeds received by Lessee, under conditions or disbursements satisfactory to
Lessor and its mortgagee. Such repairs, restoration, replacements or rebuilding
shall be prosecuted and completed with reasonable diligence. Lessor's obligation
to repair hereunder shall be limited to the extent of available insurance
proceeds and in the event that the insurance proceeds are not made available by
Lessor's mortgagee or are inadequate
-14-
<PAGE>
for restoration as required hereunder, Lessor, may upon notice to Lessee
terminate this Lease. If the damage or destruction is such that the Premises
cannot be rebuilt within 180 days following such damage or destruction or if
Lessor fails to rebuild the Premises within such 180 day period, either party
may, upon 30 days prior written notice to the other, terminate this Lease.
11. SUBORDINATION TO MORTGAGES
--------------------------
Lessee agrees that this Lease shall be subject and subordinate to
any mortgages that may hereafter be placed upon the Premises and to any and all
advances to be made thereunder and to the interest thereon, and any and all
renewals, replacements and extensions thereof, provided, that any such mortgage
or a separate agreement furnished by such mortgagee to Lessee provides in
substance, that if by foreclosure or otherwise such mortgagee or any successor
in interest shall come into possession of the Premises or become the owner of
the same or take over the rights of Lessor in the same, it will not disturb the
possession, use or enjoyment of the Premises by Lessee, its successors or
assigns, nor disaffirm this Lease or Lessee's rights or estate hereunder, so
long as all of the obligations of Lessee are fully performed in accordance with
the terms of this Lease. Lessee agrees that any mortgagee may elect to have this
Lease a prior lien to its mortgage and in the event of such election and upon
notification by any mortgagee to Lessee to that effect, this Lease shall be
deemed prior in lien to the said mortgage whether
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<PAGE>
this Lease is dated prior to or subsequent to the date of said mortgage. The
provisions of this paragraph shall be self-operative without the necessity of
any other written consent, approval or subordination by Lessee. However, at the
request of Lessor, Lessee shall execute and deliver to Lessor whatever
Instruments may be required for the foregoing purposes, and in the event Lessee
fails to do so within ten (10) days after demand in writing, Lessee does hereby
make, constitute and irrevocably appoint Lessor so to do in its name, place and
stead.
12. ASSIGNMENT AND SUBLETTING
-------------------------
(a) Lessee shall not, without Lessor's prior written consent
which shall not be unreasonably withheld:
(i) assign, hypothecate, mortgage, encumber, or convey
this Lease other than to a subsidiary, parent, affiliate, or
division of Lessee with Lessee remaining liable hereunder;
(ii) allow any transfer thereof or any lien upon
Lessee's interest by operation of law;
(iii) sublet the premises or any part thereof; or
(iv) permit the use or occupancy of the premises or any
part thereof by anyone other than Lessee or a subsidiary,
parent, affiliate or division of Lessee.
(b) If Lessee desires the consent of the Lessor to an Assignment
or Subletting of all or a part of the Building Premises (that portion of the
premises being assigned or sublet shall hereinafter be referred to as "Subject
Premises"), Lessee shall submit to Lessor:
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<PAGE>
(i) The proposed sublease or assignment, which is not
to commence prior to the first day of the month immediately
following the month in which the thirtieth (30th) day
following the submission to Lessor occurs; and
(ii) sufficient information to permit Lessor to
determine the acceptability of the financial responsibility
and character of Sublessee or Assignee.
(iii) The proposed sublease or assignment shall be only
for the remaining term or renewal term existing at the time
the sublease or assignment is proposed; the Sublessee or
Assignee shall have no right to exercise any renewal
options.
(c) (i) Lessor within thirty (30) days after receipt of such
documents may:
(1) terminate this Lease for the Subject Premises
and lease the Subject Premises directly to Sublessee or
Assignee; and
(2) if this Lease for the Subject Premises be so
terminated, Lessee shall remain liable for the above
fixed annual rental to the termination date even though
such may be billed subsequently.
(ii) If Lessor terminates this Lease for the Subject
Premises and leases the Subject Premises directly to
Sublessee or Assignee, Lessee's liability and this Lease
shall remain in full force and effect for the remainder of
the premises and the term if the Sublease is for less than
the entire Premises or remaining term.
(d) If Lessor does not either terminate this Lease for the Subject
Premises or terminate this Lease for the Subject Premises and lease the Subject
Premises directly to Sublessee or Assignee pursuant to Paragraph (c) above,
Lessor shall not unreasonably withhold its consent except that such consent need
not be granted if:
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<PAGE>
(i) in the reasonable judgment of Lessor
the purposes for which the Sublessee or Assignee
intends to use the Subject Premises are not in
keeping with the use provisions contained within
this Lease;
(ii) the Subject Premises is not regular in
shape with appropriate means of ingress and egress
and suitable for normal renting purposes;
(iii) space exists in the Building which may
be leased directly from Lessor without considering
an Assignment or Sublease;
(iv) Lessee is in default under this Lease;
(v) Lessor shall have received written
notification from the applicable insurance carrier
that the intended use of the Subject Premises will
increase the cost of insurance for the Building;
and
(vi) consent will cause Lessor to violate
any covenant extended to any other Lessee,
Sublessee, or Assignee.
(e) If Lessor grants consent:
(i) the terms and conditions of this
Lease, including among other things, Lessee's
liability for the Subject Premises shall in no way
be deemed modified, abrogated or amended;
(ii) Lessee shall pay Lessor up to $500.00
for each Sublease or Assignment submitted as reim-
bursement to Lessor for expenses actually
incurred;
(iii) the consent shall not be deemed a
consent to any further subletting or assignment by
either Lessee, Sublessee or Assignee;
(iv) If Lessee shall fail to pay the rent as
defined in Paragraph 15, if all or any part of the
leased premises are then assigned or sublet,
Lessor, in addition to any other remedies provided
by this Lease or provided by law, may, at its
option, collect directly from the Assignee or
Sublessee all rents becoming due to Lessee by
reason of the Assignment or Sublease, and Lessor
shall have a security interest in all properties
on the leased premises to secure payment of such
sums. Any collection directly by Lessor from the
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<PAGE>
Assignee or Sublessee shall not be construed to
constitute a novation or release of Lessee from
the further performance of its obligations under
this Lease.
(f) No Assignment under this paragraph shall be valid or
effective until there is delivered to Lessor a duplicate original of the
written instrument of assignment in recordable form containing the name and
address of the Assignee and the assumption by the Assignee of this Lease
and of all obligations under this Lease to be performed by Lessee after the
effective date of the assignment. No sublease consented to by Lessor shall
be valid or effective until a duplicate original thereof shall be delivered
to Lessor.
(g) For the purposes of this paragraph, the sale, issuance
or transfer of any voting capital stock of Lessee (if Lessee be a non-
public corporation) which results in a change in the voting control of
Lessee, shall be deemed to be an Assignment of this Lease.
13. ACCESS TO THE PREMISES
----------------------
(a) Lessor or Lessor's agents shall have the right to enter
the Premises at all reasonable times upon twenty-four (24) hours prior oral
or written notice to Lessee, except with respect to entry necessitated due
to emergency to examine the same and to make such repairs as Lessor or
Lessee is obligated to make hereunder, but has failed to make after written
notice from Lessor. Lessor shall be allowed to take all materials and
equipment into the Premises that may be required to carry out any of the
foregoing. Lessor agrees, however, to use
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<PAGE>
its best efforts to prevent any unnecessary inconvenience to Lessee in
exercising any of the foregoing rights.
(b) After prior notice to Lessee, Lessor may exhibit the
Premises to prospective purchasers, lenders and tenants at reasonable
times. During the last one hundred eighty (180) days of the term of this
Lease, or any renewal term, Lessor may enter the Premises for the purpose
of altering, renovating, decorating, repairing or otherwise preparing the
Premises for reletting. Lessor agrees, however, to use its best efforts to
prevent any unnecessary inconvenience to Lessee in exercising any of the
foregoing rights.
(c) Lessor may exercise all or any of the foregoing rights
without being deemed guilty of an eviction or disturbance of Lessee's use
and possession, without being liable in any manner to Lessee, and without
elimination or abatement of rent, or payment of other compensation.
(d) As a condition to Lessor's entry to the Premises, Lessor
agrees to execute and deliver to Lessee a standard confidentiality
agreement of Lessee's protecting Lessee's proprietary information in the
form attached hereto as Exhibit B.
14. MECHANIC'S LIENS
----------------
If a mechanic's lien is filed against the Premises for, or
purporting to be for, labor or material alleged to have been furnished, or
to be furnished to, or for Lessee or any sub-lessee of Lessee at the
Premises, other than as a result of
-20-
<PAGE>
construction by or on behalf of Lessor, Lessee shall cause such lien to be
discharged within fifteen (15) days after written notice from Lessor, by
bonding proceedings or otherwise. If Lessee shall fail to take such actions
as shall cause such lien to be discharged within said fifteen (15) day
period, Lessor may, at its option, pay the amount of such lien or may
discharge the same by bonding proceedings and, in the event of such bonding
proceedings, Lessor may require the lienor to prosecute the appropriate
action to enforce the lienor's claim. Any such amount paid or expense
incurred by Lessor, or any expense incurred or sum of money paid by Lessor
by reason of the failure of Lessee to comply with the foregoing provisions
of this paragraph or in defending any such action, shall become immediately
due and payable as rent by Lessee to Lessor, together with interest thereon
at the rate of Two Percent (2%) per annum above the prime rate charged by
The Huntington National Bank of Columbus, Ohio as of the date of payment,
from the date of payment by lessor until paid by Lessee. Any such payment
by Lessor shall not be deemed to be a waiver of any rights which the Lessor
may have under the provisions of this Lease or as provided by law.
15. REMEDIES OF LESSOR
------------------
(a) If 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
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<PAGE>
rendition of a statement therefor, or 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), or if the leasehold interest of Lessee be levied upon under
execution or be attached and such levy or attachment is not dismissed
within thirty (30) days, or if any voluntary or involuntary petition or
similar pleading under any Act of Congress relating to bankruptcy shall be
filed by or against Lessee, and, if involuntary, shall remain unstayed or
undischarged, forty-five (45) days thereafter, or if any voluntary or
involuntary proceedings in any court or tribunal shall be instituted by or
against Lessee, or any guarantor of this Lease, to declare Lessee or any
guarantor of this Lease insolvent or unable to pay the debts of Lessee or
any guarantor of this Lease, and, if involuntary, shall remain unstayed or
undischarged, forty-five (45) days thereafter, or if Lessee or any
guarantor of this Lease make an assignment for the benefit of creditors or
if a receiver be appointed for any property of Lessee and not discharged
within thirty days (30), or if Lessee abandons the Premises, then and in
any such event Lessor may, if Lessor so elects, and with or without notice
of such election and with or
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<PAGE>
without demand whatsoever, forthwith terminate this Lease and Lessee's
right to possession of said Premises, or Lessor may, without terminating
this Lease, terminate Lessee's right to possession of the Premises.
(b) Upon the termination of this Lease, or upon the
termination of Lessee's rights to possession without termination of this
Lease, Lessee shall surrender possession and vacate the Premises
immediately, subject to Lessee's right to remove its personal property and
trade fixtures, as provided in paragraph 23 hereof and Lessor may enter
into and repossess the Premises with or without process of law and remove
all persons and property therefrom in the same manner and with the same
right as if this Lease had not been made.
(c) If Lessor elects to terminate Lessee's right to
possession only, without terminating this Lease as above provided, Lessor
may remove from the Premises any and all property found therein, and such
repossession shall not release Lessee from Lessee's obligation to pay the
rent reserved herein. After such repossession by Lessor without termination
of this Lease, Lessor agrees to act in good faith to mitigate damages and
to use reasonable efforts to relet the Premises, or any part thereof, as
agent of Lessee or otherwise, to such persons, firms or corporations as
Lessor shall in its sole discretion consider financially responsible and
suitable as a tenant or tenants and for such time and upon such terms as
Lessor, in Lessor's reasonable discretion, may determine, and for
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<PAGE>
the purpose of such reletting, Lessor may make repairs, alterations and
additions in and to the Premises and redecorate the same to the extent
reasonably deemed by Lessor necessary or desirable, and Lessee shall, upon
demand, pay the cost thereof together with Lessor's expense (including but
not limited to reasonable attorney's fees actually incurred and any
broker's commissions) of reletting. If the rents collected by Lessor upon
any such reletting are not sufficient to pay monthly and annually the full
amount of the rent and other sums provided herein to be paid by Lessee to
Lessor, together with the costs of such repairs, alterations, additions,
redecorating and expenses, or if Lessor has not received any rents from
reletting, Lessee shall pay to Lessor the amount of each monthly and annual
deficiency upon demand. If the rent so collected from any such reletting is
more than sufficient to pay the full amount of the rent reserved herein
together with the cost of such repairs, alterations, additions,
redecorating and expenses, Lessor, at the end of the stated term of this
Lease, shall be under no obligation to account to Lessee for any surplus.
(d) If Lessor elects to terminate this Lease as above
provided, Lessor shall be entitled to recover as damages an amount equal to
the then present value of the rent and other sums provided hereinto be paid
by Lessee to Lessor for the entire remainder of the stated Lease term,
subject to Lessor's obligation to act in good faith to mitigate damages.
-24-
<PAGE>
(e) Any and all property which may be removed from the
Premises by Lessee may be handled, removed, stored or otherwise disposed of
by Lessor at the risk and expense of Lessee, and Lessor shall in no event
be responsible for the preservation or safekeeping thereof, or be deemed
liable to Lessee in conversion or otherwise, except as a result of the
gross negligence or intentional misconduct of Lessor.
(f) If Lessee shall default in performing any term, covenant
or condition of this Lease, which default may be cured by the expenditure
of money, Lessor, at Lessor's option, may, but shall not be obligated to,
on behalf of Lessee, expend such sums as may be necessary to perform and
fulfill such term, covenant or condition, and any and all sums so expended
by Lessor, with interest thereon at the rate of Two Percent (2%) per annum
above the prime rate charged by The Huntington National Bank of Columbus,
Ohio, from the date of such expenditure, by Lessor shall be deemed to be
additional rent, and shall be repaid by Lessee to Lessor on demand, but no
such payment or expenditure by Lessor shall be deemed a waiver of Lessee's
default nor shall it affect any other remedy of Lessor by reason of such
default.
(g) All rights and remedies of Lessor herein set forth are in
addition to any and all rights and remedies allowed by law and equity.
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<PAGE>
16. INDEMNITY
---------
(a) Lessee agrees to indemnify and save harmless Lessor from
and against any and all claims as a result of or arising out of, directly
or indirectly, any of the following:
(i) The breach by Lessee or any of its agents,
contractors, employees, customers, visitors or
licensees of any covenant or agreement of this Lease
on the part of Lessee to be performed or observed.
(ii) Lessee' use or occupancy of the Premises or
any part thereof or any sidewalk, drive or space
adjacent thereto.
(iii) The carelessness, negligence or improper
conduct of Lessee or any of its agents, contractors,
employees, customers, visitors or licensees.
(b) Lessee further agrees to indemnify and save harmless
Lessor from and against all costs, damages, expenses, losses, fines,
liabilities and counsel fees paid, suffered or incurred as a result of any
of the above described claims or any actions or proceedings brought
thereon; and in case any action or proceeding is brought against Lessor by
reason of any such claim, upon notice from Lessor, Lessee agrees to resist
or defend at Lessee's expense such action or proceeding by counsel
satisfactory to Lessor.
(c) Lessee's liability under this Article 16 and this Lease
extends to the acts and omissions of any subtenant or assignee of Lessee
and any agent, contractor, employee, customer, visitor or licensee of any
such subtenant or assignee.
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<PAGE>
17. ESTOPPEL CERTIFICATE
--------------------
At any time and from time to time, Lessee agrees, within
fifteen (15) days after receipt of written request from Lessor, to execute,
acknowledge and deliver to Lessor a statement in writing certifying, if
true, 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 the modifications) and the dates to which the rent and
other charges have been paid.
18. UTILITIES
---------
Lessee agrees during the term hereof to pay all charges for
electricity, water, gas, heat, telephone and other utility services used,
consumed or wasted upon the Premises. Lessor shall not be liable for the
quality, quantity or any third party interference with such utilities.
Lessor shall not itself interrupt or interfere with utility service to the
Premises except to the extent reasonably necessary in connection with the
relocation or repair of such utility by Lessor in which case Lessor shall
give to Lessee reasonable notice of such interference and such interference
shall be for the minimum time reasonably necessary to complete such repair
or relocation.
19. EMINENT DOMAIN
--------------
(a) If the whole of the Premises shall be taken in
appropriation proceedings or by any right of eminent domain (including a
conveyance in lieu thereof) then this Lease shall terminate from the time
possession thereof is required for public
-27-
<PAGE>
use and from that date on the parties hereto shall be released from further
obligations thereafter accruing hereunder.
(b) If any part of the Building upon the Premises shall be so
taken, then the term of this Lease shall cease only as to the part so taken
from the date possession thereof is required for public use and Lessee
shall pay rent up to that day with an appropriate refund by Lessor of such
rent as may have been paid in advance for a period subsequent to the date
of the taking; provided, however, that either party shall have the right to
terminate this Lease in such event as to the entire Premises upon notice in
writing thereof made upon the other party within thirty (30) days after
such taking of possession.
(c) If following a taking of a portion of the Premises by
eminent domain this Lease is not terminated under the provisions of this
Article, there shall be an equitable adjustment of the rent based upon the
portion of the Premises taken, and Lessor shall make all necessary
alterations to the Premises so as to make the Premises a complete
architectural unit.
(d) Lessee agrees that Lessor shall be entitled to collect
from any condemning authority the entire award that may be made in any
condemnation or appropriation proceedings without deduction therefrom for
any estate or rights vested in or owned by Lessee, and Lessee shall not
have any claim against Lessor by any condemnation or taking of the whole or
part of the Premises, nor any claim to the amount or any portion thereof
which may be awarded as damages or paid as the result of any condemnation
or taking; provided, however, that Lessor shall not
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<PAGE>
be entitled to any separate award made to Lessee for loss of business,
depreciation to and cost of removal of stock and fixtures.
20. NO WAIVER
---------
(a) No receipt of money by Lessor from Lessee with knowledge
of the breach of any covenants of this Lease, or after the termination
hereof, or after the service of any notice, or after the commencement of
any suit or after final judgment for possession of the Premises shall be
deemed a waiver of such breach, nor shall it reinstate, continue or extend
the term of this Lease or affect any such notice, demand or suit.
(b) No payment by Lessee or receipt by Lessor 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 on accord and satisfaction, and Lessor may accept such
check or payment without prejudice to Lessor's right to recover the balance
of such rent or pursue any other remedy in this Lease provided.
(c) No delay or failure on the part of Lessor in exercising
or enforcing any right, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude any other, or further exercise thereof or the
exercise of any other right, power or privilege.
-29-
<PAGE>
(d) No act done or thing sold by Lessor or Lessor's agent or
employees shall constitute a cancellation, termination or modification of
this Lease, or a waiver of any covenant, agreement or condition hereof, nor
relieve Lessee from Lessee's obligation to pay the rents reserved or other
charges to be paid hereunder. Any waiver or release by Lessor and any
cancellation, termination or modification of this Lease must be in writing
signed by Lessor.
21. 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,
mailed, or left at the Premises as herein provided. A copy of any such
notice simultaneously shall be given to Lessee 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 sent by registered or certified
mail, return receipt requested, addressed to Lessor at the address where
the last previously rental payment was paid. Either party may, at any time,
change its address for notices by giving the other party notice of such
change in the manner above
-30-
<PAGE>
provided for the giving of notices. Wherever in this Lease, in connection
with the breach or performance of any of the covenants and agreements of
Lessee, no period of time or notice is required by the terms hereof, no
notice shall be required as a prerequisite to the exercise of any right or
remedy of Lessor.
22. RECORDING
---------
This Lease shall not be recorded. However, if either of the
parties hereto desire to record a statutory memorandum of this Lease,
Lessor and Lessee agree to execute and deliver to the other a recordable
memorandum of this Lease containing only the minimum statutory
requirements, which memorandum of this Lease may then be recorded in the
office of the County Recorder of Franklin County, Ohio.
23. END OF TERM
-----------
Upon the expiration or other termination of the term of this
Lease, including any renewal term, Lessee shall quit and surrender to
Lessor the Premises together with all alterations, installations, additions
and improvements, whether installed by Lessor or Lessee, broom clean, and
in as good condition and repair as the same were in at the commencement of
the term or were thereafter put by Lessor or Lessee, subject only to
ordinary wear and tear, and damage or destruction by fire or other casualty
covered by standard fire and extended coverage insurance, failing which
Lessor may restore said Premises to such condition and Lessee shall pay the
cost thereof, and Lessee shall remove all of its property from the
Premises. If Lessee fails to
-31-
<PAGE>
remove Lessee's carpeting and personal property and trade fixtures which it
has the right to remove from the Premises within ten (10) days after
written notice from Lessor, Lessee shall be conclusively presumed to have
abandoned the same, and ownership thereof shall forthwith vest in Lessor
without payment or credit to Lessee.
24. HOLDING OVER
------------
Should Lessee remain in possession of the Premises after the
date of the expiration of the term of this Lease without the consent of
Lessor then, unless a new agreement in writing shall have been entered into
between the parties hereto, Lessor shall have the option to treat Lessee as
a trespasser or to hold Lessee as a tenant from month-to-month at a monthly
rental equal to one hundred fifty percent (150%) of the amount of the last
monthly rent payable hereunder and otherwise subject to all of the terms
and conditions of this Lease.
25. SECURITY DEPOSIT
-----------------
[Intentionally omitted]
26. LIMITATION OF LESSOR'S LIABILITY
--------------------------------
If Lessor shall fail to perform any covenant, term or
condition of this Lease upon Lessor's part to be performed and, as a
consequence of such default, Lessee shall recover a money judgment against
Lessor, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levy thereon against the
right, title and interest of Lessor in the Premises, and Lessor and any
individual signing
-32-
<PAGE>
this Lease on behalf of Lessor shall not be liable for any deficiency. It
is understood that in no event shall Lessee have any right to levy
execution against property of Lessor other than its interest in the
Premises as hereinbefore expressly provided.
27. MISCELLANEOUS
-------------
(a) Applicable Law. The laws of the State of Ohio shall
---------------
govern the validity, performance and enforcement of this Lease. The
invalidity or enforceability of any provision of this Lease shall not
affect or impair any other provision.
(b) Headings. The headings of paragraphs are inserted only
---------
as a matter of convenience and for reference and in no way define, limit or
describe the scope or intent of this Lease, nor in any way affect this
Lease.
(c) Assigns. The terms, covenants and conditions contained
--------
in the Lease shall bind and inure to the benefit of Lessor and Lessee their
respective heirs, legal representatives, successors and assigns, subject,
however, to the provisions hereof requiring the consent of Lessor to any
assignment or subletting of this Lease.
(d) Entire Agreement. This Lease contains the entire
------------------
agreement between the parties hereto, and shall not be modified in any
manner except by an instrument in writing executed by both of said parties
or their respective successors in interest.
-33-
<PAGE>
28. QUIET ENJOYMENT
---------------
Lessor covenants and agrees with Lessee that upon Lessee
paying the rent and other charges hereunder and observing and performing
all the covenants, agreements and conditions on Lessee's part to be
observed and performed, Lessee may peaceably and quietly enjoy the Premises
hereby demised without hindrance of Lessor or any person lawfully claiming
under Lessor, subject, nevertheless, to the terms and conditions of this
Lease, any mortgage of Lessor, and any restrictions, conditions, reserva-
tions and agreements of record.
29. OPTION TO RENEW
---------------
(a) If Lessee shall not be in default of any of the terms of
this Lease on the exercise date and on the termination date of the
preceding term of this Lease, the Lessor agrees that Lessee shall have and
is hereby granted an option to extend the term of this Lease for two (2)
additional periods of five (5) years each upon all of the terms,
conditions, covenants and provisions set forth herein, except that fixed
rental shall be as set forth in Paragraph 29(b) hereof, which option may be
exercisable only by written notice of such exercise from Lessee to Lessor
not less than six (6) months prior to the expiration of the preceding term
of this Lease. Said written notice shall be given as provided in Paragraph
21 hereof.
(b) Lessee shall, during each renewal term hereof, pay to
Lessor adjusted fixed annual rental, computed as follows:
-34-
<PAGE>
(i) The Consumer Price Index for All Items, United
States Department of Labor, Bureau of Labor Statistics, U.S.
Cities Average, is hereinafter called the "Index", and the
level of such index for the month during which the original
term of this Lease commences is hereinafter called the "Base
Level".
(ii) If the level of the Index for the calendar month
immediately preceding the month in which such renewal term(s)
commences ("New Level") exceeds the Base Level, the fixed
annual rental due during said renewal term(s) shall be
increased to new figures by multiplying the annual fixed
rental during the last year of the preceding term by a
fraction, the denominator of which is the Base Level and the
numerator of which is the New Level. Such fixed annual rental
as reestablished for the renewal term(s) shall be paid in
equal monthly installments during such renewal term(s), in
advance, on the first day of each and every month of such
renewal term(s). Notwithstanding anything to the contrary
contained herein, the fixed annual rental payable during the
renewal term(s) shall not, in any case, be less than the fixed
annual rental payable during the immediately preceding term or
more than one hundred twenty-five percent (125%) of the fixed
annual rental payable during the last year of the immediately
preceding term. In the event that the aforesaid Index shall
not be available if and when the parties desire to use the
same for recomputation of rent, then the parties shall agree
on such other available index, published by reputable
authority, which most closely resembles the Index used herein.
If the parties cannot agree on such other index within thirty
(30) days after the need therefor, then the parties shall
submit the question to arbitration before the American
Arbitration Association in Columbus, Ohio. The award in
arbitration shall be final and binding upon the parties hereto
and judgment thereon may be entered in any court of competent
jurisdiction. The costs of such arbitration shall be borne
equally by the parties.
30. ENVIRONMENTAL PROTECTION AND UTILITY REGULATION
-----------------------------------------------
(a) The parties hereto acknowledge that there are
in effect federal, state and local laws and regulations and that
-35-
<PAGE>
additional and other laws and regulations may hereinafter be enacted to go into
effect relating to or affecting the Premises and the Building Premises, and
concerning the impact on the environment of construction, land use, maintenance
and operation of structures, and the conduct of business. Lessee will not cause,
or permit to be caused, any act or practice, by negligence, omission, or
otherwise, or do anything or permit anything to be done that would violate any
of said laws or regulations. Any violation of this covenant shall be deemed to
be an event of default hereunder, unless such violation is corrected within
thirty (30) days after receipt by Lessee of notice of the existence of such
violation, whether from Lessor or an appropriate governmental authority, or if
such violation cannot be cured completely within such thirty (30) day period,
unless Lessee promptly commences to cure such violation within such thirty (30)
day period and diligently prosecutes such curative work to completion. Lessee
shall have no liability hereunder for violations occurring prior to the
Commencement Date unless the same are caused by Lessee, or as a result of
construction negligently performed by or on behalf of Lessor or repairs or
maintenance negligently performed by Lessor.
(b) The parties hereto acknowledge that energy shortages in the
region in which the Building Premises is located may, from time to time,
necessitate reduced or curtailed operation of the Building Premises and the
business conducted by the Lessee in the Premises. Lessee agrees to and shall
comply with
-36-
<PAGE>
such rules and regulations as may be promulgated from time to time by
governmental authorities having jurisdiction over the Premises with respect to
energy consumption, and during such periods of time when such governmental
authorities so dictate Lessee shall reduce or curtail business operations in the
Premises as shall be necessary to address such shortage and comply with the
rules and regulations of such governmental authorities. Compliance with such
rules and regulations and such reduction or curtailment of business operations
shall not constitute a breach of Lessor's covenant of quiet enjoyment nor shall
the same constitute an actual or constructive eviction of Lessee, or otherwise
invalidate or affect this Lease Agreement, and Lessee shall not be entitled to
any diminution, reduction or abatement of rent during periods of reduction or
curtailment of its operations. Failure to keep and observe said rules and
regulations and/or to reduce or curtail business operations as herein provided
shall constitute an event of default hereunder.
31. CONSTRUCTION OF IMPROVEMENTS
----------------------------
Lessor and Lessee shall construct improvements upon the Premises
as set forth in the Special Stipulations attached hereto.
32. SPECIAL STIPULATIONS. The Special Stipulations attached hereto
----------------------
shall be a part hereof in all respects.
-37-
<PAGE>
IN WITNESS WHEREOF, Leadership Group, Inc. and Simmons U.S.A.
Corporation have caused duplicate counterparts of this Lease Agreement to be
executed as of the day, month and year first above written.
SIGNED AND ACKNOWLEDGED LESSOR: LEADERSHIP GROUP, INC.
IN THE PRESENCE OF:
/s/ Brenda J. Hall By: /s/
- -------------------------- ---------------------------
/s/ Mary Jane Kristan By: /s/
- -------------------------- ---------------------------
By: /s/
LESSEE: SIMMONS U.S.A. CORPORATION
/s/ Darlyene S. Sweiter By: /s/ HB Smith
- -------------------------- ---------------------------
/s/ Richard M. Maxiar By: /s/
- -------------------------- ---------------------------
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
The foregoing Lease Agreement was acknowledged before
me this 10th day of November, 1987, by Robert T. Taggart, the General Partner
---- -------- -- ----------------- ---------------
and by Laurence R. Maryatt the G.P. & F. Douglas Reddel of the
------------------- ----
Leadership Group, Inc., Lessor, on behalf of said corporation.
/s/ Mary Jane Kristan
--------------------------
Notary Public
MARY JANE KRISTAN
NOTARY PUBLIC-STATE OF OHIO
MY COMMISSION EXPIRES DEC. 2, 1991
-38-
<PAGE>
STATE OF Georgia
-------
COUNTY OF DeKalb, SS:
------
The foregoing Lease Agreement was acknowledged before me this 4th day
---
of November, 1987, by Harlan B. Smith the Sr. Vice Pres. and by D.M.
-------- -- --------------- -------------- ----
Marshall the Controller of Simmons U.S.A. Corporation, Lessee, on behalf of said
- -------- ----------
corporation.
/s/ Catherine E. Taylor
--------------------------
Notary Public
-39-
<PAGE>
SPECIAL STIPULATIONS
TO
TRIPLE NET LEASE
BETWEEN
LEADERSHIP GROUP, INC. AND SIMMONS U.S.A. CORPORATION
DATED AS OF NOV. 4, 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 approved in
writing by Lessee (the "Building"). The plans and specifications prepared by
Lessor shall be based upon the "Office Manufacturing Building Description" dated
August 26, 1986 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
materially modified without the Lessee's prior written consent (the "Final
Plans"). Lessor and Lessee shall agree upon a basic site plan prior to October
30, 1987 (the "Site Plan Date"). The Final Plans shall be delivered by Lessor to
Lessee for Lessee's written approval on or before October 30, 1987.
Lessee shall notify Lessor in writing of any objections to the Final Plans
within four calendar days from and after the date of receipt by the Lessee of
the Final Plans (the "Final Plans Date"). Failure by Lessee to give written
notice to Lessor of objections to the Final Plans within such four 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 "Office Manufacturing
Building Description".
Lessor shall cause Target Construction Company, or another 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 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:
<PAGE>
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.
4. Issuance of a permanent or temporary certificate of occupancy.
Lessor and Lessee agree to conduct jointly a final walk-through
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. In order to facilitate
Delivery, Lessor and Lessee hereby agree to conduct jointly a walk-through
inspection of the Building approximately every seven (7) days during the term of
construction. Lessee shall make a representative available to conduct such
inspections.
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. It is
expressly understood that any such work by Lessee shall in no way materially
harm the Building or diminish the value of the Premises. 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 approval, including but not limited to a
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 Lessor the benefits of any
warranty Lessor receives or may receive from any contractor or subcontractor
constructing the Building. In addition, Lessor agrees to make 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 claim.
Lessor and Lessee hereby agree to make all good faith reasonable efforts to
accommodate the other in completing their
<PAGE>
receptive 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
purposes 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 employee's as determined by Lessor in its reasonable
discretion, and provided further that Lessee's liability insurance is then in
full force and effect.
Lessee expressly agrees to protect, indemnify and save harmless Lessor from
and against any liability for damage to any person or property as a result of
the work undertaken by Lessee hereunder.
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 the 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 fifteen (15) days after Delivery. Lessor shall make
good faith efforts to cause Delivery to occur at the earliest possible date and
Lessee shall make good faith efforts to cause the Premises to open for business
at the earliest possible date.
C. Rent Abatement and Set-Off.
---------------------------
In the event that Delivery does not occur on or before July 1, 1988 (the
"Rent Abatement Date"), Lessee's rent shall be reduced by the amount of
$2,000.00 per day for each day after July 1, 1988 that Delivery does not occur.
In the event that Delivery does not occur on or before August 1, 1988 (the
"Termination Option Date"), 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. In the event the basic site plan is not
agreed to by the Site Plan Date and the Final Plans are not approved by Lessee
by the Final Plan Date because of the failure of Lessee to approve items by the
dates set forth herein for the same, the Rent Abatement Date and Termination
Option Date shall be extended three (3) days for each one day delay in obtaining
such approvals after the Site Plan Date and the Final Plan Date.
<PAGE>
For a period of one year from and after the date of Delivery, in the event
of any defect in materials and workmanship in construction of the Building,
Lessee agrees to give prompt written notice to Lessor specifying such defect and
specifying the estimated cost of repair of such defect. If Lessor does not cause
such repairs to be made 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 and Lessor shall pay to Lessee, within
seven (7) days following receipt of a statement therefor together with
reasonable evidence of all such costs and expenses, the amount of costs and
expenses reasonably incurred by Lessee in repairing such defect. Lessee's
obligation to pay rent shall not be abated during any period of repair
hereunder.
D. Repair and Replacement of Roof and Structural. Notwithstanding the
-----------------------------------------------
provisions of paragraph 6(a) of the Lease, Lessor shall be responsible for the
repair and replacement of the roof and major structural elements of the Building
resulting from defective conditions therein, but specifically excluding
conditions resulting from the acts or omissions of Lessee, its employees,
agents, customers and invitees. In the event of repair or replacement by Lessor
under this paragraph, the cost of such repair or replacement which is not paid
by any applicable warranties, shall be amortized over such period as the
independent accountants of Lessor shall determine and Lessee shall pay to Lessor
within thirty (30) days of receipt of a written statement therefor an amount
equal to the portion of the cost of such repair or replacement allocable to the
balance of the term of this Lease under such amortization schedule. Further,
upon the exercise of any renewal term Lessee shall pay Lessor an amount equal to
the portion of the cost of such repair or replacement allocable to the renewal
term under such amortization schedule.
<PAGE>
EXHIBIT B
NON-DISCLOSURE AGREEMENT
SIMMONS U.S.A. CORPORATION
------------------------
Date
Subject:
Gentlemen:
This shall constitute our agreement that all information disclosed or which
will be disclosed to
(hereinafter referred to as RECIPIENT) by SIMMONS U.S.A. CORPORATION, which
shall be referred to as COMPANY in the following paragraphs, relating to the
above subject, such as inventions, improvements, know-how, patent applications,
specifications, drawings, engineering data, cost data, process flow diagrams,
bills of material, customer lists, or any other information marked or indicated
as being confidential, proprietary or with words of similar import, shall be
considered confidential and shall be retained in confidence by RECIPIENT and its
employees, affiliates, subsidiaries and subcontractors pursuant to the following
terms and conditions:
1. RECIPIENT agrees to keep in confidence, all information disclosed by
COMPANY which was not previously known to or independently developed
by the RECIPIENT, or known to the general public or in the public
domain prior to such disclosure; provided, that such information is
indicated to be "confidential" or "proprietary" by use of such words
or words of similar import when disclosed.
2. RECIPIENT agrees to maintain this disclosed information in
confidence until the earlier to occur of the following: (i) such
confidential information is made public other than through a breach
of the agreements in this letter, (ii) RECIPIENT receives such
information from a third party which does not thereby breach any
confidence with the COMPANY, or (iii) the passage of five (5) years
from the date such disclosure is received.
<PAGE>
3. RECIPIENT further agrees that it will neither disclose to any other
person, firm or corporation nor analyze the solutions nor directly
nor indirectly utilize COMPANY'S confidential information without
first obtaining written permission from COMPANY: provided, however,
that the foregoing shall apply only to such aspects of the disclosed
information and related know-how as RECIPIENT is obligated to treat
as confidential under the terms of this Agreement.
4. Upon request, the RECIPIENT of such information agrees to promptly
deliver to the COMPANY all materials obtained from or on behalf of
the COMPANY, including all memoranda and notes made by RECIPIENT in
any way relating to the COMPANY'S confidential, technical or
business information. RECIPIENT, however, may retain a copy of such
materials in its confidential files for record purposes only.
5. Notwithstanding anything herein to the contrary, no provision of
this letter agreement shall in any way limit the protection of
COMPANY'S trade secrets at common law.
6. The provisions of this letter agreement shall be governed by Georgia
law and are binding upon and shall inure to the benefit of the
COMPANY and the RECIPIENT, their successors and assigns.
Please indicate your approval and acceptance of the above terms and
conditions by having your authorized representative affix his signature in the
space provided and return one copy of this Agreement to our office for our
records.
Very truly yours,
APPROVED AND ACCEPTED
Date
-----------------------
By
-----------------------
Title
-----------------------
Exhibit 10.32
LEASE
THIS LEASE is made this 22nd of day of September, 1986, by and between
HUNTER INDUSTRIAL VENTURE, a Missouri Joint Venture General
Partnership (hereinafter referred to as "Landlord") and SIMMONS U.S.A.
CORPORATION, a Delaware Corporation, (hereinafter referred to as "Tenant"),
who hereby mutually covenant and agree as follows:
1.0 PREMISES: Landlord, for and in consideration of the rents herein
reserved and of the covenants and agreements herein contained on the
part of Tenant to be performed, hereby leases to Tenant, and Tenant
hereby lets from Landlord premises consisting of approximately 66,665
square feet of floor area, commonly known as 1758 North Topping,
Kansas City, Missouri, being that part of the real estate described on
an exhibit which is attached hereto and made a part hereof, identified
as Exhibit "A" (hereinafter sometimes referred to as the "Real
Estate") and more particularly described as outlined in red on the
site plan which exhibit is attached hereto and made a part hereof and
identified as Exhibit "B", together with easements hereinafter granted
to Tenant and all other appurtenances belonging to or in any way
pertaining to the said premises (such premises, improvements and
appurtenances hereinafter sometimes jointly or severally, as the
context requires, referred to as "Leased Premises").
1.1 Reservations by Landlord: Landlord excepts and reserves the
roof and exterior walls of the Leased Premises, and further, upon
giving Tenant prior written notice except for emergencies, reserves
the right to place, install, maintain, carry through, repair and
replace such utility lines, pipes, wires, appliances, tunneling and
the like, in, over, through and upon the Leased Premises as may be
reasonably necessary or advisable for the servicing of the Leased
Premises or any other portions of the Real Estate. Landlord shall not
unreasonably interfere with Tenant's use and enjoyment of the Leased
Premises.
The Landlord reserves the right, without invalidating this Lease at any
time, and from time to time, (i) make alterations, changes and additions
to the Leased Premises and other improvements in the Real Estate (including
without limitation the Leased Premises in which the Leased Premises
are located), (ii) to add additional areas to the Real Estate and/or
exclude areas therefrom (subject to adjustments
<PAGE>
for common area maintenance and charges hereinafter referred to),
(iii) to construct additional buildings and other improvements in the
Real Estate and (iv) to remove or relocate the whole or any part of
any building or other improvement in the Real Estate. Provided,
however, Landlord shall obtain Tenant's written consent and approval,
which Tenant shall not unreasonably withhold or delay, if any of the
foregoing items affect the Tenant's Leased Premises, materially
affects Tenant's access to the Leased Premises, or Tenant's guaranteed
parking spaces as provided for elsewhere in this Lease.
1.2 COMMON AREAS: The Common Areas of the Real Estate shall
consist of all those portions of the Real Estate which shall not be
occupied by buildings and as more specifically depicted on Exhibit
"B". The general term "Common Areas" includes, without limitation, all
parking areas, aisles, driveways, entrances, exits, walkways,
sidewalks, roadways, service roads, surface drainage facilities,
traffic control signs and fences.
1.2 (i) Landlord hereby grants to Tenant for the duration of the
term of this Lease:
(a) A non-exclusive easement appurtenant to the Leased Premises,
over and upon the Common Areas of the Real Estate except for loading
facilities to adjacent areas and striped parking areas for the purpose
of foot and vehicular ingress and egress, and the parking of motor
vehicles of suppliers, licensees, agents, employees and business
invitees of Tenant, to be used in common with only other occupants of
the Real Estate (the "Occupants"), their employees and business
invitees, suppliers, licensees and agents all of which users shall be
collectively referred to as the "Permittees". The Leased Premises
shall at all times have reasonable, adequate and direct access to the
Common Areas and through them to the streets adjacent to the Real
Estate. The loading facilities and exclusive parking areas shall not
be subject to such use in common but shall be used exclusively by
Tenant. No charge shall be made for the use of the Common Areas,
except as otherwise set forth in this Lease.
(b) An easement appurtenant to the Leased Premises over the Common
Areas of the Real Estate for the purpose of working on the
construction, maintenance, repair, restoration, demolition and
rebuilding of Tenant's leasehold improvements in the Leased Premises,
subject to Landlord's approval as provided elsewhere herein.
(c) An easement to go upon the Common Areas of the Real Estate and
to perform any obligation of Landlord that Tenant is permitted to do under
the terms of this Lease.
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1.2 (ii) Landlord covenants and agrees that the parking and Common
Areas shown on Exhibit "B" shall not be altered as to diminish
Tenant's guaranteed parking or materially adversely affect access to
Tenant's Leased Premises throughout the term of this Lease and all
extensions thereof, and that except as herein otherwise provided, no
building, fence, wall, sign or other obstruction shall be erected or
maintained which shall substantially affect the Leased Premises or any
portion thereof without prior written consent of Tenant. Landlord
shall not alter the size or location of curb cuts or private drives
that provide access to the Real Estate as shown on Exhibit "B" without
prior written consent of Tenant if the same would have a material
adverse affect on Tenant. Landlord may designate portions of the
Common Areas as parking spaces for employees, suppliers, licensees,
agents and business invitees of Occupants of the Real Estate including
Tenant's 75 exclusive parking spaces.
1.2 (iii) During the entire term of this Lease and all extensions
thereof, Landlord shall maintain and repair the entire Common Areas,
and keep same in good condition. Landlord's obligation shall, without
limiting the generality thereof, include the following:
(a) Major resurfacing of walks, drives and parking areas.
(b) Keeping the walks, drives and parking areas in substantially
the same condition as the same it is in as of the date of signing of
this Lease with substantially the type of surfacing material.
(c) Cleaning, painting, striping, rubbish, debris, snow and ice
removal, removal of soil and stone washed into Common Areas, drainage,
lighting fixtures, and all other tasks necessary to maintain the
parking and Common Areas in a clean, safe and orderly condition.
(d) Maintaining all curbs, parking dividers, landscape enclosures,
fences and retaining walls in good condition and repair.
(e) Placing, keeping in repair and replacing any necessary
appropriate directional signs, markers and lines, as may be necessary
to maintain the safe and free flow of traffic into, out of and within
the Real Estate.
(f) Keeping in repair and replacing artificial lighting
facilities, if any.
(g) Maintaining all landscaped areas, making such replacements of
shrubs and other landscaping as is necessary, and keeping said areas
at all times adequately weeded, fertilized and watered.
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(h) Maintaining all utility lines within the Real Estate that are
not the responsibility of the utility company or of any other tenant.
1.2 (iv) Landlord shall not permit the use of the Common Areas by any
person or legal entity other than the Permittees of the Real Estate.
1.2 (v) (a) Tenant agrees to reimburse Landlord for Tenant's
proportionate share of the expense of maintaining and repairing the
Common Areas which shall be determined by the ratio of the actual net
ground floor area of the Leased Premises to the total net floor area
of all the buildings located within the Real Estate (hereinafter
referred to as Tenant's "Proportionate Share") as shown on Exhibit "B".
In the event for any reason, additional buildings not shown on
Exhibit "B" are at any time constructed within the Real Estate,
whether owned by Landlord or any Occupants, the percentage shall be
appropriately adjusted as of the day said additional buildings are
completed. Tenant shall not reimburse Landlord for any part of the
cost of any capital improvements or replacements or repairs of a
structural or capital nature to the Common Areas, or the repair of any
part of the Common Areas that was inadequately designed or defectively
constructed.
(b) Tenant shall promptly pay to Landlord its share of the
expenses for said maintenance and repair after receipt of an itemized
statement of Common Area expenses, however, Tenant, prior to payment,
may require Landlord to produce at the Real Estate or Tenant's notice
address as provided for in Section 33.0, itemized expenses and bills,
invoices, contracts and evidence of payments to support these
expenses. Payments under this Section 1.2 (v) (b) shall be prorated on
a monthly basis for statements covering periods in which the first and
last days of the term occur.
1.2 (vi) (a) If Landlord fails in a substantial way to maintain
the Common Areas, which directly and materially affect the Leased
Premises and such failure constitutes an act of default under Section
23.0 after notice from Tenant, Tenant may temporarily for a period not
to exceed thirty days require Landlord to cease maintaining the Common
Areas and assume the obligations of the Landlord contained in Section
1.2 with respect to those Common Areas outlined on Exhibit "C"
attached hereto and made a part hereof, by giving Landlord thirty (30)
days advance written notice to this effect.
2.0 TERM: The initial term of this Lease shall be for a period of 125
1/2 months, commencing on the date Landlord substantially completes
the Landlord's improvements as hereinafter referred to in Section 3.4
and Tenant accepts said Landlord's improvements by taking possession
of the Leased
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Premises, or the date Five and One Half (5 1/2) months prior to the
date Tenant commences to pay rent (hereinafter sometimes referred to
as "Commencement Date"); (and the rent shall commence within ten days
following the expiration of Five and One Half (5 1/2) months of
completion of the Landlord's Improvements as defined in paragraphs
3.4(a) and (b)) and expiring 125 1/2 months thereafter unless sooner
terminated as herein set forth, and thereafter, month-to-month. RENTS
FOR THE FIRST FIVE AND ONE HALF (5 1/2) MONTHS OF THE LEASE TERM SHALL
BE ABATED. Upon the commencement of the Lease term, Landlord and
Tenant shall execute a letter stating the Commencement Date and
Termination Date of the Lease and said letter shall thereafter be
attached hereto as Exhibit "D" and made a part hereof.
2.1 (a) So long as Tenant is not in default under the Lease,
Tenant shall have and is hereby expressly granted the right to extend
this Lease for two (2) additional successive terms of five (5) years
each at a rental based upon the fair market rent of the Leased
Premises and upon all of the same terms, provisions and conditions
herein contained, by giving to Landlord written notice of each such
extension at least six (6) months prior to the commencement of each
such additional term.
(b) The amount of rent payable for each such additional five (5)
year term shall be a sum equal to the Market Rent determined from an
appraisal performed at the beginning of the tenth lease year and the
beginning of the fifteenth (15th) lease year in the event Tenant
exercises its right to extend the Lease for the second five (5) year
period, in accordance with the provisions hereafter provided for in
subparagraph 2(1)(c), the cost of the appraisal shall be paid by
Landlord.
(c) At the beginning of the tenth lease year and at the beginning
of the fifteenth lease year in the event Tenant exercises its right to
extend the Lease of the Leased Premises, Landlord shall cause an
appraisal to be performed in order to determine the market rent of
said Leased Premises. Such appraisal shall be made at Landlord's
expense, by a MAI appraiser fully qualified to determine the market
rent of the Leased Premises, such appraiser to be selected by
Landlord, subject to the approval of Tenant, not to be unreasonably
withheld. The "Renewal Rent" shall be an amount which is Ninety (90%)
percent Of the sum determined to be the market rent of the Leased
Premises pursuant to the appraisal. Notwithstanding anything to the
contrary herein, the Renewal Rent during the first five year renewal
period shall not exceed $269,326.60 per year or $22,443.88 ($4.04 per
square foot per year) per month.
3.0 POSSESSION: Landlord shall, prior to the Commencement of the
Lease, construct at Landlord's sole cost and expense, Tenant's
improvements on the Leased Premises in accordance with the plans and
specifications mutually agreed upon by Landlord and Tenant. The
completed Tenant's improvements are collectively referred to herein as
the "Improvements".
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3.1 Within five (5) days following the date this
Agreement is fully executed, Landlord shall, at its sole
cost and expense, have preliminary plans of the Improvements
prepared and three (3) copies thereof delivered to Tenant.
Such preliminary plans shall consist of: (i) a building
floor plan showing general location of all truck doors,
pedestrian and fire exits, office and restroom locations,
(ii) an office layout showing all offices and restrooms and
all normal appurtenances, and (iii) front and side exterior
elevations all in accordance with the outline of plans and
specifications previously supplied to Landlord by Tenant
attached hereto as Exhibit "E". Such preliminary plans shall
be substantially in accordance with the requirements of
Exhibit "E" hereto. For a period of three (3) business days
following the date Landlord delivers the preliminary plans
to Tenant, Tenant shall have the right to either accept and
approve said preliminary plans, as delivered, or reject
them. Acceptance or rejection of the preliminary plans
shall be signified by Tenant sending to Landlord, within
said three (3) business day period, said preliminary plans
with each page thereof marked "approved" or "rejected" as
the case may be, and signed or initialed by Tenant. If
Tenant does not send said preliminary plans marked
"approved" to Landlord within said period of time, it shall
be deemed that Tenant has rejected the preliminary plans.
If Tenant rejects the preliminary plans and if said plans
cannot be modified so as to be acceptable to Tenant within
said period of time, it shall be deemed that Tenant has
rejected the preliminary plans. If Tenant rejects the
preliminary plans and if said plans cannot be modified
so as to be acceptable to Tenant and Landlord within thirty
(30) days thereafter, Landlord shall have the option of
terminating this Agreement.
3.2 Within seven (7) days following the date that the
preliminary plans have been approved, Landlord shall have
detailed working drawings and specifications for the
Improvements (collectively referred to herein as the "Final
Plans") prepared and three (3) copies thereof delivered to
Lessee, which Final Plans shall be consistent with the
approved preliminary plans. For a period of five (5) days
following the date Landlord delivers the Final Plans to
Tenant, Tenant shall have the right to either accept and
approve said Final Plans as delivered, or reject them.
Acceptance or rejection of the Final Plans shall be
signified by Tenant sending to Landlord, within said five
(5) day period, the Final Plans with each page thereof
marked "approved" or "rejected" as the case may be. If
Tenant fails to deliver the Final Plans to Landlord within
said period of time, it shall be deemed that Tenant has
rejected the Final Plans. If Tenant rejects the Final Plans
and if they cannot be modified so as to be acceptable to
Tenant and Landlord, within thirty (30) days thereafter,
Landlord shall have the option of terminating this Lease.
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3.3 Landlord shall commence construction of the Improvements and
the construction will be in accordance with the Final Plans as
approved by Tenant and such construction shall be diligently
prosecuted to completion. Such Improvements shall fully comply with
all applicable laws, statutes, ordinances, regulations and orders of
all governmental authorities having jurisdiction over the property.
The construction of the Improvements shall be performed by Landlord
and Landlord shall be fully responsible for compliance with all
governmental safety requirements in connection with the construction
of the Improvements. Tenant shall have the right, but not the
obligation, at all reasonable times to enter the Real Estate and other
portions of the Leased Premises to inspect same so long as such entry
does not materially interfere with the construction of the
Improvements; provided, however, that such entries or inspections
shall not relieve Landlord for its obligations and liability
hereunder.
3.4 The terms "completion" or "completed", or any derivative
thereof, as used in this Agreement shall mean the date when all the
following have occurred:
(a) The Improvements are fully completed, except for Punch List
Items, and substantially comply with the approved and permitted Final
Plans;
(b) Landlord and Tenant have approved of the Improvements which
approval shall not be unreasonably withheld; Landlord's engineer has
certified that the Improvements strictly comply with the approved and
permitted Final Plans; and any required municipal and governmental
certificates have been issued.
3.5 Tenant shall have the right to enter and occupy Improvements
prior to the commencement of the Lease so that Tenant may commence
installation of its machinery and equipment and otherwise prepare for
the use and occupancy of the Leased Premises, so long as such early
entry and occupancy does not materially and unreasonably interfere
with the completion of the Improvements by Landlord. In no event shall
such early entry and occupancy waive any of Landlord's obligations
hereunder or impair any and all rights and remedies of Tenant
hereunder. In the event Tenant commences installation of its machinery and
equipment prior to the commencement of the Lease, the Landlord shall
have no responsibility for Tenant's early entry and occupancy.
3.6 Except as otherwise expressly provided herein (or by written
instrument signed by Landlord or Landlord's agent), Landlord shall
deliver possession of the Leased Premises to Tenant as hereinabove
referred to in Section 3.0. If Landlord gives possession prior to the
Commencement Date to enable Tenant to fit the Leased Premises to its
use, such occupancy
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shall be subject to all of the terms and conditions of this Lease
(except that Tenant shall not be required to pay base rent or
additional rent during such occupancy). If Landlord shall be unable to
deliver possession of the Leased Premises in accordance with Section
3.4, within ninety (90) days from the date Tenant signs off on all
Final Plans for Improvements, except for the "punch list" items which
Landlord agrees to complete within thirty (30) days from the
Commencement Date, by reason of the fact that work required to be done
by Landlord hereunder has not been completed for any cause under the
control of Landlord whatsoever, Tenant shall have the right to
terminate this Lease Agreement and all other obligations and duties
between Landlord and Tenant arising under this Lease shall thereafter
be deemed null and void. Notwithstanding anything to the contrary
herein and subject to Section 3.4, Landlord shall not be subject to
any liability for the failure to give possession on said date, nor
shall the validity of this Lease or the obligations of Tenant
hereunder be in any way affected; provided, further, that if the
Leased Premises are substantially complete and Landlord is continuing
to finish the punch list and Tenant is able to occupy and enjoy the
Leased Premises, Landlord shall be deemed to have completed with its
duty to deliver the Leased Premises; provided, further, that if
Landlord is unable to substantially complete the work as the result of
a force majeure, an act of God or some other reason beyond its
control, Tenant shall not have the right to terminate this Lease.
4.0 USE: The Leased Premises shall be used by the Tenant for the
purpose of fabrication and storage of bedding products and office use
and for any other lawful purpose. Tenant shall, at Tenant's expense,
comply promptly with all applicable statutes, ordinances, rules,
regulations, orders and requirements in effect during the term or any
part of the term hereof regulating the use by Tenant of the Leased
Premises. Landlord shall, at Landlord's expense, promptly comply with
all applicable statutes, ordinances, rules, regulations, orders and
requirements in effect during the term or any part of the term hereof,
other than those which arise out of Tenant's particular use of the
Leased Premises. Tenant shall not use or permit the use of the Leased
Premises in any manner that will tend to create waste or a nuisance,
or will tend to unreasonably disturb such other Tenants in the Real
Estate.
4.1 Use of Common Areas by Tenant: Tenant shall not use any part of
the Real Estate exterior to the Leased Premises for outside storage.
No trash, crates, pallets, or refuse shall be permitted anywhere on
the Real Estate outside of the Leased Premises by Tenant except in
enclosed metal containers to be located as directed by Landlord.
5.0 RENT: The Tenant covenants to pay the base rent herein reserved
and all other sums which may become due hereunder, to
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be payable by the Tenant hereunder, at the times and in the manner in
this Lease provided, all without relief from valuation and
appraisement laws.
Said annual rental is herein for convenience referred to as the
"Minimum Annual Rental" and said monthly installments of rental are
herein for convenience referred to as "Minimum Monthly Payments". Said
rental payment shall be paid and mailed to Landlord at:
Charles H. Hunter
Kessinger Hunter Realtors
300 Bryant Building
1102 Grand Avenue
Kansas City, Missouri 64106
(a) In the event the term should cover any period less than a full
calendar month or this Lease shall be terminated prior to the
expiration date, the rent and all other charges provided herein shall
be properly apportioned on a per diem basis and if said rent and other
charges have been paid by Tenant any unearned rent and other charges
shall be promptly refunded to Tenant.
(b) Every other payment required to be made by Tenant pursuant to
this Lease shall be additional rent due Landlord hereunder, whether or
not expressly designated as additional rent, and Tenant's failure to
pay such additional rent to Landlord when due shall entitle Landlord to
exercise all rights and remedies provided in Section 23.
5.1 Payment of Rent: $0 for months one (1) through five and one
half (5 1/2); $156,662.75 per year or $13,055.23 for the next thirty
(30) months/; $169,995.75 or $14,166.31 per month for the next thirty
(30) months and $213,328.00 or $17,777.33 for the next sixty (60)
months.
5.2 Late Payment: Each and every installment of rent and each and
every payment of other charges hereunder which shall not be paid when
due, shall bear interest at the highest rate then payable by Tenant in
the state in which the Leased Premises are located, or in the absence
of such maximum rate, at the rate of twelve percent (12%) per annum
from the date when the same is payable under the terms of this Lease
until the same shall be paid.
6.0 RENT ADJUSTMENTS:
A. Increased Real Estate Taxes
(i) During the term of this Lease or any renewals, extensions
or holding over thereof, Tenant
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shall pay to Landlord, as additional rent, Tenant's Proportionate
Share as defined in Section 1.2(v)(a) of any increases in Landlord's
Real Estate Taxes Over Real Estate Taxes for the Base Year levied
against the Real Estate. Base year shall be 1986.
(ii) "Real Estate Taxes" shall mean: (a) all ad valorem Real
Estate Taxes on the Real Estate (adjusted after protest or litigation,
if any) for any part of term of this Lease, exclusive of penalties,
(b) any taxes which shall be levied in lieu of any such ad valorem
Real Estate Taxes, (c) any special assessments for benefits on or to
the Real Estate paid in annual installments by Landlord, (d)
occupational taxes or exercise taxes levied on rentals derived from
the operation of the property for the privilege of leasing property
and (e) the expense, of protesting, negotiating or contesting the amount
or validity of any such taxes, charges or assessments, such expense to
be applicable to the period of the item contested, protested or
negotiated.
(iii) If the term of the Lease shall end during a tax calendar
year (tax calendar year shall mean each annual period for which ad
valorem real estate taxes are assessed and levied) of which part only
is included in the term hereof, the amount of such additional rental
shall be prorated on a per diem basis and shall be paid on or before
the last day of the term. If the term ends in any tax calendar year
before the rent to be payable by the Tenant has been determined under the
provisions of this Section, an amount payable for the portion of the
Lease Term during the tax calendar year shall be reasonably estimated
by the Landlord and the estimated amount shall be promptly paid by
Tenant. As soon as the amount properly payable by the Tenant for the
partial period has finally been determined, the amount shall be
adjusted between the Landlord and the Tenant.
B. Increased Insurance Premiums
(i) Landlord, shall, throughout the term of this Lease, or any
extensions or renewals thereof, maintain fire and extended coverage
insurance on the property owned by Landlord located on the Real Estate
for 100% replacement coverage in such amounts and with such deductibles
as Landlord shall reasonably determine. Landlord shall not in any way or
manner insure any property of Tenant or any property that may be in the
Leased Premises not owned by Landlord.
(ii) During the term of this Lease or any renewals, extensions or
holding over thereof, Tenant shall pay to Landlord as additional rent
Tenant's
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Proportionate Share of any increases in the cost of
the premium for the fire and extended coverage
insurance described in this Section 6.0 (B) (i) over
the premium paid by Landlord for the Base Year 1986.
(iii) Subject to Tenant's use of the Leased
Premises for the fabrication and storage of bedding
products, Tenant will not do or suffer to be done or
keep or suffer to be kept, anything in, on or about
the Leased Premises which will contravene Landlord's
policies insuring against loss or damage by fire or
other hazards (including, without limitation, public
liability) or which will prevent Landlord from
procuring such policies in companies acceptable to
Landlord. If anything done, omitted to be done or
suffered by Tenant to be kept in, upon or about the
Leased Premises or the Real Estate shall cause the
rate of fire or other insurance on the Leased Premises
or the Real Estate or of other tenants of the Real
Estate to be increased beyond the standard rate from
time to time applicable to the Leased Premises or to
the Real Estate for the use or uses made thereof,
Tenant shall pay, as additional rent, the amount of
any such increase upon Landlord's demand.
C. Common Area Expenses
During the term of this Lease or any renewals,
extensions or holding over thereof, Tenant will pay to
Landlord, as additional rent, Tenant's Proportionate
Share of the Common Area operating cost as hereinabove
provided.
D. Payment of Additional Rent
Any additional rent payable by Tenant under the
Lease shall be paid upon billing by Landlord for any
such additional rent.
7.0 QUIET ENJOYMENT: Landlord covenants that the Tenant, on
paying the rent herein provided, and keeping, enforming and
observing the covenants, agreements and conditions herein
required of the Tenant, shall peaceably and quietly hold
and enjoy the Leased Premises for the Term aforesaid,
subject, however, to the terms of this Lease.
8.0 LANDLORD'S RIGHTS: Landlord reserves the
following rights:
(a) To exhibit the Leased Premises to others and to
display "For Rent" signs on the Leased Premises
during the last one hundred eighty (180) days of
the term or any renewal thereof;
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(b) To remove abandoned or unlicensed vehicles and
vehicles that are unreasonably interfering with
the use of the parking lot;
(c) To take any and all measures, including parking
inspections, repairs, alterations, additions and
improvements to the Leased Premises or to the
Real Estate as may be necessary or desirable for
the safety, protection or preservation of the
Leased Premises or the Real Estate.
The Landlord, upon prior written notice, except for emergencies,
may enter upon the Leased Premises for the purpose of exercising any
or all of the foregoing rights hereby reserved without being deemed
guilty of an eviction or disturbance of the Tenant's use or possession
and without being liable in any manner to the Tenant.
9.0 MORTGAGE AND TRANSFER: Landlord shall have the right to transfer,
mortgage, pledge or otherwise encumber, assign, and convey, in whole
or in part, the Leased Premises, the Building, the Real Estate, this
Lease, and all or any part of the rights now or thereafter existing
and all rents and amounts payable to Landlord under the provisions
hereof. Nothing herein contained shall limit or restrict any such
rights, and the rights of the Tenant under this Lease shall be subject
and subordinate to all instruments executed and to be executed in
connection with the exercise of any such rights, including, but not
limited to, the lien of any mortgage, deed of trust, or security
agreement now or hereafter placed upon Landlord's interest in the
Leased Premises. This paragraph shall be self-operative. However,
Tenant covenants and agrees to execute and deliver upon demand such
further instruments subordinating this Lease to the lien of any such
mortgage, deed of trust or security agreement as shall be requested by
the Landlord and/or mortgagee or proposed mortgagee or holder of any
security agreement.
10.0 NON-DISTURBANCE: So long as Tenant pays the rent reserved under
this Lease and fulfills the obligations on its part to be performed
hereunder, Landlord shall not make Tenant a party in any action to
terminate this Lease or to remove or evict Tenant and Tenant shall
enjoy the Leased Premises without interruption by the Landlord, any
mortgagee, or any other person, firm or corporation claiming under
either of them.
11.0 UTILITIES: Tenant shall contract in its own name and promptly pay
for all charges for electricity, gas, fuel, sewer charges, telephone,
trash hauling, and any other services or utilities used in, servicing
or assessed against the Leased Premises, unless otherwise herein
expressly provided.
12.0 ACCEPTANCE OF PREMISES: Subject to Landlord completing the
Improvements stated in Section 3.3 and restating the
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Warranties and Covenants in Section 27.0, Tenant acknowledges that it
will examine the Leased Premises before taking possession hereunder.
Unless Tenant furnished Landlord with notice in writing specifying any
defect in the construction of the Leased Premises within ten (10) days
after taking possession, such taking of possession shall be conclusive
evidence as against the Tenant that at the time thereof the Leased
Premises was in good order and satisfactory condition.
12.1 Maintenance and Care by Tenant: Tenant shall be responsible
for all maintenance and repair to the Leased Premises of whatsoever
kind or nature that is not hereinafter set forth specifically as the
obligation of Landlord. Tenant shall take good care of the leased
Premises and fixtures, and keep them in good repair free from filth,
overloading, danger of fire or any pest or nuisance, repair any damage
or breakage done by Tenant or Tenant's agents, employees or invitees,
including damage done to the Leased Premises by Tenant's equipment or
installations. Tenant shall be responsible for the repair and
replacement of all glass and plate glass on the Leased Premises. Upon
the commencement of the Lease term, Landlord shall provide Tenant with
a six (6) month warranty on the heating, ventilation and air
Conditioning systems servicing the Leased Premises and a minimum of a
one (1) year warranty on all of Landlord's Improvements to the Leased
Premises. Thereafter, Tenant shall provide for the maintenance, repair
and periodic servicing of the heating, ventilation and air
conditioning system servicing the Leased Premises. At the end of the
term of this Lease or any renewal hereof, Tenant shall quit and
surrender the Leased Premises broom clean in as good condition subject
to provisions of Section 20.0 as when received by Tenant, normal wear
and tear excepted. In the event Tenant fails to maintain the Leased
Premises as provided for herein Landlord shall have the right, but not
the obligation, to perform such maintenance as is required of Tenant
in which event Tenant shall reimburse Landlord for its costs in
providing such maintenance or repairs together with a ten (10%)
percent charge for Landlord's overhead and Tenant shall promptly
reimburse Landlord for the amount so billed to Tenant by Landlord.
12.2 Maintenance and Care by Landlord: During the term of this
Lease, the Landlord shall keep and maintain the roof, exterior walls,
foundation, structure (excluding glass or plate glass), gutters and
downspouts of the Leased Premises in good condition and repair.
Landlord shall be under no obligation and shall not be liable for any
failure to make repairs that are Landlord's responsibility herein
until and unless Tenant notifies Landlord in writing of the necessity
therefore, in which event Landlord shall have reasonable time
thereafter to make such repairs. Landlord reserves the right to the
exclusive use of the roof and exterior walls of the Leased Premises
which Landlord is so obligated to maintain and
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repair. If any portion of the Leased Premises which Landlord is
obligated to maintain or repair is damaged by the negligence of
Tenant, its agents, employees or invitees, then repairs necessitated
by such damage shall be paid for by Tenant. In the event Landlord does
not maintain the Leased Premises as required herein, Tenant, after
giving thirty (30) days notice to Landlord, shall have the right, but
not the obligation, to make repairs required to be made by Landlord as
stated herein; and Tenant shall have the right to recover from
Landlord the cost thereof plus reasonable attorney's fees, if any,
arising thereunder.
13.0 ALTERATIONS AND ADDITIONS: Tenant shall not make any exterior,
structural or roof alterations, improvements or additions without
Landlord's prior written consent which shall not be unreasonably
withheld. Tenant shall have the right to make interior alterations,
improvements or additions to the Leased Premises, except Tenant shall
give Landlord forty eight (48) hours notice other than in case of an
emergency for those improvements which affect the plumbing or
electrical systems of the Leased Premises. Interior alterations,
improvements or additions to the Leased Premises that require an
expenditure in excess of Fifty Thousand and 00/100 ($50,000.00)
Dollars shall require the Landlord's prior written consent which
consent shall not be unreasonably withheld or delayed. Alterations,
improvements or additions so made by either of the parties upon the
Leased Premises, except movable furniture and equipment placed in the
Leased Premises at the expense of the Tenant, shall be the property of
the Landlord and shall remain upon and be surrendered with the Leased
Premises as a part thereof at the termination of this Lease, without
disturbance, molestation, injury or damage unless the Landlord elects
to require Tenant to remove such alterations or improvements from the
Leased Premises at the expiration of this lease. If Landlord consents
to the alterations, improvements or additions, Tenant does not have to
remove same upon expiration of the Lease. In the event damage to the
Leased Premises shall be caused by moving said furniture and equipment
in or out of the Leased Premises, said damage shall be repaired at the
cost of the Tenant.
14.0 LIENS AND ENCUMBRANCES: Tenant shall not do any act which shall
in any way encumber the title of Landlord in and to the Leased
Premises or the Real Estate, nor shall the interest or estate of
Landlord in the Leased Premises or the Real Estate be in any way
subject to any claim by way of lien or encumbrance, whether by
operation of law or by virtue of any express or implied contract by
Tenant. Any claim to, or lien upon, the Leased Premises or the Real
Estate arising from any act or omission of Tenant shall accrue only
against the leasehold estate of Tenant and shall be subject and
subordinate to the paramount title and rights of Landlord in and to
the Leased Premises and the Real Estate. Tenant shall not permit
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the Leased Premises or the Real Estate to become subject to any
mechanics', laborers' or materialmen's lien on account of labor or
material furnished to Tenant or claimed to have been furnished to
Tenant in connection with work of any character performed or claimed
to have been performed on the Leased Premises by, or at the direction
or sufferance of Tenant and in case of the filing of any such lien,
Tenant will promptly pay same; provided however, that Tenant shall
have the right to contest in good faith and with reasonable diligence,
the validity of any such lien or claimed lien if Tenant shall give to
Landlord such security as may be deemed satisfactory to Landlord to
insure payment thereof and to prevent any sale, foreclosure, or
forfeiture of the Leased Premises or the Real Estate by reason of
nonpayment thereof; provided, further, however, that on final
determination of the lien or claim for lien, Tenant shall immediately
pay any judgment rendered, with all proper costs and charges, and
shall have the lien released and any judgment satisfied.
15.0 INSURANCE: Landlord agrees that subject to the provisions of
paragraph 6 it will keep the Improvements on the Leased Premises
covered, at its sole cost and expense, by fire and extended coverage
insurance in an amount equal to the full replacement cost of the
Leased Premises. The policy providing such coverage shall be issued by
an insurer of recognized responsibility authorized to do business in
the state of Missouri where the Leased Premises are located and shall
contain a standard special coverage of risk endorsement and a standard
full replacement cost endorsement.
15.1 Tenant covenants and agrees to maintain on the Leased
Premises at all times during the term of this Lease, or any renewal
thereof, a policy or policies of comprehensive public liability and
property damage insurance with not less than $1,000,000 combined
single limit for both bodily injury and property damage.
15.1 Mutual Subrogation: Landlord and Tenant do each hereby
release the other from any and all liability or responsibility (to the
other or anyone claiming through or under them by way of subrogation
or otherwise) for any loss or damage to property caused by fire, any
of the extended coverage perils or any other insured peril, even if
such fire or other casualty 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 Lease shall be applicable
and in force and effect only with respect to loss or damage occurring
during such time as the Landlord's and Tenant'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. Landlord and Tenant each agree that
its policies will include such a clause or endorsement. Tenant
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shall comply with all insurance regulations so the lowest fire,
lightning, explosion, extended coverage and liability insurance rates
any be obtained; and nothing shall be done or kept in or on the Leased
Premises by Tenant which will cause an increase in the premium for any
such insurance on the Leased Premises or on any Leased Premises of
which the Leased Premises are a part or on any contents located
therein, over the rate usually obtained for the proper use of the
Leased Premises permitted by this Lease or which will cause
cancellation of any such insurance.
16.0 INDEMNITY: Tenant shall indemnify the Landlord and save it
harmless from and against: any and all loss and against all claims,
actions, damages, liability and expenses in connection with loss of
Life, bodily and personal injury or damage to the Real Estate arising
from any occurrence in, upon or at the Leased Premises or any part
thereof, or occasioned wholly or in part by any act or omission of the
Tenant, its agents, contractors, employees, servants, licensees,
concessionaires or invitees or by anyone permitted to be on the Leased
Premises by the Tenant. Tenant assumes all risks of and Landlord shall
not be liable for injury to person or damage to property resulting
from the condition of the Leased Premises or from the bursting or
leaking of any and all pipes, utility lines, connections, or air
conditioning or heating equipment in, on or about the Leased Premises,
or from water, rain or snow which may leak into, issue or flow from
any part of the Leased Premises. Tenant agrees, at all times, to
indemnify and hold Landlord harmless against all actions, claims,
demands, costs, damages or expenses of any kind which may be brought
or made against the Landlord or which the Landlord may pay or incur
by reason of Tenant's occupancy of the Leased Premises or its
negligent performance of or failure to perform any of its obligations
under this Lease. In case the Landlord shall, without fault on its
part, be made a party to any litigation commenced by or against the
Tenant, then the Tenant shall protect and hold the Landlord harmless
and shall pay all costs, expenses and reasonable attorney's fees
incurred or paid by the Landlord in connection with such litigation.
17.0 DAMAGE OR DESTRUCTION: If more than forty (40%) percent of the
Leased Premises, or any part thereof, is damaged by fire or any other
casualty, Landlord, subject to the rights of any mortgage lender and
only if such lender makes the insurance proceeds available to Landlord
at its sole expense, shall, within thirty (30) days after the
occurrence of such damage commence to repair, restore and rebuild the
same with all reasonable dispatch and diligence, so far as practicable
and lawful, to a complete unit of like quality, character and
condition, and with the same layout and parking to rentable square
foot ratio, as that which existed immediately prior to the damage. If
less than forty (40%) percent of the Leased
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Premises, or any part thereof, is damaged by fire or any other
casualty, Landlord shall be obligated to restore the Leased Premises
at its sole expense, and shall, within thirty (30) days after the
occurrence of such damage commence to repair, restore and rebuild the
same with all reasonable dispatch and diligence, so far as practicable
and lawful, to a complete unit of like quality, character and
condition, and with the same layout and parking to rentable square
foot ratio, as that which existed immediately prior to the damage.
Such repair, restoration and rebuilding by Landlord shall be in
accordance with plans and specifications approved by Tenant, prepared
by a licensed architect selected and employed by Landlord and
performed by a licensed general contractor selected and employed by
Landlord. During such repair, restoration and rebuilding, Landlord and
Tenant shall at all times have access to the Leased Premises for the
purpose of making inspections of the work in progress.
17.1 (a) In the event that the Leased Premises are damaged to the
extent that, in Tenant's reasonable judgment, they are not reasonably
suitable for the normal conduct of Tenant's business as carried on
prior to such damage, then, Tenant may, with thirty (30) days written
notice, elect to discontinue occupancy during the repair period. If,
despite such damage, Tenant elects to continue occupancy of the Leased
Premises, then, from the date of such damage and until the
events described in subsection (b) below have occurred, there
shall be an equitable adjustment in base rent, and all other
impositions and charges hereunder, including, but not limited to, real
estate taxes. If Tenant elects to discontinue occupancy, then the base
rent and such impositions and charges shall completely abate during
such period.
(b) Following such damage, Tenant shall not be required to
accept the restored Leased Premises, or to pay the full amount of rent
and other impositions and charges payable by Tenant to Landlord
hereunder, until the earlier of (i) the date on which Tenant after
diligent effort is able to recommence the conduct its normal business
on the Leased Premises, or (ii) thirty (30) days after the date by
which all of the following events have occurred:
(1) The architect in charge of the restoration to the Leased
Premises certifies in writing to Tenant that said construction
has been completed in strict accordance with the approved plans and
specifications;
(2) A certificate of occupancy or an equivalent use permit,
and all other requisite permits necessary for Tenant to conduct its
normal business on the Leased Premises are issued by the
appropriate legal authorities issuing same; and
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(3) If the location of the Leased Premises has been changed,
Landlord delivers to Tenant an as-built survey of the restored Leased
Premises, in form and substance acceptable to Tenant.
17.2 (a) If more than twenty-five percent (25%) of the
improvements upon the Leased Premises are damaged, or if the Leased
Premises are damaged to the extent that they are reasonably not suited
for the normal conduct of Tenant's business as carried on prior to
such damage, in Tenant's reasonable judgment, and such damage occurs
within the last three (3) years of the term of this Lease, then,
Tenant or Landlord, within thirty (30) days of the date of the
occurrence of such damage, may terminate this Lease on written notice
to the other; provided, that if Tenant so terminates this Lease, it
shall release to Landlord all of Tenant's claim or interest in and to
insurance proceeds otherwise allowable for the repair and restoration
of said improvements.
(b) If Landlord, after the exercise of its best efforts,
does not:
(1) Obtain a building permit for any repairs, rebuilding and
restoration required hereunder within three (3) months from the date
of such damage or destruction; or
(2) Complete such repairs, rebuilding and restoration, and satisfy
the conditions of Section 17.1(b) for the resumption of rent and other
payments by Tenant, within twelve (12) months after the date of such
damage or destruction, then, in either event, Tenant may at any time
thereafter cancel and terminate this Lease by sending not less than
fifteen (15) days' written notice thereof to Landlord.
