<PAGE>
As filed with the Securities and Exchange Commission on June 14, 1999
Registration No. 333-76723
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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)
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<S> <C>
Delaware 2515 06-1007444
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation or
organization)
</TABLE>
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One Concourse Parkway
Atlanta, Georgia 30328
(770) 512-7700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Jonathan C. Daiker
Simmons Company
One Concourse Parkway
Atlanta, Georgia 30328
(770) 512-7700
(Address, including zip code, and telephone number, including area code, of
agent for service)
----------------
copy to:
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Patrick O'Brien, Esq. Lizanne Thomas, Esq.
Ropes & Gray Jones, Day Reavis & Pogue
One International Place 3500 SunTrust Plaza
Boston, Massachusetts 02110 303 Peachtree Street, N.E.
(617) 951-7000 Atlanta, Georgia 30308-3242
(404) 521-3939
</TABLE>
----------------
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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
----------------
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, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated June 14, 1999
PROSPECTUS
[LOGO OF SIMMONS COMPANY APPEARS HERE]
Simmons Company
Offer to Exchange All Outstanding
10 1/4% Senior Subordinated Notes Due 2009
($150,000,000 Aggregate Principal Amount Outstanding)
for
10 1/4% Series B Senior Subordinated Notes Due 2009
We are offering to exchange our 10 1/4% Series B Senior Subordinated Notes due
2009, the exchange notes, for all of our outstanding 10 1/4% Senior
Subordinated Notes due 2009, the notes. We are making this exchange offer on
the terms and conditions set forth in this prospectus and the accompanying
letter of transmittal. We have registered the exchange notes under the
Securities Act of 1933 but we have not registered the notes. The form and terms
of the exchange notes and the notes are identical in all material respects,
except for transfer restrictions and registration rights relating to the notes.
We will accept for exchange all outstanding notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on , 1999, unless we
extend this exchange offer. Although our offer is subject to customary
conditions, it is not conditioned upon any minimum principal amount of notes
being tendered for exchange.
We will not receive any proceeds from the issuance of the exchange notes. We
will pay all the expenses incurred by us in connection with this exchange offer
and issuance of the exchange notes.
You should carefully review the "Risk Factors" beginning on page 16 in
connection with this exchange offer and an investment in the exchange notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of our offer of the exchange notes or
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
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Page
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS........................... iv
TRADEMARKS AND TRADENAMES................................................. iv
SUMMARY................................................................... 1
Simmons Company.......................................................... 1
The Exchange Offer....................................................... 3
The Exchange Notes....................................................... 8
The Fenway Acquisition................................................... 10
The Original Offering.................................................... 11
Fenway Partners.......................................................... 11
Summary Condensed Consolidated Financial Data............................ 12
Notes to Summary Condensed Consolidated Financial Data................... 14
RISK FACTORS.............................................................. 16
Substantial Leverage--Our substantial indebtedness could adversely affect
our financial health and prevent us from fulfilling our obligations
under the exchange notes................................................ 16
Additional Borrowings Available--We and our subsidiaries may be able to
incur substantial amounts of additional debt that is senior to or equal
in rank to our obligations under the exchange notes..................... 16
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.............................................. 16
Subordination--Your right to receive payments on the exchange notes is
junior to some of our existing indebtedness and possibly to all of our
future borrowings....................................................... 17
Control by Fenway--Fenway has effective control of Simmons. They may have
different interests from yours.......................................... 17
Financing Change of Control Offer--We may not have the ability to raise
the funds necessary to finance the change of control offer required by
the indenture........................................................... 17
Dependence on Key Customers--We rely upon a small number of customers for
a significant portion of our business. If we lose their business, our
financial health may suffer............................................. 18
Risk of Fluctuations in the Cost of Raw Materials--If raw material costs
increase, our financial health may suffer............................... 18
Dependence on Key Suppliers--If we experience difficulty with a major
supplier, we may have difficulty finding alternative sources. This could
adversely affect our business........................................... 18
Dependence on Key Personnel--The loss of Mr. Nie's services may adversely
affect our business..................................................... 18
Competition--Our competitors may have important advantages over us that
could result in our losing market share or profitability................ 19
Environmental, Health and Safety Regulation--We are subject to
regulations that may be materially burdensome or expensive to comply
with.................................................................... 19
Acquisition Integration--Difficulties in integrating potential
acquisitions could adversely affect our business........................ 19
Labor Relations--While our labor relations have historically been good,
we cannot assure you that this will continue............................ 20
Year 2000 Issue--We cannot assure you that we have eliminated our
exposure to the Year 2000 issue or related adverse consequences to our
business................................................................ 20
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Reliance on Intellectual Property--We cannot assure you that our
protection of our intellectual property is adequate to prevent harm to
our business............................................................. 20
Legal Proceedings--We may be adversely impacted by unfavorable litigation
outcomes................................................................. 21
Fraudulent Conveyance Matters--Federal and state statutes allow courts,
under specific circumstances, to invalidate the exchange notes and
require noteholders to return payments received from us.................. 21
No Prior Market for Exchange Notes--We cannot assure that an active
trading market will develop for the exchange notes. Further, resales of
the exchange notes must comply with applicable state securities laws..... 22
Continuation of Restricted Transferability--If you do not exchange your
notes in the exchange offer, your ability to resell them will remain
restricted............................................................... 22
THE TRANSACTIONS AND THE ORIGINAL OFFERING................................. 23
The Fenway Acquisition.................................................... 23
The Original Offering..................................................... 26
USE OF PROCEEDS............................................................ 27
CAPITALIZATION............................................................. 27
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA.................. 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS................................................................ 31
General................................................................... 31
Results of Operations..................................................... 31
Liquidity and Capital Resources........................................... 34
Seasonality............................................................... 36
Accounting Pronouncements................................................. 36
Significant Customer Developments......................................... 37
Year 2000 Readiness Disclosure............................................ 37
BUSINESS................................................................... 39
Simmons................................................................... 39
Industry Overview......................................................... 39
Competitive Strengths..................................................... 41
Business Strategy......................................................... 42
Products.................................................................. 43
Customers................................................................. 44
Sales, Marketing and Advertising.......................................... 45
Manufacturing Facilities.................................................. 46
Research, Engineering and Development..................................... 46
Suppliers................................................................. 47
Upgrade of Information Management System.................................. 47
Competition............................................................... 47
Warranties; Product Returns............................................... 47
Patents, Trademarks and Licenses.......................................... 48
Employees................................................................. 48
Regulatory Matters........................................................ 48
Properties................................................................ 49
Legal Proceedings......................................................... 49
MANAGEMENT................................................................. 50
Director Compensation..................................................... 52
Executive Compensation.................................................... 53
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ii
<PAGE>
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Aggregated Option Exercises................................................ 54
Retirement Plans........................................................... 54
Employment Arrangements.................................................... 57
Management Stock Incentive Plan............................................ 58
PRINCIPAL STOCKHOLDERS...................................................... 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 60
Subscription Agreements.................................................... 60
Stockholders Agreement..................................................... 60
Fenway Advisory Agreement.................................................. 60
OTHER INDEBTEDNESS.......................................................... 61
New Senior Credit Agreement................................................ 61
Securities Purchase Agreement.............................................. 63
Manufacturing Facility Loans............................................... 63
DESCRIPTION OF EXCHANGE NOTES............................................... 64
Brief Description of the Exchange Notes and the Guarantees................. 64
Principal, Maturity and Interest........................................... 65
Methods of Receiving Payment on the Exchange Notes......................... 65
Paying Agent and Registrar for the Exchange Notes.......................... 65
Transfer and Exchange...................................................... 65
Subordination.............................................................. 66
Optional Redemption........................................................ 67
Mandatory Redemption....................................................... 67
Repurchase at the Option of Holders........................................ 67
Selection and Notice....................................................... 70
Certain Covenants.......................................................... 70
Events of Default and Remedies............................................. 80
No Personal Liability of Directors, Officers, Employees and Stockholders... 81
Legal Defeasance and Covenant Defeasance................................... 81
Amendment, Supplement and Waiver........................................... 83
Concerning the Trustee..................................................... 84
Additional Information..................................................... 84
Book-Entry, Delivery and Form.............................................. 84
Certain Definitions........................................................ 87
THE EXCHANGE OFFER.......................................................... 104
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..................... 114
Scope of Discussion........................................................ 114
United States Holders...................................................... 114
Non-United States Holders.................................................. 116
PLAN OF DISTRIBUTION........................................................ 119
LEGAL MATTERS............................................................... 120
EXPERTS..................................................................... 120
WHERE YOU CAN FIND MORE INFORMATION......................................... 120
INDEX TO FINANCIAL STATEMENTS............................................... F-1
</TABLE>
iii
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding, among other
things, our plans, strategies and prospects, both business and financial.
Although we believe that our plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we can give no
assurance that we will achieve or realize these plans, intentions or
expectations. Forward-looking statements are inherently subject to risks,
uncertainties and assumptions. Important factors that could cause actual
results to differ materially from the forward-looking statements we make in
this prospectus are set forth below under the caption "Risk Factors" and
elsewhere in this prospectus. We expressly qualify all forward-looking
statements attributable to us or persons acting on our behalf in their entirety
by these cautionary statements. We will not update these forward-looking
statements even though our situation will change in the future.
----------------
This exchange offer is not being made to, and we will not accept surrenders
for exchange from, holders of the outstanding notes in any jurisdiction in
which the exchange offer or its acceptance would not comply with the securities
or blue sky laws of that jurisdiction.
All resales must be made in compliance with state securities or blue sky
laws. This compliance may require that the exchange notes be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
----------------
TRADEMARKS AND TRADENAMES
SIMMONS(R), BEAUTYREST(R), BACKCARE(R), CONNOISSEUR COLLECTION(R) and
MAXIPEDIC(R) are federally registered United States trademarks and are the
property of Simmons Company or its subsidiaries. POCKETED COIL(TM) and FIVE
ZONES FOR YOUR BONES(TM) are also trademarks owned by Simmons Company.
iv
<PAGE>
SUMMARY
This summary contains basic information about Simmons and it likely does not
contain all the information regarding Simmons that is important to you. You
should read the more detailed information and financial statements, including
the accompanying notes, appearing elsewhere in this prospectus before making an
investment decision. The terms "Simmons", "we", "our" and "us" refer
collectively to Simmons Company and its wholly-owned subsidiaries, unless
otherwise indicated. The terms "fiscal year" or " year" refer to the 52 or 53
weeks ended on the last Saturday in December of the year referenced. Unless
otherwise indicated, we have based all references to industry or market data
upon information compiled and published by the International Sleep Products
Association ("ISPA") and we have based all references to market share data upon
information published in issues of Furniture/Today(R).
Simmons Company
Founded in 1871, Simmons is a leading manufacturer and distributor of
premium branded bedding products in the United States and the world leader in
Pocketed Coil(TM) innerspring technology. We manufacture and license a broad
range of mattresses and related sleep products under well-recognized brand
names including:
. Simmons(R)
. Beautyrest(R)
. BackCare(R)
. Connoisseur Collection(R)
. Maxipedic(R)
Our Beautyrest(R) line has been our flagship product since its introduction
in 1925. While we provide a full range of conventional bedding products, we
focus on higher-end market segments, emphasizing retail price points from $699
to $2,999 per queen set. In 1998, we derived approximately 54% of our net sales
from products sold at these price points which we believe offer more attractive
growth prospects and higher gross margins than lower-end products. For the year
ended December 26, 1998, we generated:
. net sales of $600.8 million, an increase of 9.2% over 1997; and
. Adjusted EBITDA of $62.3 million, an increase of 6.6% over 1997.
We believe that our net sales combined with the sales of third party
licensees make Simmons(R) the largest selling bedding products brand in the
world.
We sell to a diversified nationwide base of over 2,700 customers,
representing more than 5,500 retail outlets. We support our sales to furniture
stores, specialty sleep shops, department stores and warehouse showrooms with
significant local and national brand advertising and promotional spending as
well as extensive customer support services. We operate 18 strategically
located manufacturing facilities across the United States and in Puerto Rico.
Unlike most of our competitors, which operate as associations of independent
licensees, we are one of two national industry participants that operates each
of its manufacturing facilities, allowing us greater quality control and
standardization of best manufacturing practices.
Since 1995, we have invested approximately $28 million in re-engineering our
manufacturing operations and updating our information systems to improve our
cost structure, manufacturing productivity and operational controls. We believe
our substantial annual research and development investments enable us to be an
industry
1
<PAGE>
leader in the development of innovative and new products. In summary, we
believe we have significant advantages over smaller regional manufacturers as
well as those national competitors that operate as associations of independent
licensees because of the following:
. our national distribution;
. our extensive brand advertising;
. our customer support services; and
. our captive manufacturing.
Our company is led by an experienced and proven senior management team
averaging over 19 years of experience in the bedding industry and led by
Chairman, Chief Executive Officer and President Zenon Nie.
Our principal executive offices are located at One Concourse Parkway,
Atlanta, Georgia 30328, telephone: (770) 512-7700.
2
<PAGE>
The Exchange Offer
The exchange offer relates to the exchange of up to $150,000,000 aggregate
principal amount of our outstanding 10 1/4% Senior Subordinated Notes due 2009
for an equal aggregate principal amount of our new 10 1/4% Series B Senior
Subordinated Notes due 2009. The exchange notes will be obligations of Simmons
entitled to the benefits of the indenture governing the outstanding notes.
Registration Rights You are entitled to exchange your notes for
Agreement.................. exchange notes with terms that are identical in
all material respects. The exchange offer is
intended to satisfy these rights. After the
exchange offer is complete, you will no longer be
entitled to the benefits of the exchange or
registration rights granted under the
registration rights agreement which we entered
into as part of the original offering.
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of exchange notes which have been
registered under the Securities Act for each
$1,000 principal amount of notes which were
issued on March 16, 1999 in a transaction exempt
from registration under the Securities Act in
accordance with Rule 144A. Each of your notes
must be properly tendered and accepted in order
to be exchanged. We will exchange all notes that
are properly tendered and not validly withdrawn.
As of this date, there are $150,000,000 in
aggregate principal amount of notes outstanding.
We will issue the exchange notes on or promptly
after the expiration of the exchange offer.
Expiration Date.............
The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless we decide
to extend the exchange offer. In no event will
the exchange offer be extended more than 30
business days after the effective date of this
prospectus.
Conditions to the Exchange The exchange offer is subject to the condition
Offer...................... that it does not violate applicable law or staff
interpretations of the Commission. If we
determine that applicable federal law does not
permit the exchange offer, we may terminate the
offer. The exchange offer is not conditioned upon
any minimum principal amount of notes being
tendered. The holders of notes have rights under
the registration rights agreement should we fail
to consummate the exchange offer.
Resale of the Exchange Based on an interpretation by the staff of the
Notes...................... Commission set forth in no-action letters issued
to third parties, we believe that you may offer
for resale, resell or otherwise transfer without
compliance with the registration and prospectus
delivery provisions of the Securities Act the
exchange notes in exchange for your notes,
provided that:
. you are acquiring the exchange notes in the
ordinary course of business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
3
<PAGE>
in the distribution of the exchange notes issued
to you pursuant to the exchange offer;
. you are not a broker-dealer who purchased your
outstanding notes directly from us for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act; and
. you are not an "affiliate" of ours within the
meaning of Rule 405 under the Securities Act.
If our belief is inaccurate and you transfer any
exchange note issued to you pursuant to the
exchange offer in violation of the prospectus
delivery provisions of the Securities Act or
without an exemption from registration, you may
incur liability under the Securities Act. We do
not assume, or indemnify you against, any such
liability.
Each broker-dealer to which we issue exchange
notes pursuant to the exchange offer for its own
account in exchange for notes which such broker-
dealer acquired as a result of market-making or
other trading activities must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of such exchange notes. The
letter of transmittal states that a broker-dealer
who makes this acknowledgment and delivers such a
prospectus will not be deemed to admit that it is
an "underwriter" within the meaning of the
Securities Act. A broker-dealer may use this
prospectus for an offer to resell, resale or
other retransfer of the exchange notes issued to
it pursuant to the exchange offer. We have agreed
that, for a period of one year after the date
that we complete the exchange offer, we will make
this prospectus and any amendment or supplement
to this prospectus available to any such broker-
dealer for use in connection with any such
resales. We believe that no registered holder of
the outstanding notes is an affiliate of Simmons
within the meaning of Rule 405 under the
Securities Act.
We are not offering to, nor will we accept
surrenders for exchange from, holders of
outstanding notes in any jurisdiction in which
the exchange offer or its acceptance would not
comply with the securities or blue sky laws of
such jurisdiction. Furthermore, persons who
acquire the exchange notes are responsible for
compliance with these securities or blue sky laws
regarding resales. We assume no responsibility
for compliance with these requirements.
Accrued Interest on the
Exchange Notes and the
Outstanding Notes..........
Each exchange note will bear interest from its
issuance date. The holders of notes that we
accept for exchange will receive, in cash,
accrued interest on such notes to, but not
including, the issuance date of the exchange
notes. We will pay such interest with the first
interest payment on the exchange notes. Interest
on the notes accepted for exchange will cease to
accrue upon issuance of the
4
<PAGE>
exchange notes. Consequently, those holders who
exchange their outstanding notes for exchange
notes will receive the same interest payment on
September 15, 1999, the first interest payment
date with respect to the notes and the exchange
notes, that they would have received had they not
accepted the exchange offer.