17.3 Any dispute between the parties about the adjustment in rent
and other payments by Tenant required by Section 17.1 shall be
arbitrated in the county where the Leased Premises are located,
before, and pursuant to then applicable commercial rules and
regulations of the American Arbitration Association or any successor
organization ("AAA"). Each party shall, within five (5) days after
either party files a request for arbitration, name one arbitrator from
among the arbitrators acceptable to the AAA, and the two arbitrators
shall appoint a third arbitrator. The failure of a party to timely
appoint an arbitrator shall be deemed a waiver of the right to appoint
an arbitrator and to have the matter heard by more than one
arbitrator. In such proceeding, the arbitrator(s) shall determine who
is the substantially prevailing party and award to such party its
reasonable attorneys', accountants' and professionals' fees and other
costs incurred in connection with such proceeding. The award of the
arbitrator(s) shall be
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final, binding upon the parties, non appealable and may be entered in
and enforced by any court of competent jurisdiction. Such court may
add to the award of the arbitrator(s) all additional reasonable
attorneys' fees and costs incurred by the prevailing party in
attempting to enforce such award.
17.4 In the event of termination of this Lease pursuant to this
Section 17, the parties shall be released from all further liability
hereunder, except that Landlord shall refund to Tenant, and Tenant
shall pay to Landlord, all sums that it may be obligated to refund or
pay and including the date of termination.
18.0 CONDEMNATION: If there is any taking of or damages to all or any
part of the Leased Premises, or Tenant's leasehold interest therein,
or of the access roads to the Leased Premises, because of the exercise
of the power of eminent domain, whether by condemnation proceedings or
otherwise, or any transfer of any part of the Leased Premises or any
interest therein or access roads to the Leased Premises, made in
avoidance of the exercise of the power of eminent domain (all of the
foregoing are hereinafter collectively referred to as "taking") prior
to or during the Lease term, the rights and obligations of the parties
with respect to such taking shall be as provided in this Section
subject to any contrary rights of any mortgage lender under the terms
of its loan documents.
18.1 If there is a taking of all of the Leased Premises, or the
Leased Premises are permanently deprived of all access to public
roads, this Lease shall terminate as of the date of such taking. The
taking shall be deemed to occur upon passage of title or possession,
whichever occurs sooner, If title passes before possession, Tenant may
continue in possession of the Leased Premises beyond the termination
of this Lease and shall not have to pay Landlord rent, or other
impositions and charges hereunder.
18.2 If:
(a) Twenty-five percent (25%) or more of the Leased Premises shall
be taken;
(b) Reasonable, direct passage on foot or by vehicle, which is
satisfactory to Tenant, between the Leased Premises and the paved
parking areas, or between the Leased Premises and any public way,
shall be permanently prevented or substantially impeded; or,
(c) Because of a taking of any part of the Leased Premises,
regardless of the amount taken, the Leased Premises are not suitable
for the conduct of Tenant's normal
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business, in the reasonable judgment of Tenant; then, and in any such
event, Tenant may elect either to terminate this Lease or to remain in
possession of the Leased Premises despite such taking. Tenant shall
give written notice to Landlord of election within forty-five (45)
days after the taking. If Tenant terminates this Lease, termination
shall be effective as of the date of the notice of termination or when
Tenant quits possession, whichever comes first.
18.3 In the event of termination of this Lease pursuant to this
Section 18, the parties shall be released from all further liability
hereunder, except that Landlord shall refund to Tenant, and Tenant
shall pay to Landlord, all sums that it may be obligated to refund or
pay to and including the date of termination.
18.4 If this Lease is not terminated as provided in this Section
18, then:
(a) Landlord shall, at its sole expense, promptly after any
taking, restore and rebuild the Leased Premises, so far as
practicable, to a complete unit or like quality, character and
condition as that which existed immediately prior to the taking. Said
restoration and rebuilding shall be conducted in the same manner, with
the same approvals and the same rights of Tenant to inspect the work
as are provided for in Section 17.0.
(b) During the period between the taking and the completion of
restoration and rebuilding of the Leased Premises, base rent and all
other impositions and charges, including, but not limited to, real
estate taxes, shall be equitable abated to the extent that the Leased
Premises are not then reasonably suitable for the conduct of Tenant's
normal business.
(c) Upon the completion of such restoration and rebuilding of
the Leased Premises, and thereafter throughout the balance of the
Lease term, base rent shall be reduced in that proportion which the
number of net square feet of area of the Leased Premises taken bears
to the total number of net square feet of area of the Leased Premises
existing immediately prior to such taking, and all other impositions
and charges required to be paid by Tenant to Landlord under this Lease
shall likewise be reduced in the same proportion. The restoration and
rebuilding of the Leased Premises will deemed complete until
satisfaction of the conditions set forth in Section 17.1 (b).
(d) Any dispute by and between the parties about the
adjustments required by Section 18.5(b) shall be arbitrated in the
manner described in Section 17.3.
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(e) If Landlord, after the exercise of its best efforts,
does not:
(1) Commence to restore and repair the Leased Premises affected by
the taking within sixty (60) days of the taking; or
(2) Complete said restoration and repair work within twelve (12)
months of the taking; then, in either event, Tenant may, at any time
thereafter, cancel and terminate this Lease by sending not less than
forty-five (45) days written notice thereof to Landlord.
18.5 (a) The party receiving any knowledge or notice of any
kind in respect of any taking shall promptly give the other party
notice of the receipt, content and date of such knowledge or notice.
(b) Tenant shall be entitled to compensation for the
appropriation of its rights and interests by the condemning authority
provided same does not reduce Landlord's compensation. Tenant's
compensable interests shall include, without limitation, the
following:
(1) A sum attributable to Tenant's alterations and improvements
(including trade fixtures) that Tenant does not remove, or, if it
removes any such alterations or improvements, a sum for actual removal
and relocation costs;
(2) A sum attributable to the actual expense in moving Tenant and
its business operation, including moving personal property, to the
extent not already covered above;
(3) A sum attributable to actual loss of personal property as a
result of moving or discontinuing business, to the extent not already
covered above; and
(c) Landlord, Tenant and all persons and entities holding
under Tenant, shall have the right to represent his or its respective
interest in any proceeding or negotiation with respect to a taking or
intended taking and to make full proof of his or its claims.
(d) Appraised Value of Tenant's compensable interests shall
include, without limitation, the following:
(1) A sum attributable to Tenant's alterations and improvements
(including trade fixtures) that Tenant does remove, or, if it removes
any such alterations or improvements, a sum for actual removal and
relocation costs;
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(2) A sum attributable to the actual expense in moving Tenant and
its business operation, including moving personal property, to the
extent not already covered above;
(3) A sum attributable to actual loss of personal property as a
result of moving or discontinuing business, to the extent not already
covered above; and
18.6 If the temporary use of any part of the Leased Premises shall
be taken by the exercise of the power of eminent domain (i.e., less
than ninety (90) days), this Lease shall not terminate, and Tenant
shall continue to pay the full rent and all other sums of money
required by this Lease. Tenant shall receive the entire award for such
temporary taking.
19.0 ASSIGNMENT AND SUBLETTING: Tenant shall not, without Landlord's
prior written consent, which consent shall not be unreasonably
withheld or delayed, (a) assign, convey or mortgage this Lease or any
interest under it; (b) allow any transfer thereof or any lien upon
Tenant's interest by operation of law; (c) sublet the Leased Premises
or any part thereof; or (d) permit the use or occupancy of the Leased
Premises or any part thereof by anyone other than Tenant. No permitted
assignment or subletting shall relieve Tenant of Tenant's covenants
and agreements hereunder and Tenant shall continue to be liable as a
principal and not as a guarantor or surety, to the same extent as
though no assignment or subletting had been made.
19.1 Bankruptcy or Assignment to Trustee: Neither this shall nor
any interest therein nor any estate hereby created shall pass to any
trustee or receiver in bankruptcy or to any other receiver or assignee
for the benefit of creditors or otherwise by operation of law during
the term of this Lease or any renewal thereof.
20.0 SURRENDER: Upon the termination of this Lease, whether by
forfeiture, lapse of time or otherwise, or upon the termination of
Tenant's right to possession of the Leased Premises, Tenant will at
once surrender and deliver up the Leased Premises together with all
improvements thereon, to Landlord in good condition and repair,
reasonable wear and tear excepted. Said Improvements shall include all
plumbing, lighting, electrical, heating, cooling and ventilating
fixtures and equipment and other articles of personal property used in
the operation of the Leased Premises (as distinguished from operations
incident to the business of Tenant; articles of personal property
incident to the Tenant's business are hereinafter referred to as
"Trade Fixtures"). All additions, hardware, non-trade fixtures and all
improvements, temporary or permanent, in or upon the Leased Premises
placed there by Tenant shall become Landlord's property and shall
remain upon
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the Leased Premises upon such termination of this Lease by lapse of
time or otherwise, without compensation or allowance or credit to
Tenant.
21.0 REMOVAL OF TENANT'S PROPERTY: Upon the termination of this Lease
by lapse of time, Tenant may remove Tenant's Trade Fixtures, provided,
however, that Tenant shall repair any injury or damage to the Leased
Premises which may result from such removal. If Tenant does not remove
Tenant's Trade Fixtures from the Leased Premises prior to the end of
the term, however ended, Landlord may, after giving Tenant thirty (30)
days written notice, at its option, remove the same and deliver the
same to any other place of business of Tenant, or warehouse the same,
and Tenant shall pay the costs of such removal (including the repair
of any injury or damage to the Leased Premises resulting from such
removal), delivery and warehousing to Landlord on demand, or Landlord
may treat such Trade Fixtures as having been conveyed to Landlord with
this Lease as a Bill of Sale, without further payment or credit by
Landlord to Tenant.
22.0 HOLDING OVER: In the event of a holding over by Tenant after
expiration or termination of this Lease without the consent in writing
of the Landlord, Tenant shall be deemed a Tenant at sufferance and
shall pay as liquidated damages, double rent for the entire holdover
period and all attorney's fees and expenses incurred by Landlord in
enforcing its rights hereunder. Any holding over with the consent of
Landlord shall constitute Tenant a month-to-month tenant.
23.0 DEFAULT AND REMEDIES: In the event:
(a) Tenant shall, after five (5) days written notice by
Landlord, fail to pay rent when due and such notice; or
(b) Tenant shall fail to keep, perform or observe any other
covenant, agreement, condition or undertaking hereunder
and shall fail to remedy such default within thirty (30)
days after written notice thereof has been mailed by
Landlord to Tenant; or if such default is one that will
take longer than thirty (30) days to remedy, Tenant fails
to commence curing such default within thirty (30) days
and fails to diligently pursue such cure to completion;
or
(c) The Leased Premises shall be abandoned by Tenant,
Landlord shall have the right, without further notice to or demand
upon the Tenant, to re-enter and take exclusive possession of the
Leased Premises, by all lawful means, and to
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refuse to allow Tenant to enter the same or have possession thereof;
to change the locks on the doors to the Leased Premises; take
possession of any furniture or other property in or upon the Leased
Premises (Tenant hereby waiving the benefit of all exemptions by law),
sell the same at public or private sale without notice and apply the
proceeds thereof to the costs of sale, payment of damages and payment
of the rent due under this Lease; all without being liable to the
Tenant for any damages or to any prosecution therefore; and
(i) As agent of the Tenant to relet the Leased Premises for
the balance of the term of this Lease or for a shorter or longer
term and receive the rents therefore, applying them first to the
payment of the expense of such reletting and, second, to the
payment of damages suffered to the Leased Premises and rent due
and to become due under this Lease, Tenant remaining liable for
and hereby agreeing to pay Landlord any deficiency; or
(ii) To cancel and terminate the remaining term of this
Lease, and thereafter this Lease shall be null and void and the
rent in such case shall be apportioned and paid on and up to the
date prior to Tenant's default. Thereafter both parties shall be
released and relieved from and of any and all obligations
thereafter to accrue hereunder.
All rights and remedies expressly provided in this Lease for
Tenant's protection shall be cumulative of any other rights and
remedies provided by law. Landlord shall be entitled to recover from
Tenant its reasonable attorney's fees incurred in enforcing its
rights hereunder.
A waiver by Landlord of a breach or default by Tenant under the
terms and conditions of this Lease shall not be construed to be a
waiver of any subsequent breach or default or of any other term or
condition of this Lease, and the failure of Landlord to assert any
breach or to declare a default by Tenant shall not be construed to
constitute a waiver thereof so long as such breach or default
continues unremedied.
23.1 In the event Landlord shall fail to keep, perform or observe
any other covenant, agreement, condition or undertaking hereunder and
shall fail to remedy such default within thirty (30) days after
written notice thereof has been mailed by Tenant to Landlord; or if
such default is one that will take longer than thirty (30) days to
remedy, Landlord fails to commence curing such default within thirty
(30) days and fails to diligently pursue such cure to completion,
Tenant shall have the right, without further notice to or demand upon
Landlord, to cure Landlord's default, by all lawful means, and to
recover from Landlord the cost thereof including its
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reasonable attorney's fees, if any, and to cancel and terminate the
remaining term of this Lease and thereafter this Lease shall be null
and void and the rent in such case shall be apportioned and paid on
and up to the date prior to Landlord's default. Thereafter both
parties shall be released and relieved from any and all obligations
thereafter to accrue hereunder. Landlord shall be liable for all loss
and damage resulting from such breach or default.
All rights and remedies expressly provided in this Lease for
Tenant's protection shall be cumulative of any other rights and
remedies provided by law. Tenant shall be entitled to recover from
Landlord its reasonable attorney's fees incurred in enforcing its
rights hereunder.
A waiver by Tenant of a breach or default by Landlord under the
terms and conditions of this Lease shall not be construed to be a
waiver of any subsequent breach or default or of any other term or
condition of this Lease, and the failure of Tenant to assert any
breach or to declare a default by Landlord shall not be construed to
constitute a waiver thereof so long as such breach or default
continues unremedied.
24.0 ESTOPPEL CERTIFICATES: Tenant shall at any time and from time to
time upon not more than ten (10) days prior written request from
Landlord, execute, acknowledge and deliver to Landlord, in form
reasonably satisfactory to Landlord and/or Landlord's mortgagee, a
written statement certifying (if true) that Tenant has accepted the
Leased Premises, that this lease is unmodified and in full force and
effect (or if there have been notifications, that the same is in full
force and effect as modified and stating the modifications), that the
Landlord is not in default hereunder, the date to which the rental and
other charges have been paid in advance, if any, and such other
accurate certification as may reasonably be required by Landlord or
Landlord's mortgagee, and agreeing to give copies to any mortgagee of
Landlord of all notices by Tenant to Landlord. It is intended that any
such statement delivered pursuant to this Section may be relied upon
by any prospective purchaser or mortgagee of the Leased Premises or
Real Estate and their respective successors and assigns.
25.0 LANDLORD'S RIGHT TO CURE: Landlord may, but shall not be
obligated to, cure any default by Tenant (specifically including, but
not by way of limitation, Tenant's failure to obtain insurance, make
repairs, or satisfy lien claims); and whenever Landlord so elects, all
costs and expenses paid by Landlord in curing such default, including
without limitation reasonable attorneys' fees, shall be so such
additional rent due on the next rent date after such payment together
with interest (except in the case of said attorneys' fees) at the
highest rate then payable by Tenant in the state in which the
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Leased Premises are located or in the absence of such maximum rate at
the rate of twelve percent (12%) per annum, from the rate of the
advance to the date of repayment by Tenant to Landlord.
26.0 TITLE POLICY: Concurrently with the execution of this Lease,
Landlord shall provide to Tenant, at Landlord's cost, a ALTA form of
Leasehold policy of title insurance, with such endorsements as Tenant
may require, issued by a title company acceptable to Tenant, insuring
Tenant's leasehold estate under this Lease in an amount of
$200,000.00, and containing no exceptions other than the printed
exceptions contained in the title company's standard extended title
insurance policies in the State of Missouri, and such scheduled
exceptions as Tenant has approved in writing.
27.0 LANDLORD'S WARRANTIES AND COVENANTS: In addition to the
representations and warranties contained elsewhere in this Lease,
Landlord hereby makes the representations and warranties herein set
forth. Each representation and warranty: (i) is material and relied
upon by Tenant; (ii) is true in all respects as of the date of this
Lease and shall be true in all respects on the Commencement Date;
and (iii) shall continue in full force regardless of what
investigations Tenant shall have made with respect to the subject
matter thereof:
(a) The execution of this Lease by Landlord, Landlord's
performance hereunder, and the transactions contemplated hereby, have
been duly authorized by all requisite action on the part of Landlord;
(b) Landlord is the sole owner of the fee interest in the Leased
Premises;
(c) To the best of Landlord's knowledge, the Leased Premises are
free and clear of all liens, encumbrances, claims, rights, demands,
easements, leases, agreements, covenants, conditions and restrictions
of any kind or character (including, but without limitation, liens or
claims for taxes, mortgages, conditional sales contracts or other
title retention agreements, deeds of trust, security agreements and
pledges) except for those exceptions to title permitted to be shown on
the policy of title insurance. Without limiting the generality of the
foregoing there are no encroachments on the Leased Premises from
adjoining property, and the Leased Premises do not encroach on any
adjoining property or easements or streets except to the extent, if
any, shown on a survey provided to Tenant;
(d) To the best of Landlord's knowledge, there is no existing,
proposed or contemplated plan to widen, modify,
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<PAGE>
realign, or abandon any street or highway, that would
adversely affect the Leased Premises in any way whatsoever;
(e) To the best of Landlord's knowledge, all laws,
ordinances, rules and regulations (including, but not
limited to, those relating to flood control, zoning,
building, fire, health and safety) of any government or any
agency, body or subdivision thereof, bearing on the
construction, operation, ownership or present use of the
Leased Premises have been complied with by Landlord;
(f) There is no pending condemnation or similar
proceeding affecting the Leased Premises, and Landlord has
not received any written notice and has no knowledge that
any such proceeding is contemplated;
(g) There are no adverse parties in possession of the
Leased Premises or of any part thereof, and no person has
been granted any license, lease, or other right relating to
the use or possession of the Leased Premises except under
this Lease;
(h) The number of parking spaces for Tenant's exclusive
use is not less than 75 and complies with applicable
governmental Codes in respect of Tenant's contemplated use;
and
(i) All plumbing and electrical systems are in a state
of good repair and working condition, in accordance with
the Final Plans.
Landlord shall indemnify, defend and hold Tenant
harmless form all damages, costs, losses, expenses
(including, but not limited to, reasonable attorney's fees)
arising from or attributable to any breach by Landlord of
any of its warranties or representations.
All warranties, representations and agreements
contained herein or arising out of this Lease shall survive
the delivery and recordation of the Lease and any
memorandum of lease, the payment of rent, and the
Commencement Date.
28.0 SEVERABILITY: If any term or provision of this Lease
shall to any extent be held invalid or unenforceable, the
remaining terms and provisions of this Lease shall not be
affected thereby, but each term and provision of this Lease
shall be valid and be enforced to the fullest extent
permitted by law.
29.0 PERSONS BOUND: The agreements, covenants and
conditions of this Lease shall be binding upon and inure to
the benefit of the heirs, legal representatives, successors
and assigns of each of the parties hereto, except that no
assignment,
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<PAGE>
encumbrance or subletting by Tenant, unless permitted by the
provisions of this Lease, without the written consent of Landlord,
shall vest any right in the assignee, encumbrance or sublessee of
Tenant. This Lease contains the entire agreement in writing signed by
the Landlord and Tenant after the date hereof. The singular herein, in
referring to Landlord or Tenant, shall be deemed to include the plural
where the context so requires. If there is more than one Tenant herein
named, the provisions of this Lease shall be applicable to and binding
upon such Tenants jointly and severally.
30.0 LANDLORD MEANS OWNER: The term "Landlord" as used in this Lease,
so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or
owners at the time in question of the fee of the Leased Premises, and
in the event of any transfer or transfers of the title to such fee,
Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and
relieved, from and after the date of such transfer or conveyance, of
all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter
to be performed; provided that any funds in the hands of such Landlord
or the then grantor at the time of such transfer, in which Tenant has
an interest, shall be turned over to the grantee, and any amount then
due and payable to Tenant by Landlord or the then grantor under any
provisions of this Lease, shall be paid to Tenant.
31.0 BROKERAGE: Landlord and Tenant each warrant to the other that it
has no dealings with any broker or agent in connection with this Lease
other than Kessinger/Hunter Company, Inc., and Cohen Company whose
commission Landlord covenants and agrees to pay in the amount agreed
between Landlord and Landlord's broker. Landlord and Tenant covenant
to pay, hold each other harmless and to indemnify each other from and
against any and all cost, expense or liability for any commissions,
and charges claimed by any other broker or other agent due to
Landlord's or Tenant's dealings with respect to this Lease or the
negotiation thereof.
32.0 SIGNS: Landlord hereby consents to Tenant's exterior sign to be
placed on the exterior of the Leased Premises, provided the Tenant's
signage conforms to the Industrial Park. Tenant agrees upon the
expiration or earlier termination of the Lease as provided herein, to
remove the sign and restore the Leased Premises to its original
condition, ordinary wear and tear and casualty excepted.
33.0 NOTICES: Except as otherwise herein provided, whenever by the
terms of this Lease notice shall or may be given either to the
Landlord or to the Tenant, such notice shall be in
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<PAGE>
writing and shall be deemed to have been properly served if sent by
certified mail, return receipt requested, postage prepaid, to Landlord
at the place where rent is payable and to the parties as follows:
Landlord: Charles H. Hunter
Kessinger Hunter Realtors
300 Bryant Building
1102 Grand Avenue
Kansas City, Missouri 64106
Tenant: Simmons U.S.A. Corporation
Six Executive Park Drive
Atlanta, Georgia 30329
Attention: Chief Financial
Officer
with copies to: Wickes Companies, Inc.
3340 Ocean Park Boulevard
Suite 2000
Santa Monica, CA 90405
Attn: Ronald D. Strongwater
Senior Vice President
Wickes Companies, Inc.
1400 S. Wolf Road
Building 200
Wheeling, IL 60090
Attention: Jerry Luther
Director, Real
Estate Operations
Wickes Companies, Inc.
15 Columbus Circle
New York, New York 10023
Attention: Peter I. Reiter
Senior Real
Estate Counsel
Either party may change its notice address or the person or agent to
whom notice should be directed by giving the other party written
notice of such change of address.
34.0 CAPTIONS: The captions of this Lease are for convenience only and
are not to be construed as part of this Lease and shall not be
construed as defining or limiting in any way the scope or intent of
the provisions hereof.
35.0 LAW APPLICABLE: This Lease shall be construed and enforced in
accordance with the laws of the state where the Leased Premises are
located.
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<PAGE>
36.0 NO PERSONAL LIABILITY TO TRUSTEES: The Tenant acknowledges and
agrees that Thomas G. Eastman, Michael O. Craig and H. Peter Norstrand
have executed this Lease, not personally, but solely as Trustees as
aforesaid. The agreements of the landlord contained herein shall only
be enforceable against the Leased Premises and Lot in respect to the
payment of any claim hereunder. By executing this Lease, the Tenant
agrees to look solely to the Leased Premises and Lot for the
enforcement of its rights hereunder, and agrees not to look to the
Trustees, the beneficiaries of the Trust or their agents or employees.
In no event shall the consent or approval of the Tenant be required
for a change in the trustees of AEW #40 Trust, which change in
trustees may be made from time to time. Any successor trustee shall
acknowledge in writing such change and execute and deliver in writing
an agreement to be bound as such trustee, and not personally, to the
covenants of the Landlord herein.
37.0 MORTGAGEE PROTECTION CLAUSE: Tenant agrees to give any Mortgagees
and/or Trust Deed Holders, by Registered Mail, a copy of any Notice of
Default served upon the Landlord, provided that prior to such notice
Tenant has been notified, in writing, (by way of Notice of Assignment
of Rents and Leases, or otherwise) of the address of such Mortgagees
and/or Trust Deed Holders. Tenant further agrees that if Landlord
shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagees and/or Trust Deed Holders shall have
an additional thirty (30) days within which to cure such default or if
such default cannot be cured within that time, then such additional
time as may be necessary if within such thirty (30) days, any
Mortgagee and/or Trust Deed Holder has commenced and is diligently
pursuing the remedies necessary to cure such default, (including but
not limited to commencement of foreclosure proceedings, if necessary
to effect such cure) in which event this Lease shall not be terminated
while such remedies are being so diligently pursued.
38.0 CONSENTS AND APPROVALS: All consents and approvals required under
the Lease by either party shall not be unreasonably withheld or
delayed.
39.0 EXCULPATION CLAUSE: Any agreement, obligation or liability of
Landlord is made, entered into or incurred on the express condition
that Tenant's only recourse under this Lease or otherwise in the event
of a default by Landlord of any such agreement, obligation or
liability of Landlord hereunder or otherwise, shall be limited to
Landlord's interest in the Leased Premises.
40.0 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
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<PAGE>
agreement in writing signed by Landlord and Tenant after the date
hereof. If there be more than one Tenant named herein, the provisions
of this Lease shall be applicable to and binding upon such tenants
jointly and severally.
IN WITNESS WHEREOF, the parties have signed 4 copies hereof.
ATTEST: HUNTER INDUSTRIAL VENTURE, a
Missouri Joint Venture,
General Partnership
By: By:
/s/ /s/
--------------------- --------------------------
ATTEST: SIMMONS U.S.A. CORPORATION
By: By:
/s/ KATHLEEN BOWERS /s/ RONALD D.STRONGWATER
-------------------- ------------------------
KATHLEEN BOWERS RONALD D.STRONGWATER
Assistant Secretary Vice President
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<PAGE>
EXHIBIT "A"
Lots J and J-1 of Tract J, Executive Park, being a tract of land
located in the East half (E 1/2) of Section 23, Township 50, Range 33,
in Kansas City, Jackson County, Missouri, according to the recorded
plat thereof.
Landlord Initial /s/
Tenant Initial /s/
<PAGE>
[Floor Plan]
<PAGE>
[Floor Plan]
<PAGE>
[Floor Plan]
<PAGE>
LESSEE'S CERTIFICATE
--------------------
The undersigned, Simmons Company, a Delaware corporation, is
the tenant or lessee (the "Lessee") under a lease (the "Lease") dated
September 22, 1986, between the Lessee and Hunter Industrial Venture,
a Missouri Joint Venture General Partnership, as landlord or lessor
(the "Lessor") of certain real property in the County of Jackson,
State of Missouri, as described in attached Exhibit A (the
"Property"). With the understanding that Principal Mutual Life
Insurance Company ("Principal Mutual") will rely upon the
representations made herein in making a loan to Lessor (the "Loan")
and accepting an assignment of the Lessor's interest in the Lease
substantially in the form attached as Exhibit B (the "Assignment of
Lease"), Lessee hereby represents and certifies as follows:
1. The Lease is in full force and effect and has not been modified,
supplemented, canceled or amended in any respect, except by
Addendum dated September 22, 1986, Amendment to Lease dated July
31, 1989 and Amendment to Lease dated February 27, 1990.
2. Lessee has accepted the premises and taken possession thereof
without any existing condition or qualification and both the
Lessor and the Lessee have completed and complied with all
required conditions precedent to such acceptance and possession.
Lessee has taken possession of the Property without reservation
and is not in default nor claims any default under the Lease and
Lessee has no claims, defenses or rights of offset against any
rents payable thereunder.
3. The term of the Lease commenced on or before 12-5-86 , and
continues through at least 5-18-92*, (the "Initial Term").
The current rent due as of the date hereof is $ 18,945.48
which rent is continuing and is not past due or delinquent in
any respect. No installment of rent has been or will be prepaid
more than one (1) month in advance.
4. So long as the Loan is outstanding, Lessee will provide Principal
Mutual with all information, including but not limited to
evidence of payment of taxes and insurance (if Lessee is
obligated for such payments under the Lease) as the Lessor may
be entitled under the Lease, and Lessee will give Principal
Mutual the same notices, including without limitation notices
of default, and thereafter the same right to cure any defaults
or take any action as the Lessor may be entitled under the Lease,
without the obligation to cure such defaults or take such action,
and such time in addition to that which Lessor is entitled as
may be reasonably necessary to cure such defaults or take such
action, provided Principal Mutual has indicated its intention to
cure or take action and pursues the same with diligence.
5. Lessee ratifies and acknowledges the Assignment of Lease and
Lessor's assignment of the Lease and the rents to be paid
thereunder to Principal Mutual, and so long as the Loan is
outstanding, Lessee will not agree to any modification, amendment
or supplement of the Lease or any of its provisions without the
prior written consent of Principal Mutual.
6. So long as the Loan is outstanding, Principal Mutual or its
designee may enter upon the Property at all reasonable times
to visit or inspect the Property.
7. Principal Mutual and Lessor have represented to Lessee, and the
Lessee therefore acknowledges, that pursuant to the Assignment of
Lease, Principal Mutual is presently entitled to collect and
receive all rents to be paid under the Lease directly from
Lessee. Based upon such representations, Lessee agrees to pay all
rents and installments of rent as they become due directly to
Principal Mutual in the manner and at such address as Principal
Mutual may hereafter direct by written notice to Lessee. Until
such notice is given by Principal Mutual to Lessee, Lessee shall
pay all rent and installments of rent to Lessor in accordance
with the provisions of the Lease.
*Clause 3 - The lease of approximately 66,665 sq. ft. currently
--------
at $14,166.31 per month continues through 5/18/97.
The lease of approximately 18,500 sq. ft. at $4,779.17 per month
continues through 5/18/92 with a lessee option to renew through
5/18/97 at $5,781.25 per month.
<PAGE>
-2-
8. All information, notices or requests provided for or permitted to
be given or made pursuant to this certificate shall be deemed to
have been properly made or given by depositing the same in the
United States Mail, postage prepaid and registered or certified
return receipt requested and addressed to the addresses set forth
below, or to such other addresses as may from time to time be
specified in writing by Lessee or Principal Mutual to the other:
If to Principal Mutual:
----------------------
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-1450
Attention: Commercial Real Estate Servicing
If to Lessee:
------------
Simmons Company
----------------
6 Executive Park Drive, N.E.
----------------------------
Atlanta, Georgia 30329
----------------------
All requests or notices shall be effective upon being deposited
in the United States Mail, however the time period in which any
response to any notice or request must be made shall commence
from the date of receipt of the request or notice by the
addressee.
9. If Lessee is a corporation or partnership, Lessee will preserve
and keep in force and effect its corporate or partnership
existence and all licenses or permits necessary to the proper
conduct of its business during the Initial Term of the Lease.
10. This certificate and the representations made herein shall be
governed by the laws of the state where the Property is situated
and are binding upon and inure to the benefit of Principal Mutual
and Lessee and their respective successors and assigns and to no
other persons or entities, and the representations made herein
shall survive the closing of the Loan and the delivery of this
certificate.
IN WITNESS WHEREOF, this certificate has been duly executed and
delivered by the authorized officers of the undersigned as of
, 1991.
--------
SIMMONS COMPANY, a Delaware
Corporation
By /s/
-------------------------
By /s/
-------------------------
<PAGE>
"EXHIBIT B"
Record and return to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50309
ATTN:
ASSIGNMENT OF
LEASE AND RENTS
THIS ASSIGNMENT, made as of ____, 19____, by_____, a___________
, having a post office address at__________________________________
as Assignor ("Assignor" to be construed as "Assignors" if the context,
so requires), to PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa
corporation having its principal place of business and post office
address at 711 High Street, Des Moines, Iowa 50309, as Assignee,
WITNESSETH THAT:
WHEREAS, Assignor, to evidence and secure a loan indebtedness,
has made and delivered to Assignee a promissory note of even date
herewith (the "Note") in the _____________________________________
principal amount of $___ payable as provided in the Note and finally
maturing on _____________, 19__, with interest as therein expressed,
and has executed and delivered a ________ (it being agreed that
"Mortgage" as hereinafter used shall be construed to mean "deed of
trust" or "trust deed" or "deed to secure debt" if the context so
requires) bearing the aforesaid date to secure the Note and
creating a lien on Assignor's interest in certain real estate in the
County of __________________________________________________________
, State of ______, more particularly described in Exhibit A
attached hereto and made a part hereof, including the improvements
now or hereafter ___________________________________________________
thereon and the easements, rights and appurtenances thereunto
belonging, all of which ____________________________________________
are hereinafter called the "Mortgaged Premises"; and
WHEREAS, Assignor is the lessors under that certain written lease
of the Mortgaged Premises made under date of ___________ , 19___,
to ____________________________, and Assignor may hereafter make other
leases of the Mortgaged Premises or parts thereof; and
WHEREAS, Assignee has required the assignment hereafter made as a
condition to making the above loan;
NOW, THEREFORE, Assignor, for good and valuable considerations the
receipt of which is hereby acknowledged, does hereby bargain, sell,
transfer, assign, convey, set over and deliver unto Assignee, all
rights of the lessor under the above described lease and all other
leases affecting the Mortgaged Premises, or any part thereof, now
existing or which may be executed at any time in the future during the
life of this Assignment, and all amendments, extensions and renewals
of said leases and any of them, all of which are hereinafter called
the "Leases," and all rents, income and other payments which may now
or hereafter be or become due or owing under the Leases, and any of
them, or on account of the use of the Mortgaged Premises. It is
intended hereby to establish a present and complete transfer of all
the Leases and all rights of the lessor thereunder and all the rents,
and other payments arising thereunder on account of the use of the
Mortgaged Premises unto Assignee, with the right, but without the
obligation, to collect all of said rents, income and other payments
which may become due during the life of this Assignment. Assignor
agrees to deposit with Assignee all leases of all or any portion of
the Mortgaged Premises.
Assignor hereby appoints Assignee the true and lawful attorney of
Assignor with full power of substitution and with power for it and in
its name, place and stead, to demand, collect, receipt and give
complete acquittances for any and all rents and other amounts herein
assigned which may be or become due and payable by the lessees and
other occupants of the Mortgaged Premises, and at its discretion to
file any claim or take any other action or proceeding and make any
settlement of any claims, either in its own name or in the name of
Assignor or otherwise, which Assignee may deem necessary or desirable
in order to collect and enforce the payment of any and all rents and
other amounts herein assigned. Lessees of the Mortgaged Premises, or
any part thereof, are hereby expressly authorized and directed to pay
all rents and other amounts herein assigned to Assignee or such
nominee as Assignee may designate in writing delivered to and received
by such lessees who are expressly relieved of any and all duty,
liability or obligation to Assignor in respect of all payments so
made.
<PAGE>
- 2-
Assignee is hereby vested with full power to use all measures,
legal and equitable, deemed by it necessary or proper to enforce this
Assignment and to collect the rents and other amounts assigned
hereunder, including the right to enter upon the Mortgaged Premises,
or any part thereof, and take possession thereof forthwith to the
extent necessary to effect the cure of any default on the part of
Assignor as lessor in any of the Leases. Assignor hereby grants full
power and authority to Assignee to exercise all rights, privileges and
powers herein granted at any and all times hereafter, without notice
to Assignor, with full power to use and apply all of the rents and
other amounts assigned hereunder to the payment of the costs of
managing and operating the Mortgaged Premises and of any indebtedness
or liability of Assignor to Assignee, including but not limited to the
payment of taxes, special assessments, insurance premiums, damage
claims, the costs of maintaining, repairing, rebuilding and restoring
the improvements on the Mortgaged Premises or of making same rentable,
attorney fees incurred in connection with the enforcement of this
Assignment, and of principal and interest payments due from Assignor
to Assignee on the Note and the Mortgage, all in such order as
Assignee may determine. Assignee shall be under no obligation to press
any of the rights or claims assigned to it hereunder or to perform or
carry out any of the obligations of the lessor under any of the Leases
and does not assume any of the liabilities in connection with or
arising or growing out of the covenants and agreements of Assignor in
the Leases; and Assignor covenants and agrees that it will faithfully
perform all of the obligations imposed under any and all of the Leases
and hereby agrees to indemnify Assignee and to hold it harmless from
any liability, loss or damage which may or might be incurred by it
under the Leases or by reason of this Assignment, and from any and all
claims and demands whatsoever which may be asserted against Assignee
by reason of any alleged obligations or undertakings on its part to
perform or discharge any of the terms, covenants or agreements
contained in any of the Leases. This Assignment shall not operate to
place responsibility for the control, care, management or repair of
the Mortgaged Premises, or parts thereof, upon Assignee nor shall it
operate to make Assignee liable for the carrying out of any of the
terms and conditions of any of the Leases, or for any waste of the
Mortgaged Premises by the lessee under any of the Leases or any other
party, or for any dangerous or defective condition of the Mortgaged
Premises or for any negligence in the management, upkeep, repair or
control thereof resulting in loss or injury or death to any lessee,
licensee, employee or stranger.
Any amounts collected hereunder by Assignee which are in excess of
those applied to pay in full the aforesaid liabilities and
indebtedness at the time due shall be promptly paid to Assignor.
Assignor hereby represents and warrants to Assignee that it is the
sole owner of the entire lessor's interest in each of the Leases; that
the Leases are not in default and are valid and enforceable and have
not been altered, modified or amended in any manner whatsoever except
as herein expressly mentioned; that Assignor has not heretofore
transferred or assigned the Leases or any of the rents thereunder or
any right or interest therein, nor has it collected in advance or
anticipated any of the rents thereunder; and Assignor represents and
warrants that it is not indebted to the lessees under the Leases in
any manner whatsoever so as to give rise to any right of set-off
against, or reduction of, the rents payable under the Leases.
Assignor covenants not to alter, modify, amend or change the terms
of the Leases or give any consent or permission or exercise any option
required or permitted by the terms thereof or waive any obligation
required to be performed by any lessee or cancel or terminate any of
the Leases or accept a surrender thereof without prior written
consent of Assignee, and Assignor will not make any further transfer
or assignment thereof, or convey or transfer or suffer a
conveyance or transfer of the Mortgaged Premises or of any
interest therein so as to effect, directly or indirectly, a
merger of the estates and rights of, or a termination or
diminution of the obligations of, any lessee thereunder. Assignor
further covenants to deliver to Assignee, promptly upon receipt
thereof, copies of any and all demands, claims and notices of
default received by it from any lessee under any of the Leases
assigned herein.
Upon payment in full of the principal sum, interest and other
indebtedness secured hereby, this Assignment shall be and become null
and void; otherwise, it shall remain in full force and effect as
herein provided and, with the covenants, warranties and power of
attorney herein contained, shall inure to the benefit of Assignee and
any subsequent holder of the Note, and shall be binding upon Assignor,
and its heirs, legal representatives, successors and assigns, and any
subsequent owner of the Mortgaged Premises.
Notwithstanding any provision herein to the contrary, prior to a
default by Assignor in the payment of any indebtedness secured hereby
or in the performance of any obligation, covenant or agreement of
Assignor contained herein or in the Note or the Mortgage, or in any
of the Leases, Assignee hereby grants to Assignor the license
<PAGE>
-3-
to collect as the same become due and payable, but in any event for
not more than one calendar month in advance, all rents and other
income arising under the Leases and from the Mortgaged Premises, and
to enforce all provisions contained in the Leases. Assignor shall
render such accounts of collections as Assignee may require. The
license herein granted to Assignor shall terminate immediately upon
default in payment of any indebtedness secured hereby or in the
performance of any other obligation, covenant or agreement of Assignor
contained in the Note or the Mortgage, or in this Assignment, or in
any of the Leases; and upon written notice of Assignor's default at
any time hereafter given by Assignee to any lessee, all rentals
thereafter payable and all agreements and covenants thereafter to be
performed by the lessee shall be paid and performed by the lessee
directly to Assignee in the same manner as if the above license had
not been granted, without prosecution of any legal or equitable
remedies under the Mortgage. Any lessee of the Mortgaged Premises or
any part thereof is authorized and directed to pay to Assignor any
rent herein assigned currently for not more than one calendar month in
advance and any payment so made prior to receipt by such lessee of
notice of Assignor's default shall constitute a full acquittance to
lessee therefore.
Concurrently with the execution of any lease covering the
Mortgaged Premises, Assignor will notify the lessee, by U. S.
Certified Mail, of the existence of this Assignment and will deliver
an executed copy of this Assignment to such lessee, directing such
lessee to make all payments under its lease to Assignee or its nominee
in accordance with the terms of this Assignment.
It is understood and agreed that this Assignment shall become
effective concurrently with the Note and the Mortgage.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly
executed and delivered as of the date first hereinabove written.
------------------------------
By
-----------------------------
By
-----------------------------
<PAGE>
AMENDMENT TO LEASE
This Amendment to Lease dated the 31st of July, 1989, by and
between Hunter Industrial Venture, successor in interest to Deramus
Road Associates II, Crown Developers II and 745 Property Investment, a
Missouri Venture General Partnership with offices at 1102 Grand
Avenue, Kansas City, Missouri, (hereinafter referred to as "Landlord")
and Simmons Company, a Delaware Corporation (hereinafter referred to
as "Tenant")
WITNESSETH
WHEREAS, the parties entered into a certain Lease Agreement dated
September 22, 1986, to Lease the Premises commonly known as 1758 North
Topping Avenue, Kansas City, Missouri; and
WHEREAS, the parties now desire to further modify and amend said
Lease in certain respects.
NOW, THEREFORE, in consideration of the mutual covenants
herein granted, the parties hereby agree that said Lease, shall be
further amended in the following respects.
1) To revise the identification of the Tenant from Simmons U.S.A.
Corporation, to Simmons Company wherever said identification appears
in the Lease.
2) Landlord and Tenant hereby agree that effective August 1, 1989,
(or when the "Expansion Space" becomes available), Tenant total square
footage will be expanded from 66,665 square feet (the "Leased Space")
by an additional 18,500 square feet (the "Expansion Space") for a
total of 85,165 square feet as shown on attached Exhibit "A". Tenant's
proportionate share of the building shall increase from 20.365% to a
total of 26.016%.
3) Landlord and Tenant hereby agree that the term for the
"Expansion Space" shall commence August 1, 1989 (or when the
"Expansion Space" becomes available), and terminate May 18, 1992.
4) Landlord and Tenant hereby agree that the Lease Rate for the
"Expansion Space" shall be $3.10 per square foot or $4,779.17 per
month.
5) Landlord and Tenant hereby agree that Landlord at
Landlord's sole cost and expense shall perform the following
improvements.
a) Provide access to the "Expansion Space" by removal of
existing demising wall.
b) Install three (3) building standard dock shelters.
c) Repair "Expansion Space" warehouse floor.
<PAGE>
6) Landlord and Tenant hereby agree that Tenant shall have the
option to renew the "Expansion Space" thru May 18, 1997 upon one
hundred twenty (120) days notice to the Landlord. The Lease Rate for
the "Expansion Space" shall be $3.75 per square foot or $5,781.25 per
month. If Tenant does not exercise said option, Landlord and Tenant
agree that Tenant at Tenant's sole cost and expense shall rebuild the
demising wall that separated said "Expansion Space".
Except as Expressly modified herein, all terms and conditions of
said Lease, will as of the date hereof, remain in full force and
effect, and Landlord and Tenant mutually agree that neither party is,
as of the date hereof, in default with respect to said Lease.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to Lease, the day and year first above written.
Landlord
HUNTER INDUSTRIAL VENTURE
By: /s/
-------------------------
Tenant
SIMMONS COMPANY
By: /s/
-------------------------
<PAGE>
AMENDMENT TO LEASE
------------------
THIS AMENDMENT TO LEASE, dated the 27th day of February 1990, by and
between Hunter Industrial Venture, a Missouri joint venture and
general partnership, (hereinafter referred to as "Landlord") and
Simmons Company, a Delaware Corporation, (hereinafter referred to as
"Tenant").
WITNESSETH:
WHEREAS, the parties entered into a certain Lease Agreement dated
September 22, 1986, to lease the Premises commonly known as 1758 North
Topping Avenue, Kansas City, Missouri, amended said Lease with
Amendment to Lease the 31st of July 1989; and
WHEREAS, the parties now desire to modify and amend said Lease and
Lease Amendment in certain respects.
NOW, therefore, in consideration of the mutual covenants herein
granted, the parties hereby agree that said Lease and Lease Amendment
shall be further amended in the following respects:
1. The introductory paragraph of the said Amendment to Lease dated 31
July 1989, is hereby amended to read, "THIS AMENDMENT TO LEASE dated
31st day of July 1989, by and between Hunter Industrial Venture, a
Missouri joint venture and general partnership, (hereinafter referred
to as "Landlord") and Simmons Company, a Delaware Corporation,
(hereinafter referred to as "Tenant")."
2. The second provision of said Lease Amendment dated 31 July 1989, is
hereby amended to read, "Landlord and Tenant hereby agree that
effective December 1, 1989, Tenant's Total Square Footage will be
expanded from 66,665 square feet (the "Leased Space") by an additional
18,500 square feet (the "Expansion Space") for a total of 85,165
square feet as shown on attached Exhibit "A". Tenant's proportionate
share of the building shall increase from 20.365% to a total of
26.061%."
EXCEPT as expressly modified herein, all terms and conditions of said
Lease, as of the date hereof, remain in full force and effect, and
Landlord and Tenant mutually agree that neither party as of the date
hereof, are in default with respect to said Lease.
IN WITNESS WHEREOF, the parties hereto have executed the Amendment to
Lease, the day and year first above written.
HUNTER INDUSTRIAL VENTURE SIMMONS COMPANY
(LANDLORD) (TENANT)
BY: /s/ BY /s/
------------------------- -----------------------------
ITS: Partner ITS: Vice Chairman
------------------------- -----------------------------
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease, dated this 7th day of May, 1992, by
and between Hunter Industrial Venture, a Missouri Joint Venture
General Partnership, (hereinafter referred to as "Landlord") and
Simmons U.S.A. Corporation Delaware Corporation, (hereinafter referred
to as "Tenant").
WITNESSETH:
Whereas, the parties entered into a certain Lease Agreement dated
September 22, 1986, to lease the premises commonly known as 1758 North
Topping Avenue, Kansas City, Missouri, amended said lease with
Declaration of Commencement dated February 25, 1987, and Amendment to
Lease the 31st of July, 1989 and Amendment to Lease the 27th of
February, 1990 and;
Whereas, the parties now desire to modify and amend said Lease and
Lease Amendments in certain requests;
Now, therefore, in consideration of the mutual covenants herein
granted, the parties hereby agree that said Lease and Lease Amendments
shall be further Amended in the following respects:
1) Paragraph 6 of Amendment to Lease, dated July 31, 1989 is
hereby revised as follows:
A) The Lease term for the 18,500 square foot "Expansion
Space" shall be extended for an additional five (5)
year period commencing May 19, 1992, and terminating
May 18, 1997.
B) The base lease rate for the 18,500 square foot
"Expansion Space" shall be as follows:
May 19, 1992 through December 31, 1992
18,500 square feet @ $3.10/square foot or $4,779.17/
month January 1, 1993 through May 18, 1997
18,500 square feet @ $3.75/square foot or $5,781.25/
month
Except as expressly modified herein, all terms and conditions of said
Lease and Amendments to Lease, as of the date hereof, remain in full
force and effect, and Landlord and Tenant mutually agree that neither
party as of the date hereof, are in default with respect to said Lease
and Amendments to Lease.
In Witness Whereof, the parties hereto have executed the Second
Amendment to Lease, the day and year first above written.
SIMMONS COMPANY
Hunter Industrial Venture (formerly Simmons U.S.A. Corporation)
(Landlord) (Tenant)
By:/s/ By: /s/
------------------------ ---------------------
Its: Partner Its: SR. V-P
----------------------- ---------------------
Exhibit 10.45
DEED OF LEASE
between
SIMMONS ASSOCIATES, L.P.
and
SIMMONS COMPANY
October 7, 1994
<PAGE>
INDEX TO LEASE
Section Page
------- ----
1. LEASED PREMISES . . . . . . . . . . . . . . . . . . 1
2. TERM . . . . . . . . . . . . . . . . . . . . . . . 1
3. RENT . . . . . . . . . . . . . . . . . . . . . . . 2
4. CONSTRUCTION OF IMPROVEMENTS . . . . . . . . . . . 2
5. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . 5
6. USE OF PREMISES . . . . . . . . . . . . . . . . . 6
7. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . 6
8. SUBORDINATION . . . . . . . . . . . . . . . . . . 6
9. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . 6
10. UTILITIES . . . . . . . . . . . . . . . . . . . . 7
11. MAINTENANCE . . . . . . . . . . . . . . . . . . . 7
12. ALTERATIONS, CHANGES, AND IMPROVEMENTS . . . . . . 8
13. COMPLIANCE WITH LAW; RESTRICTIONS . . . . . . . . 9
14. NET LEASE . . . . . . . . . . . . . . . . . . . . 10
15. ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . 10
16. TAXES . . . . . . . . . . . . . . . . . . . . 12
17. FIRE AND CASUALTY DAMAGE . . . . . . . . . . . . . 12
18. CONDEMNATION . . . . . . . . . . . . . . . . . . . 13
19. INDEMNIFICATION BY TENANT . . . . . . . . . . . . 14
20. INSURANCE . . . . . . . . . . . . . . . . . . . . 15
21. WAIVER OF CLAIMS . . . . . . . . . . . . . . . . . 16
i
<PAGE>
22. SIGNS . . . . . . . . . . . . . . . . . . . . . . 16
23. LANDLORD'S RIGHT OF ENTRY . . . . . . . . . . . . 16
24. HOLDING OVER . . . . . . . . . . . . . . . . . . . 17
25. DEFAULT BY TENANT . . . . . . . . . . . . . . . . 17
26. SURRENDER OF LEASE NOT MERGER . . . . . . . . . . 19
27. ATTORNEYS' FEES . . . . . . . . . . . . . . . . . 19
28. NOTICES . . . . . . . . . . . . . . . . . . . . . 19
29. WAIVER . . . . . . . . . . . . . . . . . . . . . . 20
30. REMEDIES CUMULATIVE . . . . . . . . . . . . . . . 20
31. GOVERNING LAW . . . . . . . . . . . . . . . . . . 20
32. STATUS OF LANDLORD . . . . . . . . . . . . . . . . 21
33. EXPANSION OPTION . . . . . . . . . . . . . . . . . 21
34. RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . 21
35. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . 22
EXHIBITS
--------
A. Property Description
A1. Plat of the Property
B. Rent Schedule
C. Building Specifications
D. Building Plans
ii
<PAGE>
DEED OF LEASE
THIS DEED OF LEASE is made as of this 7th day of October, 1994, by
and between SIMMONS ASSOCIATES, L.P., a Virginia limited partnership,
hereinafter referred to as "Landlord", and SIMMONS COMPANY, a Delaware
corporation, hereinafter referred to as "Tenant", without regard to
number or gender.
RECITALS
--------
A. Landlord has entered into a contract or is negotiating to
enter into a contract (the "Contract") to purchase from Raymond C.
Hawkins Construction Co., Inc. (the "Owner") a parcel of real property
containing approximately 9.5 acres (the "Property") located in the
County of Spotsylvania, Virginia. The Property is described on Exhibit A
hereto and is shown on the plat dated October 5, 1994, entitled "Plat
Showing Parcel - 2, 95 Commerce Place, Lee Hill District, Spotsylvania
County, Virginia", a copy of which plat is attached hereto as Exhibit
A1.
B. Upon purchasing the Property from Owner in accordance with
the terms of the Contract, Landlord shall construct on the Property a
warehouse/light manufacturing facility with related office space
containing approximately 128,500 square feet (the "Building") for lease
to Tenant on the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the
covenants herein contained, Landlord and Tenant agree as follows:
1. LEASED PREMISES. Landlord hereby leases to Tenant and Tenant
hereby takes from Landlord the Property and the Building, together with
all improvements therein and thereon belonging or pertaining to said
premises, including all rights, privileges, easements and appurtenances
belonging or pertaining thereto, all of which are hereinafter referred
to as the "Leased Premises".
2. TERM. A. The term of this lease and the Tenant's obligation
to pay Rent hereunder shall commence on the Commencement Date (as
hereinafter defined) unless the Tenant takes possession of the Leased
Premises on an earlier date in which event such earlier date shall be
the Commencement Date. The initial term of this lease shall terminate on
the last day of the 15th consecutive full lease year. The term "lease
year" as used herein shall mean a period of 12 consecutive full calendar
months, provided the first lease year shall begin on the Commencement
Date. The first lease year shall end on the last day of the twelfth full
calendar month following the Commencement Date. Each succeeding lease
year shall commence on the anniversary of the first lease year or, if
the Commencement Date is not the first day of a calendar month, on the
first day of the calendar month immediately following the Commencement
Date.
B. Provided that at the time of the giving of Tenant's renewal
notice and at the end of the then current term of this lease Tenant is
not in default of any of the terms, conditions or covenants contained
herein, then Tenant (or any permitted assignee) is hereby granted an
option to renew this lease for two additional terms of five years each
upon Tenant's notifying Landlord in writing of its election to renew at
least 360 days prior to the expiration of the then current term. During
such renewal term or terms, if
<PAGE>
exercised, this lease shall be on the same terms and conditions
contained herein except the renewal terms shall contain no further
renewal options unless expressly granted by Landlord in writing.
3. RENT. A. Tenant agrees to pay to Landlord, without deduction
or offset, annual rental ("Rent"), as set forth on Exhibit B hereto,
payable in lawful money of the United States of America in equal monthly
installments during the term of this lease. Rent shall be paid in
advance, on or before the first day of each month during the term of
this lease (the "Due Date").
B. The Tenant shall pay all Rent and other charges to be paid by
the Tenant hereunder to the Landlord at its address set forth below, or
to such other individual, firm or corporation and at such other place as
may be designated by the Landlord in writing to Tenant. If the
Commencement Date is not the first day of a calendar month, the Tenant
shall also pay on the first day of the first calendar month following
the Commencement Date a proportionate amount of the Rent for the period
of time from the Commencement Date to the date on which such first
monthly payment is due. Rent and other payments hereunder from Tenant
shall be deemed paid on the date payment is received by Landlord. In the
event Tenant fails to pay monthly Rent within five (5) days after
written notice by Landlord stating that the Rent has not been paid when
due (and, if Tenant has received written notice that Rent has not been
paid when due twice within any twelve-month period during the term of
this lease, Tenant fails to pay monthly Rent within five (5) days after
the Due Date within such twelve month period), Tenant shall promptly pay
to Landlord a service charge of five percent (5%) of the monthly Rent
then due. If any installment of Rent is not paid within ten (10) days
after the Due Date, the monthly Rent, as increased by the 5% service
charge, if applicable, shall bear interest at a rate of four percent
(4%) per annum over the prime rate charged, from time to time, by Signet
----------
Bank/Virginia. This provision shall not be construed to adjust, alter,
or modify the Due Dates specified in this lease, nor shall the payment
of any interest required by this Section be deemed to cure or excuse any
default by Tenant under this lease. Except as otherwise expressly
stated, each payment required to be made by Tenant pursuant to the
provisions of this lease shall be in addition to and not in substitution
for other payments to be made by Tenant.
C. The term "additional rent" as used herein shall mean all sums
payable by Tenant under this lease (other than Rent), and any sums
expended by Landlord to cure any default by Tenant, and shall be deemed
rent for purposes of Landlord's rights and remedies with respect
thereto.
4. CONSTRUCTION OF IMPROVEMENTS. A. Landlord, at its sole cost
and expense (except as otherwise provided herein), shall cause to be
constructed on the Property an office/warehouse/light manufacturing
facility consisting of approximately 128,500 square feet of leasable
area, including approximately 8,500 square feet of office space and up
to 500 square feet of unfinished office storage, all as more
particularly described in the specifications contained in Exhibit "C",
attached hereto and by this reference made a part hereof, and the plans
consisting of [a site plan and topographical plan, building floor plan
and elevations], a copy of which is attached hereto and by this
reference made a part hereof as Exhibit "D" (the "Improvements").
Landlord warrants to
2
<PAGE>
Tenant that the Improvements shall be constructed in a good and
workmanlike manner. Landlord shall during the first lease year correct
any defects or deficiencies noted by Tenant to Landlord to the extent
such defects or deficiencies arise as a result of the initial
construction of the Improvements. To the extent practicable and
permissible, Landlord shall permit Tenant to enjoy the benefit of all
builders' and contractors' warranties and guarantees with respect to the
Improvements. Promptly after the Commencement Date, Landlord shall
provide Tenant with an operating manual for the Leased Premises
containing copies of all builder's and manufacturer's instructions and
warranties with respect to the Improvements and the components thereof.
B. The provisions of this Section 4 are subject to the following:
(i) The specifications and the rental figures set forth in
Exhibit B do not include an allowance for rock excavation or for
unsuitable soil removal and replacement. In the event rock or
unsuitable soil is discovered on the Property, an equitable adjustment
will be made to increase the base rent for the added cost of construction
resulting therefrom up to an increased cost of $50,000; provided that
Landlord shall provide Tenant with documentation of such conditions and
costs reasonably acceptable to Tenant.
(ii) The specifications include a $60,000 allowance for
landscaping, including planting and irrigation. If the actual cost
of landscaping is less than $60,000, there will be an equitable
reduction in the Rent, and if the actual cost of landscaping is more
than $60,000, Tenant shall reimburse Landlord for such excess cost
on or before the Commencement Date, upon receipt of documentation
of such costs reasonably acceptable to Tenant.
(iii) The specifications include a $10,000 allowance for a
sign. If the actual cost of the sign is less than $10,000, there will
be an equitable reduction in the Rent, and if the actual cost of the
sign is more than $10,000, Tenant shall reimburse Landlord for such
excess cost on or before the Commencement Date, upon receipt of
documentation of such costs reasonably acceptable to Tenant.
(iv) Upon presentation to Landlord of evidence of payment by
Tenant, Landlord shall reimburse Tenant for up to $10,000 of
architectural and engineering fees incurred by Tenant prior to the
date hereof with respect to development of the Leased Premises.
C. Landlord and Tenant may from time to time prior to completion
of construction agree in writing to certain modifications and/or changes
in the plans and specifications for the Improvements as set forth on
Exhibits "C" and "D". Agreement to and approval of any such modifications
and the costs thereof shall be in writing, or by signing or initialling
of the proposed changes by both parties through their authorized
representatives. All such modifications and/or changes requested by
Tenant shall be made by Landlord and the net cost thereof, taking into
account any savings realized by Landlord, shall be paid to Landlord by
Tenant, on or before the Commencement Date. The costs of such increases
shall include, in addition to the payment of actual costs thereof to
Landlord, an overhead charge of 5% of the sum of such actual costs.
Landlord shall provide Tenant
3
<PAGE>
with invoices and other documentation reasonably required by Tenant
evidencing the cost of all such modifications and/or changes. The plans
and specifications set forth in Exhibits C and D, as they may be
modified in accordance with the terms of this lease, are hereinafter
referred to as the "Plans and Specifications".
D. All of the work to be performed by Landlord (and any finish
work that Tenant shall undertake to complete) shall be done in a good
and workmanlike manner, and shall be in compliance with all governmental
rules, orders, licenses, zoning and building requirements applicable
thereto, including, without limitation, all laws and regulations with
respect to hazardous or toxic substances. Upon final completion of
construction of the Improvements, Landlord shall obtain and deliver to
Tenant a final certificate of occupancy evidencing the right of Tenant
to use the Leased Premises for Tenant's Purposes (as that term is
hereinafter defined).
E. Tenant shall, at its sole cost and expense, furnish and
install all trade fixtures, furnishings, and other tangible personal
property of the Tenant in the Leased Premises. Landlord agrees to give
Tenant access to the Leased Premises (as hereinafter set forth) prior to
the Commencement Date to enter the Leased Premises to inspect the same
and install therein fixtures, supplies, machinery and equipment and
other property of Tenant provided that any such entry and the making of
any such improvements and any such installation shall be done without
hindering in any way Landlord's construction of the Improvements. From
and after the date of entry by Tenant into the Improvements for the
purpose of installing Tenant's personal property and trade fixtures,
Tenant shall be responsible for and shall pay all electricity costs and
other utility costs attributable to Tenant's work in connection with the
installation of trade fixtures and Tenant's use of the Leased Premises.
Tenant agrees to hold Landlord harmless from any mechanic's and
materialmen's liens arising out of any work at the Leased Premises by or
on behalf of Tenant; to do all such work in a good and workmanlike
manner and comply with all governmental laws, rules, regulations and
requirements. Tenant, prior to commencing work in the Leased Premises,
shall deliver to Landlord the evidence of insurance required by the
terms of this lease. In addition, Tenant agrees to hold Landlord and its
contractors harmless from any and all injury, loss or damage or claims
of injury, loss or damage, of whatever nature, to any person or property
caused by or resulting from any work by Tenant or its agents or
employees at the Leased Premises or the entry upon and the use of the
Improvements by Tenant before the Commencement Date which may not, at
the time, be covered by insurance.
F. For purposes of this lease, the Commencement Date shall be
the earlier to occur of (i) the date Tenant accepts delivery of the
Leased Premises or (ii) the date of the delivery by Landlord to Tenant
of a final or temporary certificate of occupancy issued by the
appropriate governmental authorities and permitting Tenant to take
possession of the Leased Premises for Tenant's Purposes. If Tenant has
occupied the Leased Premises under a temporary certificate of occupancy
and has received notice from the appropriate governmental authorities
that revocation of such temporary certificate of occupancy is imminent
due to non-completion of punchlist items, Tenant shall promptly notify
Landlord of such risk and, if Landlord is unable to respond within the
time frame available or requests that Tenant respond, Tenant may
complete or cause to be completed such punchlist items in accordance
with the Plans and Specifications in a good and
4
<PAGE>
workmanlike manner and in compliance with all laws, ordinances or
regulations of any governmental or administrative agency having
jurisdiction over the Leased Premises. Landlord shall promptly reimburse
Tenant for the cost of such punchlist items after receipt from Tenant of
an invoice therefor with reasonable supporting documentation. Landlord
agrees to use its best efforts to cause the Commencement Date to occur
on or before April 1, 1995. Landlord shall provide at least thirty (30)
days notice to the Tenant of the anticipated date of issuance of the
certificate of occupancy. Tenant shall, in any event, commence to pay
Rent not later than the date Tenant commences doing business at the
Leased Premises.
G. Subject to the provisions of Subsection 4.F above, if Tenant
is unable to occupy the Leased Premises on April 1, 1995, because of any
cause or reason beyond the direct control of Landlord, such delay shall
not constitute a default on the part of Landlord, nor shall such delay
entitle Tenant to terminate or cancel this lease, and Landlord shall not
be liable for any damages Tenant may incur as a result of its inability
to occupy the Leased Premises on April 1, 1995. Either Landlord or
Tenant may terminate this lease by written notice to the other at any
time after November 1, 1994, if Landlord has not purchased the Property
from Owner and construction of the Leased Premises has not commenced by
the time such notice is given; and Tenant may terminate this lease by
written notice to Landlord at any time after October 1, 1995, if the
Commencement Date has not occurred by the time such notice is given.
5. SECURITY DEPOSIT. Prior to the end of the 14th lease year (or
if one or both of the renewal options have been exercised, then prior to
the end of the last lease year of any exercised renewal term), Tenant
shall deposit with Landlord the sum of $50,000 as security for the
faithful performance and observance by Tenant of the terms, provisions,
and conditions of this lease. It is agreed that in the event Tenant
defaults in respect of any of the terms, provisions, and conditions of
this lease, including, but not limited to, the payment of Rent and
additional rent, Landlord shall have the right, but not the obligation,
to use, apply, or retain the whole or any part of the security so
deposited to the extent required for the payment of any Rent and
additional rent or any other sum as to which Tenant is in default or for
any sum which Landlord may expend or may be required to expend by reason
of Tenant's default in respect of any of the terms, covenants, and
conditions of this lease. No such application shall be construed as an
agreement to limit the amount of Landlord's claim or as a waiver of any
damage or release of any indebtedness, and any claim of Landlord under
this lease not recovered in full from the security deposit shall remain
in full force and effect. At any time or times when Landlord has made
any such application of all or any part of the security deposit,
Landlord shall have the right, but not the obligation, at any time
thereafter to request that Tenant pay to Landlord an amount such that
Landlord shall always be in possession of a sum equal to the amount of
the security deposit set forth above. Tenant further agrees that
Landlord may deliver the funds deposited pursuant hereto by Tenant to
any purchaser of Landlord's interest in the Leased Premises, and
thereafter, Landlord shall be discharged from any further liability with
respect to such deposit. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants, and
conditions of this lease, the security deposit shall be returned to
Tenant after the termination date of this lease and after delivery of
possession of the entire Leased Premises to Landlord under the terms,
conditions and covenants of this lease.
5
<PAGE>
6. USE OF PREMISES. The Leased Premises shall be used and
occupied only for the purpose of the manufacture, storage and
distribution of mattresses and other uses customarily related or
incidental thereto and for no other purpose or purposes ("Tenant's
Purposes"), without Landlord's prior written consent, which consent
shall not be unreasonably withheld, delayed or conditioned. Tenant
shall, at its own risk and expense, obtain and keep in force all
governmental licenses and permits necessary for such use. Tenant
covenants that it will comply with all laws with respect to the use and
occupation of the Leased Premises, and it will not do, or suffer to be
done, in or about the Leased Premises any act or thing that may cause
waste, constitute a nuisance or be in violation of any of the Covenants
(as defined in Subsection 13.B).
7. QUIET ENJOYMENT. Subject to the provisions of the Recitals to
this lease, Landlord represents that it has full right and power to
execute this lease and to grant the estate demised herein and that
Tenant, upon payment of the rents herein reserved, and performance of
all of the terms, conditions, and covenants herein contained, shall
have, hold, and enjoy the Leased Premises during the full term of this
lease, and any extension hereof, subject and subordinate to all of the
terms, covenants and conditions of this lease, free from the claims of
any person claiming by, through or under Landlord.
8. SUBORDINATION. This lease, and the rights of Tenant hereunder,
shall be subject and subordinate to all mortgages or deeds of trust
which may now or hereafter affect this lease, the Leased Premises or the
Improvements, provided any such mortgagee agrees in writing that so long
as Tenant is not then in default under the terms of this lease, then in
the event of a foreclosure under any such mortgage or deed of trust
affecting the Leased Premises, such mortgagee will not disturb the
rights of Tenant under the terms of this lease and, this lease shall
continue in full force and effect and Tenant shall attorn to the new
landlord hereunder. Tenant hereby agrees, upon the request of Landlord,
to execute and deliver, in recordable form, any instrument of
subordination or confirmation of subordination reasonably required by
Landlord or any mortgagee of the Leased Premises to effect the above
provisions, provided Tenant is provided with an agreement of
nondisturbance as hereinabove set forth. Tenant agrees, if requested by
Landlord, to amend this lease to conform to any reasonable amendments
requested by any mortgagee of Landlord's interest in the Leased
Premises; provided that any such amendments do not increase the rents or
otherwise materially adversely affect Tenant's rights under this lease.
9. ESTOPPEL CERTIFICATES. Tenant agrees at any time and from
time to time within 15 days after notice from Landlord to execute,
acknowledge and deliver to Landlord a statement, in writing, and in form
and substance reasonably acceptable to Landlord, certifying that this
lease is unmodified and in full force and effect (or if there have been
modifications that the lease is in full force and effect as modified and
stating the modifications), the dates to which the Rent and other
charges have been paid in advance, if any, and whether or not, to
Tenant's knowledge, there exists any default in the performance of any
term, condition or covenant of this lease and, if so, specifying each
such default, it being intended that any such statement delivered
pursuant to this Section may be relied upon by Landlord and by any
mortgagees, prospective purchasers or prospective mortgagees of the
Leased Premises. The failure of Tenant to provide such estoppel
certificates or other letters, as may be required, within 15 days after
notice by
6
<PAGE>
Landlord shall constitute an event of default by Tenant and shall
entitle Landlord to pursue any of the remedies for default set forth in
this lease.
10. UTILITIES. Tenant shall pay the cost of all utility services,
including, but not limited to, all charges for water, sewer, gas, heat,
power, telephone service and all other services on the Leased Premises
and shall make payments when due directly to the utility or service
company providing such service. Landlord shall not be required to pay
for any services, supplies or upkeep in connection with utilities or
other services to the Leased Premises.
11. MAINTENANCE. A. Landlord, at its expense, shall perform all
necessary repairs, maintenance and replacements of all structural
elements of the Building, including structural walls and foundations and
the structure and materials of the roof, except for those repairs or
replacements which arise directly out of the gross negligence or willful
misconduct of Tenant; provided, however, that Landlord shall have no
obligation or liability for such repairs or replacements until receipt
of notice by Tenant specifying the repairs required. All such repairs or
replacements shall be performed in a good and workmanlike manner and in
compliance with the laws and other requirements of all federal, state
and municipal governments, including the appropriate boards, commissions
and underwriting agencies or other bodies now or hereafter exercising
similar rights and powers. If Landlord shall fail to make such repairs
within a reasonable time after notice from Tenant that such repairs are
necessary, then Tenant shall have the right (but not the obligation) to
make such repairs or replacements as may be necessary under the
circumstances. Such repairs shall be charged to and paid by Landlord
within thirty (30) days after receipt from Tenant of an invoice therefor
with reasonable supporting documentation.
B. Except as expressly provided herein, Landlord shall have no
obligation to maintain, replace, or repair the Leased Premises, the
Improvements or any equipment or fixtures located therein. Tenant shall
inspect the Leased Premises and the Improvements prior to taking
possession thereof. Upon taking possession and subject to the provisions
of Subsection 4.A, Tenant shall be deemed to have accepted the Leased
Premises except for punchlist items which Tenant notifies Landlord of
within 30 days of taking possession of the Leased Premises.
C. Tenant shall, at its own risk and expense keep and maintain
all non-structural parts of the Leased Premises, including but not
limited to the exterior, all window frames, glass, doors and door jambs
(both inside and out), parking areas, landscaping and loading docks, in
good order, condition and repair. Tenant shall also, at its own expense,
keep and maintain in good order all electrical outlets and wiring,
lighting fixtures (including replacement of light bulbs and fluorescent
lamps), plumbing fixtures, sprinkler systems, and all mechanical
equipment, including equipment installed by the Landlord, located in or
on the Leased Premises. All such repairs or replacements shall be
performed in a good and workmanlike manner and in compliance with the
laws and other requirements of all federal, state and municipal
governments, including the appropriate boards, commissions and
underwriting agencies or other bodies now or hereafter exercising
similar rights and powers. If Tenant shall fail to make such repairs
within a reasonable time after such repairs become necessary or, if, in
Landlord's judgment, such repairs are not completed in a good and
workmanlike manner, then Landlord shall have the
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right (but not the obligation) to enter the Leased Premises and make
such repairs or replacements as may be necessary under the
circumstances. Such repairs shall be charged to and paid by Tenant as
additional rent and shall be paid to Landlord within thirty (30) days
after a bill or bills for such charges is presented to Tenant.
D. At the termination of this lease, Tenant shall deliver up
the Leased Premises broom clean, free of contamination by hazardous or
toxic substances, including petroleum or petroleum products, resulting
from any act or omission of Tenant, its agents, employees or independent
contractors, and in the same good and sanitary order and condition as
existed at the beginning date of this lease, normal wear and tear and
damage by condemnation or casualty not required to be repaired excepted.
E. Tenant shall not store, use or permit the storage or use
of any hazardous or toxic substance at or on the Leased Premises in
violation of any applicable law or regulation. Any storage of any
merchandise, crates, pallets or materials of any kind outside the Leased
Premises shall be done or permitted only in compliance with the
Covenants and any applicable laws or regulations. Tenant shall not burn
or otherwise treat or dispose of trash or other substances on or around
the Leased Premises. All trash shall be kept in metal containers to be
provided and maintained by Tenant. Tenant shall bear the cost of the
removal of trash from the Leased Premises.
F. Tenant shall at all times during the term of this lease
provide and maintain adequate security as to the Leased Premises and
maintain heat in the Leased Premises sufficient to keep the Leased
Premises at a minimum temperature of 35 DEG. Fahrenheit, unless
otherwise agreed between the parties hereto.
12. ALTERATIONS, CHANGES, AND IMPROVEMENTS. A. Tenant shall not make
or permit any alterations, additions or improvements to the Leased
Premises ("Alterations") without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld, delayed or
conditioned. Consent for minor non-structural Alterations shall not be
required, provided (i) such Alterations do not adversely affect the rate
or coverage of any insurance carried with respect to the Leased Premises
and (ii) the cost of each such alteration does not exceed $5,000 and the
aggregate of such exempted alterations does not exceed $50,000. Tenant
shall deliver to Landlord, upon completion of any Alterations, "as-
built" plans showing all changes in the Leased Premises. Any subsequent
changes to the Leased Premises, approved by Landlord, shall also require
as-built plans. The cost of making such Alterations and preparing said
plans shall be borne by Tenant. All such work shall be done in a good
and workmanlike manner and in such a manner as to not inconvenience
other occupants of 95 Commerce Place. All such work shall comply with
all laws, ordinances or regulations of any governmental or
administrative agency having jurisdiction over the Leased Premises,
including any appropriate boards, commissions and underwriting agencies
now or hereafter exercising similar rights and powers.
B. Tenant shall have the right at all times to install
Tenant's shelves, bins, equipment, machinery, and trade fixtures,
hereinafter collectively called "Tenant's Trade Fixtures", provided
Tenant complies with all applicable governmental laws, ordinances and
regulations and further provided that such installations by Tenant do
not
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overload the floor or otherwise damage or deface the Leased Premises.
Tenant shall not place upon the floor or suspend from the ceiling of the
Leased Premises any heavy equipment that would exceed the load per
square foot that the floor or ceiling is designed to carry or which may
otherwise be allowed by law.
C. Provided Tenant is not in default of any of the terms,
conditions or covenants of this lease, Tenant shall have the right, at
any time during the term of this lease, to remove any of Tenant's
previously installed Trade Fixtures, provided further that Tenant shall
immediately repair any damage caused by such removal and Tenant shall
leave the Leased Premises in a broom clean and in the same good and
sanitary order and condition as existed at the beginning date of this
lease. All alterations, additions and improvements made by Tenant (other
than installation of Tenant's Trade Fixtures) may, at Landlord's
discretion, become the property of Landlord upon the termination of this
lease or Landlord may require Tenant to remove such alterations,
additions, and improvements and any other property placed in or on the
Leased Premises by Tenant and restore the Leased Premises to the same
condition as existed at the beginning of this lease; provided, however,
upon the request of Tenant, made at the time approval for any such
alterations, additions or improvements is requested, Landlord shall
elect at the time of such consent whether or not such alterations,
additions or improvements are to be so removed by Tenant at the
termination of this lease.
D. Tenant shall, at all times, keep the Leased Premises and
all improvements in the Leased Premises free from any liens arising out
of any work performed, material furnished or obligations incurred by
Tenant. If a notice of a lien shall be filed against the Leased
Premises, and such lien is for, or purports to be for labor, or material
alleged to have been furnished to or delivered at the Leased Premises to
or for Tenant, or anyone claiming under Tenant, then Tenant shall cause
such lien to be discharged or bonded off within ten (10) days after
notice from Landlord. If Tenant shall fail to discharge or bond off any
such lien, then Landlord shall have the right (but not the obligation)
to pay or discharge any such lien or claim of lien. If Landlord elects
to pay or discharge any such lien or claim of lien, then Tenant shall
pay to Landlord all of Landlord's expenses incurred, including
reasonable attorneys' fees, together with interest on the funds so
advanced at the highest rate permissible by law, which payment shall be
deemed additional rent, payable on demand.
13. COMPLIANCE WITH LAW; RESTRICTIONS. A. Tenant shall comply with
all governmental laws, ordinances and regulations applicable to the use
of the Leased Premises, whether material or incidental to such use,
including but not limited to the correction, prevention and abatement of
nuisances in, upon, or connected with the Leased Premises, and
including, but not limited to, the Americans With Disabilities Act, 42
U.S.C Sec. 12101, et seq. Tenant shall promptly comply with all changes
in such governmental laws, ordinances, regulations, orders and
directives. Tenant shall bear the full cost and risk of all such
compliance, including the cost of any alterations, additions or
improvements required by such governmental laws, ordinances,
regulations, orders and directives, whether structural or
nonstructural in nature; provided, however, in the event of any such
change not caused by Tenant's particular use of the Leased Premises
and which is in the nature of a capital improvement, Landlord shall
reimburse Tenant for the cost of such capital improvement less an
amount equal to such cost multiplied by a
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fraction, the numerator of which is the number of days remaining on the
term of this lease as of the execution of the contract for such work,
and the denominator of which is 5475 during the initial term of the
lease and 1825 during either of the renewal options. Tenant shall obtain
Landlord's prior written approval pursuant to Subsection 12.A of the
plans and specifications for any alterations, changes or improvements
that are required by such governmental laws, ordinances, regulations,
orders and directives, which approval shall not be unreasonably
withheld, delayed or conditioned. Tenant shall not commit, or suffer to
be committed, any waste or nuisance upon the Leased Premises.
B. Tenant acknowledges that the Leased Premises are
subject to the restrictive covenants imposed by instrument dated
January 30, 1990, of record in Deed Book 807, page 504 in the Clerk's
Office of the Circuit Court of the County of Spotsylvania, Virginia,
as the same may be amended from time to time (the "Covenants"), and
hereby agrees to conduct its operations on and occupy the Leased
Premises in accordance with and to otherwise comply with the Covenants.
14. NET LEASE. Except as otherwise expressly provided in this lease,
this lease is a "net lease" which the parties intend to yield "net" to
Landlord the rental provided for in Section 3 hereof, and, except as
otherwise expressly provided herein, any present or future law to the
contrary notwithstanding, Tenant shall not be entitled to any abatement,
reduction, set-off, counterclaim, defense or deduction, with respect to
any Rent, additional rent or other sum payable hereunder, nor shall the
obligations of Tenant hereunder be affected by reason of: (i) any damage
to or destruction of the Leased Premises; any taking of the Leased
Premises or any part thereof by condemnation or otherwise; (ii) any
prohibition, limitation, restriction or prevention of Tenant's use,
occupancy or enjoyment of the Leased Premises, or any interference with
such use, occupancy or enjoyment by any person; (iii) the impossibility
or illegality of performance by Landlord, Tenant or both; or (iv) any
action of any governmental authority.
15. ASSIGNMENT AND SUBLEASING. A. Tenant may not assign this lease
or any interest herein or sublet the whole or any part of the Leased
Premises, or permit the same to be occupied by anyone other than Tenant,
without in each instance having first obtained Landlord's prior written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned; provided, however, Tenant may sublet up to an aggregate of
25,000 square feet of the Leased Premises without Landlord's consent. In
the event of any such sublease or assignment, (i) Tenant shall
nevertheless remain the principal obligor to the Landlord under all the
terms, conditions, covenants and obligations of this lease, (ii) the
acceptance of an assignment or subletting of the Leased Premises by any
assignee or subtenant shall be construed as a promise on the part of
such assignee or subtenant to be bound by and to perform all of the
terms, conditions and covenants by which Tenant herein is bound and
(iii) Tenant shall pay to Landlord 50% of all rent and additional rent
received by Tenant pursuant to any assignment or sublease (or advance
cash payments for the leasehold in lieu of rent or increases in rent),
net of any expenses paid by Tenant for the collection of such rents and
additional rents, in excess of the then current Rent and additional rent
set forth in this lease. No such assignment or subletting shall be
construed to constitute a novation or a release of any claim Landlord
may then or thereafter have against Tenant hereunder. Landlord's consent
to any assignment or subletting shall not be deemed a consent to any
subsequent assignment or subletting and
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any assignee of this lease or "subtenant" of the Leased Premises shall
not further assign this lease or further sublease the Leased Premises
without first obtaining the express written consent of Landlord. Tenant
shall furnish Landlord with a fully executed counterpart of any such
assignment or sublease at the time such instrument is executed.
B. (i) The terms "assign" and "assignment", as used in
this Section 15, shall, without limitation, be deemed to include
any sale, transfer, exchange, merger, consolidation,
reorganization or any other or transaction, by operation of law or
otherwise, as a result of which the holders of a majority of the
voting stock of Tenant as of the date of execution of this lease
(collectively "Existing Control Group") cease to own a majority of
such voting stock of Tenant (or of any Affiliate, as hereinafter
defined, of Tenant to which Tenant shall have assigned this lease),
except:
a. any sale or transfer of the voting stock of Tenant
or any Affiliate of Tenant in the course of or subsequent to a
public sale or offering of such stock after which Tenant or
such Affiliate of Tenant is publicly traded in the
"over-the-counter market" (as opposed to private sales) or is
listed on a recognized stock exchange, and
b. any sale or transfer of the voting stock of Tenant
or any Affiliate of Tenant to a corporation, the voting stock
of which is publicly traded in the "over-the-counter market"
(as opposed to private sales) or is listed on a recognized
stock exchange.
(ii) Notwithstanding any provisions herein to the contrary,
Tenant shall have the right to assign this lease to any Affiliate
of Tenant without the consent of Landlord. For purposes of this
lease, the term Affiliate with respect to any person shall be
defined as any corporation, partnership or other entity controlled
by the Existing Control Group or by such person. The Existing
Control Group or such person shall be deemed to control any such
entity if the members of the Existing Control Group or such person
and the officers and directors of such person as of the date of
execution of this lease shall own a majority of the voting stock
or voting interest of such entity.
C. As a condition precedent to any assignment or sublease
pursuant to this Section 15, Tenant hereby irrevocably assigns to
Landlord, as additional security for Tenant's obligations under this
lease, all Rent and additional rent from any subletting or assignment of
all or part of the Leased Premises, and Landlord, as assignee, may
collect such Rent and additional rent and apply it toward Tenant's
obligations under this lease, except that, until the occurrence of an
"event of default" (as hereinafter defined), Tenant shall have the right
to collect such Rent and additional rent.
D. If Tenant requests Landlord to consent to a proposed
assignment or sublease, Tenant shall pay to landlord, whether or not
such consent shall be ultimately granted, Landlord's reasonable
attorneys' fees incurred in connection with such request; provided there
shall be no such charge for the first such request.
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16. TAXES. A. Tenant agrees to pay before they become delinquent all
real estate taxes and special assessments that may be lawfully levied or
assessed against the Leased Premises.
B. Tenant shall pay before delinquency any and all taxes,
assessments, license fees and public charges levied, assessed or imposed
and which become payable during the lease term upon Tenant's fixtures,
furniture, appliances and personal property installed or located in or
on the Leased Premises. Tenant shall also pay all franchise taxes,
business taxes or other similar taxes that may be levied or imposed upon
the Leased Premises or the business carried on therein and also all
other taxes and rates which are or may be payable by Tenant.
C. If Landlord shall receive any statement or notice relative
to any tax or assessment, in whole or part payable by Tenant, Landlord
shall promptly after receipt thereof deliver a copy of the same to
Tenant. Tenant shall have the privilege, before delinquency occurs, of
contesting, objecting to or opposing the legality or validity of any
such taxes, assessments, impositions or charges, in Landlord's name if
necessary, provided that prompt notice of such contest, objection or
opposition shall be given to Landlord by Tenant at least twenty (20)
days before any delinquency and provided further that such contest,
objection or opposition shall not be carried on or maintained after the
aforesaid time limit for the payment by Tenant of the obligation, unless
Tenant shall have duly paid the amount involved under protest or shall
procure and maintain a stay of all proceedings to enforce any collection
thereof, together with all penalties, interest, costs and expenses, by a
deposit of a sufficient sum of money or by a good and sufficient
undertaking as may be required or permitted by law to accomplish such a
stay, unless Tenant shall furnish Landlord with a bond of a surety
company qualified to do business within the Commonwealth of Virginia,
satisfactory to Landlord, which in form, content and amount of penalty,
shall likewise be reasonably satisfactory to Landlord. In the event of
any such contest, objection or opposition, Tenant promises and agrees,
after the final determination thereof adversely to Tenant, to fully pay
and discharge the amounts involved in or affected by such contest,
objection or opposition, together with any penalties, fines, interest,
costs, and expenses that may have accrued thereon or that may result
from any such action by Tenant.
D. Should any governmental taxing authority levy, assess or
impose a tax and/or assessment (other than a net income tax) upon or
against the rentals payable by Tenant to Landlord and/or against the
gross receipts received by Landlord from Tenant, either by way of
substitution for or in addition to any existing tax on land or buildings
or otherwise, Tenant shall be responsible for and pay such tax or
assessment, or shall reimburse the Landlord for the amount thereof, as
the case may be, as additional rent, within thirty (30) days of receipt
of a bill therefor from Landlord.
17. FIRE AND CASUALTY DAMAGE. In the event the Leased Premises are
damaged or destroyed by fire or other cause, Tenant shall give immediate
notice thereof to Landlord. The rights and obligations of Landlord and
Tenant in the event of such casualty shall be as follows:
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A. In the event the Leased Premises, in the reasonable
judgment of Landlord, are so damaged by fire or other cause that
rebuilding or repairs cannot reasonably be completed within 180 days
after the date of written notification by Tenant to Landlord of the
happening of the damage, this lease shall, at Landlord's or Tenant's
option, terminate and the Rent shall be abated for the unexpired
portion of the lease, effective as of the date of such damage.
Landlord or Tenant shall notify the other party within 30 days of the
occurrence of any such casualty of its decision to terminate this
lease.
B. If the Leased Premises are damaged by fire or other cause
such that, in the reasonable judgment of Landlord, rebuilding or repairs
can be reasonably completed within 180 days from the date of written
notification by Tenant to Landlord of the happening of the damage, this
lease shall not terminate, and Landlord shall within sixty (60) days
after insurance proceeds have been made available for such purpose,
commence restoration of the Leased Premises and prosecute the same
diligently to completion. All insurance proceeds arising from such
damage or destruction, including the amount of any deductible which
shall be paid to Landlord by Tenant, shall be made available to Landlord
for that purpose subject, however, to the provisions of Subsection 17.E.
Landlord's obligations under this Section 17 to repair or restore the
Leased Premises shall in all events be limited to the extent of the
insurance proceeds made available to Landlord for such purposes and to
that portion of the Leased Premises, such as the footings, foundations,
exterior walls, roof, and the interior improvements originally installed
by Landlord at Landlord's expense for Tenant's benefit, but not
including any construction, alterations or improvements installed by
Tenant (with Landlord's written consent at Tenant's expense or by
Landlord at Tenant's expense). Tenant shall, upon notice from Landlord,
promptly repair or replace all additions, alterations or improvements to
the Leased Premises originally installed by Tenant at Tenant's expense.
C. Except to the extent specifically provided for in this
lease, neither the Rent nor any additional rent payable by Tenant, nor
any of Tenant's other obligations under any provisions of this lease,
shall be affected by any damage or destruction of the Leased Premises
by any cause whatsoever, and Tenant hereby specifically waives any and
all additional rights it might otherwise have under any law or statute.
D. If there should be a substantial interference with Tenant's
use of the Leased Premises as a result of such damage or destruction,
such that Tenant cannot conduct its business in the Leased Premises,
then the Rent shall abate for such time as Tenant is unable to use the
Leased Premises, but only to the extent of the proceeds applicable to
the Leased Premises and received by Landlord under a rent insurance
policy.
E. Notwithstanding any other provision of this lease, the
rights of Tenant and Landlord to the use of insurance proceeds shall
in all events be subject to the provisions of any mortgages or deeds
of trust encumbering the Leased Premises and the rights of any
mortgagee thereunder with respect to such insurance proceeds.
18. CONDEMNATION. A. In the event that the whole of the Leased
Premises shall be condemned or taken in any manner for any public or
quasi-public use, this lease and the term and estate hereby granted
shall forthwith cease and terminate as of the date
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of vesting of title in the condemnor. For purposes of this Section, a
partial taking which results in Tenant being unable to operate its
business, even after reconstruction as provided below, shall be deemed a
taking of the whole of the Leased Premises. In the event that only a
part of the Leased Premises shall be so condemned or taken, then,
effective as of the date of such vesting of title, the Rent hereunder
for such part shall be equitably abated and this lease shall continue as
to such part not so taken. In the event that only a part of the building
shall be so condemned or taken, then (1) if substantial structural
alteration or reconstruction of the building shall, in the opinion of
Landlord, be necessary or appropriate as a result of such condemnation
or taking (whether or not the Leased Premises be affected), Landlord
may, at its option, terminate this lease and the term and estate hereby
granted as of the date of such vesting of title by notifying Tenant in
writing of such termination within thirty (30) days following the date
on which Landlord shall have received notice of vesting of title, or (2)
if Landlord does not elect to terminate this lease as aforesaid, this
lease shall be and remain unaffected by such condemnation or taking,
except that the Rent shall be abated to the extent, if any, as
hereinbefore provided. In the event that only a part of the Leased
Premises shall be so condemned or taken and this lease and the term and
estate hereby granted are not terminated as hereinbefore provided,
Landlord will, to the extent it receives cash proceeds from such
condemnation proceeding, restore with reasonable diligence the remaining
structural portions of the Leased Premises, as near as practicable, to
the same condition as existed immediately prior to such condemnation or
taking.
B. In the event of termination in any of the cases
hereinabove provided, this lease and the term and estate hereby
granted shall expire as of the date of such termination with the same
effect as if that was the date hereinbefore set for the expiration of
the term of this lease, and the rents hereunder shall be apportioned
as of such date.
C. In the event of any condemnation or taking hereinabove
mentioned of all or part of the Leased Premises, Landlord shall be
entitled to receive the entire award in the condemnation proceeding,
including any award made for the value of the estate vested by this
lease in Tenant, and Tenant hereby expressly assigns to Landlord any and
all right, title, and interest of Tenant now or hereafter arising in or
to any part thereof, and Tenant shall be entitled to receive no part of
such award; provided, however, Tenant shall have the right, at its sole
cost and expense, to assert a separate claim in any condemnation
proceeding for its personal property, trade fixtures and moving
expenses.
19. INDEMNIFICATION BY TENANT. Unless caused by the gross negligence
or willful misconduct of Landlord, Tenant shall indemnify and save
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including
without limitation, reasonable attorneys' fees and expenses) imposed
upon or incurred by or asserted against Landlord by reason of (a) any
occurrence, injury to or death of persons (including workmen) or loss of
or damage to property occurring during the term of this lease on or
about the Leased Premises or any part thereof, (b) any use, non-use or
condition of the Leased Premises or any part thereof, (c) any failure on
the part of Tenant to perform or comply with any of the terms of this
lease, (d) performance of any labor or services or the furnishing of any
materials or other property in respect of the Leased Premises or any
part thereof or (e) any release or threat of a release of a hazardous or
toxic substance or a pollutant or contaminant, including
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petroleum and petroleum products, on or from the Leased Premises
resulting from Tenant's use and occupancy of the Leased Premises. In
case any action, suit or proceeding is brought against Landlord by
reason of any such occurrence, Tenant, upon Landlord's request, shall at
Tenant's expense resist and defend such action, suit or proceeding, or
cause the same to be resisted and defended by counsel (designated by
Tenant but reasonably acceptable to Landlord). The obligations of Tenant
under this Section arising by reason of any such occurrence having taken
place during the term of this lease shall survive any expiration or
termination of this lease; provided, Tenant shall have no liability
under this Section unless (a) Landlord shall give notice to Tenant of
any such occurrence within 18 months of the expiration or termination of
this lease or (b) Tenant has failed to disclose to Landlord or any
engineering firm conducting an environmental site assessment of the
Leased Premises facts known to Tenant with respect to any such
occurrence. At any time during such 18 month period Landlord may elect
to have an environmental site assessment made of the Leased Premises at
Tenant's expense.
20. INSURANCE. A. Tenant covenants and agrees that it will, at all
times during the term of this lease keep in full force and effect a
policy of comprehensive public liability insurance issued by a reputable
insurance company licensed to do business in the Commonwealth of
Virginia with respect to the Leased Premises and the business conducted
by Tenant thereon, in which the limits of liability shall not be less
than ONE MILLION DOLLARS ($1,000,000.00) for death or bodily injury and
in which the property damage liability shall not be less than ONE
MILLION DOLLARS ($1,000,000.00). These policies shall name, as
additional insureds, Landlord and any other entity having an insurable
interest or liability in or relating to the Leased Premises (including
any mortgagee of Landlord), provided Landlord notifies Tenant of such
other entity. All insurance policies described or required by this
Section shall provide that the insurance thereunder shall not be
cancelable prior to thirty (30) days written notice thereof to Landlord.
Certificates of such insurance, in form and substance reasonably
satisfactory to Landlord, shall be delivered to Landlord prior to
Tenant's taking possession of the Leased Premises and any renewals of
said policies shall be delivered to Landlord at least fifteen (15) days
prior to the expiration of the policies. Any such policies shall be
primary and noncontributing with insurance carried by Landlord.
B. Tenant also covenants and agrees, at its cost, to maintain
on all its personal property, tenant improvements or alterations
(including any improvements to the Leased Premises installed by Tenant
or on Tenant's behalf), a policy of standard fire and extended coverage
insurance, to the extent of at least 80% of the full replacement value.
C. Tenant further covenants and agrees, at its cost, to
maintain business interruption insurance sufficient to provide not
less than one year's coverage of all Rent and additional rent payable
hereunder, in the event that the Leased Premises are rendered
untenantable in whole or in part by an insurable risk.
D. Tenant covenants and agrees that it will, at all times
during the term of this lease, obtain and keep in force for the
benefit of Tenant, Landlord and any other person (including the holder
of any mortgage or deed of trust) having an insurable interest and
designated by Landlord, insurance on the Improvements and all fixtures
and equipment located on or in the Leased Premises in an amount equal
to the full cost replacement value
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thereof (excluding footings and foundations), with replacement cost
endorsement. Such policy shall contain coverage against loss, damage or
destruction by fire and such other hazards as are commonly covered and
protected against under policies of insurance known as extended coverage
insurance as the same may exist from time to time according to the laws
of the Commonwealth of Virginia and may contain a deductible clause not
to exceed $100,000; provided, however, in the event of a casualty,
Tenant shall pay to Landlord, for
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[TEXT CONTINUED ON PAGE 16]
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the purposes set forth in Section 17, the cost of repairing such damage
up to the amount of the deductible.
E. Any insurance required by this Section 20 may be
supplied by means of a blanket or umbrella insurance policy so long as
the protection provided by such blanket or umbrella policy against each
risk specified in this Section 20 cannot be reduced by claims for other
risks not arising from the Leased Premises to amounts less than those
specified herein, and so long as the other provisions of this
Section 20 are complied with.
F. Landlord and Tenant shall have included in their
respective insurance policies waivers of their respective insurers'
right of subrogation against the other party or anyone claiming through
or under them that any such insurer of one party may acquire against
the other by virtue of payment of any loss under the insurance
covering the Leased Premises, the Improvements, or the contents thereof,
required by this lease to be carried by such party. If such a waiver
should be unobtainable or unenforceable, then such policies of
insurance shall expressly state and agree that such policies shall not
be invalidated if the assured, before the casualty, waives the right of
recovery against any party responsible for a casualty covered by the
policy. Upon request of Landlord, Tenant shall provide written
evidence acceptable to Landlord that its insurer or insurers have
waived their rights of subrogation as hereinabove provided.
21. WAIVER OF CLAIMS. Tenant, as a material part of the
consideration to be rendered to Landlord, hereby waives all claims
against Landlord for damages to goods, wares, inventory, equipment and
merchandise, in, upon, or about the Leased Premises, including, without
limitation, any damage or injury caused by the discharge, whether
accidental or otherwise, of the sprinkler system installed in the Leased
Premises, and, except for injuries caused by Landlord's gross negligence
or willful misconduct, for injury to Tenant, its agents or third persons
in or about the Leased Premises from any cause arising at any time.
22. SIGNS. No signs (other than as shown in the Plans and
Specifications) shall be erected, placed or painted on the exterior
walls of the building without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, delayed or
conditioned. In the event Landlord gives its approval for any such
additional signs, Tenant shall remove all such signs at the termination
of this lease at its sole risk and expense and shall in a good and
workmanlike manner promptly repair any damage and close any holes caused
by removal of such signs.
23. LANDLORD'S RIGHT OF ENTRY. Landlord and its authorized agents or
designees shall have the right to enter the Leased Premises upon prior
notice to Tenant and during business hours for the following purposes:
(a) inspecting the general condition and state of repair of the Leased
Premises; (b) the making of repairs required by Landlord; (c) showing of
the premises to any prospective purchaser; (d) the showing of the
premises for lease if the Tenant shall have not renewed or extended this
lease within the time herein provided; or (e) the showing of the
building for any other legal or reasonable purpose. If Tenant shall not
have renewed or extended this lease under the terms set forth herein
prior to the final 360 day period of the lease term, Landlord and its
authorized agents shall have the right to erect on or about the Leased
Premises or on the building of which the Leased
16
<PAGE>
Premises are a part a sign advertising the property for lease or for
sale, provided the size and location of such sign shall be subject to
Tenant's approval, which approval shall not be unreasonably withheld,
delayed or conditioned. The foregoing notwithstanding, Landlord and its
agents and designees, shall also have the right to enter the Leased
Premises at any time there is an emergency in the Leased Premises or in
the building of which the Leased Premises are a part. Tenant shall,
prior to taking possession of the Leased Premises, deliver a complete
set of keys to the Leased Premises to the Landlord for such emergency
use. Tenant covenants that if it shall thereafter change or add
additional locks on the doors to the Leased Premises it will immediately
provide new keys to the Landlord. Landlord covenants that such keys
shall be kept subject to reasonable security precautions and, except in
the case of an emergency, will be used only in accordance with the above
stated requirements to notify Tenant.
24. HOLDING OVER. If Tenant, or any of its successors in interest,
shall remain in possession of the Leased Premises, or any part thereof,
after the expiration of the term of this lease, such holding over shall
constitute and be construed as a tenancy from month to month only, at a
monthly rental of 125% for the first two months of such holding over
period and 150% thereafter of the monthly Rent applicable during the
last month of the term of the lease or the last prior renewal thereof.
Tenant shall also pay any additional rent attributable to Tenant's
occupation of the Leased Premises and, if such holding over continues
for more than six months, any damages, if any, incurred by Landlord as a
result of such holding over. Tenant shall also be subject to all of the
conditions, provisions and obligations of this lease insofar as the same
are applicable to a month-to-month tenancy. Nothing contained herein
shall constitute permission granted or inferred for Tenant to remain in
possession beyond the exact termination date of this lease, as extended
by any renewals or options unless specifically granted by Landlord in
writing.
25. DEFAULT BY TENANT. The following events shall be deemed to be
"events of default" by Tenant under this lease:
A. Tenant's failure to pay any installment of the Rent or
additional rent on the date the same is due if such failure shall
continue for a period of ten (10) calendar days after notice thereof to
Tenant; provided, if such a notice is required to be given twice during
any 12 month period during the original or any extended or renewal term
of this lease, any subsequent failure to pay Rent or additional rent
hereunder shall be an "event of default" without any notice; or Tenant's
failure to comply with any term, provision or covenant of Section 20 if
such failure shall continue for a period of ten (10) calendar days after
notice thereof to Tenant.
B. Tenant's failure to comply with any term, provision or
covenant of this lease not described in Subsection 25.A, if such failure
shall continue for more than thirty (30) days after notice thereof to
Tenant, or if such failure cannot reasonably be cured within the said
thirty (30) days and Tenant shall not have commenced to cure such
failure within such thirty (30) day period or shall not thereafter with
reasonable diligence and good faith proceed to cure such failure.
C. Tenant shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of
creditors.
17
<PAGE>
D. Tenant shall file a petition under any section or chapter
of the Bankruptcy Code, as amended, or under any similar law or statute
of the United States or any state thereof; or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant thereunder.
E. A Receiver or Trustee shall be appointed for all or
substantially all of the assets of Tenant and such Receiver or Trustee
shall within a reasonable time fail to (i) affirm this lease, (ii)
provide adequate assurances as to its ability to perform all of the
terms and conditions of this lease as a Receiver or Trustee for Tenant,
and (iii) cure all defaults.
F. Tenant shall do or permit to be done anything which
creates a lien upon the Leased Premises in violation of the notice and
other provisions of Subsection 12.D.
Upon the occurrence of any of such events of default, Landlord
shall have the right at Landlord's election to pursue, in addition to
and cumulative of any other rights Landlord may have, at law or in
equity, any one or more of the following remedies without any notice
or demand whatsoever:
(1) Terminate this lease, in which event Tenant shall
immediately surrender the Leased Premises to Landlord, and if Tenant
fails to do so, Landlord, may, without prejudice to any other remedy
that it may have for possession or arrearages in Rent or additional
rent, enter upon and take possession of the Leased Premises and expel
or remove Tenant and any other person who may be occupying the Leased
Premises or any part thereof, in accordance with applicable law; and
Tenant agrees to pay to Landlord on demand the amount of all loss and
damage that Landlord may suffer by reason of such termination, whether
through inability to relet the Leased Premises on satisfactory terms or
otherwise. The foregoing notwithstanding, Landlord shall make a good
faith effort to relet the Leased Premises at the then applicable
market rate for similar property.
(2) Enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person who may be
occupying the Leased Premises or any part thereof in accordance with
applicable law; and relet the Leased Premises and receive the Rent
therefor; and Tenant agrees to pay to Landlord on demand any
deficiency that may arise by reason of such reletting.
(3) Enter upon the Leased Premises in accordance with
applicable law, and do whatever Tenant is obligated to do under the
terms of this lease or correct any damage caused by the breach of any
covenant of Tenant contained herein, and Tenant agrees to reimburse
Landlord on demand for any expenses that Landlord may incur in thus
effecting compliance with Tenant's obligations under this lease and
Tenant further agrees that Landlord shall not be liable for any
damages resulting to the Tenant from such action, whether caused by
the negligence of Landlord or otherwise.
(4) Require all rental payments by "subtenants"
(including within that term any third parties occupying various
portions of the Leased Premises under the terms of sublease agreements
with Tenant as sublandlord) that would otherwise be paid to
18
<PAGE>
Tenant to be paid directly to Landlord and apply such rentals so paid to
or collected by Landlord against any rents or other charges due to
Landlord by Tenant hereunder. No direct collection by Landlord from any
such "subtenants" shall release Tenant from the further performance of
Tenant's obligations hereunder.
Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies
provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any Rent due to Landlord hereunder
or of any damages accruing to Landlord by reason of the violation of any
of the terms, provisions, and covenants herein contained. In determining
the amount of loss or damage that Landlord may suffer by reason of
termination of this lease or the deficiency arising by reason of the
reletting by Landlord, as above provided, allowance shall be made for
the expense of repossession and any repairs or remodeling undertaken by
Landlord following repossession, and for any leasing commissions
incurred by Landlord.
In case of re-entry, repossession or termination of this lease,
whether or not the same is the result of the institution of summary or
other proceedings, Tenant shall remain liable (in addition to other
accrued liabilities), to the extent legally permissible, for the Rent,
additional rent and all other charges provided for herein until the date
this lease would have expired had such termination, re-entry or
repossession not occurred.
26. SURRENDER OF LEASE NOT MERGER. The voluntary or other surrender
of this lease by Tenant, or a mutual cancellation thereof, shall not
work a merger and shall, at the option of Landlord, terminate all or any
existing subleases, and/or subtenancies, or may, at the option of
Landlord, act as an assignment to it of any or all such subleases or
subtenancies.
27. ATTORNEYS' FEES. In the event that Landlord should bring suit
for the possession of the Leased Premises, for the recovery of any sum
due under or because of the breach of any covenant of this lease, or for
any other relief against Tenant, declaratory or otherwise, or should
Tenant bring any action for any relief against Landlord, declaratory or
otherwise, arising out of this lease, the party prevailing in any such
suit, shall be entitled to receive from the other party all reasonable
attorneys' fees of the prevailing party, which fees shall be payable
whether or not such action is prosecuted to judgment.
28. NOTICES. Any notice, request or demand required or permitted to
be given pursuant to this lease shall be in writing and shall be deemed
sufficiently given if delivered by messenger at the address of the
intended recipient or sent prepaid by Federal Express (or a comparable
guaranteed overnight delivery service), with delivery in either such
case evidenced by a receipt, or deposited in the United States first
class mail (registered or certified, postage prepaid, with return
receipt requested), addressed to the intended recipient, as follows (or
at such other address as the intended recipient may have specified by
written notice to the sender given in accordance with the requirements
of this Section):
19
<PAGE>
IF TO TENANT: Simmons Company
One Concourse Parkway, Suite 600
Atlanta, GA 30328
Attention: Roger W. Franklin
with a copy to: Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street
Atlanta, GA 30306
Attention: Lizanne Thomas, Esq.
IF TO LANDLORD: Simmons Associates, L.P.
c/o The Lingerfelt Companies
12 South Third Street
Richmond, VA 23219
Attention: Alan T. Lingerfelt
with a copy to: McGuire, Woods, Battle & Boothe
One James Center
901 East Cary Street
Richmond, VA 23219
Attention: William F. Gieg, Esq.
Any such notice, request or demand so given shall be deemed given on the
day it is received, if delivered by messenger or delivery service, or
two days after its postmark date, if sent by registered or certified
mail.
29. WAIVER. The waiver by Landlord of any breach of any term,
covenant, or condition herein contained shall not be deemed to be a
waiver of such term, covenant or condition for any subsequent breach of
the same or any other term, covenant, or condition herein contained. The
subsequent acceptance of Rent hereunder by Landlord shall not be deemed
to be a waiver of any preceding breach by Tenant of any term, covenant,
or condition of this lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such Rent.
30. REMEDIES CUMULATIVE. All the rights and remedies herein given to
the Landlord for the recovery of the Leased Premises because of the
default by the Tenant in the payment of any sums that may be payable
pursuant to the terms of this lease, or upon the breach of any of the
terms hereof, or the right to re-enter and take possession of the Leased
Premises upon the happening of any of the defaults or breaches of any
such covenants, or the right to maintain any action for Rent or damages
and all other rights and remedies allowed at law or in equity, are
hereby reserved and conferred upon the Landlord as distinct, separate
and cumulative remedies, and no one of them, whether exercised by the
Landlord, shall be deemed to be in exclusion of any of the others.
31. GOVERNING LAW. This lease shall be construed and governed by the
applicable laws of the Commonwealth of Virginia.
20
<PAGE>
32. STATUS OF LANDLORD. A. Anything in this lease to the contrary
notwithstanding, Tenant agrees that Tenant shall look solely to the
estate and interest of Landlord in the Leased Premises for the
collection of any judgment (or other judicial process) requiring the
payment of money by Landlord in the event of a default or breach by
Landlord with respect to any of the terms, conditions and covenants of
this lease to be performed by Landlord; subject, however, to the prior
rights of any mortgagee to all or any part of the Leased Premises.
Tenant acknowledges and agrees that no other assets of Landlord, its
directors, officers, employees, agents or affiliates shall be subject to
levy, execution or other judicial process for the satisfaction of
Tenant's claim.
B. Landlord shall have the absolute and unfettered right to sell
or transfer all or part of its interest in the Leased Premises and
Tenant acknowledges and agrees that upon such sale or transfer the
term "Landlord" shall mean only the new owner or transferee and the
transferor shall be automatically relieved of and discharged of all
further liability with respect to the performance of any of the terms,
conditions and covenants of this lease, and Tenant agrees to thereafter
look only to such purchaser or transferee of Landlord's interest in the
Leased Premises for the performance of Landlord's obligations hereunder.
33. EXPANSION OPTION. A. At such time as Tenant shall decide that it
wishes Landlord to expand the Leased Premises in a manner and of a size,
not to exceed 30,000 square feet, then permitted by all appropriate
jurisdictions (the "Expansion"), Tenant shall give notice thereof to
Landlord which notice shall include plans and specifications for the
Expansion sufficient to enable Landlord to evaluate the cost of the
Expansion. Landlord shall, within 90 days after receipt of such notice,
obtain bids for the Expansion from three general contractors with a good
reputation for projects of the size and complexity of the Expansion and
thereafter notify Tenant of its estimate of the additional annual rent
for the Expansion (the "Expansion Rent") and the anticipated delivery
date of the Expansion.
B. In the event permanent financing is not available at the
time or Tenant is not willing to authorize Landlord to proceed with the
Expansion based on Landlord's estimate of the Expansion Rent, Tenant
shall, within ten days after receipt of Landlord's notice of the
Expansion Rent notify Landlord of Tenant's decision (i) to terminate the
Expansion, (ii) to finance the Expansion itself based on terms and
conditions mutually satisfactory to Landlord and Tenant or (iii) to
reimburse Landlord in cash for the Expansion on terms and conditions
mutually satisfactory to Landlord and Tenant.
C. In the event the Expansion is authorized, (i) the provisions
of Subsections 4A and 4C through 4E, to the extent not clearly
inconsistent herewith, shall apply to the Expansion in the same manner
as to the original Improvements, and (ii) the term of this lease for
the entire Leased Premises including the Expansion shall be extended
so that the remaining term after Tenant begins paying the Expansion
Rent shall be not less than ten years and this lease shall be amended
to reflect the extended term and the other terms and conditions agreed
upon by Landlord and Tenant. Landlord shall not be obligated to
commence construction of the Expansion until such lease amendment has
been executed.
34. RIGHT OF FIRST REFUSAL. In the event Landlord receives a bona
fide offer from a third party, during the term of this lease, to sell
all or any part of the Leased
21
<PAGE>
Premises (other than under a "sale-leaseback" or other similar financing
transaction, or in accordance with a transaction or series of
transactions under which one or both of Alan T. Lingerfelt or L. Harold
Lingerfelt, or the spouse or any lineal descendant of either (including
any trust for the benefit of any such person) directly or indirectly
retains an interest in the profits and losses of the Leased Premises,
including, without limitation, the formation of a public or private real
estate investment trust), and Landlord shall desire to accept such
offer, Landlord shall give a notice the "First Refusal Notice") to
Tenant of the terms of such offer. The First Refusal Notice shall
constitute an offer by Landlord to sell its interest in the Leased
Premises on the terms and conditions set forth in such notice. Tenant,
if it desires to accept such offer shall, within 10 days after the
giving of the First Refusal Notice, give Landlord written notice to such
effect (the "Refusal Acceptance Notice"). If Tenant shall fail to give
the Refusal Acceptance Notice within the time period provided, Tenant
shall be deemed to have consented to the proposed sale and Landlord may
sell its interest in the Leased Premises at any time within 18 months of
the expiration of the time period for the giving of the Refusal
Acceptance Notice at any sale price equal to or greater than 90% of the
sale price stated in the First Refusal Notice. Upon the occurrence of
such sale, or upon the failure of Tenant to close upon such purchase
within the time specified for such closing, Tenant's right of first
refusal, as set forth in this Section 34 shall be terminated. In the
event that Tenant shall give the Refusal Acceptance Notice, then, on
such business day as Tenant shall set forth in the Refusal Acceptance
Notice, but in any event within thirty (30) days of the service of the
Refusal Acceptance Notice, Tenant shall purchase the Leased Premises for
the price stated in the First Refusal Notice and upon the other terms
and conditions of the First Refusal Notice. The closing of the sale
shall be held at the offices of Landlord's attorney in Richmond,
Virginia, or such other place as the parties may mutually agree, on the
date provided above. At the closing of any sale under this Section 34,
Landlord shall deliver to Tenant Landlord's deed in the form and subject
to the exceptions stated in the First Refusal Notice.
35. MISCELLANEOUS PROVISIONS.
A. Titles, Etc. The marginal headings or titles to the Sections
------------
of this lease are not a part of this lease and shall have no effect upon
the construction or interpretation of any part of this lease. Whenever
the singular number is used in this lease and when required by the
context, the same shall include the plural, and the masculine gender
shall include the feminine and neuter genders, and the word "person"
shall include corporation, firm, or association. If there be more than
one Tenant, the obligations imposed under this lease upon Tenant shall
be joint and several.
B. Entire Aqreement. This instrument contains all of the
----------------
agreements and conditions made between the parties to this lease and
may not be modified orally or in any other manner than by an agreement
in writing signed by all the parties to this lease, or their respective
successors in interest.
C. Force Majeure. Whenever a day is appointed herein on which,
-------------
or a period of time is designated within which, either party is required
to do or complete any act, matter or thing, the time for the doing or
completion thereof shall be extended by a period of time equal to the
number of days on or during which such party is prevented from, or is
materially interfered with in the course of, the doing or completion of
such act,
22
<PAGE>
matter or thing because of strikes, lock-outs, embargoes, unavailability
of labor or materials, wars, insurrections, rebellions, declaration of
national emergencies, acts of God, or other causes beyond such party's
reasonable control (financial inability excluded); provided, however,
nothing contained in this Subsection shall excuse either party from the
prompt payment of any amount payable by such party hereunder except as
may be expressly provided elsewhere in this lease.
D. Successors. The terms and provisions of this lease shall be
----------
binding upon and inure to the benefit of the heirs, executors,
administrators, successors, and assigns of Landlord and Tenant.
E. Severability. If any provision of this lease shall at any time be
------------
deemed to be invalid or illegal by the entry of a final judgment from a
court of competent jurisdiction, which judgment is not subject to
appeal, then, in that event, this lease shall continue in full force and
effect with respect to the remaining provisions of this lease as if the
invalidated provision had not been contained herein.
F. Memorandum of Lease. At the request of either party, a short
-------------------
form memorandum of this lease suitable for recordation, but in no way
varying the provisions of this lease, shall be entered into by Landlord
and Tenant containing a description of the Leased Premises, the term of
the lease and any renewal options, the existence of the right of first
offer, and such other terms as the parties may agree. The cost of
preparing and recording such a memorandum shall be at the expense of the
requesting party. Upon the expiration or earlier termination of this
lease, Tenant agrees to deliver to Landlord a lease termination
agreement, in recordable form, containing such terms and conditions as
may be reasonably required by Landlord to better evidence the
termination of this lease.
G. Brokers. Landlord and Tenant each warrants to the other party
-------
that it has had no dealings with any real estate broker or agent in
connection with the negotiation of this lease other than Kenneth Scruggs
("Agent") and that it knows of no other real estate broker or agent who
is or might be entitled to a commission in connection with this lease.
The parties recognize that Landlord shall be solely responsible for the
payment of brokerage commissions to Agent and that Tenant shall have no
responsibility therefor.
23
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this
lease as of the day and year above written by their duly authorized
officers,
LANDLORD: SIMMONS ASSOCIATES, L.P.
--------
By: /s/ Alan T. Lingerfelt
------------------------
Alan T. Lingerfelt
Title: General Partner
TENANT: SIMMONS COMPANY
------
By: /s/ Roger W. Franklin
------------------------
Title: Vice President-Finance, Treasurer
----------------------------------
24
<PAGE>
EXHIBIT A
to Deed of Lease dated October 7, 1994 between Simmons
Associates, L.P. and Simmons Company
Property Description
ALL that certain lot, piece or parcel of land, with all improvements
thereon and appurtenances thereunto belonging, lying and being in Lee
Hill District, Spotsylvania County, Virginia, containing 9.5 +/= acres,
as more particularly shown on plat of survey dated October 5, 1994,
prepared by Sullivan Donahoe and Ingalls, entitled "Plat Parcel - 2, 95
Commerce Place, Lee Hill District, Spotsylvania County, Virginia," a
copy of which is attached hereto as Exhibit A-1.
BEING a portion of the same property conveyed to RCH Land Sales, Inc., a
Virginia corporation, by deed from 17 South Limited Partnership, a
Virginia limited partnership, dated October 18, 1988 and recorded
October 19, 1988 in Deed Book 817, page 358, Clerk's Office, Circuit
Court, Spotsylvania County, Virginia.
i
<PAGE>
EXHIBIT A1
to Deed of Lease dated October 7, 1994 between Simmons
Associates, L.P. and Simmons Company
Plat of the Property
Plat dated October 5, 1994, prepared by Sullivan Donahoe and Ingalls,
entitled "Plat, Parcel - 2, 95 Commerce Place, Lee Hill District,
Spotsylvania County, Virginia."
ii
<PAGE>
EXHIBIT B
to Deed of Lease dated October 7, 1994 between Simmons
Associates, L.P. and Simmons Company
RENT SCHEDULE
LEASE RENT PER ANNUAL MONTHLY
YEAR SQUARE FOOT RENT RENT
1 3.42 $439,470.00* $36,622.50
2 3.52 452,654.10 37,721.18
3 3.63 466,233.72 38,852.81
4 3.74 480,220.73 40,018.39
5 3.85 494,627.36 41,218.95
6 3.96 509,466.18 42,455.52
7 4.08 524,750.16 43,729.18
8 4.21 540,492.67 45,041.06
9 4.33 556,707.45 46,392.29
10 4.46 573,408.67 47,784.06
11 4.60 590,610.93 49,217.58
12 4.73 608,329.26 50,694.11
13 4.88 626,579.14 52,214.93
14 5.02 645,376.51 53,781.38
15 5.17 664,737.81 55,394.82
16 5.33 684,679.94 57,056.66
17 5.49 705,220.34 58,768.36
18 5.65 726,376.95 60,531.41
19 5.82 748,168.26 62,347.36
20 6.00 770,613.31 64,217.78
*If the Commencement Date is not the first day of a calendar month, this
amount does not include the proportionate amount of Rent for the period
of time from the Commencement Date to the date on which the first
monthly payment of Rent is due.
i
<PAGE>
2nd Renewal Term: (Lease Years 21 - 25) The Rent for lease year 21
will be the greater of (a) 1.03 times the Rent for lease year 20 or
(b) the fair market rental value of the Leased Premises as of the end
of the 20th lease year. The Rent for each of lease years 22 through 25
will be an amount equal to 1.03 times the Rent for the prior lease
year. Fair market rental value shall be determined by an appraisal to
be made not earlier than 60 days prior to the expiration of the 20th
lease year. The appraisal shall be prepared by an independent MAI
appraiser mutually agreeable to Landlord and Tenant and knowledgeable
with respect to commercial real estate located in the Fredericksburg,
Virginia metropolitan area. The cost of the appraisal shall be borne
equally by Landlord and Tenant.
ii
<PAGE>
EXHIBIT C to Deed of Lease
dated October 7, 1994
between SIMMONS ASSOCIATES, L.P.
and SIMMONS COMPANY
Building Specifications
DESIGN STATEMENT
----------------
It is the intent to provide the design for an attractive, functional
and economical manufacturing facility situated to take advantage of
the natural amenities of the approximately 9 +/- acre site which is
located in 95 Commerce Place, Spotsylvania County, Virginia. The
building area is 129,000 square feet including a 9,000 square foot
---------
office attached to the manufacturing plant.
Facility shall have twelve shipping and three receiving docks, a dock
for compactor and one drive-in door. Truck and auto traffic will be
separated. Parking for one hundred thirty cars and fifteen trailers
(not including the dock positions) will be provided.
The building will be constructed with concrete floor slab and steel
structural framing. The exterior wall will consist of precast,
prestressed concrete wall panels full height, color coated, with
tinted insulated glass windows at the office. The clear height to
structure inside will be 24'-0". Loading docks will be protected
from inclement weather by a canopy overhang.
Further technical data associated with the design and construction
concept is detailed within the Outline Technical Specification.
OUTLINE TECHNICAL SPECIFICATION
-------------------------------
DIVISION 2 - SITEWORK
---------------------
A. The minimum clearing acreage will be designated in the area for
the proposed buildings, driveways, parking areas, loading and
unloading areas. Clearing of vegetation shall include all trees,
undergrowth, stumps and roots. Any wooded areas not earmarked for
removal or disturbance must be surrounded by web fencing to
designate a tree protection zone during the construction phase of
this project.
Temporary drainage shall be provided prior to stripping of
topsoil. Erosion and sediment control measures required will be
provided and maintained.
B. Earthwork: All areas to receive fill shall be proof rolled and
approved by the Geotechnical Engineer prior to commencing filling
operations.
SIMMONS -1- Rev. Sept. 21. 1994
<PAGE>
Fill materials shall be those approved by the Geotechnical
Engineer, spread in 8" layers (loose measured) and compacted. Fill
for building pad shall extend 5'-0" beyond building line and shall
be compacted to 95% of Standard Proctor. Fill for paved areas shall
be compacted to 95% of Standard Proctor.
All fill areas are to be "sealed" at the end of each day's work by
rolling with a smooth drum roller in orthogonal directions.
Positive surface drainage shall be maintained at all stages.
C. Finish Grading: 12 inches of topsoil shall be applied to
areas to be landscaped. Site stripped topsoil stockpiled on
site shall be used wherever possible. Topsoil shall be free
of subsoil, debris and stones larger than 2 inches in
diameter.
Drainage, Structures, Pipe and Fittings: Pipes to be reinforced
concrete to ASTM C-76 Class III or IV, PVC to ASTM D-3034 Schedule
40 bell spigot joints with mastic seal.
All manholes, inlets, miscellaneous drainage structures and bedding
shall conform to VDOT Standards.
D. Water System: All work and materials shall comply with
local codes as well as the pertinent requirements of the
AWWA.
E. Sanitary Sewerage System: All work and materials shall
comply with local codes as well as the pertinent
requirements of the VDOT "Roads and Bridge Specification and
Standard Details", latest editions.
F. Propane Gas Distribution System: All work and materials shall be in
accordance with manufacturer's and local gas company
recommendations and regulations.
G. Asphaltic Concrete Paving: All work and materials shall
comply with the pertinent requirements of the local codes as
well as the requirements of VDOT, AASHTO and AI.
Estimated heavy duty paving for truck and loading areas shall
comprise:
Aggregate base: 8 inches VDOT Type 21B aggregate
base course.
Base: 3 inches bituminous concrete binder
course.
-2-
<PAGE>
Surface: 2 inches bituminous concrete surface
course.
Estimated Standard Duty Paving for auto (only) lanes and parking
areas, shall comprise:
Base: 6 inches VDOT Type 21B aggregate
base course.
Surface: 2 inches bituminous concrete
surface course.
Paving for turn lane on Lansdowne Road shall comprise:
Aggregate base: 6 inches VDOT Type 21B aggregate
base course.
Base: 6 inches bituminous concrete binder
course.
Surface: 2 inches bituminous concrete surface
course.
H. Concrete Paving: 8" concrete pavement on 6 inches VDOT Type
21B aggregate base course, 50 feet wide, shall be provided
at the face of the fifteen truck shipping and receiving
docks.
I. Concrete Curbs and Walks: All concrete shall have a minimum
28-day compressive strength of 4000 psi and shall be air
entrained, 5% +/- 1%.
All curbing shall comply with the applicable sections of the VDOT.
Curbs shall be scored at 6'-0" o.c. maximum with expansion joints
at 30'-0" o.c. maximum. Aggregate base course material shall extend
to 6 inches behind the curbs.
Sidewalks shall be finished smooth and left with a broomed finish.
All edges shall be struck with an edging tool. Walks shall be
scored at 6'-0" o.c. maximum with expansion joints at 18'-0" o.c.
maximum.
Handicap accessible walks or ramps, meeting ADA requirements for
size, slope and surface texture, shall be provided.
J. Lawns and Grass: Grassed areas to be seeded and mulched.
K. Landscape Allowance: $60,000.00.
-3-
<PAGE>
L. Sign Allowance: $10,000.00.
DIVISION 3 - CONCRETE
---------------------
A. Floor slabs shall be minimum six (6) inch slab-on-grade with
doweled joints in the plant area, four (4) inch at office,
4" 21A stone base with 6 mil poly slip sheet. Floor
tolerance in plant is Ff35, FL20. Floor slab concrete
shall have a minimum 28-day compressive strength of 4000
psi. All other concrete shall have a minimum 28-day compressive
strength of 3000 psi. All concrete exposed to freeze/thaw cycle
shall be air entrained, 5% +/- 1%. Plant floors shall receive two
coat application of Ashford Formula.
B. Foundation shall be conventional spread footings supported on the
natural subgrade or on controlled, compacted fill.
C. Wall System: The plant exterior wall system will include
insulated precast, prestressed concrete wall panels to full
height.
The exterior face of all the wall panels will receive a textured,
color coating system for appearance and weather resistance; interior
face shall receive a light broom finish and two coats latex paint,
(two colors).
DIVISION 4 - MASONRY - NOT USED
--------------------
DIVISION 5 - STEEL
------------------
A. Framing shall consist of open web steel joists on open web
steel trusses carried by steel pipe columns. All structural
steel shapes, plates and rods shall conform to the
requirements of the American Institute of Steel
Construction.
B. The office roof framing shall be open web steel joists carried on
hot-rolled steel beams and columns.
C. Structural Frame Design Criteria: (Uniform Statewide
Building Code, BOCA, 1990).
Roof loads: Minimum live load 20 psf (do not use
tributary area reduction), ground snow
load, 20 psf Use actual dead loads.
- 4 -
<PAGE>
Allowance for piping - 5 psf (includes 3 psf for
sprinkler system).
Wind load: Design wind 70 mph, Exposure B for main
frame, Exposure C for components.
Seismic: In accordance with BOCA 1993.
D. Clearance heights (structural); 24'-0" minimum in the plant.
E. Miscellaneous metal will include steel stairs, ladder, pipe
bollards and edge angles at dock levelors.
F. Structural framing will be shop coated, light grey; field
paint fasteners and touch-up. Columns shall receive field
finish paint to match interior walls.
DIVISION 6 - CARPENTRY
----------------------
A. Rough Carpentry: Will include all nailers, grounds, furring and
hardware for attaching. Wood shall be pressure treated against
termites and decay.
B. Finish Carpentry: Will include cabinets and shelves and
interior wood trim. Wood cabinets and countertops will have
a plastic laminate cover. All plastic laminate colors and
textures will be selected from samples.
DIVISION 7 - ROOFING
--------------------
A. Plant roof shall be 24 gage galvalume standing seam metal
with UL-90 uplift rating; 20 year material and weather-
tightness warranties; 6", R-19 white reinforced vinyl faced
fiberglass blanket insulation with extruded polystyrene
thermal blocks.
B. Smoke vents, APC FM32 shrink out acrylic double dome 4'x8',
thirty-eight (38) provided.
C. Office roof, single ply EPDM mechanically fastened; with R-
19 polyisocyanurate rigid insulation.
DIVISION 8 - DOORS & WINDOWS
----------------------------
A. Exterior window wall shall be tinted, double glazed,
aluminum thermally broken frame, allow 1,300 sq. ft.
- 5 -
<PAGE>
B. Loading dock doors (15 loading dock plus one trash, 16
total) shall be chain operated 8'x10' high, insulated,
vertical lift steel sectional doors with vision panels.
C. On-grade vehicle access door with vision panel, 10' x 12'
high, chain operated, insulated steel sectional door.
D. Office interior doors shall have hollow metal frame; solid
core, stain grade birch door panel. Plant area doors shall
be flush hollow metal in hollow metal frames, insulated
where temperature change requires, fire rated where building
code requires.
DIVISION 9 - FINISHES
---------------------
A. The office area shall be carpeted (allow $12.00 per square
yard), rubber wall base; 5/8" fiberglas 2x4 lay-in suspended
ceiling, 1/2" gypsum wallboard partitions; painted. Ceiling
height will be 9'-0".
B. Toilet areas and locker rooms shall receive ceramic tile
flooring and ceramic tile wainscot 4 feet above the floor (6
feet at stalls).
C. Vinyl composition tile (12"x12") will be provided in
janitor's closets, employee break area and storage
rooms.
D. Main entrance area walls will have a vinyl wall covering.
E. Two 10' x 10' and one 8' x 8' plant offices (with HVAC) will
be provided.
F. One 15' x 20' ventilated compressor room will be provided.
DIVISION 10 - SPECIALTIES
-------------------------
A. Toilet compartments: Compartments will be painted metal,
floor mounted, overhead braced.
B. Fire Fighting Devices: Extinguishers and cabinets.
C. Toilet and Bath Accessories: Will include frameless
mirrors, tank type soap dispensers, paper towel dispensers
and receptacles, roll type toilet tissue dispenser, sanitary
napkin dispensers coin operated, sanitary napkin receptacles.
D. Provide Bilco metal roof hatch.
- 6 -
<PAGE>
E. Provide interior/exterior identification signage at toilets and
exit/entrances.
F. Provide permanent project identity sign, included in
landscape allowance.
DIVISION 11 - EQUIPMENT
-----------------------
A. Fifteen loading docks shall be equipped with dock seals;
seven equipped with 30,000 lb. capacity mechanical dock
levelers (pit type) with bumpers.
DIVISION 12 - FURNISHINGS - NOT USED
-------------------------
DIVISION 13 - SPECIAL CONSTRUCTION
---------------------------------
A. Pre-engineered metal building system with standing seam
metal roofing shall be as manufactured by Varco-Pruden
Building Systems, Memphis, TN.
DIVISION 14 - CONVEYING SYSTEMS - NOT USED
-------------------------------
DIVISION 15 - MECHANICAL
------------------------
A. General: The office area shall be provided with year-round
-------
conditioning system. The system will be designed in accordance with
BOCA with basic design criteria taken from the latest edition of
the ASHRAE Guide. Plant shall be heated and ventilated.
B. Design Criteria:
---------------
Office - Summer: 78 degrees F.
Winter: 70 degrees F.
Plane - Winter: 65 degrees F.
Outdoor Design Temperature - Summer: 95 degrees FDB/78 FWB
Winter: 14 degrees F. (Office)
0 degrees F. (Plant)
- 7 -
<PAGE>
C. Basic Systems: Heating, ventilating and air conditioning
-------------
for the office will be provided by packaged rooftop units
with direct expansion coils, manual O.A. dampers, and gas
fired heat. Ventilation in the plant will be by roof
mounted fans and electrically interlocked roof mounted
intakes. Heat in the plant will be by gas-fired unit
heaters.
D. Exhaust Systems: General and special exhaust systems shall
---------------
be provided for toilets and janitor's closets to relieve
required amounts of air. Exhaust fans shall be cabinet type
with wall caps.
E. Automatic Temperature Controls: Automatic temperature
------------------------------
controls shall be provided with space thermostats for all
units.
F. Materials:
---------
1) Units shall be standard electric cooling, gas heat.
Units shall be York, Carrier or Trane.
2) Exhaust fans shall be centrifugal or propeller type as
manufactured by Greenheck, Penn or Jenn-Aire.
3) Ductwork to be galvanized steel with 1" interior
lining. Gauges shall be as required by latest SMACNA
Guide for low velocity duct.
4) Diffusers, grilles and registers shall be steel or
aluminum as application dictates. Units shall be as
manufactured by Metalaire, Barber-Colman, Krueger or
Titus.
PLUMBING
--------
A. Scope:
-----
1) Plumbing includes all waste, vent, soil, hot and cold
water systems for domestic system. Provide air piping
quantities as specified.
2) Sewer shall be connected to the public sewer.
3) Water service shall be connected to the public water
system.
4) Natural gas is assumed available at site, alternately,
propane tank service will be utilized.
-8-
<PAGE>
B. Materials: (Domestic)
---------
1) Exterior Piping: (a) Water Government Type "L"
copper.
(b) Sanitary Sewer: PVC soil
pipe.
2) Interior Piping: (a) Water: Government type "L"
copper, chrome plated brass
risers to fixtures.
(b) Drainage & Vent: PVC.
3) Insulation: (a) Cold water: 1/2" fiberglas
with vapor barrier.
(b) Hot water: 1/2" fiberglas.
C. Fixtures:
--------
1) Lavatories: Vitreous china as indicated on plans.
2) Water Closets: Floor mounted, tank type.
3) Service Sink (at Janitor's Closet): Fiberglas laundry
tray, hot and cold water.
4) Electric Water Cooler: Individual compressors.
D. Hot Water System:
-----------------
Domestic water heater to be electric storage type heater
supplying 110 degrees F. hot water.
E. Air Piping: (Allowance)
----------
1200 ft., 3" copper or steel
150 ft., 2" copper or steel
(20) 20 ft. drops, 3/4" copper or steel with ball valve
and drip leg.
SPRINKLER
---------
Provide wet pipe sprinkler system throughout.
1) Offices 0.15 GPM/2000 sq. ft. +
250 GPM hose stream
- 9 -
<PAGE>
2) Plant: 0.36 GPM/4000 sq. ft. plus 500 GPM hose stream
(ELO-231 heads).
3) One hose station shall be provided for each 10,000
square feet.
4) Four sprinkler run-ins with OS&Y valves will be
provided. Two shall be furnished with 4" valve and
blank flange for future in-rack connection by tenant.
5) Fire water service will be through detector check and
back flow prevention.
DIVISION 16 - ELECTRICAL
------------------------
A. Scope: Complete electrical lighting and power system.
-----
B. Code: Virginia Uniform Statewide Building Code; N.E.C.
----
C. Service: 480/277 volt, 3 phase, 4 wire, 60 Hz; service size
-------
1600A with metering.
D. Wiring: Copper conductors, 600 volt insulation in conduit.
------
Concealed above ceiling or in walls of office, exposed in
plant (power feeders copper, run underground in PVC).
E. Conduits:
--------
1) All wiring to be in EMT with compression fittings,
except as noted below.
2) MC - concealed in walls.
3) Schedule 40 PVC - below grade.
4) RELOC - interlocking cables (Lithonia, General Electric
or Halophane) for plant and office lighting.
5) Liquid-tight flexible conduit - for short connections to
mechanical equipment.
F. Manufacturing Area Power Distribution:
-------------------------------------
1) 200 amp feeder and wiring for five (5) battery
chargers.
2) Two (2) 200 amp and two (2) 400 amp 277/480 volt 3
phase 4 wire.
- 10 -
<PAGE>
3) One (1) 45 kva transformer and 120/208 volt 3 phase 4
wire panel in Maintenance.
4) Wiring for air compressors, including final connection.
5) Wiring for six (6) pieces of lab equipment, including
final connection.
6) Wiring for twelve (12) pieces of equipment in
Maintenance Shop, including final connection.
7) Wiring and drops to thirty (30) pieces of 20 amp, 120
volt equipment (junction box with pigtail).
8) Wiring and drops to eighty (80) pieces of 20 amp, 480
volt equipment (junction box with pigtail).
9) Duplex receptacle, 120 volt, 20 amp at each loading
door; quadplex receptacle, 120 volt, 20 amp at each
interior column.
G. Lighting:
--------
1) Primary lighting in office shall be provided by fluorescent
fixtures with energy-saving ballasts, 0.25 acrylic lens. Plant
lighting shall be metal halide.
Average light levels shall be the following:
Office 80 FC (General lighting, 40 FC at
toilets)
Plant 60 FC at 3'-0" AFF (maintained)
2) Accent lighting shall be incandescent. Exterior
lighting shall be high pressure sodium, concealed
source fixtures.
GENERAL
-------
All building specifications will meet or exceed the current requirements
of the Uniform Statewide Building Code.
Communications and security systems not included.
- 11 -
<PAGE>
EXHIBIT D
to Deed of Lease dated October 7, 1994
between Simmons Associates, L.P. and Simmons Company
Building Plans
SHEET NO. DATE
--------- ----
N/A Preliminary Site Plan, prepared by McKinney 9/16/94
and Company
Revised
9/21/94
A-2 Elevations, prepared by McKinney and Company 9/12/94
Revised
9/21/94
C-2 Existing Topography, prepared by McKinney and 9/26/94
Company
<PAGE>
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made as of the
28th day of October, 1994, by and between SIMMONS ASSOCIATES, L.P., a
Virginia limited partnership ("Landlord"), and SIMMONS COMPANY, a
Delaware corporation ("Tenant").
RECITALS:
--------
A. As of October 7, 1994, Landlord and Tenant executed a lease
agreement (the "Lease") for a certain parcel of land described therein as
containing approximately 9.5 acres and a building to be constructed
thereon located in the County of Spotsylvania, Virginia, as more
particularly described in the Lease (the "Property").
B. Landlord and Tenant desire to amend the Lease to reflect
certain additional agreements with respect thereto.
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Recital A of the Lease is hereby amended in its entirety to read
as follows:
" A. Landlord has entered into a contract or is
negotiating to enter into a contract (the "Contract") to
purchase from Raymond C. Hawkins Construction Co., Inc. (the
"Owner") a parcel of real property containing approximately
10.0 acres (the "Property") located in the County of
Spotsylvania, Virginia. The Property is described on Exhibit A
hereto and is shown on the plat made by Sullivan Donahoe and
Ingalls, dated October 5, 1994, revised October 27, 1994,
entitled "Plat Parcel - 2, 95 Commerce Place, Lee Hill
District, Spotsylvania County, Virginia", a copy of which plat
is attached hereto as Exhibit A 1 ."
The Lease is further amended by replacing Exhibits A and A1 with revised
Exhibits A and A1, attached hereto as a part hereof. Changes in Exhibits
C and D resulting from the increased size and change in configuration of
the Property will be accomplished by
<PAGE>
revisions to those documents agreed to by the parties in accordance with Sub-
section 4.C. of the Lease and the cost thereof paid by Tenant as provided in
Subsection 4.C.
2. The Lease is hereby amended to reflect a change in the annual
rental by replacing Exhibit B in its entirety with revised Exhibit B, attached
hereto as a part hereof.
3. The second sentence of Subsection 4.G. of the Lease is hereby amended
to read as follows:
"Tenant may terminate this lease by written notice to Landlord at
any time after October 1, 1995, if the Commencement Date has not
occurred by the time such notice is given."
4. The Lease is hereby expressly confirmed in all respects not
inconsistent with the terms, covenants and conditions contained in this First
Amendment. If any provision of the Lease conflicts with any provision of this
First Amendment, the provision of this First Amendment shall control.
WITNESS the following signatures:
LANDLORD:
SIMMONS ASSOCIATES, L.P., a Virginia limited
partnership
By:
----------------------------------------
Title:
-------------------------------------
TENANT:
SIMMONS COMPANY, a Delaware corporation
By:
----------------------------------------
Title: Vice President - Finance, Treasurer
-------------------------------------
2
<PAGE>
EXHIBIT A
to Deed of Lease dated October 7, 1994
between Simmons Associates, L.P. and Simmons Company
[Revised as part of First Amendment to Lease dated as of October 28, 1994]
Property Description
ALL that certain lot, piece or parcel of land, with all improvements thereon
and appurtenances thereunto belonging, lying and being in Lee Hill District,
Spotsylvania County, Virginia, containing 10.0 -/+ acres, as more particularly
shown on plat of survey dated October 5, 1994, revised October 27, 1994,
prepared by Sullivan Donahoe and Ingalls, entitled "Plat Parcel - 2, 95
Commerce Place, Lee Hill District, Spotsylvania County, Virginia, "a copy of
which is attached hereto as Exhibit A-1.
BEING a portion of the same property conveyed to RCH Land Sales, Inc., a
Virginia corporation, by deed from 17 South Limited Partnership, a Virginia
limited partnership, dated October 18, 1988 and recorded October 19, 1988 in
Deed Book 817, page 358, Clerk's Office, Circuit Court, Spotsylvannia County,
Virginia.
i
<PAGE>
EXHIBIT B
to Deed of Lease dated October 7, 1994
between Simmons Associates, L.P. and Simmons Company
[Revised as part of First Amendment to Lease dated as of October 28, 1994]
RENT SCHEDULE
LEASE RENT PER ANNUAL MONTHLY
YEAR SQUARE FOOT RENT RENT
1 3.60 $462,600.00* $38,550.00
2 3.65 469,539.00 39,128.25
3 3.71 476,582.09 39,715.17
4 3.82 490,879.55 40,906.63
5 3.93 505,605.93 42,133.83
6 4.05 520,774.11 43,397.84
7 4.17 536,397.34 44,699.78
8 4.30 552,489.26 46,040.77
9 4.43 569,063.93 47,421.99
10 4.56 586,135.85 48,844.65
11 4.70 603,719.93 50,309.99
12 4.84 621,831.52 51,819.29
13 4.98 640,486.47 53,373.87
14 5.13 659,701.06 54,975.09
15 5.29 679,492.10 56,624.34
16 5.45 699,876.86 58,323.07
17 5.61 720,873.16 60,072.76
18 5.78 742,499.36 61,874.95
19 5.95 764,774.34 63,731.20
20 6.13 787,717.57 65,643.13
*If the Commencement Date is not the first day of a calendar month, this amount
does not include the proportionate amount of Rent for the period of time from
the Commencement Date to the date on which the first monthly payment of Rent is
due.
<PAGE>
2ND RENEWAL TERM: (LEASE YEARS 21-25) The Rent for lease year 21 will be
the greater of (a) 1.03 times the Rent for lease year 20 or (b) the fair
market rental value of the Leased Premises as of the end of the 20th lease
year. The Rent for each of lease years 22 through 25 will be an amount equal
to 1.03 times the Rent for the prior lease year. Fair market rental value
shall be determined by an appraisal to be made not earlier than 60 days prior
to the expiration of the 20th lease year. The appraisal shall be prepared by
an independent MAI appraiser mutually agreeable to Landlord and Tenant and
knowledgeable with respect to commercial real estate located in the
Fredericksburg, Virginia metropolitan area. The cost of the appraisal shall
be borne equally by Landlord and Tenant.
ii
Exhibit 10.46
LEASE AMENDMENT
---------------
THIS AGREEMENT, entered into this 6th day of August, 1992, by and between
Eagle Warren Properties, successors to B. F. Saul Real Estate Investment Trust
hereinafter known as Landlord, and Simmons Company hereinafter known as Tenant
WITNESSETH
----------
WHEREAS, Landlord and Tenant entered into a certain Lease dated 7/15/77 and
amended 9/1/87 covering premises commonly known as 6424 Warren Drive, Norcross,
Georgia 30093 and
WHEREAS, Landlord and Tenant desire to amend said Lease in certain respects,
NOW THEREFORE, in consideration of the sum of Ten Dollars, each paid to the
other, the receipt and sufficiency of which is hereby acknowledged, Landlord and
Tenant hereby agree that said Lease is hereby amended as follows:
1. The Lease Term shall be extended from September 1, 1992 thru August 31,
1997.
2. Landlord to provide Tenant an allowance, not to exceed $30,000 for interior
improvements. The cost of said improvements shall be completed by Tenant
and amortized over the remaining Lease Term at nine percent (9%) interest.
At least ten (10) days before funds are due, Tenant shall notify Landlord
of the cost and nature of the completed improvements.
3. Until the improvements are funded, the monthly rental rate shall be as
follows:
9/1/92 - 8/31/93 --- $5,031.00/Mo. -- ($1.95/SF)
9/1/93 - 8/31/94 --- $5,289.00/Mo. -- ($2.05/SF)
9/1/94 - 8/31/95 --- $5,547.00/Mo. -- ($2.15/SF)
9/1/95 - 8/31/96 --- $5,805.00/Mo. -- ($2.25/SF)
9/1/96 - 8/31/97 --- $6,063.00/Mo. -- ($2.35/SF)
All other terms conditions and covenants of said Lease, including the tax
and insurance stops shall remain unchanged.
IN WITNESS whereof the parties hereto have hereunto set their hands and
seals this 12 day of August , 1992.
------ ---------
EAGLE WARREN PROPERTIES, SUCCESSORS TO
B. F. SAUL REAL ESTATE INVESTMENT TRUST
BY: /s/
-------------------------------------------
Landlord
ITS: General Partner
-------------------------------------------
SIMMONS
/s/ BY: /s/ (Seal)
- ---------------------- --------------------------------------------
Witness Tenant
ITS: Sr. V-P
--------------------------------------------
simmons.amd
<PAGE>
DRAFT
DLC: 6/27/77
COMMERCIAL LEASE
Between
B. F. SAUL REAL ESTATE INVESTMENT TRUST,
Landlord,
SIMMONS COMPANY,
Tenant,
and
ACKERMAN & CO.,
Agent.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
PREMISES 1
ACCEPTANCE OF LEASED PREMISES 2
TERM 2
SURRENDER 2
RENTAL 2
AGENT'S COMMISSION 3
ADDITIONAL RENTAL 3
UTILITY BILLS 4
TAXES 4
RIGHT TO CONTEST TAXES 5
FIRE AND EXTENDED COVERAGE INSURANCE 6
USE OF PREMISES 7
REPAIRS BY LANDLORD 7
REPAIRS BY TENANT 8
IMPROVEMENTS 8
TENANT'S PERSONAL PROPERTY; INDEMNITY 9
REMOVAL OF FIXTURES 9
LANDLORD'S LIEN 9
GOVERNMENTAL ORDERS 10
CONDEMNATION 10
DESTRUCTION OF OR DAMAGE TO PREMISES 11
ASSIGNMENT AND SUBLETTING 12
TENANT'S DEFAULT 13
RELETTING BY LANDLORD 16
EFFECT OF TERMINATION OF LEASE 16
EXTERIOR SIGNS 16
ENTRY FOR CARDING, ETC. 17
MORTGAGEE'S RIGHTS 17
SEVERABILITY 17
RIGHTS CUMULATIVE 18
HOLDING OVER 18
NO ESTATE IN LAND 18
TIME OF ESSENCE 18
<PAGE>
Page
----
ESTOPPEL CERTIFICATE 19
WAIVER OF RIGHTS 19
ENTIRE AGREEMENT 19
PARTIES 20
NOTICES AND PAYMENTS 20
QUIET ENJOYMENT 21
TENANT'S MERGER OR REORGANIZATION 21
RENEWAL OPTION 21
CAPTIONS 22
LANDLORD'S LIABILITY 23
<PAGE>
COMMERCIAL LEASE
----------------
THIS LEASE, made this 18th day of July ,
---- ------------------------
1977, by and between B. F. SAUL REAL ESTATE INVESTMENT TRUST, first party
(hereinafter called "Landlord"), and SIMMONS COMPANY, second party (hereinafter
called "Tenant"), and ACKERMAN & CO., third party (hereinafter called "Agent").
W I T N E S S E T H:
--------------------
PREMISES.
- --------
1. The Landlord, for and in consideration of the terms, covenants
and conditions hereinafter set forth, has leased and rented, and by these
presents does lease and rent, unto the said Tenant, and said Tenant hereby
agrees to lease and take upon such terms, covenants and conditions, 30,960
square feet of warehouse and office space in a multi-tenant building on property
of Landlord (hereinafter referred to as "Landlord's Property"). Landlord's
Property is more particularly described in Exhibit A, attached hereto and made a
part hereof, and is known as 6424 Warren Drive. The warehouse and office space
herein leased is hereinafter referred to as the "Premises" which is more
particularly shown outlined in red on Exhibit attached hereto and made a part
hereof; and is leased together with the right, for the benefit of Tenant, its
agents, employees and invitees, of ingress and egress to and from the Premises
and Landlord's Property; and to use the stairs, parking facilities, driveways,
walkways, and all other common areas in connection with the Premises and
Landlord's Property (hereinafter referred to as "Common Areas") and not shown
as part of the Premises in Exhibit A. Said Common Areas shall be used by Tenant,
its agents, employees and invitees, in common with other tenants of Landlord;
provided, however, that Landlord
<PAGE>
shall reserve for the exclusive use of Tenant, its agents, employees and
invitees, all those parking spaces in the parking area on Landlord's Property
directly east, west and south of the Premises as shown on Exhibit B. Tenant
agrees that it will not block driveways so as to impede traffic serving other
tenants of Landlord's Property.
ACCEPTANCE OF LEASED PREMISES
- -----------------------------
2. Tenant accepts the Premises "AS IS" and as suited for
the uses intended by Tenant.
TERM
- ----
3. The term of this lease shall begin on the 1st day of September,
1977, and end at midnight on the 31st day of August 1987 unless sooner
terminated as herein provided. See Lease Addendum marked Exhibit C attached
hereto and made a part of this Agreement.
SURRENDER
- ---------
4. Tenant agrees to return the Premises to Landlord at the expiration, or
prior termination, of this lease in as good condition and repair as when first
received, natural wear and tear alone excepted, and Tenant shall remove all of
its personal property, including inventory. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease.
RENTAL
- ------
5. Tenant agrees to pay Landlord, by payments to party designated
by Landlord who negotiated this lease, during the term of this lease the
sum of $ 402,480.00, payable in monthly installments on the first day of
----------
each month in advance of $ 3,354.00. In the event any installment of rent,
--------
inclusive of minimum rent, and additional rent, if any, is not paid within
ten (10) days of the date when such rent is due, Tenant agrees to pay a
collection charge of three cents for each dollar of payment in arrears, to
defray the additional expense incurred by Landlord in processing such payment.
-2-
<PAGE>
AGENT'S COMMISSION
- ------------------
6. Landlord agrees to pay Agent as compensation for services
rendered in procuring this lease, the first month's rent paid under paragraph 5
of this lease, and in addition thereto five percent (5%) of all rentals there-
after paid by Tenant under paragraph 5 of this lease. Landlord, with consent of
Tenant, hereby assigns to Agent the first month's rent paid under paragraph 5 of
this lease and five percent (5%) of all rentals thereafter paid by Tenant under
paragraph 5 of this lease. Landlord agrees that if this lease is extended, or if
a new lease is entered into between Landlord and Tenant covering the Premises,
or any part thereof, then in either of said events, Landlord, in consideration
of Agent's having procured Tenant hereunder, agrees to pay Agent five percent
(5%) of all rentals paid to Landlord by Tenant under such extension or new lease
comparable to the rentals under paragraph 5 of this lease. In the event
of the voluntary cancellation of this lease by Landlord and Tenant (without an
event of default and without a new lease being entered into by Landlord
and Tenant covering the Premises, or a part thereof), Agent shall receive five
percent (5%) of all rentals which would have been paid by Tenant under paragraph
6 of this lease, discounted, however, at a rate equal to the then prime rate of
American Security and Trust Company, Washington, D.C., plus three percent (3%).
ADDITIONAL RENTAL
- -----------------
7. All payments, other than those previously specified above, as
required in this lease by Tenant to Landlord shall be deemed to be and shall
become additional rent hereunder, whether or not the same shall be designated as
such, and shall be due and payable along with usual rental payments subject to
the same conditions and remedies as exist for said rental payments.
-3-
<PAGE>
UTILITY BILLS
- -------------
8. Tenant shall pay water, sewer, gas, electricity, fuel, light,
heat and power bills for the Premises, or used by Tenant in
connection therewith. All utilities except water and sewer serving the Premises
shall have separate meters for the Premises only. Landlord shall pay all utility
expenses incurred in the operation and maintenance of the Common Areas, and
other portions of Landlord's Property. Water and sewer services shall be
prorated and paid when billed, Tenant share shall be the ratio of 30,960 sq.ft.
to 56,690 sq. ft. or (54.6%) of the amount billed by the serving public utility.
TAXES
- -----
9. Tenant shall pay, as additional rent the proportionate part of
any increases in taxes assessed and levied against the Premises above the taxes
for the tax year 1978. Tenant shall also pay, as additional rent, the
proportionate of any special assessment imposed upon the Premises for any
purpose whatsoever. The portion of such increases in taxes or special
assessments payable by Tenant shall be based on the ratio of the area of the
square footage of Tenant's building space (30,960 sq. ft.) to the total leasable
square footage area of the building described in Exhibit "A" containing 56,690
sq. ft.) which is 54.6%. Such amount shall.be paid within thirty (30) days after
demand therefor accompanied by a copy of the tax bills for such tax period by
Landlord and shall be collectable as rent. Tax bills shall be sufficient
evidence of the nature and amount of such taxes and shall be used for the
calculation of the amounts to be paid by Tenant.
Tenant shall not be required to pay any personal property tax assessed
against personal property not located on the Premises. Tenant shall not be
required to pay any portion of the general real estate taxes which are
attributable to an increase in assessed valuation of Landlord's Property or
special assessments arising out of improvement erected subsequent to the
commencement date of this lease. All general real estate taxes and installments
of special assessments for
-4-
<PAGE>
the last year of the term hereof shall be prorated between the parties as of
the first and last days of the term of this lease.
RIGHT TO CONTEST TAXES
- ----------------------
10. If the imposition of any tax, assessment, license fee, excise
tax, impost or charge shall be deemed by Tenant to be improper, illegal, or
excessive, Tenant may, at its sole cost and expense (in its own name or in the
name of Landlord, or both, as it may deem appropriate) dispute and contest the
same and in such case such items need not be paid until adjudged to be valid.
Unless so contested by Tenant, all such taxes, assessments, license fees,
excises, imposts, and charges shall be paid by Tenant within the time provided
by law and if contested, any such tax, assessment, license fee, excise, impost,
or charge shall be paid before the issuance of execution on final judgment. In
the event of any such contest by Tenant, Tenant shall indemnify Landlord against
any loss or damage resulting therefrom and, if necessary to prevent a sale or
other loss or damage to Landlord, shall pay such tax, interest, penalty,
assessment, or claim under protest or take such other steps as may be necessary
to prevent any such sale or loss or damage to Landlord in connection therewith.
Notwithstanding the foregoing, in the event Landlord is attempting to finance
the Premises and such financing or sale is being jeopardized by the prosecution
of such tax protest, Tenant agrees to pay such taxes under protest or furnish
other assurances satisfactory to Landlord for the payment of such taxes.
-5-
<PAGE>
FIRE AND EXTENDED COVERAGE INSURANCE
- ------------------------------------
11. At all times during the term of this lease, including any
renewal hereof, Landlord shall obtain and maintain insurance against any loss or
damage to the building in which the Premises are located by fire, lightning,
windstorm, hurricane, hail, explosion, riots, civil commotion and other risks
now or hereafter embraced by standard fire and extended coverage policies with
insurance companies legally authorized to transact business in the State of
Georgia, said insurance to be in amounts of at least 80% of the replacement
value of the building in which the Premises are located, excluding foundations.
Tenant shall pay, as additional rent, its proportionate part of any increases in
the cost of such insurance carried by Landlord with respect to the Premises;
provided, however, should such premium be increased solely due to the occupancy
of Landlord's Property by any party (including Landlord) other than Tenant,
Tenant shall not be obligated for the payment of any part of such increase. The
portion of such increases in the cost of insurance payable by Tenant shall be
based on the ratio of the area of the square footage of Tenant's building space
(30,960 sq. ft) to the total leasable square footage area of the building
described in Exhibit "A" containing 56,690 sq. ft., same being 54.6 percent.
Tenant agrees to pay Landlord said increased amount within thirty (30) days
after receipt of a notice in writing from Landlord of the increase in said
insurance premium, accompanied by a copy of the invoice for such increased
premium. If during the final year of the lease or any extension or renewal
thereof, the term does not coincide with the year upon which the insurance rate
is determined, the increase in the premiums for the portion of that year shall
be prorated according to the number of months during which Tenant was in
possession of the Premises.