Procedures for Tendering If you wish to tender your notes for exchange
Notes...................... pursuant to the exchange offer, you must transmit
to SunTrust Bank, Atlanta, as exchange agent, on
or prior to the expiration date, either:
. a properly completed and duly executed copy of
the letter of transmittal accompanying this
prospectus, or a facsimile of such letter of
transmittal, together with your outstanding
notes and any other documentation required by
such letter of transmittal, at the address set
forth on the cover page of the letter of
transmittal; or
. if you are effecting delivery by book-entry
transfer, a computer-generated message
transmitted by means of the Automated Tender
Offer Program System of The Depository Trust
Company in which you acknowledge and agree to
be bound by the terms of the letter of
transmittal and which, when received by the
exchange agent, forms a part of a confirmation
of book-entry transfer.
In addition, you must deliver to the exchange
agent on or prior to the expiration date:
. if you are effecting delivery by book-entry
transfer, a timely confirmation of book-entry
transfer of your outstanding notes into the
account of the exchange agent at The Depository
Trust Company pursuant to the procedures for
book-entry transfers described in this
prospectus under the heading "The Exchange
Offer--Procedures for Tendering" or
. if necessary, the documents required for
compliance with the guaranteed delivery
procedures described in this prospectus under
the heading "The Exchange Offer--Guaranteed
Delivery Procedures".
By executing and delivering the accompanying
letter of transmittal or effecting delivery by
book-entry transfer, you are representing to us
that, among other things:
. the person receiving the exchange notes
pursuant to the exchange offer, whether or not
such person is the holder, is receiving them in
the ordinary course of business;
. neither the holder nor any other person has an
arrangement or understanding with any person to
participate in the distribution of such
exchange notes and that such holder is not
engaged in, and does not intend to engage in, a
distribution of the exchange notes; and
5
<PAGE>
. neither the holder nor any other person is an
"affiliate" of ours within the meaning of Rule
405 under the Securities Act.
Special Procedures for
Beneficial Owners..........
If you are a beneficial owner of notes and your
name does not appear on a security listing of The
Depository Trust Company as the holder of such
notes or if you are a beneficial owner of notes
that are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender such notes in the
exchange offer, you should promptly contact the
person in whose name your notes are registered
and instruct such person to tender on your
behalf. If you, as a beneficial holder, wish to
tender on your own behalf you must, prior to
completing and executing the letter of
transmittal and delivering your outstanding
notes, either make appropriate arrangements to
register ownership of the outstanding notes in
your name or obtain a properly completed bond
power from the registered holder. The transfer of
record ownership may take considerable time.
Guaranteed Delivery If you wish to tender your notes and time will
Procedures................. not permit the letter of transmittal or any of
the documents required by the letter of
transmittal to reach the exchange agent by the
expiration date, or the procedure for book-entry
transfer cannot be completed on time or
certificates for your notes cannot be delivered
on time, you may tender your notes pursuant to
the guaranteed delivery procedures described in
this prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures".
Shelf Registration If any changes in law or of the applicable
Statement.................. interpretation of the staff of the Commission do
not permit us to effect the exchange offer or
upon the appropriate request of any holder of the
notes, we have agreed to register the notes on a
shelf registration statement and use our best
efforts to cause such shelf registration
statement to be declared effective by the
Commission. We have agreed to maintain the
effectiveness of the shelf registration statement
for, under certain circumstances, at least two
years from the date of the original issuance of
the notes to cover resales of such notes held by
such holders.
Withdrawal Rights........... You may withdraw the tender of your outstanding
notes, at any time prior to 5:00 p.m., New York
City time, on the expiration date.
Acceptance of Notes and
Delivery of Exchange
Notes...................... Subject to certain conditions, we will accept for
exchange any and all outstanding notes which are
properly tendered and not validly withdrawn. The
exchange notes issued pursuant to the exchange
offer will be delivered promptly following the
expiration date.
Certain U.S. Federal Income
Tax Consequences...........
The exchange of notes for the exchange notes
should not be a taxable exchange for United
States federal income tax purposes. See "Certain
United States Federal Tax Considerations".
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Use of Proceeds............. We will not receive any proceeds from the
issuance of the exchange notes. We will pay all
of our expenses relating to the exchange offer.
Exchange Agent.............. SunTrust Bank, Atlanta is serving as exchange
agent in connection with the exchange offer. The
exchange agent can be reached at 25 Park Place,
24th Floor, Atlanta, Georgia 30303-2900. For more
information with respect to the exchange offer,
please contact the exchange agent at (404) 588-
7067 or send your questions by facsimile to the
exchange agent at (404) 588-7335.
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The Exchange Notes
General..................... The form and terms of the exchange notes are
identical in all material respects to the form
and terms of the outstanding notes except that:
. the exchange notes will bear a Series B
designation;
. we will have registered the exchange notes
under the Securities Act and, therefore, they
will generally not bear legends restricting
their transfer; and
. the holders of exchange notes will not be
entitled to rights under the registration
rights agreement.
The exchange notes will evidence the same debt as
the outstanding notes and will be entitled to the
benefits of the indenture under which the notes
were issued.
Issuer...................... Simmons Company
Total Amount of Exchange
Notes Offered..............
$150.0 million in principal amount of 10 1/4%
Series B Senior Subordinated Notes due 2009.
Maturity.................... March 15, 2009.
Interest.................... Annual fixed rate--10 1/4%.
Payment frequency--every six months on March 15
and September 15. First interest payment--
September 15, 1999.
Ranking.....................
The exchange notes are senior subordinated debts.
They rank behind all of our current and future
indebtedness, other than trade payables, except
indebtedness that expressly provides that it is
not senior to the exchange notes.
As of March 27, 1999, we estimate that the
exchange notes:
. would have been subordinated to $184.4 million
of senior debt; and
. would have ranked equally with $16.3 million of
other debt and trade payables.
Optional Redemption......... On or after March 15, 2004, we may redeem some or
all of the exchange notes at any time at the
redemption prices listed in the "Description of
Exchange Notes" section under the heading
"Optional Redemption".
Before March 15, 2002, we may redeem up to 35% of
the aggregate principal amount of the exchange
notes with the proceeds of specific public
offerings of our common equity or of our direct
parent corporation at the price listed in the
"Description of Exchange Notes" section under the
heading "Optional Redemption".
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Mandatory Offer to If we sell certain assets under certain
Repurchase................. circumstances, or experience specific kinds of
changes of control, we must offer to repurchase
the exchange notes at the prices listed in the
"Description of Exchange Notes" section under the
heading "Repurchase at the Option of Holders".
Basic Covenants of We will issue the exchange notes under an
Indenture.................. indenture with SunTrust Bank, Atlanta. The
indenture will, among other things, restrict our
ability and the ability of our subsidiaries to:
. borrow money;
. pay dividends on stock or repurchase stock;
. make investments;
. use assets as security in other transactions;
and
. sell assets or merge with or into other
companies.
These covenants are subject to important
exceptions and qualifications which are described
in the section entitled "Description of the
Exchange Notes" under the heading
"Certain Covenants".
9
<PAGE>
The Fenway Acquisition
Prior to the Fenway acquisition described below, our parent company Simmons
Holdings, Inc. was owned by members of our management and investors affiliated
with INVESTCORP S.A., the Investcorp group, and we were owned by Simmons
Holdings and our employee stock ownership trust, the Simmons ESOP.
On October 29, 1998, a limited liability company formed and controlled by
funds affiliated with Fenway Partners, Inc., referred to as Fenway Investment
LLC, acquired a controlling interest in Simmons Holdings through a series of
transactions, the Fenway acquisition. Before this acquisition, Fenway had no
relationship with us or Simmons Holdings. In the Fenway acquisition, members of
our management and the Investcorp group sold a portion of their shares and
retained their remaining ownership interest. In addition, members of our
management received payments for cancellation of options exercisable for shares
of Simmons Holdings. The Simmons ESOP sold some of its shares in us and
exchanged its remaining shares for shares of Simmons Holdings. The Fenway
acquisition was accounted for as a recapitalization.
The ownership of Simmons Holdings immediately after the Fenway acquisition,
including vested and exercisable warrants and options for shares of common
stock of Simmons Holdings and the cash consideration received in exchange for
shares and cancelled options as a result of the Fenway acquisition, is
summarized in the chart below:
<TABLE>
<CAPTION>
Ownership Percentage Cash Consideration
Acquired or Retained Received
-------------------- ------------------
(in millions)
<S> <C> <C>
Fenway Investment LLC............. 71.2% $ --
Members of our management......... 11.4 14.0
The Investcorp group.............. 4.8 193.4
The Simmons ESOP.................. 12.6 15.4
----- ------
100.0% $222.8
===== ======
</TABLE>
In connection with the Fenway acquisition, we redeemed all of our
outstanding subordinated notes plus accrued interest and premium totaling
approximately $115.9 million and we repaid all borrowings under our then
existing credit facility plus accrued interest totaling approximately $71.4
million.
The Fenway acquisition, the related refinancing and the related expenses
were financed primarily through the following:
. a cash equity investment by Fenway Investment LLC of approximately $128.1
million;
. borrowings by us under our new senior credit agreement in the aggregate
principal amount of $200.0 million consisting of three tranches
aggregating $190.0 million of term loans and $10.0 million under our
revolving credit facility;
. borrowings by us under a bridge loan agreement of $75.0 million;
. the issuance by us under a securities purchase agreement of $30.0 million
of junior subordinated notes to Fenway Investment LLC; and
. the issuance by Simmons Holdings under the securities purchase agreement
of $10.0 million of junior subordinated notes to Fenway Investment LLC.
10
<PAGE>
The Original Offering
On March 16, 1999, in order to refinance some of the indebtedness incurred
in connection with the Fenway acquisition, we sold the notes in the original
offering, a transaction exempt from the registration requirements of the
Securities Act. We used the proceeds from the original offering as follows:
<TABLE>
<CAPTION>
Amount
-------------
(in millions)
<S> <C>
Sources:
Proceeds of the original offering.............................. $150.0
======
Uses:
Repayment of bridge loans and accrued interest................. 75.4
Repayment of our junior subordinated notes and accrued
interest...................................................... 31.1
Repayment of our revolving credit facility..................... 15.0
Prepayment of portion of our term loan facility................ 23.7
Payment of fees and expenses of the original offering.......... 4.8
------
Total........................................................ $150.0
======
</TABLE>
In connection with the original offering, we agreed to register the exchange
notes and offer them in exchange for the notes.
Fenway Partners
Founded in 1994, Fenway Partners, Inc., is a New York-based private
investment firm dedicated to building long-term value through direct investment
in leading middle market companies. The firm manages funds with over $1.4
billion of capital and focuses on acquiring companies, in partnership with
management, with established franchises, meaningful market share and strong
brands with significant opportunities for growth. Fenway Partners provides
management with strategic guidance and the necessary resources to exploit these
opportunities and to improve the operating and financial performance of their
businesses. Fenway's investment in Simmons is its largest single investment to
date.
11
<PAGE>
Summary Condensed Consolidated Financial Data
(dollars in thousands)
Set forth below are:
(1) our summary condensed consolidated financial data for 1997, 1998,
and the three months ended March 28, 1998 and March 27, 1999; and
(2) our summary condensed consolidated statement of operations data for
1998, as adjusted assuming that we had consummated the Fenway acquisition
and the original offering as of the beginning of the period presented and
eliminating certain non-recurring charges incurred in connection with the
Fenway acquisition.
We derived the summary condensed consolidated financial data for 1997, 1998,
and the three months ended March 28, 1998 and March 27, 1999 and as of March
27, 1999 from our consolidated financial statements. You should read the
information contained in this table along with "Selected Historical
Consolidated Financial and Other Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and accompanying notes and other financial information
appearing elsewhere in this prospectus.
You should note the following when reading the table below:
. EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization. We believe that EBITDA is a widely
accepted financial indicator of a company's ability to service or incur
debt and a similar measure is utilized for purposes of the covenants
contained in the indenture. EBITDA and adjusted EBITDA are not
measurements of operating performance calculated in accordance with
generally accepted accounting principles and should not be considered
substitutes for operating income, net income, cash flows from operating
activities or other statement of operations or cash flow data prepared
in accordance with generally accepted accounting principles, or as
measures of profitability or liquidity. EBITDA and adjusted EBITDA may
not be indicative of our historical operating results, nor are they
meant to be predictive of potential future results. Our measures of
EBITDA and adjusted EBITDA may not be comparable to those recorded by
other companies.
. Cash interest expense represents interest expense less amortization of
debt issuance costs and other non-cash interest expense. We believe that
the ratio of adjusted EBITDA to cash interest expense and the ratio of
adjusted EBITDA to total interest expense are widely accepted as useful
information regarding a company's ability to service and/or incur debt.
. For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before taxes and fixed charges. Fixed charges
consist of interest expense, which includes the amortization of deferred
debt issuance costs and the interest portion of our rent.
. Working capital represents total current assets, excluding cash and
equivalents, less total current liabilities, excluding current
maturities of long-term debt and capital lease obligations.
12
<PAGE>
<TABLE>
<CAPTION>
Year Ended Three Months Ended
--------------------------------------- -------------------------
As Adjusted
December 27, December 26, December 26, March 28, March 27,
1997 1998 1998 1998 1999
------------ ------------ ------------ --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales.................... $ 550,085 $ 600,773 $ 600,773 $139,392 $ 146,348
Cost of products sold........ 319,074 348,842 348,842 83,435 85,586
---------- ---------- ---------- -------- ---------
Gross Profit................. 231,011 251,931 251,931 55,957 60,762
Selling, general and
administrative expenses..... 183,556 202,213 202,213 51,068 55,192
ESOP expense................. 6,230 6,453 6,453 1,475 1,792
Amortization of intangibles.. 7,679 7,629 7,629 1,908 1,906
Interest expense, net (1).... 19,088 22,454 30,953 (2) 4,643 7,941
Other expense, net........... 1,571 17,544 2,684 (3) 408 521
---------- ---------- ---------- -------- ---------
Income (loss) from continuing
operations before taxes..... $ 12,887 $ (4,362) $ 1,999 $ (3,545) $ (6,590)
========== ========== ========== ======== =========
Net income (loss)............ $ 6,362 $ (19,019) $ (1,826) $ (6,653)
========== ========== ======== =========
Other Data:
Adjusted EBITDA (4).......... $ 58,420 $ 62,264 $ 62,264 $ 7,906 $ 8,215
Adjusted EBITDA margin....... 10.6% 10.4% 10.4% 5.7% 5.6%
Gross margin................. 42.0% 41.9% 41.9% 40.1% 41.5%
Cash provided by (used in)
operating activities ....... $ 32,301 $ (14,008) -- $ (1,755) $ (11,736)
Cash used in investing
activities.................. (15,355) (15,553) -- (3,755) (1,374)
Cash provided by (used in)
financing activities........ (12,377) 26,488 -- 5,195 15,792
Adjusted capital expenditures
(5)......................... 7,616 8,989 8,989 1,560 1,665
Depreciation and
amortization................ 13,549 16,593 16,593 4,103 4,396
Cash interest expense........ 18,731 21,566 29,563 4,500 7,423
Total interest expense....... 19,344 22,638 31,137 4,688 7,989
Ratio of adjusted EBITDA to
cash interest expense....... 2.1 x
Ratio of adjusted EBITDA to
total interest expense...... 2.0 x
Ratio of earnings to fixed
charges (6)................. 1.6 x -- 1.1 x -- --
</TABLE>
<TABLE>
<CAPTION>
As of
March 27,
1999
-----------
(Unaudited)
<S> <C>
Balance Sheet Data:
Working capital ................................................... $ 62,447
Total assets....................................................... 409,044
Total debt, including current maturities........................... 334,440
Total common stockholders' deficit................................. (18,447)
</TABLE>
13
<PAGE>
Notes to Summary Condensed Consolidated Financial Data
(except as otherwise indicated, dollars in thousands)
(1) Interest expense, net includes the amortization of deferred debt issuance
costs of $613, $777, $777, $188 and $135 for 1997, 1998, 1998 as adjusted,
and the three months ended March 28, 1998 and March 27, 1999, respectively,
and is net of interest income of $256, $184, $184, $45 and $48 for the same
periods, respectively.
(2) Reflects the following net increase in interest expense resulting from the
increased borrowings to finance the Fenway acquisition and related
refinancing and the original offering:
<TABLE>
<S> <C>
Elimination of historical interest expense for refinanced debt.. $(21,258)
Interest resulting from the term loan facility under our new
senior credit agreement:
Tranche A--$30,976 at 7.75%................................. 2,401
Tranche B--$70,000 at 8.25%................................. 5,775
Tranche C--$50,000 at 8.50%................................. 4,250
Interest resulting from the issuance of the notes at 10.25%..... 15,375
Commitment fee resulting from the portion of our revolving
credit facility assumed to be unused........................... 382
Amortization of the $12,018 deferred financing costs related to
the above...................................................... 1,574
--------
Net Increase.................................................. $ 8,499
========
</TABLE>
As of December 26, 1998, we had no amounts outstanding under our revolving
credit facility. Immediately prior to the original offering, we had
borrowings under our revolving credit facility of approximately $15.0
million and $189.7 million outstanding under our term loan facility. We
used a portion of the proceeds of the original offering to repay all
amounts outstanding under the Revolving Credit Facility and to prepay
approximately $23.7 million of principal amounts under the Term Loan
Facility as well as approximately $0.1 million of accrued interest. We
applied $21.4 million, $1.1 million and $1.1 million of prepayments to the
Tranche A, Tranche B and Tranche C term loans, respectively, which
resulted in a total outstanding amount under our term loan facility of
approximately $166.0 million.