-6-
<PAGE>
USE OF PREMISES
- ---------------
12. The Premises shall be used for research and development of
Tenant's products, testing, showroom and office and warehouse purposes and no
other. The Premises shall not be used for any illegal purpose, nor in any manner
to create any nuisance or trespass, nor in any manner to vitiate the insurance
or increase the classification or any rate of insurance on the Premises, over
that stated.
REPAIRS BY LANDLORD
- -------------------
13. Landlord agrees to keep in good repair the roof, foundations,
exterior walls of the Premises and the Building (exclusive of all glass and
exclusive of all exterior doors), paved driveways, walkways, parking areas,
landscaped areas, utility and sewer lines and pipes on Landlord's Property to
the point of entry to the Premises, except where rendered necessary by any
negligence of Tenant, its agents, employees, or invitees. Landlord shall not be
liable to Tenant for any damage caused to the person or property of the Tenant
due to the Building or any part thereof or appurtenances thereof being
improperly constructed or being or becoming out of repair, or arising from the
leaking of gas, water, sewer or steam pipes, or from electricity, or from any
other cause whatsoever, unless caused by negligence of Landlord, its agents,
employees, or representatives. Landlord gives to Tenant exclusive control of the
Premises and shall be under no obligation to inspect the Premises. Tenant agrees
to report in writing to Landlord any defective condition in or about the
Premises known to Tenant which Landlord is required to repair. Landlord also
agrees to repair and maintain the adjoining premises and Landlord's Property to
the extent that the lack of any such repairs or maintenance will damage the
Premises or diminish Tenant's beneficial occupancy of the Premises.
-7-
<PAGE>
If Landlord fails to make the repairs or perform any covenants or
agreements, which, by the terms of this lease, it is required to make or
perform, then Tenant shall give Landlord written notice of such failure and
Landlord shall have thirty (30) days within which to begin the cure of said
failure. If Landlord has failed to commence the cure of said failure within said
thirty (30) day period, and is not diligently proceeding to complete same, then
Tenant shall have the right at its sole option and without being under any
obligation so to do, to make such repairs or perform such other covenants and
agreements, and Landlord agrees, upon demand, to reimburse Tenant for Tenant's
expense incurred thereby, together with interest thereon at ten percent (10%)
per annum, and cost of collection, including reasonable attorneys' fees, if
collected through an attorney. *See Exhibit "C" attached hereto and made a part
hereof regarding improvements and repairs to be made by landlord.
REPAIRS BY TENANT
- -----------------
14. Tenant shall, throughout the term of this lease, at its expense,
maintain in good order and repair the Premises, except those repairs expressly
required to be made by Landlord as provided in paragraph 13 hereof.
IMPROVEMENTS
- ------------
15. The Tenant may make alterations or additions to the Premises by
first obtaining in writing the consent of Landlord, which consent will not be
unreasonably withheld, which shall be at the sole cost of Tenant, and shall not
tear down or materially demolish the Premises. Except as provided in paragraph
17 hereof, any such permanent improvements shall be the property of Landlord and
shall remain upon and be surrendered with the Premises as a part thereof at the
termination of this lease, without disturbance, molestation, or injury.
-8-
<PAGE>
The Tenant shall not do or suffer anything to be done whereby the Premises may
be encumbered by any mechanic's lien, and shall, whenever and as often as any
mechanic's lien is filed against the land, the building or other improvements
purporting to be for labor or material furnished or to be furnished to the
Tenant, indemnify Landlord from any loss resulting from such lien. Tenant shall
have the right, in good faith, to contest the validity and the amount of any
such lien and shall be obligated to pay the same only if and when finally
determined to be due.
TENANT'S PERSONAL PROPERTY; INDEMNITY
- -------------------------------------
16. All of Tenant's personal property in the Premises shall be and
remain at its sole risk, and the Landlord shall not be liable for theft thereof
or any damage thereto occasioned by any acts or negligence of any persons, or
any act of God, nor shall the Landlord be liable for any injury to the person or
property of other persons in or about the Premises, the Tenant expressly
agreeing to indemnify and save the Landlord harmless in all such cases, unless
caused by Landlord, its agents, employees or representatives.
REMOVAL OF FIXTURES
- -------------------
17. Tenant may (if not in default hereunder) prior to the expiration of
this lease, remove all trade fixtures or other Tenant equipment which it has
placed in the Premises; provided, however, Tenant repairs all damage to the
Premises caused by the removal of such trade fixtures or equipment.
LANDLORD'S LIEN
- ---------------
18. Notwithstanding any other provision hereof, the Landlord shall have
at all times a valid first lien for all
-9-
<PAGE>
rentals and other sums of money to become due hereunder from the Tenant and to
secure the performance by the Tenant of each and all of the terms, covenants and
conditions hereof, upon all of the personal property of the said Tenant situated
in the Premises, and said property shall not be removed therefrom without the
consent of the Landlord until all arrearage in rent as well as any and all other
sums of money to become due hereunder shall first have been paid and discharged
and until this lease and all of the terms, covenants and conditions hereof have
been fully performed by Tenant, provided further that the lien herein granted
may be foreclosed in the manner and form provided by law for the foreclosure of
chattel mortgages or in any other manner provided by law.
GOVERNMENTAL ORDERS
- -------------------
19. Tenant agrees, at his own expense, to promptly comply with all
requirements of any legally constituted public authority made necessary by
reason of Tenant's occupancy of the Premises, and Landlord agrees to comply with
all requirements of any legally constituted public authority not made necessary
by Tenant's occupancy of the Premises.
CONDEMNATION
- ------------
20. If the whole of the Premises, or such portion thereof as will
make the Premises unusable for the purposes herein leased, be taken or 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 time when
possession thereof is taken by public authorities, and rental shall be accounted
for as between Landlord and Tenant as of that date. In the event that a portion
but not all of the premises shall be taken in condemnation proceedings, rent
shall be abated or reduced in proportion
-10-
<PAGE>
to the amount of the premises so taken. Tenant shall have no claim against
Landlord for any portion of the amount that may be awarded to Landlord as
damages as a result of such taking or condemnation or for the value of any
unexpired term of this lease, all such proceeds being the property of Landlord;
provided, however, that Tenant may file a separate claim against the condemning
authority and may assert any claim that it may have against the condemning
authority, but in no event shall such award to Tenant reduce any award otherwise
payable to Landlord.
DESTRUCTION OF OR DAMAGE TO PREMISES
- ------------------------------------
21. If the Premises shall be damaged by fire or other casualty and the
premises cannot be or is not repaired within ninety (90) days after the
occurrence of such fire or other casualty, then Landlord or Tenant shall have
the right to terminate this lease by giving written notice of such termination
to the other party within thirty (30) days following the occurrence of such fire
or other casualty or within thirty (30) days following the expiration of such
ninety (90) day period, whichever the case may be, and this lease shall then
terminate as of the date of such loss. In the event of such termination of this
lease, Landlord and Tenant shall be relieved from any and all further liability
or obligation hereunder.
22. If all or a substantial portion of the Premises is damaged by fire
or other casualty and this lease is not terminated in accordance with this
paragraph then Landlord shall diligently and as soon as practicable after such
damage
-11-
<PAGE>
occurs (taking into account the time necessary to effect a satisfactory
settlement with any insurance company) or rebuild the Premises or such portion
thereof to its action immediately prior to such occurrence. In the event of any
repair or rebuilding by Landlord pursuant hereto during the existence of such
damage and until such repair or rebuilding is completed, rent shall be abated or
reduced by multiplying the basic monthly installment of rent by a fraction, the
numerator of which shall be the area of the Premises of which the Tenant is
deprived and the denominator of which shall be the area of the Premises.
Landlord shall not be liable or obligated to Tenant in any event whatsoever by
reason of any fire or casualty damage to the Premises or any damage suffered by
Tenant by reason thereof or the deprivation of Tenant's possession of all or any
part of the Premises.
ASSIGNMENT AND SUBLETTING
- -------------------------
23. Tenant may during the initial term of this lease sublease (but not
assign) all or portions of the Premises to others provided such subleesee's
operation is a part of the general operation of Tenant and under the supervision
and control of Tenant, and provided such operation is within the purposes for
which the Premises shall be used. As provided in the preceding sentence, Tenant
may, with the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, assign this lease or any interest hereunder,
or sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant. Consent to any assignment or sublease shall not
destroy this provision and all later assignments or subleases shall be made
likewise Only on the prior written consent of Landlord. No sublease or
assignment by Tenant shall relieve Tenant of any liability hereunder. Tenant *
may, during any option period, with the prior written notice of the Landlord,
sublease all or a portion of the leased premises, provided the Landlord shall
have the option to assume the position of the Tenant in regards to the sublease.
The Tenant shall have placed in the sublease language which notes the right of
the Landlord to assume the Tenant's position and furnish a fully executed copy
to the Landlord after which Landlord will have thirty (30) days to inform the
Tenant in writing of its intention to exercise its option to assume and if
exercised shall act to release the Tenant from further liability under this
lease.
*The Simmons Company, its successor or assigns.
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<PAGE>
TENANT'S DEFAULT
- ----------------
25. It is mutually agreed that in the event the Tenant shall fail to
make payment of rent herein reserved when due, and to cure said failure within
twenty (20) days after written notice thereof from Landlord; or if Tenant shall
fail to perform under any of the terms, covenants, conditions, or provisions of
this lease other than the covenant requiring the payment of rent, and to cure
such failure within thirty (30) days after written notice thereof from Landlord;
or if Tenant shall file a voluntary petition under any bankruptcy or insolvency
law or an involuntary petition shall be filed against Tenant under any
bankruptcy or insolvency law; or if a permanent receiver is appointed for
Tenant's property; or if, whether voluntarily or involuntarily, Tenant 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; or if Tenant makes an assignment for benefit of
creditors; or if Tenant's effects should be levied upon or attached under
process against Tenant; then, and in any of said events a default shall be
deemed to occur hereunder and Landlord at his option may at once, or within six
(6) months thereafter (but only during continuance of such default) proceed
according to one or more of the following courses of action:
(a) Terminate this lease, in which event Tenant shall immediately
surrender the Premises to Landlord, but if Tenant shall fail to do so,
Landlord may, without further notice and without prejudice to any
other remedy Landlord may have for possession or arrearage in rent,
enter upon the Premises and expel or remove Tenant and its effects, by
force if necessary, without being liable to prosecution or any claim
for damages
-13-
<PAGE>
therefor; and Tenant agrees to indemnify and save the Landlord
harmless for all loss and damage which Landlord may suffer by reason
of such termination, whether through inability to relet the Premises,
or through decrease in rent, or otherwise; and/or
(b) declare the entire amount of the rent which would become due
and payable during the remainder of the term of this lease to be due
and payable immediately, in which event, Tenant agrees to pay the same
at once, together with all rents theretofore due to Agent, provided,
however, that such payment shall not constitute a penalty or
forfeiture or liquidated damages, but shall merely constitute payment
in advance of the rent for the remainder of the said term. The
acceptance of such payment by Landlord shall not constitute a waiver
of any failure of Tenant thereafter occurring to comply with any term,
provision, condition or covenant of this lease. Upon making such
payment, Tenant shall receive from Landlord all rents received by
Landlord from other tenants of the Premises until the expiration date
of this lease; provided, however, that the monies to which the Tenant
shall become entitled to shall in no event exceed the entire amount
payable by Tenant as provided in this paragraph; and/or
(c) enter the Premises as the agent of the Tenant, by force if
necessary, without being liable to prosecution or any claim for
damages therefor, and relet the Premises as the agent of the Tenant,
and receive the rent therefor, and the Tenant shall pay any deficiency
that may arise by reason of such reletting on demand to Agent; and/or
-14-
<PAGE>
(d) as agent of the Tenant, do whatever the Tenant is obligated
to do by the provisions of this lease and may enter the Premises, by
force if necessary, without being liable to prosecution or any claim
for damages therefor, in order to accomplish this purpose. The Tenant
agrees to reimburse the Landlord immediately upon demand for any
reasonable expenses which the Landlord may incur in thus effecting
compliance with this lease on behalf of the Tenant, and the Tenant
further agrees that the Landlord shall not be liable for any damages
resulting to the Tenant from such action, whether caused by the
negligence of the Landlord or otherwise.
25. Pursuit by Landlord of any of the foregoing remedies shall not
preclude the pursuit of any of the other remedies herein provided or any other
remedies provided by law.
26. No act or thing done by the Landlord or its agents during the term
hereby granted shall be deemed an acceptance of a surrender of the Premises, and
no agreement to accept a surrender of the Premises shall be valid unless the
same be made in writing and subscribed by the Landlord. The mention in this
lease of any particular remedy shall not preclude the Landlord from any other
remedy the Landlord might have, either in law or in equity, nor shall the waiver
of or redress for any violation of any term, covenant or condition, in this
lease contained or any of the rules and regulations set forth herein, or
hereafter adopted by the Landlord, prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by the Landlord of rent with knowledge of the
breach of any covenant in this
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<PAGE>
lease other than the covenant to pay rent shall not be deemed a waiver of such
breach.
RELETTING BY LANDLORD
- ---------------------
27. Landlord, as Tenant's agent, without terminating this lease, upon
Tenant's breaching this contract, may at Landlord's option enter upon and rent
the Premises at the best price obtainable by reasonable effort, without
advertisement and by private negotiations and for any term Landlord deems
proper. Tenant shall be liable to Landlord for the deficiency, if any, between
Tenant's rent hereunder and the price obtained by Landlord on reletting.
EFFECT OF TERMINATION OF LEASE
- ------------------------------
28. 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.
EXTERIOR SIGNS
- --------------
29. Tenant may place signs upon the outside walls or roof of the
building with the written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed. Any and all signs placed outside or within the
building 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, and Tenant
agrees upon removal of said signs to repair all damage incident to such removal.
-16-
<PAGE>
ENTRY FOR CARDING, ETC.
- -----------------------
30. Landlord may card the Premises "For Rent" or "For Sale" thirty
(30) days before the expiration of this lease. Landlord may enter the Premises
at reasonable hours to exhibit same to prospective purchasers or tenants, to
inspect the Premises to see that Tenant is complying with all its obligations
hereunder, to make repairs required of Landlord under the terms hereof, or to
make repairs to Landlord's adjoining property, if any.
MORTGAGEE'S RIGHTS
- ------------------
31. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages or deeds to secure debt, which are now or may
hereafter affect such lease or the real property of which the Premises form a
part and to all renewals, modifications, consolidations, replacements or
extension thereof, provided that any mortgages or deeds to secure debt, or any
ground or underlying leases shall provide that this lease may not be terminated
by or upon foreclosure so long as Tenant shall not be in default in the
performance of Tenant's obligations hereunder. This paragraph shall be self-
operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall execute within five (5) days
after receipt, any certificate that Landlord may reasonably so request. Tenant
covenants and agrees to attorn to the Landlord or to any successor to the
Landlord's interest in the Premises or other holder of any mortgage or deed to
secure debt or to the purchaser of the Premises in foreclosure.
SEVERABILITY
- ------------
32. If any clause or provision of this lease contract is illegal,
invalid or unenforceable under present or
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<PAGE>
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 contract that in lieu of each clause or provision of this lease contract
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.
RIGHTS CUMULATIVE
- -----------------
33. All rights, powers and privileges conferred hereunder upon
Landlord shall be cumulative but not restrictive to those given by law.
HOLDING OVER
- ------------
34. If Tenant remains in possession of the Premises after expiration
of the term hereof, with Landlord's acquiesce and without any express agreement
of parties, Tenant shall be a tenant at will at rental rate in effect at
expiration of lease; and there shall be no renewal of this lease by operation of
law.
NO ESTATE IN LAND
- -----------------
35. This contract 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, and not assignable by Tenant
except by Landlord's consent.
TIME OF ESSENCE
- ---------------
36. Time is of the essence of this agreement.
-18-
<PAGE>
ESTOPPEL CERTIFICATE
- --------------------
37. Each party agrees, at any time, and from time to time upon not
less than ten (10) days' prior notice by the other party, to execute,
acknowledge and deliver to the requesting party, a statement in writing
addressed to the requesting party 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 the dates to which rental and
other charges have been paid, and stating whether or not to the best knowledge
of the signer of such certificates, there exists any failure by the requesting
party to perform any term, covenant or condition contained in this lease, and,
if so, specifying each such failure of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by the requesting party and by any purchaser of the fee of the Premises or
any mortgage or deed to secure debt thereof or any assignee thereof or any party
to any sale-leaseback of the Premises, or landlord under a ground or underlying
lease affecting the Premises.
WAIVER OF RIGHTS
- ----------------
38. No failure of Landlord to exercise any power given Landlord
hereunder, or to insist upon strict compliance by Tenant with 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.
ENTIRE AGREEMENT
- ----------------
39. This lease contains the entire agreement of the parties and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties not embodied herein shall be of any force or effect.
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<PAGE>
PARTIES
- -------
40. "Landlord" as used in this lease shall include first party, its
heirs and assigns. "Tenant" shall include second party, its heirs and
representatives, and if this lease shall be validly assigned or sublet, shall
include also Tenant's assignees or sublessees, as to the portion of the Premises
covered by such assignment or sublease. "Agent" shall include third party, his
heirs, successors and assigns. "Landlord," "Tenant," and "Agent" include male
and female, singular and plural, corporation, partnership or individual, as may
fit the particular parties.
NOTICES AND PAYMENTS
- --------------------
41. Any notice, request, demand, approval, or consent given or
required to be given under this lease shall, except as otherwise expressly
provided herein, be in writing and shall be deemed to have been given when
received if mailed by United States registered or certified mail, postage
prepaid, return receipt requested, or delivered by hand addressed as provided
below to the other party at the address stated below or the last changed address
given by the party to be notified as hereinabove specified. Address for notice
to Landlord shall be as follows:
Franklin Property Company
8401 Connecticut Avenue
Chevy Chase, Maryland 20015
With a copy to: Franklin Property Company
1000 Circle 75 Parkway
Atlanta, Georgia 30339
with a copy to: Ackerman & Company
3340 Peachtree Road
Suite 100
Atlanta, Georgia 30326
Address for notice to Tenant shall be as follows:
Simmons Company
4411 East Jones Bridge Road
Norcross, Georgia 30362
Attention: John P. Person
with a copy to:
King & Spalding
2500 Trust Company Tower
Atlanta, Georgia 30303
Attention: David L. Coker, Esq.
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<PAGE>
Any party may, at any time, change its address the above purposes by
mailing as aforesaid a notice stating the change and setting forth the new
address.
QUIET ENJOYMENT
- ---------------
42. The Landlord represents and warrants that:
(a) The Landlord is the owner of the Premises and has the right to
make this lease.
(b) The Tenant, on paying the rent herein reserved and upon performing
all of the terms and conditions of this lease on its part to be performed, shall
at all times during the term herein demised peacefully and quietly have, hold
and enjoy the Premises without disturbance.
TENANT'S MERGER OR REORGANIZATION
- ---------------------------------
43. Should any corporation succeed to all or any part of the business
of Tenant in the United States as a result of reorganization, merger,
consolidation, or sale of stock or assets, Tenant shall be released from all
further obligations under this lease if such successor corporation: (i)
expressly assumes all of Tenant's obligations hereunder by written instrument
and (ii) has net assets at least equal to the net assets which Tenant had
immediately prior to any such reorganization, merger, consolidation, or sale of
stock or assets.
RENEWAL OPTION
- --------------
44. If Tenant shall have observed and kept all of the covenants of
this lease during the initial term and all subsequent option terms, Tenant shall
have the right and option to renew this lease for two consecutive terms of five
years each (each such five-year term being herein referred to as an "Option
Term") commencing immediately on the expiration of
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<PAGE>
the preceding term, upon the same terms, conditions and covenants as provided
hereunder for the initial term. The exercise of such option to renew and extend
this lease for any Option Term shall be made by written notice to Landlord not
sooner than one hundred twenty (120) days or later than ninety (90) days prior
to the expiration of the initial term or, if any option to renew has previously
been exercised, not sooner than one hundred twenty (120) days or later than (90)
days prior to the expiration of such Option Term. The annual rental payable
during the Option Terms shall be determined each year of the option term on the
anniversary date of the commencement of this lease as follows: To the amount of
the annual rental for the initial term of this lease there shall be added an
additional amount which shall be equal to the product of the stipulated rental
for the initial term times the lesser of the following percentages: (a) five
percent (5%) for each lease year during the Option Term; or (b) a percentage
equal to the percentage increase in the Consumer Price Index for Urban Wage
Earners and Clerical Workers, All Items Index, U.S. Cities Average,
(1967 = 100), published by the Bureau of Labor Statistics of the United States
Department of Labor on the date closest to such anniversary date over said
Consumer Price Index published on the date closest to the anniversary date of
the last year of the initial term of this lease. If during the term of this
lease the United States Department of Labor, Bureau of Labor Statistics ceases
to maintain said Consumer Price Index, such other index or standard as will
most nearly accomplish the purpose of said Consumer Price Index and the use
thereof by the parties hereto shall be used in determining the amount of any
such adjustment.
CAPTIONS
- --------
45. The captions of each paragraph and heading hereof is added as a
matter of convenience only and shall be considered
-22-
<PAGE>
to be of no effect in the construction of any provision or provisions of this
lease.
LANDLORD'S LIABILITY
- --------------------
46. Any agreement, obligation or liability made, entered into or
incurred by or on behalf of B. F. Saul Real Estate Investment Trust binds only
its trust property and no shareholder, trustee, officer or agent of the Trust
assumes or shall be held to any liability therefor.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed the day and year first above written.
Signed, sealed and delivered LANDLORD
--------
in the presence of: B. F. SAUL REAL ESTATE
INVESTMENT TRUST
/s/
- ----------------------------
Unofficial Witness
Patricia E. Brady By: /s/ (Seal)
- ---------------------------- --------------------------
Notary Public
Signed, sealed and delivered TENANT
------
in the presence of:
SIMMONS COMPANY
/s/
- ----------------------------
Unofficial Witness
Mary E. Baslet By: /s/
- ---------------------------- ---------------------------------
Notary Public Title: Executive Vice President
--------------------------
Attest: /s/
-----------------------------
Title: Assistant Secretary
------------------------
[CORPORATE SEAL]
Signed, sealed and delivered AGENT
-----
in the presence of:
ACKERMAN & CO.
/s/
- ----------------------------
Unofficial Witness
/s/ By: Hazen Hadley Stevens
- ---------------------------- -------------------------------
Notary Public Hazen Hadley Stevens
President
Ackerman Brokerage Co.
<PAGE>
LEGAL DESCRIPTION FOR: 6424-30-32 WARREN DRIVE
TRACT IV
--------
All that tract or parcel of land lying and
being in Land Lot 217 of the 6th District of
Gwinnett County, Georgia, and being more
particularly described as follows:
Beginning at a point on the southeastern right of
way of Warren Drive (which has a 50-foot right of
way), which point is located 949.5 feet
southwesterly, as measured along said right of
way, from the intersection of said right of way
with the southern right of way of Interstate
Highway 85; thence South 30(degrees) 53' East 260.9
feet to a point on the southeastern line of said Land
Lot 217; thence South 58(degrees) 44' 15" West along
said land lot line 501.0 feet to a point; thence North
31(degrees) 17' 48" West 265.1 feet to a point on said
southeastern right of way of Warren Drive; thence
North 59(degrees) 21' 30" East 293.1 feet along said
right of way to a point thence continuing along said
right of way North 59(degrees) 07' East 209.9 feet to
the Point of Beginning, said tract containing 3.03
acres.
The above courses, distances and acreage are
taken from a plat of survey by Jimmerson-Dickson,
Inc., dated June 20, 1972, as revised April 23,
which 1st is incorporated herein by reference.
EXHIBIT A
<PAGE>
EXHIBIT "C"
LANDLORD'S REPAIRS & IMPROVEMENTS: It is understood and
----------------------------------
agreed that landlord at its sole cost and expense will make
the following improvements or repairs to the leased premises
prior to Tenant's occupancy:
(1) Prepare, clean and paint all existing office wall
surfaces with two coats of paint, color to be specified
by tenant.
(2) Repair all existing damage to walls, ceilings,
insulations, doors and windows including but not
limited to replacing damaged ceiling tiles, ceiling
grid, doors and door locks and mirrors.
(3) Repair or replace all electrical light fixtures,
switches and controls as needed including but not
limited to replacing fluorescent light tubes and
fixtures in the office and warehouse areas.
(4) Make sure all electrical, plumbing, heating,
ventilating and mechanical systems are in good working
order.
(5) Replace all existing carpeted areas with new carpet
to be subject to approval by the tenant, but in no
event will cost of the carpet exceed $7.00/sq. yd. and
replace damaged vinyl floor tile in bathroom area.
(6) Have the entire warehouse area broom clean and
remove all debris from the rear of the building
including but not limited to removal of abandoned
construction building.
<PAGE>
(7) Repair any damaged overhead doors and/or bumper
docks.
(8) Properly insulate the area above the concrete block
wall between the leased premises and the adjoining
tenant.
However, tenant will pay the cost
necessary to complete repair items 1, 2, 3 and 5 above
and landlord will offset this cost to the tenant
by allowing tenant to occupy the premises rent free for the
period September 1, 1977 to November 30, 1977.
<PAGE>
LEGAL DESCRIPTION FOR: 6424-30-32 WARREN DRIVE
TRACT IV
- --------
All that tract or parcel of land lying and being in Land Lot 217 of the 6th
District of Gwinnett County, Georgia, and being more particularly described as
follows:
Beginning at a point on the southeastern right of way of Warren Drive (which
has a 50-foot right of way), which point is located 949.5 feet southwesterly, as
measured along said right of way, from the intersection of said right of way
with the southern right of way of Interstate Highway 85; thence South 30' 53'
East 260.9 feet to a point on the southeastern line of said Land Lot 217; thence
South 58' 44' 15" West along said land lot line 501.0 feet to a point; thence
North 31' 17' 48" West 265.1 feet to a point on said southeastern right of way
of Warren Drive; thence North 59' 21' 30" East 293.1 feet along said right of
way to a point thence continuing along said right of way North 59' 07' East
209.9 feet to the Point of Beginning, said tract containing 3.03 acres.
The above courses, distances and acreage are taken from a plat of survey by
Jimmerson-Dickson, Inc., dated June 20, 1972, as revised April 23, 1973, which
is incorporated herein by reference.
EXHIBIT A
<PAGE>
SIMMONS U.S,A,
P.O. Box 95465
Atlanta, GA 30347
May 4, 1987
Mr. David C. Simpson
Investment Property Group
1315 Peachtree Street, N.E.
Suite 440
Atlanta, Georgia 30309
Re: Simmons Lease
6424 Warren Drive
-----------------
Dear Mr. Simpson:
In accordance with Paragraph 44 of our lease of July 15, 1977 re the above
captioned property, Tenant does hereby exercise its first renewal option. Such
option shall be from September 1, 1987 thru August 31, 1992.
Sincerely,
/s/ H. B. Smith
--------------------
H. B. Smith
Sr. Vice President
AJS/cet
cc: Mr. Ken Barton
Mr. Abe Schear
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
6 Executive Park Drive, NE - Atlanta, GA 30329 - (404) 321-3030
<PAGE>
<PAGE>
LESSEE'S CERTIFICATE
--------------------
The undersigned SIMMONS COMPANY, is the tenant or lessee {the "Lessee") under
a lease (the "Lease") dated 7/15/77 between the Lessee and B. F. SAUL REAL
-------------
ESTATE INVESTMENT TRUST as landlord or lessor (the "Lessor") of certain real
property in the County of Gwinnett, State of Georgia, as described in
attached Exhibit A (the "Property"). With the understanding that Principal
Mutual Life Insurance Company ("Principal Mutual") will rely upon the
representations made herein in making a loan to Lessor (the "Loan") and
accepting an assignment of the Lessor's interest in the Lease substantially in
the form attached as Exhibit B (the "Assignment of Lease"), Lessee hereby
represents and certifies as follows:
1. The Lease is in full force and effect and has not been modified,
supplemented, cancelled or amended in any respect.
2. Lessee has accepted the premises and taken possession thereof without any
existing condition or qualification and both the Lessor and the Lessee have
completed and complied with all required conditions precedent to such
acceptance and possession. Lessee has taken possession of the Property
without reservation and is not in default nor claims any default under the
Lease and Lessee has no claims, defenses or rights of offset against any
rents payable thereunder.
3. The term of the Lease commenced on or before September 1, 1977, and
continues through at least August 31, 1987, (the "Initial Term") and on or
before the first said date the Lessee became obligated to pay rent during
the Initial Term in monthly installments each in an amount not less than
$3,354.00 which rent obligation is continuing and is not past due or
delinquent in any respect. No installment of rent has been or will be
prepaid more than one (1) month in advance.*
4. So long as the Loan is outstanding, Lessee will provide Principal Mutual
with all information, including but not limited to evidence of payment of
taxes and insurance (if Lessee is obligated for such payments under the
Lease) as the Lessor may be entitled under the Lease, and Lessee will give
Principal Mutual the same notices, including without limitation notices of
default, and thereafter the same right to cure any defaults or take any
action as the Lessor may be entitled under the Lease, without the
obligation to cure such defaults or take such action, and such time in
addition to that which Lessor is entitled as may be reasonably necessary to
cure such defaults or take such action, provided Principal Mutual has
indicated its intention to cure or take action and pursues the same with
diligence, however, in no event will such default be in excess of ninety
days.
5. Lessee ratifies and acknowledges the Assignment of Lease and Lessor's
assignment of the Lease and the rents to be paid thereunder to Principal
Mutual, and so long as the Loan is outstanding, Lessee will not agree to
any modification, amendment or supplement of the Lease or any of its
provisions without the prior written consent of Principal Mutual.
6. So long as the Loan is outstanding, Principal Mutual or its designee
may enter upon the Property at all reasonable times to visit or
inspect the Property.**
7. Principal Mutual and Lessor have represented to Lessee, and the Lessee
therefore acknowledges, that pursuant to the Assignment of Lease, Principal
Mutual is presently entitled to collect and receive all rents to be paid
under the Lease directly from Lessee. Based upon such representations,
Lessee agrees to pay all rents and installments of rent as they become due
directly to Principal Mutual in the manner and at such address as Principal
Mutual may hereafter direct by written notice to Lessee. Until such notice
is given by Principal Mutual to Lessee, Lessee shall pay all rent and
installments of rent to Lessor in accordance with the provisions of the
Lease.
8. All information, notices or requests provided for or permitted to be given
or made pursuant to this certificate shall be deemed to have been properly
made or given by depositing the same in the United States Mail, postage
prepaid and registered or certified return receipt requested and addressed
to the addresses set forth below, or to such other addresses as may from
time to time be specified in writing by Lessee or Principal Mutual to the
other:
* The first option for said lease will be exercised by Lessee by May 31,
1987. Rent for year one of this five year option will be $3521.70.
** Provided such inspection is during normal working hours and only after
the Lessee has been given at least 24 hours notice except in the case
of an emergency. Lessor agrees that it will hold confidential all
knowledge gained in visiting Lessee's facility.
<PAGE>
If to Principal Mutual:
-----------------------
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50309
Attention: Commercial Real Estate Servicing
If to Lessee:
-------------
SIMMONS COMPANY
In-House Counsel
6 Executive Park Drive
Atlanta, GA 30329
All requests or notices shall be effective upon being deposited in the
United States Mail, however the time period in which any response to any
notice or request must be made shall commence from the date of receipt of
the request or notice by the addressee.
9. If Lessee is a corporation or partnership, Lessee will preserve and keep in
force and effect its corporate or partnership existence and all licenses or
permits necessary to the proper conduct of its business during the Initial
Term of the Lease.
10. This certificate and the representations made herein shall be governed by
the laws of the state where the Property is situated and are binding upon
and inure to the benefit of Principal Mutual and Lessee and their
respective successors and assigns and to no other persons or entities, and
the representations made herein shall survive the closing of the Loan and
the delivery of this certificate.
IN WITNESS WHEREOF, this certificate has been duly executed and
delivered by the authorized officers of the undersigned as of 5/11/87.
---------
SIMMONS COMPANY
By /s/
-------------------------------------
By
-------------------------------------
<PAGE>
<PAGE>
OWNERS X
LOAN
ENDORSEMENT
Attached to and forming a part of
Mortgagee Commitment No. 86-33902-457
-------------------- ------------
Issued by
CHICAGO TITLE INSURANCE COMPANY
Said commitment is hereby amended as follows:
1. By deleting in its entirety Item 3 of Schedule A and substituting in lieu
thereof the legal description set out on Exhibit "A" attached hereto and by
reference made a part hereof.
2. By deleting Item 8, Schedule B--Section 1.
3. By deleting Item 8, Schedule B--Section 2 and adding in lieu thereof the
following:
"Any losses or damages which may result directly or indirectly from the
following matters as shown and set forth on that certain plat of survey
made for SIMMONS U.S.A. CORPORATION by A. A. Katterhenry, Registered Land
Surveyor, dated Nov. 6, 1986:
a. Rights of parties, if any, to use those certain curb cuts and
drive entrances located on the southeast side of Warren Drive and
entering property herein conveyed. NOTE: The entrance way and the
drive itself located along the southwesterly property line lies
in part on the adjacent parcel;
b. Various improvements and facilities used in providing caption
with water, gas, electricity and telephone service including but
not limited to telephone wires and poles, power lines and power
poles, gas meters and electric meters;
c. surface water and storm drain facilities;
d. any and all improvements lying outside of the perimeters of the
property herein conveyed.
CONTINUED ON PAGE 2 ATTACHED HERETO AND MADE A PART HEREOF BY REFERENCE.
This endorsement is made a part of the commitment or policy. It is subject to
all the terms of the commitment or policy and prior endorsements. Except as
expressly stated on this endorsement the terms dates and amount of the
commitment or policy and prior endorsements are not changed.
Dated: November 24, 1986
CHICAGO TITLE INSURANCE COMPANY
By: /s/
President
Attest: /s/
- ---------------------------------
Authorized Signatory
Note: This endorsement shall not be
valid or binding until countersigned
by an authorized signatory.
<PAGE>
November 24, 1986
Mortgagee Commitment 86-33902-457
Endorsement
Page 2
Attention is drawn to the fact that an asphalt drive, the concrete parking area,
a portion of a rock wall a storm sewer and drop inlet all are shown to encroach
onto that parcel of land lying and being adjacent to the southwest property line
of the property herein conveyed as well as that certain fence in which two fence
corners encroach onto that parcel of land lying to the northeast and adjacent to
the property herein conveyed.
All other items are to remain as originally issued.
<PAGE>
EXHIBIT "A"
ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 217 of the 6th
District of Gwinnett County, Georgia and being more particularly described as
follows:
BEGINNING at a point on the southeastern right of way line of Warren Drive
(a 50 foot right of way) located 949.5 feet from the southern right of way line
of Interstate Highway 85 said point being marked by a 1/2 inch reinforcement bar
found; run thence south 30 DEG. 45'20" east a distance of 260.16 feet to a point
said point being marked by a 1/2 inch reinforcement bar found and located on the
land lot line common to Land Lot 217 and Land Lot 194 of the aforesaid district;
run thence south 58 DEG. 44'15" west along said land lot line a distance of
500.54 feet to a point said point being marked by a 1/2 inch reinforcement bar
found; run thence north 31 DEG. 16'39" west and leaving said land lot line a
distance of 265.18 feet to a point said point being located on the southeast
right of way line of said Warren Drive; run thence along said right of way line
north 59 DEG. 21' 24" east a distance of 293.03 feet to a point; thence
continuing along said right of way north 59 DEG. 14'40" east run a distance of
209.90 feet to a point, said point being identified by a 1/2 inch reinforcement
bar found and the TRUE POINT OF BEGINNING as shown on that certain plat of
survey made for SIMMONS U.S.A. CORPORATION by A.A. Katterhenry, Registered
Land Surveyor, dated Nov. 6, 1986.
<PAGE>
Norcross, Georgia - 6424 Warren Drive
Term: 9-1-77 to 8-31-87
Rent: $40,248 per year; $3,354 per month;
$1.30 per sq.ft. plus increased Real Estate taxes over base year
1978, increased insurance due to occupancy, water and sewer all
prorated on ratio of our space to 56,690 sq.ft. or 54.6%.
Area: 30,960 sq.ft.
7,250 sq.ft. finished office space
balance warehouse or light
manufacturing space.
Options: Two options to renew for 5 years each with advice 90 - 120 days
prior to expiration at a 5% per year increase during options.
Assignment/Subletting: With prior written consent of landlord.
Taxes: 1980 charge to Simmons - $167.73.
EXHIBIT 10.49
DOWN PRODUCTS TRADEMARK LICENSE AGREEMENT
-----------------------------------------
THIS TRADEMARK LICENSE AGREEMENT ("Agreement") is made and entered
into as of the 1st day of January, 1995, by and between SIMMONS COMPANY, a
Delaware corporation having its principal offices at One Concourse Parkway,
Suite 600, Atlanta, Georgia 30328 (hereinafter the "Licensor"), and
LOUISVILLE BEDDING CO., a Delaware corporation, having its principal
offices at 10400 Bunsen Way, Louisville, Kentucky 40299 ("Licensee").
RECITALS:
--------
A. Licensor and Licensee entered into an Amended and Restated
Trademark License Agreement dated November 28, 1990 (subsequently thrice
amended, (No. 1) on February 15, 1993, (No.2) on April 15, 1990, and (No.
3) on November 21, 1994) ("Non-Down Agreement") under which Licensor
granted Licensee a license to use certain trademarks in connection with
certain bedding accessories, excluding, however, down products.
B. Licensor and Licensee entered into a license agreement covering
certain down products on January 4, 1991 (subsequently amended (No. 1) on
February 15, 1993 and (No. 2) on December 20, 1993), which license
terminated on December 31, 1994.
C. Licensor and Licensee wish to enter into a license agreement
covering certain down products in accordance with the terms and conditions
hereinafter set forth.
D. Licensor has the sole and exclusive right to the use of the
marks BEAUTYREST and BEAUTY SLEEP, as more fully described in Exhibit A
hereto in connection with certain Products (as hereinafter defined)
(hereinafter designated as the "Trademarks") in the fifty (50) United
States and the District of Columbia (hereinafter designated as the
"Territory") and the right to grant licenses to others for the use of the
Trademarks. For purposes of this Agreement, the term "Products" shall
include comforters, mattress covers and standard bed pillows designed and
used for sleeping (which shall exclude without limitation, decorative and
health pillows); provided, however, that notwithstanding the foregoing, the
term "Products" shall include only products that may be designated as
containing filling material made of "Down". For purposes of this Agreement,
the term "Down" shall have the meaning set forth in Guides 1 and 6 of The
Federal Trade Commission "Guides For The Feather And Down Products
Industry" promulgated October 29, 1971, a copy of which is attached hereto
as Exhibit B.
E. Licensee wishes to manufacture, market, distribute and sell
under the Trademarks the Products in the Territory.
F. Licensor is willing to grant Licensee a license to manufacture,
market, distribute and sell the Products under the Trademarks within the
United States under the terms and conditions of this Agreement.
<PAGE>
AGREEMENT:
---------
NOW, THEREFORE, the parties hereby agree as follows:
1. Grant of License; Extent of License.
------------------------------------
(a) Grant of License. Subject to the rights of third parties, if
----------------
any, as set forth in Schedule 1 hereto, and pursuant to the terms of this
Agreement, Licensor hereby grants an exclusive license (the "License"),
without the right to sublicense, for the use of the Trademarks on the
Products in connection with the manufacture, advertising, marketing, sale
and distribution of the Products by Licensee in the Territory. Licensee
shall limit its manufacture, sales and distribution of Products to the
Territory and shall not sell the Products to anyone it has reason to
believe is purchasing the Products for export outside the Territory. In the
event of any dispute between the parties to this Agreement regarding the
definition of the Products, the final decision regarding such definition
shall rest in Licensor's sole and absolute discretion. The rights granted
to Licensee herein are limited to use on or in connection with the
Products, and Licensee specifically agrees not to use the Trademarks in any
manner or on any product, service or item, except as set forth in this
Agreement. Notwithstanding anything in the foregoing to the contrary,
Licensee shall be entitled to subcontract others to manufacture the
Products to be sold by Licensee under the Trademarks.
(b) Extent of License. Subject to the rights of third parties,
-------------------
if any, as set forth in Schedule 1 hereto, Licensor shall not, nor shall it
license another to, manufacture, market, distribute or sell any of the
Products under the Trademarks within the Territory during the Term (as
hereinafter defined). Licensor, however, retains the right to manufacture,
advertise, market, distribute and sell, or license others to manufacture,
advertise, market, distribute and sell, 1) items other than the products
under the Trademarks within or without the Territory or 2) the Products
under the Trademarks outside of the Territory.
2. Term. This Agreement shall commence as of January 1, 1995 and
----
shall expire on December 31, 1995, unless sooner terminated as provided in
paragraphs 6 or 9 of this Agreement (the "Term"), or unless, extended by
the mutual consent of the parties thereto, on conditions to be negotiated
before December 1, 1995.
3. Maintenance of Product Quality.
-------------------------------
(a) Standards. Licensee shall manufacture, distribute and sell
---------
the Products under the Trademarks in accordance with quality standards,
specifications, directions and processes set forth by Licensee from time to
time and reasonably acceptable to Licensor (the "Standards").
Notwithstanding the foregoing, the trademark "BEAUTYREST" shall be used
only in connection with Products of higher quality compared to other
Products distributed
<PAGE>
and sold by Licensee in the Territory, while the trademark "BEAUTYSLEEP"
shall be used only in connection with Products of middle-level quality
compared to other Products distributed and sold by Licensee in the
Territory. Without Licensor's prior written consent, the Licensee shall not
sell the Products to wholesalers, jobbers or to anyone it believes is
purchasing the Products for transshipment to other retailers, and all sales
will be made directly to retail outlets.
(b) Inspection. Licensee shall permit duly authorized
----------
representatives of Licensor to have access to Licensee's facilities during
normal business hours for the purpose of inspecting the Products in
manufacture and completed Products to determine whether the Products are in
accordance with the Standards.
(c) Specimens and Samples. Upon request by Licensor, but not
---------------------
more frequently than every four (4) months, Licensee shall submit to
Licensor, or its duly authorized representative, not less than two (2)
randomly selected production run samples of each Product which Licensee
intends to sell under the Trademarks. If Licensor determines that the
sample fails to comply with the Standards, Licensor must promptly notify
Licensee of the deficiency within 20 days of Licensor's receipt of such
sample. If Licensor fails to disapprove within the 20-day period any sample
submitted to it, such sample shall be deemed to be in compliance with the
Standards.
(d) Quality Consistency. Without the prior written approval of
-------------------
Licensor, Licensee shall not sell or distribute any Product sold under the
Trademarks that deviates from the Standards to a greater extent than would
occur as a result of normal deviations in raw material characteristics and
to a greater extent than results from manufacturing deviations that would
not cause such Product to become a manufacturing "second". Notwithstanding
the foregoing, pillow ticking with substandard printing may be used in the
manufacturing and sale of pillows provided they are clearly marked as
"Seconds" or "Irregular" before sale to the retail trade or end-consumer as
applicable.
4. Use of Trademarks.
------------------
(a) Manner of Trademark Usage. Licensee agrees that the
-------------------------
Trademarks shall be physically affixed or attached to the Products sold
under the Trademarks in such a manner so as to at all times preserve the
validity of the Trademarks, and that Licensee shall not do any act that
will in any way impair or adversely affect the validity of the Trademarks.
Licensee shall not use any other name or trademark in association with the
Trademarks, either on the Products, or in connection with the packaging for
the Products, or in connection with any consumer advertising and publicity,
which shall consist of the name of any person, firm or corporation.
Licensee shall provide Licensor samples of all literature,
3
<PAGE>
packages, labels and labelings prepared by Licensee. If Licensor fails to
object to any label, package or literature submitted to it within 20 days
following receipt by it of such materials, Licensor shall be deemed to have
approved such material for use by Licensee.
(b) Reference to Ownership. Licensee shall use on the Products
----------------------
such legends as Licensor shall require to indicate that the Products and
use of the Trademarks is pursuant to license from Licensor. All Products,
labels, hangtags, packaging, advertising and the like must bear appropriate
notices such as the following unless otherwise specified or agreed to by
Licensor:
i. BEAUTYREST -REGISTERED TRADEMARK- is a registered trademark
of Simmons Company; or
ii. "Licensed Article" manufactured by Louisville Bedding Co.
under exclusive license from Simmons Company, the trademark
owner.
5. Advertising. All advertising by Licensee in any medium shall be
-----------
conducted in a dignified manner. Licensee shall have the authority to
direct all advertising programs with discretion over the creative concepts,
materials and media used in such a program, subject to Licensor's review.
Licensee shall use its best efforts to monitor such advertising by its
customers and shall terminate sales of Products to any customers which
persistently misuse the Trademarks.
6. Infringement of Trademark; Registration of Licensee.
----------------------------------------------------
Infringement. (i) Licensee shall apprise Licensor immediately
------------
upon discovery of any possible infringement of the Trademarks, or any act
of unfair competition by third parties relating to the Trademarks, whenever
such infringement or act shall come to Licensee's attention. After receipt
of such notice from Licensee, Licensor may, in Licensor's discretion, take
such action to stop such infringement or act as Licensor may deem necessary
to protect the Trademarks for use on Products within the Territory. In
connection therewith, Licensee shall cooperate fully with Licensor to stop
such infringement or act and, if so requested by Licensor, shall join with
Licensor as a party to any action brought by Licensor for such purpose.
Licensor shall have full control over any action taken, including, without
limitation, the right to select counsel, to settle on any terms it deems
advisable in its discretion, to appeal any adverse decision rendered in any
court, to discontinue any action taken by Licensor, and otherwise to make
any decision in respect thereto as it in its discretion deems advisable.
Licensor shall bear all expenses connected with the foregoing, except that
if Licensee desires to retain its own counsel, it shall do so at its own
expense. If, after deducting all expenses, including all of Licensor's
reasonable counsel fees and other litigation expenses, there is a net
recovery resulting
4
<PAGE>
from such an action, Licensee shall be entitled to damages specifically
allocated to Licensee net of said expenses and fees or ten percent of said
net recovery, whichever is greater.
(ii) Licensor shall have the sole power to take or omit to take
legal or other action, before any court or governmental authority or
otherwise, with respect to infringement of or the protection of the
Trademarks and if Licensor shall determine, in its discretion, that it
would not be in the best interests of Licensor's business, viewed as a
whole, to take any such action, Licensor may determine to omit from taking
such action. Further, Licensor reserves the right to settle any claim
asserted against it or Licensee based upon Licensee's use of the Trademarks
by agreeing to an injunction with respect to the use of the Trademarks in
connection with one or more of the Products.
(iii) Prior to taking or omitting to take any action which shall
affect in any manner Licensee's right to use the Trademarks under the terms
of this Agreement, Licensor shall advise Licensee of Licensor's decision.
If, in Licensee's reasonable judgment, its rights under this Agreement
would be materially impaired as a result of Licensor's actions or
omissions, Licensee shall have the option, for a period of 60 days
following notice from Licensor, either to: (a) have the royalties due
hereunder ratably and equitably reduced to such lower rates as the parties
may agree to reflect any restriction on the scope of Licensee's rights
hereunder as a result of Licensor's actions or failures so to act or to
reflect diminution in the value of the license granted hereby, taking into
account, among other factors, the volume of the allegedly infringing
merchandise, the costs and expenses which would likely be incurred in any
effort to stop such infringement, and the likelihood of success of any such
effort; or (b) terminate the License and collect from Licensor all of
Licensee's out-of-pocket expenses reasonably incurred in connection with
the termination of this License. If, within 90 days after notice by
Licensee to Licensor of Licensee's election to have the royalties reduced,
the parties have not reached agreement regarding such reduction, then the
issue shall be submitted to arbitration in accordance with the provisions
of paragraph 6(b) hereof.
7. Royalty Payment; Records.
-------------------------
(a) Royalty. Subject to any applicable minimum royalties
-------
payable pursuant to paragraph 7 (d) hereof, Licensee shall pay Licensor as
a royalty for the License six (6) percent of the aggregate Net Selling
Price of the Products sold in 1995 under the Trademarks within the
Territory.
"Net selling price" shall mean the invoice price less (i) quantity and cash
discounts actually allowed thereon, (ii) refunds for returned items, (iii)
sales and excise taxes and (iv) allowances for cooperative advertising
directly relating to the Products. For
5
<PAGE>
purposes of this Agreement, the royalty shall accrue on the sale of the
Products, and the Products shall be considered sold when billed by
Licensee.
(b) Payment of Royalty. Within 30 days after the close of each
------------------
calendar quarter within the Term, Licensee shall furnish Licensor with a
royalty statement showing the total number of Products sold under the
Trademarks during the immediately preceding calendar quarter, listing total
royalties earned by Licensor and all deductions from the gross selling
price of Products as listed in paragraph 7(a). At the time of furnishing
such statement, Licensee shall remit to Licensor the royalties earned as
shown by such statement. The first statement shall include all Products
sold under the Trademarks within the Territory between the date hereof and
the expiration of the first full calendar quarter thereafter.
Notwithstanding the foregoing, beginning for the quarter ended March 31,
1995 and for each calendar quarter thereafter, Licensee shall pay Licensor
within 30 days after the close of each such quarter the greater of (i)
actual royalties earned and payable for that quarter or (ii) 25% of the
minimum annual royalty specified in paragraph 7(d) hereof.
(c) Maintenance of Records. Licensee shall maintain and
----------------------
preserve, for at least three years after the royalty payments are made,
complete records sufficient to determine royalty payments hereunder, in
accordance with generally accepted accounting principles applied on a
consistent basis. Licensor shall be permitted access to such records at
any time during normal business hours on 30 days' prior written notice to
Licensee unless Licensee objects. Upon such an objection, such access to
such records shall be limited to an independent certified public accountant
of Licensor's choice, the expense of which shall be shared by Licensor and
Licensee equally. If an audit of Licensee's books by an independent
certified public accountant shows an underpayment to Licensor of greater
than three percent (3%), then in addition to the payment of the
underpayment and interest, Licensee will also pay the entire costs incurred
by Licensor in performing the audit.
(d) Minimum Royalties. The Licensee shall pay the Licensor
-----------------
minimum annual royalties during the Term of the Agreement as specified
herein. Such minimum royalties shall be paid on a quarterly basis within
thirty (30) days of the end of each relevant calendar quarter as specified
in paragraph 7(b) above. For the calendar year 1995, the minimum royalty
shall be $50,000.00.
8. Indemnification.
---------------
(a) By Licensee. Licensee shall indemnify Licensor against,
-----------
and hold it harmless from, all claims, demands, actions, causes of action,
proceedings, damages, losses, expenses (including legal expenses) and
judgments of any kind or nature incurred by
6
<PAGE>
Licensor arising out of or resulting from the activities of Licensee under
this Agreement, including any products liability claim.
(b) By Licensor. Licensor shall indemnify Licensee against,
-----------
and hold it harmless from, all claims, demands, actions, causes of action,
proceedings, damages, losses, expenses (including legal expenses) and
judgments of any kind or nature incurred by Licensee arising out of or
resulting from Licensee's use of the Trademarks pursuant to and in
compliance with this Agreement. Licensor shall not be responsible for lost
profits or damage to Licensee's goodwill which may result in the event
Licensee is enjoined from using any of the Trademarks.
(c) Right of Set-off. Upon the occurrence of any event for which
----------------
either party is entitled to indemnification by the other under the
provisions of this Agreement, the party entitled to indemnification shall
have all of the rights and remedies available to it at law, in equity, in
bankruptcy or otherwise and, in addition, shall have the right to off-set
the amount for which it is entitled to indemnification against any amount
that it may at any time owe the other.
(d) Notice. Each party agrees to promptly notify the other party
------
in the event a claim is asserted against it which may invoke any of the
provisions of this paragraph.
(e) Defenses. Once one party (the "Indemnifying Party") has
--------
taken reasonable steps to defend or otherwise resolve a claim made against
the other party, and so notified the other party, any legal expenses
incurred by the other party after such notification shall be for its own
account unless the Indemnifying Party has discontinued taking such
reasonable steps to resolve said claims.
9. Termination.
-----------
(a) By Licensor. Licensee shall be in default and Licensor
-----------
may terminate, at its option, the License and all rights granted Licensee
hereunder, if Licensee fails to pay any sum when due, or makes any false
reports or commits any material breach of any covenant contained herein,
and fails to remedy such breach within 30 days after receipt of notice from
Licensor specifying the nature of the breach; provided, however, that if
the nature of the default is curable but is such that it cannot be cured
within 30 days, Licensee shall have a reasonable additional time to effect
such cure, upon the condition that Licensee shall proceed diligently and
continuously to effect same. Licensor shall have the right to terminate the
Agreement immediately upon notice in the event of a wilful breach of any
covenant of this Agreement by Licensee.
(b) By Licensee. Licensor shall be in default and
-----------
7
<PAGE>
Licensee may terminate, at its option, the Agreement if Licensor commits
any material breach of any covenant contained herein, and fails to remedy
such breach within 30 days after receipt of notice from Licensee specifying
the nature of the breach.
(c) Continuance of Use of Trademarks. On termination or
--------------------------------
expiration of the Agreement for any reason, Licensee shall have, for a
period of 90 days thereafter, the right to dispose of all unsold Products
embodying or bearing the Trademarks that were completed by it prior to the
termination or expiration of the Term. Thereafter, Licensee shall
discontinue use of the Trademarks and shall no longer use or have any right
to use the Trademarks or any formulative thereof which may be confusingly
similar to the Trademarks. After expiration of the 90-day period
following termination or the expiration of the Term, any accrued and unpaid
royalties for Products sold during the Term or during the 90-day period
after termination or expiration of the Term shall become due and payable
immediately.
10. Ownership of Trademarks. Licensee acknowledges Licensor's
-----------------------
exclusive right, title and interest in and to the registrations of the
Trademarks and its sole and exclusive right to the use thereof and will not
at any time do or cause to be done any act or thing contesting or in any
way impairing or tending to impair any part of such right, title and
interest. In connection with the use of the Trademarks, Licensee shall not
in any manner represent that it has any ownership in the Trademarks or
registrations thereof. Licensee acknowledges that use of the Trademarks
shall not create in Licensee's favor any right, title or interest in or to
the Trademarks. All uses of the Trademarks by Licensee shall inure to the
benefit of Licensor.
11. Sleep Galleries. Notwithstanding anything to the contrary in
---------------
this Agreement, Licensor shall be permitted to manufacture, market, sell or
distribute the Products under the Trademarks, either within or without the
Territory, or otherwise, for, to or through Licensor's Sleep Gallery retail
stores, whether such stores are operated and/or owned by Licensor,
Licensor's authorized dealers or franchisees, or by others.
12. Notices. Any notices required or permitted to be given under this
-------
Agreement shall be in writing and shall be personally delivered, mailed by
certified or registered mail, postage prepaid, or deposited with a
reputable overnight delivery service addressed to the party to be notified
at its address shown at the beginning of this Agreement, or at such other
address as may be furnished in writing by either party to the other.
Notice delivered in compliance herewith shall be deemed delivered upon
personal delivery or upon deposit with the U.S. mail or a reputable
overnight delivery service, except that notice of change of address shall
not be deemed delivered until actual receipt by the intended recipient.
8
<PAGE>
13. Miscellaneous Provisions.
-------------------------
(a) Governing Law; Arbitration. Without reference to any
--------------------------
provisions relating to conflicts of law, this Agreement and all rights and
obligations of the parties herein shall be construed and enforced in
accordance with the laws of the Commonwealth of Kentucky should Licensor
bring an action against Licensee based upon this Agreement, and in
accordance with the laws of the State of Georgia should Licensee bring such
an action against Licensor. In the event that any dispute, controversy or
claim arises out of or relates to this Agreement including without
limitation, dispute under paragraph 6 of this Agreement arising from the
parties' failure to reach agreement regarding a reduction in the royalty
rate to reflect any restriction on the scope of Licensee's rights under the
Agreement as a result of Licensor's decision not to take action against a
third party that is infringing the Trademarks and the same cannot be
settled through negotiation, the parties first shall attempt in good faith
to settle such dispute by mediation administered by the American
Arbitration Association under its Commercial Mediation Rules. In the
event the parties are unsuccessful in resolving such dispute through
mediation, the parties shall submit to arbitration in Atlanta, Georgia
administered by the American Arbitration Association, under its Commercial
Arbitration Rules before a single arbitrator if the parties shall agree
upon one, or by one arbitrator appointed by each party and a third
arbitrator designated by the other arbitrators. In case of any failure
of a party to make an appointment of an arbitrator, or of the two
arbitrators to agree upon a third arbitrator, in either such case within
two (2) weeks after commencement of the arbitration, such appointment shall
be made by the American Arbitration Association in Atlanta, Georgia. Unless
otherwise agreed by the parties hereto, all such arbitration proceedings
shall be held in Atlanta, Georgia. In any such arbitration, the parties
agree that document discovery shall be permitted at the discretion of the
Arbitrator, but in no event shall depositions be taken. Each party agrees
to comply with any award made in any such proceeding and to the entry of a
judgment in any court having jurisdiction over arbitration proceedings upon
any award rendered in such proceeding. The decision of the arbitrators
shall be rendered within thirty (30) days after the final submissions of
the parties. The allocation of expenses of the arbitration, including
reasonable attorney's fees, shall be determined by the arbitrator(s), or in
the absence of such determination, each party shall pay its own expenses.
(b) Assignment. This Agreement may be assigned by Licensee in
----------
connection with a merger, consolidation or sale of substantially all the
business and assets of Licensee unless said assignment is, in Licensor's
reasonable judgment, to a direct competitor of Licensor. Licensee agrees to
provide prompt notice to Licensor of any such assignment. The Agreement
shall not otherwise be assignable by Licensee in the absence of Licensor's
9
<PAGE>
prior written consent. Licensor may assign this Agreement and its rights
and obligations herein without the prior written consent of Licensee.
Subject to the foregoing, this Agreement shall inure to the benefit of, and
be binding upon, the parties and their respective successors and assigns.
Any sale of assets by Licensor including the Trademarks shall be subject to
the obligations of this Agreement.
(c) Independent Contractor Relationship. The parties understand
-----------------------------------
and agree that this Agreement does not create a fiduciary relationship
between them, that Licensee shall be an independent contractor of Licensor
and that nothing in this Agreement is intended to constitute either party
as an agent, legal representative, subsidiary, joint venturer, partner,
employee or servant of the other for any purpose whatsoever. During the
Term, Licensee shall hold itself out to the public as an independent
contractor operating pursuant to a license agreement. Licensee and Licensor
understand and agree that nothing in this Agreement authorizes either to
make any contract, agreement, warranty or representation for or on behalf
of the other, or to incur any debt or obligation in the other's name.
(d) Entire Agreement; Amendment. This Agreement constitutes
---------------------------
the entire agreement between Licensor and Licensee concerning its subject
matter. It supersedes all prior agreements, correspondence, representations
and writings regarding its subject matter. No amendment, modification or
supplement of this Agreement shall be binding unless executed in writing by
both of the parties hereto.
(e) Waiver. Any failure by either party to exercise any right
------
created hereby shall not constitute a waiver by that party of such right.
No waiver by either party of any provision of this Agreement shall be
deemed, or will constitute, a waiver of any other provision, whether or not
similar, nor will any waiver constitute a continuing waiver. No waiver will
be binding unless executed in writing by the party making the waiver.
(f) Severability of Provisions. If any provision of this
--------------------------
Agreement is held to be illegal, invalid or unenforceable under present or
future laws, such provisions shall be fully severable. The Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provisions had never comprised a part of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and effect and
shall not be affected by the legal, invalid, or unenforceable provision or
by its severance from this Agreement. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there shall be added automatically as
part of this Agreement, a provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid
or enforceable.
10
<PAGE>
(g) Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original, all of
which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first written above.
SIMMONS COMPANY
By: /s/ John Peterken
-----------------------------
Title: V.P. International
--------------------------
LOUISVILLE BEDDING CO.
By: /s/ Christian F. Rapp
-----------------------------
Title: Sr V.P., Finance
--------------------------
11
<PAGE>
Schedule 1
----------
1. Agreement dated June 29, 1990 among Simmons Company, Simmons I. P.,
Inc. and Simmons Canada, Inc. which permits the licensee thereunder to
manufacture (not sell, market or distribute) products in the United
States for export to and sale in Canada under certain of the Canadian
counterparts to the Trademarks.
2. Agreement dated May 21, 1990 between Simmons Company and Compania
Simmons S.A. de C.V. which permits the licensee thereunder to
manufacture (not sell, market or distribute) products in the United
States for export to and sale in Mexico under certain of the Mexican
counterparts to the Trademarks.
12
<PAGE>
Exhibit A
---------
Trademark Name Registration No. Registration Expiration
-------------- ---------------- -----------------------
BEAUTYREST 512,535 July 19, 2009
BEAUTY SLEEP 1,198,771 June 22, 2002
13
<PAGE>
Exhibit B
---------
Federal Trade Commission
GUIDES FOR THE
FEATHER AND DOWN
PRODUCTS INDUSTRY
Promulgated October 29, 1971
<PAGE>
AMENDMENT NUMBER THREE TO
AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT
THIS AMENDMENT NUMBER THREE TO AMENDED AND RESTATED TRADEMARK
LICENSE AGREEMENT ("Amendment"), made and entered into as of the 21st day
of November, 1994, by and between SIMMONS COMPANY, a Delaware corporation
having its principal offices at One Concourse Parkway, Suite 600, Atlanta,
Georgia 30328 ("Licensor"), and LOUISVILLE BEDDING CO., a Delaware
corporation having its principal offices at 10400 Bunsen Way, Louisville,
Kentucky 40299 ("Licensee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Licensor and Licensee entered into a certain Trademark
License Agreement dated as of April 14, 1986, which agreement was revised
and restated by that certain Amended and Restated Trademark License
Agreement dated as of November 28, 1990, as amended by Amendment Number One
to Amended and Restated Trademark License Agreement dated as of February
15, 1993, and Amendment Number Two to Amended and Restated Trademark
License Agreement dated as of April 15, 1994, (such agreement together with
all such amendments being referred to hereinafter collectively as the
"License Agreement");
WHEREAS, the parties hereto desire to further amend certain terms
and conditions of the License Agreement; and
WHEREAS, Section 12(d) of the License Agreement permits the
License Agreement to be amended by a writing executed by both the parties
thereto, and both parties are desirous of amending certain provisions of
the License Agreement;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Capitalized Terms. Capitalized terms used herein and not
-----------------
otherwise defined herein shall have the meaning ascribed to such terms in
the License Agreement.
2. Amendments.
----------
(a) For purposes of amending the term "Products" as defined
in Recital C on the first page of the License Agreement, the following
shall be inserted beginning at line 11 of Recital C immediately following
the parenthetical:
<PAGE>
"sheets, pillow cases, pillow shams, textile window
treatments, synthetic filled comforters and duvet covers and
decorative pillows that coordinate with bedding products"
In addition, the following shall be inserted at line 8 of
Recital C immediately following the words "mattress pads":
"(specifically excluding automatic, electric heating pads)"
(b) Section 7(a) of the License Agreement shall be and
hereby is amended by inserting the following at the end of Section 7(a):
Notwithstanding the above royalty payment schedule, the
parties hereto agree that royalties on sheets, pillow cases,
pillow shams, textile window treatments, synthetic filled
comforters and duvet covers and decorative pillows that
coordinate with bedding products shall be paid by Licensee
on a trial basis for a two and a half (2 1/2) year period
beginning on January 1st, 1995, during which period a five-
percent (5%) rate on net sales shall apply.
3. Affirmation of License Agreement. Except as herein expressly
--------------------------------
amended, the License Agreement shall continue in full force and effect
without change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first written above.
SIMMONS COMPANY
By: /s/ John Peterken
-------------------------
John P. Peterken
Vice President International
LOUISVILLE BEDDING CO.
By: /s/ Christian F. Rapp
-------------------------
Title: Sr. V.P. Finance
----------------------
2
<PAGE>
AMENDMENT NUMBER THREE TO
AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT
THIS AMENDMENT NUMBER THREE TO AMENDED AND RESTATED TRADEMARK
LICENSE AGREEMENT ("Amendment"), made and entered into as of the 4th day of
November, 1994, by and between SIMMONS COMPANY, a Delaware corporation
having its principal offices at One Concourse Parkway, Suite 600, Atlanta,
Georgia 30328 ("Licensor"), and LOUISVILLE BEDDING CO., a Delaware
corporation having its principal offices at 10400 Bunsen Way, Louisville,
Kentucky 40299 ("Licensee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Licensor and Licensee entered into a certain Trademark
License Agreement dated as of April 14, 1986, which agreement was revised
and restated by that certain Amended and Restated Trademark License
Agreement dated as of November 28, 1990, as amended by Amendment Number One
to Amended and Restated Trademark License Agreement dated as of February
15, 1993, and Amendment Number Two to Amended and Restated Trademark
License Agreement dated as of April 15, 1994, (such agreement together with
all such amendments being referred to hereinafter collectively as the
"License Agreement");
WHEREAS, the parties hereto desire to further amend certain terms
and conditions of the License Agreement; and
WHEREAS, Section 12(d) of the License Agreement permits the
License Agreement to be amended by a writing executed by both the parties
thereto, and both parties are desirous of amending certain provisions of
the License Agreement;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Capitalized Terms. Capitalized terms used herein and not
-----------------
otherwise defined herein shall have the meaning ascribed to such terms in
the License Agreement.
2. Amendments.
----------
(a) For purposes of amending the term "Products" as defined in
Recital C on the first page of the License Agreement, the following shall
be inserted beginning at line 11 of Recital C immediately following the
parenthetical:
"sheets, pillow cases, pillow shams, synthetic filled
comforters and duvet covers and decorative pillows that
<PAGE>
coordinate with bedding products"
In addition, the following shall be inserted at line 8 of
Recital C immediately following the words "mattress pads":
"(specifically excluding automatic, electric heating pads)"
(b) Section 7(a) of the License Agreement shall be and
hereby is amended by inserting the following at the end of Section 7(a):
Notwithstanding the above royalty payment schedule, the
parties hereto agree that royalties on sheets, pillow cases,
pillow shams, synthetic filled comforters and duvet covers
and decorative pillows that coordinate with bedding products
shall be paid by Licensee on a trial basis for a two (2)
year period beginning on 1st of January, 1995 during which
period a five-percent (5%) rate on net sales shall apply.
3. Affirmation of License Agreement. Except as herein expressly
--------------------------------
amended, the License Agreement shall continue in full force and effect
without change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first written above.
SIMMONS COMPANY
By:
----------------------------
John P. Peterken
Vice President International
LOUISVILLE BEDDING CO.
By:
----------------------------
Title:
--------------------------
2
<PAGE>
AMENDMENT NUMBER TWO TO
AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT
("the Amendment") is made and entered into as of this 15th day of April,
1994, by and between SIMMONS COMPANY, a Delaware corporation having its
principal offices at One Concourse Parkway, Suite 600, Atlanta, Georgia
30328 ("Licensor"), and LOUISVILLE BEDDING CO., a Delaware corporation
having its principal offices at 10400 Bunsen Way, Louisville, Kentucky
40299 ("Licensee"). Capitalized terms used herein and not otherwise defined
herein shall have the meaning given thereto in the License Agreement, as
hereinafter defined.
RECITALS
--------
WHEREAS, Licensor and Licensee entered into a Trademark License
Agreement dated April 14, 1986, as amended by Amended and Restated
Trademark License Agreement dated November 28, 1990 (the "License
Agreement"), and by Amendment Number One to Amended and Restated Trademark
License Agreement dated February 15, 1993 (jointly the "Revised License
Agreement") in which Licensor licensed to Licensee certain rights relating
to Products; and
WHEREAS, subsequent to the execution of the License Agreement and
Amendment Number One, the parties have decided to amend certain terms and
conditions of the License Agreement; and
WHEREAS, Section 12(d) of the License Agreement permits the License
Agreement to be amended by a writing executed by both the parties thereto,
and both parties are desirous of amending certain provisions of the License
Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Amendments. Bed ruffles shall be added to the products
----------
identified, in lines eight (8) through eleven (11) of RECITAL:C on the
first page of the License Agreement, as being included in the term
"Products". The remainder of RECITAL:C continues unchanged.
2. Effects on Other Terms and Provisions. To the extent that the
-------------------------------------
terms and provisions of the Revised License Agreement are not inconsistent
with or contradictory to the revision contained herein, the parties hereto
hereby ratify and confirm each and every such term and provision of the
Revised License Agreement. The Revised License Agreement, as amended
hereby, shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Amendment to be executed, intending to be legally bound thereby, by its
duly authorized representative as of the day and year first written above
SIMMONS COMPANY
By: /s/ Ron Passaglia
---------------------------
Title: Sr. Ex. V.P.
------------------------
LOUISVILLE BEDDING CO.
By: /s/ Christian F. Rapp
---------------------------
Title: Sr. V.P. Finance Administration
--------------------------------
Exhibit 10.51
TRADEMARK LICENSE AGREEMENT
dated as of July 13, 1990
BY AND BETWEEN
SIMMONS COMPANY
AND
SIMMONS UPHOLSTERED FURNITURE INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - Grant of Licenses . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 - Grant of Trademark Licenses
Section 2.2 - Licensed Territory
Section 2.3 - Affiliates Rights
ARTICLE III - Sleep Galleries . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV - Royalties . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V - Warranties and Covenants . . . . . . . . . . . . . . . . . 7
Section 5.1 - Licensor's Warranties and Covenants
Section 5.2 - Sales by Others in Licensed Territory
ARTICLE VI - Enforcement . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.1 - Unauthorized Use of Licensed Trademarks by a Third
Party
Section 6.2 - Claims of Infringement by a Third Party
Section 6.3 - Violation by Licensor
ARTICLE VII - Setoff Rights . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VIII - Term and Termination . . . . . . . . . . . . . . . . . 12
Section 8.1 - Term
Section 8.2 - Termination by Licensor
Section 8.3 - Reversion of Licenses
Section 8.4 - Acknowledgement of Damage
Section 8.5 - Insufficient Use of a Trademark
ARTICLE IX - Dispute Resolution . . . . . . . . . . . . . . . . . . . 14
ARTICLE X - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 15
Section 10.1 - Construction
Section 10.2 - Governing Law
Section 10.3 - Transfer and Assignment
Section 10.4 - License Agreement Only
Section 10.5 - Notices
Section 10.6 - Amendment and Modification
Section 10.7 - Entire Agreement
Section 10.8 - Severability
Section 10.9 - Counterparts
SCHEDULE A - Other Trademarks
SCHEDULE B - Sleep Gallery License Agreement
SCHEDULE C - Existing Agreements
SCHEDULE D - Liens and Encumbrances
SCHEDULE E - Other Licenses
SCHEDULE F - Foreign Licenses
<PAGE>
TRADEMARK LICENSE AGREEMENT
---------------------------
THIS TRADEMARK LICENSE AGREEMENT is made and entered into as of the
13th day of July, 1990, by and between SIMMONS COMPANY, a Delaware
corporation ("Licensor"), and SIMMONS UPHOLSTERED FURNITURE INC., a
Delaware corporation ("Licensee").
RECITALS:
---------
A. Licensor, SMU, Inc. (an Affiliate of Licensor), Licensee and
Townhouse-Penthouse Industries, Inc. (an Affiliate of Licensee) have
entered into an "Asset Purchase Agreement" dated as of July 6, 1990,
pursuant to which Licensee is purchasing (i) certain assets of SMU, Inc.
("Seller") used incident to the manufacture and sale of Upholstered
Products, and (ii) certain trademarks, trade names, patents and goodwill of
Licensor utilized by Seller incident to the manufacture and sale of
Upholstered Products.
B. Licensor has represented to Licensee that it is the owner of
the entire right, title and interest in and to the United States
Trademarks SIMMONS(R), U.S. Trademark Registration Nos. 532,319 and
548,280, and the goodwill associated therewith (such trademarks, and all
new registrations, applications for registration, new uses and variations
of these trademarks, as updated from time to time, being hereafter referred
to as the "SIMMONS(R) Trademarks").
C. Licensor has represented to Licensee that it is the owner of the
entire right, title and interest in and to certain other trademarks set
forth in Schedule A attached hereto, and the goodwill associated therewith
-----------
(such trademarks, and all new registrations, applications for registration,
new uses and variations of these trademarks, as updated from time to time,
being hereafter referred to as the "Other Trademarks").
D. Licensee is desirous of obtaining a license from Licensor to
manufacture, package, market, and sell Upholstered Products which utilize
the SIMMONS(R) Trademarks and/or the Other Trademarks, and Licensor is
willing to license such trademarks to Licensee, according to the terms set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
provisions hereinafter set forth, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, and intending
to be legally bound hereby, the parties hereby agree as follows:
<PAGE>
ARTICLE I DEFINITIONS
-----------
Section 1.1. "Affiliate" with respect to any Person shall mean (i) any
-------------
other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with, such Person,
or (ii) the officers, directors or partners of such Person. For purposes
hereof, "control" means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract
or otherwise.
Section 1.2. "Bedding Products" means mattresses (excluding folding
-------------
mattresses used as components of Upholstered Products), box springs, day
beds which are not substantially upholstered, trundle beds which are not
substantially upholstered, water beds, hospital beds, adjustable beds,
juvenile beds, bunk beds, pillows and mattress pads (including without
limitation those used as components of Upholstered Products), bedding
components (including without limitation, headboards, frames and
platforms), related bedding accessories (including without limitation shams
and dust ruffles) and other bedding products (other than Upholstered
Products).
Section 1.3. "Competitor" of Licensor shall mean any Person whose
-------------
business (i) primarily consists of the sale or manufacture of Bedding
Products, or (ii) constitutes greater than four percent (4%) of the Bedding
Products business in the Licensed Territory, and "Competitor" of Licensee
shall mean any Person whose business (i) primarily consists of the sale or
manufacture of Upholstered Products, or (ii) constitutes greater than four
percent (4%) of the Upholstered Products business in the Licensed
Territory.
Section 1.4. "Licensed Products" shall mean Upholstered Products sold
-------------
under the Licensed Trademarks or under any trademark which is identical or
confusingly similar to any of the Licensed Trademarks.
Section 1.5. "Licensed Territory" shall mean the United States of
-------------
America, the District of Columbia and Puerto Rico.
Section 1.6. "Licensed Trademarks" shall mean (i) the SIMMONS(R)
-------------
Trademarks, (ii) the Other Trademarks, and (iii) the Combination Marks.
Section 1.7. "Non-Exclusive Products" means (i) mattresses (other than
-------------
folding mattresses used as components in Upholstered Products) which
presently or in the future may be used interchangeably as either Bedding
Products or as components of Upholstered Products, (ii) substantially
upholstered day beds and
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substantially upholstered trundle beds (including trundle beds that are
integrated components of substantially upholstered day beds), and (iii)
office furniture (to the extent manufactured and sold in an office
furniture business for the office furniture market) in the nature of desk
chairs, conference room chairs, stationary chairs and couches (but not of a
convertible nature).
Section 1.8. "Non UA Parent" shall mean a holding company without any
-------------
operating business which (i) meets the requirements in clauses (iv) and (v)
of the definition of Upholstery Affiliates; and (ii) has at least one
direct or indirect subsidiary which is an Upholstery Affiliate; provided,
however, that a Non UA Parent may become an operating company if and only
if it meets the requirements of an Upholstery Affiliate.
Section 1.9. "Person" shall mean any individual, corporation,
-------------
partnership, firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental or regulatory body or other
entity.
Section 1.10. "Restricted Bedding Products" shall mean Bedding Products
--------------
other than (i) mattresses which presently or in the future may be used
interchangeably as either Bedding Products or as components of Upholstered
Products, but only to the extent that such mattresses are used as
components of Upholstered Products sold by Licensee or its Affiliates (and
then only to the extent of such use), or (ii) pillows, mattress pads, shams
and dust ruffles which are original components in, or replacement
components for, any other Upholstered Product only to the extent that such
items themselves (as opposed to an Upholstered Product of which they are a
component) are not labelled as products utilizing any of the Licensed
Trademarks.
Section 1.11. "Sleep Galleries" shall mean the retail outlets, now or
--------------
hereafter in operation, and any successors thereto, from which Bedding
Products and certain Upholstered Products are sold at retail to the general
public under license from Licensor pursuant to license agreements
substantially in the form of Schedule B attached hereto, or such other form
-----------
as may be approved by Licensee, which said approval shall not be
unreasonably withheld.
Section 1.12. "Upholstered Products" means the following items of
---------------
upholstered furniture: convertible beds, substantially upholstered day
beds, substantially upholstered trundle beds (including trundle beds that
are integrated components of substantially upholstered day beds), sleep
sofas, recliners, incliners, motion furniture, chairs, sofas, couches,
love seats, sectional pieces, other upholstered seating items used or
usable for household purpose (regardless whether manufactured or sold as
household furniture, institutional furniture, contract furniture or
otherwise), and related components and accessories (including
-3-
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such items as cushions, slipcovers and casters, but excluding such items as
end tables and lamps) therefor (but including pillows, mattress pads, shams
and dust ruffles which are original components in, or replacement
components for, the foregoing products only to the extent that such items
themselves (as opposed to an Upholstered Product of which they are a
component) are not labelled as products utilizing any of the Licensed
Trademarks), folding mattresses sold as an original component in, or as a
replacement component for, any of the foregoing products, and all other
mattresses sold by Licensee or its Affiliates as an original component in,
or as a replacement component for, any of the foregoing products which
products are manufactured by or for Licensee or its Affiliates. Upholstered
Products shall not include (i) dining room chairs, dinette chairs, kitchen
chairs, and love chests and (ii) Bedding Products other than those
mattresses described above in accordance with the limitations described
above.