Interest rates assumed for our new senior credit agreement borrowings are
based upon a LIBOR borrowing rate of 5.0% plus the applicable margin. If
the interest rates assumed above increased by 0.25%, our total interest
expense would increase by $377 for 1998.
(3) Reflects the following net decrease:
<TABLE>
<S> <C>
Elimination of non-recurring management compensation related to
the
Fenway acquisition............................................. $(14,223)
Elimination of other non-recurring expenses related to the
Fenway acquisition............................................. (1,012)
Increase in the annual management fee........................... 375
--------
$(14,860)
========
</TABLE>
14
<PAGE>
(4) Items added back to EBITDA to arrive at adjusted EBITDA are as follows:
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
-------------------------------------- -------------------
As Adjusted
December 27, December 26, December 26, March 28, March 27,
1997 1998 1998 1998 1999
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
EBITDA.................. $45,524 $34,685 $34,685 $5,201 $5,747
ESOP expense............ 6,230 6,453 6,453 1,475 1,792
Other expense, net...... 1,571 17,544 17,544 408 521
Interest income......... 256 184 184 45 48
Non-Recurring Expenses:
SWIFT/UNITE........... 2,347 2,208 2,208 641 --
Strategic management
initiatives.......... 1,693 418 418 -- 107
Discontinued product
line................. 799 772 772 136 --
------- ------- ------- ------ ------
Adjusted EBITDA..... $58,420 $62,264 $62,264 $7,906 $8,215
======= ======= ======= ====== ======
</TABLE>
(5) Adjusted capital expenditures are exclusive of expenditures related to:
(a) our substantially completed SWIFT and UNITE programs of $3,786,
$2,808, $2,808, $1,204 and $0 for 1997, 1998, the year 1998 as
adjusted, the three months ended March 28, 1998 and March 27, 1999,
respectively; and
(b) new plant facilities of $4,299, $3,756, $3,756, $991 and $0 for the
same periods, respectively.
(6) Earnings were insufficient to cover fixed charges by $4,362, $3,545 and
$6,590 for 1998, and the three months ended March 28, 1998 and March 27,
1999, respectively.
15
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the
other information set forth in this prospectus before investing in the
exchange notes.
Substantial Leverage--Our substantial indebtedness could adversely affect our
financial health and prevent us from fulfilling our obligations under the
exchange notes.
As a result of the Fenway acquisition and the original offering, we have a
significant amount of indebtedness. As of March 27, 1999, our total
indebtedness was approximately $334.5 million and our ratio of earnings to
fixed charges was 1.1 to 1.
Our substantial indebtedness could have important consequences to you. For
example, it could:
.make it more difficult for us to satisfy our obligations under the exchange
notes;
.increase our vulnerability to general adverse economic and industry
conditions;
.require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, which would reduce the amount
of cash flow available to fund working capital, capital expenditures,
research and development efforts and other general corporate
requirements;
.limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
.place us at a competitive disadvantage compared to our competitors that
have less debt; and
.limit our ability to borrow additional funds. In addition, it will subject
us to financial and other restrictive covenants, and failure to comply
with those covenants could result in an event of default which, if not
cured or waived, could have a material adverse effect on us.
Additional Borrowings Available--We and our subsidiaries may be able to incur
substantial amounts of additional debt that is senior to or equal in rank to
our obligations under the exchange notes.
The terms of the indenture do not fully prohibit us or our subsidiaries
from incurring additional debt that is senior to or equal in rank to the
exchange notes. Our new senior credit agreement permits additional borrowings
under our revolving credit facility of up to approximately $79.4 million as of
March 27, 1999 and all of those borrowings would be senior to the exchange
notes. If new debt that is senior or equal in rank to the exchange notes is
added to our current debt levels, the related risks that you and we face could
intensify.
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our indebtedness,
including the exchange notes, and to fund planned capital expenditures and
research and development efforts will depend on our ability to generate cash
in the future. In 1998, we incurred a net loss of $19.0 million. This loss
included costs attributable to the Fenway acquisition of $10.2 million, net of
tax, and an extraordinary debt extinguishment loss of approximately $15.0
million, net of tax. We had to increase our borrowings to finance the cash
portion of these Fenway acquisition costs. Although we believe we will not be
impacted by charges of the same magnitude as those related to the Fenway
acquisition, we cannot assure you that we will not incur similar charges in
connection with future acquisitions, debt refinancings or other transactions
affecting our capital structure in the future. Our ability to generate cash is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available
cash and available borrowings under our new senior credit agreement will be
adequate to meet our future liquidity needs for at least the next few years.
16
<PAGE>
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that we will realize currently anticipated cost
savings and operating improvements on schedule or at all or that future
borrowings will be available to us under our new senior credit agreement in
amounts sufficient to enable us to pay our indebtedness, including the
exchange notes, or to fund our other liquidity needs. We may need to refinance
all or a portion of our indebtedness, including the exchange notes, on or
before maturity. We cannot assure you that we will be able to refinance any of
our indebtedness, including our new senior credit agreement and the exchange
notes, on commercially reasonable terms or at all.
Subordination--Your right to receive payments on the exchange notes is junior
to some of our existing indebtedness and possibly to all of our future
borrowings.
As of March 27, 1999, the original notes were subordinated to approximately
$184.4 million of senior debt and we had approximately $79.4 million available
for borrowing as additional senior debt under our revolving credit facility.
The exchange notes will be similarly subordinated to our senior debt. In
addition, so long as we maintain a fixed charge coverage ratio of at least 2.0
to 1 the indenture will permit us to incur unlimited additional indebtedness,
all of which could be senior or equal in rank to the exchange notes.
The exchange notes rank behind all of our existing and future indebtedness
other than trade payables and except for any future indebtedness that
expressly provides that it ranks equal with, or is subordinated in right of
payment to, the exchange notes. As a result, upon any distribution to our
creditors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or our property, the holders of our senior debt will be
entitled to be paid in full in cash before any payment may be made with
respect to the exchange notes.
In addition, all payments on the exchange notes will be blocked in the
event of a payment default on our senior debt and may be blocked for up to 179
of 360 consecutive days in the event of specific non-payment defaults on
senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our company, holders of the exchange notes will
participate with trade creditors and all other holders of our subordinated
indebtedness in the assets remaining after we have paid all of the senior
debt. However, because the indenture requires that amounts otherwise payable
to holders of the exchange notes in a bankruptcy or similar proceeding be paid
to holders of senior debt instead, holders of the exchange notes may receive
less, ratably, than holders of trade payables in any such proceeding. In any
of these cases, we may not have sufficient funds to pay all of our creditors,
and holders of exchange notes may receive less, ratably, than the holders of
senior debt.
Control by Fenway--Fenway has effective control of Simmons. They may have
different interests from yours.
Fenway Investment LLC owns approximately 75.1% of the outstanding voting
stock of Simmons Holdings and holds the junior subordinated notes issued by
Simmons Holdings. Therefore, Fenway Investment LLC has the power to:
. elect a majority of the directors of our parent company;
. control all matters submitted to stockholders of our parent company; and
. exercise control over the business, policies and affairs of our parent
company.
Fenway Investment LLC, as our parent company's majority equity holder and
as holder of the junior subordinated notes issued by Simmons Holdings, may
have different interests than you.
Financing Change of Control Offer--We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
indenture.
Upon the occurrences of specific kinds of change of control events, we will
be required to offer to repurchase all outstanding notes. However, we may not
have sufficient funds at the time of the change of
17
<PAGE>
control to make the required repurchase of exchange notes or restrictions in
our new senior credit agreement or other senior debt may not allow such
repurchases. In addition, some important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a "Change of Control" under the indenture.
Dependence on Key Customers--We rely upon a small number of customers for a
significant portion of our business. If we lose their business, our financial
health may suffer.
If we lose all or a significant portion of our business with any of our
significant customers, our financial condition or results of operations may
suffer materially. We currently derive a significant portion of our sales from
a small number of customers and expect similar customer concentration to
continue in the future. In 1998, our ten largest customers accounted for
approximately 38% of our net sales. Heilig-Meyers Company and its
subsidiaries, including Rhodes, Inc., accounted for approximately 11.8% of our
1998 net sales.
We try to actively monitor the creditworthiness of our customers, and when
necessary, try to minimize our dependence upon any single customer. We cannot,
however, eliminate the risk that important customers may experience financial
difficulties or become bankrupt. In 1997, two of our ten largest customers,
Montgomery Ward & Co. and Levitz Furniture, Inc., filed for protection under
Chapter 11 of the United States Bankruptcy Code.
Risk of Fluctuations in the Cost of Raw Materials--If raw material costs
increase, our financial health may suffer.
If prices of the raw materials that we purchase increase and we are unable
to pass on the increase in our costs to our customers, then our financial
condition or results of operations may be materially and adversely affected.
The major raw materials that we purchase are wire, spring components, lumber,
cotton, insulator pads, innersprings, fabrics and roll goods consisting of
foam, fiber, ticking and non-wovens. The price and availability of these raw
materials may change depending upon market conditions.
Dependence on Key Suppliers--If we experience difficulty with a major
supplier, we may have difficulty finding alternative sources. This could
adversely affect our business.
We obtain a large percentage of our raw materials from a small number of
suppliers. We have long-term supply agreements with Leggett & Platt,
Incorporated, Foamex International Inc. and Amoco Fabrics and Fiber Company.
With the exception of Leggett & Platt, we believe that we can readily replace
our other suppliers, if necessary, because we have already identified and used
alternative sources. Because we may not be able to find sources on terms as
favorable to us for some of these components, our business, financial
condition and results of operations could be materially and adversely affected
if we lose Leggett & Platt as a supplier.
Leggett & Platt supplies the majority of several bedding components to the
bedding industry, including spring components, insulator pads, wire, fiber,
quilt backing and flange material. In 1998, we bought approximately one-third
of our raw materials from Leggett & Platt. We expect that in 1999 we will buy
a comparable portion of our raw materials from Leggett & Platt. Under our
agreements with Leggett & Platt, we are required to buy a majority of our
requirements of several components from them, such as grid tops, innersprings
and wire. Those agreements generally expire in 2010.
We purchase substantially all of our conventional bedding raw materials
centrally to obtain volume discounts and achieve economies of scale. In 1998,
we bought approximately 86% of our raw materials from ten suppliers. Supplier
concentration is common in the bedding industry.
Dependence on Key Personnel--The loss of Mr. Nie's services may adversely
affect our business.
Our success will continue to depend upon our management team, and in
particular upon Zenon Nie, the Chairman of our Board of Directors, our Chief
Executive Officer and President. The loss of Mr. Nie's services could
materially and adversely affect our business and future operations. In October
1998, we and Mr. Nie
18
<PAGE>
entered into a three-year employment agreement that renews automatically on a
daily basis, subject to three years' notice of termination. We also maintain a
$10.0 million key man life insurance policy covering Mr. Nie, of which we are
the beneficiary.
Competition--Our competitors may have important advantages over us that could
result in our losing market share or profitability.
The bedding industry is intensely competitive. There are approximately 800
bedding manufacturers in the United States. We, along with Sealy Corporation
and Serta, Inc., currently have a significant portion of the industry's
wholesale revenues. Although we believe we are well-positioned to compete
because of our brand name recognition and strong customer base, we could
experience increased future competition resulting in price reductions, reduced
margins or loss of market share. Any of these could have an adverse effect on
our operating results or financial condition. In addition, some of our
principal competitors may be less highly-leveraged, have greater access to
financial or other resources, have lower cost operations, have greater
vertical integration, and be better able to withstand market conditions.
Environmental, Health and Safety Regulation--We are subject to regulations
that may be materially burdensome or expensive to comply with.
We are subject to various federal, state and local laws and regulations
relating to occupational health and safety, pollution and environmental
protection. It is possible that, despite our efforts, we may fail to be in
complete compliance with all of the applicable regulations.
We are currently evaluating our potential liability for the clean-up of
environmental contamination in and around our leased manufacturing facilities
in San Leandro, California.
Our efforts to comply with environmental regulations do not remove the risk
that we may be held liable, and that the amount of liability may be material,
for releases of hazardous substances occurring on or coming from our
properties or any associated offsite disposal location, or for contamination
discovered at any of our properties from activities conducted by previous
occupants. This risk is common for manufacturers in general.
We have recorded a reserve to reflect our potential liability for
environmental matters. The costs of environmental remediation are uncertain,
and we may incur costs in excess of our recorded reserves.
Acquisition Integration--Difficulties in integrating potential acquisitions
could adversely affect our business.
We regularly evaluate potential acquisition opportunities to support and
strengthen our business. We cannot assure you that we will be able to locate
suitable acquisition candidates, acquire candidates on acceptable terms or
integrate acquired businesses successfully.
Future acquisitions may require us to incur additional debt and contingent
liabilities, which may materially and adversely affect our business, operating
results and financial condition. In addition, the process of effectively
integrating acquired businesses involves the following risks:
. assimilating operations and products may be unexpectedly difficult;
. management's attention may be diverted from other business concerns;
. we may enter markets in which we have limited or no direct experience;
and
. we may lose key employees of the acquired business.
We do not currently have any agreements relating to acquisitions or joint
ventures.
19
<PAGE>
Labor Relations--While our labor relations have historically been good, we
cannot assure you that this will continue.
Our labor relations have historically been good. We have not experienced
any labor-related work stoppage in over 20 years. Since 1980, we have opened
nine new plants, none of which are unionized. It is possible, however, that
labor union efforts to organize employees at those facilities may be
successful. It is also possible that we may experience labor-related work
stoppages in the future. Either of these possible developments could have a
material adverse effect on our financial condition or results of operations.
At nine of our 18 manufacturing facilities, at least one of the following
unions represents our employees:
. the Upholstery Division of the United Steelworkers;
. the Teamsters;
. the United Furniture Workers;
. the Longshoremen; and
. the International Association of Machinists and Aerospace Workers.
Most of our labor contracts expire in 2001. Union contracts are typically
for four-year terms.
Year 2000 Issue--We cannot assure you that we have eliminated our exposure to
the Year 2000 issue or related adverse consequences to our business.
We continue to evaluate the possibility of disruption to our computer and
other systems upon the turn of the century as a result of the widely-known
dating flaw inherent in many systems known as the year 2000 issue. We are in
the process of upgrading and modifying our existing systems to address the
year 2000 issue. While we believe that we will upgrade or modify our systems
in time to remedy the year 2000 issue, a failure to complete the upgrades or
modifications in a timely manner may disrupt our operations.
We have relationships with suppliers, customers, banks, insurers and other
significant entities, such as public utilities, that may not have adequately
addressed the year 2000 issue with respect to their equipment or information
systems. Although we are attempting to assess the extent of their compliance
efforts, we have not received any written assurances and, accordingly, cannot
determine the risk to our business.
In the event that we are unable to complete planned upgrades or implement
replacement systems prior to December 31, 1999, or that the parties with whom
we have relationships have not adequately addressed the year 2000 issue, we
may experience significant disruptions or delays in our operations. This could
result in our business, financial condition or results of operations suffering
a material adverse effect.
Reliance on Intellectual Property--We cannot assure you that our protection
of our intellectual property is adequate to prevent harm to our business.
To compete effectively with other companies, we must maintain the
proprietary nature of our owned and licensed intellectual property. Despite
our efforts, we cannot eliminate the following risks:
. others may circumvent our trademarks;
. our trademarks may, now or in the future, violate the proprietary rights
of others;
. we may be prevented from using our own trademarks if challenged;
. we may be unable to afford to enforce or defend our trademarks;
. our patents may not sufficiently protect us;
. our pending patent applications may not result in patents being issued;
and
. we may be unable to protect our technological advantages when our patents
expire.
20
<PAGE>
We hold over 200 trademarks registered in the United States. We believe
these trademarks have significant value and are important in marketing our
products to retailers and end-consumers. Our principal trademarks are
registered or pending registration in over 90 foreign countries. We own
numerous United States and foreign patents and have patent applications pending
domestically and abroad. We also own United States and foreign registered trade
names and service marks and have pending applications for the registration of
trade names and service marks domestically and abroad. In addition, we own a
variety of unpatented proprietary technology and know-how which is important to
the design and manufacture of our products.
Although we do not believe that our overall success is dependent upon any
particular intellectual property rights, an inability to maintain the
proprietary nature of our intellectual property may materially and adversely
affect our financial condition or results of operations. For example, any
challenge to the use of our trademarks could have a material adverse effect on
our financial condition or results of operations, either through a negative
ruling with respect to our use, the validity or enforceability of our
trademarks or through the time consumed and legal costs involved in defending
against a challenge.
Legal Proceedings--An unfavorable outcome of currently pending litigation may
adversely impact us.
One of our competitors, Serta, Inc., has filed a patent infringement
litigation action against us. We believe that Serta's allegations are without
merit, and we intend to defend the action vigorously. However, an unfavorable
resolution of this action could have an adverse effect on our results of
operations.
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to invalidate the exchange notes and require
noteholders to return payments received from us.