Section 1.13. "Upholstery Affiliate" shall mean any Affiliate with
--------------
respect to which the following requirements must be met, commencing with
the date on which the Affiliate becomes an Upholstery Affiliate and
continuing at all times thereafter, (i) at least ninety-five percent (95%)
of its net sales (on an unconsolidated basis) in each fiscal year consists
of sales of Upholstered Products, (ii) not more than five percent (5%) of
its net sales (on an unconsolidated basis) in each such fiscal year
consists of accessories to Upholstered Products used with room groupings
[e.g. tables (excluding dinettes), lamps, wicker and/or rattan products,
mirrors, etc.], (iii) all of its subsidiaries, if any, are Upholstery
Affiliates, (iv) neither it nor any direct or indirect lineal subsidiary
thereof is engaged in the Production of Restricted Bedding Products, and
(v) no Competitor of Licensor is a direct or indirect lineal parent of such
Affiliate (nothing set forth herein shall prevent a brother/sister
corporation or other non-parent Affiliate of a direct or indirect lineal
parent of an Upholstery Affiliate from being a Competitor of Licensor).
ARTICLE II
GRANT OF LICENSES
-----------------
Section 2.1 - Grant of Trademark Licenses. (a) Subject to the
------------ -----------------------------
provisions of this Section 2.1, Article III, and Schedule C attached
-----------
hereto, Licensor hereby grants to Licensee the exclusive and perpetual,
royalty-free (other than the Paid-Up Royalty described in Article IV)
right, license and privilege to (i) use the SIMMONS(R) Trademarks on or in
connection with the manufacture, sale, packaging, marketing, distribution,
advertisement and/or promotion (hereinafter collectively referred to as
"Production") of Upholstered Products, (ii) use the Other Trademarks on or
in connection with the Production of Upholstered Products, and (iii) to the
extent that and only to the extent that Seller has
-4-
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heretofore used or Licensor now or hereafter uses any of the Simmons(R)
Trademarks or Other Trademarks in combination with any drawing, word, mark,
symbol, emblem or logo (the "Combination Mark") which Licensor is free to
license to Licensee, use each such Combination Mark on or in connection
with the Production of Upholstered Products; provided, however, that
nothing set forth herein shall constitute a grant to Licensee to use any of
the Licensed Trademarks as part of the name of any retail outlet, and all
licenses granted herein shall be in accordance with the guidelines set
forth in Section 2.1(e) hereof.
(b) The licenses being granted to Licensee in this Section 2.1 are
hereinafter sometimes collectively referred to as the "Trademark Licenses".
(c) The licenses granted herein to Licensee to use the SIMMONS(R)
Trademarks shall not apply to the use of such mark on mattresses to be used
in Upholstered Products sold by License unless those mattresses are also
sold under the Other Trademarks or the BEAUTYREST(R) Trademarks according
to the terms of the BEAUTYREST(R) Trademark License Agreement dated the
date hereof between the parties hereto. For example, the license
authorizes Licensee to sell a "Simmons(R) Maxipedic(R) mattress" as a
component of an Upholstered Product but not a "Simmons(R) mattress".
(d) Licensor retains (i) all rights in the Licensed Trademarks not
specifically licensed to Licensee, including the right to use, and to
license others to use, the Licensed Trademarks, alone or in conjunction
with any other word, mark, symbol, logo or name on or in connection with
the Production of any goods other than Upholstered Products; and (ii) the
right to use (and Licensee also has the right to use) the Licensed
Trademarks with respect to Non-Exclusive Products.
(e) The Trademark Licenses are being granted to Licensee for use in
accordance with the following guidelines: (i) the Licensed Products
shall, at all times, meet at least the standards of quality of materials
and workmanship presently maintained by Licensor or Seller with respect
thereto; (ii) all labels for, and packaging and advertising of, the
Licensed Products in connection with the Licensed Trademarks shall be
consistent with the standards reasonably promulgated by Licensor; (iii)
Licensor shall have the right, twice a year (or more frequently if
Licensor reasonably believes a problem exists) and on reasonable request,
to inspect the Licensed Products, and to obtain samples of all labels,
packaging and advertising on which any of the Licensed Trademarks are
utilized; (iv) the Licensed Trademarks shall be physically affixed or
attached to the Licensed Products sold under those marks, in such a manner
so as to at all times constitute legal and authorized use of the same;
(v) the Licensed Products are to be manufactured, sold and distributed in
accordance with all applicable laws; (vi) Licensee itself shall at
-5-
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all times meet all of the requirements that are applicable to an Affiliate
in order to satisfy the definitional requirements of an Upholstery
Affiliate; (vii) any direct or indirect lineal parent of Licensee which is
a licensee, sublicensee or assignee of the Simmons Trade Name must satisfy
the definitional requirements of an Upholstery Affiliate or be a Non UA
Parent, and (viii) the Licensed Trademarks may not be used in or as part of
the corporate name or tradename of Licensee or any Affiliate of Licensee,
on business cards, stationery or envelopes. Notwithstanding the foregoing,
the marks S and House Design, U.S. Registration No. 1,018,764 and S and
House Logo, U.S. Registration No. 1,439,986 (the "House Marks") may be used
on or as part of Licensee's business forms (e.g. invoices, purchase orders,
receipts, acknowledgements and similar business forms), provided that any
use of such House Marks by Licensee on business forms shall indicate on the
page of such form on which the House Mark is used that such House Mark is a
registered trademark of Simmons Company. Nothing in this subsection
2.1(e)(viii) shall be construed to (i) limit the rights of Licensee to the
use of the Simmons Trade Name according to the provisions of the Trade Name
License Agreement of even date herewith, or (ii) prohibit Licensee from
exhausting its supply of business forms and stationery which use the House
Marks, but which do not currently include the indication that such marks
are the registered trademarks of Simmons Company. Nothing set forth herein
shall prevent Licensee or any of its Upholstery Affiliates from using the
Licensed Trademarks (i) for financial reporting purposes, or (ii) for
public filings, or (iii) for press releases relating to the acquisition or
financing of Licensee or any of its Upholstery Affiliates, or (iv) with
respect to materials prepared for the purpose of selling, or offering for
sale, the Licensee or any of its Upholstery Affiliates, or (v) as otherwise
required by law.
Section 2.2 - Licensed Territory. (a) Subject to the provisions of
------------ --------------------
Sections 7.3(b), (c) and (f) of the Asset Purchase Agreement, the Trademark
Licenses granted by Licensor to Licensee in this Article II are granted for
use only in the Licensed Territory; and nothing set forth herein shall
authorize Licensee or its Affiliates to manufacture, sell, distribute,
advertise or promote in, or export to or import into, any country or
territory outside of the Licensed Territory, any Licensed Products, or any
other products bearing trademarks identical or confusingly similar to any
of the Licensed Trademarks, or sell or distribute any Licensed Products or
any other products bearing trademarks identical or confusingly similar to
any of the Licensed Trademarks, to any person which intends, to the best
knowledge of Licensee, directly or indirectly, to export the same to any
country or territory outside of the Licensed Territory.
(b) Licensee acknowledges that the Licensed Trademarks are known
outside of the Licensed Territory.
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Section 2.3 - Affiliates Rights. Subject to the provisions of Section
------------ -------------------
10.3 hereof, the rights, privileges and licenses granted to Licensee in
this Agreement may, in Licensee's sole discretion, be sublicensed or
otherwise transferred to or among Upholstery Affiliates of Licensee only.
ARTICLE III
SLEEP GALLERIES
---------------
Notwithstanding any license granted to Licensee in this Agreement,
Licensor shall have the right to sell, market, advertise and promote
Upholstered Products to Sleep Galleries, in accordance with, and subject to
the conditions of, Article III of that certain Patent and Technology
License Agreement dated the date hereof by and between the parties hereto.
ARTICLE IV
ROYALTIES
---------
Contemporaneous with the signing of this Agreement and as consideration
for the Trademark Licenses being granted hereunder, Licensee is paying
Licensor a lump sum paid-up royalty of Eight Hundred Thousand Dollars
($800,000.00) ("Paid-Up Royalty"), the receipt of which is hereby
acknowledged; thereafter the Trademark Licenses granted herein shall be
royalty-free.
ARTICLE V
WARRANTIES AND COVENANTS
------------------------
Section 5.1 - Licensor's Warranties and Covenants.
---------------------------------------------------
(a) Licensor represents and warrants to Licensee that as of the date of
this Agreement (i) Licensor is the sole owner of the Licensed Trademarks in
the Licensed Territory, free and clear of all liens, encumbrances, claims
and restrictions of all kinds other than those set forth on Schedule D
----------
attached hereto, none of which will disturb Licensee's rights hereunder;
(ii) Licensor has the right, power and authority to enter into this
Agreement and grant the licenses, rights and privileges in the Licensed
Territory granted herein; (iii) except as set forth in Schedule E attached
----------
hereto, there are no outstanding assignments, grants, licenses, obligations
or agreements by Licensor or arising as a result of Licensor's actions
relating to the use of the Licensed Trademarks in the Licensed Territory or
elsewhere, and none of such assignments, grants, licenses, obligations or
agreements are inconsistent with the rights granted Licensee by this
Agreement; (iv) to the knowledge of Licensor, immediately after the date of
this Agreement, Licensee's use of the Licensed Trademarks in connection
with the Production of Licensed Products in accordance
-7-
<PAGE>
with the terms of this Agreement does not, and will not, infringe any
rights of any Person under any trademark or other laws of the Licensed
Territory; (v) except for the trademarks (A) being sold to Licensee
pursuant to the Asset Purchase Agreement, and (B) being licensed to
Licensee under other agreements with Licensor, the Licensed Trademarks
constitute all of the registered trademarks, and to the knowledge of
Licensor, unregistered trademarks owned or used by Licensor or any of its
Affiliates in connection with the Production of Upholstered Products; and
(vi) except as set forth on Schedule F attached hereto, any and all
----------
agreements pursuant to which Licensor authorizes the use of the Licensed
Trademarks outside of the Licensed Territory by Persons other than Licensee
contain appropriate restrictions so as to restrict the rights of such
Persons to use the Licensed Trademarks incident to the Production of
Upholstered Products in the Licensed Territory.
(b) Licensor covenants and agrees that (i) the Licensed Trademarks
shall be updated from time to time to reflect new trademarks within the
Licensed Trademarks, all of which shall be deemed part of the licenses
granted hereunder to Licensee, and (ii) to the extent that there are any
additional trademarks, whether registered or unregistered, owned or used by
Licensor or any of its Affiliates in connection with the Production of
Upholstered Products which are not specifically being licensed to Licensee
under this Agreement or any other agreement with Licensor, then such
trademarks shall be automatically included as part of the Other Trademarks
being licensed hereunder to Licensee on a royalty-free basis and Licensor
will notify Licensee of the identity thereof.
(c) Licensor shall, in its sole discretion and at its sole cost and
expense, maintain each of the Licensed Trademarks in full force and effect;
if Licensor fails to do so, Licensee may, after giving Licensor notice and
an opportunity to maintain, renew or reregister any such Licensed Trademark
during the twenty (20) day period following such notice, maintain, renew or
reregister any such Licensed Trademark in Licensor's name and at the cost
of Licensor unless Licensor notifies Licensee in writing of its intent to
abandon such Licensed Trademark whereupon Licensee may register such
Licensed Trademark its own name as the same may apply to Upholstered
Products, and in such a case, Licensor shall execute and deliver to
Licensee any such assignments and documents of transfer that Licensee may
reasonably request in order to evidence the transfer of such abandoned
Licensed Trademark to Licensee. In the event that Licensor decides not to
renew a Licensed Trademark, Licensor shall use its best efforts to notify
Licensee of such decision at least thirty (30) days prior to the expiration
of such Licensed Trademark.
(d) Except as set forth on Schedule C attached hereto, Licensor
-----------
covenants and agrees that it shall not use, nor authorize
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<PAGE>
or license any other Person to use, in the Licensed Territory, the Licensed
Trademarks, or any other mark or name identical or confusingly similar to
the Licensed Trademarks, on or with respect to the Production of
Upholstered Products.
Section 5.2 - Sales by Others in Licensed Territory.
----------------------------------------------------
(a) Except as provided in Section 2.1(d), Article III or Schedule C,
-----------
Licensor shall not, directly or indirectly, whether by ownership or control
of another corporation or entity or otherwise, nor shall Licensor authorize
any Person to, manufacture, sell, distribute, advertise or promote in, or
export to or import into, the Licensed Territory any Licensed Products or
any other Upholstered Products bearing trademarks identical or confusingly
similar to any of the Licensed Trademarks, or sell or distribute any
Licensed Products or any other Upholstered Products bearing trademarks
identical or confusingly similar to any of the Licensed Trademarks, to any
Person which intends, to the best knowledge of Licensor, directly or
indirectly, to export the same to the Licensed Territory.
(b) Licensor hereby represents and warrants to Licensee that, except as
set forth in Schedule C, all of the existing license agreements between
------------
Licensor (or its Affiliates) and third parties relating to the Production
of any products prohibit the licensees thereunder from (i) manufacturing,
selling, distributing, advertising or promoting in, or exporting to or
importing into, the Licensed Territory any Licensed Products or any other
Upholstered Products bearing trademarks identical or confusingly similar to
any of the Licensed Trademarks, or (ii) selling or distributing any
Licensed Products or any other Upholstered Products bearing trademarks
identical or confusingly similar to any of the Licensed Trademarks, to any
Person which intends, to the best knowledge of Licensor, directly or
indirectly, to export the same to the Licensed Territory.
ARTICLE VI
ENFORCEMENT
-----------
Section 6.1 - Unauthorized Use of Licensed Trademarks by a Third Party.
---------------------------------------------------------------------------
(a) In the event either party becomes aware of any actual or suspected
unauthorized use or infringement of any Licensed Trademarks used on or in
connection with Upholstered Products, by any Person, said party may notify
the other party to this Agreement, and Licensor may, at Licensor's sole
cost and expense, take such action (including without limitation, bringing
a suit against such Person) as may be reasonably required in order to
protect fully the Licensed Trademarks, and Licensee's interest therein and
rights with respect thereto.
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(b) In the event that Licensor fails to act pursuant to the provisions
of Section 6.1(a), then any and all rights that Licensor may have to
prevent the unauthorized use or infringement of any Licensed Trademarks
referred to in Section 6.1(a) (whether by contract or otherwise) shall be
automatically assigned to Licensee, and Licensee may, but shall not be
obligated to, prosecute or settle any such action in the name of the
appropriate party, and at Licensee's sole expense, except that in such
case, Licensee may deduct the amount of such expenses (including without
limitation, attorneys' fees and court costs) not otherwise specifically
reimbursed to Licensee under any recoveries, damages or settlement amounts
received as a result of any such action from any amounts due and payable by
Licensee to Licensor (or to any of Licensor's Affiliates) pursuant to any
agreement between the parties or their respective Affiliates; provided that
Licensor may elect to take control of such action, at Licensor's expense,
in the event that any proposed settlement or action by Licensee is
reasonably believed by Licensor to have an adverse effect on the Licensed
Trademarks. In the event that Licensor takes control of such action, any
settlement or action made or taken by Licensee shall be in support and
furtherance of Licensee's rights under this Agreement. In any such action
taken by Licensee, Licensor shall provide any assistance reasonably
requested by Licensee in the prosecution of such action, and if requested
by Licensee, Licensor shall become the plaintiff of record in any such
action provided that Licensee reimburses Licensor for all reasonable
expenses incurred by Licensor while acting as such plaintiff.
(c) In any infringement action provided for in this Section 6.1, the
non-prosecuting party shall, at its own expense, be entitled to non-
controlling participation through counsel of its own selection. Any
recoveries, damages, or settlement amounts received as a result of any such
action shall be equitably apportioned between Licensor and Licensee.
Section 6.2 - Claims of Infringement by a Third Party. If any action or
---------------- -----------------------------------------
claim is made against Licensee alleging that Licensee's use of the Licensed
Trademarks in accordance with the terms set forth in this Agreement,
infringes or violates the rights of others, or that Licensor is not the
owner thereof, or that Licensee is not authorized to utilize the same, and
if Licensee notifies Licensor of such alleged infringement, Licensor may
defend such action and protect Licensee's rights hereunder. In the event
that Licensor fails to promptly defend such action and provide Licensee
with reasonable assurances that Licensor has the financial ability to
satisfy any judgments or settlements with respect thereto, Licensee shall
have the right, but not the obligation, to defend such action at Licensor's
cost and Licensee may deduct all expenses so incurred from any amounts due
and owing by Licensee to Licensor (or to any of Licensor's Affiliates)
pursuant to any agreement between the parties or their respective
Affiliates.
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Section 6.3 - Violation by Licensor. (a) In the event that Licensor or
------------ -----------------------
any Affiliate of Licensor violates any of the provisions of this Agreement
and the licenses granted to Licensee hereunder, Licensee shall have the
following rights and remedies, each of which shall be independent of the
others and severally enforceable, and each of which is in addition to, and
not in lieu of, any of the rights and remedies available to Licensee under
law or in equity: (i) Licensee may enjoin the continuance of said violation
as hereinafter set forth, and (ii) if said violation is not cured within
thirty (30) days after receipt by Licensor of written notice calling
attention to said violation, specifying the nature thereof and the action
required to correct the violation, as partial compensation for violation
prior to cessation of such violation, Licensor shall pay to Licensee, as
liquidated damages, an amount equal to Fifty Dollars ($50.00) for each
Upholstered Product sold by any Person as a direct or indirect result of
Licensor's violation of the provisions of this Agreement.
(b) The parties hereto recognizing that irreparable injury will result
to Licensee, its business and property in the event of a breach of the
provisions of this Agreement by Licensor (or any of its Affiliates), agree
that in the event of a violation of such covenants by Licensor or any of
its Affiliates, Licensee shall be entitled, in addition to its other
rights, remedies and damages, to the issuance of restraining orders or
injunctions, both temporary and permanent, in order to restrain the
continuing violation of said covenants by Licensor (and/or its Affiliates),
and all Persons acting for or with them.
(c) Nothing contained in this Section 6.3 is intended to relieve
Licensor from any liability it may otherwise have for any breach of any
provision of this Agreement.
(d) In the event that Licensor or any Affiliate of Licensor violates
any of the provisions of this Agreement or the licenses granted to Licensee
hereunder, Licensee shall be entitled to recover all costs and expenses
(including without limitation, court costs and attorneys' fees) incurred by
Licensee in enforcing the provisions of this Agreement and pursuing its
rights and remedies hereunder.
ARTICLE VII
SETOFF RIGHTS
-------------
In the event that Licensor (or any Affiliate of Licensor) breaches or
defaults in the performance of any of its representations, warranties,
covenants or obligations under this Agreement, Licensee shall have the
right, in addition to all other rights and remedies available, whether at
law or otherwise, to setoff the amount of any and all damages, costs,
losses, and/or expenses (including without limitation, attorneys' fees and
court
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costs) resulting from such breach or default, against any and all amounts
due and payable by Licensee (or any of its Affiliates) to Licensor (or any
of its Affiliates) pursuant to any agreement(s) between Licensor and
Licensee and/or their respective Affiliates. Any setoff made by Licensee
(or any of its Affiliates) in good faith as provided for above shall not
constitute an event of default by Licensee (or any of its Affiliates) under
this Agreement, the Asset Purchase Agreement, or any other agreement, even
if it should later be determined that Licensee (and/or its Affiliates) are
not entitled to setoff rights as aforesaid; provided, however, that any
amount wrongfully setoff shall bear interest from the date when such
payment was due, at an annual rate equal to the lesser of (i) five percent
(5%) over the base rate charged by Citibank, N.A., and (ii) the maximum
rate permitted by law, which said interest shall be payable within thirty
(30) days after a decision has been entered by an arbitrator (or other
competent authority) in accordance with the provisions of this Agreement.
ARTICLE VIII
TERM AND TERMINATION
--------------------
Section 8.1 - Term. The term of this Agreement and the Trademark
------------ ------
Licenses granted hereunder shall commence on the date of this Agreement and
shall continue perpetually, except as otherwise set forth, and only as set
forth, in this Article VIII. Licensor acknowledges and agrees that Licensor
shall not have any right to terminate the licenses granted to Licensee
hereunder except as provided in Section 8.2 and then only after a decision
as to default has been made pursuant to Article IX and only if Licensee
fails to comply with such decision.
Section 8.2 - Termination by Licensor. In the event that Licensee (or
------------ -------------------------
any of its Affiliates) is in default of any material provision of this
Agreement, and said default is not cured within thirty (30) days after
receipt by Licensee (or its Affiliate) of written notice from Licensor
calling attention to such default, specifying the nature thereof and the
action required to correct the default, or if said default cannot be cured
within thirty (30) days, if Licensee has not commenced curing said default
and be diligently pursuing completion of same, Licensor may terminate the
Trademark License relating to such default; provided, however, that in the
event of a dispute or controversy pertaining to a default by Licensee under
this Agreement, Licensor shall not be entitled to terminate any Trademark
License or this Agreement until thirty (30) days after such dispute shall
have been resolved in accordance with the procedures of Article IX hereof
and only if Licensee fails to comply within said thirty (30) days with the
decision of the arbitrator after such resolution has been determined.
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Section 8.3 - Reversion of Licenses. (a) Upon the termination of this
------------ -----------------------
Agreement or any of the Trademark Licenses granted hereunder as herein set
forth, all rights granted to Licensee (and any assignee, sublicensee or
transferee of any such rights) pursuant to the terminated Trademark
Licenses shall forthwith revert to Licensor (including the goodwill
connected therewith), who shall be free to license others to use such
terminated rights in connection with the Production of Upholstered Products
in the Licensed Territory and, except as otherwise expressly permitted by
this Agreement, Licensee shall refrain from further use of such terminated
rights or from any term confusingly similar to the mark for which the
licenses granted herein will have been terminated, either directly or
indirectly, in connection with the Production of Upholstered Products.
(b) Notwithstanding the provisions of Section 8.3(a), upon any such
termination referred to therein, and unless the termination has resulted
from poor quality of the Licensed Products, Licensee shall have the right
to use such terminated rights until such time as all raw materials, work-
in-process and finished goods associated therewith have been disposed of,
provided, however, that in no event may Licensee use such terminated rights
after the period ending six (6) months after said termination.
Section 8.4 - Acknowledgement of Damage. Except as may otherwise be
------------ ---------------------------
permitted by this Agreement, Licensee acknowledges that its failure to
cease Production of the Licensed Products in the Licensed Territory and/or
use in any way the Licensed Trademarks or any other marks identical or
confusingly similar to the Licensed Trademarks, at the termination of this
Agreement or the termination of any license granted herein will result in
immediate and irreparable damage to Licensor and to the rights of any
subsequent licensee of Licensor. Licensee acknowledges and admits that
there is no adequate remedy at law for failure to cease such activities and
Licensee agrees that in the event of such failure, Licensor shall be
entitled to equitable relief by way of injunctive relief and such other
relief as any court with jurisdiction may deem just and proper,
Section 8.5 - Insufficient Use of a Trademark. In the event any
------------ ---------------------------------
Licensed Trademark registered in the Licensed Territory shall not have been
sufficiently used by Licensee in the Licensed Territory for such a period
that under applicable laws Licensor's ownership right to such Licensed
Trademark shall be subject to forfeiture, Licensor shall give notice of
such fact to Licensee and (i) if Licensee fails to sufficiently use said
Licensed Trademark so as to prevent the forfeiture of Licensor's
registration (as determined pursuant to Article IX hereof), then Licensor
may by written notice, convert to non-exclusive use, the Trademark License
with respect to such Licensed Trademark only, or (ii) if Licensee notifies
Licensor of its intent to discontinue
-13-
<PAGE>
use of said Licensed Trademark, then Licensor may terminate the license of
said Licensed Trademark only, and Licensor shall thereafter have the right
to use or license others to use such Licensed Trademark in connection with
the Production of the Licensed Products for use with respect to which such
Licensed Trademark was registered in the Licensed Territory.
ARTICLE IX
DISPUTE RESOLUTION
------------------
Any controversy or claim arising out of or relating to this Agreement
(except for any controversy or claim arising out of or relating to the
restrictive covenants and remedies thereunder set forth in Article VI as to
which the parties withhold any grant of jurisdiction to the arbitrator,
instead reserving such claim or controversy for resolution by a court of
competent jurisdiction) shall be settled by binding and conclusive
arbitration in accordance with the commercial rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof, subject
to the following terms, conditions and exceptions:
(a) There shall be a single arbitrator who shall be an attorney and
whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the American Arbitration
Association.
(b) The jurisdiction of the arbitrator and the arbitrability of any
issue raised by the parties shall be decided by the arbitrator in the first
instance.
(c) The venue of any arbitration shall be Chicago, Illinois and such
arbitration shall be conducted in accordance with the procedural laws of
the State of Illinois, including the Illinois Uniform Arbitration Act (Ill.
Rev. Stat. Ch. 10 paragraph 101 et seq.).
(d) Notwithstanding any provision of the Illinois Code of Civil
Procedure or the Rules of the American Arbitration Association to the
contrary, each party shall have all of the rights of discovery pertaining
to civil litigation as provided in the Federal Rules of Civil Procedure.
(e) Insofar as possible, sufficient time shall be designated in
consecutive business days to allow for completion of the arbitration
proceedings without interruption or adjournments.
-14-
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1 - Construction. As used in this Agreement, unless the
------------- --------------
context otherwise requires: (a) the terms defined in this Agreement shall
have been the meaning set forth in this Agreement for all purposes; (b)
references to "Article" or "Section" are to an article or section hereof;
(c) all "Schedules" referred to herein are incorporated in this Agreement
by reference and made a part hereof; (d) "include", "includes", and
"including" are deemed to be followed by "without limitation" whether or
not they are in fact followed by such words or words of like import; (e)
"writing", "written", and comparable terms refer to printing, typing,
lithography, and other means of reproducing words in a visible form; (f)
unless otherwise indicated, "hereof", "herein", "hereunder", and
comparable terms refer to the entirety of this Agreement and not to any
particular article, section, or other subdivision of this Agreement or
attachment to this Agreement; (g) "knowledge" means the actual knowledge of
the appropriate party or any of its Affiliates, including the actual
knowledge of the officers, directors or employees of the appropriate party
or any of its Affiliates; (h) references to any gender include references
to all genders; (i) references to an agreement or other instrument are
referred to as amended and supplemented from time to time; and (j) the
table of contents and headings of the various articles, sections and other
subdivisions hereof are for convenience of reference only and shall not
modify, define, or limit any of the terms or provisions hereof.
Section 10.2 - Governing Law. This Agreement, and all of the rights and
------------- ---------------
obligations of the parties hereunder, shall be governed by and constructed
in accordance with the internal laws of the State of Georgia, and the laws
of the United States of America (regardless of the laws that might
otherwise govern under applicable conflicts of law principles).
Section 10.3 - Transfer and Assignment.
---------------------------------------
(a) Subject to the restrictions set forth herein, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. To the extent that
Licensor assigns any of its right, title or interest in or to any of the
Licensed Trademarks, the assignee of such Licensed Trademarks shall be
bound by the provisions of this Agreement.
(b) Licensee, any sublicensee and any other Person who now or hereafter
is granted rights or interests hereunder in accordance with the terms
hereof (and any of their successors or assigns) may, directly or
indirectly, assign, license, sublicense
-15-
<PAGE>
or otherwise transfer any of its rights or interests under this Agreement
to an Affiliate only if such Affiliate constitutes an Upholstery Affiliate.
(c) Licensee, any sublicensee, and any other Person who now or
hereafter is granted rights or interests hereunder in accordance with the
terms hereof ("Transferor") may, directly or indirectly, assign, license,
sublicense or otherwise transfer any of its rights or interests under this
Agreement to a Person who is not an Affiliate ("Non-Affiliate Transferee"),
provided that (i) such transfer is of all of the rights and interests of
Transferor and all Affiliates of Transferor who have any rights, licenses,
sublicenses or other rights or interests under this Agreement, (ii) the
Non-Affiliate Transferee meets all of the definitional requirements of an
Upholstery Affiliate immediately after giving effect to the contemplated
assignment and transfer, and (iii) the Non-Affiliate Transferee agrees to
be bound by the provisions of this Agreement.
(d) Transferor may be sold or otherwise transferred (whether by sale of
substantially all of its assets, sale of stock, merger, consolidation,
reorganization or otherwise) to a Non-Affiliate Transferee, provided that
(i) the Person then having the rights and interests granted hereunder
immediately after giving effect to such transaction (the "New-Licensee"),
whether Licensee or some other Person, agrees to be bound by the provisions
of this Agreement, (ii) the New-Licensee meets all of the definitional
requirements of an Upholstery Affiliate, and (iii) the New-Licensee does
not have a direct or indirect lineal parent that is a Competitor of
Licensor. Nothing set forth herein shall be deemed to prohibit a Transferor
or the direct or indirect lineal parent of the Transferor, from being sold
or otherwise transferred to a Person whose Affiliate(s) (other than a
direct or indirect lineal parent Affiliate) is a Competitor of Licensor,
provided that all requirements hereof are met. Examples of the application
of this subsection (d) are as follows: (A) if a Non-Affiliate Transferee
buys the stock of Licensee, the parent corporation of such Non-Affiliate
Transferee may not be a Competitor of Licensor; (B) if a Non-Affiliate
Transferee acquires substantially all of the assets of Licensee thereby
becoming the New-Licensee, said New-Licensee must, upon completion of such
transaction, meet all of the definitional requirements of an Upholstery
Affiliate; (C) if a Non-Affiliate Transferee merges with Licensee, the
surviving corporation shall be the New-Licensee and must meet all of the
definitional requirements of an Upholstery Affiliate; and (D) all of the
capital stock of Licensee's parent corporation may be sold to a Person who
is not a Competitor of Licensor but who has a subsidiary and/or a
brother/sister corporation that is a Competitor of Licensor.
-16-
<PAGE>
(e) Any attempted direct or indirect assignment, sublicense, license or
other transfer (whether by sale of stock, sale of assets, merger,
consolidation, reorganization or otherwise) of any rights or interests
under this Agreement other than as provided above shall be null and void.
No direct or indirect assignment, sublicense, license or other transfer
(whether by sale of stock, sale of assets, merger, consolidation,
reorganization or otherwise) as herein set forth shall release the
Transferor of its obligations hereunder.
(f) Notwithstanding anything herein to the contrary, Licensor shall not
have the right to transfer or assign any or all of its rights or
obligations hereunder to a Competitor of Licensee, and Licensee shall not
have the right to transfer or assign any or all of its rights or
obligations hereunder to a Competitor of Licensor.
Section 10.4 - License Agreement Only. It is the intention of the
------------- ------------------------
parties hereto to enter into a license agreement only and nothing herein
contained shall be construed to regard the parties hereto as constituting
partners or joint venturers, or to constitute the arrangement herein
provided for as a partnership or joint venture.
Section 10.5 - Notices. Any and all notices or other writings which are
------------- ---------
required to be served, or which may be served under the provisions of this
Agreement, shall be in writing, and shall be sufficiently served if
delivered personally, by facsimile transmission, telexed or mailed by
registered or certified mail (return receipt requested), postage prepaid or
by a reputable overnight delivery service, to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
To Licensor: Simmons Company
6 Executive Park Drive
Atlanta, Georgia 30329
Attention: President
Copy to: Simmons Company
6 Executive Park Drive
Atlanta, Georgia 30329
Attention: General Counsel
To Licensee: Simmons Upholstered Furniture Inc.
c/o 1314 Hanley Industrial Court
St. Louis, Missouri 63144-1991
Attention: President
-17-
<PAGE>
Copies to: AEA Investors, Inc.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attention: Richard S. Strickler, Jr.
and
Greensfelder, Hemker & Gale, P.C.
1800 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
Attention: Edward A. Chod
If mailed as aforesaid, seven (7) days after the date of mailing shall
be the date notice shall be deemed to have been received unless mailed by
overnight delivery service, in which case notice shall be deemed to have
been received two (2) business days after delivery to such service.
Section 10.6 - Amendment and Modification. This Agreement may be
------------- ----------------------------
amended, modified or supplemented only by written agreement of all parties
hereto.
Section 10.7 - Entire Agreement. This Agreement, together with all
------------- ------------------
Schedules attached hereto, sets forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements
and understandings, inducements or conditions, express or implied, oral or
written, between the parties hereto.
Section 10.8 - Severability. If any term or other provision of this
------------- --------------
Agreement is invalid, illegal, or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any material manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
Section 10.9 - Counterparts. This Agreement may be executed in two or
------------- --------------
more counterparts, each of which shall be deemed to be an original but all
which together shall be deemed to be one and the same instrument.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
SIMMONS COMPANY ("Licensor")
By /s/ Harlan B. Smith
---------------------------------
Harlan B. Smith, Chief Financial
Officer and Treasurer
Attest:
/s/
----------------------
Secretary
SIMMONS UPHOLSTERED FURNITURE INC.
("Licensee")
By /s/ Steven Funk
------------------------------
Attest: Steven Funk, Vice President
/s/
----------------------
Secretary
-19-
<PAGE>
SCHEDULE A
----------
TO
--
TRADEMARK LICENSE AGREEMENT
----------------------------
Other Trademarks
----------------
1. Mark Reg. Date Reg. No.
---- --------- --------
Album 04/24/62 730,415
Comfortorc 09/23/58 667,423
Contour Flex* 09/10/85 1,359,240
Countess 10/17/50 532,031
Deep Sleep 06/09/31 283,763
Deepsleep 12/13/49 518,793
Duchess 05/30/50 525,695
Graceline 03/16/26 210,476
Golden Value 09/19/89 1,556,867
Maxipedic 10/16/73 970,738
Permaflex 01/23/40 374,647
Regency 03/14/50 522,272
Royalty 08/09/49 513,422
S and House Design 08/26/75 1,018,764
S & House Logo 05/19/87 1,439,986
Simbolic 04/19/60 696,415
Simcrest 03/23/65 787,168
Simcrest 08/21/73 966,623
Simcrest 07/07/59 681,470
Simflex 11/13/62 740,633
Simflex 01/23/73 951,439
Simflex 11/28/67 839,577
Simmons Company &
Owl Design 11/29/27 235,949
Simtorc 04/19/60 896,414
Slumber Dream 11/21/50 533,564
Slumber King 04/24/51 541,309
Slumber Time 05/02/50 524,621
Simcopedic 07/13/82 1,201,147
Westminster 07/19/49 512,547
* Subject to restrictions on manner of use set forth in Settlement Agreement
between Contour Chair - Lounge Co., Inc. and Simmons U.S.A. Corporation.
2. Puerto Rican Registered Trademarks
----------------------------------
Mark Reg. Date Reg. No.
---- --------- --------
Maxipedic 08/05/88 28,086
S and House Design 08/21/82 17,729
Simmons 12/28/61 8,182
3. Any and all unregistered trademarks and trade names used on or in
connection with the manufacture, sale, packaging, marketing, distribution,
advertisement and/or promotion of Upholstered Products.
4. All rights in the United States and Puerto Rico to all drawings, symbols,
logos, emblems, words and other information pertaining to any of the
foregoing registered and unregistered trademarks to the extent of
Licensor's interest therein, and to the extent that, and only to the extent
that, the same are used on or in connection with the manufacture, sale,
packaging, marketing, distribution, advertisement and/or promotion of
Upholstered Products.
<PAGE>
SCHEDULE B
----------
TO
TRADEMARK LICENSE AGREEMENT
Sleep Gallery License Agreement
-------------------------------
[See Attached]
<PAGE>
EXHIBIT A
DESCRIPTION OF GOODS
--------------------
8
<PAGE>
EXHIBIT B
TRADEMARKS
----------
9
<PAGE>
EXHIBIT C
DISPLAY PLANS
-------------
10
<PAGE>
EXHIBIT E
RETAIL FLOOR SPACE PLAN
-----------------------
17
<PAGE>
Schedule D
----------
To
--
Trademark License Agreement
----------------------------
Liens and Encumbrances
----------------------
1. Security Agreement dated as of January 17, 1989 among Simmons Company, the
Grantors named therein, the Banks referred to therein and Chemical Bank, as
Collateral Agent.
2. Patent, Trademark and Copyright Security Agreement dated as of January 17,
1989, among Simmons Company, the Grantors named therein, the Banks referred
to therein and Chemical Bank, as Collateral Agent.
3. Patent, Trademark and Copyright Security Agreement dated as of
September 27, 1989 among Simmons Company, the Grantors named
therein, the Banks referred to therein and Chemical Bank, as
Collateral Agent (pursuant to Credit Agreement).
4. Security Agreement dated as of September 27, 1989 among Simmons Company,
the Grantors named therein, the Banks referred to therein and Chemical
Bank, as Collateral Agent.
5. Patent, Trademark and Copyright Security Agreement dated as of September
27, 1989, among Simmons Company, the Grantors named therein, Chemical Bank,
as Collateral Agent, and the Banks referred to therein (pursuant to Loan
Agreement).
<PAGE>
SCHEDULE E
----------
TO
--
TRADEMARK LICENSE AGREEMENT
----------------------------
Other Licenses
--------------
The following are material license agreements wherein Licensor herein or its
Affiliates are licensor:
Licensee Territory
-------- ---------
Simmons Universal Corporation, U.S., juvenile and healthcare
Simmons Juvenile Products Company markets
and Hausted, Inc.*
Little Folks, Ltd. Canada, juvenile market
La Nacional CXA Caribbean, bedding
Maxwell Products, Inc. U.S., adjustable beds
Haim Herman and PAMA, Ltd. Israel
Companie Simmons S.A. de C.V. Mexico, bedding and
upholstery
Christie-Tyler plc Western Europe, Middle East,
six central African
countries, St. Martin
SJL Investment Japan, Hong Kong, Singapore,
Macau
Simmons Asia Limited India, China, Tiawan,
Phillipines and 15 other
countries in Southeast Asia
Simmons Bedding Co. Pty. Ltd. Australia, New Zealand, Fiji,
New Guinea and certain
neighboring islands
Young Bon (assigned to Simmons Korea
Asia Limited)
Hermanos Cuens S.L. Dormilon Spain
Simmons (Israel) Bedding Israel and Israeli-controlled
Systems Ltd. territories
C.S. Wo & Sons, Ltd.** Hawaii
- ------------------------
* See Agreement dated 10/30/86
** A notice of termination was given on 6/26/90
<PAGE>
SCHEDULE F
----------
TO
--
TRADEMARK LICENSE AGREEMENT
----------------------------
Foreign Licenses
----------------
1. Agreement dated June 29, 1990 among Simmons Company, Simmons I.P., Inc. and
Simmons Canada, Inc. which permits the licensee thereunder to manufacture
(but not sell, market or distribute) products in the United States for
export to and sale in Canada under certain of the Canadian counterparts to
the Licensed Trademarks.
2. Agreement dated May 21, 1990 between Simmons Company and Compania Simmons
S.A. de C.V. which permits the licensee thereunder to manufacture (but not
sell, market or distribute) products in the United States for export to and
sale in Mexico under certain of the Mexican counterparts to the Licensed
Trademarks.
3. Agreement dated October 30, 1986 by and between Wickes/Simmons Bedding Ltd.
and Little Folks, Ltd. wherein Little Folks, Ltd. is licensed to use
certain of the Licensed Trademarks on juvenile products in Canada; however,
sales and distribution in the United States may be permitted to the extent
that the Agreement set forth in item 2 of Schedule C above governs.
The Licensor makes no representation whether, or the extent to which,
juvenile products as defined in such agreement includes Upholstered
Products. Licensor further makes no representation whether Little Folks,
Ltd. would be permitted under the agreement to sell and distribute juvenile
products in the United States if the agreement listed in item 2 of Schedule
C terminates.
EXHIBIT 10.52
- --------------------------------------------------------------------------------
PATENT AND TECHNOLOGY LICENSE AGREEMENT
dated as of July 13, 1990
BY AND BETWEEN
SIMMONS COMPANY
AND
SIMMONS UPHOLSTERED FURNITURE INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . 1
ARTICLE II - Grant of Licenses . . . . . . . . . . . . . . . 5
Section 2.1 - Grant of Licenses by Licensor
Section 2.2 - Scope of Licenses
Section 2.3 - Affiliates Rights
Section 2.4 - Sales in Puerto Rico
Section 2.5 - Grant of License by Licensee
ARTICLE III - Sleep Galleries . . . . . . . . . . . . . . . 7
Section 3.1 - Reservation of Rights
Section 3.2 - First Right of Refusal to Supply
Upholstered Products
Section 3.3 - Royalties on Royalty Products
Section 3.4 - Failure to Supply
ARTICLE IV - Confidentiality and Proprietary Rights . . . . . 11
Section 4.1 - Acknowledgement of Confidentiality
Section 4.2 -Designation
Section 4.3 - Obligation Not to Disclose
Section 4.4 - Disclosure to Affiliates
Section 4.5 - Copies
Section 4.6 - Exclusions
Section 4.7 - Procedures Employed
Section 4.8 - Notification of Unauthorized Use
Section 4.9 - Best Efforts
ARTICLE V - Standard of Licensee's Performance . . . . . . 12
Section 5.1 - Standards of Quality
Section 5.2 - Compliance with Applicable Laws
Section 5.3 - Patent Marking
ARTICLE VI - Royalties and Reports . . . . . . . . . . . . 13
Section 6.1 - Royalty
Section 6.2 - Interest on Late Payment
Section 6.3 - Examination of Books
ARTICLE VII - Warranties and Covenants . . . . . . . . . . . . 15
Section 7.1 - Licensor's Warranties and Covenants
Section 7.2 - Sales by Licensee Outside of Licensed
Territory
Section 7.3 - Sales by Others in Licensed Territory
ARTICLE VIII - Enforcement . . . . . . . . . . . . . . . . . . 18
Section 8.1 - Unauthorized Use of Patents or
Confidential Information by a
Third Party
Section 8.2 - Claims of Infringement by a Third Party
Section 8.3 - Violation by Licensor
Section 8.4 - Violation by Licensee
-i-
<PAGE>
ARTICLE IX - Indemnifications . . . . . . . . . . . . . . . . 21
Section 9.1 - Indemnification
Section 9.2 - Notice of Indemnification
Section 9.3 - Survival of Indemnification
Section 9.4 - Other Remedies
Section 9.5 - Setoff
ARTICLE X - Term and Termination . . . . . . . . . . . . . . . 23
Section 10.1 - Term
Section 10.2 - Termination by Licensee
Section 10.3 - Termination for Failure to Pay
Monies Due
Section 10.4 - Other Terminations
Section 10.5 - Payment of Royalties After Termination
Section 10.6 - Reversion of Licenses
Section 10.7 - Acknowledgement of Damage
ARTICLE XI - Dispute Resolution . . . . . . . . . . . . . . 26
ARTICLE XII - Miscellaneous . . . . . . . . . . . . . . . . 27
Section 12.1 - Construction
Section 12.2 - Governing Law
Section 12.3 - Transfer and Assignment
Section 12.4 - License Agreement Only
Section 12.5 - Notices
Section 12.6 - Amendment and Modification
Section 12.7 - Entire Agreement
Section 12.8 - Severability
Section 12.9 - Counterparts
SCHEDULE A - Patents
SCHEDULE B - Specified Trademarks
SCHEDULE C - Sleep Gallery License Agreement
SCHEDULE D - Existing Agreements
SCHEDULE E - Minimum Royalties
SCHEDULE F - Restrictions and Encumbrances
SCHEDULE G - Other Licenses
SCHEDULE H - Foreign Licenses
-ii-
<PAGE>
PATENT AND TECHNOLOGY LICENSE AGREEMENT
---------------------------------------
THIS PATENT AND TECHNOLOGY LICENSE AGREEMENT is made and entered into
as of the 13th day of July, 1990, by and between SIMMONS COMPANY, a
Delaware corporation ("Licensor"), and SIMMONS UPHOLSTERED FURNITURE INC.,
a Delaware corporation ("Licensee").
RECITALS:
---------
A. Licensor, SMU, Inc. (an Affiliate of Licensor), Licensee and
Townhouse-Penthouse Industries, Inc. (an Affiliate of Licensee) have
entered into an "Asset Purchase Agreement" dated as of July 6, 1990,
pursuant to which Licensee is purchasing (i) certain assets of SMU, Inc.
("Seller") used incident to the manufacture and sale of Upholstered
Products, and (ii) certain trademarks, trade names, patents and goodwill of
Licensor utilized by Seller incident to the manufacture and sale of
Upholstered Products.
B. Licensor, Licensee and TPI have entered into a Pocketed Coil
Supply Agreement of even date herewith, as the same may be amended,
modified or supplemented from time to time (the "Supply Agreement")
pursuant to which Licensor will supply Licensee's requirements for Pocketed
Coil Units for certain Upholstered Products, pursuant to the terms of such
Supply Agreement.
C. Licensor has represented that it is the owner of the entire
right, title and interest in and to the United States Trademarks
BEAUTYREST(R), U.S. Trademark Registration Nos. 207,821; 602,721; 621,296;
and 512,535, and the goodwill associated therewith (such trademarks, and
all new registrations, applications for registration, new uses and
variations of these trademarks, as updated from time to time, being
hereafter referred to as the "BEAUTYREST(R) Trademarks").
D. Licensor is the owner of certain Patents and Technology utilized
by Seller incident to the manufacture and sale of Upholstered Products.
E. Licensee is desirous of obtaining a license to utilize all of the
Patents and Technology, and Licensor is willing to grant Licensee a Patent
license and a Technology license pursuant to the provisions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
provisions hereinafter set forth, and for other good and valuable
consideration the receipt of which is hereby acknowledged, and intending to
be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. "Affiliate" with respect to any Person shall mean (i) any
------------
other Person directly, or indirectly through one or
<PAGE>
more intermediaries, controlling, controlled by, or under common control
with, such Person, or (ii) the officers, directors or partners of such
Person. For purposes hereof, "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
Section 1.2. "Bedding Products" means mattresses (excluding folding
-----------------
mattresses used as components of Upholstered Products), box springs, day
beds which are not substantially upholstered, trundle beds which are not
substantially upholstered, water beds, hospital beds, adjustable beds,
juvenile beds, bunk beds, pillows and mattress pads (including without
limitation those used as components of Upholstered Products), bedding
components (including without limitation, headboards, frames and
platforms), related bedding accessories (including without limitation shams
and dust ruffles) and other bedding products (other than Upholstered
Products).
Section 1.3. "Competitor" of Licensor shall mean any Person whose
-----------------
business (i) primarily consists of the sale or manufacture of Bedding
Products, or (ii) constitutes greater than four percent (4%) of the Bedding
Products business in the Licensed Territory, and "Competitor" of Licensee
shall mean any Person whose business (i) primarily consists of the sale or
manufacture of Upholstered Products, or (ii) constitutes greater than four
percent (4%) of the Upholstered Products business in the Licensed
Territory.
Section 1.4. "Effective Date" shall mean the date of this Agreement.
-----------------
Section 1.5. "Licensed Products" shall mean Upholstered Products
-----------------
which are produced or assembled in accordance with the Patents and/or the
Technology.
Section 1.6. "Licensed Territory" shall mean the United States of
-----------------
America, the District of Columbia and Puerto Rico.
Section 1.7. "Licensed Trademarks" shall mean the BEAUTYREST(R)
-----------------
Trademarks and all other trademarks licensed by Licensor to Licensee
pursuant to that certain Trademark License Agreement dated the date hereof
by and between Licensor and Licensee, including without limitation, the
United States Trademark SIMMONS(R).
Section 1.8. "Licensee's Field of Use" shall mean the manufacture,
-----------------
sale, packaging, marketing, distribution, advertisement and/or promotion of
Upholstered Products.
Section 1.9. "Non-Exclusive Products" means (i) mattresses (other than
-----------------
folding mattresses used as components in Upholstered Products) which
presently or in the future may be used interchangeably as either Bedding
Products or as components of Upholstered Products, (ii) substantially
upholstered day beds and substantially upholstered trundle beds (including
trundle beds
-2-
<PAGE>
that are integrated components of substantially upholstered day beds), and
(iii) office furniture (to the extent manufactured and sold in an office
furniture business for the office furniture market) in the nature of desk
chairs, conference room chairs, stationary chairs and couches (but not of a
convertible nature).
Section 1.10. "Non UA Parent" shall mean a holding company without any
------------------
operating business which (i) meets the requirements in clauses (iv) and (v)
of the definition of Upholstery Affiliates; and (ii) has at least one
direct or indirect subsidiary which is an Upholstery Affiliate; provided,
however, that a Non UA Parent may become an operating company if and only
if it meets the requirements of an Upholstery Affiliate.
Section 1.11. "Patent" or "Patents" shall mean the owned United States
------------------
patent(s) and patent application(s) and the licensed United States
patent(s) and patent application(s) set forth in Schedule A attached
-----------
hereto, as updated from time to time, and all improvements, modifications,
continuations, continuations-in-part, divisionals, reissues and re-
examinations thereof.
Section 1.12. "Person" shall mean any individual, corporation,
------------------
partnership, firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental or regulatory body or other
entity.
Section 1.13. "Pocketed Coil Units" shall mean the set of components
------------------
designed for use in cushions and convertible bed mattresses, using
Licensor's Patents and/or Technology, and the teachings thereof, as the
same may be updated from time to time.
Section 1.14. "Refusal Period" shall mean each twelve (12) month period
------------------
commencing January 1 of each calendar year during the term of this
Agreement, or such portion thereof if less than twelve (12) months.
Section 1.15. "Restricted Bedding Products" shall mean Bedding Products
------------------
other than (i) mattresses which presently or in the future may be used
interchangeably as either Bedding Products or as components of Upholstered
Products, but only to the extent that such mattresses are used as
components of Upholstered Products sold by Licensee or its Affiliates (and
then only to the extent of such use), or (ii) pillows, mattress pads, shams
and dust ruffles which are original components in, or replacement
components for, any other Upholstered Product only to the extent that such
items themselves (as opposed to an Upholstered Product of which they are a
component) are not labelled as products utilizing any of the Licensed
Trademarks.
Section 1.16. "Royalty Products" shall mean Simmons Gallery Products
------------------
which are sold in Sleep Galleries, and are not manufactured by Licensee or
its Affiliates.
Section 1.17. "Simmons Gallery Products" shall mean those Upholstered
------------------
Products sold in Sleep Galleries (i) under any
-3-
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trademark, trade name or other identifying tag owned by or associated with
Licensor or any of its Affiliates, including without limitation, the
Licensed Trademarks, or (ii) under any of the trademarks identified on
Schedule B attached hereto (the "Specified Trademarks").
-----------
Section 1.18. "Sleep Galleries" shall mean the retail
--------------
outlets, now or hereafter in operation, and any successors thereto, from
which Bedding Products and certain Upholstered Products are sold at retail
to the general public under license from Licensor pursuant to license
agreements substantially in the form of Schedule C attached hereto,
----------
or such other form as may be approved by Licensee, which said approval
shall not be unreasonably withheld.
Section 1.19. "Technology" shall mean (i) information, whether
------------------
patentable or unpatentable, pertaining to Licensee's Field of Use, (ii)
information, whether patentable or unpatentable, pertaining to the
manufacture of Pocketed Coil Units and any modifications, improvements or
variations thereof and replacement technology therefor, authorized by
Licensor for use in products identified under the BEAUTYREST(R) Trademarks,
and (iii) all files, engineering drawings, show-how, specifications,
processes, technology, know-how, methods, manuals, unregistered copyrights,
artwork, designs, formulas, inventions (whether patentable or unpatentable
to the extent that such inventions relate to Upholstered Products under
research and development), trade secrets and other information as updated
from time to time, all of which pertain to the Patents and the utilization
thereof and to items (i) and (ii) above.
Section 1.20. "Upholstered Products" means the following items of
------------------
upholstered furniture: convertible beds, substantially upholstered day
beds, substantially upholstered trundle beds (including trundle beds that
are integrated components of substantially upholstered day beds), sleep
sofas, recliners, incliners, motion furniture, chairs, sofas, couches, love
seats, sectional pieces, other upholstered seating items used or usable for
household purpose (regardless whether manufactured or sold as household
furniture, institutional furniture, contract furniture or otherwise), and
related components and accessories (including such items as cushions,
slipcovers and casters, but excluding such items as end tables and lamps)
therefor (but including pillows, mattress pads, shams and dust ruffles
which are original components in, or replacement components for, the
foregoing products only to the extent that such items themselves (as
opposed to an Upholstered Product of which they are a component) are not
labelled as products utilizing any of the Licensed Trademarks), folding
mattresses sold as an original component in, or as a replacement component
for, any of the foregoing products, and all other mattresses sold by
Licensee or its Affiliates as an original component in, or as a replacement
component for, any of the foregoing products which products are
manufactured by or for Licensee or its Affiliates. Upholstered Products
shall not include (i) dining room chairs, dinette chairs, kitchen chairs,
-4-
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and love chests and (ii) Bedding Products other than those mattresses
described above in accordance with the limitations described above.
Section 1.21. "Upholstery Affiliate" shall mean any Affiliate with
------------------
respect to which the following requirements must be met, commencing with
the date on which the Affiliate becomes an Upholstery Affiliate and
continuing at all times thereafter, (i) at least ninety-five percent (95%)
of its net sales (on an unconsolidated basis) in each fiscal year consists
of sales of Upholstered Products, (ii) not more than five percent (5%) of
its net sales (on an unconsolidated basis) in each such fiscal year
consists of accessories to Upholstered Products used with room groupings
[e.g. tables (excluding dinettes), lamps, wicker and/or rattan products,
mirrors, etc.], (iii) all of its subsidiaries, if any, are Upholstery
Affiliates, (iv) neither it nor any direct or indirect lineal subsidiary
thereof is engaged in the Production of Restricted Bedding Products, and
(v) no Competitor of Licensor is a direct or indirect lineal parent of such
Affiliate (nothing set forth herein shall prevent a brother/sister
corporation or other non-parent Affiliate of a direct or indirect lineal
parent of an Upholstery Affiliate from being a Competitor of Licensor).
ARTICLE II
GRANT OF LICENSES
-----------------
Section 2.1 - Grant of Licenses by Licensor.
--------------------------------------------
(a) Subject to Licensor's rights with respect to Non-Exclusive
Products, and to the provisions of Article III and Schedule D attached
----------
hereto, Licensor hereby grants to Licensee the exclusive license in
Licensee's Field of Use (i) to practice the methods, and to make, have
made, use and sell Upholstered Products embodying the inventions, methods
and processes described and claimed in the Patents (the "Patent License"),
and (ii) to use the Technology (the "Technology License").
(b) The Patent License granted herein to Licensee shall exist for the
life of the last to expire patent within the Patents, as extended and
updated from time to time, and the Technology License shall be perpetual.
The Patent License and the Technology License (hereinafter sometimes
collectively referred to as the "P&T Licenses") granted to Licensee herein
shall apply to any and all improvements and modifications to the
inventions, methods and processes described in the Patents and/or the
Technology.
(c) The Pocketed Coil Units shall be used only as components of
cushions and convertible bed mattresses bearing the BEAUTYREST(R)
Trademarks; provided, however, in the event that (i) Licensor (or any
Affiliate of Licensor) uses, or authorizes or permits any other Person to
use, Pocketed Coil Units in cushions or mattresses which are used in or
with Upholstered Products in the Licensed Territory, or (ii) Licensor's
standard components of cushions and mattresses bearing the BEAUTYREST(R)
Trademarks are
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<PAGE>
other than Pocketed Coil Units, or (iii) Licensor sells, licenses (other
than for use in the Production of Bedding Products and Non-Exclusive
Products) or otherwise transfers the Patents and/or Technology to any
Person, then Licensee shall have the right to use Pocketed Coil Units on a
royalty-free basis, in or with cushions and/or mattresses (other than
cushions or mattresses bearing the BEAUTYREST(R) Trademarks) which are used
in or with Upholstered Products.
Section 2.2 - Scope of Licenses. Subject to the provisions of Sections
---------------- -------------------
7.2(b), 7.2(c) and 7.2(f) of the Asset Purchase Agreement, the P&T Licenses
granted by Licensor to Licensee in this Article II are granted for use only
in Licensee's Field of Use and only the Licensed Territory.
Section 2.3 - Affiliates Rights. Subject to the provisions of Section
---------------- -------------------
12.3 hereof, the rights, privileges and licenses granted to Licensee in
this Agreement may, in Licensee's sole discretion, be sublicensed or
otherwise transferred to or among Upholstery Affiliates of Licensee only.
Section 2.4 - Sales in Puerto Rico. Licensor shall be Licensee's sole
---------------- ----------------------
distributor of Licensed Products to customers of Licensor's Bedding
Products in Puerto Rico, excluding distribution to Sears, Roebuck & Company
and any other national or regional chain account of Licensee (as to which,
License(e) shall select a distributor or serve as its own distributor), on
customary terms and conditions to be negotiated by the parties. If Licensor
fails to so distribute the Licensed Products after being requested to do so
by Licensee, Licensee may then distribute said Licensed Products directly
to customers of Licensor's Bedding Products.
Section 2.5 - Grant of License by Licensee.
------------------------------------------
(a) Subject to the provision of this Section 2.5, Licensee hereby
grants to Licensor a nonexclusive license to use the Specified Trademarks
(i) incident to the sale of Simmons(R) Gallery Products as set forth in
Article III hereof, (ii) in order to fulfill its obligations under that
certain license agreement dated April 16, 1986, by and between Licensor and
Louisville Bedding (the "Louisville Bedding Agreement"), provided that this
license shall not extend to any modification, extension or renewal of the
Louisville Bedding Agreement with respect to the Specified Trademarks
except with the express written consent of Licensee, and (iii) so as to
enable all dealers of Licensor to use up their inventory of Upholstered
Products bearing the Specified Trademarks, however nothing set forth herein
shall authorize or permit such dealers to use the Specified Trademarks
after said inventories have been used up.
(b) All uses of the Specified Trademarks shall be in accordance with
the standards established by Licensee from time to time.
-6-
<PAGE>
(c) Licensor covenants and agrees to terminate each of the agreements
set forth in Sections 2.5(a)(ii) and 2.5(a)(iii) (as they relate to the
Specified Trademarks), as soon as each respective agreement so permits.
ARTICLE III
SLEEP GALLERIES
---------------
Section 3.1 - Reservation of Rights. Notwithstanding any license
---------------- -----------------------
granted to Licensee in this Agreement, but subject to the provisions of
Sections 3.2, 3.3 and 3.4 hereof, Licensor shall have the right to sell,
market, advertise and promote Simmons Gallery Products. Licensee (or its
Upholstery Affiliates) shall have the right to manufacture any and all
Simmons Gallery Products as hereinafter set forth in Section 3.2 hereof,
and any and all Royalty Products sold in the Sleep Galleries shall be
subject to royalty payments to Licensee as set forth in Section 3.3 hereof.
It is understood that Upholstered Products which are not sold under a
trademark, trade name or other identifying tag owned by or associated with
Licensor or any of its Affiliates, may be purchased and sold by operators
of Sleep Galleries without obligation to Licensee, provided, however, no
such Upholstered Products may be manufactured or supplied to such Sleep
Galleries by Licensor or any of its Affiliates.
Section 3.2 - First Right of Refusal to Supply Upholstered Products.
------------------------------------------------------------------------
(a) Licensor grants to Licensee (or Licensee's Upholstery Affiliates as
Licensee may direct) the right of first refusal to manufacture and supply
any or all Simmons Gallery Products. Licensor covenants and agrees to
require all owners/operators/licensees of the Sleep Galleries to comply
with the provisions of the right of first refusal granted to Licensee
hereunder.
(b) Licensor shall provide Licensee with a good faith written forecast
(a "Refusal Notice") of all requirements for Simmons Gallery Products as
follows:
(i) A Refusal Notice shall be given by Licensor for each Refusal Period
during the term of this Agreement not later than sixty (60) days prior to
the commencement of each such Refusal Period, except that with respect to
1990, the Refusal Notice shall be given no later than thirty (30) days
after the Effective Date of this Agreement.
(ii) The Refusal Notice shall set forth a detailed listing of all
Simmons Gallery Products which are expected to be ordered by Licensor for
sale to Sleep Galleries during the applicable Refusal Period, and shall set
forth all specifications (including without limitation, all raw material
requirements, the delivery date and the terms of sale) and the proposed
price (the "Simmons Price") at which the specific Sleep Gallery Product
will
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<PAGE>
be purchased by Licensor for sale to the Sleep Galleries (the
specifications and Simmons Price being hereinafter collectively referred to
as the "Product Specs").
(iii) To the extent that additional Simmons Gallery Products are to be
sold to Sleep Galleries during a Refusal Period which have not been
disclosed on the applicable Refusal Notice, an additional written notice
shall be promptly given by Licensor to Licensee as a supplemental Refusal
Notice setting forth the Simmons Gallery Products to be manufactured and
the Product Specs with respect thereto.
(iv) Licensor's forecasts are for the purpose of facilitating
production scheduling of Simmons Gallery Products by Licensee and said
forecasts are not binding upon Licensor, subject to the obligation to act
reasonably and in good faith; Licensor acknowledges that Licensee's
acceptance or rejection of the Refusal Notice is based upon such forecasts
and in the event that there is a change in such forecasts, Licensor shall
promptly notify Licensee of such change so that Licensee has an opportunity
to determine, at that time, whether or not it desires to exercise its right
of first refusal as herein set forth with respect to such changed forecast,
and Licensee shall be given reasonable time to produce Sleep Gallery
Products in accordance with such changed forecast.
(c) In the event that Licensee desires to manufacture and supply any or
all Simmons Gallery Products identified in a Refusal Notice, then Licensee
shall so notify Licensor by written notice ("Response Notice") within
thirty (30) days ("Notice Period") of the date of Licensee's receipt of the
Refusal Notice of those Simmons Gallery Products that Licensee desires to
manufacture (the "Accepted Products"). If Licensee gives its Response
Notice as herein set forth, then Licensor shall order such Accepted
Products (in accordance with the Product Specs) from Licensee and provide
Licensee with sufficient lead time to allow for reasonable production of
such Accepted Products so ordered. If Licensee does not elect to exercise,
its right of first refusal as to any or all of the Simmons Gallery Products
identified on the Refusal Notice, then such Simmons Gallery Products which
are not manufactured by Licensee (or its Upholstery Affiliates) shall be
Royalty Products and may be purchased by Licensor from manufacturers of
Upholstered Products other than Licensee, provided that (i) such Royalty
Products are purchased from such other manufacturers in accordance with the
Product Specs, (ii) such purchases are made and such Royalty Products are
manufactured and delivered to the Sleep Galleries during the Refusal Period
with respect to which the Refusal Notice was given, and (iii) those Royalty
Products being manufactured and sold under the Specified Trademarks shall,
at all times, meet at least the standards of quality of materials and
workmanship required by Licensee with respect thereto. Licensee shall have
the right, at reasonable times and on reasonable request, to inspect the
Royalty Products bearing Specified Trademarks and to obtain samples of all
labels, packaging and advertising used therewith to insure
-8-
<PAGE>
compliance with the standards reasonably promulgated by Licensee from time
to time with respect to the sale of Upholstered Products bearing the
Specified Trademarks. If Licensee fails to notify Licensor within the
Notice Period, Licensee shall be deemed to have chosen not to supply the
Sleep Gallery Products identified in the Refusal Notice.
(d) The obligations of Licensor as set forth in this Article III shall
apply to its Affiliates.
Section 3.3 Royalties on Royalty Products.
-----------------------------------------
(a) As compensation to Licensee for the sale of Royalty Products to
Sleep Galleries, Licensor shall pay Licensee a royalty (subject to increase
as hereinafter set forth) equal to Five Dollars ($5.00) for each Royalty
Product sold or otherwise transferred by Licensor (or Licensor's
Affiliates) to a Sleep Gallery, provided, however, that no royalty shall be
due and owing to Licensee with respect to any Refusal Period unless and
until the number of Royalty Products sold to the Sleep Galleries in any
such Refusal Period exceed 1,500 units, at which time a royalty will be due
to Licensee on sales of all Royalty Products during that specific Refusal
Period.
(b) The royalty payable to Licensee pursuant to this Section 3.3 shall
increase by ten percent (10%) every five (5) years commencing January 1,
1996 (e.g. $5.50 in 1996 through 2000, and $6.05 in 2001 through 2005), and
continuing on the first day of each subsequent fifth year during the term
of this Agreement.
(c) Any and all royalties payable pursuant to this Section 3.3 by
Licensor to Licensee shall be payable within thirty (30) days after the end
of each calendar quarter with respect to which the royalties accrued. At
the end of each calendar quarter, whether or not a royalty is owing to
Licensee, Licensor shall furnish Licensee with a statement showing the
number and type of Royalty Products sold and the manner in which the
royalties, if any, were calculated, certified as accurate by an officer of
Licensor.
(d) In the event that Licensor fails to pay any royalties to Licensee
when due, and such failure to pay is not cured within five (5) days after
receipt of notice thereof from Licensee to Licensor, Licensor shall pay to
Licensee in addition to such royalties, interest on the unpaid royalty at a
rate equal to the lesser of (i) five percent (5%) over the base rate
charged by Citibank, N.A., and (ii) the maximum rate permitted by law (the
"Penalty Rate").
(e) Licensor shall maintain, for a period of at least two (2) years
after each monthly statement is delivered to Licensee (the "Examination
Period"), such accurate books and records as shall be sufficient to confirm
the number and type of Royalty Products sold to the Sleep Galleries and the
total royalties due and payable with respect thereto. Twice a year and
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<PAGE>
on reasonable notice to Licensor, Licensor shall permit reasonable
inspection by an independent certified public accountant ("CPA") of such
books and records as may reasonably be required to verify such data. Any
such CPA shall be chosen by Licensee and shall be subject to the reasonable
approval of Licensor and shall be paid by Licensee. Such CPA shall only
verify to Licensee whether Licensor's monthly statements are correct and,
if any such statements are deemed incorrect, such CPA will report to
Licensee the number of Royalty Products sold to Sleep Galleries during the
period or periods in question and the total royalties properly payable
thereon. Notwithstanding any other provision of this Agreement, should any
figure established by such inspection by such CPA differ by more than five
percent (5%) from the corresponding figure in the monthly statements
furnished Licensee by Licensor hereunder, Licensor shall reimburse Licensee
for any and all expenses incurred by Licensee in the course of such
inspection. The accuracy of any royalty payment cannot be challenged by
Licensee after expiration of the Examination Period. Licensor covenants
and agrees to assist Licensee to the extent reasonably requested by
Licensee in permitting a CPA to inspect the books and records of the owner/
operator/licensee of each Sleep Gallery up to two (2) times per year and
on reasonable notice to verify that the provisions of this Agreement
are being followed.
(f) Nothing set forth in this Section 3.3 shall authorize or allow
Licensor to sell Licensed Products other than Royalty Products to Sleep
Galleries simply by paying Licensee a royalty as hereinbefore set forth, it
being the understanding of the parties hereto, that the royalties set forth
herein are merely consideration paid to Licensee after the right of first
refusal process has been utilized, and that in the event that Licensor
sells any other Upholstered Products in violation of the provisions hereof,
that Licensee will sustain other damages and shall be entitled to its
rights and remedies as hereinafter set forth.
Section 3.4 - Failure to Supply. In the event that Licensor, for any
-------------------------------
reason (including without limitation, an Excused Performance as defined in
the Supply Agreement), fails to supply Licensee with Pocketed Coil Units as
ordered by Licensee according to the provisions of the Supply Agreement,
then Licensor's reservation of rights as to Licensed Products sold in
Simmons Galleries set forth in Section 3.1 hereof shall be null and void
for and during the period of time commencing on the date when Licensor
fails to so supply Licensee with Pocketed Coil Units, and ending on a date
sixty (60) days after Licensor (i) fills any and all back orders of
Licensee to the extent requested by Licensee, and (ii) commences supplying
Licensee with new orders of Pocketed Coil Units; provided, however, that
nothing set forth in this Section 3.4 shall prevent the owner/operator/
licensee of the Sleep Gallery from selling the Sleep Gallery
Products that said owner/operator/licensee then has in inventory.
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<PAGE>
ARTICLE IV
CONFIDENTIALITY AND PROPRIETARY RIGHTS
--------------------------------------
Section 4.1 - Acknowledgement of Confidentiality. Licensor and Licensee
------------------------------------------------
acknowledge that the Technology embodies highly valuable information of
Licensor and that any technical or accounting data, or business information
of either Licensor or Licensee, including, but not limited to,
correspondence and private technical discussions and related memoranda, may
embody highly valuable confidential information which is not generally
known to the public and which is proprietary to Licensor or Licensee. The
parties further acknowledge that any such information is properly
considered to be trade secrets, and consists of devices, processes and
compilations of technical information which are secret, confidential and
not generally known to the public and which was the product of the
expenditure of time, effort, money and/or creative skills. Licensor and
Licensee may each disclose to the other confidential or proprietary
technical, accounting or general business data all of which data shall be
maintained as confidential in accordance with the provisions of this
Article IV by the party to whom it is disclosed.
Section 4.2 - Designation. Any information exchanged pursuant to this
-------------------------
Agreement which is to be maintained confidential (hereinafter "Confidential
Information"), shall be (i) if delivered in writing, designated with the
legend "Confidential" (or a comparable legend) and (ii) if disclosed
orally, indicated "Confidential" at the time of such disclosure and
followed within thirty (30) days with written notice specifying the
confidentiality. In addition, Confidential Information shall include any
other information exchanged pursuant to this Agreement which the party to
whom it was disclosed knew or should have known was confidential.
Section 4.3 - Obligation Not to Disclose. Licensor and Licensee shall
----------------------------------------
maintain each other's Confidential Information in confidence, and, except
as permitted by this Agreement, the Supply Agreement or the Asset Purchase
Agreement, shall not disclose such Confidential Information to any third
party without the prior written consent of the transmitting party, during
the term of this Agreement and for ten (10) years thereafter. Such
Confidential Information may be used by the receiving party within
its place of business and disclosed to its advisors, agents,
representatives, Affiliates and their respective employees to whom
disclosure is reasonably necessary.
Section 4.4 - Disclosure to Affiliates. Licensor and Licensee mutually
--------------------------------------
covenant that any Confidential Information received pursuant to this
Agreement and disclosed to their respective advisors, agents,
representatives, Affiliates or employees shall be held confidential by such
advisors, representatives, Affiliates and employees in the same manner that
Licensor or Licensee are obligated under the terms of this Article IV.
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<PAGE>
Section 4.5 - Copies. Each party may make copies of materials
--------------------
designated "Confidential" that are delivered to another party as permitted
by this Agreement. All such copies shall at all times be subject to the
terms and conditions of this Agreement and shall remain the property of the
transmitting party.
Section 4.6 - Exclusions. The preceding provisions of this Article IV
------------------------
shall not apply to any information whether or not designated "Confidential"
which:
(i) at any time prior to the time of disclosure becomes known to
the receiving party, as evidenced by its written records; or
(ii) is or becomes publicly known or available through
no breach of this Agreement; or
(iii) is independently developed by the receiving party
as evidenced by its written records; or
(iv) is disclosed pursuant to the requirement of a
governmental agency or by operation of law.
Each party shall have the right to file patent applications for its own
inventions relating to any product, and it shall not be considered a breach
of this Agreement for such party to set forth in the disclosure of those
patent applications such information disclosed hereunder as may be
necessary to describe completely such party's invention in accordance with
the requirements of the patent law of the country involved.
Section 4.7 - Procedures Employed. In performing its obligations under
---------------------------------
this Article IV, each party shall employ procedures no less restrictive
than the strictest procedures used by such party to protect its own
confidential data, which procedures on request shall be explained in
reasonable detail in writing to the requesting party to protect its own
confidential data.
Section 4.8 - Notification of Unauthorized Use. Each party shall
----------------------------------------------
promptly, during the term of this Agreement, notify the transmitting party
of any actual or suspected unauthorized use or disclosure of any
Confidential Information or infringement of any Patents of which such
notifying party has knowledge and will reasonably cooperate with the
transmitting party in the investigation and prosecution of such
unauthorized use, disclosure or infringement.
Section 4.9 - Best Efforts. Each party shall use its best efforts to
--------------------------
protect the good name and reputation of the other party and the
goodwill represented by any of the foregoing.
ARTICLE V
STANDARD OF LICENSEE'S PERFORMANCE
----------------------------------
Section 5.1 - Standards of Quality. The Licensed Products to
----------------------------------
be manufactured, sold and distributed by Licensee shall, at all
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<PAGE>
times, meet at least the standards of quality of materials and workmanship
presently maintained by Licensor with respect thereto.
Section 5.2 - Compliance with Applicable Laws. The Licensed Products
---------------------------------------------
will be manufactured, sold and distributed in accordance with all
applicable laws.
Section 5.3 - Patent Marking. Each Licensed Product made by or for
----------------------------
Licensee which is covered by one or more claims of the Patents shall have
plainly marked thereon a patent notice listing the number of the applicable
patent or patents within the Patents.
ARTICLE VI
ROYALTIES AND REPORTS
---------------------
Section 6.1 - Royalties.
-----------------------
(a) Contemporaneous with the signing of this Agreement and as
consideration for the Patent License being granted hereunder, Licensee is
paying Licensor a lump sum paid up royalty of Three Hundred Thousand Dollar
($300,000.00); thereafter, the Patent License granted hereunder shall be
royalty free.
(b) Subject to the provisions of paragraphs (d), (f) and (g), of this
Section 6.1, Licensee shall pay Licensor "Actual Royalties" (subject to
increases as hereinafter set forth) for the Technology License granted
hereunder, in an amount equal to (i) Five Dollars ($5.00) for each mattress
sold by Licensee which utilizes the Technology and bears the BEAUTYREST(R)
Trademarks, plus (ii) Fifty Cents ($.50) for each cushion sold by Licensee
which utilizes the Technology and bears the BEAUTYREST(R) Trademarks.
(c) The rate of the Actual Royalties paid by Licensee for each mattress
and cushion as hereinbefore set forth shall increase by ten percent (10%)
every five (5) years commencing January 1, 1996, and continuing on the
first day of each subsequent fifth year during the term of this Agreement
(e.g. $5.50 per mattress and $.55 per cushion in 1996 through 2000, and
$6.05 per mattress and $.60 per cushion in 2001 through 2005).
(d) The Actual Royalties payable by Licensee to Licensor hereunder
during any calendar year ("Royalty Year") shall not be less than the
minimum royalty payments set forth in Schedule E attached hereto (the
----------
"Minimum Royalties") except as provided in Section 6.1(h) hereof. The
Minimum Royalties shall increase by ten percent (10%) every five (5) years
commencing January 1, 1996 and continuing on the first day of each
subsequent fifth year during the term of this Agreement (e.g., $440,000 in
1996 through 2000, and $484,000 in 2001 through 2005).
(e) The Actual Royalties payable hereunder by Licensee to Licensor
shall be payable within thirty (30) days after the end of each calendar
quarter during which the Actual Royalties accrued, with an annual
adjustment being made to reflect the
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<PAGE>
Minimum Royalties required hereunder; said annual adjustment being made and
payable within thirty (30) days after the end of the Royalty Year. At the
end of each calendar quarter, whether or not Actual Royalties are owing to
Licensor, Licensee shall furnish Licensor with a statement showing the
number of Licensed Products sold with respect to which Actual Royalties are
due and the manner in which the Actual Royalties, if any, were calculated,
certified as accurate by an officer of Licensee.
(f) In the event that during any Royalty Year, Licensor fails to supply
Licensee with Pocketed Coil Units as ordered by Licensee pursuant to the
Supply Agreement and required to be supplied thereunder, then in accordance
with Section 6.2 of the Supply Agreement, there shall be no Minimum
Royalties due by Licensee to Licensor during that Royalty Year.
(g) In the event that Licensee is entitled to use Pocketed Coil Units
on cushions and mattresses (other than those bearing the BEAUTYREST(R)
Trademarks) as a result of any of the provisions set forth in Section
2.1(c)(i), (ii) or (iii), then no royalties shall be due and payable by
Licensee to Licensor as a result of the use of any such Pocketed Coil
Units.
(h) In the event that Licensee fails to meet the Minimum Royalties for
recliners as set forth in part (B) of Schedule E, then Licensor may, by
----------
giving written notice to Licensee, convert to non-exclusive use thereafter,
the license to use the BEAUTYREST(R) Trademarks with cushions that are
components of recliners only (the "BEAUTYREST(R) Recliners License"), in
which case, Licensee will thereafter pay only Actual Royalties with respect
to such cushions but will no longer have an obligation to meet the Minimum
Royalties for recliners; provided, however, that Licensee may retain its
exclusive BEAUTYREST(R) Trademark License by paying to Licensor the balance
of the Minimum Royalty for recliners for that year within thirty (30) days
after receipt of such notice. Nothing set forth herein shall otherwise
affect the exclusive nature of the rights granted to License, other than as
may apply to the use of BEAUTYREST(R) cushions that are components of
recliners.