Federal bankruptcy law and comparable provisions of state fraudulent
transfer laws allow courts to invalidate the exchange notes, or to subordinate
claims in respect of the exchange notes to all of our other debts if, among
other things, at the time we incurred the indebtedness evidenced by the
exchange notes, we:
. received less than reasonably equivalent value or fair consideration for
the incurrence of that indebtedness and were insolvent or rendered
insolvent by reasons of that incurrence; or
.were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
. intended to incur, or believed that we would incur, debts that we could
not pay as they matured.
In addition, courts could invalidate any payments we make pursuant to the
exchange notes and require such payments to be returned to us, or to a fund for
the benefit of our creditors.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, courts would consider
us insolvent if:
.the sum of our debts, including contingent liabilities, was greater than the
fair saleable value of all of our assets; or
.the present fair saleable value of our assets was less than the amount that
would be required to pay our probable liability on existing debts,
including contingent liabilities, as they became absolute and mature; or
.we could not pay our debts as they became due.
21
<PAGE>
On the basis of historical financial information, recent operating history
and other factors, we believe that, after giving effect to the indebtedness
incurred in connection with the original offering and the Fenway acquisition,
we:
. will not be insolvent;
. will not have unreasonably small capital for our business; and
. will not have incurred debts that we cannot pay as they mature.
We cannot assure you, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
No Prior Market for Exchange Notes--We cannot assure you that an active
trading market will develop for the exchange notes. Further, resales of the
exchange notes must comply with applicable state securities laws.
The exchange notes are new securities for which there currently is no
market and we cannot assure you that an active trading market will develop or
sustain itself for the exchange notes. Although Goldman, Sachs & Co., Warburg
Dillon Read LLC, Fleet Securities, Inc. and U.S. Bancorp Libra, the initial
purchasers of the outstanding notes, have informed us that they intend to make
a market in the exchange notes, they are not obligated to do so and they may
discontinue any such market making at any time without notice. We expect the
exchange notes to be eligible for trading by qualified buyers in the PORTAL
market. We do not intend to apply for listing of the exchange notes on any
securities exchange or for quotation through The Nasdaq National Market.
In addition, changes in the overall market for high yield securities and
changes in our financial performance or prospects or in the prospects for
companies in our industry generally may adversely affect the liquidity of the
trading market in the exchange notes, and the market price quoted for the
exchange notes.
All resales must be made in compliance with state securities or blue sky
laws. Such compliance may require that the exchange notes be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
If you do not exchange your notes in the exchange offer, your ability to
resell them will remain restricted.
Untendered outstanding notes that you do not exchange for the registered
exchange notes pursuant to the exchange offer will remain restricted
securities, subject to the following restrictions on transfer:
.you may resell only if registered pursuant to the Securities Act or if an
exemption from registration is available;
.the notes will bear a legend restricting transfer in the absence of
registration or an exemption; and
.a holder of the notes who wants to sell or otherwise dispose of all or any
part of its notes under an exemption from registration under the
Securities Act, if requested by us, must deliver to us an opinion of
independent counsel experienced in Securities Act matters, reasonably
satisfactory in form and substance to us, that such exemption is
available.
Except under limited circumstances, we have no obligation to register any
notes not tendered in the exchange offer.
22
<PAGE>
THE TRANSACTIONS AND THE ORIGINAL OFFERING
The Fenway Acquisition
Prior to the Fenway acquisition, our parent company Simmons Holdings was
owned by members of our management and the Investcorp group and we were owned
by Simmons Holdings and the Simmons ESOP.
On October 29, 1998, Fenway Investment LLC acquired a controlling interest
of Simmons Holdings through the Fenway acquisition. Members of management and
the Investcorp group sold a portion of their shares and retained an ownership
interest in Simmons Holdings. In addition, members of our management received
payments for cancellation of options exercisable for shares of Simmons
Holdings. The Simmons ESOP sold some of its shares in us and exchanged its
remaining shares for shares of Simmons Holdings. The Fenway acquisition was
accounted for as a recapitalization.
The ownership of Simmons Holdings immediately after these transactions
including vested and exercisable warrants and options for shares of common
stock of Simmons Holdings and the cash consideration received by existing
shareholders as a result of this series of transactions is summarized in the
chart below:
<TABLE>
<CAPTION>
Ownership Percentage Cash Consideration
Acquired or Retained Received
-------------------- ------------------
(in millions)
<S> <C> <C>
Fenway Investment LLC................ 71.2% $ --
Members of our management............ 11.4 14.0
The Investcorp group................. 4.8 193.4
The Simmons ESOP..................... 12.6 15.4
----- -------
100.0% $ 222.8
===== =======
</TABLE>
As a result of the Fenway acquisition, members of management received cash
consideration of approximately $7.8 million for shares of stock of Simmons
Holdings and approximately $6.2 million for canceled options to purchase stock
of Simmons Holdings. The members of our management who received cash
consideration as a result of the Fenway acquisition and who remain as
shareholders of Simmons Holdings include our named executive officers. The
total cash consideration that our management received in exchange for shares
and cancelled options in connection with the Fenway acquisition was as follows:
<TABLE>
<CAPTION>
Amount
-------------
(in millions)
<S> <C>
Zenon Nie...................................................... $ 7.4
Martin Passaglia............................................... 0.9
Jonathan Daiker................................................ 0.3
Robert Barton.................................................. 0.6
Joseph Ulicny.................................................. 0.4
Approximately 40 other members of management................... 4.4
-----
$14.0
=====
</TABLE>
In addition, all of our outstanding subordinated notes plus accrued interest
and premium totaling approximately $115.9 million were redeemed and borrowings
under our then existing credit facility plus accrued interest totaling
approximately $71.4 million were repaid.
The Fenway acquisition, the related refinancing and the related expenses
were financed primarily through the following:
. a cash equity investment by Fenway Investment LLC of approximately
$128.1 million;
. borrowing under our new senior credit agreement in the aggregate
principal amount of $200.0 million consisting of $190.0 million of term
loans and $10.0 million under our revolving credit facility;
23
<PAGE>
. borrowings by us under a bridge loan agreement of $75.0 million;
. the issuance by us under a securities purchase agreement of $30.0
million of junior subordinated notes to Fenway Investment LLC; and
. the issuance by Simmons Holdings under the securities purchase agreement
of $10.0 million of junior subordinated notes to Fenway Investment LLC.
A summary of the capitalization of Simmons Holdings and Simmons after the
Fenway acquisition is further illustrated by the diagram below:
Capitalization of Simmons Holdings and Simmons
upon completion of the Fenway acquisition and related financing
[Diagram depicting summary of capitalization
of Simmons Holdings and Simmons]
24
<PAGE>
New Senior Credit Agreement. In connection with the Fenway acquisition, we
entered into a new senior credit agreement with institutional lenders and
affiliates of the initial purchasers of the notes providing for loans of up to
$270.0 million, consisting of three tranches of a term loan facility totaling
$190.0 million and an $80.0 million revolving credit facility.
For more information on the terms of our new senior credit agreement, see
"Other Indebtedness--New Senior Credit Agreement".
Senior Bridge Loan Agreement. In connection with the Fenway acquisition, we
entered into a bridge loan agreement with West Street Fund I, L.L.C. and UBS
A.G., Stamford Branch, each an affiliate of the initial purchasers of the
notes. This bridge loan agreement provided for $75.0 million in aggregate
principal amount of senior subordinated increasing rate bridge loans. On March
16, 1999, with proceeds from the original offering, we repaid the $75.0 million
of these senior bridge loans as well as approximately $0.4 million of accrued
interest.
Securities Purchase Agreement. In connection with the Fenway acquisition, we
and Simmons Holdings entered into a securities purchase agreement with Fenway
Investment LLC. Pursuant to this securities purchase agreement, we issued
junior subordinated notes in the aggregate principal amount of $30.0 million
and Simmons Holdings issued junior subordinated notes in the aggregate
principal amount of $10.0 million.
For more information on the terms of the junior subordinated notes that
remain outstanding under the securities purchase agreement, see "Other
Indebtedness -- Securities Purchase Agreement".
Under the securities purchase agreement, Simmons Holdings also issued:
. a warrant to purchase 601,346.63 shares of common stock of Simmons
Holdings at an initial exercise price of $6.7315 per share to Fenway
Investment LLC; and
. warrants to purchase an aggregate of 2,104,713.22 shares of common stock
of Simmons Holdings to be held in escrow up to 50% of which may be
released to Fenway Investment LLC and which will have an initial
exercise price of either $0.01 per share or if eventually issued to
Fenway, $6.7315 per share.
Redemption of Old Senior Subordinated Notes. The Fenway acquisition
constituted a "change of control" under the terms of our indenture for our
$100.0 million of 10.75% senior subordinated notes due 2006, or old notes. As a
result, we had the right to redeem the old notes at a redemption price equal to
100% of the principal amount plus accrued and unpaid interest to the date of
redemption plus an applicable premium. With a portion of the proceeds from the
Fenway acquisition and the related refinancing, we completed the redemption of
these old notes and repayment of interest in November 1998.
Refinancing of Previous Senior Credit Agreement. We terminated our
previously existing senior credit facility in connection with the Fenway
acquisition. This previous senior credit facility provided for a $40.0 million
revolving credit facility and a term loan facility of $75.0 million. When we
terminated this previous senior credit facility, we repaid approximately $69.9
million of borrowings plus accrued interest.
25
<PAGE>
The Original Offering
On March 16, 1999, we sold the notes in the original offering. We used the
proceeds from the original offering as follows:
<TABLE>
<CAPTION>
Amount
-------------
(in millions)
<S> <C>
Sources:
Proceeds of the original offering........................ $ 150.0
=======
Uses:
Repayment of bridge loans and accrued interest........... 75.4
Repayment of our junior subordinated notes and accrued
interest................................................ 31.1
Repayment of our revolving credit facility............... 15.0
Prepayment of portion of our term loan facility.......... 23.7
Payment of fees and expenses of the original offering.... 4.8
-------
Total.................................................. $ 150.0
=======
</TABLE>
A summary of the capitalization of Simmons Holdings and Simmons after the
original offering is illustrated by the diagram below:
Capitalization of Simmons Holdings and Simmons
upon completion of the original offering
[Diagram depicting summary of capitalization
of Simmons Holdings and Simmons]
26
<PAGE>
USE OF PROCEEDS
There will be no proceeds from the issuance of the exchange notes.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our actual
capitalization as of March 27, 1999. You should read this table along with the
"Selected Historical Consolidated Financial and Other Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and accompanying notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
As of March 27, 1999
--------------------
(in thousands)
<S> <C>
Cash and cash equivalents................................ $ 8,706
========
Long-term debt obligations, including current portion:
New senior credit agreement
Revolving credit facility............................ $ --
Term loan facility................................... 166,028
Industrial revenue bonds............................... 14,700
Other, including capital leases........................ 3,712
Notes.................................................. 150,000
--------
Total long-term debt............................... 334,440
Redemption obligation--Simmons ESOP, net of related
unearned compensation of $10,095........................ 13,389
Common stockholders' deficit............................. (18,447)
--------
Total capitalization............................... $329,382
========
</TABLE>
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands)
Set forth below are our selected historical consolidated financial data. We
derived our historical Statements of Operations and Balance Sheet Data for
1994, 1995, the period from December 31, 1995 through March 21, 1996, the
period from March 22, 1996 through December 28, 1996, 1997, 1998 and the three
months ended March 28, 1998 and March 27, 1999 from our consolidated financial
statements. You should read the information presented below along with
"Capitalization", "Management's Discussion and Analysis of Financial Condition
and Results of Operations", our consolidated financial statements and
accompanying notes and other financial information appearing elsewhere in this
prospectus.
As a result of the Investcorp acquisition, our assets and liabilities were
adjusted to reflect their estimated fair values as of March 22, 1996. In
addition, we entered into new financing arrangements and changed our capital
structure. Accordingly, the results for the periods subsequent to the
Investcorp acquisition are not comparable to the prior historical periods
presented.
You should note the following when reading the table below:
. EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization. We believe that EBITDA is a widely
accepted financial indicator of a company's ability to service or incur
debt and a similar measure is utilized for purposes of the covenants
contained in the indenture. EBITDA and adjusted EBITDA are not
measurements of operating performance calculated in accordance with
generally accepted accounting principles and should not be considered
substitutes for operating income, net income, cash flows from operating
activities or other statements of operations or cash flow data prepared
in accordance with generally accepted accounting principles, or as
measures of profitably or liquidity. EBITDA and adjusted EBITDA may not
be indicative of our historical operating results, nor are they meant to
be predictive of potential future results. Our measures of EBITDA and
adjusted EBITDA may not be comparable to those recorded by other
companies.
. Cash interest expense represents interest expense less amortization of
debt issuance costs and other non-cash interest expense. We believe that
the ratio of adjusted EBITDA to cash interest expense and the ratio of
adjusted EBITDA to total interest expense are widely accepted as useful
information regarding a company's ability to service and/or incur debt.
. For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before taxes and fixed charges. Fixed charges
consist of interest expense, which includes the amortization of deferred
debt issuance costs and the interest portion of our rent.
. Working capital represents total currents assets, excluding cash and
equivalent, less total current liabilities, excluding current maturities
of long-term debt and capital lease obligations.
28
<PAGE>
<TABLE>
<CAPTION>
Predecessor Successor
------------------------------- ----------------------------------------------------
Period from Period from
Dec. 31, March 22,
Year Ended 1995 1996 Year Ended Three Months Ended
------------------ through through ------------------ --------------------
Dec. 31, Dec. 30, March 21, Dec. 28, Dec. 27, Dec. 26, March 28, March 27,
1994 1995 1996 1996 1997 1998 1998 1999
-------- -------- ----------- ----------- -------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $439,689 $489,815 $106,431 $423,870 $550,085 $600,773 $ 139,392 $146,348
Cost of products sold... 269,741 292,825 66,630 254,127 319,074 348,842 83,435 85,586
-------- -------- -------- -------- -------- -------- --------- --------
Gross profit............ 169,948 196,990 39,801 169,743 231,011 251,931 55,957 60,762
Selling, general and
administrative
expenses............... 137,791 161,202 35,846 135,762 183,556 202,213 51,068 55,192
ESOP expense............ 4,463 4,533 1,203 3,797 6,230 6,453 1,475 1,792
Amortization of
intangibles............ 5,753 5,753 1,324 5,650 7,679 7,629 1,908 1,906
Interest expense,
net(1)................. 8,197 8,185 1,489 15,277 19,088 22,454 4,643 7,941
Other expense, net...... 2,517 400 96 1,557 1,571 17,544 408 521
-------- -------- -------- -------- -------- -------- --------- --------
Income (loss) before
taxes from continuing
operations............. $ 11,227 $ 16,917 $ (157) $ 7,700 $ 12,887 $ (4,362) $ (3,545) $ (6,590)
======== ======== ======== ======== ======== ======== ========= ========
Net income (loss)....... $ 7,994 $ 9,411 $ (439) $ 1,312 $ 6,362 $(19,019) $ (1,826) $ (6,653)
======== ======== ======== ======== ======== ======== ========= ========
Other Data:
Adjusted EBITDA(2)...... $ 36,498 $ 42,153 $ 5,739 $ 42,737 $ 58,420 $ 62,264 $ 7,906 $ 8,215
Adjusted EBITDA margin.. 8.3% 8.6% 5.4% 10.1% 10.6% 10.4% 5.7% 5.6%
Gross margin............ 38.7% 40.2% 37.4% 40.0% 42.0% 41.9% 40.1% 41.5%
Cash provided by (used
in) operating
activities............. $ 34,380 $ 28,513 $ (6,446) $ 2,339 $ 32,301 $(14,008) $ (1,755) $(11,736)
Cash used in investing
activities............. (4,195) (5,824) (183,461) (1,567) (15,355) (15,553) (3,755) (1,374)
Cash provided by (used
in) financing
activities............. (32,864) (22,030) 185,349 (816) (12,377) 26,488 5,195 15,792
Adjusted capital
expenditures(3)........ 4,496 3,021 523 4,203 7,616 8,989 1,560 1,665
Depreciation and
amortization........... 9,249 9,780 2,198 9,118 13,549 16,593 4,103 4,396
Cash interest expense... 7,095 6,488 1,119 14,875 18,731 21,566 4,500 7,423
Total interest expense.. 9,042 8,347 1,525 15,396 19,344 22,638 4,688 7,989
Ratio of earnings to
fixed charges(4)....... 1.9x 2.4x -- 1.4x 1.6x -- -- --
Balance Sheet Data (end
of period):
Working capital......... $ 23,077 $ 20,171 $ -- $ 42,414 $ 37,133 $ 46,567 -- $ 62,447
Total assets............ 249,891 254,492 -- 367,849 375,125 400,061 -- 409,044
Total debt, including
current maturities..... 109,435 93,768 -- 196,815 184,443 313,469 -- 334,440
Total common
stockholders' equity
(deficit).............. 41,936 44,372 -- 86,291 92,614 (12,301) -- (18,447)
</TABLE>
- --------
(1) Interest expense, net includes the amortization of deferred debt issuance
costs of $835, $679, $84, $521, $613, $777, $188 and $135 for 1994, 1995,
the period from December 31, 1995 through March 21, 1996, the period from
March 22, 1996 through December 28, 1996, 1997, 1998, and the three months
ended March 28, 1998 and March 27, 1999, respectively, and is net of
interest income of $845, $162, $36, $119, $256, $184, $45 and $48 for the
same periods, respectively.