In the event of such a conversion to non-exclusive use, Licensor shall
pay Licensee a royalty (subject to increase as set forth in Section 3.3(b)
hereof) equal to fifty cents ($.50) for each recliner sold or otherwise
transferred by Licensor (or Licensor's Affiliates) that uses a
BEAUTYREST(R) cushion. All royalties payable hereunder by Licensor shall
be payable to Licensee and be reportable in accordance with the provisions
of Section 3.3(c) hereof and shall bear interest at the Penalty Rate to
the same extent as is set forth in Section 3.3(d). Licensor shall also
maintain records of all sales of such recliners and Licensee shall have
inspection rights to the same extent provided in Section 3.3(e). The
provisions of this Article VI with respect to Actual Royalties payable by
Licensee for each such cushion sold by Licensee shall be unaffected by
the conversion to non-exclusive use set forth in this subsection 6.1(h).
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Section 6.2 - Interest on Late Payment. In the event Licensee fails to
--------------------------------------
pay any royalties when due, and such failure to pay is not cured within
five (5) days after receipt of notice thereof from Licensor to Licensee,
Licensee shall pay to Licensor in addition to such royalties, interest on
the unpaid royalty at a rate equal to the Penalty Rate. At the time of
payment of royalties, Licensee shall furnish a statement, certified to be
accurate by Licensee, indicating the computation of the royalty.
Section 6.3 - Examination of Books. Licensee shall maintain, for a
----------------------------------
period of at least two (2) years after each royalty statement is delivered
to Licensor (the "Examination Period"), such accurate books and records as
shall be sufficient to confirm the number and type of mattresses and
cushions used as components of Licensed Products utilizing Pocketed Coil
Units which were sold by Licensee in the Licensed Territory, and the total
royalties due and payable under this Agreement. Twice a year and on
reasonable notice to Licensee, Licensee shall permit reasonable inspection
by a CPA of such books and records as may reasonably be required to verify
such data. Any such CPA shall be chosen by Licensor and shall be subject to
the reasonable approval of Licensee and shall be paid by Licensor. Such CPA
shall only verify to Licensor whether Licensee's royalty statements are
correct and, if any such statements are deemed incorrect, such CPA will
report to Licensor the number of Licensed Products containing Pocketed Coil
Units sold in the Licensed Territory during the period or periods in
question and the total royalty properly payable thereon. Notwithstanding
any other provision of thfs Agreement, should any figure established by
such inspection by such CPA differ by more than five percent (5%) from the
corresponding figure in the royalty statements furnished Licensor by
Licensee hereunder, Licensee shall reimburse Licensor for any and all
reasonable expenses incurred by Licensor in the course of such inspection.
The accuracy of any royalty payment may not be challenged by Licensor after
expiration of the Examination Period.
ARTICLE VII
WARRANTIES AND COVENANTS
------------------------
Section 7.1 - Licensor's Warranties and Covenants.
-------------------------------------------------
(a) Licensor represents and warrants to Licensee that as of the
Effective Date of this Agreement (i) Licensor has the right to use and to
license others to use the Technology presently in its knowledge, possession
or control, and is the sole owner of the owned Patents set forth in
Schedule A in the Licensed Territory, free and clear of all liens,
----------
encumbrances, claims and restrictions of all kinds other than those set
forth on Schedule F attached hereto, none of which will disturb
----------
Licensee's rights hereunder; (ii) Licensor has the right, power
and authority to enter into this Agreement and grant the licenses, rights
and privileges in the Licensed Territory granted herein; (iii) except as
set forth in Schedule G attached hereto, there are no outstanding
----------
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<PAGE>
assignments, grants, licenses, obligations or agreements by Licensor or
arising as a result of Licensor's actions relating to the use of the
Patents or the Technology in the Licensed Territory or elsewhere, and none
of such assignments, grants, licenses, obligations or agreements are
inconsistent with the rights granted Licensee by this Agreement; (iv) to
the knowledge of Licensor, immediately after the Effective Date, Licensee's
use of the Patents and the Technology in connection with the Production of
Licensed Products in accordance with the terms of this Agreement does not,
and will not, infringe any right of any Person under any patent or other
laws of the Licensed Territory; (v) subject to Section 7.1(b) hereof, the
Patents and the Technology constitute all of the patents and technology
needed to manufacture and sell Upholstered Products containing Pocketed
Coil Units; and (vi) except as set forth on Schedule H attached hereto, any
----------
and all agreements pursuant to which Licensor authorizes the use of the
Patents or Technology outside of the Licensed Territory by Persons other
than Licensee contain appropriate restrictions so as to restrict the rights
of such Persons to use the Patents or Technology incident to the Production
of Upholstered Products in the Licensed Territory.
(b) Licensor further represents and warrants to Licensee that the
Patents and Technology constitute all patents and technology issued to, or
owned or licensed by, or licensed to, Licensor or its Affiliates as of the
date of this Agreement in the Licensed Territory which cover in whole or in
part devices or processes contained in or relating to Upholstered Products
or Pocketed Coil Units, and that to the best of Licensor's knowledge, there
are no other patents, know-how, technology or other information necessary
to use the Patents and Technology in the Licensed Territory incident to the
Production of Licensed Products. The parties agree that (i) to the extent
that there are any additional patents or technology necessary to use the
Patents and/or Technology in accordance with the terms of this Agreement
which are not specifically set forth in Schedule A hereto, such patents
----------
shall be automatically included with the Patents and Technology without
payment of any additional royalties and, Licensor will notify
Licensee of the identity thereof, and (ii) to the extent that Licensor
notifies Licensee within thirty (30) days following the Effective Date of
this Agreement that any patents specifically set forth in Schedule A hereto
do not cover in whole or in part devices or processes contained in or
relating to Upholstered Products or Pocketed Coil Units and have
inadvertently been included in Schedule A, such patents shall be deleted
----------
from the Patents licensed hereunder.
(c) Licensor covenants and agrees that any developments or
modifications that constitute improvements in or to the Patents or
Technology shall be deemed (without the payment of additional royalties)
part of the P&T Licenses granted to Licensee in this Agreement, and that
the Patents and Technology shall be updated from time to time to reflect
new patents and Technology within the Patents and Technology, all of which
shall be deemed part of the licenses granted hereunder to Licensee.
Licensor shall not, however, be obligated to make any such improvements.
-16-
<PAGE>
(d) Licensor shall, in its sole discretion and at its sole expense, pay
all maintenance fees associated with the Patents and, if it determines not
to do so, shall so notify Licensee not later than forty-five (45) days
prior to the date when the fee for any patent within the Patents is finally
due without surcharge for late payment, whereupon Licensee may, but shall
not be obligated to, pay the maintenance fee for such patent. In the event
that Licensor notifies Licensee of its intention not to pay a maintenance
fee or fails to pay any such maintenance fee, Licensee may pay such
maintenance fee and, (i) Licensor shall reimburse Licensee for the amount
of such fee, and (ii) thereafter, the P&T Licenses granted herein shall be
royalty-free.
(e) Licensor shall give Licensee at least thirty (30) days prior
written notice of (i) any sale, license or transfer of the Patents and/or
Technology to any Person, (ii) any sale, license or transfer of Pocketed
Coil Units to any Person for use in mattresses or cushions used in or with
Upholstered Products, and (iii) any use of Pocketed Coil Units by Licensor
or its Affiliates in any Upholstered Products.
Section 7.2 - Sales by Licensee Outside of Licensed Territory.
--------------------------------------------------------------
(a) Subject to the provisions of Section 7.3 of the Asset Purchase
Agreement, Licensee and its Affiliates shall not, whether by ownership or
control of another corporation or entity or otherwise, manufacture, sell,
distribute, advertise or promote in, or export to or import into, any
country or territory outside of the Licensed Territory, any Licensed
Products, or sell or distribute any Licensed Products to any Person which
intends, to the best knowledge of Licensee, directly or indirectly, to
export the same to any country or territory outside of the Licensed
Territory.
Section 7.3 - Sales by Others in Licensed Territory.
----------------------------------------------------
(a) Except with respect to Non-Exclusive Products or as provided in
Article III or Schedule H, Licensor shall not, directly or indirectly,
----------
whether by ownership or control of another corporation or entity or
otherwise, nor shall Licensor authorize any Person to, manufacture, sell,
distribute, advertise or promote in, or export to or import into, the
Licensed Territory any Licensed Products, or sell or distribute any
Licensed Products to any Person which intends, to the best knowledge of
Licensor, directly or indirectly, to export the same to the Licensed
Territory.
(b) Licensor hereby represents and warrants to Licensee that except as
set forth on Schedule H, all of the existing license agreements between
----------
Licensor (or its Affiliates) and any Person relating to the Patents or
Technology (or the foreign equivalent of such Patents or Technology)
prohibit the licensees thereunder from (i) manufacturing, selling,
distributing, advertising or promoting in, or exporting to or importing
into,
-17-
<PAGE>
the Licensed Territory any Licensed Products (or their foreign
equivalents), or (ii) selling or distributing any Licensed Products (or
their foreign equivalents) to any person which intends, to the best
knowledge of Licensor, directly or indirectly, to export the same to the
Licensed Territory.
ARTICLE VIII
ENFORCEMENT
-----------
Section 8.1 - Unauthorized Use of Patents or Confidential Information
---------------------------------------------------------------------
by a Third Party.
----------------
(a) In the event either party becomes aware of any actual or suspected
unauthorized use or infringement of any Patents or Technology used in
connection with Upholstered Products, by any Person, said party shall
notify the other party to this Agreement, and Licensor may, at Licensor's
sole cost and expense, take such action (including without limitation,
bringing a suit against such Person) as may be reasonably required in order
to protect fully the Patents and Technology, and Licensee's interest
therein and rights with respect thereto. In such event, Licensee shall
provide any assistance in the prosecution of such action reasonably
requested by Licensor.
(b) In the event that Licensor fails to act pursuant to the provisions
of Section 8.1(a), then any and all rights that Licensor may have to
prevent the unauthorized use or infringement of the Patents or Technology
referred to in Section 8.1(a) (whether by contract or otherwise) shall be
automatically assigned to Licensee, and Licensee shall have the privilege,
but shall not be obligated to, prosecute or settle any such action in the
name of the appropriate party, and at Licensee's sole expense, except that
in such case, Licensee may deduct the amount of such expenses (including
without limitation, attorneys' fees and court costs) not otherwise
specifically reimbursed to Licensee under any recoveries, damages or
settlement amounts received as a result of any such action from royalties
or other amounts due and payable by Licensee to Licensor (or to any of
Licensor's Affiliates) under this Agreement, the Supply Agreement, the
Asset Purchase Agreement, or any other agreement between the parties or
their respective Affiliates; provided that Licensor may elect to take
control of such action, at Licensor's expense, in the event that any
proposed settlement or action by Licensee is reasonably believed by
Licensor to have an adverse affect on the Patents or Technology. In the
event that Licensor takes control of such action, any settlement or action
made or taken by Licensee shall be in support and furtherance of Licensee's
rights under this Agreement. In any such action by Licensee, Licensor shall
provide any assistance reasonably requested by Licensee in the prosecution
of such action, and if requested by Licensee, Licensor shall become the
plaintiff of record in any such action provided that Licensee reimburses
Licensor for all reasonable expenses incurred by Licensor while acting as
such plaintiff.
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<PAGE>
(c) In any infringement action provided for in this Section 8.1, the
non-prosecuting party shall, at its own expense, be entitled to non-
controlling participation through counsel of its own selection. Any
recoveries, damages, or settlement amounts received as a result of any such
action shall be equitably apportioned between Licensee and Licensor.
(d) In the event that either party becomes aware of any actual or
suspected unauthorized use of the Technology or any Confidential
Information of the other party, then such party shall notify the other of
such as soon as possible and assist the other in protecting its rights in
said Technology or Confidential Information.
Section 8.2 - Claims of Infringement by a Third Party. If any action or
-----------------------------------------------------
claim is made against Licensee alleging that Licensee's use of the Patents
or Technology in accordance with the terms set forth in this Agreement,
infringes or violates the rights of others, or that Licensor is not the
owner thereof, or that Licensee is not authorized to utilize the same, then
Licensee shall notify Licensor of such alleged infringement and Licensor
may defend such action and protect Licensee's rights hereunder. In the
event that Licensor defends such action, Licensee shall provide any
assistance reasonably requested by Licensor in the defense of such action.
In the event that Licensor fails to promptly defend such action and provide
Licensee with reasonable assurances that Licensor has the financial
ability to satisfy any judgments or settlements with respect thereto,
Licensee shall have the right, but not the obligation, to defend such
action at Licensor's cost and Licensee may deduct all expenses so incurred
from any royalties or other amounts due and owing by Licensee to Licensor
(or to any of Licensor's Affiliates) under this Agreement or any other
agreement between the parties or their respective Affiliates. Licensor
shall provide any assistance reasonably requested by Licensee in the
defense of such action.
Section 8.3 - Violation by Licensor.
-----------------------------------
(a) In the event that Licensor or any Affiliate of Licensor violates
any of the provisions of this Agreement and the licenses granted to
Licensee hereunder, Licensee shall have the following rights and remedies,
each of which shall be independent of the others and severally enforceable,
and each of which is in addition to, and not in lieu of, any of the rights
and remedies available to Licensee under law or in equity: (i) Licensee may
enjoin the continuance of said violation as hereinafter set forth, and (ii)
if said violation is not cured within thirty (30) days after receipt by
Licensor of written notice of said violation calling attention to such
breach, specifying the nature thereof and the action required to correct
the breach, (A) Licensee shall be deemed licensed hereunder on a royalty-
free basis for the Production of Licensed Products within the Licensed
Territory until said violation is cured, and any and all Licensed Products
sold by Licensee on a royalty-free basis until said violation is cured
shall be counted towards satisfaction of the Minimum
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<PAGE>
Royalties as if royalties were being paid with respect to said Licensed
Products, and (B) as partial compensation for violation prior to cessation
of such violation, Licensor shall pay to Licensee, as liquidated damages,
an amount equal to Fifty Dollars ($50.00) for each Licensed Product sold by
any person or entity as a direct or indirect result of Licensor's violation
of the provisions of this Agreement.
(b) The parties hereto recognizing that irreparable injury will result
to Licensee, its business and property in the event of a breach of the
provisions of this Agreement by Licensor (or any of its Affiliates), agree
that in the event of a violation of such covenants by Licensor or any of
its Affiliates, Licensee shall be entitled, in addition to its other
rights, remedies and damages, to the issuance of restraining orders or
injunctions, both temporary and permanent, in order to restrain the
continuing violation of said covenants by Licensor (and/or its Affiliates),
and all Persons acting for or with them.
(c) Nothing contained in this Section 8.3 is intended to relieve
Licensor from any liability it may otherwise have for any breach of any
provision of this Agreement.
(d) In the event that Licensor or any Affiliate of Licensor violates
any of the provisions of this Agreement or the licenses granted to Licensee
hereunder, Licensee shall be entitled to recover all costs and expenses
(including without limitation, court costs and attorneys' fees) incurred by
Licensee in enforcing the provisions of this Agreement and pursuing its
rights and remedies hereunder.
Section 8.4 - Violation by Licensee.
-----------------------------------
(a) In the event that Licensee or any Affiliate of Licensee violates
any of the provisions of this Agreement, Licensor shall have the following
rights and remedies, each of which shall be independent of the others and
severally enforceable, and each of which is in addition to, and not in lieu
of, any of the rights and remedies available to Licensor under law or in
equity: (i) Licensor may enjoin the continuance of said violation as
hereinafter set forth, and (ii) if said violation is not cured within
thirty (30) days after receipt by Licensee of written notice of said
violation calling attention to such breach, specifying the nature of and
the action required to correct the breach, as partial compensation for
violation prior to cessation of such violation, Licensee shall pay to
Licensor, as liquidated damages, an amount equal to Fifty Dollars ($50.00)
for each product sold by Licensee or any of its Affiliates in violation Of
this Agreement.
(b) The parties hereto recognizing that irreparable injury will result
to Licensor, its business and property in the event of a breach of the
provisions of this Agreement by Licensee (or any of its Affiliates), agree
that in the event of a violation of such covenants by Licensee or any of
its Affiliates, Licensor
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<PAGE>
shall be entitled, in addition to its other rights, remedies and damages,
to the issuance of restraining orders or injunctions, both temporary and
permanent, in order to restrain the continuing violation of said covenants
by Licensee (and/or its Affiliates), and all Persons acting for or with
them.
(c) Nothing contained in this Section 8.4 is intended to relieve
Licensee from any liability it may otherwise have for any breach of any
provision of this Agreement.
(d) In the event that Licensee or any Affiliate of Licensee violates
any of the provisions of this Agreement, Licensor shall be entitled to
recover all costs and expenses (including without limitation, court costs
and attorneys' fees) incurred by Licensee in enforcing the provisions of
this Agreement and pursuing its rights and remedies hereunder.
ARTICLE IX
INDEMNIFICATIONS
----------------
Section 9.1 - Indemnification.
-----------------------------
(a) Licensee shall indemnify, defend and hold Licensor (and its
officers, directors, employees, agents, Affiliates, successors and assigns)
(hereinafter individually and/or collectively the "Licensor Group")
harmless from and against any and all demands, claims, actions, losses,
damages, (including consequential and punitive damages), deficiencies,
liabilities, judgments, costs and expenses (including without limitation,
reasonable attorneys' fees, interest, penalties, and all amounts paid in
investigation, defense, or settlement of any of the foregoing) asserted
against, or incurred by the Licensor Group, directly or indirectly, in
connection with, arising out of, or resulting from (i) a breach or
nonfulfillment of any one or more covenants, agreements, representations,
or warranties of Licensee contained in this Agreement or in any certificate
furnished incident hereto, or (ii) any claim against Licensor by a Person
based upon the Production of any Licensed Product by Licensee or its
Affiliates, unless such claim results from (A) infringement upon the
intellectual property rights of any Person attributable to the Patents or
Technology being licensed to Licensee hereunder, or (B) defects in the
Patents or Technology, or (C) conduct of Licensor or its Affiliates, or (D)
defective Pocketed Coil Units supplied by Licensor or its Affiliates
(collectively the "Licensor's Damages").
(b) Licensor shall indemnify, defend and hold Licensee (and its
officers, directors, employees, agents, Affiliates, successors and assigns)
(hereinafter individually and/or collectively the "Licensee Group")
harmless from and against any and all demands, claims, actions, losses,
damages (including consequential and punitive damages), deficiencies,
liabilities, judgments, costs and expenses, (including without limitation,
reasonable attorneys' fees, interest, penalties, and all amounts
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<PAGE>
paid in investigation, defense or settlement of any of the foregoing)
asserted against, or incurred by the Licensee Group, directly or
indirectly, in connection with, arising out of or resulting from (i) a
breach or nonfulfillment of any one or more covenants, agreements,
representations or warranties of Licensor contained in this Agreement or
any certificate furnished pursuant hereto, or (ii) any claim against
Licensee or any of its Affiliates by a Person based upon the presence of
defective Pocketed Coil Units supplied by Licensor or its Affiliates to
Licensee or its Affiliates, or (iii) any infringement of third party
intellectual property rights by Licensee (or its Affiliates) for Licensee's
(or its Affiliates') use of the Patents and the Technology as
contemplated in this Agreement (collectively the "Licensee's Damages").
Section 9.2 - Notice of Indemnification. The obligations and
---------------------------------------
liabilities of the party providing the indemnification hereunder (the
"Indemnifying Party") with respect to claims for damages (either Licensor's
Damages or Licensee's Damages, whichever the case may be) resulting from
the assertion of liability from third parties ("Claims") shall be subject
to the following additional terms and conditions:
(a) The party to be indemnified (the "Indemnified Party") shall give
the Indemnifying Party prompt notice of any Claims asserted against or
incurred by the Indemnified Party.
(b) If, after notice of any such Claims, the Indemnifying Party fails
to (i) acknowledge promptly in writing its obligations hereunder with
respect to such Claims, or (ii) promptly notify the Indemnified Party in
writing of its intention to defend, the Indemnified Party shall have the
right to undertake the defense, compromise or settlement of such claims,
subject to the right of the Indemnifying Party to assume the defense of
such Claims at any reasonable time prior to final settlement, compromise or
determination thereof; provided that before assuming responsibility
initially or at any later time for the defense, compromise or settlement of
the Claims, the Indemnifying Party shall provide reasonable assurance of
its ability to pay any damages (including without limitation, and if
applicable, costs of defense incurred by the Indemnified Party arising from
the Indemnifying Party's failure to initially defend the Claims), arising
out of or relating to the Claims.
(c) Notwithstanding the provisions of paragraph (b) above, in the event
that the Indemnifying Party is defending a Claim, the Indemnified Party may
nevertheless participate at its own expense in the defense of such Claim.
If the Indemnifying Party defends any Claim, the Indemnified Party shall
make available to the Indemnifying Party any books, records or other
documents within its control and shall provide reasonable access to the
Indemnified Party's business premises which are necessary or appropriate
for such defense; provided, however, that any information of a confidential
nature discovered incident to any such defense shall be maintained by the
Indemnifying Party in strict confidence and not utilized other than in
connection with the defense of the Claims.
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Section 9.3 - Survival of Indemnification. The Indemnifications set
-----------------------------------------
forth in this Article IX shall survive the termination of this Agreement.
Section 9.4 - Other Remedies. Nothing in this Article IX shall be
----------------------------
construed to limit the non-monetary equitable remedies of either party
hereto in respect of any breach by the other party of any covenant or other
agreement of such other party contained in or made pursuant to this
Agreement required to be performed after the Effective Date. Furthermore,
the indemnification rights contained herein do not amend, modify, limit or
restrict the indemnification rights and obligations of the parties under
the Asset Purchase Agreement or the Supply Agreement.
Section 9.5 - Setoff. In the event that either party is entitled to
--------------------
indemnification hereunder, said party shall have the right, in addition to
all other rights and remedies available, whether at law or otherwise, to
setoff the amount of such indemnification against any amounts due and
payable by the Indemnifying Party (or any of its Affiliates) to the
Indemnified Party (or any of its Affiliates) pursuant to this Agreement,
the Asset Purchase Agreement, the Supply Agreement, or any other document
or agreement between the parties and/or their respective Affiliates. Any
setoff made by the Indemnified Party in good faith as provided for above
shall not constitute an event of default by said Indemnified Party under
this Agreement, the Asset Purchase Agreement, the Supply Agreement, or any
other agreement, even if it should later be determined that the Indemnified
Party is not entitled to indemnity for some or all of the amounts setoff by
it as aforesaid; provided, however, that any amount wrongfully setoff shall
bear interest from the date when such payment was due at an annual rate
equal to the Penalty Rate and shall be payable within thirty (30) days
after a decision has been rendered by an arbitrator (or other competent
authority) in accordance with the provisions of this Agreement.
ARTICLE X
TERM AND TERMINATION
--------------------
Section 10.1 - Term. The term of this Agreement shall commence on the
-------------------
Effective Date and shall continue perpetually (the Patent Licenses shall
continue for the lives of the underlying Patents, as said Patents may be
modified, improved and updated from time to time), except as otherwise set
forth, and only as set forth, in this Article X. Licensor acknowledges and
agrees that Licensor shall not have any right to terminate the licenses
granted to Licensee hereunder except as provided in Sections 10.3 and 10.4
and then only after a decision as to default has been made pursuant to
Article XI and only if Licensee fails to comply with such decision.
Section 10.2 - Termination by Licensee.
--------------------------------------
(a) Except as provided in Section 10.2(b) hereof,
Licensee may, at any time after June 30, 1991 terminate the P&T
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<PAGE>
Licenses granted herein upon six (6) months prior written notice to
Licensor, provided, however, in the event that Licensee terminates the P&T
Licenses before June 30, 1995, Licensee shall pay Licensor on the date of
such termination, a fee ("Termination Fee") equal to (i) One Million Five
Hundred Thousand Dollars ($1,500,000.00), less (ii) the aggregate amount of
Actual Royalties paid, or accrued and to be paid, by Licensee, to such date
of termination; provided, however, that in the event that Licensee is or
was not required to pay Minimum Royalties in any Royalty Year due to
Licensor's failure to supply Pocketed Coil Units pursuant to Section 6.1(f)
of this Agreement, then the Termination Fee shall be further reduced by the
amount of Minimum Royalties that were to have been paid during any Royalty
Year during which said failure to supply occurred.
(b) Licensee shall have the right to terminate this Agreement without
being obligated to pay a Termination Fee to Licensor in the event that
there is a termination of any or all of (i) that certain BEAUTYREST(R)
Trademark License Agreement dated the date hereof by and between Licensor
and Licensee, or (ii) that certain Trade Name License Agreement dated the
date hereof by and between Licensor and Licensee, or (iii) that certain
Trademark License Agreement dated the date hereof by and between Licensor
and Licensee. Licensee may terminate this Agreement by giving written
notice thereof to Licensor within sixty (60) days after the termination of
any of the foregoing agreements.
Upon termination of this Agreement, Licensee shall have no further
rights or obligations hereunder, except (i) to pay any Actual Royalties
which accrued to the date of termination, (ii) as set forth in Section 9.3
hereof, and (iii) with respect to the confidentiality provisions of Article
IV.
Section 10.3 - Termination for Failure to Pay Monies Due. In the event
--------------------------------------------------------
that Licensee defaults in the payment of any royalties due to Licensor
pursuant to Article VI hereof and such default continues for thirty (30)
days after receipt of written notice of such default, Licensor shall have
the right to terminate the P&T Licenses by giving notice of such intention
to Licensee. Licensee shall have the right to preclude Licensor from
effecting any such termination by fully complying with the payment
provisions within thirty (30) days after such notice is given by Licensor;
provided however, in the event of a dispute or controversy as to the amount
of royalties payable hereunder, or in the amount with respect to which
Licensee claims setoff rights pursuant to Section 9.5 hereof, the failure
to pay any amount in dispute shall not be deemed a failure to pay for
purposes of this Section 10.3 until thirty (30) days after such dispute
shall have been resolved in accordance with the procedures of Article XI.
Section 10.4 - Other Terminations.
---------------------------------
(a) Licensor may terminate any one or more of the P&T Licenses granted
pursuant to this Agreement by giving Licensee written notice thereof in the
event that Licensee breaches any
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<PAGE>
material obligation of this Agreement relevant to the license to be
terminated, such breach has a material, detrimental effect on the
reputation and goodwill of Licensor, or products manufactured and/or sold
by Licensor or its Affiliates, and such breach has not been remedied (or
action has not been commenced and diligently pursued by Licensee to remedy
such breach) within thirty (30) days after receipt by Licensee or its
Affiliate of written notice from Licensor calling attention to such breach,
specifying the nature thereof and the action required to correct the
breach. Notwithstanding the foregoing, in the event of a dispute or
controversy pertaining to a default by Licensee under this Agreement,
Licensor shall not be entitled to terminate this Agreement until thirty
(30) days after such dispute shall have been resolved in accordance with
the procedures of Article XI hereof and only if Licensee fails to comply
within said thirty (30) days, with the decision of the arbitrator after
such resolution has been determined.
(b) Licensor shall the right to terminate this Agreement at any time
within sixty (60) days after the termination of the BEAUTYREST(R) Trademark
License Agreement.
Section 10.5 - Payment of Royalties After Termination. Termination of
-----------------------------------------------------
this Agreement for any reason shall not release Licensee from any
obligation to pay any Actual Royalties or a pro rata portion of Minimum
Royalties accrued and unpaid at the effective date of such termination nor
to pay Actual Royalties on the Licensed Products manufactured prior to
termination but sold or used after termination, nor shall such termination
release any party of any part of any obligation accrued prior to the date
of such termination, or obligations continuing beyond termination of the
Agreement.
Section 10.6 - Reversion of Licenses.
------------------------------------
(a) Upon the termination of this Agreement or any of the P&T Licenses
granted hereunder as herein set forth, all rights granted to Licensee (and
any assignee, sublicensee or transferee of any such rights) pursuant to the
terminated P&T Licenses shall forthwith revert to Licensor, who shall be
free to license others to use the terminated rights in connection with the
Production of Licensed Products in the Licensed Territory and, except as
otherwise expressly permitted by this Agreement, Licensee shall refrain
from further use of such terminated rights, either directly or indirectly,
in connection with the Production of Licensed Products.
(b) Notwithstanding the provisions of Section 10.6(a), upon any such
termination referred to therein, and unless the termination has resulted
from poor quality of the Licensed Products, Licensee shall have the right
to use the Patents and Technology in Licensee's Field of Use of according
to the terms and conditions of this Agreement, until such time as all raw
materials, work-in-process and finished goods associated therewith have
been disposed of, provided, however, that in no event may
-25-
<PAGE>
Licensee use such Patents and Technology after the period ending six (6)
months after said termination.
Section 10.7 - Acknowledgement of Damage. Except as may otherwise be
----------------------------------------
permitted by this Agreement, Licensee acknowledges that its failure to
cease Production of the Licensed Products in the Licensed Territory and/or
use in any way the Patents or Technology at the termination of this
Agreement or the termination of any license granted herein will result in
immediate and irreparable damage to Licensor and to the rights of any
subsequent licensee of Licensor. Licensee acknowledges and admits that
there is no adequate remedy at law for failure to cease such activities and
Licensee agrees that in the event of such failure, Licensor shall be
entitled to equitable relief by way of injunctive relief and such other
relief as any court with jurisdiction may deem just and proper.
ARTICLE XI
DISPUTE RESOLUTION
------------------
Any controversy or claim arising out of or relating to this Agreement
(except for any controversy or claim arising out of or relating to the
restrictive covenants and remedies thereunder set forth in Article VIII as
to which the parties withhold any grant of jurisdiction to the arbitrator,
instead reserving such claim or controversy for resolution by a court of
competent jurisdiction) shall be settled by binding and conclusive
arbitration in accordance with the commercial rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof, subject
to the following terms, conditions and exceptions:
(a) There shall be a single arbitrator who shall be an attorney and
whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the American Arbitration
Association.
(b) The jurisdiction of the arbitrator and the arbitrability of any
issue raised by the parties shall be decided by the arbitrator in the first
instance.
(c) The venue of any arbitration shall be Chicago, Illinois and such
arbitration shall be conducted in accordance with the procedural laws of
the State of Illinois, including the Illinois Uniform Arbitration Act (Ill.
Rev. Star. Ch. 10 Paragraph 101 et seq.).
(d) Notwithstanding any provision of the Illinois Code of Civil
Procedure or the Rules of the American Arbitration Association
to the contrary, each party shall have all of the rights of discovery
pertaining to civil litigation as provided in the Federal Rules of Civil
Procedure.
-26-
<PAGE>
(e) Insofar as possible, sufficient time shall be designated in
consecutive business days to allow for completion of the arbitration
proceedings without interruption or adjournments.
(f) The losing party will bear the costs and expenses of both parties
to the arbitration.
ARTICLE Xll
MISCELLANEOUS
-------------
Section 12.1 - Construction. As used in this Agreement, unless the
---------------------------
context otherwise requires: (a) the terms defined in this Agreement shall
have been the meaning set forth in this Agreement for all purposes; (b)
references to "Article" or "Section" are to an article or section hereof;
(c) all "Schedules" referred to herein are incorporated in this Agreement
by reference and made a part hereof; (d) "include", "includes", and
"including" are deemed to be followed by "without limitation" whether or
not they are in fact followed by such words or words of like import;
(e) "writing, written", and comparable terms refer to printing,
typing, lithography, and other means of reproducing words in a
visible form; (f) unless otherwise indicated, "hereof", "herein",
"hereunder", and comparable terms refer to the entirety of this
Agreement and not to any particular article, section, or other
subdivision of this Agreement or attachment to this Agreement; (g)
"knowledge" means the actual knowledge of the appropriate party or
any of its Affiliates, including the actual knowledge of the
officers, directors or employees of the appropriate party or any
of its Affiliates; (h) references to any gender include references
to all genders; (i) references to an agreement or other instrument
are referred to as amended and supplemented from time to time; and
(j) the table of contents and headings of the various articles,
sections and other subdivisions hereof are for convenience of
reference only and shall not modify, define, or limit any of the
terms or provisions hereof.
Section 12.2 - Governing Law. This Agreement, and all of the rights and
----------------------------
obligations of the parties hereunder, shall be governed by and constructed
in accordance with the internal laws of the State of Georgia, and the laws
of the United States of America (regardless of the laws that might
otherwise govern under applicable conflicts of law principles).
Section 12.3 - Transfer and Assignment. (a) Subject to the restrictions
--------------------------------------
set forth herein, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
permitted assigns. To the extent that Licensor assigns any of its right,
title or interest in or to any of the Patents and Technology, the assignee
of such Patents and Technology shall be bound by the provisions of this
Agreement.
(b) Licensee, any sublicensee and any other Person who now or hereafter
is granted rights or interests hereunder in accordance with the terms
hereof (and any of their successors or assigns)
-27-
<PAGE>
may, directly or indirectly, assign, license, sublicense or otherwise
transfer any of its rights or interests under this Agreement to an
Affiliate only if such Affiliate constitutes an Upholstery Affiliate.
(c) Licensee, any sublicensee, and any other Person who now or
hereafter is granted rights or interests hereunder in accordance with the
terms hereof ("Transferor") may, directly or indirectly, assign, license,
sublicense or otherwise transfer any of its rights or interests under this
Agreement to a Person who is not an Affiliate ("Non-Affiliate Transferee"),
provided that (i) such transfer is of all of the rights and interests of
Transferor and all Affiliates of Transferor who have any rights, licenses,
sublicenses or other rights or interests under this Agreement, (ii) the
Non-Affiliate Transferee meets all of the definitional requirements of an
Upholstery Affiliate immediately after giving effect to the contemplated
assignment and transfer, and (iii) the Non-Affiliate Transferee agrees to
be bound by the provisions of this Agreement.
(d) Transferor may be sold or otherwise transferred (whether by sale of
substantially all of its assets, sale of stock, merger, consolidation,
reorganization or otherwise) to a Non-Affiliate Transferee, provided that
(i) the Person then having the rights and interests granted hereunder
immediately after giving effect to such transaction (the "New-Licensee"),
whether Licensee or some other Person, agrees to be bound by the
provisions of this Agreement, (ii) the New-Licensee meets all of the
definitional requirements of an Upholstery Affiliate, and (iii) the New-
Licensee does not have a direct or indirect lineal parent that is a
Competitor of Licensor. Nothing set forth herein shall be deemed to
prohibit a Transferor or the direct or indirect lineal parent of the
Transferor, from being sold or otherwise transferred to a Person whose
Affiliate(s) (other than a direct or indirect lineal parent Affiliate) is a
Competitor of Licensor, provided that all requirements hereof are met.
Examples of the application of this subsection (d) are as follows: (A) if a
Non-Affiliate Transferee buys the stock of Licensee, the parent corporation
of such Non-Affiliate Transferee may not be a Competitor of Licensor; (B)
if a Non-Affiliate Transferee acquires substantially all of the assets of
Licensee thereby becoming the New-Licensee, said New-Licensee must, upon
completion of such transaction, meet all of the definitional requirements
of an Upholstery Affiliate; (C) if a Non-Affiliate Transferee merges with
Licensee, the surviving corporation shall be the New-Licensee and must meet
all of the definitional requirements of an Upholstery Affiliate; and (D)
all of the capital stock of Licensee's parent corporation may be sold to a
Person who is not a Competitor of Licensor but who has a subsidiary and/or
a brother/sister corporation that is a
Competitor of Licensor.
(e) Any attempted direct or indirect assignment, sublicense, license or
other transfer (whether by sale of stock, sale of assets, merger,
consolidation, reorganization or otherwise) of any rights or interests
under this Agreement other than as provided
-28-
<PAGE>
above shall be null and void. No direct or indirect assignment, sublicense,
license or other transfer (whether by sale of stock, sale of assets,
merger, consolidation, reorganization or otherwise) as herein set forth
shall release the Transferor of its obligations hereunder.
(f) Notwithstanding anything herein to the contrary, Licensor shall not
have the right to transfer or assign any or all of its rights or
obligations hereunder to a Competitor of Licensee, and Licensee shall not
have the right to transfer or assign any or all of its rights or
obligations hereunder to a Competitor of Licensor.
Section 12.4 - License Agreement Only. It is the intention of the
-------------------------------------
parties hereto to enter into a license agreement only and nothing herein
contained shall be construed to regard the parties hereto as constituting
partners or joint venturers, or to constitute the arrangement herein
provided for as a partnership or joint venture.
Section 12.5 - Notices. Any and all notices or other writings which are
----------------------
required to be served, or which may be served under the provisions of this
Agreement, shall be in writing, and shall be sufficiently served if
delivered personally, by facsimile transmission, telexed or mailed by
registered or certified mail (return receipt requested), postage prepaid or
by a reputable overnight delivery service, to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
To Licensor: Simmons Company
6 Executive Park Drive
Atlanta, Georgia 30329
Attention: President
Copy to: Simmons Company
6 Executive Park Drive
Atlanta, Georgia 30329
Attention: General Counsel
To Licensee: Simmons Upholstered Furniture Inc.
c/o 1314 Hanley Industrial Court
St. Louis, Missouri 63144-1991
Attention:
Copies to: AEA Investors, Inc.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attention: Richard S. Strickler, Jr.
-29-
<PAGE>
and
Greensfelder, Hemker & Gale, P.C.
1800 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
Attention: Edward A. Chod
If mailed as aforesaid, seven (7) days after the date of mailing shall
be the date notice shall be deemed to have been received unless mailed by
overnight delivery service, in which case notice shall be deemed to have
been received the two (2) business days after delivery to such service.
Section 12.6 - Amendment and Modification. This Agreement may be
-----------------------------------------
amended, modified or supplemented only by written agreement of the parties
hereto.
Section 12.7 - Entire Agreement. This Agreement, together with all
-------------------------------
Schedules attached hereto, sets forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements
and understandings, inducements or conditions, express or implied, oral or
written, between the parties hereto. This Agreement and all related
agreements being executed simultaneously herewith or by their terms,
effective on even date herewith, embody the entire understanding between
the parties relating to the subject matter hereof and all prior
representations or agreements relating to the subject matter hereof are
superseded and replaced by this Agreement as of the date of signing by each
of the parties.
Section 12.8 - Severability. If any term or other provision of this
---------------------------
Agreement is invalid, illegal, or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any material manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
Section 12.9 - Counterparts. This Agreement may be executed in two or
---------------------------
more counterparts, each of which shall be deemed to be an original but all
which together shall be deemed to be one and the same instrument.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the day and year
first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
SIMMONS COMPANY
By /s/
________________________________
Harian B. Smith, Chief Financial
Officer and Treasurer
Attest: /s/
_______________________
Secretary
SIMMONS UPHOLSTERED FURNITURE INC.
By /s/
_________________________________
Steve Funk, Vice President
Attest: /s/
_______________________
Secretary
-31-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
----------
TO
--
PATENT AND TECHNOLOGY LICENSE AGREEMENT
---------------------------------------
LICENSED INTANGIBLE PROPERTY
----------------------------
(Patents)
---------
Serial/
-------
Pat. Title Status Filing Date Appin. No. Issue Date Pat. No.
- ---------- ------ ----------- ---------- ---------- --------
OWNED PATENTS
- -------------
<S> <C> <C> <C> <C> <C>
M/A FOR MAKING SERIES OF POCKETED ISSUED 07/16/81 284,240 04/03/84 4,439,977
POCKETED SPRING ASSEMBLY ISSUED 11/20/81 323,574 06/05/84 4,451,946
THERMALLY WELDED SPRING POCKETS ISSUED 10/02/78 947,545 11/25/80 4,234,983
POCKETED SPRING ASSEMBLY ISSUED 03/19/79 022,067 11/25/80 4,234,984
POCKETED SPRING ASSEMBLY APPARATUS ISSUED 01/29/82 343,892 08/30/83 4,401,501
SYS. ACCUM. & HANDLING STRIPS
OF POCKETED SPRINGS ISSUED 04/16/82 369,321 09/27/83 4,408,391
COIL SPRING CONSTRUCTION ISSUED 04/07/83 482,759 12/04/84 4,485,506
ULTRASONIC SEPARATION APPARATUS ISSUED 11/02/83 548,053 01/01/85 4,491,491
INDEPENDENT BLOCK ASSEMBLY OF SPRINGS ISSUED 09/17/82 419,369 06/18/85 4,523,344
APPARATUS FOR MFG. POCKETED COIL SPRINGS ISSUED 12/24/84 685,573 01/21/86 4,565,046
M/A FOR MFG. INNERSPRING CONSTRUCTIONS ISSUED 01/28/85 695,311 01/28/88 4,566,926
INNERSPRING CONSTRUCTION ISSUED 03/09/84 586,867 04/01/86 4,578,834
FLAT OVERLAP SIDE SEAM POCKETED COIL ISSUED 06/13/88 205,920 08/08/89 4,854,023
POCKETED COIL STRINGS HAVING
A FLAT OVERLAT SIDE SEAM PENDING 05/19/89 354,482
UPHOLSTERY COIL TRANSFER MECHANISM ISSUED 08/31/77 829,218 08/28/79 4,165,808
LICENSED PATENTS
- ----------------
MATTRESS OR CUSHION SPRING ASSEMBLY LICENSED 10/16/75 622,886 10/04/77 4,051,567
UPHOLSTERY SPRING COIL LICENSED 01/18/72 218,842 11/12/74 3,847,379
TO LICENSOR
</TABLE>
<PAGE>
SCHEDULE B
----------
TO
--
PATENT AND TECHNOLOGY LICENSE AGREEMENT
---------------------------------------
Specified Trademarks
--------------------
United States United States
Mark Reg. Date Reg. No.
---- --------- --------
At-Ease 7/30/85 1,351,720
Elevations 6/09/81 1,157,343
Hide-A-Bed 3/14/50 522,187
Hide-A-Bed Sofa 10/29/40 382,488
Pull-A-Bed 11/26/84 1,372,600
Wall-A-Bed 4/14/64 768,188
<PAGE>
SCHEDULE C
----------
TO
--
PATENT AND TECHNOLOGY LICENSE AGREEMENT Sleep Gallery License Agreement
-----------------------------------------------------------------------
[See Attached]
EXHIBIT 10.54
WOOLMARK
LICENSE AGREEMENT
[WOOLMARK LOGO]
License No. 0156US88W
------------------------
Date October 21, 1988
-------------------------------
THE WOOL BUREAU, INC.
<PAGE>
STANDARD FORM OF
LICENSE AGREEMENT-
APPAREL, ETC.
AGREEMENT
AGREEMENT entered into this day of October , 1988 between the
WOOL BUREAU, INCORPORATED, a corporation organized and existing under the laws
of the State of New York, whose principal place of business is at 360 Lexington
Avenue, New York, New York 10017, hereinafter called "Wool Bureau", and Simmons
Company
a corporation organized and existing under the laws of the State of Delaware,
whose principal place of business is at 6 Executive Park Drive
Atlanta, Georgia 30329
hereinafter called "the license",
WITNESSETH:
Preliminary Considerations:
A. The Wool Bureau has adopted a certain Mark (as more specifically defined
in Paragraph 1 of this agreement) to designate wool or pure virgin wool products
of certain definite high standards of quality and workmanship as defined in the
attached Regulations. The Wool Bureau presently intends to promote the use of
wool and the sale of products made therefrom in the United States.
B. The licensee desires to sell under the Mark certain products which the
licensee will manufacture or which will be manufactured by others, and the
licensee desires to obtain from the Wool Bureau, and the Wool Bureau is willing
to grant to the licensee, the right, privilege and license to use the Mark for
such products, subject to the terms and conditions of this Agreement.
AGREEMENTS:
In consideration of the sum of One ($1.00) Dollar and other good and
valuable consideration, by each party to the other in hand paid, and in
consideration of the mutual covenants and agreements hereinafter set forth,
the parties hereby agree as follows:
1. DEFINITIONS. For purposes of this agreement, the words listed below
shall have the following meaning, unless otherwise indicated hereinafter:
"United States" shall mean the territory of the fifty States of the
United States of America, as presently constituted, and the territory of any
additional states which may become part of the United States of America
during the effectiveness of this Agreement, and the District of Columbia.
The term "United States" shall be deemed to include also the territory of
the Commonwealth of Puerto Rico, the Virgin Islands, the Panama Canal Zone
and the island of Guam, so long as the United States of America has
jurisdiction and control over the last mentioned four territories during
the effectiveness of this agreement.
The term "Mark" shall mean the mark shown in Appendix A annexed hereto.
The term "Products" shall mean the following goods:
(1) Beautyrest Premier Elite 2000 Mattress
(2) Beautyrest World Class Victoria Mattress
The term "the Regulations" shall mean the matter set forth in Appendix B
annexed hereto.
<PAGE>
2. The Wool Bureau hereby grants to the licensee a non-exclusive right,
privilege and license to use the Mark upon and in relation to the goods
referred to in Paragraph 1, throughout the United States, subject to all of
the terms and conditions of this agreement. No royalty and no monetary
consideration of any kind shall be payable by the licensee for said right,
privilege and license. Nothing herein contained shall be deemed to authorize
any use of the Mark outside of the United States. If the licensee wishes to
use the Mark abroad, the Wool Bureau will upon request indicate to it what
licenses are required for the use of the Mark in foreign countries.
3. (a). The licensee shall, in carrying on trade in goods on or in
relation to which the Mark is used, comply with all of the laws of the United
States and any subdivision thereof then in force (including the Wool Products
Labeling Act of 1939 as amended and the Textile Fiber Products Identification
Act of 1960 as amended) insofar as applicable to the licensee.
3. (b). The licensee agrees that it will use the Mark only in accordance
with the provisions of this Agreement and in particular will never use the Mark,
and will not cause or permit others to use it, in relation to any Products
which do not strictly comply with the regulations.
3. (c). (I) The licensee shall maintain in the place of manufacture,
processing or storage of any Products such system of control and inspection
as shall (in the opinion of the Wool Bureau) be adequate to enable the
licensee to satisfy itself at all times that the Products comply in all
respects with the Regulations.
(II) As an alternative to the requirements of the above sub-
paragraph (I), the licensee may, for purposes of the required control and
inspection, submit for analysis and report to a competent testing laboratory
approved by the Wool Bureau in writing, such number of samples of the
Products at such intervals as shall (in the opinion of the Wool Bureau) be
adequate to enable the licensee to satisfy itself at all times that such
Products comply in all respects with the Regulations.
(III) The licensee agrees, and will procure, that authorized
representatives of the Wool Bureau may at all reasonable business hours,
visit the premises in which the Products are manufactured or stored, and
select, and take away with them, free of charge and without any obligation
to return the same, such specimens of the Products or parts of them as these
representatives in their discretion require to carry out adequate tests, and
will likewise supply specimens at the request of the Wool Bureau. Further,
if the Products are or include woolen yarn, the licensee will produce to the
Wool Bureau the relevant blend books and the relevant standard blend
particulars and such other evidence as the Wool Bureau may require to
inspect in order to satisfy itself that such goods comply in all respects
with the Regulations.
3. (d). The Mark may not be used on or in relation to woolen spun yarns
or goods made wholly or partly from woolen spun yarns which, when supplied to
the licensee, did not bear the Wool Bureau's official certification indicating
that such yarns or (if they were supplied to the licensee in the form of cloth)
such cloth, were certified by the Wool Bureau to meet the standards of wool
content prescribed for the use of the Mark (such certification being completed
with the name and certificate number of the spinner or weaver and particulars
of the lot and quality number of the yarn or the lot and piece number of the
cloth) unless:
(1) such yarns or cloth were supplied to the licensee on written
terms which expressly required that the yarn or cloth should meet that
standard and (if the supplier is not the spinner of the yarns) both that
such yarns or cloth were obtained by the supplier on the same terms that the
invoice or delivery note received by the supplier from his supplier stated in
writing that such yarns or cloth met that standard; and
(11) either the invoices or the delivery note received by the
licensee stated in writing that such yarns or cloth met that standard.
3. (e). The licensee recognizes that it assumes great responsibility in
assuring the Wool Bureau of compliance of the products with the Regulations,
and therefore, will not use the Mark on or in relation to woolen spun yarns or
Products containing woolen spun yarns unless the spinner is obliged from time
to time upon request to admit the Wool Bureau to his mills and there produce to
it for inspection his blend books, samples of all yarns which he claims meet
that standard and the relevant standard blend particulars and any other
evidence which the Wool Bureau may require in order to satisfy itself that all
yarns spun by that spinner which are alleged to meet that standard do so.
2
<PAGE>
As often as the Wool Bureau asks him to do so, the licensee will require the
spinner to carry out the obligation described in this sub-paragraph, and if it
uses the Mark on or in relation to goods incorporating woolen spun yarn, spun
by it for its own consumption, the licensee will give the Wool Bureau the same
rights of inspection as described in this sub-paragraph.
3. (f). The Wool Bureau will use its best efforts to ensure that its
rights under the above sub-paragraph 3(c) are exercised in such manner as to
cause the minimum inconvenience to the licensee consistent with the need to
control the use of the Mark in the interests of its reputation and the
reputations of the licensees.
3. (g). In determining whether any goods comply with the standards
prescribed for such goods in the Regulations, the test methods generally
accepted and approved by the Wool Bureau shall be employed.
4. The licensee recognizes that the Mark identifies and is intended
to identify wool products of high reputation for quality of material and
workmanship; and the licensee agrees, and it is a condition of the right,
privilege and license herein granted, that the licensee will use its best
efforts to create and maintain the highest reputation for the Mark and will
do nothing, either in the making or marketing of the Products under the Mark,
whether in the use of materials or in the workmanship of the Products or in
the selection of customers, which will tend to impair such reputation.
5. It is understood and agreed that the Wool Bureau shall be free at any
time in its sole discretion to change the requirements set forth in the
Regulations, by adding new requirements to those enumerated therein, by
omitting requirements, by modifying them, and the like. The Wool Bureau agrees,
however, to notify the licensee in writing of all such proposed additions,
changes, modifications and the like at least twelve months prior to the date
when they are to become effective. All such written notifications by the
Wool Bureau to the licensee shall be deemed to be part of the Regulations as
set forth in Appendix B hereto.
6. The Wool Bureau shall have the right, in its sole discretion, to change
the Mark, to add new features thereto and to delete features therefrom, but if
the Wool Bureau decides to do so, it shall give at least twelve months notice
to the licensee of any such proposed action. The Wool Bureau, in its sole
discretion, shall determine whether the Mark is to be registered and if so,
what type or types of registration are to be obtained for it. No registration
of the Mark may be obtained in the United States or anywhere else in the name
of anyone other than the Wool Bureau or someone approved by it. The Wool
Bureau shall be entirely free to permit any registration of the Mark to expire
or to be cancelled, or to reduce or to extend the extent of protection afforded
by a registration, or to abandon all or any portion of the Mark, and no such
action or failure of action on the part of the Wool Bureau shall be deemed to
give to the licensee any right which may have been abandoned by the Wool Bureau
or which is not expressly granted by this agreement.
7. It is understood that the Wool Bureau assumes no obligations as to the
extent to which it will advertise or otherwise promote the Mark.
8. (a). Every reproduction of the Mark used by the licensee shall be
accompanied by a clear indication that the Products upon or in relation to
which such reproduction is used are the Products of the licensee, such clear
indication to consist of the name or trademark of the licensee or (where the
Mark is used upon goods) of such name or mark or such code number as the Wool
Bureau may allot to the licensee or such other indication as the Wool Bureau
may accept. It is understood and agreed, however, that the licensee's name
and/or trademark, when so used, shall be clearly separated from the Mark.
8. (b). The licensee shall not, without first obtaining the written
consent of the Wool Bureau, use the Mark on any Products (other than hand-
knitting yarn) unless at least one reproduction thereof appears on a label
sewn into or otherwise permanently affixed to such Products.
8. (c). The licensee agrees that it will not use a trademark, service
mark, certification mark or any other mark of any third party in association
with the Mark shown in Appendix A, except with the express written consent of
the Wool Bureau.
3
<PAGE>
8. (d). The licensee agrees that it will always use, in juxtaposition
with any display of the Mark, a fiber content phrase approved in writing by
the Wool Bureau. The Wool Bureau, in its sole discretion, shall have the
right to prescribe, in writing, the wording, position, style of type, and
size of lettering of such phrase. Such phrase and all or any of such
requirements may be changed by the Wool Bureau at any time upon not less than
twelve months' notice.
8. (e). Wherever the Mark is reproduced in an advertisement the licensee
will employ in conjunction therewith all such registration notices and other
similar notices as the Wool Bureau may lawfully require the licensee to use,
and the licensee agrees further to use in connection with such notices and in
case the Wool Bureau so desires, and whenever it is reasonably possible to do
so, a brief statement to the effect that the Mark is being used "under license
from the Wool Bureau, Inc."
8. (f). The licensee agrees that it may not use the Mark on any labels,
advertising and the like, if such material has reference not only to Products
of the standards required by the Regulations but also to goods which do not
comply with said standards.
8. (g). The Wool Bureau may give guidance to the licensee as to the way
in which the Mark may be reproduced and as to what advertising matter or
material may be used in association with the Mark and in what relationship.
The licensee shall not be obliged to accept any such guidance but (whether or
not any such guidance has been given) the Wool Bureau may in its absolute
discretion require the licensee to discontinue the use of any representation
of the Mark not recommended by the Wool Bureau and to discontinue the use of
the Mark in any manner or in any association or relationship not recommended
by the Wool Bureau if, in the opinion of the Wool Bureau, such use is likely
to affect adversely the reputation of the Mark or the reputation of other
licensees.
8. (h). If the licensee wishes to export Products under the Mark from
the United States to other countries, it shall not only comply with the
requirements of Paragraph 2 of this agreement, but in addition shall, with
adequate emphasis and prominence, mark and describe the Products to be exported
with the words "Made In U.S.A.". If the licensee wishes to use the Mark in the
United States in relation to Products made abroad, then it shall, with adequate
emphasis and prominence, mark and describe such Products with the words "Made
in (country of origin)".
9. If the Wool Bureau should find in its sole discretion that Products not
complying with this agreement
(I) have been put in the hands of the trade (but not the
ultimate consumers), then the Wool Bureau shall (without prejudice to any
other rights which it may have in respect thereof) have the right to demand
that the licensee promptly use its best efforts to cause the members of the
Trade to remove the Mark from the Products or (if this is not possible) that
the licensee use its best efforts to withdraw such Products from the trade
(if necessary by repurchasing the same);
(II) have been put in the hands of the ultimate consumers, then
the Wool Bureau shall (without prejudice to any other rights which it may
have in respect thereof) have the right to demand that the licensee shall
give to each such ultimate consumer the alternative choice of having each
such Product exchanged for one which does comply with the Regulations or
being refunded the price paid by him for such Product and shall in all
respects promptly and to the satisfaction of the Wool Bureau remedy any
such breach of this agreement.
10. The words "wool mark", being merely a convenient description of the
Mark shown in Appendix A, shall not be used by the licensee as a mark to
identify the Products.
11. If it should at any time be necessary or advisable, under the laws
of the United States or any sub-division thereof, to make an official record
of the fact that the right, privilege and license granted by this agreement
has been conferred upon the licensee, or that the licensee is entitled to any
specific right or privilege under this agreement, then the Wool Bureau shall
comply with all such official requirements at its expense, and in that event
the licensee agrees fully to cooperate with the Wool Bureau to that end.
12. The licensee shall submit to the Wool Bureau, within one month after
each first day of January and first day of July, a statement indicating:
(a) the production or deliveries (in quantity terms) of each type of
Product marked with the Mark by the licensee during the six months preceding
such date; and
(b) the above statistics as a percentage of the total production or
deliveries of each type of Product which satisfy the fiber content
specification as set out in Appendix B of this agreement.
4
<PAGE>
13. (a) The licensee shall not claim in relation to his goods that they
possess any characteristic not specified in the Regulations so as to suggest
that such claim is certified by the Mark or that such claim is in any way
controlled by the Wool Bureau.
(b) The licensee shall not claim that any goods bearing the Mark are
machine washable or mothproofed or have stretch characteristics unless the Wool
Bureau has first approved in writing the wording of such claims and the label,
tickets or other forms of printing on which it is made.
14. The licensee agrees that it will cooperate with the Wool Bureau in all
respects in the protection of the Mark against counterfeit, infringement and
unfair competition in the United States, including the institution and
prosecution, at the expense of the Wool Bureau, of such proceedings as the
latter may decide to commence. The licensee agrees further to give to the Wool
Bureau prompt notice of any instance of counterfeits, infringements and unfair
competition in the United States which may not come to the licensee's attention.
The Wool Bureau shall have sole charge of the institution and prosecution of
all such legal proceedings and may discontinue them in its sole discretion at
any time. The licensee agrees not to institute any such proceedings without
the consent of the Wool Bureau.
15. If the licensee manufactures or sells, under the Mark, any machine-
knitted garments not made from yarns or from fabrics which have been treated
by a process approved by the Wool Bureau for machine washability, the licensee
agrees to attach to each such garment washing and/or cleaning instructions in
a form approved by the Wool Bureau indicating that the garments should be
washed by hand or dry cleaned.
16. The licensee agrees that it will not at any time, either before or
after the termination of this Agreement:
(a) use the Mark in the United States or anywhere else for any
purpose except as permitted by this agreement;
(b) use for any purpose a mark which is similar to the Mark or to
any part of it, in the United States or anywhere else, or upon termination
of this agreement suggest that the license is then or was formerly licensed
to use the Mark;
(c) oppose the use by any third party of an identical or confusingly
similar mark in respect of any goods in any country;
(d) apply for, or object to any existing or future, registration in
the name of the Wool Bureau or any third party of an identical or
confusingly similar mark in respect of any goods in any country;
(e) contest the validity of the registration in the name of the Wool
Bureau of any third party of an identical or confusingly similar mark in
respect of any goods in any country;
(f) dispute or contest the exclusive ownership by the Wool Bureau,
its successors or assigns, of the Mark, or of registration of the Mark,
whether now existing or hereafter obtained;
(g) dispute or contest the exclusive ownership by the Wool Bureau of
the present or future good will of the business appertaining to the Mark;
(h) dispute or contest the validity, and the exclusive ownership by
the Wool Bureau, of all copyrights and the registration thereof, whether
now existing or hereafter obtained, relating to the Mark and the promotion
thereof, as well as exclusive proprietary rights by the Wool Bureau in all
advertising or promotion ideas, methods or material heretofore or hereafter
developed and/or used, in relation to the Mark, whether copyrighted or
copyrightable or not; or
(i) dispute or contest the Wool Bureau's right to grant the rights,
privileges and license conferred by this agreement, and that it will not
cause, permit, suffer or assist any person to do any such thing.
17. This agreement and the license hereby conferred may be terminated by
the Wool Bureau in its discretion by written notice to the licensee taking
effect immediately or at such later date as may be specified by the Wool Bureau
upon the happening of any one or more of the following events:
5
<PAGE>
(a) in the case of a merger or consolidation of the licensee by or
with a third party or in case of the acquisition of the major part of the
licensee by or with a third party or in the case of the acquisition of the
major part of the licensee's business by a third party;
(b) if the licensee violates any of the provisions of this agreement;
(c) if the licensee:
(I) suspends business.
(II) becomes bankrupt or insolvent, or a receiver of the
licensee or any part of its assets is appointed or if the licensee makes an
assignment for the benefit of creditors.
18. The Wool Bureau shall have the right to terminate this agreement with
immediate effect in case the licensee has not made any bona fide commercial use
of the Mark for more than one year.
19. Unless sooner terminated pursuant to other provisions hereof, this
agreement shall continue for a period of two years from the date hereof and
shall be automatically extended for additional periods of one year each, unless
either party hereto, at least 90 days before the expiration of the current term,
sends to the other party a notice in writing of its intention to terminate the
agreement at the expiration of said current term. In addition, however, the
Wool Bureau shall have the right to terminate this agreement at any date upon
12 months notice, provided the Wool Bureau simultaneously gives the same notice
to all of its other licenses. If the Wool Bureau (on or before the execution
of this agreement) informs the licensee in writing that notice has already been
given to all of its other licensees, in accordance with this paragraph, and
indicates the date when such notice will expire, this agreement shall auto-
matically expire on the same date.
20. (a) Upon termination of this agreement for any reason whatsoever, the
licensee shall not, without the consent of the Wool Bureau, dispose of any
goods bearing the Mark which are in the licensee's possession, power or
control, unless the Mark has first been removed; nor shall the licensee cause,
permit or assist any other person to dispose of such goods, and the licensee
shall, if so requested by the Wool Bureau, permit or enable authorized repre-
sentatives of the Wool Bureau to enter any premises where any of such goods are
or may be in order to satisfy itself that the provisions of this paragraph have
been complied with.
(b) Upon termination of this agreement for any reason whatsoever and
upon termination of the licensee's right to use the Mark, the licensee shall
forthwith dispose (to the satisfaction of the Wool Bureau) of all dies and other
material in its possession previously used or suitable for use in the marking of
the Products, of the labels and any other material, with the Mark, and all
sew-in labels, swing tickets and all matter bearing the Mark, or alternatively,
at the option of the Wool Bureau, the licensee shall furnish proof to the
satisfaction of the Wool Bureau that all such dies and other material and all
such sew-in labels, swing tickets and other matter have been destroyed or
otherwise rendered ineffective.
(c) Upon termination of this agreement, all rights, privileges and
the license granted herein shall terminate, and the licensee shall not
thereafter make any use of the Mark in relation to goods, in advertising or
in any other manner, except as expressly permitted in this agreement, nor shall
he cause or permit any other person to do any such thing.
21. The benefits and advantages of this agreement shall be personal to the
licensee and shall in no event inure to the benefit of its successors or
assigns. Without prejudice to the licensee's rights to have the Products
manufactured for it by others, it is understood and agreed that the licensee has
no right to grant to anyone sub-licenses or any other authority to use the
Mark.
22. The licensee undertakes to do and to cause to be done all such things
as may be reasonably required to enable the Wool Bureau to ascertain all matters
relevant to the compliance by the licensee with the terms of this agreement.
23. The licensee agrees to indemnify the Wool Bureau and save it harmless
with respect to any claims arising out of the use of its Products bearing the
Mark by any person.
6
<PAGE>
24. If any provisions of this agreement are held to be invalid, such
invalidity shall not affect any of the other provisions. A failure by the
Wool Bureau to object to the breach of any provision, term or condition of
this agreement shall not be deemed to be a waiver of the Wool Bureau's rights
under this provision, term or condition or of any other provision or of any
other or subsequent breach, whether of the same or of a different nature.
IN WITNESS WHEREOF, the parties have caused this agreement to be
signed and sealed by their respective duly authorized officers as of the date
first above written.
THE WOOL BUREAU, INC.
By /s/ R.C. Freeman
.............................
R.C. FREEMAN
VICE PRESIDENT
.........................
(Title)
Simmons Company
...............................
By /s/ Paul H. Brannock
.............................
Paul H. Brannock
Vice President, Research Development
.........................
(Title)
7
<PAGE>
APPENDIX A
[WOOLMARK LOGO]
<PAGE>
APPENDIX B
<PAGE>
SPECIFICATION 1A
(FOR PRODUCTS TO BE LABELED - PURE WOOL)
SPECIFICATION OF FIBER CONTENT
1. The products must be composed exclusively of the fibers of the fleece
or coat of the sheep and/or lamb (hereinafter referred to as "wool") or
mixtures of these fibers with any of the following "specialty" fibers:
the fibers from the fleece or coat of the angora goat (mohair),
cashmere goat (cashmere), camel, alpaca, llama, and vicuna.
All fibers must show the microscopic characteristics typical of the fibers of
the animal from which they originate. The fibers, previous to their present
use as a textile raw material, must not have been woven into cloth or felted.
Such permitted fibers therefore include fleece wool, skin wool, wool fibers
from soft untwisted wastes such as loosely connected wool fibers obtained as a
by-product of the carding or combing of previously unprocessed wool, thread
waste (10% maximum), broken tops, noils, roving waste, roller wastes, and
specialty fibers of similar origin, but not flocks recovered from wet or dry
finishing processes.
2. In determining whether any products comply with any requirement of
paragraph 1,
(a) in the case of garments, no account should be taken of the weight
or composition of the linings, interlings, paddings, structural elements
incorporated in distinct areas and not usually visible when such garments
are being worn, trimmings, facings or fastenings;
(b) in the case of garments made from foam backed fabrics, account
shall be taken of the foam back as well as the surface fabric or fabrics;
(c) in the case of blankets no account should be taken of the weight
or composition of bindings or edgings.
(d) in the case of all goods, no account shall be taken of any
visible fiber (not being the fiber of the sheep or lamb or a specialty
fiber as specified in paragraph 1) included for ornamentation, provided
that the aggregate weight of all such fibers, as determined by the method
prescribed by the Wool Bureau does not exceed five percent of the weight
of the goods as standard regain;
(e) subject to the provision of paragraph 3, the goods when tested
according to the method prescribed by the Wool Bureau must show that the
aggregate weight of all fibers other than wool fibers or specialty fibers
does not exceed 0.3 percent of the original weight of the goods.
3. All products bearing the Mark shall satisfy in all respects the legal
requirements of the country in which they are offered for sale.
4. The Mark shall not be used in any way which, in the opinion of the
Wool Bureau, is deceptive or which may bring the Mark into disrepute.
<PAGE>
SPECIFICATION 1B
(FOR PRODUCTS TO BE LABELED - PURE VIRGIN WOOL)
SPECIFICATION OF FIBER CONTENT
1. The products must be composed exclusively of the fibers of the fleece
or coat of the sheep and/or lamb (hereinafter referred to as "wool") or
mixtures of these fibers with any of the following "specialty" fibers:
the fibers from the fleece or coat of the angora goat (mohair), cashmere
goat (cashmere), camel, alpaca, llama, and vicuna.
All fibers must show the microscopic characteristics typical of the fibers of
the animal from which they originate. The fibers, previous to their present
use as a textile raw material, must not have been woven into cloth or felted.
Such permitted fibers therefore include fleece wool, skin wool, wool fibers
from soft untwisted wastes such as loosely connected wool fibers obtained as a
by-product of the carding or combing of previously unprocessed wool, broken
tops, noils, roving waste, roller wastes, and specialty fibers of similar
origin, but not flocks recovered from wet or dry finishing processes.
2. In determining whether any products comply with any requirement of
paragraph 1,
(a) in the case of garments, no account should be taken of the weight
or composition of the linings, interlings, paddings, structural elements
incorporated in distinct areas and not usually visible when such garments
are being worn, trimmings, facings or fastenings;
(b) in the case of garments made from foam backed fabrics, account
shall be taken of the foam back as well as the surface fabric or fabrics;
(c) in the case of blankets no account should be taken of the weight
or composition of bindings or edgings.
(d) in the case of all goods, no account shall be taken of any
visible fiber (not being the fiber of the sheep or lamb or a specialty
fiber as specified in paragraph 1) included for ornamentation, provided
that the aggregate weight of all such fibers, as determined by the method
prescribed by the Wool Bureau does not exceed five percent of the weight
of the goods as standard regain;
(e) subject to the provision of paragraph 3, the goods when tested
according to the method prescribed by the Wool Bureau must show that the
aggregate weight of all fibers other than wool fibers or specialty fibers
does not exceed 0.3 percent of the original weight of the goods.
3. All products bearing the Mark shall satisfy in all respects the legal
requirements of the country in which they are offered for sale.
4. The Mark shall not be used in any way which, in the opinion of the
Wool Bureau, is deceptive or which may bring the Mark into disrepute.
<PAGE>
<TABLE><CAPTION>
BED 2
SEPTEMBER 1986
<S> <C>
Specification for
WOOL FILLED BEDDING PRODUCTS including quilts, underquilts, comforters, futons,
under futons, sleeping bags, wool layers in mattresses
and wool filled mattresses. For pillows see NOTE 1.
Also see NOTES 2 and 3.
- - WOOLMARK PRODUCTS MUST BE OF MERCHANTABLE QUALITY AND FIT FOR THE PURPOSE INTENDED.
- - THE RESPONSIBILITY FOR A PRODUCT MEETING THE MANDATORY MINIMUM WOOLMARK REQUIREMENTS DETAILED BELOW
-----------------
IS THAT OF THE LICENSEE.
- - ADDITIONAL GUIDANCE REGARDING PERFORMANCE REQUIREMENTS IS AVAILABLE FROM THE IWS.
(Reference: Advisory Performance Specifications and Notes).
- - IF A LICENSEE WISHES TO MAKE A CLAIM NOT COVERED BY THE MANDATORY SPECIFICATIONS BELOW, HE SHOULD NOT DO SO
WITHOUT WRITTEN PERMISSION FROM IWS.
- - THE IWS RESERVES THE RIGHT TO REFUSE OR WITHDRAW THE USE OF WOOLMARK FROM A PRODUCT WHEN THE PRODUCT IS LIKELY
TO BRING THE MARK INTO DISREPUTE OR WHEN IT HAS BEEN SHOWN TO GIVE UNSATISFACTORY PERFORMANCE IN USE.
WOOLMARK - requirements for ALL PRODUCTS
<CAPTION>
PROPERTY TM PASS LEVEL
<S> <C> <C>
[WOOLMARK Wool content 155 Pure new wool. See Sheet E1, E2 or E3 for details as appropriate.
LOGO] of filling
DCM extractable matter 136 Less than 1.0%
1 2 3 4 5
Lightweight Sleeping Quilt, over- Japanese folding Wool filled
Weight of wool filling (minimum) 13 or summer- bag futon, under- mattress with mattress
(NOTE 4) weight quilt, wool layer,
quilt, bed-pad, wool under-futon
comforter layer in
NOTE: There must be no NOTE 2 mattress
intervening layer between
the outer fabrics of quilts, 2 2 2 2 2
futons and mattresses and 250 g/m 350 g/m 500 g/m 1000 g/m 6500 g/m
the wool filling.
</TABLE>
-----------------------------------------------------------------
LABEL REQUIREMENTS - WOOLMARK
Where a licensee wishes to claim that his products are of Woolmark quality the
products must meet the specifications listed above, and must also carry a
Woolmark label showing fibre content.
WOOLBLENDMARK may not be used on wool-filled bedding products.
--------------------------------------------------------------
NOTE 1: Specifications for wool filled products other than those listed above
(eg pillows) do not exist. Wool filled products that do not fall
within the categories listed may be submitted to IWS for approval. If
the market for any new product becomes important, separate
specifications may be developed.
NOTE 2: Specifications for wool covers for quilts and comforters appear on
Specification sheet BED 4.
NOTE 3: Products intended to be labelled "Machine washable" must be approved by
the Headquarters. They should be submitted to the local IWS branches
together with all relevant information for subsequent evaluation by HQ
Woolmark Department.
NOTE 4: A maximum of 10% resin on the weight of filling is permitted for
mattress layers, underquilts and underfutons only. For practical
purposes this includes any vegetable matter present.
<PAGE>
ADVISORY PERFORMANCE NOTES AND SPECIFICATIONS
WOOL FILLED BEDDING PRODUCTS - BED 2
------------------------------------
The products listed on the MANDATORY specification sheet are those established
in the market place. Filling weights are determined by the intended function
of the product, but in maintaining a product's suitability for use the filling
fibre has to be carefully selected.
It is advised that the following specifications apply to fibre selection
FIBRE PROPERTIES TEST METHOD REQUIREMENT
Vegetable matter TM 155 1.0% MAX
Fibre bulk TM 265 27 cc/g
Fibre length IWIO TM 5-60 See note 2.
Fibre migration TM 266 See note 3.
Shrink resistance - See note 4.
NOTE 1 Test methods 265 and 266 are still being evaluated by IWS. Until they
are finalised samples may be sent to HQ for testing.
NOTE 2 It is advised that fibres with a mean fibre length shorter than 40 mm
should not be used in any blends for products other than resin bonded
mattress layers.
NOTE 3 Wool fillings can migrate through the cover fabrics of all products if
either the incorrect fibre or cover fabric has been selected. Wools
of different origins do sometimes differ in their ability to migrate
and the finer the fibre the more likely this is to occur. Blends of
wool containing kempy fibres must also be avoided as these also have a
tendency to migrate.
The higher the fibre crimp the greater its resistance to migration;
however, the finer the fibre, irrespective of fibre crimp, the more
likely it is to migrate.
It is advised that a fibre migration test should be carried out on all
products (Test Method 266) using the cover fabric intended for the
final product, and if necessary a shrink resist treatment applied to
the fibres to reduce or eliminate the effect.
<PAGE>
2
Cover fabrics of 110 to 150 g/m are common weights selected and if
fabric setts of more than 300/300 ends and picks per 10 cm are chosen
these should be suitable, bearing in mind the above characteristics.
The assessment of fibre migration is difficult and the photographic
standards in TM 266 show likely effects with wool that may cause
complaints.
NOTE 4 It is advised that wool finer than 30 microns should be shrink
resist treated for all products. For Underquilts, Mattress
layers, Filled Mattresses and Underfutons, regardless of
fiber diameter, the wools should be shrink resist treated
to avoid dry felting of the filling during use.
CLEANING
- --------
If the fillings have been correctly selected and processed all products should
be satisfactory for DRY CLEANING. However, if a product is to be labelled as
MACHINE WASHABLE other criteria must be applied.
Firstly all wool fillings MUST be shrink resist treated and products MUST be
submitted to IWS HQ for approval. A wash test will be applied and the
following criteria used.
DOMESTIC CONTRACT
Wash cycle 1 1 x 7A 1 x 7A
Wash cycle 2 1 x 5A 5 x 5A
Area shrinkage 10% max 10% max
Length or Width shrinkage 6% max 6% max.
Comment No fibre entanglement or loss of bulk
Experience to date suggests that if the following manufacturing criteria is
applied correctly it should ensure the success of any submission.
Fibre diameter 34 to 27 microns
Fibre length 60 to 80 mm
Shrink resistance See note 5.
Quilting Not more than 25cm between quilting
<PAGE>
NOTE 5 Various loose stock shrink resist processes are available that may or
may not be suitable for any particular wool filling. It is advised
that any process is carefully checked for degree and levelness of
application and sample products submitted to IWS for approval.
Advice on treatments is available from any IWS branch.
EXHIBIT 10.57
Execution Copy
[SJL LOGO]
EXISTING TERRITORY LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement"), made as of this 30th day of June,
1987, between SIMMONS U.S.A. CORPORATION, a corporation duly created, organized
and existing under the laws of the State of Delaware, having its office and
principal place of business at 6 Executive Park Drive, Atlanta, Georgia, U.S.A.,
(hereinafter referred to as the "Licensor"), and SJL INVESTMENT LIMITED, a
corporation duly created, organized and existing under the laws of Japan, having
its office and principal place of business at 3/F, Suzumaru Bldg. 2-39-8 Nishi-
Shinbashi, Minato-ku, Tokyo, Japan (hereinafter referred to as the "Licensee").
WITNESSETH:
WHEREAS, Licensor has acquired and developed and continues to acquire and
develop patents, technology and know-how relating to the manufacture of
mattresses having pocket-coil and open-coil innerspring constructions, box
spring, and bedding components, including the equipment necessary for such
manufacture, the use of such equipment, plant layouts, product specifications,
materials, and other information;
WHEREAS, Licensor represents that it has the right to grant a license
relating to the Technology and the Patents (as hereinafter defined) and other
rights specified herein;
WHEREAS, Licensor has the sole and exclusive ownership rights in the
Registered Trademarks (as hereinafter defined) in connection with the sale,
importation, distribution, advertisement and promotion of the Licensed Products
(as hereinafter defined) in the Licensed Territory (as hereinafter defined), and
the right to grant licenses to others for the use of the Registered Trademarks;
WHEREAS, Licensor has developed and continues to develop Marketing
Information (as hereinafter defined) which may be used in connection with the
marketing, sale, importation, distribution, advertisement and promotion of the
Licensed Products in the Licensed Territory;
WHEREAS, Licensee desires to obtain an exclusive license for the use of the
Technology, the Licensed Trademarks (as hereinafter defined) and the Patents and
other rights in connection with the manufacture, use, sale, importation,
distribution, advertisement and promotion of the Licensed Products in the
Licensed Territory, and to use the Marketing Information in connection with the
marketing, sale,
<PAGE>
-2-
importation, distribution, advertisement and promotion of the Licensed Products
in the Licensed Territory;
NOW, THEREFORE, in consideration of the premises and the mutual promises,
covenants and conditions hereinafter contained, the parties hereto agree as
follows:
DEFINITIONS
-----------
1.(a) "Affiliate" of a specified person shall mean a person that directly,
or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the specified person.