29
<PAGE>
(2) Items added back to EBITDA to arrive at adjusted EBITDA are as follows:
<TABLE>
<CAPTION>
Predecessor Successor
----------------------------- -------------------------------------------------
Period from Period from
Dec. 31, March 22,
Year Ended 1995 1996 Year Year Three Months Ended
----------------- through through Ended Ended -------------------
Dec. 31, Dec. 30, March 21, Dec. 28, Dec. 27, Dec. 26, March 28, March 27,
1994 1995 1996 1996 1997 1998 1998 1999
-------- -------- ----------- ----------- -------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................. $ 28,673 $ 34,882 $ 3,530 $ 32,095 $ 45,524 $ 34,685 $ 5,201 $ 5,747
ESOP expense............ 4,463 4,533 1,203 3,797 6,230 6,453 1,475 1,792
Other expense, net...... 2,517 400 96 1,557 1,571 17,544 408 521
Interest income......... 845 162 36 119 256 184 45 48
Non-Recurring Expenses:
SWIFT/UNITE expense..... -- 1,815 640 3,467 2,347 2,208 641 --
Strategic management
initiatives............ -- -- -- -- 1,693 418 -- 107
Inventory written-up to
fair market value(a)... -- -- -- 1,000 -- -- -- --
Discontinued product
line................... -- 361 234 702 799 772 136 --
-------- -------- --------- ---------- -------- -------- -------- --------
Adjusted EBITDA........ $ 36,498 $ 42,153 $ 5,739 $ 42,737 $ 58,420 $ 62,264 $ 7,906 $ 8,215
======== ======== ========= ========== ======== ======== ======== ========
</TABLE>
(a) Reflects non-recurring write up to fair market value in connection with
the Investcorp acquisition.
(3) Adjusted capital expenditures are exclusive of expenditures related to
(a) our SWIFT and UNITE programs of $2,813, $1,044, $6,531, $3,786, $2,808,
$1,204 and $0 for 1995, the period from December 31, 1995 through March
21, 1996, the period from March 22, 1996 through December 28, 1996,
1997, 1998, and the three months ended March 28, 1998 and March 27,
1999, respectively; and
(b) new plant facilities of $0, $0, $2,612, $4,299, $3,756, $991 and $0 for
the same periods, respectively.
(4) Earnings were insufficient to cover fixed charges for the period from
December 31, 1995 through March 21, 1996, the year ended December 26, 1998
and the three months ended March 28, 1998 and March 27, 1999 by $157,
$4,362, $3,545 and $6,590, respectively.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with the "Selected Historical
Consolidated Financial and Other Data" and our consolidated financial
statements and the accompanying notes included elsewhere in this prospectus.
General
Simmons is a leading manufacturer and distributor of premium branded bedding
products in the United States and is the world leader in Pocketed Coil(TM)
innerspring technology. We design, manufacture, distribute and license a broad
range of mattresses, box springs, bedding frames and sleep accessories under
well recognized brand names including Simmons(R), Beautyrest(R), BackCare(R),
Connoisseur Collection(R), and Maxipedic(R). While we provide a full range of
conventional bedding products, our focus is on the higher-end market segments,
emphasizing retail price points from $699 to $2,999 per queen set. We believe
that these products offer more attractive growth prospects and higher gross
margins than lower-end products.
Results of Operations
For purposes of the discussion and the table below, the results of
operations for the year ended December 28, 1996 represent the mathematical
addition of the historical amounts for the predecessor period, December 31,
1995 through March 21, 1996 and the successor period, March 22, 1996 through
December 28, 1996. For comparability with subsequent periods, net sales, cost
of products sold, selling, general, and administrative expenses, ESOP expense,
amortization of intangibles, interest expense, net, other expense, net,
provision for income taxes and net income for the predecessor and successor
periods in 1996 have been discussed on a combined basis. We believe that a
combined discussion of predecessor and successor periods is reasonable and
appropriate because there were no material adjustments to these items resulting
from the accounting treatment of the Investcorp acquisition.
The following table sets forth some components of our consolidated statement
of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
--------------------- -----------------------
Combined March 28, March 27,
1996 1997 1998 1998 1999
-------- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold.......... 60.5 58.0 58.1 59.9 58.5
----- ----- ----- ----- -----
Gross margin................... 39.5 42.0 41.9 40.1 41.5
Selling, general and
administrative expenses....... 32.4 33.4 33.7 36.6 37.7
----- ----- ----- ----- -----
Operating income before ESOP
expense and amortization of
intangibles................... 7.1% 8.6% 8.2% 3.5% 3.8%
===== ===== ===== ===== =====
Adjusted EBITDA margin......... 9.1% 10.6% 10.4% 5.7% 5.6%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 27, 1999 as Compared to Three Months Ended March 28,
1998
Net Sales. Net sales for the three months ended March 27, 1999 increased
5.0%, or $7.0 million, from $139.4 million in the same period in 1998 to $146.4
million in 1999. The increase was due primarily to a 3.1% or $4.4 million
increase in bedding unit sales volume and a 1.9% or $2.6 million increase in
bedding average unit selling price. The growth in bedding unit sales volume
resulted primarily from increased BackCare(R) and Beautyrest(R) product
shipments. The increase in bedding average unit selling price is attributable
to sales of higher priced products, particularly in the BackCare(R) line.
31
<PAGE>
Cost of Products Sold. As a percentage of net sales, cost of products sold
for the three months ended March 27, 1999 decreased to 58.5% from 59.9% for the
same period in 1998. Our improvement in gross margin for 1999 reflects raw
material cost efficiencies resulting from higher levels of procurement and
increased productivity in certain of our manufacturing facilities. Gross
margins during this period also benefited from the increase in bedding average
unit selling price described above.
Selling, General and Administrative Expenses. As a percentage of net sales,
selling, general and administrative expenses for the three months ended March
27, 1999 increased to 37.7% from 36.6% for the same period in 1998. We
attribute this increase to an increase in marketing expenditures and consulting
expenditures. Marketing expenditures increased due to higher advertising and
promotion costs. Consulting fees increased due to various initiatives
undertaken.
ESOP Expense. ESOP expense increased to $1.8 million for the three months
ended March 27, 1999 from $1.5 million for the same period in 1998. We
attribute this increase to an increase in the appraised value of the shares
subject to the Simmons ESOP in 1999.
Amortization of Intangibles. Amortization of intangibles for the quarter
remained relatively stable at approximately $1.9 million.
Interest Expense, Net. Interest expense, net increased $3.3 million to $7.9
million for the three months ended March 27, 1999 from $4.6 million for the
same period in 1998 due primarily to increased indebtedness resulting from the
Fenway acquisition.
Other Expense, Net. Other expense, net increased slightly to $0.5 million
for the three months ended March 27, 1999 from $0.4 million for the same period
in 1998. We attribute this slight increase to an increase in management
advisory service fees.
Provision for Income Taxes. Our effective tax rates for the three months
ended March 27, 1999 and March 28, 1998 differ from the federal statutory rate
primarily because of non tax-deductible amortization of goodwill.
Extraordinary Item. In the three months ended March 27, 1999, we recorded a
$3.3 million extraordinary charge representing the remaining unamortized debt
issuance costs related to certain long-term obligations repaid in connection
with the original offering.
Net Loss. For the reasons set forth above, we incurred a net loss of $6.7
million for the three months ended March 27, 1999 compared to a $1.8 million
loss for the same period in 1998.
Fiscal 1998 as Compared to Fiscal 1997
Net Sales. Net sales increased 9.2%, or $50.7 million, from $550.1 million
in 1997 to $600.8 million in 1998. We attribute $29.2 million of this increase
to a 5.3% increase in our bedding unit sales volume and $21.5 million of it to
a 3.9% increase in our bedding average unit selling price. The growth in
bedding unit sales volume resulted primarily from increased BackCare(R) product
shipments and an increase in open coil contract bedding sales in the last three
quarters of 1998. Bedding average unit selling price increased due to a shift
in our product mix to higher priced products, particularly in the Beautyrest(R)
and BackCare(R) lines.
Cost of Products Sold. As a percentage of net sales, cost of products sold
for 1998 remained stable at approximately 58.1% as compared to the same time
period a year ago. Our gross margins for 1998 reflect an increase in unit sales
of some premium products with gross margins lower than our average, offset by
raw material cost efficiencies together with higher levels of procurement.
Gross margins during 1998 also benefited from the increase in bedding average
unit selling price described above.
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Selling, General and Administrative Expenses. As a percentage of net sales,
selling, general and administrative expenses increased from 33.4% in 1997 to
33.7% in 1998. We attribute this increase to an increase in marketing
expenditures and to higher depreciation expense, offset, in part, by increased
royalty income, a lower bad debt provision and reduced discretionary
expenditures. Marketing expenditures increased due to higher cooperative
advertising and promotion costs. Depreciation increased due to the amortization
of the systems upgrade project.
ESOP Expense. ESOP expense increased slightly from $6.2 million in 1997 to
$6.5 million in 1998. We attribute this slight increase to an increase in the
appraised value of the shares subject to the Simmons ESOP in 1998.
Amortization of Intangibles. Amortization of intangibles for 1998 remained
relatively stable at approximately $7.6 million.
Interest Expense, Net. Interest expense, net increased $3.4 million from
$19.1 million in 1997 to $22.5 million in 1998 due primarily to increased
indebtedness and higher interest rates primarily in the fourth quarter of 1998.
Other Expense, Net. Other expense, net increased $15.9 million from $1.6
million in 1997 to $17.5 million in 1998. We attribute the increase to various
non-recurring expenses incurred in connection with the Fenway acquisition.
Provision for Income Taxes. Our effective tax rates for 1997 and 1998 differ
from the federal statutory rate primarily because of non tax-deductible
amortization of goodwill.
Extraordinary Item. In 1998, we recorded a $15.0 million extraordinary
charge representing the remaining unamortized debt issuance costs related to
the repayment of some long-term obligations repaid and the redemption of the
old senior subordinated notes in connection with the Fenway acquisition.
Net Income. For the reasons set forth above, we incurred a net loss of $19.0
million as compared to net income of $6.4 million for 1997.
Fiscal 1997 as Compared to Fiscal 1996
Net Sales. Net sales increased 3.7%, or $19.8 million, from $530.3 million
in 1996 to $550.1 million in 1997. $22.8 million of this increase was due
primarily to a 4.4% increase in our bedding average unit selling price and the
balance of the increase was due to a relatively slight increase in our unit
sales volume. We attribute the strong improvement in bedding average unit
selling price to an increase in Beautyrest(R) sales as a percentage of total
sales and to sales of higher-priced BackCare(R) products. Unit sales volume
increased only slightly in 1997 due to the following:
(1) a substantial sales decline resulting from our spring, 1997 decision
to discontinue our supply relationship with Mattress Discounters, Inc., our
largest customer in 1996, when the terms of the relationship did not meet
our account profitability expectations;
(2) the repositioning of the BackCare(R) product line to be consistent
with our overall marketing strategy; and
(3) lost sales volume during the bankruptcy proceedings of Montgomery
Ward & Co. and Levitz Furniture, Inc. However, due to the breadth of
penetration and continued consumer acceptance of our Beautyrest(R) and
BackCare(R) product lines, we were able to replace revenues lost as a
result of our decision to discontinue our relationship with Mattress
Discounters, Inc.
The bankruptcy filings and the Mattress Discounters, Inc. decision have not
had, and we do not expect them to have, any material adverse effect on our
financial condition.
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Cost of Products Sold. As a percentage of net sales, cost of products sold
decreased 2.5 percentage points from 60.5% in 1996 to 58.0% in 1997. We
attribute this improvement to the following:
(1) an increase in sales of Beautyrest(R) products as a percentage of
total sales;
(2) relatively stable raw material costs; and
(3) improved operating efficiencies due to the effect of the completed
implementation of our UNITE reengineering program; and
(4) writing up, as required by the principles of purchase accounting,
the cost of products sold in 1996 reflecting the sale of finished goods
inventory to net realizable value as of the date of the Investcorp
Acquisition.
Selling, General and Administrative Expenses. As a percentage of net sales,
selling, general and administrative expenses increased 1.0% from 32.4% in 1996
to 33.4% in 1997. We attribute this to the following:
(1) higher consulting fees and other expenditures associated with
strategic initiatives we undertook;
(2) additional expenses, as well as a partial year of amortization
expense related to the rollout of SWIFT, our systems upgrade project;
(3) an increase in selling expenses related to competitive sales
promotion programs and additional sales personnel;
(4) an increase in distribution costs due to contractual increases and
expansion into outlying territories; and
(5) a higher provision for uncollectible accounts.
ESOP Expense. ESOP expense increased by $1.2 million from approximately
$5.0 million in 1996 to $6.2 million in 1997 due primarily to an increase in
the number of eligible participants.
Amortization of Intangibles. Amortization of intangible assets increased
$0.7 million from $7.0 million in 1996 to $7.7 million in 1997 due primarily
to a full year of amortization relating to the increase in goodwill resulting
from purchase accounting adjustments made in connection with the Investcorp
acquisition.
Interest Expense, Net. Interest expense, net increased $2.3 million from
$16.8 million in 1996 to $19.1 million in 1997 due primarily to a full year of
interest expense which resulted from financing in connection with the
Investcorp acquisition. See Note 8 to our consolidated financial statements.
Other Expense, Net. Other expense, net remained relatively stable,
decreasing $.08 million from $1.65 million in 1996 to $1.57 million in 1997.
Provision for Income Taxes. Our effective tax rates for 1996 and 1997
differ from the federal statutory rate primarily because of non tax-deductible
amortization of goodwill.
Net Income. For the reasons set forth above, we earned net income of $6.4
million in 1997 as compared to net income of $0.9 million in 1996.
Liquidity and Capital Resources
Our principal source of cash to fund liquidity needs is net cash provided
by operating activities and availability under our new senior credit
agreement. Our primary use of funds consists of payments of principal and
interest, and capital expenditures.
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Our operating activities used cash of $11.8 million in the first quarter of
1999 compared to $1.8 million used in the first quarter of 1999. The difference
is due primarily to a higher net loss during the quarter, the timing of
payments of accounts payable and the timing of accounts receivable collections.
Our capital expenditures totaled $1.7 million for the first quarter of 1999.
These capital expenditures consisted primarily of normal recurring capital
expenditures. We expect to spend approximately $9.0 million for 1999 capital
expenditures. We believe that annual capital expenditure limitations in our new
senior credit agreement and the indenture will not significantly inhibit us
from meeting our ongoing capital needs.
Our operating activities used cash of $14.0 million in 1998 compared to cash
generated of $32.3 million in 1997. The difference is due primarily to the cash
expenses incurred in 1998 in connection with the Fenway acquisition, as well as
the timing of accounts receivable collections and the timing of payments of
accounts payable and accrued liabilities.
Our capital expenditures totaled $15.6 million for 1998. These capital
expenditures consisted primarily of normal recurring capital expenditures in
the amount of $9.0 million, capital expenditures relating to the construction
of new manufacturing facilities in the amount of $3.8 million and capital
expenditures related to our systems upgrade project in the amount of $2.8
million.
In connection with the Investcorp acquisition in 1996, we entered into our
previous senior credit facility, which provided for a $40.0 million revolving
credit facility and a $75.0 million term loan facility. In addition, we issued
$100.0 million of senior subordinated notes.
As of March 27, 1999, we had no borrowings and $79.4 million available under
our revolving credit facility. As of March 27, 1999, we were in compliance with
the financial covenants contained in our new senior credit agreement.
To finance, in part, the Fenway acquisition, we incurred substantial
additional indebtedness. Specifically, we used borrowings under our new senior
credit agreement and our senior bridge loan agreement to repay borrowings under
our previous senior credit facility and our old senior subordinated notes
issued in 1996.
We used the net proceeds from the original offering to:
(1) repay the indebtedness under our senior bridge loan agreement and the
junior subordinated notes issued by us and accrued interest;
(2) repay the amounts outstanding under our revolving credit facility and
accrued interest; and
(3) prepay a portion of the amounts outstanding under our term loan facility
and accrued interest.
After the consummation of the exchange offer, one of our primary uses of
cash will be to make interest payments on the exchange notes and interest and
principal payments under our new senior credit agreement.
Our new senior credit agreement provides for loans of up to $270.0 million,
consisting of our term loan facility of $190.0 million and our revolving loan
facility of $80.0 million. We distributed a portion of the proceeds of our term
loan facility and our initial borrowings under our revolving credit facility to
Simmons Holdings to provide a portion of the funds necessary to consummate the
Fenway acquisition. Following the prepayments made from the proceeds of the
original offering, our term loan facility was reduced to approximately $166.1
million and will require no principal amortization payments in 1999 and will
require aggregate annual principal amortization payments of $0.5 million in
2000 and $3.5 million in 2001. Interest rates are variable and, based on
current interest rates, we estimate annual interest expense under our new
senior credit agreement to be $13.6 million.
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For more information about the terms of our new senior credit agreement
including covenants, guarantees and collateralization, see "Other
Indebtedness--New Senior Credit Agreement". For more information about
covenants and restrictions on actions by us and our subsidiaries under the
indenture, see "Description of the Exchange Notes".
We regularly evaluate potential acquisition opportunities to support and
strengthen our business, although there are no binding agreements with respect
to any particular acquisition or joint venture at this time. We cannot assure
you that in the future we will be able to acquire suitable acquisition
candidates on acceptable terms or that future acquisitions, if completed, will
be successful. Moreover, we cannot assure you that we will be able to find
adequate sources of capital to finance these acquisitions. We may need to incur
additional debt and contingent liabilities, which could have a material adverse
effect on our business, operating results and financial condition in order to
effect future acquisitions. The success of any completed acquisition will
depend on our ability to integrate effectively the acquired business. The
process of integrating acquired businesses involves numerous risks, including
difficulties in the assimilation of operations and products, the diversion of
management's attention from other business concerns, risks of entering markets
in which we have limited or no direct prior experience and the potential loss
of key employees of the acquired businesses. See "Risk Factors--Acquisition
Integration".
Our ability to pay principal, interest or liquidated damages, if any, on our
indebtedness, including the exchange notes, will depend on our future
performance. Our ability to refinance indebtedness or to fund planned capital
expenditures and research and development will also depend on our future
performance. Our future performance is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. Based upon our current level of operations, we believe that cash flow
from operations and available cash, together with available borrowings under
our new senior credit agreement, will be adequate to meet our future liquidity
needs for at least the next several years. However, we cannot assure you that
our business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under our new senior credit agreement in an
amount sufficient to enable us to service our indebtedness, including the
exchange notes, or to fund our other liquidity needs. If our business does not
generate sufficient cash flow, we may not be able to effect any refinancing of
our existing indebtedness on commercially reasonable terms or at all.
Seasonality
Our volume of sales is somewhat seasonal, with sales generally lower during
the first quarter of each year than in the remaining three quarters of the
year. Historically, our working capital borrowings have increased during the
first half of each year and have decreased in the second half of each year. We
also experience a seasonal fluctuation in profitability, with our gross profit
percentage during the first quarter of each year slightly lower than the margin
percentages obtained in the remaining part of the year. We believe that
seasonality of profitability is a factor that affects the conventional bedding
industry generally and that it 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. These two factors
together result in lower profit margins.
Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments, including derivative instruments embedded in other
contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Financial statements for prior periods need not
be restated. We are currently reviewing the provisions of SFAS No. 133 and do
not believe that our financial statements will be materially impacted by the
adoption of this provision.
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Significant Customer Developments
During the year ended December 27, 1997, Montgomery Ward & Co. and Levitz
Furniture Inc., two of our ten largest customers, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. As of December 27, 1997 and the date of
each of the bankruptcy filings, we had the reserves necessary to cover our
estimated exposure. For a period prior to the filings under the bankruptcy
code, we halted shipments to Montgomery Ward & Co. and Levitz Furniture Inc. to
minimize our exposure. Subsequent to the filing, after taking further steps to
minimize exposure we recommenced shipments to the retailers. These situations
have not had a material adverse effect on our financial position or results of
operation.
Year 2000 Readiness Disclosure
Issues relating to the year 2000 are the result of computer programs and
embedded-chip systems being written or developed using two digits rather than
four to define the applicable year. Any of our computer programs or embedded-
chip systems that have date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, obtain raw
materials, manufacture or ship products, generate invoices, or engage in
similar normal business activities.
We formed a committee consisting of personnel from all of our major
disciplines to address risks associated with the year 2000 issue. The committee
developed a list of all of our information systems and investigated each system
to determine its year 2000 readiness.
With the upgrade of our enterprise wide information system we undertook in
1995, which is substantially complete today, our information systems are
largely year 2000 compliant. However, certain of our office computer systems
are not year 2000 compliant. We will complete a year 2000 upgrade of these
remaining systems that are not year 2000 compliant by the third quarter of
1999. We currently expect costs to complete the year 2000 upgrade will include
internal data processing resources, as well as some external consultant fees to
assist in the effort. The fiscal year 1999 cost of this initiative through
March 26, 1999 was approximately $0.3 million all of which was expensed in the
first quarter of 1999. We anticipate that additional costs to bring all of our
systems into year 2000 compliance, consisting of costs related to personal
computer replacements and upgrades, will be approximately $2.1 million, of
which we estimate $1.6 million will be expensed in 1999. Our internal resources
to address the Year 2000 issue consist of approximately five full-time
employees.
We believe that our main system hardware and operating systems, as well as
our networking operating systems are all year 2000 compliant. We also use
manufacturing processes that include computer controlled equipment. We have
completed the assessment and remediation of equipment with embedded chips or
software. We have completed approximately 75% of the testing of remediation of
our equipment. Once testing is complete, our equipment should be compliant. We
expect to complete testing and implementation of updated equipment by July
1999.
Our facilities staff is also currently investigating the status of our non-
information systems with respect to year 2000 compliance. These non-information
systems include phones, voicemail, heating/air conditioning, electricity and
security systems. We believe that all of our non-information systems are year
2000 compliant.
In addition to reviewing our internal systems, we have polled our
significant suppliers, customers and freight carriers to determine whether they
are year 2000 compliant and, if not, the extent to which our operations may be
adversely affected as a result of their failure to be year 2000 compliant. Of
104 third party sources of goods and services we surveyed, we received 84
responses reflecting approximately 90% of our purchase volume. In particular,
Leggett & Platt, our major supplier, has informed us that all of its critical
central systems have been converted to year 2000 compliant software and
individual system testing is substantially complete. In total, Leggett & Platt
management estimates that the Year 2000 systems conversion effort is 85%
complete as of March 1999. We do not anticipate material adverse effects from
foreign suppliers of goods and services as a result of the date change to year
2000. We have received written confirmations
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regarding year 2000 compliance from all of our equipment manufacturers,
including all foreign manufacturers. Although we have received assurances from
most of our suppliers, customers and freight carriers we cannot determine the
extent to which our operations may be adversely affected by the failure of our
suppliers to be year 2000 compliant or assure you that such adverse effect will
not occur.
The costs of our year 2000 initiatives and their completion dates are based
upon best estimates and derived using various assumptions of future events
including the continued availability of resources, third party statements of
compliance and other factors. To date, we have not encountered any problems
implementing year 2000 remediation. However, we cannot guarantee that these
estimates will be achieved and actual results could differ materially from
these plans. See "Risk Factors--Year 2000 Issue".
Based upon the progress made to date in assessing our year 2000 issues and
our compliance with year 2000 issues related to primary business information
systems, we do not foresee significant adverse effects from the date change to
year 2000 at this time.
With respect to the risks associated with our information and non-
information systems, we believe that the most likely worst case scenario is
that we may experience minor system malfunctions and errors in the early days
and weeks of the year 2000 that were not detected during our testing and
remediation efforts. We also believe that these problems will not have a
material effect on our financial condition or results of operations, although
if our remediation and testing program is delayed or inadequate, our financial
condition or results of operations could be materially adversely affected.
With respect to the risks associated with third parties, as our
manufacturing processes rely on the "just-in-time" delivery of raw materials
from our major suppliers, we believe that the most likely worst case scenario
is that some of our suppliers will not be year 2000 compliant and will have
difficulty filling orders and delivering goods. As noted above, we have
surveyed most of our suppliers about their year 2000 readiness postures and,
based on their responses, expect that they will be in substantial compliance
with year 2000 protocols. If shipments of raw materials from one or more of our
suppliers are disrupted or delayed in the early days and weeks of year 2000, we
intend to use alternate suppliers. If we are unable to obtain raw materials
from alternate suppliers, or if Leggett & Platt, which provides us several
types of materials that are not available from other suppliers, has its
operations disrupted or delayed in the early days and weeks of year 2000, our
financial condition or results of operations could be materially adversely
affected.
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BUSINESS
Simmons
Founded in 1871, Simmons is a leading manufacturer and distributor of
premium branded bedding products in the United States and the world leader in
Pocketed Coil(TM) innerspring technology. We manufacture and license a broad
range of mattresses and related sleep products under well-recognized brand
names including:
. Simmons(R)
. Beautyrest(R)
. BackCare(R)
. Connoisseur Collection(R)
. Maxipedic(R)
Our Beautyrest(R) line has been our flagship product since its introduction
in 1925. While we provide a full range of conventional bedding products, we
focus on higher-end market segments, emphasizing retail price points from $699
to $2,999 per queen set. In 1998, we derived approximately 54% of our net sales
from products sold at these price points which we believe offer more attractive
growth prospects and higher gross margins than lower-end products. For the year
ended December 26, 1998, we generated:
. net sales of $600.8 million, an increase of 9.2% over 1997; and
. Adjusted EBITDA of $62.3 million, an increase of 6.6% over 1997.
We believe that our net sales combined with the sales of third party
licensees make Simmons(R) the largest selling bedding products brand in the
world.
We sell to a diversified nationwide base of over 2,700 customers,
representing more than 5,500 retail outlets. We support our sales to furniture
stores, specialty sleep shops, department stores and warehouse showrooms with
significant local and national brand advertising and promotional spending as
well as extensive customer support services. We operate 18 strategically
located manufacturing facilities across the United States and in Puerto Rico.
Unlike most of our competitors, which operate as associations of independent
licensees, we are one of two national industry participants that operates each
of its manufacturing facilities, allowing us greater quality control and
standardization of best manufacturing practices.
Since 1995, we have invested approximately $28 million in re-engineering our
manufacturing operations and updating our information systems to improve our
cost structure, manufacturing productivity and operational controls. We believe
our substantial annual research and development investments enable us to be an
industry leader in the development of innovative and new products. In summary,
we believe that our national distribution, extensive brand advertising,
customer support services and captive manufacturing create significant
advantages over smaller regional manufacturers as well as those national
competitors that operate as associations of independent licensees. Our business
plan will be executed by an experienced and proven senior management team
averaging over 19 years of experience in the bedding industry and led by
Chairman, Chief Executive Officer and President Zenon Nie.
Industry Overview
The domestic wholesale bedding industry generated sales of over $3.8 billion
in 1998. Although fragmented with approximately 800 manufacturers, the industry
is mature and stable, and has enjoyed the attributes described below.
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Consistent Growth. From 1978 to 1998, the domestic wholesale bedding
industry experienced a compound annual growth rate of 6.6%, with sales volumes
increasing in all but one of those 20 years. Similarly, average unit selling
prices increased every year over the same period and grew at an annual rate
of 3.6%. In addition, we believe the bedding industry offers attractive growth
prospects to larger, well-positioned competitors like us that have the ability
to offer differentiated, branded products, effective national and regional
promotion, just-in-time product delivery and significant levels of customer
support services.
Domestic Wholesale Bedding Sales
(dollars in billions)
78 79 80 81 82 83 84 85 86 87
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
$1.1 $1.2 $1.3 $1.4 $1.4 $1.6 $1.7 $1.8 $1.9 $2.1
88 89 90 91 92 93 94 95 96 97
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
$2.3 $2.3 $2.3 $2.4 $2.6 $2.8 $3.0 $3.2 $3.3 $3.6
98
- ----
$3.8
Stability and Profitability. In each year since 1986, the bedding industry
has demonstrated highly consistent gross margins ranging between 29% and 32%.
We attribute this consistent profitability to the high variable cost structure
of the manufacturing process and the high retail margins associated with
bedding products relative to other products. Bedding manufacturing is largely
an assembly operation with raw materials and labor accounting for approximately
80% of total cost of goods sold. In addition, bedding products are generally
manufactured to order. Bedding also offers an estimated 45% gross margin to
retailers as well as some of the highest sales per square foot and return on
inventory of all retail furniture products. Consequently, even in circumstances
of fluctuating demand retailers continue to strongly promote sales of bedding
products. Finally, the stability of the bedding market is further supported by
the fact that over 70% of bedding sales result from replacement purchases.
Industry Gross Profit Margin
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
$32% 31% 30% 30% 29% 30% 30% 30% 31% 32% 32%
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Favorable Demographics. In recent years, favorable demographic trends have
supported industry growth across all bedding price points. In particular, we
believe that Simmons will benefit from the increased demand for larger sized
and higher priced, premium bedding. In 1997, king and queen sized bedding
accounted for 39% of wholesale bedding sales, compared to 30% in 1990. We
believe that key demographic trends are driving growth in the demand for larger
sized, premium bedding products including:
. the rapidly growing 45-64 year old population category, a group with
higher levels of disposable income and which historically has been more
likely to purchase premium bedding;
. the increasing consumer awareness of the health related benefits of
proper rest; and
. the increasing number and size of bedrooms in homes.
[Graph depicting historical and projected
domestic populations by age category, 1990-2010]
Competitive Strengths
Consumers generally have limited knowledge of specific bedding products and,
on average, shop for bedding only once every seven to eight years. As a result,
consumers rely heavily on brand awareness and the retail salesperson in making
their purchase decision. We believe that the most successful bedding
manufacturers are those that are best able to meet retailers' needs by offering
broad, differentiated product lines with recognizable brand names and
substantial sales force product education programs, as well as strong marketing
and customer support services. We believe that the following competitive
strengths are the principal success factors underlying our position as a leader
in the bedding products industry:
Superior Brand Recognition. We enjoy strong brand recognition through our
well-established brand names, including: Simmons(R), Beautyrest(R),
BackCare(R), Connoisseur Collection(R) and Maxipedic(R). We believe the
strength of our brands is an important factor in maintaining existing and
establishing new retail and end-user customers. We also continue to seek to
strengthen our brand recognition through national advertising, such as our
award-winning "Do Not Disturb" campaign. We believe that the consolidation of
the bedding industry will continue to favor strong branded companies such as
ours, as many retailers are focusing on promoting leading brands while reducing
their number of suppliers.
Strong Competitive Positioning. We believe we are well-positioned for
continued profitability and growth due to our premium product focus,
recognizable brand names and reputation for innovation and quality, all of
which have contributed to our strong market share. Our emphasis on premium,
name brand products, such as Beautyrest(R), BackCare(R) and Connoisseur
Collection(R), enables us to take advantage of the current demographic trends
driving demand for larger sized, higher priced premium bedding products which
typically carry a higher margin. Our product positioning emphasizes retail
price points from $699 to $2,999 per queen
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set. While approximately one-half of our net sales is derived from beds priced
in this range, industry-wide sales in this same price range amount to
approximately one-third of total sales. As a result of our focus on premium
bedding, our gross margin in 1998 was approximately 42% compared to an industry
average of 32% in recent years.
High Quality and Diverse Customer Base. Our reputation for high quality
products, innovation and customer service, together with the highly attractive
retail margins associated with bedding products, has enabled us to establish a
strong nationwide customer base. Our current customer base represents over
5,500 retail outlets, and we have had on average a 27 year relationship with
our top 10 customers. Our 2,700 customers reflect our significant presence in
all major bedding distribution channels, including furniture stores, specialty
sleep shops, department stores and warehouse showrooms. We believe our
extensive customer support programs, which include cooperative local
advertising, merchandising and marketing assistance and customer sales staff
training and incentive programs, are the key to maintaining our strong customer
relationships.
Focused Research and Development. In order to maintain and improve our
strong industry position, we invest substantially in developing new products,
enhancing existing products and improving our operating processes. For example,
we developed our BackCare(R) product line to address consumer demand for
products in the health conscious segment of the bedding market. BackCare(R) is
quickly gaining market acceptance. We believe that our strong research and
development capabilities will enable us to continually introduce new and
innovative products and product improvements and further enhance our retail
customer relationships. We also seek to reduce costs and improve productivity
by continually developing more efficient manufacturing and distribution
processes.
Experienced Management Team with Exceptional Track Record. Since 1993,
industry veteran and Simmons Chairman, Chief Executive Officer and President,
Zenon Nie, has led a highly experienced management team with exceptional sales,
marketing and manufacturing expertise. Our top 13 executive officers have over
245 years of combined experience in the bedding industry and over 160 years of
combined experience with Simmons and are highly focused on increasing sales as
well as profitability. From 1994 to 1998, our management team:
.achieved sales growth of 8.1% versus an industry average growth rate of
6.1%;
.improved our gross margin from 38.7% to 41.9%; and
.increased our Adjusted EBITDA margin from 8.3% to 10.4%.
Business Strategy
Continue to Build Brand Equity. We plan to continue to support and leverage
our significant brand equity. Brand recognition is critical in the bedding
industry, in which strong brand names influence both customer preferences and
retailer floor space allocation. Our regional promotional and national
advertising programs are targeted to increase sales of our core Beautyrest(R)
and BackCare(R) product lines. In particular, we have recently followed our
award-winning "Do Not Disturb" advertising campaign with a sequel commercial
entitled "Leap of Faith" to support the Beautyrest(R) line and we recently
launched our "Five Zones For Your Bones" campaign to provide first time
national marketing support for our BackCare(R) line. We believe that such
consistent investments in our brands will result in continued growth.
Enhance Customer Base. We have a targeted sales and marketing campaign
directed at increasing the profitability and size of our customer base. We
continuously analyze and rationalize our account base to ensure that both
existing and new customer opportunities meet our profitability guidelines. For
example, in the spring of 1997, we decided to end our supply relationship with
Mattress Discounters, Inc. because it no longer met our minimum profit
requirements. We believe that our ability to attract new customers is primarily
attributable
42
<PAGE>
to our highly effective advertising campaigns, superior levels of customer
service and extensive customer support programs. Through our 200 direct sales
representatives, we have targeted a significant number of potential new
accounts with the objective of profitably increasing our revenues and market
share. In particular, we intend to target certain national specialty sleep
shops, the fastest growing retail bedding distribution channel.