For this purpose, "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
1.(b) "Competitor" shall mean each person listed on Schedule 1.(b), such
persons being those persons, not exceeding seven (7) in number at any
time, ranking not lower than seventh (7th) in total gross sales in the
United States of Licensed Products as determined by a recognized
industry survey. Licensor may, not more frequently than at the end of
each Contract Year (as hereinafter defined) of Licensee, update
Schedule 1.(b) by (i) deleting from Schedule 1.(b) each person which
has ceased to rank at least seventh (7th) in terms of the total gross
sales in the United States of Licensed Products and (ii) adding to
Schedule 1.(b) any other person which then ranks at least seventh
(7th) in terms of the total gross sales in the United States of
Licensed Products; provided, that any person added to Schedule 1.(b)
--------
in accordance with the foregoing shall not be deemed to be a
Competitor, to the extent that Licensee or any of its Affiliates or
Sublicensees (as hereinafter defined) shall have, in accordance with
Section 2.(d) or 4.(f) and prior to the date on which such person was
added to Schedule 1.(b) by Licensor, entered into any license or
sublicense agreement with, or disclosed any Confidential Information
(as hereinafter defined) to such person or any other person that
Licensee, its Affiliate or Sublicensee has determined, after
reasonable inquiry, manufactures any bedding products for such person.
1.(c) "Confidential Information" shall have the meaning set forth in Section
4.(b).
1.(d) "Contract Year" shall mean (i) with respect to Licensee, the period
commencing on the date of this Agreement and ending on the last day
of Licensee's current fiscal year and each
<PAGE>
-3-
subsequent fiscal year of Licensee during the term of this Agreement and (ii)
with respect to each Sublicensee, the period commencing on the date of the
license or sublicense agreement between Licensee and such Sublicensee and
ending on the last day of such Sublicensee's fiscal year in which such license
or sublicense agreement was entered into, and each subsequent fiscal year of
such Sublicensee during the term of such license or sublicense agreement and
this Agreement, or such other periods as Licensee and such Sublicensee shall
agree in such license or sublicense agreement.
1.(e) "Deferred Payment" shall have the meaning set forth in Section
8.(e)(i).
1.(f) "Effective Date" shall mean the latest of (i) the date of this
Agreement, (ii) the date of the lapse of any waiting period or
extension thereof imposed by any competent ministry or agency of the
Japanese Government pursuant to any pertinent provisions of the
Foreign Exchange and Foreign Trade Control Law (Law No. 228 of 1949,
as amended), (iii) the date on which any other necessary governmental
approvals, other than the filing referred to in Section 11.(a) hereof
and the registrations of the Licensee pursuant to Sections 11.(b) and
11.(c) hereof as the exclusive licensee of the Patents and the
Licensed Trademarks with the relevant registry in each country or
territory in the Licensed Territory, have been obtained or (iv) the
"Effective Date" as defined in the Stock Purchase Agreement (as
hereinafter defined).
1.(g) "Equipment" shall have the meaning set forth in Section 3.(c).
1.(h) "Guarantee" shall have the meaning set forth in Section 8.(e)(ii).
1.(i) "Japanese Trademarks" shall mean the trademarks identified as being
registered or used in Japan on Schedule 1.(z) attached hereto.
1.(j) "Licensed Products" shall mean (i) bedding products, including but not
limited to mattresses, box springs, bedding components and related
bedding accessories, and (ii) in respect of each Trademark, all items
included in each class with respect to which such Trademark is
currently registered in the Licensed Territory. "Licensed Products"
shall include all Royalty Products (as hereinafter defined).
1.(k) "Licensed Territory" shall mean Hong Kong, Japan, Macau and Singapore,
as they are presently constituted, and, in the case of Hong Kong and
Macau, as they may in the future be
<PAGE>
-4-
incorporated as a part of the People's Republic of China. "Licensed
Territories" shall mean the Licensed Territory as defined herein and
in the NTR License Agreement (as hereinafter defined).
1.(l) "Licensed Trademarks" shall mean (i) with respect to Japan, all
Registered Trademarks registered in Japan and (ii) with respect to
each country or territory in the Licensed Territory other than Japan,
all Registered Trademarks registered in such country or territory or
in Japan.
1.(m) "Marketing Information" shall mean the advertising and other marketing
aids presently within Licensor's knowledge, possession or control or
hereinafter developed or acquired by Licensor, which may be used in
connection with the marketing, sale, importation, distribution,
advertisement and promotion of the Licensed Products in the Licensed
Territory.
1.(n) "Net Sales" shall mean the invoiced price, exclusive of all taxes
(including excise, sales and value added taxes), of the Royalty
Products sold by Licensee and its Affiliates and each Sublicensee and
its Affiliates to an independent purchaser (either wholesale or
retail) in an arms length transaction, excluding packing fare charged
by third parties, freight, insurance premium, cash and other customary
trade discounts and amounts refunded or credited on returned products.
"Net Sales" shall also include in the case of the sale of any Licensed
Product which includes a Royalty Product as a component thereof, an
amount equal to the price of such Royalty Product designated in the
price list being generally used by Licensee or a Sublicensee, as
applicable, at the time of such sale. In computing net sales, no
deduction shall be made for other discounts or uncollectable accounts
or for any costs incurred by Licensee or a Sublicensee, as applicable,
in the manufacture, sale or distribution of the Royalty Products.
Notwithstanding the foregoing, if and to the extent that the
government of any country or territory in the Licensed Territory shall
at any time during the term of this Agreement require any changes in
the way Net Sales are computed for purposes of this Agreement or any
license or sublicense agreement hereunder, such required changes shall
be deemed to be incorporated into this definition to the extent
necessary to comply with any such requirement.
1.(o) "New Products" shall mean such products other than Licensed Products,
including but not limited to furniture and household goods, as
Licensee may in the future (under the terms of Section 2.(f) hereof)
manufacture, sell, import, distribute, advertise or promote using any
trademarks identical or confusingly similar to any of the Trademarks.
<PAGE>
-5-
1.(p) "NTR License Agreement" shall mean the New Territory License Agreement
dated as of the date hereof between Licensor and Simmons Asia Limited.
1.(q) "Non-Japanese Trademarks" shall mean the trademarks identified as
being registered or used in any country or territory other than Japan
on Schedule 1.(z) attached hereto.
1.(r) "Patents" shall mean all patents (including, but not limited to,
method patents, utility models and design patents) issued prior to the
Effective Date or to be issued during the term of this Agreement by
any government in the Licensed Territory, all continuations,
continuations-in-part, derivatives, substitutions, divisions,
extensions, reissues, reexaminations or renewals of such patents, and
all patent applications for any such patents, filed prior to the
Effective Date or to be filed during the term of this Agreement with
any government in the Licensed Territory, owned, controlled or
licensable without payment of consideration by Licensor now or at any
time during the term of this Agreement, which patents and patent
applications cover any pocket-coil or open-coil mattress and box
spring; provided, that "Patents" shall not include any such patents
--------
after the expiration thereof.
1.(s) "Patent License" shall have the meaning set forth in Section 2.(b).
1.(t) "Registered Trademarks" shall mean the trademarks identified as being
registered in any country or territory in the Licensed Territory on
Schedule 1.(z) attached hereto.
1.(u) "Royalty Product" shall mean (i) any pocket-coil mattress and box
spring which is produced or assembled in accordance with the
Technology or the Patents or (ii) any pocket-coil or open-coil
mattress and box spring sold by Licensee, any Affiliate of Licensee or
any Sublicensee under a Licensed Trademark or under any trademark
which is identical or confusingly similar to any Licensed Trademark.
For purposes of this Section 1.(u), the phrase "under a Licensed
Trademark or under any trademark which is identical or confusingly
similar to any Licensed Trademark" shall mean the affixation of such
a trademark to a pocket-coil or open-coil mattress or box spring, or
the use of such a trademark in connection with the advertisement or
promotion of such products to the ultimate purchaser thereof, but
shall not mean (i) affixation of any such trademark to a pocket-coil
or open-coil mattress or box spring solely as a result of compliance
with law (other than as may be required to establish sufficient use
of the Licensed Trademark) or (ii) use of any such trademark in
connection with invoicing, re-invoicing, distribution and other
general administrative or clerical functions.
<PAGE>
-6-
1.(v) "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of May 15, 1987, as amended by an Amendment Agreement, dated
as of June 26, 1987, by and among Prudential Asia Investments Limited,
a corporation duly created, organized and existing under the laws of
the British Virgin Islands ("PAIL"), Licensor and Sleeper Associates
Limited Partnership, a limited partnership duly created, organized and
existing under the laws of the State of Delaware ("Sleeper").
1.(w) "Sublicensee" shall have the meaning set forth in Section 2.(d).
1.(x) "Technology" shall mean all proprietary technology and know-how not
patented in the Licensed Territory, including all technology which has
been patented, is the subject of a patent application or is patentable
in any country or territory outside the Licensed Territory and all
technology which, subsequent to the Effective Date and during the term
of this Agreement, becomes patented in the Licensed Territory under
Section 12.(b) hereof but in such case only until it becomes so
patented, relating to the manufacture of mattresses having pocket-coil
and open-coil innerspring constructions, box spring, and bedding
components, including the equipment necessary for such manufacture,
the use of such equipment, plant layouts, product specifications,
materials, and other information, presently within Licensor's
knowledge, possession or control or hereinafter developed or acquired
by Licensor.
1.(y) "Technology License" shall have the meaning set forth in Section
2.(a).
1.(z) "Trademarks" shall mean all of the trademarks identified in Schedule
1.(z) attached hereto.
1.(aa) "Trademark License" shall have the meaning set forth in Section 2.(c).
1.(bb) "Licensee Technology" shall have the meaning set forth in Section
2.(g)(iv).
1.(cc) "Licensee Technology Products" shall have the meaning set forth in
Section 2.(g).
GRANT OF LICENSES
-----------------
2.(a) Subject to Section 6.(c) hereof, Licensor hereby grants to Licensee an
exclusive and perpetual right, license and privilege to use, and to
sublicense others to use, the Technology in connection with the
manufacture, use, sale, importation, distribution, advertisement and
promotion of the Licensed Products within the Licensed Territory, such
license and any sublicenses being subject to the conditions
hereinafter contained (the "Technology License").
2.(b) Subject to Section 6.(c), Licensor hereby grants to Licensee an
exclusive and perpetual right, license and privilege to use, and
<PAGE>
-7-
to sublicense others to use, the Patents, in connection with the
manufacture, use, sale, importation, distribution, advertisement and
promotion of the Licensed Products within the Licensed Territory, such
license and any sublicenses being subject to the conditions
hereinafter contained (the "Patent License").
2.(c) Subject to Section 6.(c) hereof, Licensor hereby grants to Licensee an
exclusive and perpetual right, license and privilege to use, and to
sublicense others to use, the Licensed Trademarks on and in connection
with the manufacture, sale, importation, distribution, advertisement
and promotion of the Licensed Products within the Licensed Territory,
such license and any sublicenses being subject to the conditions
hereinafter contained (the "Trademark License").
2.(d) Licensee may, with the prior written consent of Licensor, which
consent shall not be unreasonably withheld and which will be deemed to
have been given if Licensor fails to respond to Licensee's request for
such consent within five (5) days after receipt of such request,
sublicense all or any of the rights granted under Sections 2.(a), (b)
and (c) to any person ("Sublicensee"), including its Affiliates, which
shall agree in writing to be bound by all of the terms and conditions
of this Agreement; provided, that Licensee may not sublicense any
--------
Patents or Technology relating to the manufacture of pocket-coil
mattresses to a Competitor or to any person that Licensee has
determined, after reasonable inquiry, manufactures any bedding
products for a Competitor. Each sublicense agreement shall provide
that Licensee may, and Licensee hereby agrees to, terminate such
sublicense agreement if the Sublicensee thereunder breaches any
provision of Section 4 or 6.(a) hereof and fails to remedy such breach
within ten (10) business days after such Sublicensee's receipt of
Licensee's written notice of such breach. Licensee hereby agrees to
cause delivery of such written notice within ten (10) business days of
notice or discovery of breach.
2.(e) Licensor hereby irrevocably sells, assigns and transfers to Licensee
whatever right Licensor may have, if any, (i) to use and license
others to use, any Trademarks other than the Licensed Trademarks on
and in connection with the manufacture, sale, importation,
distribution, advertisement and promotion of any Licensed Products
within the Licensed Territory, (ii) to use and license others to use,
any trademarks identical or confusingly similar to any of the
Trademarks, on and in connection with the manufacture, sale,
importation, distribution, advertisement and promotion of any New
Products within the Licensed Territory and (iii) to register any such
Trademarks or trademarks in its name for such use with the government
of each
<PAGE>
-8-
country or territory in the Licensed Territory; provided, that
--------
such rights with respect to New Products may be exercised only in
accordance with Section 2.(f) hereof. Licensor further agrees not to
take any action, including but not limited to bringing a legal action
against Licensee for trademark infringement, that would have the
effect of preventing Licensee from fully exercising the rights
granted, to Licensee under this Section 2.(e). The preceding
sentences notwithstanding, Licensee shall not (i) use the MAXIPEDIC or
HIDE-A-BED trademarks on any products which are not within Class 20
(as presently constituted) of the Japanese Product Classification of
Goods or are otherwise closely related to such Class 20 products which
are associated with bedding or (ii) use the BEAUTYREST trademark on
any Licensed Products other than pocket-coil mattresses and box
springs.
2.(f) Licensee shall not use, or license others to use, any trademarks
identical or confusingly similar to any of the Licensed Trademarks, on
or in connection with the manufacture, sale, importation, distri-
bution, advertisement and promotion of any New Products within the
Licensed Territory, unless Licensee shall have made a written request
to Licensor for approval of such use and Licensor shall have consented
to the same in writing. Licensor's consent hereunder shall not be
unreasonably withheld and will be deemed to have been given if
Licensor fails to respond to Licensee's request for such consent
within five (5) days after receipt by Licensor of such request.
2.(g) Subject to Section 6.(c) hereof, Licensee hereby agrees that upon the
Licensor's request, it will grant to Licensor an exclusive and
perpetual right, license and privilege to use, and to sublicense
others to use, the Licensee Technology (as defined herein) in
connection with the manufacture, use, sale, importation, distribution,
advertisement and promotion of the products referred to in clause (i)
of the definition of Licensed Products (such products are referred to
herein as "Licensee Technology Products") within the North American
Continent, such license and any sublicenses to be subject to the terms
and conditions set forth in this paragraph below:
(i) Licensee shall disclose, and at the request of Licensor, deliver
to Licensor the Licensee technology as and when such Licensee
Technology is developed or acquired by Licensee. At the request
of Licensor and at the Licensor's expense, Licensee shall file
applications for patents for any of the Licensee Technology in
any jurisdiction located on the North American Continent;
(ii) Licensor, its Affiliates and its sublicensees and their
Affiliates shall pay a license fee equal to one percent (1%) of
net sales (calculated on a comparable basis as Net Sales) of
Licensee Technology Products during each contract year
<PAGE>
-9-
(calculated on a comparable basis to Section 1.(d)(i)), except,
------
however, this provision does not intend to require Licensor to
-------
pay any license fee on any product which it could otherwise
manufacture, use, sell, import, distribute, advertise or promote
within the North American Continent without using any Licensee
Technology delivered by Licensee to Licensor pursuant to the
license granted pursuant to this Section 2.(g);
(iii) The license from Licensee to Licensor created pursuant to
this Section 2.(g) shall be subject to the relevant provisions
of Sections 3.(c) through 3.(e), 4, 6, 7, 8.(e)(iii), 8.(f), 9,
10, 11.(b), 12.(d) through 12.(i), 13-17, 18.(a), 18.(c) through
18.(h) except 18.(d)(ii) and 19-24, construed in a manner so as
to grant Licensee all of the privileges and obligations of a
licensor hereunder and to grant Licensor all of the privileges
and obligations of a licensee granted Licensee hereunder but
---
subject to the terms and limitations of this Section 2.(g); and
-------
(iv) As used in this Section 2.(g), "Licensee Technology" shall mean
all proprietary technology and know-how, whether or not patented
or patentable, developed or acquired by Licensee and relating to
the manufacture of mattresses having pocket-coil and open-coil
innerspring constructions, box springs and bedding components,
including the equipment necessary for such manufacture, the use
of such equipment, plant layouts, product specifications,
materials and other information.
TECHNICAL ASSISTANCE
--------------------
3.(a) To assist Licensee in the production of the Licensed Products,
Licensor shall disclose and deliver to Licensee, in exchange for the
payments described in Sections 8.(b) and 8.(c) hereof, (i) on the
Effective Date, the Technology presently within its knowledge,
possession or control, and the Patents, and (ii) thereafter, the
Technology and/or Patents developed or acquired by Licensor from time
to time, as and when such Technology and/or Patents are developed or
acquired by Licensor.
3.(b) To assist Licensee in the marketing, sale, importation, distribution,
advertisement and promotion of the Licensed Products, Licensor shall,
in exchange for the payments described in Section 8.(c) hereof, (i) as
soon as possible after the Effective Date, disclose and deliver to
Licensee the Marketing Information presently within its knowledge,
possession or control, and (ii) thereafter, inform Licensee of the
Marketing Information developed or acquired by Licensor from time to
time, as and when such Marketing Information is developed or acquired
by Licensor and make such information available to Licensee upon
request.
<PAGE>
-10-
3.(c) Licensor shall advise Licensee of the manufacturing equipment
("Equipment") it considers most suitable for the manufacture of the
Licensed Products. Licensor shall also advise Licensee of companies
which sell such Equipment but shall have no obligation to deliver the
Equipment to Licensee.
3.(d) Upon fifteen (15) days' prior written notice to Licensor, Licensee may
from to time request Licensor to send, and Licensor shall send,
qualified technical personnel to Licensee's facility for the purpose
of installing Equipment, advising Licensee how to employ and maintain
the Equipment, instructing Licensee with respect to the use of the
Technology and Patents, and providing Licensee with Marketing
Information, for periods of time aggregating, together with all
periods of time during which Licensor shall send qualified technical
personnel to the facility of Licensee under the NTR License Agreement
pursuant to Section 3.(d) thereof, not more than ninety (90) man days
(or such greater number of man days as may be acceptable to Licensor)
during each Contract Year, but not exceeding twelve (12) man days in
any one-month period. Licensor agrees to waive the requirements set
forth in the preceding sentence in cases in which Licensee
demonstrates to Licensor's satisfaction that compliance with such
requirements would result in harm to Licensee. Licensee agrees to
reimburse Licensor for reasonable traveling (including business class
transportation), living and other expenses of Licensor's personnel at
Licensee's facility during each Contract Year and, in the event
Licensor's technical personnel shall be required to be at Licensee's
facility pursuant to this Section 3.(d) for more than thirty (30)
business days during any Contract Year, to pay the reasonable salary
of such personnel for each business day, in excess of thirty (30)
business days, that such personnel shall be at Licensee's facility.
Any visits by Licensee's personnel to Licensor's facilities shall be
at the expense of Licensee, and shall be made only upon fifteen (15)
days' prior written notice to Licensor and with Licensor's prior
written approval, which approval shall not be unreasonably withheld.
Licensee hereby assumes full and complete responsibility for any loss
or damage resulting from any visit to any facility of Licensor
pursuant to this Section 3.(d) and agrees to indemnify and hold
harmless Licensor from any such loss or damage (including the expenses
of any claim or suit), excepting only loss or damage which results
from wilful or grossly negligent acts or omissions of Licensor or of
its agents or employees.
3.(e) All information supplied pursuant to this Section 3 shall be in the
language versions and measurement systems in which the information is
then maintained by Licensor. Any further translation or conversion
required by Licensee shall be at Licensee's expense.
<PAGE>
-11-
CONFIDENTIALITY AND PROPRIETARY RIGHTS
--------------------------------------
4.(a) Licensor and Licensee acknowledge that the Technology, Patents,
Licensee Technology and any technical or accounting data, or business
information of either Licensor or Licensee, including, but not limited
to, correspondence and private technical discussions and related
memoranda, may embody highly valuable confidential information which
is not generally known to the public and which is proprietary to
Licensor or Licensee. The parties further acknowledge that any such
information is properly considered to be trade secrets, and consist
of devices, processes and compilations of technical information which
are secret, confidential and not generally known to the public and
which are the product of the expenditure of time, effort, money and/or
creative skills. Licensor and Licensee may each disclose to the other
confidential or proprietary technical, accounting or general business
data, and each may disclose any such data to its Affiliates, and
Licensee may disclose any such data to its Sublicensees, all of
which data shall be maintained as confidential in accordance with the
provisions of this Section 4 by the party to whom it is disclosed.
4.(b) Any information exchanged pursuant to this Agreement which is to be
maintained confidential (hereinafter "Confidential Information"),
shall be (i) if delivered in writing, designated with the legend
"Confidential" (or comparable legend) and (ii) if disclosed orally, by
demonstration or by sample, indicated "Confidential" at the time of
such disclosure and followed by a letter designated with the legend
"Confidential" (or comparable legend) sent to the receiving party
within thirty (30) days after such disclosure referring to the date
and place of such disclosure and describing the Confidential
Information. In addition, Confidential Information shall include any
other information exchanged pursuant to this Agreement which the party
to whom it was disclosed actually knew was confidential.
4.(c) Licensor and Licensee mutually agree to maintain each other's
Confidential Information in confidence, and, except as permitted by
this Agreement, not to disclose such Confidential Information to any
third party without the prior written consent of the other party,
during the term of this Agreement and for ten (10) years thereafter.
Such Confidential Information may be used by the receiving party
within its place of business and disclosed to its Affiliates and their
respective employees and agents, and in the case of Licensee its
Sublicensees, to whom disclosure is reasonably necessary.
4.(d) Licensor and Licensee mutually agree and covenant that any
Confidential Information received pursuant to this Agreement and
<PAGE>
-12-
disclosed to their respective Affiliates, and in the case of Licensee
its Sublicensees, shall be held confidential by such Affiliates and
Sublicensees in the same manner that Licensor or Licensee is obligated
under the terms of this Section 4.
4.(e) Each party may make copies of materials designated Confidential that
are delivered to the other party as permitted by this Agreement. All
such copies shall at all times be subject to the terms and conditions
of this Agreement and shall remain the property of the transmitting
party.
4.(f) Licensee, its Affiliates and its Sublicensees shall be permitted to
have other persons or firms, whether domestic or foreign, manufacture
any Licensed products, or parts thereof, for the account of Licensee,
its Affiliates or its Sublicensees, which manufacture requires the use
of material designated Confidential by Licensor; provided, that (i)
--------
such other person or firm agrees in writing to protect Licensor's
Confidential Information in the same manner that Licensee is obligated
under this Section 4, a copy of which agreement shall be provided to
Licensor, and, if the Confidential Information being disclosed
constitutes Patents or Technology relating to the manufacture of
pocket-coil mattresses, such other person or firm is not a Competitor
and Licensee, its Affiliate or Sublicensee, as applicable, has
determined, after reasonable inquiry, that such other person or firm
does not manufacture bedding products for any Competitor, or (ii)
Licensor consents in writing prior to any disclosure or use of such
Confidential Information. Licensee further agrees that in the event
it receives written notification from Licensor, or actually knows,
that any person or firm to which it has disclosed Confidential
Information in accordance with the terms of this Section 4.(f) has
breached any relevant provision of this Section 4, Licensee shall use
its best efforts to cause such person or firm to remedy such breach
and, in the event such breach is not remedied within ten (10) business
days after the receipt by such other person or firm of Licensee's
written notice, Licensee shall immediately terminate the arrangement
pursuant to which it disclosed such Confidential Information to such
person or firm.
4.(g) Subject to Section 6.(b), Licensor shall be permitted to disclose to
any third party any Confidential Information relating to the
Technology, patents corresponding to Patents and to technical and
accounting data and business information, but only to the extent such
information has been developed by, or is proprietary to, Licensor.
4.(h) The preceding provisions of this Section 4 shall not apply to any
information designated confidential which:
<PAGE>
-13-
(i) at any time after the Effective Date and prior to the time
of disclosure becomes known to the receiving party, as
evidenced by its written records; or
(ii) is or becomes publicly known or available through no breach
of this Agreement; or
(iii) is independently developed by the receiving party as
evidenced by its written records; or
(iv) is disclosed pursuant to the requirement of a governmental
agency or by operation of law.
Each party shall have the right to file patent applications for its
own inventions relating to any product, and it shall not be considered
a breach of this Agreement for such party to set forth in the
disclosure of those patent applications such information disclosed
hereunder as may be necessary to describe completely such party's
invention in accordance with the requirements of the patent law of the
country involved.
It shall not be considered a breach of this Agreement for Licensee to
provide a third party with any information disclosed hereunder, when
such information is provided by Licensee in connection with the sale
or distribution of any Licensed Products and provided that such
information is necessary for such sale or distribution, or in the use,
of such Licensed Products.
4.(i) In performing its obligations under this Section 4, each party shall
employ procedures no less restrictive than the strictest procedures
used by such party to protect its own confidential data, which
procedures on request shall be explained in reasonable detail in
writing to the requesting party.
4.(j) Each party will promptly, during the term of this Agreement, notify
the other party of any actual or suspected unauthorized use or
disclosure of any Technology, Trademarks or Confidential Information
or infringement of any Patents of which such party has knowledge and
will reasonably cooperate with the other party in the investigation
and prosecution of such unauthorized use, disclosure or infringement.
4.(k) Each party will use its best efforts to protect the good name and
reputation of the other party, the Trademarks and the goods
represented by the Trademarks.
<PAGE>
-14-
STANDARD OF LICENSEE'S PERFORMANCE
----------------------------------
5.(a) The Licensed Products to be manufactured, sold and distributed by
Licensee, its Affiliates or any of its Sublicensees shall, at all
times, meet the standards of quality of materials and workmanship
currently maintained by Licensor with respect thereto (as such
standards may be revised from time to time to reflect changes in the
Patents or the Technology).
5.(b) All packaging and advertising of the Licensed Products in connection
with the Licensed Trademarks shall be consistent with the standards
promulgated from time to time by Licensor.
5.(c) Licensee shall furnish Licensor with samples of all labels and
packaging, and, upon Licensor's request, advertising, on which any of
the Licensed Trademarks are utilized.
5.(d) Licensor shall, upon reasonable written notice to Licensee, have the
right to inspect Licensee's place of manufacture of the Licensed
Products at all reasonable times, and to inspect the finished
inventory of Licensed Products and work in process of Licensed
Products of Licensee in order to ascertain whether Licensee is in
compliance with Sections 5.(a) and 5.(b) hereof. The expenses of such
inspection shall be borne by Licensor.
5.(e) Licensee agrees that the Licensed Trademarks shall be physically
affixed or attached to the Licensed Products sold under those marks,
in such a manner so as to at all times constitute legal use of the
Trademarks and the Licensee will not do any act, or omit to do any
act, except as expressly contemplated in this Agreement, that will in
any way impair or affect the strength of the Licensed Trademarks,
continuity of the registrations therefor, or Licensor's interest
therein.
5.(f) Licensee agrees that the Licensed Products will be manufactured, sold
and distributed in accordance with all applicable laws.
LICENSED PRODUCTS
-----------------
6.(a) Except as provided in Sections 2.(g) and 6(c), Licensee shall not (and
shall not permit any third party to whom Licensee may hereafter grant
a license or sublicense, as applicable, to manufacture, sell,
distribute, advertise, promote or export any products to) manufacture,
sell, distribute, advertise or promote in, or export to, any country
or territory not included in the Licensed Territories (including,
without limitation, any territory where Licensor competes or has
granted an exclusive license to another licensee), any Licensed
Products, any New Products or
<PAGE>
-15-
any other products bearing trademarks identical or confusingly
similar to any of the Trademarks, or sell or distribute any Licensed
Products, any New Products or any other products bearing trademarks
identical or confusingly similar to any of the Trademarks to any
person which intends, to the best knowledge of Licensee or the third
party licensee or sublicensee, directly or through its agents or
customers, to export the same to any country or territory not
included in the Licensed Territories.
Licensee acknowledges that the Trademarks, especially the SIMMONS and
BEAUTYREST trademarks, are famous worldwide.
6.(b) Except as provided in Section 6(c), Licensor shall not (and except as
set forth in Schedule 6.(b), shall not permit any third party to whom
Licensor has granted a license to manufacture, sell, distribute,
advertise, promote or export any products to) manufacture, sell,
distribute, advertise or promote in, or export to, the Licensed
Territory any Licensed Products, any New Products or any other
products bearing trademarks identical or confusingly similar to any of
the Trademarks, or sell or distribute any Licensed Products, any New
Products or any other products bearing trademarks identical or
confusingly similar to any of the Trademarks to any person which
intends, to the best knowledge of Licensor or the third party
licensee, directly or through its agents or customers, to export the
same to the Licensed Territory. Licensor hereby represents and
warrants to Licensee that, except as set forth on Schedule 6.(b), none
of the existing license agreements between Licensor and third parties
relating to the manufacture, sale, distribution, exportation,
advertisement and/or promotion of any products permits the licensee
thereunder to manufacture, sell, distribute, advertise or promote
in, or export to, the Licensed Territory any Licensed Products, any
New Products or any other products bearing trademarks identical or
confusingly similar to any of the Trademarks, or sell or distribute
any Licensed Products, any New Products or any other products bearing
trademarks identical or confusingly similar to any of the Trademarks
to any person which intends, to the best knowledge of Licensor or the
third party licensee, directly or through its agents or customers, to
export the same to the Licensed Territory, and Licensor hereby
covenants with Licensee that it will not enter into any license
agreements in the future with third parties (other than Affiliates of
Licensee) which would permit the licensee thereunder to manufacture,
sell, distribute, advertise or promote in, or export to, the Licensed
Territory any Licensed Products, any New Products or any other
products bearing trademarks identical or confusingly similar to any
of the Trademarks, or sell or distribute any Licensed Products, any
New Products or any other products bearing trademarks identical or
confusingly
<PAGE>
-16-
similar to any of the Trademarks, to any person which intends, to
the best knowledge of Licensor or the third party licensee,
directly or through its agents or customers, to export the same
to the Licensed Territory.
6.(c) Notwithstanding anything to the contrary contained herein:
(i) if Licensor or any of its Affiliates negotiates or receives a
contract order from a customer located inside or outside the
Licensed Territories which specifically requests Licensed
Products made in the United States for supply within the Licensed
Territory, Licensor or such Affiliate shall notify Licensee of
such order and Licensee shall have the right to either (1) supply
such order by purchasing such Licensed Products from Licensor or
such Affiliate at such price and on such terms as Licensor and
Licensee may from time to time agree in writing, or (2) permit
Licensor or such Affiliate to supply the order upon payment to
Licensee of a commission equal to five (5%) percent of the
invoice price (calculated on a comparable basis to "Net Sales"
hereunder) with respect to each such sale; and
(ii) if Licensee or any of its Affiliates negotiates or receives an
order from a customer located inside or outside the Licensed
Territories for Licensed Products made in Japan for supply
outside the Licensed Territories, Licensee or such Affiliate
shall notify Licensor of such order and Licensor shall have the
right to either (1) supply such order by purchasing such Licensed
Products from Licensee or such Affiliate at such price and on
such terms as Licensor and Licensee may from time to time agree
in writing, or (2) permit Licensee or such Affiliate to supply
such order upon payment to Licensor of a commission equal to five
(5%) percent of the invoice price (calculated on a comparable
basis to "Net Sales" hereunder) with respect to each such sale;
provided, however, that nothing in this Section 6.(c)(ii) shall
--------
contravene any restriction in any license or similar agreement
that Licensor has entered into in respect of any country or
territory outside the Licensed Territories and is in effect as of
the Effective Date.
ENFORCEMENT
-----------
7.(a) (i) In the event of any actual or suspected unauthorized use or
disclosure of any Technology, any Licensed Trademark or any
Confidential information or Licensor or any infringement of any
Patents by any person, Licensor shall have the right (but not the
obligation) to take such action, including
<PAGE>
-17-
bringing a suit against such person, as it shall deem advisable
in its discretion. Licensor further agrees that Licensee shall
have the right (but not the obligation) at Licensee's sole cost
and expense to bring suit against any such person; in such event,
Licensor shall provide any assistance in the prosecution of such
litigation reasonably requested by Licensee and shall join or
permit suit to be brought in its name if necessary to enable
Licensee to prosecute effectively such litigation.
(ii) In the event of any actual or suspected unauthorized use or
disclosure of any Trademarks other than the Licensed Trademarks
or any Confidential Information of Licensee by any person,
Licensee shall have the right (but not the obligation) to take
such action, including bringing a suit against such person, as it
shall deem advisable in its discretion. Licensor shall provide
any assistance in the prosecution of such litigation reasonably
requested by Licensee.
(iii)In the event that any litigation is initiated pursuant to Section
7.(a)(i) or 7.(a)(ii), the prosecuting party agrees to pay the
other party's out-of-pocket costs in rendering such cooperation
at the prosecuting party's request. In any such litigation, or
any settlement thereof which may be made, any sums received shall
be applied first to repay the party not bringing the suit
(Licensor or Licensee) for all costs and expenses (including
attorneys' fees) of such litigation (to the extent any such costs
and expenses have not been reimbursed or previously paid by the
party bringing the suit) and the balance, including any royalties
to be paid by any infringer in the future, shall be paid to the
party bringing the suit.
7.(b) If (i) except as otherwise permitted by Section 6.(c)(i), any
Affiliate or licensee of Licensor or a third party manufactures,
sells, distributes, advertises or promotes in, or exports to, the
Licensed Territory any Royalty Product and such conduct constitutes a
breach of Section 6.(b) and Licensor does not or cannot cause such
manufacture, sale, distribution, advertisement, promotion or
exportation to cease, or (ii) any third party manufactures, sells,
distributes, advertises or promotes in, or exports to, the Licensed
Territory any Royalty Product, such conduct does not constitute a
breach of Section 6.(b) and Licensee unsuccessfully brings suit to
cause such manufacture, sale, distribution, advertisement, promotion
or exportation to cease, then Licensee shall be deemed licensed
hereunder, on a royalty-free basis, for the manufacture, sale,
distribution, advertisement, promotion or exportation of such
<PAGE>
-18-
Royalty Product in the limited geographic market within the Licensed
Territory in which such third party is manufacturing, selling,
distributing, advertising or promoting, or to which such third party
is exporting, such Royalty Product; provided, that nothing in this
--------
Section 7.(b) is intended to relieve Licensor of any liability it may
otherwise have for a breach of any provision of this Agreement.
ROYALTIES AND REPORTS
---------------------
8.(a) As compensation to Licensor for the Trademark License granted under
Section 2.(c) and the related rights assigned under Section 2.(e),
Licensee shall pay to Licensor a non-refundable royalty of $5,500,000,
of which (i) $4,290,000 shall be in respect of the Japanese Trademarks
and (ii) $1,210,000 shall be in respect of the Non-Japanese
Trademarks, payable as provided in Section 8.(e).
8.(b) As compensation to Licensor for the Patent License granted under
Section 2.(b), Licensee shall pay to Licensor a non-refundable royalty
of $1,000,000, payable as provided in Section 8.(e).
8.(c) As compensation to Licensor for the Technology License and Marketing
Information granted under Section 2.(a) and Section 3.(b),
respectively, Licensee shall pay to Licensor a non-refundable royalty
of $2,200,000, payable as provided in Section 8.(e).
8.(d) As additional compensation to Licensor for the Trademark License
granted under Section 2.(c), the Patent License granted under Section
2.(b) and the Technology License and Marketing Information granted
under Sections 2.(a) and 3.(b), respectively, Licensee and each of its
Sublicensees shall pay to Licensor, for each Contract Year an amount
equal to one percent (1%) of Net Sales of the Royalty Products in the
Licensed Territory during such Contract Year.
8.(e) (i) The aggregate compensation set forth under Sections 8.(a), (b),
(c) and (d) shall be payable as follows:
(A) $2,100,000 delivered to the Licensor on the Effective Date;
(B) $6,027,500 subject to the terms of Annex C attached hereto,
payable to Licensor in full, together with interest thereon
calculated at an annual rate of 7%, on January 22, 1988 (the
"Deferred Payment"); and
<PAGE>
-19-
(C) $572,500 payable to Licensor pursuant to a six-year, non-
negotiable subordinated promissory note having terms
contained in, and in substantially the form of Annex A
attached hereto (the "Note").
Subject to adjustments required by the following sentence, the
parties agree that the payments in subparagraphs (A) and (B) of
this Section 8.(e)(i) shall be allocated on a pro rata basis
among the Trademark License (in such case on a pro rata basis
among the Japanese Trademarks and the Non-Japanese Trademarks),
the Patent License and the Technology License. The payment in
subparagraph (C) of this Section 8.(e)(i) shall be allocable to
the license of the Japanese Trademarks.
(ii) The payment of the Deferred Payment shall be guaranteed by PAIL
and Licensee agrees to deliver or cause to be delivered to
Licensor, on or prior to the Effective Date, a guarantee of PAIL
in substantially the form attached hereto as Annex B (the
"Guarantee"). Furthermore, if PAIL transfers any shares of the
capital stock of Licensee to one or more Affiliates of PAIL,
Licensee shall cause such Affiliate or Affiliates to execute a
guarantee or guarantees substantially in the form of the executed
Guarantee. Nothing in the preceding sentence shall be
construed to limit or reduce the liability of PAIL under the
Guarantee.
(iii) The royalty payments to be made pursuant to Section 8.(d) shall
be payable (A) in the case of Licensee, within thirty (30) days
after the end of Licensee's first Contract Year, and thereafter
within thirty (30) days after the end of each six (6) month
period during the term of this Agreement and (B) in the case of
each Sublicensee, within thirty (30) days after the end of such
Sublicensee's first Contract Year, and thereafter within thirty
(30) days after the end six (6) month period during the term of
this Agreement and the relevant sublicense agreement; provided,
--------
that in the event Licensee or any Sublicensee fails to pay any
royalties payable under Section 8.(d) when due in accordance with
this Section 8.(e)(iii), Licensee or such Sublicensee, as
applicable, shall pay to Licensor in addition to such royalties,
interest thereon calculated at a per annum rate equal to the sum
--- -----
of (i) one and one-half percent (1-1/2%) and (2) the per annum
--- -----
rate of interest announced from time to time in New York City by
the Chase Manhattan Bank, N.A. at such time as its prime
commercial lending rate as in effect on each relevant day, for
the period from the date payment is due to the date payment is
made. At the time of payment of such royalties, Licensee or a
Sublicensee, as applicable, shall furnish a royalty statement,
certified to be
<PAGE>
-20-
accurate by Licensee or such Sublicensee, as applicable,
indicating the gross sales and Net Sales of the Royalty Products
sold by Licensee or such Sublicensee, as applicable, in the
Licensed Territory, together with unit sales by model and size.
8.(f) The rendering of any royalty statement, and/or payment of any royalty
shown to be due thereby, shall not in any event bar, or in any way
operate as an estoppel of, Licensor's rights of examination,
inspection and audit, as provided in Section 10, nor any rights or
remedies of Licensor to any additional royalties that may be found to
be due, all of which rights and remedies shall survive and shall not
be deemed to have been waived by any act or omission on the part of
Licensor.
CURRENCY AND TAXES
------------------
9. All royalties due Licensor hereunder shall be payable in United States
dollars, in Atlanta, Georgia, United States of America converted from
each currency in which Net Sales are calculated at the average of the
telegraph buying and selling rates published by the Bank of Tokyo in
Tokyo on the date of the royalty statement relating thereto. In the
event that any amounts payable by Licensee to Licensor under this
Agreement are taxable by the government of Hong Kong, Japan, Macau,
Singapore or any other country or territory in the Licensed Territory,
and taxes are required to be withheld and paid from such amounts by
Licensee, Licensee shall withhold and pay such taxes. Licensor agrees
to provide Licensee with such documentary evidence as may be required
under law to establish any claim to a reduced rate of withholding
under any income tax treaty currently in effect between the United
States and the relevant country in the Licensed Territory. If
Licensee deducts and pays the proper tax authority any such tax, it
shall furnish the official documentation of such tax payment to
Licensor within sixty (60) days after remittance to Licensor of a
royalty payment from which a deduction for taxes has been made. If
evidence of such payment is not submitted within such sixty (60) day
period, payment of the amount deducted shall be made by Licensee to
Licensor within ten (10) days of the expiration of the sixty (60) day
period.
EXAMINATION OF BOOKS
--------------------
10. Licensee shall (and shall cause its Sublicensees to) maintain, for a
period of at least three (3) years after each royalty statement is
delivered to Licensor, such accurate books and records as
<PAGE>
-21-
shall be sufficient to confirm the number of Royalty Products sold by
Licensee (and its Sublicensees) in the Licensed Territory, and the
total royalties due and payable under this Agreement. Licensee shall
(and shall cause its Sublicensees to) permit reasonable inspection by
an independent certified public accountant of such books and records
as may reasonably be required to verify such data. Any such certified
public accountant shall be chosen by Licensor subject to the
reasonable approval of Licensee (or, if applicable, a Sublicensee) and
shall be paid for by Licensor. Such certified public accountant shall
only verify to Licensor whether Licensee's (or a Sublicensee's)
royalty statements are correct and, if any such statements are deemed
incorrect, such certified public accountants will report to Licensor
the number of Royalty Products sold in the Licensed Territory by
Licensee (or its Sublicensee) during the period or periods in question
and the total royalty properly payable thereon. Notwithstanding any
other provision of this Agreement, should any figure established by
such inspection by such certified public accountant differ by more
than four and one-half percent (4.5%) from the corresponding figure in
the royalty statements furnished Licensor by Licensee (or any
Sublicensee) hereunder, Licensee (or such Sublicensee, as applicable)
shall reimburse Licensor for any and all expenses incurred by Licensor
in the course of such inspection. The accuracy of any royalty payment
may not be challenged by Licensor after expiration of the three-year
period during which Licensee (and each Sublicensee) must maintain
books and records sufficient to confirm the accuracy of the report
relating thereto.
GOVERNMENT REGISTRATIONS
------------------------
11.(a) Licensor shall use its best efforts and cooperate fully with Licensee
to file a notification of this Agreement with the Japanese Fair Trade
Commission pursuant to the Antimonopoly and Fair Trade Maintenance Act
(Law No. 54, 1947), as soon as reasonably practicable after the date
hereof, but in any event not later than thirty (30) days after the
date hereof, and, subject to the provisions of Section 23.(2) hereof,
to promptly comply with any order of the Japanese Fair Trade
Commission pursuant to its review of this Agreement.
11.(b) Licensor shall use its best efforts and cooperate fully with Licensee
to register, (i) immediately after the Effective Date and (ii)
thereafter from time to time as any Patent is newly-registered in the
Licensed Territory, the Patent License granted under this Agreement
(1) as a sen'yo exclusive license in the Register at the Patent Office
------
of Japan in respect of each Patent registered in Japan and (2) as an
executive license with the
<PAGE>
-22-
appropriate registry in Hong Kong, Macau, Singapore and any other
country or territory in the Licensed Territory in which any Patents
may be registered. The expenses of such registrations shall be shared
equally by Licensor and Licensee.
11.(c) Licensor shall register Licensee, immediately after the Effective
Date, (i) as the sen'yo exclusive licensee of each Registered
------
Trademark registered in Japan in the Register at the Japanese Patent
Office and (ii) as the exclusive licensee of each Registered Trademark
registered in Hong Kong, Macau, Singapore or any other country or
territory in the Licensed Territory, in the appropriate registries
maintained by the relevant governments, and Licensee agrees to
cooperate fully with Licensor to obtain such registrations. From time
to time after the Effective Date, and upon the request of Licensee,
Licensor shall use its best efforts and cooperate fully with Licensee
to register Licensor (or at Licensor's option, Licensee) as the
registered owner of any unregistered Licensed Trademark, and if
applicable, Licensee as the exclusive licensee thereof, with the
appropriate registries in Hong Kong, Japan, Macau, Singapore and any
other country or territory in the Licensed Territory. From time to
time after the Effective Date, Licensor shall maintain and renew all
registrations for the Registered Trademarks and any Licensed
Trademarks newly-registered and shall use its best efforts and
cooperate fully with Licensee in connection with Licensee's renewal of
each such exclusive licensee registration. The expenses of such
registrations shall be shared equally by the Licensor and Licensee,
except that Licensee shall bear all expenses relating to the
registration of any Licensee shall bear all expenses relating to the
registration of any Licensed Trademarks newly-registered in Licensee's
name. In the event that any of the registrations referred to in the
first sentence of this Section 11.(c) is, after exhaustion of all
administrative remedies, finally denied by the relevant government
authority, or, in any event, does not become effective, for any reason
other than a defect in the title or other rights of Licensor in a
relevant Registered Trademark constituting a breach of any
representation, warranty, covenant or other agreement of Licensor
under this Agreement, prior to (1) in the case of any country or
territory in the Licensed Territory other than Singapore, the first
anniversary of the Effective Date, or (2) in the case of Singapore,
the sixtieth (60) day after the first anniversary of the Effective
Date, Licensee shall be entitled to such remedies and/or damages,
including but not limited to the termination of this Agreement and the
return to Licensee by Licensor of all consideration paid to Licensor
by Licensee hereunder, as may be determined in accordance with Section
20 hereof.
<PAGE>
-23-
11.(d) From time to time after the Effective Date and subject to Section
2.(f) hereof, Licensor shall cooperate fully with Licensee, and take
such action as Licensee shall reasonably request, in connection with
License's registration of any one or more (i) Trademarks, other than
the Licensed Trademarks, assigned to Licensee with respect to Licensed
Products pursuant to Section 2.(e) hereof or (ii) trademarks
identical or confusingly similar to any of the Trademarks assigned to
Licensee with respect to New Products pursuant to Section 2.(e)
hereof, with any of the appropriate trademark registries maintained by
the governments of Hong Kong, Japan, Macau, Singapore or any other
country or territory in the Licensed Territory, each such registration
to be made in the name of Licensee. The expenses of such
registrations shall be borne by Licensee.
11.(e) Except as provided in Section 11.(d), Licensee shall not register with
any government in the world any trademark identical or confusingly
similar to any Trademark for use on or in connection with the
manufacture, sale, importation, distribution, advertising and
promotion of any products.
11.(f) Licensee agrees that it will accept, and it will cause its attorney to
accept, a power of attorney of Licensor, whereby Licensor authorizes
Licensee or its attorney to carry out any ministerial filings required
by this Section 11. Licensee will, and will cause its attorney to,
dutifully carry out any obligation of Licensor pursuant to this
Section 11 which Licensee, or its attorney, is legally permitted and
authorized by the power of attorney to carry out.
WARRANTIES AND INDEMNIFICATION
------------------------------
12.(a) Licensor represents and warrants to Licensee that, except as set forth
in Schedule 12.(a), (i) it has the right to use the Technology
presently in its knowledge, possession or control; (ii) it is the
registered owner of the Registered Trademarks in the Licensed
Territory, free from encumbrances, and as of the date of this
Agreement, none of the Trademarks has been registered by Licensor with
any government in the Licensed Territory for use on or in connection
with the manufacture, sale, importation, distribution, advertisement
or promotion or any product other than as specified in Schedule 12.(a)
and none of the Registered Trademarks has been registered by any third
party with any government in the Licensed Territory for use on or in
connection with the manufacture, sale, importation, distribution,
advertisement or promotion of any Licensed Products; (iii) it has the
right to enter into this Agreement and the sole right to grant the
licenses, rights and privileges
<PAGE>
-24-
granted herein, including but not limited to the Technology License
and, with respect to the Registered Trademarks, the Trademark License;
(iv) there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements by it or arising as a result
of its action relating to the use of the Technology, Patents,
Trademarks or the Marketing Information in the Licensed Territory or
otherwise inconsistent with the rights granted Licensee by this
Agreement; and (v) immediately after the Effective Date Licensee's use
of such Technology, Patents, Registered Trademarks and Marketing
Information in connection with the manufacture, sale, importation,
distribution, advertisement or promotion of Licensed Products in
accordance with the terms of this Agreement does not infringe any
right of any person, firm or corporation under the patent, copyright
or trademark laws of any country in the Licensed Territory.
12.(b) Licensor further represents that the patents and/or applications
therefor listed on Schedule 12.(b) attached hereto constitute all
Patents issued to, owned or licensable by Licensor or its Affiliates
as of the date of this Agreement in the Licensed Territory which cover
in whole or in part devices or processes contained in or relating to
pocket-coil mattresses and box spring and that it has full power and
authority to grant the Patent License to Licensee under such Patents
and/or applications therefor. Licensor agrees to submit to Licensee
an updated Schedule 12.(b) on the Effective Date and otherwise within
thirty (30) days after any change in the Patents. From time to time
during the term of this Agreement, Licensor shall use, upon request of
Licensee, its best efforts to obtain Patents for all existing and new
Technology which is patentable in any country or territory in the
Licensed Territory with the appropriate registry in such country or
territory in the Licensed Territory.
12.(c) Licensor further represents that, except for the notification and the
registrations referred to in Sections 11.(a), 11.(b), 11.(c) and
11.(d) hereof, it has made all registrations and filings with, and
obtained approvals of, any government agency necessary in connection
with this Agreement, including but not limited to the notification of
this Agreement to the Bank of Japan pursuant to the Foreign Exchange
and Foreign Trade Control Law of Japan (Law No. 228 of 1949, as
amended).
12.(d) Each party hereto (the "Indemnifying Party") agrees to indemnify,
defend and hold harmless the other party hereto, any Affiliate thereof
and their respective successors, if any, (the "Indemnified Party"), at
any time after the Effective Date, from and against all demands,
claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys'
<PAGE>
-25-
fees and expenses, which were reasonably incurred by the Indemnified
Party, net of any insurance proceeds received by the Indemnified Party
with respect thereto (all such amounts, net of insurance proceeds
being hereafter referred to collectively as "Damages"), asserted
against, resulting to, imposed upon or incurred by the Indemnified
Party, directly or indirectly, by reason of or resulting from (i) a
breach of any representation or warranty or any covenant or other
agreement of the Indemnified Party contained in or made pursuant to
this Agreement or any facts or circumstances constituting such a
breach and (ii) any claim against the Indemnified Party by a third
party based upon the manufacture, sale, advertisement, promotion or
distribution of any Licensed Product by the Indemnifying Party,
including, without limitation, product liability claims (items (i) and
(ii) are collectively, "Claims").
12.(e) (i) Notwithstanding any other provisions of this Agreement, no amount
shall be payable in indemnification under this Section 12 of this
Agreement to Licensee unless the aggregate amount of Damages in
respect of which (A) Licensor would be liable under any other
provisions of this Agreement plus (B) the Damages Sleeper or
Licensor would be liable to the Buyer Group (as defined in the
Stock Purchase Agreement) pursuant to the Stock Purchase
Agreement plus (C) the damages Licensor would be liable to the
Indemnified Party (as defined in the NTR License Agreement)
pursuant to the NTR License Agreement exceeds on a cumulative
basis One Million Dollars ($1,000,000), and then only to the
extent of such excess.
(ii) Notwithstanding the foregoing Section 12.(e)(i), a Claim
described in Section 12.(d) of this Agreement that would
otherwise give rise to a Claim against Licensor for Damages shall
not be deemed to have occurred unless the Damages resulting from
the single misrepresentation or breach of warranty, covenant or
agreement that constitute such event exceeds Fifty Thousand
Dollars ($50,000), provided that for purposes of this sentence,
all Claims for Damages arising out of the same or similar facts
constituting, or events causing, any such breach shall be treated
as a single Claim.
(iii) Notwithstanding any other provisions of this Agreement, the
foregoing paragraphs (i) and (ii) of this Section 12.(e) shall
not apply to any Claim based upon a breach of any covenant or
other agreement contained in or made pursuant to this Agreement
required to be performed after the Effective Date, including but
not limited to any amounts payable by Licensor to Licensee
pursuant to Section 11.(c)
<PAGE>
-26-
hereof other than as a result of a breach of any representation
set forth in Section 12(a).
(iv) Notwithstanding any other provisions of this Agreement, Licensor
shall not be liable for any Damages pursuant to the terms of this
Agreement resulting from any Claim hereunder if Sleeper is liable
for such Claim under the Stock Purchase Agreement.
(v) Licensor shall not be liable for any Claims made pursuant to
Section 12.(d) of this Agreement in the event that such Claim is
based on a breach of a representation or warranty which was
actually known by Mr. Tormond Isetorp.
(vi) Notwithstanding Section 12.(d)(ii), Licensee shall not be liable
for any product liability claims brought against Licensor or its
Affiliates, in the event liability is based upon a design or
other defect in any Technology or Patents developed or acquired
by Licensor after the Effective Date.
(vii) In any case where an Indemnifying Party has indemnified an
Indemnified Party for any Damages and such Indemnified Party
recovers from third parties all or any part of the amount so
indemnified by the Indemnifying Party, such Indemnified Party
shall promptly pay over to the Indemnifying Party the amount so
recovered (after deducting therefrom the full amount of the
expenses incurred by it in procuring such recovery), but not in
excess of the amount so indemnified by the Indemnifying Party.
12.(f) The obligations and liabilities of the Indemnifying Party under any
provision of this Agreement with respect to Claims relating to third
parties shall be subject to the following terms and conditions:
(i) Whenever the Indemnified Party shall have received notice that
such a Claim has been asserted or threatened, which, if valid,
would be subject to an indemnity under this Agreement, the
Indemnified Party shall as soon as reasonably possible and in any
event within the earlier of thirty (30) days after receipt of
such notice or such date as an answer to a complaint or similar
initiation of judicial proceedings shall be due, notify the
Indemnifying Party of such Claim and of all relevant facts within
its knowledge which relate thereto: provided, however, that the
-------- -------
failure of the Indemnified Party to give timely notice hereunder
shall not relieve the Indemnifying Party of its indemnification
obligations under this Agreement unless, and only to the
<PAGE>
-27-
extent that, such failure caused the Damages for which the
Indemnifying Party is obligated to be greater than they would
have been had the Indemnifying Party been given timely notice
hereunder.
(ii) The Indemnifying Party will have the right, but not the
obligation, to assume the defense of any claim made pursuant to
Section 12.(f). If the Indemnifying Party, within the earlier of
thirty (30) days after receipt of notice of a Claim pursuant to
Section 12.(f) or such date as an answer to a complaint or
similar initiation of judicial proceedings shall be due, fails to
assume the defense of such Claim, the Indemnified Party will
(upon further notice to the Indemnifying Party) have the right to
undertake, at the Indemnifying Party's expense, the defense,
compromise or settlement of such Claim on behalf of and for the
account and risk of the Indemnifying Party, subject to the right
of the Indemnifying Party to assume the defense of such claim at
any time prior to settlement, compromise or final determination
thereof. The Indemnified Party will keep the Indemnifying Party
reasonably informed of the progress of any such defense,
compromise or settlement.
(iii) Anything in this Section 2.(f) to the contrary notwithstanding,
(A) if there is a reasonable probability that a Claim may
materially and adversely affect the Indemnified Party, the
Indemnified Party shall have the right to defend, at its own cost
and expense, and to compromise or settle such claim with the
consent of the Indemnifying Party, and (B) the Indemnifying Party
shall not, without the written consent of the Indemnified Party,
settle or compromise any Claim or consent to the entry of any
judgment. In the event the Indemnifying Party makes a bona fide
settlement proposal which the third party claimant has confirmed
is acceptable to it and which the indemnified Party rejects, the
indemnifying Party's obligation to indemnify the indemnified
Party shall be limited to such settlement proposal.
12.(g) The Indemnification set forth in this Section 12 shall survive the
termination of this Agreement only in respect of any Claims based on
facts or circumstances existing as of, or arising out of Licensed
Products manufactured or sold prior to, the date of such termination,
for a period of ten (10) years or, if shorter, the relevant statute(s)
of limitations.
12.(h) Nothing in this Section 12 shall be construed to limit the non-
monetary equitable remedies of either party hereto in respect of any
breach by the other party of any covenant or other
<PAGE>
-28-
agreement of such other party contained in or made pursuant to this
Agreement required to be performed after the Effective Date.
12.(i) (i) In the event Licensor should be required to pay monies with
respect to Indemnification to Licensee, pursuant to any
indemnification provision of this Agreement, Licensee or Licensor
may setoff the amount owed to Licensee by Licensor in
indemnification against any amounts due to Licensor under this
Agreement or against any other amounts which, at the time,
Licensee or any of its Affiliates owes to Licensor.
(ii) In the event Licensee should be required to pay monies with
respect to indemnification to Licensor, pursuant to any
indemnification provision of this Agreement, Licensor may setoff
the amount owed to Licensor by Licensee in indemnification
against any amounts which, at the time, Licensor or any of its
Affiliates owes to Licensee.
CONSTRUCTION OF AGREEMENT
-------------------------
13. This License Agreement, and all of the rights and obligations of the
parties hereunder, shall be governed by and construed in accordance
with the laws of the State of New York, United States of America
(regardless of the laws that might otherwise govern under applicable
New York principles of conflicts of law).
ASSIGNMENT
----------
14. Subject to the restrictions set forth herein, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. This Agreement, or any rights or
obligations hereunder, may not be assigned by either party hereto
without the prior written consent of the other party, which consent
will not be unreasonably withheld, except (i) for sublicenses
permitted pursuant to Section 2.(d) hereof, (ii) by Licensee, to an
Affiliate of Licensee which is the licensee under the NTR License
Agreement, (iii) to a successor in interest of a party which acquires
substantially all of the business of such party, whether by sale of
assets, sale of stock, consolidation or merger and (iv) for
assignments by Licensor of its rights but not its obligations
hereunder to any of its creditors as required pursuant to the terms or
conditions of any mortgage, indenture, pledge, agreement or other
instrument made or entered into by Licensor on or before the date
hereof.
<PAGE>
-29-
LICENSE AGREEMENT ONLY
----------------------
15. It is the intention of the parties hereto to enter into a license
agreement only and nothing herein contained shall be construed to
regard the parties hereto as constituting partners or joint venturers,
or to constitute the arrangement herein provided for as a partnership
or joint venture.
NOTICES
-------
16. Any and all notices or other writings, which are required to be
served, or which may be served under the provisions of this Agreement,
shall be in writing, and shall be sufficiently served if delivered
personally or by facsimile transmission, telexed or mailed by
registered or certified mail (return receipt registered), postage
prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice; provided,
--------
that notices of a change of address shall be effective only upon
receipt thereof):
To Licensor: President - Simmons U.S.A. Corporation
6 Executive Park Drive
Atlanta, Georgia, U.S.A. 30329
Facsimile No.: (404) 321-3030 ext. 359
Copies to: General Counsel
Simmons U.S.A. Corporation
P.O. Box 95465
Atlanta, Georgia 30347
Facsimile No.: (404) 331-3030 ext. 359
and
Lorraine Sostowski, Esq.
Lane and Edson, P.C.
2300 M Street, N.W.
Washington, D.C. 20037
Telex No.: 510 6007600
Answerback: LIBRA
Facsimile No: 202-955-9607
<PAGE>
-30-
To Licensee: Representative Director
SJL Investment Limited
3/F, Suzumaru Bldg.
2-39-8 Nishi-Shinbashi
Minato-ku, Tokyo
Facsimile No.: 813-433-7399
Copy to: Coudert Brothers
31/F. Alexandra House
20 Chater Road
Hong Kong
Attn: Patrick B. Fenn, Esq.
Telex No.: 74073
Answerback: AMLAW HX
Facsimile No.: 852-520-1077
If mailed as aforesaid, ten (10) days after the date of mailing shall
be the date notice shall be deemed to have been received.
AMENDMENT AND MODIFICATION
--------------------------
17. This Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
TERM AND TERMINATION
--------------------
18.(a) The term of this Agreement and the licenses granted hereunder shall
commence on the Effective Date and shall continue perpetually, unless
terminated pursuant to, and only by reason of the events described in,
this Section 18.
18.(b) If Licensee fails to pay the Deferred Payment when payable and shall
continue to fail to do so for a period of fourteen (14) days after the
date such payment is due, Licensor shall have the right to terminate
this Agreement immediately by giving written notice thereof. For
purposes of this provision, the Licensee shall be deemed to have
failed to pay the Deferred Payment if Licensor is required to remit
any portion of the Deferred Payment to the holders of Senior Debt (as
defined in Annex C hereto) pursuant to the terms of Annex C hereto.
18.(c) Licensor may terminate the Technology License and the Patent License
granted hereunder by giving Licensee written notice thereof in the
event that Licensee shall fail to pay any royalties payable by
Licensee to Licensor pursuant to Section 8.(d) hereof when due in
accordance with Section 8.(e)(iii) hereof, and such failure has not
been remedied within ninety (90) days after the date payment of such
royalties was due. In the event of a dispute or controversy as to the
amount of royalties payable
<PAGE>
-31-
hereunder, the failure to pay any amount in dispute shall not be
deemed a failure to pay for purposes of this Section 18.(c) until
thirty (30) days after such dispute shall have been resolved in
accordance with the procedures in Section 20 hereof; provided, that
--------
any additional royalties ultimately determined to be owing shall be
treated as not having been paid when due for purposes of Section
8.(e)(iii).
18.(d) Licensor may terminate this Agreement by giving Licensee written
notice thereof in the event that (i) Licensee or any of its Affiliates
breaches Section 6.(a) of this Agreement by manufacturing, selling or
distributing any Licensed Products outside the Licensed Territories,
except as expressly permitted pursuant to Section 6.(c)(ii) of this
Agreement, and such breach has not been remedied within sixty (60)
days after receipt by Licensee or its Affiliate of written notice from
Licensor calling attention to such breach, specifying the nature
thereof and the action required to correct the breach, or (ii)
Licensee or any of its Affiliates breaches Section 4 of this Agreement
by disclosing, without Licensor's prior written consent, any
Confidential Information (designed as "confidential" in accordance
with clause (i) or (ii) of the first sentence of Section 4.(b) hereof)
constituting Patents or Technology relating to the manufacture of
pocket-coil mattresses, to a Competitor or any other person that
Licensee or its Affiliate has determined, after reasonable inquiry,
manufactures any bedding products for any Competitor, and such breach
has not been remedied by Licensee or its Affiliate, as applicable,
within ninety (90) days after receipt by Licensee or its Affiliate of
written notice from Licensor calling attention to such breach,
specifying the nature thereof and the action required to correct the
breach; provided, that a breach by Licensee or its Affiliate of the
--------
type described in (ii) above shall not constitute a basis for
Licensor's termination of this Agreement pursuant to this Section
18.(d), unless such breach was the result of a wilful or grossly
negligent act or omission of Licensee, its Affiliate or any of their
respective officers, employees or agents, which act or omission
resulted in a material adverse harm to Licensor's business or
reputation.
18.(e) Termination of this Agreement for any reason shall not release
Licensee from any obligation to pay any royalties accrued and unpaid
at the effective date of such termination nor to pay royalties on the
Royalty Products manufactured prior to termination but sold or used
after termination, nor shall such termination release any party of any
part of any obligation accrued prior to the date of such termination,
or obligations continuing beyond termination of the Agreement.
<PAGE>
-32-
18.(f) Upon termination of this Agreement, Licensee shall have a period of
six (6) months after the date of termination in which to sell off its
then remaining inventory of Licensed Products and shall report to
Licensor with respect to such sales and make the requisite royalty
payment, if any, within thirty (30) days after the end of the
aforesaid six-month period. All other duties and obligations of
Licensee under this Agreement shall remain in force during the sell-
off period. Within thirty days after termination of this Agreement,
Licensee and each Sublicensee shall deliver to Licensor a statement
indicating the number and description of the Licensed Products which
it had on hand or in the process of manufacturing as of the
termination date. Licensor shall have the option of conducting a
physical inventory at the time of termination and/or at a later date
in order to ascertain or verify such statement. In the event that
Licensee refuses to permit Licensor to conduct such physical
inventory, Licensee shall forfeit its rights hereunder to dispose of
such inventory. In addition to such forfeiture, Licensor shall have
recourse to all other remedies available to it.
18.(g) After the termination of this Agreement or any of the Licenses granted
hereunder, (i) all rights granted to Licensee pursuant to the Patent
License, Technology License and/or the Trademark License, as
applicable, which has or have been terminated shall forthwith revert
to Licensor, who shall be free to license others to use such rights in
connection with the manufacture, sale, distribution, advertisement,
promotion, and exportation of the Licensed Products in the Licensed
Territory and, except as otherwise expressly permitted by the
Agreement, Licensee shall refrain from further use of such rights or
any further reference to them, either directly or indirectly, in
connection with the manufacture, sale, advertisement, promotion, and
exportation of the Licensed Products in the Licensed Territory, (ii)
any of the Patent License, Technology License, and/or the Trademark
License, as applicable, which has or have not been terminated and all
provisions of this Agreement relating thereto shall remain fully
effective and (iii) all rights sold, assigned or transferred to
Licensee and Licensee shall be free to continue to use all Trademarks
and trademarks identical or confusingly similar to any of the
Trademarks which have, prior to such termination, been registered in
its name in the Licensed Territories in accordance with Section 11.(d)
or (f), on or in connection with the sale, importation, distribution,
advertisement and promotion of any (1) Licensed Products and (2) such
New Products as Licensor shall have, prior to such termination,
consented to in accordance with Section 2.(f), in the Licensed
Territory.
<PAGE>
-33-
18.(h) Except as may otherwise be permitted by this Agreement, Licensee
acknowledges that its failure to cease the manufacture, sale,
advertisement, promotion and exportation of the Licensed Products in
the Licensed Territory and/or use in any way of the Patents,
Trademarks, Technology and Marketing Information at the termination of
this Agreement will result in immediate and irreparable damage to
Licensor and to the rights of any subsequent licensee of Licensor.
Licensee acknowledges and admits that there is no adequate remedy at
law for failure to cease such activities and Licensee agrees that in
the event of such failure, Licensor shall be entitled to equitable
relief by way of injunctive relief and such other relief as any court
with jurisdiction may deem just and proper.
18.(i) Licensee agrees that, in the event any Licensed Trademark registered
in any country or territory within the Licensed Territory shall not
have been sufficiently used by Licensee, its Affiliates or
Sublicensees in such country or territory for such a period that under
the applicable laws of such country or territory, Licensor's ownership
right to such Licensed Trademark shall be subject to forfeiture,
Licensee shall give notice of such fact to Licensor and Licensor may
by written notice terminate the Trademark License with respect to such
Licensed Trademark only and shall thereafter have the right to use or
license others to use such Licensed Trademark in connection with the
manufacture, sale, distribution, advertisement, promotion and
exportation of the Licensed Products in such country or territory in
the Licensed Territory.
FORCE MAJEURE
-------------
19. If the performance of this Agreement or of any obligation hereunder is
prevented, restricted, or interfered with by reason of fire, or other
casualty or accident, strikes or labor disputes, inability to procure
raw materials, delays in transportation, war or other violence, any
law, order, proclamation, regulation, ordinance, demand or requirement
of any government agency (including but not limited to the foreign
exchange controls of any country or territory in the Licensed
Territory applicable to Licensee or any Sublicensee), or any other act
or condition whatsoever beyond the reasonable control of the parties
hereto, the party so affected, upon giving prompt notice to the other
party, shall be executed from such performance to the extent of such
prevention, restriction or interference, provided that the party so
affected shall use its best efforts to avoid or remove such causes of
nonperformance and shall continue performance hereunder with the
utmost dispatch whenever such causes are removed and shall faithfully
provide substitute performance as the parties hereto may reasonably
agree.
<PAGE>
-34-
DISPUTE RESOLUTION
------------------
20. The parties shall comply with all of the provisions of this Agreement
in the spirit of good faith, and any controversy, dispute or question
between the parties hereto arising out of or in relation to this
Agreement shall be settled, as reasonably as possible, by mutual
amicable consultation between both parties. However, any such
controversy, dispute or question between the parties hereto which
cannot be settled within a reasonable period of time after written
notice by one party to the other of the existence of such controversy,
dispute or question may be adjudicated in the Tokyo District Court,
Tokyo, Japan or any court of the State of New York or any Federal
court of the United States of America located in the City and State of
New York, United States of America, as the party commencing such
action may elect. Licensor and Licensee each hereby submits to and
accepts the personal jurisdiction of the aforesaid courts in
connection with any such controversy, dispute or question and agrees
that any such court is a convenient forum. Licensor and Licensee each
further irrevocably consents to the service of process in any such
action or proceeding by the mailing of copies thereof by registered or
certified airmail, postage prepaid, to such party at its address set
forth in Section 16.
TRANSFER OF TECHNICAL DATA
--------------------------
21. Licensee agrees that none of the Patents, Technology or Equipment
received directly or indirectly from Licensor shall be transshipped
directly or indirectly to those countries to which such transshipment
is prohibited by the laws, statutes, and regulations of the United
States of America as they may from time to time be amended.
Furthermore, none of the products made using the Patents, Technology
or Equipment shall be exported directly or indirectly to countries to
which such exportation is prohibited by the laws, statutes and
regulations of the United States of America as these laws, statutes
and regulations may from time to time be amended.
INTEGRATION
-----------
22. This Agreement and all related agreements being executed
simultaneously herewith or by their terms, effective on even date
herewith, embody the entire understanding between the parties relating
to the subject matter hereof and all prior representations or
agreements relating to the subject matter hereof are superseded and
replaced by this Agreement as of the date of signing by both parties.
<PAGE>
-35-
SEVERABILITY
------------
23. The parties agree that (1) the provisions of this Agreement shall be
severable in the event that any of the provisions hereof are held by a
court of competent jurisdiction to be invalid, void or otherwise
unenforceable, (2) such invalid, void or otherwise unenforceable
provisions shall be automatically replaced by other provisions which
are as similar as possible in terms to such invalid, void or otherwise
unenforceable provisions but are valid and enforceable and (3) the
remaining provisions shall remain enforceable to the fullest extent
permitted by law.
CAPTIONS
--------
24. The titles to the Sections of this Agreement are included herein
solely for convenience, are not a part of this Agreement and do not in
any way limit or amplify the terms of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the day and year
first above written.
SIMMONS U.S.A. CORPORATION
By /s/ Robert A. Magnusson
---------------------------------------
Robert A. Magnusson
President
Witness:
/s/
- -----------------------------------
SJL INVESTMENT LIMITED
By /s/ Tormod Isetorp
---------------------------------------
Tormod Isetorp
Representative Director
Witness:
- -----------------------------------
<PAGE>
-36-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the day and year
first above written.
SIMMONS U.S.A. CORPORATION
By /s/ Robert A. Magnusson
---------------------------------------
Robert A. Magnusson
President
Witness:
/s/
- -----------------------------------
SJL INVESTMENT LIMITED
By /s/ Tormod Isetorp
---------------------------------------
Tormod Isetorp
Representative Director
Witness:
/s/ P. D. Cleary
- -----------------------------------
P.D. Cleary
EXHIBIT 10.58
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement"), is effective as of
this 21st day of May, 1990, between SIMMONS COMPANY, a corporation duly
created, organized and existing under the laws of the State of Delaware,
having its office and principal place of business at 6 Executive Park
Drive, Atlanta, Georgia, U.S.A., (hereinafter referred to as the "Licensor"),
and COMPANIA SIMMONS S.A. de C.V., a corporation duly created, organized
and existing under the laws of Mexico, having its office and principal place
of business at Calle Norte 45 No. 1082, Apartado Postal 15-047, Col.
Industrial Vallejo, Deleg. Azcapotzalco, 2300, Mexico, D.F. (hereinafter
referred to as the "Licensee").
Licensor has the sole and exclusive ownership rights in the Licensed
Trademarks (as hereinafter defined) in connection with the sale, importation,
distribution, advertisement and promotion of the Licensed Products (as
hereinafter defined) in the Licensed Territory (as hereinafter defined), and
the right to grant licenses to others for the use of the Licensed Trademarks.
Licensee desires to obtain an exclusive license for the use of the Licensed
Trademarks and other rights in connection with the manufacture, use, sale,
importation, distribution, advertisement and promotion of the Licensed
Products in the Licensed Territory. In consideration of the premises and the
mutual promises, covenants and conditions hereinafter contained and contained
in the Stock Purchase Agreement, the Framework Agreement and Patent and
Technology License Agreement (as hereinafter defined), the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. "Affiliate" of a specified person shall mean a person
-----------
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the specified person.
For this purpose, "control" means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract or
otherwise.
Section 1.2. "Competitor" shall mean each person (i) which competes
-----------
with Licensor in the United States or Canada, either directly or through an
Affiliate of such person (including without
1
<PAGE>
limitation as a licensee or franchisee of such person), in the sale or
manufacture of Licensed Products and (ii) which holds more than 5% of the
market in the United States or Canada with respect to any of the Licensed
Products.
Section 1.3. "Contract Year" shall mean (i) with respect to Licensee,
-----------
the period commencing on the Effective Date and ending on the last day of
Licensee's current fiscal year and each subsequent fiscal year of Licensee
during the term of this Agreement and (ii) with respect to each Sublicensee,
the period commencing on the date of the license or sublicense agreement
between Licensee and such Sublicensee and ending on the last day of such
Sublicensee's fiscal year in which such license or sublicense agreement was
entered into, and each subsequent fiscal year of such Sublicensee during
the term of such license or sublicense agreement and this Agreement, or such
other periods as Licensee and such Sublicensee shall agree in such license or
sublicense agreement.
Section 1.4. "Effective Date" shall mean the date of this Agreement.
-----------
Section 1.5. "Framework Agreement" shall mean the Framework Agreement
-----------
dated as of May 15, 1990, among Licensor, Fifth Century Company and Alfa,
S.A.
Section 1.6. "Licensed Products" shall mean (i) bedding products,
-----------
including but not limited to mattresses, box springs, bedding components and
related bedding accessories, (ii) upholstered furniture products and (iii)
all items included in each class in which any of the Licensed Trademarks is
registered in Licensor's name in the Licensed Territory on the date of this
Agreement. "Licensed Products" shall include all Royalty Products (as
hereinafter defined).
Section 1.7. "Licensed Territory" shall mean the United Mexican States.
-----------
Section 1.8. "Licensed Trademarks" shall mean all trademarks registered
-----------
or with registrations pending in the Licensed Territory in Licensor's name as
of the date hereof, including without limitation, those trademarks identified
on Schedule 1.8 attached hereto, together with any new trademarks registered
or applied for in accordance with Section 9.2 hereof.
Section 1.9. "Net Sales" shall mean the invoiced price, exclusive of
-----------
all taxes (including excise, sales and value added taxes), of the Royalty
Products sold by Licensee and its Affiliates and each Sublicensee and its
Affiliates to an independent purchaser (either wholesale or retail) in an
arms length transaction, excluding freight, cash and other customary trade
discounts and amounts refunded or credited on returned products. Net Sales
shall
2
<PAGE>
also include in the case of the sale of any Licensed Product which includes
a Royalty Product as a component thereof, an amount equal to the price of
such Royalty Product designated in the price list being generally used by
Licensee or Sublicensee, as applicable, at the time of such sale. In
computing Net Sales, no deduction shall be made for other discounts or for
any costs incurred by Licensee or a Sublicensee, as applicable, in the
manufacture, sale or distribution of the Royalty Products. Licensee shall
be permitted to deduct from Net Sales uncollectible accounts which have been
written off in Licensee's accounting books in accordance with standard business
practices in the Licensed Territory. If and when any such accounts are
collected, in whole or in part, the amount so collected shall be included at
the time of collection as Net Sales.
Section 1.10. "Patents" shall have the meaning set forth in the Patent
------------
and Technology License Agreement.
Section 1.11. "Patent and Technology License Agreement" shall mean the
------------
Patent and Technology License Agreement dated as of the date of this Agreement
by and between Licensor and Licensee.
Section 1.12. "Royalty Products" shall mean (i) any Licensed Product
------------
which is produced or assembled in accordance with the Technology or the Patents
or (ii) any other Licensed Product sold by Licensee, any Affiliate of Licensee
or any Sublicensee under any of the Licensed Trademarks. For purposes of this
Section 1.12, the phrase "under the Licensed Trademarks" shall mean the
affixation of such a trademark to a Licensed Product, or the use of such a
trademark in connection with the advertisement or promotion of such products
to the ultimate purchaser thereof.
Section 1.13. "Stock Purchase Agreement" shall mean the Stock Purchase
------------
Agreement dated as of the date of this Agreement, by and between Fifth Century
Company and Alfa, S.A.
Section 1.14. "Sublicensee" shall have the meaning set forth in Section
------------
2.2.
Section 1.15. "Technology" shall have the meaning set forth in the
------------
Patent and Technology License Agreement.
Section 1.16. "Trademark License" shall have the meaning set forth in
------------
Section 2.1.
ARTICLE II
GRANT OF LICENSE
----------------
Section 2.1 - Grant of Trademark License. Subject to Sections 4.2 and
----------------------------------------
4.3 hereof, Licensor hereby grants to Licensee an exclusive and perpetual
right, license and privilege to use, and to sublicense others to use, the
Licensed Trademarks on and in
3
<PAGE>
connection with the manufacture, sale, importation, distribution, advertisement
and promotion of the Licensed Products within the Licensed Territory, such
license and any sublicenses being subject to the conditions hereinafter
contained (the "Trademark License").