Strengthen Current Customer Relationships. We are focused on increasing
sales to existing accounts by introducing new and innovative products,
emphasizing more profitable product lines and continually enhancing customer
support services. We believe that our product lines are among our retail
customers' most profitable products and that our customers typically allocate a
significant share of floor space to Simmons(R) products. To continue to
strengthen our customer relationships, we will continue to invest in and
improve our extensive customer support programs, which include cooperative
local advertising, merchandising assistance and customer sales staff training
and incentive programs.
Improve Operating Productivity and Efficiency. We intend to continue to
invest in focused programs to reduce costs and improve productivity and
operating efficiencies. We have largely completed initiatives that we began in
1995 to re-engineer our manufacturing processes and to upgrade our information
systems. These initiatives have contributed to the increase in our adjusted
EBITDA margin from 8.6% in 1995 to 10.4% in 1998. Our productivity enhancement
initiatives were implemented in eleven of our 18 manufacturing facilities as of
the end of 1998. Our average manufacturing productivity, measured by pieces per
person-hour, increased approximately 8.0% between 1995 and 1998. We expect to
realize additional operating efficiencies and cost savings in the near term as
these programs are completed.
Pursue Selected Complementary Acquisitions. We regularly evaluate potential
acquisition opportunities to support and strengthen our business. In general,
we intend to explore acquisitions in order to broaden our product lines and
geographic distribution and achieve additional operating efficiencies. We have
no agreements with respect to any particular acquisition or joint venture at
this time.
Products
We provide our customers with a full range of mattress products that cover
the breadth of the market price points. Our strategic focus is on premium
bedding products sold at retail price points between $699 and $2,999. We derive
approximately 54% of our net sales from products sold at these price points.
We believe that the higher end market segment is attractive to bedding
retailers who are increasingly focused on branded products to enhance and
differentiate their business as well as to increase profitability. We further
believe that the following should support an increasing consumer shift towards
larger, higher priced and technologically advanced mattresses:
. the rapidly growing 45-64 year old population category, a group with
increased levels of disposable income;
. an increasing consumer awareness of the health-related benefits of proper
rest; and
. an increasing number and size of bedrooms in homes.
We employ two different base manufacturing technologies in our mattresses,
the pocketed coil and the open coil, and market our products under a variety of
well known brands. Most of our products are based on our patented Pocketed
Coil(TM) technology, which we believe offers a substantially better sleep
experience than our competitors' products. Pocketed Coil(TM) products such as
the Beautyrest(R) line account for the majority of our sales, as well as our
retail floor presence and brand image.
Our Beautyrest(R) and Connoisseur Collection(R) lines employ Pocketed
Coil(TM) manufacturing technology. Pocketed Coil(TM) mattresses are designed to
be the most comfortable and durable mattresses in the market.
43
<PAGE>
Unlike open coil mattresses in which each innerspring coil is joined to
adjacent coils at the top and the bottom, Pocketed Coil(TM) innersprings are
constructed so that each row of innerspring coils is joined to adjacent rows of
coils in the center third of the fabric pocket enclosing each coil. This
permits the top and bottom of each coil to respond independently to pressure
applied to the surface of the mattress. Pocketed Coil(TM) design is unique to
us. It enables the mattress to contour to the user's body, reduces lateral
transmission of movement in the mattress and provides exceptional comfort.
Beautyrest(R). Beautyrest(R), our flagship premium product, has been our
primary focus for 74 years and we expect it to continue to generate the
majority of sales. Beautyrest(R) has employed Pocketed Coil(TM) technology
since its introduction in 1925. The Beautyrest(R) line is available to end-
users through a broad range of distribution channels including furniture
stores, major department stores, specialty sleep shops and warehouse showrooms.
Connoisseur Collection(R). We introduced the Connoisseur Collection(R) line
to capitalize on the accelerating growth in the premium bedding segment. The
Connoisseur Collection(R) line combines the benefits of Pocketed Coil(TM)
technology with variable pressure foam for maximum comfort and support. The
Connoisseur Collection(R) product line is primarily available through selected
major department stores and specialty sleep shops.
BackCare(R). We introduced BackCare(R), a second flagship brand, in 1995.
The BackCare(R) line was created to meet the needs of health conscious
consumers, as well as chronic back pain sufferers. We are positioning
BackCare(R) as another of our premium bedding products. BackCare(R) has
received an endorsement from the National Foundation for Spinal Health.
BackCare(R) employs five zone construction designed through each element of the
sleep set. Anatomic foam provides support under the lower back and thighs while
offering comfort under the calves, upper shoulders and buttocks. Anatomic foam
also allows the back to better assume a natural position ensuring proper spinal
alignment and comfort.
We expect increasing consumer concerns for comfort and health to help
support increased retail penetration of the BackCare(R) product line. To ensure
continued retail penetration, we have developed a BackCare(R) national
television advertising campaign entitled "Five Zones for Your Bones". We have
also hired BackCare(R) sales managers who will focus exclusively on the
BackCare(R) product line.
Maxipedic(R). Maxipedic(R) provides our customers with a superior open coil
product. The Maxipedic(R) mattress features non-skid quilting and a variety of
high quality foam components. The matching foundation features a steel grid
that anchors the coils, reducing lateral motion and providing uniform firmness.
This product is intended to provide customers with a high quality, moderately
priced, open coil product.
Customers
Our strong brand name and reputation for high quality products, innovation
and service to our customers, together with the highly attractive retail
margins associated with bedding products, have enabled us to establish a strong
customer base throughout the United States and across all major distribution
channels, including furniture stores, specialty sleep shops, department stores
and warehouse showrooms. We manufacture and supply conventional bedding to over
5,500 retail outlets, representing more than 2,700 customers. Furthermore, our
sales to specialty sleep shops, the fastest growing channel of retail bedding
distribution, has been increasing.
We also distribute branded products on a contract sale basis directly to
commercial users of bedding products such as hotels, motels, and commercial
centers. Major commercial accounts include Westin Hotel Limited Partnership,
Hyatt Corporation, Marriott International, Inc. and The Walt Disney Company.
We have enjoyed on average, a 27 year relationship with our top ten
customers. Our 10 largest customers accounted for approximately 38% of 1998 net
sales, while sales to Heilig-Meyers Company and its subsidiaries, including
Rhodes, Inc., represented approximately 11.8% of 1998 net sales.
44
<PAGE>
As a result of our strong brand names, national manufacturing, distribution
capabilities and broad product line, we have been able to successfully
capitalize on the trend of retailers moving toward sole-source vendors. For
example, the Heilig-Meyers Company, after a test market program, decided to
carry only Simmons bedding products at its Heilig-Meyers furniture stores.
Sales, Marketing and Advertising
Our products are sold by approximately 200 local field sales
representatives, backed by sales management centralized at each of our 18
manufacturing facilities, as well as national account representatives. This
selling infrastructure provides retailers with coordinated national marketing
campaigns as well as local support that is tailored to the competitive
environment of the local market.
Our marketing strategy focuses on two areas:
(1) cooperative promotional advertising and other retailer support
programs designed to complement individual retailers' marketing programs;
and
(2) national advertising designed to establish and build brand awareness
with consumers.
We spend approximately 88% of our promotional budget on regional and local
retailer programs. We develop advertising and retail sales incentive packages
specifically for each individual retailer. Point-of-sale materials including
mattresses and box springs that we design and supply highlight the
differentiating features of our products. In addition, we offer training for
retail sales people through our Mattress Business Academy programs. We believe
that our sales training and consumer education programs are the most extensive
in the bedding industry. We have designed these programs, delivered on-site at
our retailers' facilities or at our research and education center, to teach
retail floor salespeople how to match customers with their mattress comfort
preference by improving the retail floor salespersons' product knowledge and
sales skills. We seek to improve our retailers' unit sales as well as increase
sales of bedding in the higher price segment. We also establish individual
incentive programs for our customers and their sales personnel. Our sales force
is trained extensively in advertising, merchandising and salesmanship which
increases the value of the marketing support they provide to retailers. We
believe that our focus on the training of sales representatives and our
customers' retail floor salespeople differentiates us from most of our largest
competitors.
Regionally, we conduct advertising on a cooperative basis and reimburse up
to 50% of some advertising costs of our retailers subject to minimum sales
volume requirements. We believe cooperative advertising fosters strong
relationships with retailers, who exert significant influence on the consumer's
purchasing decision.
We spend approximately 12% of our promotional budget on activities to build
national brand awareness, primarily in the form of national advertising. We
seek to build long-term brand awareness through regular national advertising
and to achieve short-term sales objectives through local and regional
television and radio programming and print advertising. We have developed a
strong reputation for innovative advertising campaigns. We launched the "Do Not
Disturb" campaign, one of our most successful, in the spring of 1995. The "Do
Not Disturb" campaign was created to build awareness of how our Beautyrest(R)
mattress facilitates independent motion. As testimony to the effectiveness of
the "Do Not Disturb" campaign, retailers indicated that their customers ask for
the Beautyrest(R) "bowling ball mattress". We have created a sequel commercial
in the "Do Not Disturb" campaign entitled "Leap of Faith", which has recently
been introduced to the market. In addition, we recently developed a national
campaign for our BackCare(R) product line entitled "Five Zones for Your Bones".
Launched in April 1998, the campaign identifies how the BackCare(R) product
provides proper spinal support. Additionally, we regularly retain market
research firms and sponsor market research in order to measure the
effectiveness of our advertising. Research indicates that since 1995, the year
the "Do Not Disturb" campaign first aired, the percentage of consumers aware of
our Beautyrest(R) products and the percentage of consumers indicating that they
intended to purchase a Simmons(R) product have doubled.
We also utilize a proprietary system for analyzing marketing data in order
to assist both ourselves and our customers to market products more effectively.
The Simmons Market Analysis of Retail Trends system
45
<PAGE>
combines geographically-organized sales and demographic data with bedding
consumer demographic and lifestyle data to provide valuable bedding sales at
the retail level. This computerized system improves retail sales by analyzing
sales, demographic and lifestyle data to identify target customers' geographic
areas with strong sales potential. We use this data to help determine plant
location and analyze sales territories and retailers use the data to help
optimize store location and advertising planning.
Manufacturing Facilities
We operate 18 manufacturing facilities in 16 states and Puerto Rico. These
manufacturing facilities have a combined capacity of over 25,000 units per day,
assuming two eight-hour shifts daily. In 1998, we produced a daily average of
17,150 bedding units per day. We believe that, on average, our facilities are
presently operating at approximately 70% of capacity. Currently, 14 of our 18
facilities operate two shifts a day and four facilities operate a single shift.
We have recently completed a 77,500 square-foot facility in Salt Lake City,
Utah, to manufacture and distribute products for customers in Utah and
surrounding states.
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. We receive
most raw materials inventory through "just-in-time" delivery from our major
suppliers. We minimize finished goods inventory through made-to-order
production, with most orders being scheduled, produced and shipped within 24 to
72 hours of receipt.
In 1995, with the assistance of a nationally recognized management
consulting firm, we undertook a project to improve manufacturing productivity
by 20%. The project is internally referred to as UNITE ("Utilizing New Ideas to
Excel"). We are re-engineering both the lay-out of the factory floor and the
basis on which manufacturing employees are paid. Our manufacturing processes
are being reorganized into cell configurations to take advantage of new
conveyor systems and a just-in-time raw materials replenishment system. In
addition, we are implementing a compensation system under which manufacturing
employees are paid on a team incentive basis rather than on individual
piecework. The programs are expected to be implemented in each of our
manufacturing facilities. Through 1998, we have reconfigured 11 plants. We have
also implemented the new compensation system in 11 of our plants. We expect to
complete implementation of the UNITE programs in 1999. We expect to realize
increased operating efficiencies and cost savings in the near term as we
complete the UNITE implementation and optimize our re-engineered processes.
Research, Engineering and Development
We invest substantially in new product development, enhancement of existing
products and improved operating processes. We believe new product development
and product enhancements are crucial to maintaining our strong industry
position. We maintain close contact with bedding industry developments through
sleep research conducted by industry groups and by our engineering department,
as well as through participation in the Better Sleep Council, an industry
association that promotes awareness of sleep issues, and ISPA. Our marketing
and manufacturing departments work closely with the engineering staff to
develop and test new products for marketability and durability.
We also seek to reduce costs and improve productivity by continually
developing more efficient manufacturing and distribution processes. In 1995, we
completed the construction of the Simmons Institute of Technology and Education
("SITE"), a state-of-the-art 38,000 square foot research and education center
in Atlanta, Georgia. Approximately 36 engineers and technicians are employed
full-time at SITE. These employees ensure that we maintain high quality
products by conducting product and materials testing, designing manufacturing
facilities and equipment and improving process engineering and development. We
believe that our engineering staff gives us a competitive advantage over some
of our competitors who do not have significant in-house engineering
departments.
46
<PAGE>
Suppliers
We purchase substantially all of our conventional bedding raw materials
centrally in order to maximize economies of scale and volume discounts. The
major raw materials that we purchase are wire, spring components, lumber,
cotton, insulator pads, innersprings, fabrics and roll goods consisting of
foam, fiber, ticking and non-wovens. We obtain a large percentage of our
required raw materials from a small number of suppliers. In 1998, we bought
approximately 86% of our raw material needs from 10 suppliers. Supplier
concentration is common in the bedding industry.
We have long-term supply agreements with Leggett & Platt, Incorporated,
Foamex International Inc. and Amoco Fabrics and Fiber Company. With the
exception of Leggett & Platt, we believe that we can readily replace our other
suppliers because we have already identified and used alternative sources.
Leggett & Platt supplies the majority of several components, including spring
components, insulator pads, wire, fiber, quilt backing and flange material, to
the bedding industry. In 1998, we bought approximately one-third of our raw
materials from Leggett & Platt. We expect that in 1999 we will buy a comparable
portion of our raw materials from Leggett & Platt. To ensure a long-term
adequate supply of various components, we have entered into agreements with
Leggett & Platt, generally expiring in the year 2010, for the supply of grid
tops, innersprings and wire. Among other things, these agreements generally
require us to purchase a majority of our requirements of several components
from Leggett & Platt. See "Risk Factors--Dependence on Key Suppliers".
Upgrade of Information Management System
In 1995, we undertook the implementation of a new enterprise wide
information management system, known internally as SWIFT ("Simmons Working
Intelligently for Tomorrow"). Implemented in all of our facilities other than
in Puerto Rico, the SWIFT system improved the information management systems of
nearly all of our operational areas. The SWIFT system provides a uniform
hardware and software system throughout Simmons and has largely improved data
reliability. The system provides new and more detailed operating and financial
information and greatly improves our ability to analyze product line and
customer profitability, administer customer support and advertising programs
and allocate manufacturing resources.
Competition
There are approximately 800 bedding manufacturers in the United States, with
three companies, Simmons, Sealy Corporation, and Serta, Inc. accounting for a
significant portion of the industry's wholesale revenues. We believe we
principally compete against these two primary competitors on the basis of brand
recognition, product quality and the quality of customer support programs,
which include cooperative advertising, sales force training and marketing
assistance. We believe we compare favorably to our primary competitors in each
of these areas. In addition, only Simmons and Sealy Corporation have national,
company operated manufacturing and distribution capabilities.
The rest of the United States conventional bedding market consists of
approximately seven smaller national manufacturers and nearly 800 independent
local and regional manufacturers. These local and regional manufacturers
generally focus on the sale of lower price point products. While we primarily
manufacture high margin, differentiated bedding products, we also offer a full
line of bedding products to our retailer base in order for these retailers to
maintain their competitive positioning. See "Risk Factors--Competition".
Warranties; Product Returns
Our conventional bedding products generally offer 10 year limited warranties
against manufacturing defects, while some promotional products carry one year
warranties. We believe that our warranty terms are generally consistent with
those of our primary national competitors. The historical costs to us of
honoring warranty claims have been immaterial. We have also experienced non-
warranty returns for reasons generally related to order entry errors and
shipping damage. We resell our non-warranty returned products primarily through
as-is furniture vendors or outlets.
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<PAGE>
Patents, Trademarks and Licenses
We own many trademarks, including Simmons(R), Beautyrest(R), BackCare(R),
Connoisseur Collection(R), Maxipedic(R) and Pocketed Coil(TM), most of which
are registered in the United States and in many foreign countries. We protect
our manufacturing equipment and processes as trade secrets and through patents.
We possess several patents on the equipment used to manufacture our Pocketed
Coil(TM) innersprings. While we do not consider our overall success to be
dependent upon any particular intellectual property rights, we cannot assure
you that the degree of protection offered by the various patents will be
sufficient, that patents will be issued in respect of pending patent
applications, or that we will be able to protect our technological advantage
upon the expiration of our patents. If we were unable to maintain the
proprietary nature of our intellectual property, our financial condition or
results of operations could be materially adversely affected.
Through the early 1990s, we disposed of most of our foreign operations and
secondary domestic lines of business. As a result, we now license the
Simmons(R) name and many of our trademarks, processes and patents on an
exclusive basis to third-party manufacturers abroad to produce and distribute
conventional bedding products within their designated territories and to third-
party manufacturers in the U.S. to manufacture and distribute juvenile bedding
and non-bedding upholstered furniture, primarily on perpetual or automatically
renewable terms. In addition, we have licensed the Simmons(R) name and other
trademarks, generally for limited terms, for domestic use to third-party
manufacturers of adjustable beds, down comforters, pillows, bed pads, blankets,
futons, airbeds and waterbeds.