Section 2.2 - Sublicense. Licensee may, upon fifteen days' prior written
------------------------
notice to Licensor, sublicense all or any of the rights granted under Section
2.1 to any person ("Sublicensee"), including its Affiliates, which shall agree
in writing to be bound by all of the terms and conditions of this Agreement;
provided, however, that Licensee may not sublicense any Licensed Trademarks to
- -------- -------
any person who is, at the time of the sublicense, a Competitor or to any person
that Licensor or Licensee has determined, after reasonable inquiry,
manufactures mattresses, box springs, innersprings or spring components for a
person who is at the time of the sublicense, a Competitor. Each sublicense
agreement shall provide that Licensee may, and Licensee hereby agrees to,
terminate such sublicense agreement if the Sublicensee thereunder breaches any
provision of Section 3.1, 3.2 or Article 4 hereof and fails to remedy such
breach within ten (10) business days after such Sublicensee's receipt of
Licensee's written notice of such breach. Licensee hereby agrees to cause
delivery of such written notice within ten (10) business days of notice or
discovery of breach. Licensee shall continue to be primarily responsible for
any Sublicensee's performance under this Agreement, including without
limitation the payment when due of any royalties or other obligations under
this Agreement.
ARTICLE III
STANDARD OF LICENSEE'S PERFORMANCE
----------------------------------
Section 3.1 - Standards of Quality. The Royalty Products to be
----------------------------------
manufactured, sold and distributed by Licensee, its Affiliates or any of its
Sublicensees shall, at all times, meet reasonable standards of quality of
materials and workmanship so as not to seriously damage the quality image of
any bedding products sold by Licensor or any of its Affiliates or licensees
outside the Licensed Territory; provided, however, that Licensee shall not be
-------- -------
deemed to have violated this Section 3.1 if the necessary quality materials
are not manufactured in the Licensed Territory and are unavailable because of
government import restrictions, but only during the period of such
restrictions.
Section 3.2 - Packaging and Advertising. All packaging and advertising
---------------------------------------
of the Royalty Products in connection with the Licensed Trademarks shall be
consistent with reasonable standards of quality so as not to seriously damage
the quality image of any bedding products sold by Licensor or any of its
Affiliates or licensees outside the Licensed Territory.
4
<PAGE>
Section 3.3 - Right of Inspection. Licensor shall, upon fifteen (15)
---------------------------------
days' advance written notice to Licensee, have the right to inspect Licensee's
place of manufacture of the Licensed Products at all reasonable times, but
no more than three times per year, and to inspect the finished inventory of
Licensed Products and work in process of Licensed Products of Licensee in
order to ascertain whether Licensee is in compliance with Section 3.1 and 3.2
hereof. The expenses of such inspection shall be borne by Licensor.
Section 3.4 - Attachment of Licensed Trademarks. Licensee agrees that
-----------------------------------------------
the Licensed Trademarks shall be physically affixed or attached to the Licensed
Products sold under those marks, in such a manner so as to at all times
constitute legal use of the Licensed Trademarks and Licensee will not do any
act, or omit to do any act, except as expressly contemplated in this Agreement,
that will in any way impair or affect the strength of the Licensed Trademarks,
continuity of the registrations therefor, or Licensor's interest therein.
Section 3.5 - Compliance with Applicable Laws. Licensee agrees that the
---------------------------------------------
Licensed Products will be manufactured, sold and distributed by Licensee in
accordance with all applicable laws.
Section 3.6 - Best Efforts. Each party will use its best efforts to
--------------------------
protect the good name and reputation of the other party, the Licensed
Trademarks and the goods represented by the Licensed Trademarks.
ARTICLE IV
LICENSED PRODUCTS
-----------------
Section 4.1 - Sales by Licensee Outside of Licensed Territory. Except
-------------------------------------------------------------
as provided in Section 2.2, Licensee shall not (and shall not permit any
third party to whom Licensee may hereafter grant a license or sublicense, as
applicable to) manufacture, sell, distribute, advertise or promote in, or
export to, any country or territory outside of the Licensed Territory
(including, without limitation, any territory where Licensor competes or
has granted a license to another licensee), any products, including without
limitation Licensed Products, bearing trademarks identical or confusingly
similar to any of the Licensed Trademarks, or sell or distribute any products,
including without limitation Licensed Products, bearing trademarks identical
or confusingly similar to any of the Licensed Trademarks to any person which
intends, to the best knowledge of Licensee or the third party licensee or
sublicensee, directly or through its agents or customers, to export the same
to any country or territory outside of the Licensed Territory. Notwithstanding
the foregoing, Licensee shall be permitted to (i) manufacture Licensed Products
in the United States solely for export to the Licensed Territory and (ii)
export Licensed Products under any Licensed Trademark to any country
5
<PAGE>
outside of the Licensed Territory (a) where Licensor or any of Licensor's
Affiliates has not, either now or in the future, granted a license to any
other party of any trademarks identical or confusingly similar to any of
Licensed Trademarks, but only during such period or periods when no such
license is in effect or (b) where Licensor or any of Licensor's Affiliates,
either now or in the future, does not directly or indirectly compete, but
only during such period or periods when it is not competing. In the event
Licensee desires to export in accordance with clause (ii) above, Licensee
shall give Licensor sixty (60) days' advance written notice specifying the
country to which exports are planned, the products to be exported and the
name of the purchaser. Licensor shall notify Licensee from time to time
of any countries or territories in which it either has licenses in effect
or in which it competes.
Section 4.2 - Sales by Licensor in Licensed Territory. Except for
-----------------------------------------------------
contract sales permitted in accordance with Section 4.3, Licensor shall not
manufacture, sell, distribute, advertise or promote in, or export to the
Licensed Territory, and, except as set forth in Schedule 4.2, shall not
permit any third party to whom Licensor has granted a license to manufacture,
sell, distribute, advertise, promote or export to the Licensed Territory,
any Licensed Products bearing trademarks identical or confusingly similar
to any of the Licensed Trademarks, or sell or distribute any Licensed
Products or any other products bearing trademarks identical or confusingly
similar to any of the Licensed Trademarks to any person which intends, to
the best knowledge of Licensor or the third party licensee, directly or
through its agents or customers, to export the same to the Licensed Territory.
Notwithstanding the foregoing, Licensor may manufacture Licensed Products
in the Licensed Territory solely for export outside of the Licensed
Territory.
Section 4.3 - Contract Orders. If Licensor or any of its Affiliates or
-----------------------------
other licensees receives inquiries or orders for contract sales of Licensed
Products to be supplied within the Licensed Territory, Licensor shall use
its reasonable efforts to persuade the potential buyer to place the contract
order through Licensee or a Sublicensee. Notwithstanding the foregoing and
anything to the contrary in this Agreement, Licensor shall be permitted to
sell Licensed Products within the Licensed Territory to any international
company or group to which it has sold any Licensed Product in the past.
If Licensor sells to such an international company or group, Licensor shall
pay Licensee a commission equal to five percent (5%) of the invoice price
(calculated on a comparable basis to Net Sales hereunder) with respect to
each such sale.
6
<PAGE>
ARTICLE V
ENFORCEMENT
-----------
Section 5.1 - Unauthorized Use of Licensed Trademarks.
- -----------------------------------------------------
(i) In the event of any actual or suspected unauthorized use of any
Licensed Trademark, Licensee shall be required, at Licensee's sole cost and
expense, to take such action, including bringing a suit against such person,
as may be reasonably required in order to protect fully the Licensed
Trademarks. In addition, Licensee shall consult with Licensor on any
material aspects of any such action taken by Licensee, and Licensor's prior
written consent shall be required for any material action, including without
limitation, the settlement of any material claims, which consent shall not
be unreasonably withheld. In such event, Licensor shall provide any assistance
in the prosecution of such litigation reasonably requested by Licensee and
shall join or permit suit to be brought in its name if necessary to enable
Licensee to prosecute effectively such litigation.
(ii) In the event that any litigation is initiated pursuant to Section
5.1(i), Licensee agrees to pay the Licensor's reasonable out-of-pocket
costs in rendering such cooperation. In any such litigation (or any
litigation arising under Section 5.1 of the Patent and Technology License
Agreement), or any settlement thereof which may be made, payment shall be
made to Licensor, when received by Licensee, of any portion of proceeds of
such litigation or settlement which represents the royalty on lost sales of
Royalty Products that Licensor would have received but for the loss of such
sales.
ARTICLE VI
ROYALTIES AND REPORTS
---------------------
Section 6.1 - Royalty for Trademark License.
- -------------------------------------------
(i) As compensation to Licensor for the Trademark License granted under
Section 2.1, Licensee, for itself and on behalf of each of its Sublicensees
(regardless of whether such Sublicensees have paid Licensee), shall pay to
Licensor, for each Contract Year or partial Contract Year an amount equal
to one-half of one percent (0.5%) of Net Sales of the Royalty Products in
the Licensed Territory during such Contract Year or partial Contract Year.
The period for which such royalties shall be made shall begin on the Effective
Date and end on the date ten (10) years after the Effective Date, after which
time the Trademark License shall continue on a royalty-free basis.
Notwithstanding the foregoing provisions of this Section 6.1(i), Licensee
shall not be required to pay royalties on any Net Sales made from the Effective
Date through December 31,
7
<PAGE>
1992 unless and until Licensor shall demonstrate to Licensee's reasonable
satisfaction that no exports to the Licensed Territory may be made by the
licensees under the license agreements attached hereto as Schedule 4.2
of the licensed products covered by such agreements.
(ii) The royalty payments to be made pursuant to Section 6.1(i) shall
be payable by Licensee (A) in the case of payments relating to sales by
Licensee, within thirty (30) days after the end of Licensee's first
Contract Year, and thereafter within thirty (30) days after the end of
each six (6) month period during the term of this Agreement and (B) in
the case of payments made by Licensee on behalf of any Sublicensee,
within forty-five (45) days after the end of such Sublicensee's first
Contract Year, and thereafter within forty-five (45) days after the end
of each six (6) month period during the term of this Agreement and the
relevant sublicense agreement; provided, that in the event Licensee
--------
fails to pay any royalties payable under this Section 6.1 when due,
Licensee shall pay to Licensor in addition to such royalties, interest
thereon calculated at a per annum rate equal to the sum of (1) five
--- -----
percent (5%) and (2) the per annum rate of interest announced from time
--- -----
to time in New York City by Citibank, N.A. at such time as its prime
commercial lending rate as in effect on each relevant day, for the period
from the date payment is due to the date payment is made. At the time
of payment of such royalties, Licensee shall furnish a royalty statement,
certified to be accurate by Licensee indicating the gross sales and Net
Sales of the Royalty Products sold by Licensee and each Sublicensee, as
applicable, in the Licensed Territory.
Section 6.2 - No Waiver or Estoppel. The rendering of any royalty
-----------------------------------
statement, and/or payment of any royalties shown to be due thereby, shall
not in any event bar, or in any way operate as an estoppel of, Licensor's
rights of examination, inspection and audit, as provided in Article 8,
nor any rights or remedies of Licensor to any additional royalties that may
be found to be due, all of which rights and remedies shall survive and shall
not be deemed to have been waived by any act or omission on the part of
Licensor.
ARTICLE VII
CURRENCY AND TAXES
------------------
All royalties due Licensor hereunder shall be converted, as permitted
by law, from the currency in which Net Sales are calculated in accordance with
instructions given from Licensor to Licensee from time to time. Licensee shall
use its best efforts in assisting Licensor in obtaining the most favorable
exchange rates and in securing all necessary governmental or fiscal
8
<PAGE>
authorizations or licenses to enable it to remit such payments in the currency
designated by Licensor. Licensee shall have the authority to withhold and
pay on Licensor's behalf all applicable income taxes relating to the payment
of royalties hereunder and shall promptly send Licensor all receipts evidencing
such payment.
ARTICLE VIII
EXAMINATION OF BOOKS
--------------------
Licensee shall (and shall cause its Sublicensees to) maintain, for a
period of at least five (5) years after each royalty statement is delivered to
Licensor, such accurate books and records as shall be sufficient to confirm the
number of Royalty Products sold by Licensee (and its Sublicensees) in the
Licensed Territory, and the total royalties due and payable under this
Agreement. Licensee shall (and shall cause its Sublicensees to) permit
reasonable inspection by an independent certified public accountant of such
books and records as may reasonably be required to verify such data. Any
such certified public accountant shall be chosen by Licensor subject to the
reasonable approval of Licensee (or, if applicable, a Sublicensee) and shall
be paid by Licensor. Such certified public accountant shall only verify to
Licensor whether Licensee's (or a Sublicensee's) royalty statements are
correct and, if any such statements are deemed incorrect, such certified
public accountants will report to Licensor the number of Royalty Products
sold in the Licensed Territory by Licensee (or its Sublicensee) during the
period or periods in question and the total royalty properly payable thereon.
Notwithstanding any other provision of this Agreement, should any figure
established by such inspection by such certified public accountant differ by
more than three percent (3%) from the corresponding figure in the royalty
statements furnished Licensor by Licensee (or any Sublicensee) hereunder,
Licensee (or such Sublicensee, as applicable) shall reimburse Licensor for
any and all expenses incurred by Licensor in the course of such inspection.
The accuracy of any royalty payment may not be challenged by Licensor after
expiration of the five-year period during which Licensee (and each Sublicensee)
must maintain books and records sufficient to confirm the accuracy of the
report relating thereto.
ARTICLE IX
GOVERNMENT REGISTRATIONS
------------------------
Section 9.1 - Registration of Licensee in Licensed Territory. Licensee
------------------------------------------------------------
shall register this Agreement, immediately after the Effective Date, with
the Bureau of Technological Development of the Department of Commerce and
Industrial Promotion of the Republic of
9
<PAGE>
Mexico and Licensor agrees to cooperate fully with Licensee to obtain such
registration. The expenses of such registration shall be paid by Licensee.
Section 9.2 - Trademark Maintenance; New Registrations. Licensee shall
------------------------------------------------------
bear full responsibility for all renewals, prosecution and maintenance of the
Licensed Trademarks, and all costs and fees associated therewith. Upon
request, Licensor shall provide necessary assistance in such prosecution and
maintenance, including execution of necessary documents in Licensor's name.
Should Licensee wish to register any marks in the Licensed Territory which
could be considered confusingly similar to any of the Licensed Trademarks, or
which have been or are intended to be used in connection with said Licensed
Trademarks, Licensee will prepare at its own expense corresponding trademark
applications to be executed in the name of Licensor. Upon approval and
execution of such applications by Licensor, Licensee will file and prosecute
said trademark applications at its own cost and expense. Should said
applications result in any registrations effective in the Licensed Territory,
said registrations will be added to Schedule 1.8 and become Licensed
Trademarks.
Regardless of the goods or services involved, Licensee shall not register
in its own name with any government or other official body anywhere in the
world any trademark identical or confusingly similar to any Licensed Trademark,
or any trademark used in conjunction with any Licensed Trademark.
Section 9.3 - Power of Attorney. Licensor agrees to give Licensee, and
-------------------------------
Licensee agrees that it will accept and will cause its attorney to accept, a
power of attorney of Licensor, whereby Licensor authorizes Licensee or its
attorney to carry out any ministerial filings required by this Article IX.
Both parties hereby grant to Messrs. Ignacio Armida Graham, Alberto Sepulveda
de la Fuente, Alberto Sepulveda Cosio, Alejandro Sepulveda de la Fuente,
Miguel Angel Martinez Gomez, Manuel Fernandez Oropeza, Humberto Vivanco
Zamora, Guillermo Uribe Leon, Enrique Villa Fernandez and Juan Carlos Amezcua
Rico, and each of them severally, a special power of attorney in order to
register this Agreement with the National Registry of Transfer of Technology
and with the Bureau of Inventions and Trademarks, including the power to sign
and present any documents required in connection therewith. Both parties will,
and will cause their respective attorneys to, dutifully carry out any
obligation of Licensor pursuant to this Article IX which Licensee, or its
attorney, is legally permitted and authorized by the power of attorney to
carry out.
10
<PAGE>
ARTICLE X
WARRANTIES AND INDEMNIFICATION
------------------------------
Section 10.1 - Trademark Warranties. Licensor represents and warrants
-----------------------------------
to Licensee that, except as set forth in Schedule 10.1, (i) it is the
registered owner of the registered Licensed Trademarks in the Licensed
Territory, free from any liens, claims or encumbrances, and as of the date
of this Agreement, none of the registered Licensed Trademarks has been
registered by Licensor with any government in the Licensed Territory for use
on or in connection with the manufacture, sale, importation, distribution,
advertisement or promotion of any product other than as specified in Schedule
10.1 and none of the registered Licensed Trademarks has been registered by
any third party in the Licensed Territory for use on or in connection with
the manufacture, sale, importation, distribution, advertisement or promotion
of any Licensed Products; (ii) it has the right to enter into this Agreement
and the sole right to grant the Trademark License; (iii) there are no out-
standing assignments, grants, licenses, encumbrances, obligations or
agreements by it or arising as a result of its action relating to the use
of the registered Licensed Trademarks in the Licensed Territory or otherwise
inconsistent with the rights granted Licensee by this Agreement; and (iv)
immediately after the Effective Date, Licensee's use of the registered
Licensed Trademarks in connection with the manufacture, sale, importation,
distribution, advertisement or promotion of Licensed Products in accordance
with the terms of this Agreement does not infringe any right of any person,
firm or corporation under the patent, copyright or trademark laws of the
Licensed Territory.
Section 10.2 - Government Approvals. Licensor further represents that,
-----------------------------------
except for the notification and the registrations referred to in Article IX
hereof, it has made all registrations and filings with, and obtained approvals
of, any government agency necessary in connection with this Agreement.
Section 10.3 - Indemnification. Each party hereto (the "Indemnifying
------------------------------
Party") agrees to indemnify, defend and hold harmless the other party hereto,
any Affiliate thereof and their respective successors, if any, (the
"Indemnified Party"), at any time after the Effective Date, from and against
all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and expenses, which were reasonably
incurred by the Indemnified Party, net of any insurance proceeds received
by the Indemnified Party with respect thereto (all such amounts, net of
insurance proceeds being hereafter referred to collectively as "Damages"),
asserted against, resulting to, imposed upon or incurred by the Indemnified
Party, directly or indirectly,
11
<PAGE>
by reason of or resulting from a breach of any representation or warranty or
any covenant or other agreement of the Indemnifying Party contained in or made
pursuant to this Agreement or any facts or circumstances constituting such a
breach (collectively, "Claims").
Section 10.4 - Damage Limitations and Indemnification Procedure.
---------------------------------------------------------------
(i) Licensor shall be obligated to indemnify Licensee under this
Article X only for the following:
(a) All individual Claims where Damages in respect of such Claims
exceed U.S. One Hundred Thousand Dollars ($100,000); and
(b) For individual Claims where Damages in respect of such Claims
are less than U.S. One Hundred Thousand Dollars ($100,000), only
when all such Claims, when aggregated, exceed U.S. One Hundred
Thousand Dollars ($100,000) and then only to the extent of such
excess.
(ii) In order to be indemnified by Licensor under this Article X,
Licensee shall notify Licensor promptly in writing of any Claim which
it believes may be subject to indemnification hereunder in order to
enable Licensor to adequately determine whether to pay the amount of
Damages or dispute the Claim. Licensor shall, within five (5) business
days after the receipt of such notice, notify Licensee in writing whether
it believes the Claim is subject to indemnification, and, if so, how it
will proceed. If Licensee fails to give Licensor notice mentioned above,
Licensor shall not be obligated to indemnify Licensee with respect to
that Claim. If Licensor either refuses to defend or pay such Claim or
does not notify Licensee as required above, Licensee may pay or defend
the Claim and, if it is subject to indemnification hereunder, request
reimbursement for resulting Damages, which shall be payable by Licensor
within fifteen (15) days after such request.
Section 10.5 - Other Remedies. Nothing in this Article 10 shall be
-----------------------------
construed to limit the non-monetary equitable remedies of either party hereto
in respect of any breach by the other party of any covenant or other agreement
of such other party contained in or made pursuant to this Agreement required to
be performed after the Effective Date.
Section 10.6 - Setoff.
---------------------
(i) In the event Licensor should be required to pay monies with respect
to indemnification to Licensee pursuant to any indemnification provision
of this Agreement, Licensee may set
12
<PAGE>
off the amount owed to Licensee by Licensor in indemnification against any
amounts due to Licensor under this Agreement or against any other amounts
which, at the time, Licensee or any of its Affiliates owes to Licensor.
(ii) In the event Licensee should be required to pay monies with
respect to indemnification to Licensor pursuant to any indemnification
provision of this Agreement, Licensor may set off the amount owed to
Licensor by Licensee in indemnification against any amounts which, at
the time, Licensor or any of its Affiliates owes to Licensee.
Section 10.7 - Due Authorization, Execution and Delivery. This Agreement
--------------------------------------------------------
has been duly authorized, executed and delivered by Licensor and constitutes
a legal, valid and binding obligation of Licensor, enforceable against
Licensor in accordance with its terms. As of the date of this Agreement
there is no action, claim or proceeding pending or, to the knowledge of
Licensor, threatened against Licensor or involving the Licensed Trademarks
which would adversely affect the rights and benefits of Licensee hereunder.
ARTICLE XI
ASSIGNMENT
----------
Subject to the restrictions set forth herein, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. This Agreement, or any rights or
obligations hereunder, may be assigned by either party upon thirty (30)
days' advance written notice to the other party; provided, however, that
-------- -------
Licensee shall not be permitted to assign, directly or indirectly, any of its
rights or obligations hereunder if (i) the proposed assignee's reputation or
market image would seriously damage the quality image of any bedding products
sold by Licensor or any of its Affiliates or licensees outside the Licensed
Territory; (ii) such assignee's financial condition is such that it would
have difficulty in fulfilling Licensee's obligations under this Agreement;
or (iii) such assignee is, at the time of the assignment, a Competitor or
a person whom Licensor or Licensee has determined, after reasonable inquiry,
manufactures mattresses, box springs, innersprings or spring components for
a person who is, at the time of the assignment, a Competitor.
ARTICLE XII
LICENSE AGREEMENT ONLY
----------------------
It is the intention of the parties hereto to enter into a license
agreement only and nothing herein contained shall be construed to regard
the parties hereto as constituting partners or joint venturers, or to
constitute the arrangement herein provided for as a partnership or joint
venture.
13
<PAGE>
ARTICLE XIII
NOTICES
-------
Any and all notices or other writings, which are required to be served,
or which may be served under the provisions of this Agreement, shall be in
writing, and shall be sufficiently served if delivered personally, by
facsimile transmission, telexed or mailed by registered or certified mail
(return receipt registered), postage prepaid or by a reputable overnight
delivery service, to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice; provided,
--------
that notices of a change of address shall be effective only upon receipt
thereof):
To Licensor: Simmons Company
6 Executive Park Drive
Atlanta, Georgia, U.S.A., 30329
Attention: President
Facsimile No.: (404) 325-9785 (U.S.)
Copy to: Despacho Sepulveda, S.C.
Paseo De la Reforma
390 - 16th Floor
Del. Cuauhtemoc
06600 Mexico, D.F.
Attention: Ignacio Armida-Graham
Facsimile No.: (525) 511-9741 (Mex.)
To Licensee: Compania Simmons S.A. de C.V.
Calle Norte 45 No. 1082
Apartado Postal 15-047
Col. Industrial Vallejo
Deleg. Azcapotzalco
2300, Mexico, D.F.
Attention: Director General
Facsimile No.: (525) 567-39-93 (Mex.)
Copy to: Alfa, S.A.
Gomez Morin 1111
Garza Garcia, N.L.
C.P., 66200, Mexico
Attention: Director de Planeacion
Sector Petroquimica
Facsimile No.: (5283) 35 81 35 (Mex.)
If mailed as aforesaid, seven (7) days after the date of mailing shall be
the date notice shall be deemed to have been received unless mailed by
overnight delivery service, in which case notice shall be deemed to have been
received the next business day after delivery to such service.
14
<PAGE>
ARTICLE XIV
AMENDMENT AND MODIFICATION
--------------------------
This Agreement may be amended, modified or supplemented only by written
agreement of the parties hereto.
ARTICLE XV
TERM AND TERMINATION
--------------------
Section 15.1 - Term. The term of this Agreement and the licenses granted
-------------------
hereunder shall commence on the Effective Date and shall continue perpetually,
unless terminated pursuant to, and only by reason of the events described in,
Sections 15.2, 15.3 and 15.7 hereof.
Section 15.2 - Termination for Failure to Pay Royalties.
-------------------------------------------------------
Licensor may terminate this Agreement by giving Licensee written notice thereof
in the event that Licensee shall fail to pay any royalties payable by Licensee
to Licensor pursuant to Section 6.1 hereof when due in accordance with the
terms specified in such Section and such failure continues for fifteen (15)
days after receipt by Licensee of written notice from Licensor of the failure
to make such payment. In the event of a dispute or controversy as to the
amount of royalties, the failure to pay any amount in dispute shall not be
deemed a failure to pay for purposes of this Section 15.2 until fifteen (15)
days after such dispute shall have been resolved in accordance with the
procedures in Article XVI hereof; provided, that any additional royalties
ultimately
--------
determined to be owing shall be treated as not having been paid when due for
purposes of Section 6.1.
Section 15.3 - Other Terminations.
---------------------------------
(i) Licensor may terminate this Agreement by giving Licensee written
notice thereof in the event that Licensee or any of its Affiliates or
Sublicensees breaches any of its obligations set forth in Sections 3.1 or
4.1 of this Agreement, or fails to pay when due any exposes or Damages
required to be paid by any of them in accordance with the terms of this
Agreement, and such breach has not been remedied within sixty (60) days
after receipt by Licensee of written notice from Licensor calling
attention to such breach, specifying the nature thereof and the action
required to correct the breach; provided, however, that in the event of
-------- -------
a termination by Licensor pursuant to a breach of any of the provisions
of Section 3.1, Licensor shall pay Licensee the then fair market value
of the Licensed Trademarks subject to this Agreement as determined by
an independent appraiser selected by the parties or, if the parties
cannot agree, an independent appraiser selected in accordance with
Article XVI.
15
<PAGE>
(ii) This Agreement shall terminate immediately upon the conclusive
appointment of a trustee or receiver for the property of the Licensee by
any Court of Justice, or the petitioning for a declaration of bankruptcy
or insolvency presented by the Licensee, or the judicial declaration of
the state of liquidation of the same, or the general assignment of
property by the Licensee for the benefit of its creditors, shall be
considered to constitute a breach of this Agreement by the Licensee.
In any of the foregoing cases, this Agreement shall terminate solely by
reason of such fact, without the necessity that Licensor bring any other
action.
Section 15.4 - Payment of Royalties After Termination.
-----------------------------------------------------
Termination of this Agreement for any reason shall not release Licensee from
any obligation to pay any royalties accrued and unpaid at the effective date
of such termination nor to pay royalties on the Royalty Products manufactured
prior to termination but sold or used after termination, nor shall such
termination release any party of any part of any obligation accrued prior to
the date of such termination, or obligations continuing beyond termination of
the Agreement.
Section 15.5 - Sales of Inventory After Termination. Upon termination of
---------------------------------------------------
this Agreement, Licensee shall have a period of six (6) months after the date
of termination in which it will use its best efforts to sell off its then
remaining inventory of Royalty Products and shall report to Licensor with
respect to such sales and make the requisite royalty payment, if any, within
thirty (30) days after the end of the aforesaid six-month period. If any good
and merchantable inventory remains unsold by Licensee at the end of such six-
month period, Licensor shall either extend such period or purchase such
inventory from Licensee at (i) the fair market value of the inventory, if
the fair market value is less than Licensee's cost of such inventory or (ii)
the cost of such inventory plus one-half of the difference between the cost and
the fair market value of such inventory, if the fair market value of the
inventory is greater than the cost thereof. All other duties and obligations
of Licensee under this Agreement shall remain in force during the sell-off
period. Within thirty (30) days after termination of this Agreement,
Licensee and each Sublicensee shall deliver to Licensor a statement
indicating the number and description of the Royalty Products which it had
on hand or in the process of manufacturing as of the termination date.
Licensor shall have the option of conducting a physical inventory at the time
of termination and/or at a later date in order to ascertain or verify such
statement. In the event that Licensee refuses to permit Licensor to conduct
such physical inventory, Licensee shall forfeit its rights hereunder to
dispose of such inventory. In addition to such forfeiture, Licensor shall
have recourse to all other remedies available to it.
16
<PAGE>
Section 15.6 - Reversion of Licenses. After the termination of this
------------------------------------
Agreement, all rights granted to Licensee pursuant to the Trademark License
shall forthwith revert to Licensor, who shall be free to license others to
use such rights in connection with the manufacture, sale, distribution,
advertisement, promotion, and exportation of the Licensed Products in the
Licensed Territory and, except as otherwise expressly permitted by this
Agreement, Licensee shall refrain from further use of such rights or any
further reference to them, either directly or indirectly, in connection
with the manufacture, sale, advertisement, promotion, and exportation of
the Licensed Products in the Licensed Territory.
Section 15.7 - Insufficient Use of a Trademark. Licensee agrees that,
----------------------------------------------
in the event any Licensed Trademark registered in the Licensed Territory
shall not have been sufficiently used by Licensee, its Affiliates or
Sublicensees in such country or territory for such a period that under the
applicable laws of the Licensed Territory, Licensor's ownership right to
such Licensed Trademark shall be forfeited or the renewal of the registration
of such Licensed Trademark in the Licensed Territory might be denied by the
relevant authorities, Licenses shall give notice of such fact to Licensor
and Licensor may by written notice terminate the Trademark License with
respect to such Licensed Trademark only and shall thereafter have the right
to use or license others to use such Licensed Trademark in connection with
the manufacture, sale, distribution, advertisement, promotion and exportation
of the Licensed Products in the Licensed Territory. If the failure to renew
such Licensed Trademarks is due to insufficient use by Licensee prior to the
Effective Date, then Licensor shall use its best efforts to obtain a new
registration of such Licensed Trademark with the appropriate authorities in
the Licensed Territory at Licensor's expense and shall include such Licensed
Trademark in Schedule 1.8.
ARTICLE XVI
DISPUTE RESOLUTION AND GOVERNING LAW
------------------------------------
Any claim or dispute arising out of or relating to this Agreement, its
performance or alleged breach, which is not disposed of by agreement of the
parties, shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or more arbitrators
appointed in accordance with the said Rules. In any such arbitration
proceedings, the law of the United Mexican States shall be applicable.
Judgment on or award rendered by the arbitrators may be entered in any court
of competent jurisdiction. If Licensor is the defendant in any such
proceeding, the arbitration shall be conducted in Atlanta, Georgia. If
Licensee is the defendant in any such proceeding, the arbitration shall be
conducted in Mexico City, Mexico.
17
<PAGE>
ARTICLE XVII
INTEGRATION
-----------
This Agreement and all related agreements being executed simultaneously
herewith or by their terms, effective on even date herewith, embody the entire
understanding between the parties relating to the subject matter hereof and
all prior representations or agreements relating to the subject matter hereof
are superseded and replaced by this Agreement as of the date of signing by
both parties.
ARTICLE XVIII
SEVERABILITY
------------
The parties agree that (1) the provisions of this Agreement shall be
severable in the event that any of the provisions hereof are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(2) such invalid, void or otherwise unenforceable provisions shall be
automatically replaced by other provisions which are as similar as possible
in terms to such invalid, void or otherwise unenforceable provisions but are
valid and enforceable and (3) the remaining provisions shall remain enforceable
to the fullest extenet permitted by law.
ARTICLE XIX
CAPTIONS
--------
The titles to the Sections of this Agreement are included herein solely
for convenience, are not a part of this Agreement and do not in any way limit
or amplify the terms of this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the day and year
first above written.
SIMMONS COMPANY
By /s/ Jeffrey J Lewis
--------------------
Jeffrey J. Lewis
Vice President
COMPANIA SIMMONS, S.A. de C.V.
By /s/
---------------------
Its
--------------------
19
<PAGE>
SCHEDULE 1.8
------------
REGISTERED TRADEMARKS - MEXICO
Name Reg. No. Class
- ---- -------- -----
'S' 93715 32 Local
Beautyrest 275,474 32 Local
Conforest* App. #3557 32 Local
Contour-Flex 351528 32 Local
Flexafirm** 279398 32 Local
Hide-A-Bed 105,781 32 Local
Maxipedic 303,681 32 Local
S and House Design 286,831 32 Local
Simmons 27608 32 Local
Slumber King 272,952 32 Local
*Pending - In name of Simmons International Ltd., formerly a wholly-owned
subsidiary of Licensor which was merged into Licensor. Licensor will use
its reasonable efforts to change registered ownership in Licensed Territory
to Licensor's name.
**Currently in name of Simmons Universal Corporation. Licensor will use
its reasonable efforts to obtain legal title in Licensed Territory in
Licensor's name. This trademark is neither material nor necessary to
Licensee's business.
<PAGE>
SCHEDULE 4.2
------------
1. Agreement dated October 30, 1986 between Wickes/Simmons Bedding Ltd.
and Little Folks, Ltd., as amended, which permits export of certain
products listed therein from Canada under certain circumstances.
2. Agreement dated October 30, 1986 between Simmons U.S.A. Corporation,
Simmons Universal Corporation et al., as amended, which permits export
-- --
of certain products listed therein from the U.S. under certain
circumstances.
<PAGE>
SCHEDULE 10.1
-------------
See Schedule 4.2.
See Schedule 1.8.
EXHIBIT 10.59
SUMMARY OF B'LINEA MASTER AGREEMENT
-----------------------------------
Paragraph 1.1 of the Agreement defines "Patents and Patent Applications" as
including U.S. Patents 5,016,305 and 5,126,004 as well as U.S. Patent
Application S.N. 07/864,318 (abandoned ???) and Canadian Patent
Applications Reg. Nos. 2,026,822 and 2,026,817 (current status unknown,
presume still pending, but should request status advice from B'Linea per
Paragraph 1.1)
Paragraph 2 of the Agreement defines "Technology" as "drawings,
specifications and any of the documentation, including computer files,
relating to the Patents and Patent Applications" which are "necessary to
enable Simmons to exploit the Patents and Patent Applications transferred
pursuant to this Agreement"
.
Paragraph 3 of the Agreement defines "Purchase Price":
Under Paragraph 3a, Simmons agreed to pay $ 858,997 for transfer of
the Patents, Patent Applications and Technology as follows:
On or before 1/1/94 - $ 267,667
On or before 1/1/95 - $ 304,930
On or before 1/1/96 - $ 286,400
<PAGE>
Under Paragraph 3b, Simmons agreed to pay $ 200,000 for transfer of
the Canadian Patents (the term "Canadian Patents" does not appear to
be defined in the Agreement, although it seems clear that it is meant
to cover patents issuing from the Canadian Patent Applications
identified in Paragraph 1.1 which have not yet issued) as follows:
If Canadian Patents issue by 1/2/96 - $ 133,333 upon issuance and
$ 66,607 on 1/2/96 + interest at 7% from issue date to 1/2/96
If Canadian Patents issue after 1/2/96 - $ 200,000 upon issuance.
Under Paragraph (3c), any payments not paid when due bear 1.5%
interest per month
Paragraph 6 of the Agreement covers "Invalidity of Patents":
Under Paragraph 6(a) - If all of the U.S. Patents "are invalidated
---- -----------
following a challenge presented to the U.S. Patent Office or a U.S.
court of law by a third party, then B'Linea will refund to Simmons 80%
------------- ---------------------
of all of the paid up portion of the purchase price (sic) ... and
----------------------------------------------------------------------
Simmons is not responsible for 80% of the remaining payments due."
------------------------------------------------------------------
Under Paragraph 6(a) - "If some but not all of the U.S. Patents are
------------------
totally invalidated, then the parties will negotiate in good faith a
--------------------- --------------------------
fair reduction of the 80% portion of the Purchase Price." If the
-------------------------------------
parties cannot agree, then subject to arbitration.
<PAGE>
Under Paragraph 6(b) - If all of the Canadian Patents "are invalidated
----- -----------
following a challenge presented to the Canadian Patent Office or a Canadian
court of law by a third party, then B'Linea will refund to Simmons 20% of
------------- ------------------------
all of the paid up portion of the purchase price (sic) ... and Simmons is
---------------------------------------------------------------------------
not responsible for 20% of the remaining payments due."
-------------------------------------------------------
Under Paragraph 6(b) - "If some but not all of the Canadian Patents are
------------------
totally invalidated, then the parties will negotiate in good faith a fair
---------------------- -------------------------------
reduction of the 20% portion of the Purchase Price." If the parties cannot
-----------------------------
agree, then subject to arbitration.
Under Paragraph 6(c) - "If all of the U.S. patents and if, at the same
-----
time, all of the Canadian patents ... are invalidated following a challenge
------------
presented to the U.S. or Canadian Patent Offices or a U.S. or Canadian
court of law by a third party, then B'Linea will refund to Simmons 100% of
------------- -------------------------
all of the paid up portion of the purchase price (sic) ... and Simmons is
---------------------------------------------------------------------------
not responsible for any of the remaining payments due."
-------------------------------------------------------
Under Paragraph 6(d) - If "some but not all of the Patents" are invalidated
------------------ -----------
or materially narrowed upon a challenge made by a third party in the U.S.
----------------------- -------------
or Canadian Patent Office or a U.S. or Canadian court of law, then the
parties will negotiate in good faith a fair reduction of Purchase Price."
--------------------------------------------------------------
If the parties cannot agree, then subject to arbitration.
<PAGE>
Under Paragraph 6(d) - A primary concern in an arbitration proceeding
under this Agreement "will be the amount of negative impact on
Simmons' sales and lost profits caused by ... invalidation or
narrowing of said Patents."
Paragraph 17 of the Agreement specifies the procedures for carrying out any
"Arbitration" proceedings.
<PAGE>
MASTER AGREEMENT
-----------------
This Agreement is made as of this 7th day of December 1993, between
Simmons Company, a corporation having its principal place of
business at One Concourse parkway, Suite 600, Atlanta, Georgia 30328
"Simmons"), and N.V. B'Linea, a company having its principal place of
business at Beersel (LOT), Belgium ("B'Linea").
1. Rights Transferred.
-------------------
1.1 Subject only to its retained security interest,
B'Linea agrees to assign to Simmons its rights in all U.S. and Canadian
patents and all U.S. and Canadian patent applications (the "Patents and
Patent Applications") held or controlled by B'Linea with regard to a method
and apparatus for producing hot melt bonded pocketed coil constructions,
and products produced by such method and apparatus. B'Linea warrants and
represents that it has the full right, title and interest to the Patents
and Patent Applications and has the unencumbered legal right to transfer
the Patents and Patent Applications without reservation including, except
as stated in paragraph 1.2 below, the reservation of any license for
itself or a third party. The Patents and Patent Applications are
more particularly described as follows:
(a) U.S. Patent No. 5,016,305 to Suenens, filed February 26, 1990,
issued May 21, 1991;
<PAGE>
(b) U.S. Patent No. 5,126,004 to Suenens, filed February 26, 1990,
issued June 30, 1992;
(c) U.S. Patent Application No. 07/864,318 (a divisional of U.S. Patent
Application 484,849, Patent No. 5,126,004) filed April 6, 1992;
(d) Canadian Patent Application Registration No. 2,026,822 filed
October 3, 1990; and
(e) Canadian Patent Application Registration No. 2,026,817 filed
October 3, 1990.
The transfer of the Patents and Patent Applications includes all
related Patents or Patent Applications, which include any continuations,
divisionals, continuations-in-part, or reissues thereof. B'Linea represents
and warrants that the only related Patent or Patent Applications are listed
in paragraph 1.1 (a)-(e) above. Unless Simmons elects at any time to do
so, pending Canadian and U.S. patent applications will be prosecuted by
B'Linea, at B'Linea's reasonable expense, through issuance, if ever.
Simmons will be kept advised of the status of said applications and
will be sent copies of correspondence sent to and received from the
relevant patent office by B'Linea. After issuance, Simmons will attend,
at its expense, to assignment and maintenance of patents issuing from
said applications.
2
<PAGE>
1.2 The transactions contemplated hereby are limited to and will
include only the Patents and Technology as defined herein. Except as
provided in paragraph 1.3 below, Simmons agrees not to sell, transfer,
license, sublicense (or permit the same) the Patents and Patent
Applications and the Technology, as described in Paragraph 2 below, to
anyone for any use outside the United States and Canada produced with the
Patents, Patent Applications or Technology, it being the intention of
the parties that the sale or assignment of the Patents and Patent
Applications and Technology is intended for use solely and exclusively
within the United States and Canada for the duration of the Patents.
However, this in no way restricts the right of Simmons to sell
products anywhere in the world, produced as disclosed in patents held
by Simmons, or produced under technology independently developed by
Simmons.
1.3 Notwithstanding paragraph 1.2, Simmons may sell up to 2,500 units/
year of bedding which would be covered by the Patents sold under this
Agreement, said sales being limited to non-U.S. and Canadian countries
in which B'Linea has no patents which would cover said units. This
2,500 unit/year limitation expires with the Patents in this Agreement
covering said units, at which time Simmons may without restriction make,
use, or sell products or processes anywhere which are not covered by the
Patents. To assist
3
<PAGE>
Simmons in avoiding protected foreign countries, B'Linea will send copies
of foreign patents as they issue.
1.4 This Agreement does not include the sale, license, lease or other
transfer of, or use of, any equipment or machinery (the "Equipment or
Machinery") manufactured or assembled by B'Linea in connection with the
Patents and the Technology. If requested, B'Linea will agree to manufacture
and assemble the Equipment or Machinery (or any components thereof) upon
prices, delivery schedules and other terms to be agreed upon.
1.5 This Agreement does not include any right, express or implied, to
obtain from B'Linea future patents or other technology.
1.6 This agreement does not include a license back to B'Linea of any of
the Patents or Patents issuing from the Patent Applications. This agreement
likewise does not restrict the rights of Simmons to enforce its own
patents.
2. Drawings; Specifications. B'Linea agrees to provide drawings,
-------------------------
specifications and any of the documentation, including computer files,
relating to the Patents and Patent Applications (hereinafter "the
Technology") necessary to enable Simmons to exploit the Patents and Patent
Applications transferred pursuant to this Agreement, and to manufacture,
operate, and maintain the methods and apparatus embodying the Technology.
4
<PAGE>
3. Purchase Price.
---------------
(a) In consideration for the transfer of the
Patents and Patent Applications and Technology, Simmons agrees to pay B
Linea the sum total of $858.997.00 US in three separate payments as set
forth in the following schedule:
On or before 1/1/94 - $267,667.00 = $267,667.00
On or before 1/1/95 - $267,666.00 + $37,263.00 = $304,930.00
On or before 1/1/96 - $267,666.00 + $18,734.00 = $286,400.00
TOTAL $858,997.00
(b) In consideration for the transfer of the Canadian Patents, Simmons
agreed to pay B'Linea the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00)
payable as follows. If the Canadian Patents are issued on or before January
2, 1995, then Simmons will pay immediately one-third of the Purchase Price
(i.e., $67,667.00). The principal balance of $133,333.00 will then be paid
on January 2, 1995 and January 2, 1996 in two equal installments plus
interest at the rate of seven percent (7%) per annum from the date of
issuance until the date of payment of the unpaid balance. If the Canadian
Patents are issued after January 2, 1995 and before January 2, 1996, then
upon issuance, Simmons will pay two-thirds (i.e., $133,333.00) of the
Purchase Price and the unpaid balance of one-third ($66,607.00) will be
paid on
5
<PAGE>
January 2, 1996 together with interest at the rate of seven percent
(7%) from the date of issuance until January 2, 1996.
If the Canadian Patents are issued after January 2, 1996, then the full
amount of the Purchase Price ($200,000.00) will be paid immediately upon
issuance.
(c) Any payments for the U.S. Patents, Patent Applications and
Technology or for the Canadian Patents not made when due shall bear
interest at the rate of one and one-half percent (1-1/2%) per month.
4. Payment Instructions. Transfer of said funds shall be made by
-----------------------
wire transfer in US dollars for B'Linea to the following account:
Doffermyre, Shields, Canfield
& Knowles Trust Account
Suite 1600
1355 Peachtree Street
Atlanta, Georgia 30309
Wiring instructions will be telecopied to Simmons, attention J. Peterkin,
at least two (2) business days prior to the date for the payment due.
5. Purchase Money Security Interest. Contemporaneous with the
-------------------------------------
execution of this Agreement, Simmons and B'Linea shall execute an
Assignment, a Security Agreement and a Financing Statement in the form
attached as Exhibits A-1, A-2 and A-3 respectively, making the assignments
contemplated hereby while
6
<PAGE>
granting to B'Linea a perfectible security interest in the Patents and
Patent Applications and Technology to secure the unpaid balance of the
Purchase Price and any other sums that Simmons may owe to B'Linea.
6. Invalidity of Patents.
----------------------
(a) If all of the U.S. patents transferred from B
Linea to Simmons pursuant to this Agreement are invalidated following a
challenge presented to the U.S. Patent Office or a U.S. court of law by a
third party, then B'Linea will refund to Simmons 80% of all of the paid-up
portion of the purchase price set forth herein, and Simmons is not
responsible for 80% of the remaining payments due. If some but not all of
the U.S. Patents are totally invalidated, then the parties will negotiate
in good faith a fair reduction of the 80% portion of the Purchase Price. If
the parties cannot agree upon a fair reduction of the Purchase Price, then
the decision as to the amount by which the Purchase Price shall be adjusted
shall be submitted to arbitration in accordance with paragraph 17 below.
(b) If all of the Canadian patents transferred from B'Linea to Simmons
pursuant to this Agreement are invalidated following a challenge presented
to the Canadian Patent Office or a Canadian court of law by a third party,
then B'Linea will refund to Simmons 20% of all of the paid-up portion of
the purchase price set
7
<PAGE>
forth herein, and Simmons is not responsible for 20% of the remaining
payments due. If some but not all of the Canadian Patents are totally
invalidated, then the parties will negotiate in good faith a fair reduction
of the 20% portion of the Purchase Price. If the parties cannot agree upon
a fair reduction of the Purchase Price, then the decision as to the amount
by which the Purchase Price shall be adjusted shall be submitted to
arbitration in accordance with paragraph 17 below.
(c) If all of the U.S. patents and if, at the same time, all of the
Canadian patents transferred from B Linea to Simmons pursuant to this
Agreement are invalidated following a challenge presented to the U.S. or
Canadian Patent Offices or a U.S. or Canadian court of law by a third
party, then B Linea will refund to Simmons 100% of all of the paid-up
portion of the purchase price set forth herein, and Simmons is not
responsible for any of the remaining payments due.
(d) In the event the U.S. or Canadian Patent Office or a U.S. or
Canadian court of law, upon a challenge made by a third party, invalidates
some, but not all, of the Patents, or if any of the Patents are materially
narrowed, then the parties will negotiate in good faith a fair reduction of
the Purchase Price. If the parties cannot agree, then the decision as to
the amount by
8
<PAGE>
which the Purchase Price should be adjusted shall be submitted to
arbitration in accordance with paragraph 17 below.
In the Event of arbitration due to invalidity or narrowing of patent
coverage, a primary concern will be the amount of negative impact on
Simmons' sales and lost profits caused by said invalidation or narrowing of
said Patents.
7. No Invalidating Claims. No invalidating claims have been made
-------------------------
with regard to any of the Patents and Patent Applications. B Linea
represents and warrants that no arguments or positions have been taken by
any third party to the effect that any of the patents transferred pursuant
to this agreement are invalid.
8. Technical Support. Upon request by Simmons and pursuant to
--------------------
reasonable notice, B Linea agrees to provide technical personnel for up to
thirty days per year, in no more than three blocks of ten days (or less)
separated by at least thirty days, to enable Simmons to build, commission,
adjust, and maintain the assembly machine disclosed by the Patents and
Patent Applications transferred pursuant to this Agreement. B Linea shall
also impart to Simmons, on a strictly confidential basis, any trade secrets
related to the design, functioning and production operation of said
machine. If such assistance requires any of B Linea technical personnel to
travel to the U.S., Simmons shall reimburse B Linea
9
<PAGE>
for out-of-pocket costs such as travel expenses and lodging incurred by B
Linea during said assistance.
9. Inspection of Machinery. Upon request by Simmons and pursuant to
--------------------------
reasonable notice, Simmons may make a visit to the B Linea plant in
Brussels at Simmons' expense to inspect and learn about the machines to
which the Patents and Patent Applications relate. There shall be no fee for
such an inspection.
10. Action Against Toledo. Simmons and B Linea may decide to take legal
-----------------------
action against Toledo Spring, a Danish entity, to prevent the sale of hot
melt bond pocketed coil constructions produced on assembly equipment
similar to B Linea machines, in European markets for which B Linea has
patent protection. Any decision to take such action shall be made jointly
with litigation expenses and damages awarded to be shared equally between
Simmons and B Linea. Litigation expenses include all litigation-related
attorney's fees incurred by either Simmons or B Linea, as well as out-of-
pocket expenses incurred by said attorneys such as court costs and
transcription fees. If such action is required to be brought in the name of
B Linea, B Linea shall lend its name to such action.
11. Notices. Any payment, statement, notice, request or other
----------
communication hereunder shall be deemed sufficiently given to the addressee
when sent by certified mail to the address for each
10
<PAGE>
respective party specified below in this paragraph, or to such other
address of which one party may provide written notice to the other during
the term of this Agreement.
If to Simmons:
Simmons Company
Attn: Legal Department
One Concourse Parkway
Suite 600
Atlanta, Georgia 30328
If to B Linea:
Jacques Vanderstappen
N.V. B Linea
Huysmanslaan 107
B-1660 Beersel (LOT)
Belgium
With a copy to:
Everette L. Doffermyre
Doffermyre, Shields, Canfield & Knowles
1355 Peachtree Street
Suite 1600
Atlanta, Georgia 30309
12. Interest. Time is of the essence of this Agreement.
--------
Any payments not paid when due shall bear interest at the rate of one and
one-half percent (1-1/2%) per month until paid.
13. No Waiver. No waiver of any default, expressed or implied, made by
---------
either party hereto shall be binding upon the party making such waiver in
the event of a subsequent default.
14. Effective Date. The effective date of this Agreement is the
--------------
date of execution by both parties.
11
<PAGE>
15. Confidentiality. Contemporaneous with the execution of this
---------------
Agreement, the parties shall execute a Confidentiality Agreement in the
form attached as Exhibit B.
16. Further Cooperation. The parties agree to take such further action
-------------------
and to execute such additional documents as may be reasonably necessary to
effectuate the intent of this Agreement and the transactions covered
hereby.
17. Arbitration. Any dispute concerning the performance or non-
-----------
performance of any provision in this agreement shall be resolved by
arbitration held in Atlanta, Georgia, USA. Such arbitration shall be
conducted on simultaneous written submissions to a single, neutral
arbitrator followed by a hearing, lasting no more than two (2) days, before
said arbitrator. The selection of the arbitrator and the arbitration itself
shall be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. The arbitrator's fees and the
prevailing party's fees shall be paid by the non-prevailing party.
18. Controlling Law. The construction and performance of this Agreement
---------------
shall be governed by the laws of the State of Georgia and the United States
of America.
19. Entire Agreement. This Agreement, including the Assignment,
----------------
Security Agreement, Financing Statement and Confidentiality Agreement
attached hereto as Exhibit A-1 through A-
12
<PAGE>
3 and Exhibit B, sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and merges all prior
discussions between them, and neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein, or
in any written agreement between the parties executed subsequent to the
date of execution hereof, and signed by a proper duly authorized
representatives of the party to be bound thereby.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on
the respective dates entered below.
SIMMONS COMPANY
By: /s/ Joseph Ulicny
--------------------------------------------
Title: EXECUTIVE V.P. FINANCE/ADMINISTRATION
--------------------------------------
Date: 12-7-93
---------------------------------------
N.V. B Linea
By: /s/
--------------------------------------------
Title: GENERAL MANAGER/ADMINISTRATOR
--------------------------------------
Date: 12-13-93
--------------------------------------
13
<PAGE>
CONFIDENTIALITY AGREEMENT
-------------------------
This Agreement is made as of the 7th day of December, 1993,
between B'Linea, a Company having its principal place of business at
Beersel (LOT), Belgium ("B'Linea" or the "Disclosing Party") and Simmons
Company, a corporation having its principal place of business
at One Concourse Parkway, Suite 600, Atlanta, Georgia 30328 ("Simmons" or
the "Recipient").
W I T N E S S E T H
-------------------
WHEREAS the Disclosing Party owns certain U.S. and Canadian patents and
patent applications (the "Patents and Patent Applications") pertaining to a
method and apparatus for producing hot melt bonded pocketed coil
constructions and related products; and
WHEREAS the Disclosing Party and the Recipient are entering into a
Master Agreement, an Assignment and a Security Agreement (the
"Agreements") contemporaneously with this Confidentiality Agreement,
pursuant to which B'Linea will assign its right, title and interest in the
Patents and Patent Applications in the United States and Canada to Simmons;
and
WHEREAS the Agreements contemplate the disclosure of proprietary and
confidential information (the "Confidential Information") including, but
not limited to: (i) drawings, specifications, documentation and computer
files relating directly to the Patents and Patent Applications; (ii)
certain technology and
<PAGE>
know how; (iii) technical assistance, both oral and documentary, pertaining
to the design, construction, functioning, adjustment and maintenance of the
assembly machine disclosed by the Patents and Patent Applications; and (iv)
other information intended to assist the Recipient in realizing the full
value of the Patents and Patent Applications, and
WHEREAS the Disclosing Party is willing to assign the Patents and
Patent Applications only if the Recipient ensures that the confidentiality
of such Information is preserved and protected as set forth below,
NOW, THEREFORE, in consideration of the assignment of the Patents and
Patent Applications, the disclosing of the Confidential Information, and
the Disclosing Party's reliance on the Recipient's undertakings herein, the
parties agree as follows:
1. Confidentiality
---------------
Recipient will not disclose, communicate or publish
Confidential Information to any person or entity except as specifically
provided in this agreement. Confidential information does not include
information previously known or developed by the recipient, or information
in the public domain. Recipient's obligation to maintain the
Confidential Information shall continue in perpetuity, unless otherwise
agreed to by the Disclosing Party; provided, however, Recipient shall have
no obligation to maintain
-2-
<PAGE>
the confidentiality of any given item of Confidential Information which has
become part of the public domain other than through the acts, omissions or
fault (direct or indirect), of Recipient. If Confidential Information is in
written form, such writings shall be marked "Confidential" or "Secret" (or
similarly) by Disclosing Party. If Confidential Information is disclosed
orally, Disclosing Party shall at the time of such disclosure advise
Recipient as to the confidential nature of such disclosure. Recipient
agrees to promptly notify the Disclosing Party of any unauthorized use or
disclosure of the Confidential Information, and to take prompt and
effective steps to prevent a recurrence of such use or disclosure. Such
notification and correction will not preempt or waive the Disclosing
Party's right to pursue other remedies for unauthorized use of the
Confidential Information, as provided in paragraph three (3) below.
2. Need-to-Know Disclosure
-----------------------
Disclosing Party will disclose Confidential Information on a need-to-
know basis. Recipient will only disclose the Confidential Information to
its employees on a need-to-know basis. In no event will Recipient disclose
the Confidential Information to any third party without the Disclosing
Party's prior written consent. Recipient shall immediately advise its
employees and others to whom the Confidential Information is disclosed of
their
-3-
<PAGE>
strict secrecy obligations under this agreement. Recipient shall take all
necessary steps to insure that the confidentiality of the Information is
securely maintained and that the Confidential Information is used only as
permitted in this Agreement.
3. Remedies
--------
Recipient acknowledges that failure to perform its obligations and
undertakings pursuant to this agreement may result in irreparable injury to
Disclosing Party. Accordingly, Recipient agrees that, in addition to
remedies otherwise available, its obligations and undertakings may be
enforced by an order of specific performance, by restraining
order, and/or by injunction.
4. Notices
-------
Any notice, request or other communication hereunder shall be deemed
sufficiently given to the addressee when sent by certified mail to the
address for each respective party specified below in this paragraph, or to
such other address of which one party may provide written notice to the
other during the term of this Agreement.
If to Recipient:
Simmons Company
Attn: Legal Department
One Concourse Parkway
Suite 600
Atlanta, Georgia 30328
-4-
<PAGE>
If to Disclosing Party:
Jacques Vanderstappen
N.V. B Linea
Huysmanslaan 107
B-1660 Beersel (LOT)
Belgium
With a copy to:
Everette L. Doffermyre
Doffermyre, Shields, Canfield & Knowles
1355 Peachtree Street
Suite 1600
Atlanta, Georgia 30309
5. No Waiver
---------
No waiver of any default, expressed or implied, made by either party
hereto shall be binding upon the party making such
waiver in the event of a subsequent default.
6. Effective Date
--------------
The effective date of this Agreement is the date of execution by both
parties.
7. Arbitration
-----------
Any dispute concerning the performance or non-performance of any
provision in this agreement shall be resolved by arbitration held in
Atlanta, Georgia, USA. Such arbitration shall be conducted on
simultaneous written submissions to a single, neutral arbitrator followed
by a hearing, lasting no more than two (2) days, before said arbitrator.
The selection of the arbitrator and the
-5-
<PAGE>
arbitration itself shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator's
fees and the prevailing party's fees shall be paid by the non-prevailing
party.
8. Controlling Law
---------------
The construction and performance of this Agreement shall be governed by
the laws of the State of Georgia and the United States of America.
9. Entire Agreement
----------------
This Agreement sets forth the entire agreement and understanding
between the parties as to the confidentiality of information pertaining to
the Patents and Patent Applications and merges all prior discussions
between the parties. Neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to the Confidential Information other than as expressly provided
herein, or in any written agreement between the parties executed subsequent
to the date of execution hereof, and signed by a proper duly authorized
representatives of the party to be bound thereby.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on
the respective dates entered below.
-6-
<PAGE>
SIMMONS COMPANY
By: /s/ Joseph Ulicny
-------------------------------------------
Title: EXECUTIVE VP-FINANCE/ADMINISTRATION
-----------------------------------
Date: 12-7-93
-----------------------------------
N. V. B'Linea
By: /s/
-------------------------------------------
Title: GENERAL MANAGER, ADMINSTRATOR
------------------------------------
Date: 12-13-93
-------------------------------------
-7-
<PAGE>
6. Schedule of Covered Collateral
(a) U.S. Patent No. 5,016,305, issued to Suenens on May 21, 1991.
(b) U.S. Patent No. 5,126,004, issued to Suenens on June 30, 1992.
(c) U.S. Patent Application No. 07/864,318 (a division of U.S.
Patent Application 484,489, Patent No. 5,126,004) filed April
6, 1992.
(d) Canadian Patent Application Registration No. 2,026,822, filed
October 3, 1990.
(e) Canadian Patent Application Registration No. 2,026,817, filed October
3, 1990.
(f) All Patents and Patent Applications related to those specified above,
including any continuations, divisions, continuations-in-part or
reissues thereof.
<PAGE>
[LOGO]
December 30, 1993
Daniel H. Popky
Arthur Andersen & Co.
133 Peachtree Street NE
Atlanta, Georgia 30303-1846
Dear Dan:
Simmons Company entered into a transaction with NV B Linea (B Linea)
regarding the purchase of certain patent rights. I have attached all
information available to me regarding the transaction; such information
includes the Master Agreement, Assignment, Security Agreement and
Confidentiality Agreement.
The transaction, in essence, involves the purchase of certain US Patents
and Patent Applications for the amount of $803,000 and the purchase of
certain Canadian Patents and Patent Applications for the amount of $200,000
(note that section 3(b) of the Master Agreement seems to imply purchase
amounts of $201,000, $199,940 and $200,000 depending upon the issue date of
the Canadian patents; these may be drafting errors). These payments are
paid over a period of time as outlined in the agreements.
In accounting for this transaction, it would appear that the patents would
be recorded in the financial statements as assets at their cost and
amortized over their remaining life. A liability would be recorded for
amounts payable under the agreements.
Accordingly, patents would be recorded for $1,003,000 and a liability would
be recorded for $1,003,000. Amounts paid in excess of $1,003,000 would be
recorded as interest expense. Patent amortization expense would be recorded
each year based upon the remaining life of the patent. Cost allocated to
the patent applications would not be amortized until such time as an actual
patent is issued.
As of this date, two US patents have been issued, one US patent application
is outstanding and two Canadian patent applications are outstanding. To my
knowledge, no specific purchase price allocation was made to the patents or
patent applications; absent additional information, I suggest that the US
patents and patent application be allocated each one-third of the $803,000
purchase price and the Canadian patent applications be allocated each one-
half of the $200,000 purchase price. As things now stand, allocated cost
and amortization would be as follows:
Allocated Monthly
Cost Amortization
US Patent # 5016305 $267,667 $1,547
US Patent # 5126004 $267,667 $1,439
US Patent Application $267,666 $0
Canadian Patent Applications $200,000 $0
<PAGE>
Dan Popky
December 30, 1993
Please review the attached documents and determine that our accounting for
the transaction is correct. Please call me if you have any questions or
require further information.
Sincerely,
/s/ Roger Franklin
Roger W. Franklin
Vice President, Treasurer
Enclosures -
cc: Joe Ulicny (w/o encl.)
John Peterken (w/o encl.)
George Freyre
Karen Garrett
Beth Eaton
EXHIBIT 10.60
ASSIGNMENT
----------
1. Assiqnment
----------
For Good and Valuable Consideration, N.V. B'Linea, a
company, having its principal place of business at Beersel (LOT), Belgium
("B'Linea"), does hereby sell, assign and transfer to Simmons Company, a
corporation having its principal place of business at One Concourse
Parkway, Suite 600, Atlanta, Georgia 30328 ("Simmons"), all of its right,
title and interest, together with all rights of priority, in and to the
following Patents and Patent Applications, except as provided in paragraph
2:
(a) U.S. Patent No. 5,016,305 issued to Suenens on May
21, 1991;
(b) U.S. Patent No. 5,126,004 issued to Suenens on June
30, 1992;
(c) U.S. Patent Application No. 07/864,318 (a division
of U.S. Patent Application 484,849, Patent No.
5,126,004) filed April 6, 1992;
(d) Canadian Patent Application Registration No. 2,026,822,
filed October 3, 1990; and
(e) Canadian Patent Application Registration No. 2,026,817,
filed October 3, 1990.
The assignment of the Patents and Patent Applications includes all related
patents or patent applications, including any continuations,
divisions,
continuations-in-part or re-issues thereof. B'Linea represents
and warrants that the only related patent or patent applications are
listed in (a)-(e) above.
2. B'Linea's Retained Security Interest
------------------------------------
This Assignment is subject to the condition subsequent that Simmons pay
in full the consideration for the Assignment set forth in the main
Agreement (the "Agreement") between the parties
<PAGE>
executed of even date herewith, and that such payment be made in accordance
with the schedule set forth in the Agreement. In order to secure Simmons'
compliance with the amount and schedule of payments, B'Linea retains a
security interest in the Patents and Patent Applications, as more fully set
forth in the Security Agreement executed of even date herewith.
3. Authorization to Issue Letters Patent to Assignee
-------------------------------------------------
B'Linea hereby authorizes and requests the Commissioner
of Patents and Trademarks of the United States and the Canadian Patent
Office to issue any and all Letters of Patent of the United States and
Canada resulting from any of the Patent Applications described in this
Assignment to Simmons, as sole assignee.
2. Relation to Agreement
---------------------
This Assignment is subordinate to the Master Agreement
and contains only those terms of the Agreement necessary to effect a
legally valid assignment for purposes of recordation under the patent laws
of the United States and Canada. It is not intended to confer fewer rights
or impose more minimal obligations than the rights and obligations
contained in the Master Agreement. In the event that any person or court
perceives a conflict between the terms of this Assignment and the terms of
the Master Agreement, the terms of the Master Agreement shall control as
reflecting the true intention of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on
the respective dates entered below.
-2-
<PAGE>
N.V. B'Linea
By: /s/
---------------------------------
Title: GENERAL MANAGER/ADMINISTRATOR
------------------------------
Date:
-------------------------------
Simmons Company
By: /s/
------------------------------------------
Title: EXECUTIVE V.P. FINANCE/ADMINISTRATION
--------------------------------------
Date: 12-7-93
---------------------------------------
-3-
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF Georgia
SS:
COUNTY OF Cobb
On this 7th day of December, 1993 personally appeared before me
Joseph U[?] to me known, and known by me to be the same person described
in and who executed the foregoing instrument, and acknowledged that he
executed the same, of his own free will and for the purposes set forth.
/s/ Norma W. Wood
----------------------------------------
Notary Public of Consular Officer
of the United States of America
Notary Public, Cobb County, Georgia
My Commission Expires August 7, 1994
STATE OF ______________
SS:
COUNTY OF _____________
On this 13th day of December 1993, personally appeared before me Jacques
Vanderstappen to me known, and known by me to be the same person described in
and who executed the foregoing instrument, and acknowledged that he executed the
same, of his own free will and for the purposes set forth.
/s/ Ernest J. Fischer, II
----------------------------------------
Consular Officer of the United States of
America
Commission Expiration date: not applicable
-4-
EXHIBIT 10.61
SECURITY AGREEMENT
------------------
AGREEMENT made this 7th day of December, 1993, by and between N.V.
B'Linea, a company, having its principal place of business at Beersel
(LOT), Belgium (hereinafter referred to as "Secured Party") and Simmons
Company, a corporation having its principal place of business at One
Concourse Parkway, Suite 600, Atlanta, Georgia 30328 (hereinafter
referred to as "Debtor").
WHEREAS the parties have entered into an Agreement and an Assignment,
executed of even date herewith, whereby the Debtor is obligated to make
certain payments to the Secured Party in consideration of the Secured
Party's assignment to the Debtor of certain Patents and Patent
Applications, described below.
WHEREAS the Secured Party desires to retain a purchase money security
interest in the Patents and Patent Applications, and the Debtor is willing
to grant such a security interest.
IT IS THEREFORE, AGREED:
1. The Debtor hereby grants to the Secured Party a purchase money
security interest in the following Patents and Patent Applications that
the Secured Party has assigned to Debtor:
(a) U.S. Patent No. 5,016,305, issued to Suenens on
May 21, 1991;
(b) U.S. Patent No. 5,126,004, issued to Suenens on
June 30, 1992;
(c) U.S. Patent Application No. 07/864,318 (a division of U.S.
Patent Application 484,489, Patent No. 5,126,004) filed
April 6, 1992;
<PAGE>
(d) Canadian Patent Application Registration No. 2,026,822,
filed October 3, 1990; and
(e) Canadian Patent Application Registration No. 2,026,817,
filed October 3, 1990.
The Secured Party's security interest in the Patents and Patent
Applications extends and attaches to all related Patent and Patent
Applications, which include any continuations, divisions, continuations-in-
part or reissues thereof.
2. The purchase money security interest granted herein secures the
Debtor's obligation to pay to the Secured Party the consideration
specifically set forth in the Agreement of even date herewith, including
the Debtor's obligation to pay according to the schedule set forth in the
Agreement.
3. In the event that the Debtor defaults in the payment of
consideration according to the schedule set forth in the Agreement, then
the Secured Party shall be entitled to any and all remedies available under
the Uniform Commercial Code in force in the State of Georgia as of the date
of default.
4. In the event that the Debtor breaches any term of the Agreement
or Assignment executed of even date herewith, the Secured Party's remedies
shall include, without limitation, recision of the Assignment, recovery of
full title to the Patents
-2-
<PAGE>
and Patent Applications, and the termination of the Debtor's rights in and
title to the Patents and Patent Applications.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on
the respective dates entered below.
N.V. B'Linea
By: /s/
------------------------------------
Title:GENERAL MANAGER, ADMINISTRATION
------------------------------
Date: 12-13-93
-------------------------------
Simmons Company
By: /s/
------------------------------------------
Title: EXECUTIVE VP FINANCE/ADMINISTRATION
------------------------------------
Date: 12-7-93
-------------------------------------
-3-
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF Georgia
SS:
COUNTY OF Cobb
On this 7th day of December 1993 personally appeared before me
Joseph Ulicny to me known, and known by me to be the same person
described in and who executed the foregoing instrument, and acknowledged
that he executed the same, of his own free will and for the purposes set
forth.
/s/ Norma H. Wood
-----------------------------------------
Notary Public of Consular Officer
of the United States of America
Notary Public Cobb County, Georgia
My Commission Expires August 7, 1994
KINGDOM OF BELGIUM
STATE OF BRUSSELS
SS:
EMBASSY OF THE UNITED
STATES OF AMERICA
On this 13th day of December 1993 personally appeared before me
Jacques Vanderstappen to me known, and known by me to be the same person
described in and who executed the foregoing instrument, and acknowledged
that he executed the same, of his own free will and for the purposes set
forth.
/s/ Ernest J. Fischer, II
----------------------------------------
Notary Public of Consular Officer
of the United States of America
Commission expiration date: not
applicable
-4-
Exhibit 21
SUBSIDIARIES OF SIMMONS COMPANY
1. DOMESTIC SUBSIDIARIES
A. SIMMONS INTERNATIONAL HOLDING COMPANY, A NEW YORK CORPORATION.
2. FOREIGN SUBSIDIARIES
A. SIMMONS CARRIBEAN BEDDING, INC., A PUERTO RICO CORPORATION.
B. INFO ESTABLISHMENT, A LIECHTENSTEIN CORPORATION.
C. SIMMONS I.P., INC., AN ONTARIO, CANADA CORPORATION.
D. 668363 ONTARIO LIMITED, AN ONTARIO, CANADA CORPORATION.
E. 897701 ONTARIO LIMITED, AN ONTARIO, CANADA CORPORATION.
Exhibit 23.1
Coopers & Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-04841) 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
July 12, 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
July 12, 1996
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of a
Trustee Pursuant to Section 305(b)(2) ___
SUNTRUST BANK, ATLANTA
(Exact name of trustee as specified in its charter)
Georgia Banking Corporation 58-0466330
(Jurisdiction of incorporation or organization (I.R.S. employer
if not a U.S. national bank) identification no.)
25 Park Place, N.E.
Atlanta, Georgia 30303
(Address of principal executive offices) (Zip Code)
Bryan Echols
SunTrust Bank, Atlanta
58 Edgewood Ave., N.E.
Suite 400A
Atlanta, Georgia 30303
(404) 588-7813
(Name, address and telephone number of agent for service)
-------------------------
Simmons Company
(Exact name of obligor as specified in its charter)
Delaware 06-1007444
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
One Concourse Parkway
Suite 600
Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)
-------------------------
10-3/4% Senior Subordinated Notes Series A due 2006
(Title of the indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
(a) Name and address of each examining or supervising
authority to which it is subject.
Department of Banking and Finance
State of Georgia
Atlanta, Georgia
Federal Reserve Bank of Atlanta
104 Marietta Street, N.W.
Atlanta, Georgia
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
Item 2. Affiliations with Obligor.
None.
Item 3. Voting Securities of the Trustee.
Not applicable.
Item 4. Trusteeships under Other Indentures.
Not applicable.
Item 5. Interlocking Directorates and Similar Relationships
with the Obligor or Underwriters.
Not applicable.
Item 6. Voting Securities of the Trustee Owned by the Obligor
or its Officials.
Not applicable.
<PAGE>
Item 7. Voting Securities of the Trustee Owned by Underwriters
or their Officials.
Not applicable.
Item 8. Securities of the Obligor Owned or Held by the Trustee.
Not applicable.
Item 9. Securities of Underwriters Owned or Held by the
Trustee.
Not applicable.
Item 10. Ownership or Holdings by the Trustee of Voting
Securities of Certain Affiliates or Security Holders
of the Obligor.
Not applicable.
Item 11. Ownership or Holdings by the Trustee of any Securities of
a Person Owning 50 Percent or More of the Voting Securities of
the Obligor.
Not applicable.
Item 12. Indebtedness of the Obligor to the Trustee.
Not applicable.
Item 13. Defaults by the Obligor.
(a) Whether there is or has been a default with
respect to the securities under this indenture.
There is not and has not been any such default.
(b) If the trustee is a trustee under another
indenture under which any other securities, or
certificates of interest or participation in any
other securities, of the obligor are outstanding,
or is trustee for more that one outstanding
series of securities under the indenture, state
whether there has been a default under any such
indenture or series.
There has not been any such default.
Item 14. Affiliations with the Underwriters.
Not applicable.
-2-
<PAGE>
Item 15. Foreign Trustee.
Not applicable.
Item 16. List of Exhibits.
The additional exhibits listed below are filed herewith; exhibits, if
any, identified in parentheses are on file with the Commission and are
incorporated herein by reference as exhibits hereto pursuant to Rule 7a-29 under
the Trust Indenture Act of 1939, as amended, and Rule 24 of the Commission's
Rules of Practice.
Exhibit
Number
1 - A copy of the Articles of Amendment and Restated
Articles of Incorporation as now in effect. (Exhibit 1
to Form T-1, Registration No. 33-63523.)
2 - A copy of the certificate of authority of the Trustee
to commence business. (Included in Exhibit 1.)
3 - A copy of the authorization of the Trustee to exercise
trust powers. (Included in Exhibit 1.)
4 - Bylaws of the Trustee. (Included in Exhibit 4 to Form
T-1, Registration No. 33-49283.)
5 - Not applicable.
6 - Consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939, as amended.
7 - Latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising
or examining authority as of the close of business on
March 31, 1996.
8 - Not applicable.
9 - Not applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, SunTrust Bank, Atlanta, a Georgia corporation, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Atlanta and the State
of Georgia, on the 23rd day of May, 1996.
SUNTRUST BANK, ATLANTA
By: /s/ Bryan Echols
-------------------------------
Bryan Echols
Vice President
-4-
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issue of 10-3/4% Senior
Subordinated Notes Series A due 2006 by Simmons Company, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
SUNTRUST BANK, ATLANTA
By: /s/ Bryan Echols
-------------------------------
Bryan Echols
Vice President
Dated: May 23, 1996
-5-
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
SUNTRUST BANK, ATLANTA
(FORMERLY TRUST COMPANY BANK)
of Atlanta, Georgia and Foreign and Domestic subsidiaries, at the close of
business, March 31, 1996, a state banking institution organized and operating
under the banking laws of this state and a member of the Federal Reserve System.
Published in accordance with a call made by the State Banking Authorities.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........................................................... $ 826,297
Interest-bearing balances.................................................................................... 4,037
Securities:
Held-to-maturity securities.................................................................................. 0
Available-for-sale securities................................................................................ 2,581,557
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:
Federal funds sold........................................................................................... 414,050
Securities purchased under agreements to resell.............................................................. 0
Loans and lease financing receivables:
Loans and leases, net of unearned income................................... 7,576,524
LESS: Allowance for loan and lease losses................................. 130,038
LESS: Allocated transfer risk reserve..................................... 0
Loans and leases, net of unearned income, allowance, and reserve............................................. 7,446,486
Assets held in trading accounts....................................................................................... 10,123
Premises and fixed assets (including capitalized leases).............................................................. 87,702
Other real estate owned............................................................................................... 3,680
Investments in unconsolidated subsidiaries and associated companies................................................... 12,664
Customers' liability to this bank on acceptances outstanding.......................................................... 326,276
Intangible assets..................................................................................................... 20,611
Other assets.......................................................................................................... 139,954
-----------
Total assets.......................................................................................................... $11,873,437
===========
LIABILITIES
Deposits:
In domestic offices................................................................................................... $5,879,130
Noninterest-bearing........................................................ 2,025,404
Interest-bearing........................................................... 3,853,726
In foreign offices, Edge and Agreements subsidiaries and IBFs......................................................... 811,990
Noninterest-bearing........................................................ 0
Interest-bearing........................................................... 811,990
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:
Federal funds purchased...................................................................................... 2,223,689
Securities sold under agreements to repurchase............................................................... 46,654
Demand Notes.......................................................................................................... 0
Trading Liabilities................................................................................................... 57
Other borrowed money
With a remaining maturity of one year or less................................................................ 49,626
With a remaining maturity of more than one year.............................................................. 2,497
Mortgage indebtedness and obligations under capitalized leases........................................................ 2,344
Bank's liability on acceptances executed and outstanding.............................................................. 326,276
Subordinated notes and debentures..................................................................................... 75,000
Other Liabilities..................................................................................................... 787,623
-----------
Total Liabilities..................................................................................................... $10,204,886
===========
Limited-Life preferred stock and related surplus...................................................................... 0
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C>
EQUITY CAPITAL
Perpetual preferred stock and related surplus......................................................................... 0
Common stock.......................................................................................................... 21,600
Surplus............................................................................................................... 513,406
Undivided profits and capital reserves................................................................................ 492,362
Net unrealized holding gains (losses) on available-for-sale securities................................................ 641,183
Cumulative foreign currency translation adjustments................................................................... 0
Total equity capital.................................................................................................. 1,668,551
-----------
Total liabilities, limited-life preferred stock and equity capital.................................................... $11,873,437
===========
</TABLE>
I, Russell L. Hunter, Senior Vice President of the above named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
the State Banking Authority and is true to the best of my knowledge and belief.
Russell L. Hunter
We, the undersigned directors, attest to the correctness of this report of
condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the official
instructions by the Board of Governors of the Federal Reserve System and the
State Banking Authority and is true and correct.
Robert R. Long
R. W. Courts II
A. D. Correll
-7-