Employees
As of March 27, 1999, we had approximately 2,800 employees. Approximately
1,200 of these were represented by labor unions. Employees at nine of our 18
manufacturing facilities are represented by at least one of the following
unions: the Upholstery Division of the United Steelworkers, the Teamsters, the
United Furniture Workers, the Longshoremen and the International Association of
Machinists and Aerospace Workers. Union contracts typically are negotiated for
four-year terms. A majority of our current contracts expire in 2001. Labor
relations historically have been good. We have had no labor-related work
stoppages in over 20 years. Since 1980, we have opened nine new plants, none of
which are unionized. Approximately 1,700 of our current and former employees
are participants in the Simmons ESOP.
Regulatory Matters
As a manufacturer of bedding and related products, we use and dispose of a
number of substances, such as glue, lubricating oil, solvents, and other
petroleum products that may subject us to regulation under numerous federal and
state statutes governing the environment. Among other statutes, we are subject
to the Federal Water Pollution Control Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and
Recovery Act, the Clean Air Act and related state statutes and regulations. We
have made and will continue to make capital and other expenditures to comply
with environmental requirements. As is the case with manufacturers in general,
if a release of hazardous substances occurs on or from our properties or any
associated offsite disposal location, or if contamination from prior activities
is discovered at any of our properties, we may be held liable and the amount of
such liability could be material. We are currently evaluating our potential
liability with respect to the cleanup of environmental contamination at and in
the vicinity of our leased manufacturing facilities in San Leandro, California.
We have recorded a reserve to reflect our potential liability for
environmental matters. Because of the uncertainties associated with
environmental remediation, we cannot assure you that the costs incurred with
respect to the potential liabilities will not exceed the recorded reserves.
Our conventional bedding and other product lines are subject to various
federal and state laws and regulations relating to flammability, sanitation and
other standards. We believe that we are in material compliance with all such
laws and regulations.
48
<PAGE>
Properties
Our corporate offices are located at One Concourse Parkway, Atlanta, Georgia
30328. The following table sets forth selected information regarding
manufacturing and other facilities we operated as of May 31, 1999:
<TABLE>
<CAPTION>
Year of
Date Lease Square Union
Location Occupied Expiration Footage Affiliation
-------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Manufacturing
Facilities:
Atlanta, Georgia...... 1992 2007 148,300 United Steelworkers of America
Charlotte, North
Carolina............. 1993 2003 144,180 None
Columbus, Ohio........ 1988 2004 190,000 United Steelworkers of America,
International Association of
Machinists and Aerospace Workers
Dallas, Texas......... 1998 2008 140,981 United Steelworkers of America
Denver, Colorado...... 1998 2008 129,000 None
Fredericksburg,
Virginia............. 1995 2010 128,500 None
Honolulu, Hawaii...... 1993 2003 58,530 International Longshoremen's
and Warehousemen's Union
Jacksonville,
Florida.............. 1973 2003 205,729 United Steelworkers of America
Janesville,
Wisconsin............ 1982 Owned 288,700 None
Shawnee, Kansas....... 1997 Owned 130,000 United Steelworkers of America
Los Angeles,
California........... 1982 2005 223,382 International Brotherhood of Teamsters,
United Steelworkers of America
Phoenix, Arizona...... 1997 2007 103,408 None
Piscataway, New
Jersey............... 1988 2003 264,908 International Association of Machinists
and Aerospace Workers,
United Steelworkers of America
Salt Lake City, Utah.. 1998 2008 77,500 None
San Leandro,
California........... 1964 2007 260,500 United Furniture Workers of America
Seattle, Washington... 1992 2002 133,610 None
Springfield,
Massachusetts........ 1988 2006 129,000 None
Trujillo Alto, Puerto
Rico................. 1998 Owned 50,000 None
---------
Subtotal............ 2,806,228
Other Facilities in Atlanta,
Georgia:
Corporate
Headquarters......... 1992 2003 37,500 None
SITE Research and
Development Center... 1994 2005 38,000 None
Consumer Service
Center............... 1977 2003 30,960 None
---------
Total Square
Footage............ 2,912,688
</TABLE>
Legal Proceedings
Serta filed an action against us in 1998 alleging that some Simmons
products--including those sold in connection with the trademarks Connoisseur(R)
collection, Crescendo(TM), and some World Class Beautyrest(R) and Back Care(R)
Ultimate models--infringe their U.S. patent and that our use of the term
"Crescendo" infringes their alleged common-law trademark, "Crescendo". We have
denied the material allegations of the complaint. We also have asserted
affirmative defense and/or counterclaims against Serta alleging non-
infringement, invalidity and unenforceability of the patent-in-suit, and
alleging infringement by Serta of our rights in the term "Crescendo" in various
geographic areas to the extent usage of the term by both Serta and us would be
confusingly similar. Serta requested the Patent and Trademark Office, the PTO,
to reexamine the patent-in-suit. Pending the outcome of the reexamination, and
by agreement of the parties, the pending lawsuit was stayed. In April 1999, the
PTO reinstated Serta's patent and the stay in the action was lifted. While we
deny that Serta is entitled to any relief and intend to defend the action
vigorously, we cannot assure you that we will prevail in this action.
From time to time, we have been involved in various legal proceedings. We
believe that all other litigation is routine in nature and incidental to the
conduct of our business, and that none of this other litigation, if determined
adversely to us, would have a material adverse effect on our financial
condition or results of our operations.
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<PAGE>
MANAGEMENT
The following table sets forth the name, age as of May 31, 1999 and position
of each of our directors, executive officers and other key employees. Each of
our directors will hold office until the next annual meeting of our
shareholders or until his successor has been elected and qualified. Our
officers are elected by our Board of Directors and serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
Zenon S. Nie..................... 48 Chairman of the Board of Directors,
Chief Executive Officer and President
Jonathan C. Daiker............... 51 Executive Vice President--Finance and
Administration, Chief Financial
Officer and Director
Martin R. Passaglia.............. 50 Senior Executive Vice President,
Secretary and Director
Peter Lamm....................... 47 Director
Richard C. Dresdale.............. 43 Director
Andrea Geisser................... 56 Director
Gregory P. Meredith.............. 41 Director
Mark Genender.................... 34 Director
William L. Ayers, IV............. 53 Executive Vice President--Sales
Michael P. Rakauskas............. 49 Executive Vice President--Strategic
Ventures
Joseph Ulicny.................... 55 Executive Vice President--Market
Development
Robert K. Barton................. 58 Senior Vice President--Human Resources
Leo T. Brennan................... 63 Vice President--Materials Management
Roger W. Franklin................ 43 Vice President--Finance and Treasurer
James P. Maher................... 63 Divisional President
Cleve B. Murphy.................. 48 Divisional President
Gary G. Pleasant................. 56 Divisional President
Gary L. Senese................... 52 Vice President--Chief Information
Officer
</TABLE>
Zenon S. Nie joined Simmons in 1993 as Chief Executive Officer, has served
as a Director since 1993 and was appointed Chairman of the Board of Directors
in 1994. Prior to joining Simmons, Mr. Nie served as President of the Consumer
Home Fashions Division of The Bibb Company from 1991 to 1993. From 1981 through
1991, Mr. Nie held several senior management positions at Serta, Inc. including
President, Executive Vice President, Chief Operating Officer, Senior Vice
President--Manufacturing, Finance and Administration and Vice President--
Strategic Planning. Mr. Nie's previous experience includes several marketing
positions at Sealy Corporation. Mr. Nie is a director of LADD Furniture, Inc.
Jonathan C. Daiker joined Simmons in 1995 as Executive Vice President--
Finance and Administration, Chief Financial Officer and a Director. Prior to
joining Simmons, Mr. Daiker held a number of directorships in the corporate
offices of Philips Electronics North America Corporation, as well as operating
positions within its divisional structure from 1981 to 1995, including Senior
Vice President and Chief Financial Officer for Philips Lighting Company. Prior
to 1981, he was a senior manager with Price Waterhouse, a predecessor to
PricewaterhouseCoopers LLP. Mr. Daiker is a Certified Public Accountant.
Martin R. Passaglia joined Simmons in 1973 and has served as Senior
Executive Vice President and a Director since 1994. Prior to 1994, Mr.
Passaglia held various positions including Regional Sales Manager, Vice
President and General Manager--Hawaii, Executive Vice President--Account
Development, and Executive Vice President--Marketing and Sales.
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<PAGE>
Peter Lamm became a director of Simmons in 1998 in connection with the
Fenway acquisition. Mr. Lamm is Chairman and Chief Executive Officer and a
founding partner of Fenway, a New York-based direct investment firm for
institutional investors with a primary objective of acquiring leading middle-
market companies. From February 1982 to April 1994, Mr. Lamm was a member of
Butler Capital Corporation, a private investment firm, most recently as Senior
Direct Investment Officer and Managing Director. Mr. Lamm currently serves as a
director of Aurora Foods, Inc., Central Tractor Farm & Country, Inc., Iron Age
Corporation, Delimex Holdings, Inc., New Creative Enterprises, Inc. and Blue
Capital Management.
Richard C. Dresdale became a director of Simmons in 1998 in connection with
the Fenway acquisition. Mr. Dresdale is President and a founding partner of
Fenway. From June 1985 until March 1994, Mr. Dresdale was a member of Clayton,
Dubilier & Rice, Inc. a private investment firm, most recently as a Principal.
Mr. Dresdale currently serves as a director of Aurora Foods, Inc., Central
Tractor Farm & Country, Inc., Delimex Holdings, Inc., MW Windows Inc., and Blue
Capital Management.
Andrea Geisser became a director of Simmons in 1998 in connection with the
Fenway acquisition. Mr. Geisser is a Managing Director and a founding partner
of Fenway. From February 1989 to June 1994, Mr. Geisser was a Managing Director
of Butler Capital Corporation. From 1986 to 1989, Mr. Geisser served as a
Managing Direct of Onex Investment Corporation, the largest Canadian buyout
company. Mr. Geisser currently serves as a director of Aurora Foods, Inc., Iron
Age Corporation, New Creative Enterprises, Inc. and Decorative Concepts, Inc.
Gregory P. Meredith became a director of Simmons in 1998 in connection with
the Fenway acquisition. Mr. Meredith has been a Managing Director of Fenway
since 1997. From 1993 to 1996, Mr. Meredith was employed by NationsBanc Capital
Markets, Inc., most recently as Managing Director and Head of Leveraged
Finance. Prior to 1993, Mr. Meredith was employed by Salomon Brothers Inc, most
recently as a Senior Trader in the High Yield Group in charge of trading
distressed securities and special situations. Mr. Meredith currently serves as
a director of MW Windows Inc., Decorative Concepts, Inc. and FNX Limited.
Mark R. Genender became a director of Simmons in 1999. Mr. Genender has been
a Vice President of Fenway since 1996. From 1994 to 1996, Mr. Genender was a
Director of Sales and Marketing for Nabisco International. From 1991 to 1994,
Mr. Genender held various senior management positions at Hostess Frito-Lay, the
Canadian snack food division of PepsiCo, Inc. Prior to 1991, Mr. Genender was
employed by Goldman, Sachs & Co. in the Merger and Acquisitions department. Mr.
Genender is a director of Delimex Holdings, Inc.
William L. Ayers, IV joined Simmons in 1973 and has served as Executive Vice
President--Sales and Marketing since 1994. Prior to 1994, Mr. Ayers held
several sales management positions including Vice President and General
Manager--Los Angeles and Divisional Executive Vice President.
Michael P. Rakauskas joined Simmons in 1998 as Executive Vice President-
Strategic Ventures. Prior to joining Simmons, Mr. Rakauskas served as Executive
Vice President-Chief Financial Officer and as Senior Vice President-
Administration and Chief Financial Officer since 1995 of The Spring Air
Company. Prior to 1995, he held various positions including Vice President-
Planning and Development, Vice-President-Administration, Operations Manager,
Corporate Controller and several financial positions with Sealy Corporation
since 1973. Mr. Rakauskas is a Certified Public Accountant.
Joseph Ulicny joined Simmons in 1992 and assumed his current position as
Executive Vice President--Market Development in 1995. From 1992 until 1995, Mr.
Ulicny served as Executive Vice President--Finance and Chief Financial Officer.
Prior to joining Simmons, Mr. Ulicny worked at The Dannon Company, Inc., a
yogurt wholesaler, from 1985 to 1992.
Robert K. Barton joined Simmons in 1982 and has served as Senior Vice
President--Human Resources since 1990. Prior to assuming his current position,
Mr. Barton served as Vice President--Human Resources, Vice President--
Administration, Vice President--Dealer Financial Services and Director of
Dealer Financial Services.
51
<PAGE>
Leo T. Brennan joined Simmons in 1978 and has served as Vice President--
Materials Management since 1985. Prior to assuming his current position, Mr.
Brennan served as Director of Purchasing.
Roger W. Franklin joined Simmons in 1986 and has served as Vice President--
Finance and Treasurer since 1990. Mr. Franklin served as Vice President--
Controller and Director of Taxes prior to assuming his current position. Prior
to joining Simmons, Mr. Franklin was a manager with Price Waterhouse, a
predecessor to PricewaterhouseCoopers LLP, in both the audit and tax areas from
1978 to 1986. Mr. Franklin is a Certified Public Accountant.
James P. Maher joined Simmons in 1989 and has served as Divisional President
since January 1997. Prior to assuming his current position, Mr. Maher served as
Divisional Executive Vice President, Vice President and General Manager--
Jacksonville, and Vice President and General Manager--San Leandro. Before
joining Simmons, Mr. Maher held senior management positions with Nachman
Corporation, a wire and bedding components manufacturer, Leggett & Platt,
Incorporated, a manufacturer of bedding components, and May & Company, a
bedding manufacturer.
Cleve B. Murphy joined Simmons in 1995 and has served as Divisional
President since January 1997. Prior to assuming his current position, Mr.
Murphy served as Divisional Executive Vice President. Mr. Murphy's background
includes twelve years at Sealy Corporation where he started as Sales Manager
and became one of four Regional Vice Presidents, from 1983 to 1995. Prior to
his employment with Sealy Corporation, Mr. Murphy served eight years as General
Manager for Englander, a bedding manufacturer, from 1975 to 1983 and held
various positions with Serta, Inc. from 1973 to 1975.
Gary G. Pleasant rejoined Simmons in 1991 and has served as Divisional
President since January 1997. Prior to assuming his current position, Mr.
Pleasant served as Divisional Executive Vice President and Vice President and
General Manager--Seattle. Mr. Pleasant was previously employed by Simmons 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.
Gary L. Senese joined Simmons in 1998 as Vice President--Chief Information
Officer. Prior to joining Simmons, Mr. Senese served as Vice President--Chief
Information Officer of VWR Scientific Products Corporation, a laboratory
supplies distributor, from 1995 until 1998 and as Vice President--Chief
Information Officer of Rubbermaid Commercial Products Inc. from 1989 to 1995.
Director Compensation
We pay no additional remuneration to our employees or to executives of
Fenway for serving as directors. See "--Executive Compensation". There are no
family relationships among any of the directors or executive officers.
52
<PAGE>
Executive Compensation
The following table sets forth all cash compensation earned in the previous
three years by our Chief Executive Officer and each of our other four most
highly compensated executive officers. The compensation arrangements for each
of these officers that are currently in effect are described under the caption
"-- Employment Arrangements" below. The bonuses set forth below include amounts
paid in connection with the Fenway and Investcorp acquisitions and amounts
earned in the year shown but paid in the subsequent year.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------ Number of Securities All Other
Name and Principal Salary Underlying Long-Term Compensation
Position Year ($) Bonus ($) Compensation Options (#)(1) ($)(2)
------------------ ---- -------- ---------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
Zenon S. Nie............ 1998 $579,792 $5,116,125 -- $ 15,276
Chairman, Chief
Executive 1997 517,500 586,366 -- 32,853
Officer and President 1996 501,458 876,823 1,800,000 31,551
Martin R. Passaglia..... 1998 267,500 295,573 -- 11,074
Senior Executive Vice
President 1997 267,500 211,325 -- 29,133
1996 267,500 234,063 64,237 161,721
Jonathan C. Daiker...... 1998 226,917 496,053 -- 10,175
Executive Vice
President-- 1997 213,000 169,060 -- 27,008
Finance &
Administration, Chief 1996 205,750 230,031 156,338 30,741
Financial Officer
Robert K. Barton........ 1998 202,417 276,102 -- 11,722
Senior Vice President--
Human 1997 180,000 143,517 -- 29,329
Resources 1996 171,750 150,281 63,667 147,447
Joseph Ulicny........... 1998 190,417 161,389 -- 11,988
Executive Vice
President--Market 1997 180,000 142,793 -- 28,600
Development 1996 172,483 150,923 30,000 27,028
</TABLE>
- --------
(1) These amounts show the number of shares underlying options granted in 1996.
In 1996, in connection with the Investcorp acquisition, all options then
outstanding were purchased. Messrs. Nie, Passaglia, Daiker, Barton and
Ulicny received $1,812,800, $364,496, $117,435, $363,867 and $308,856,
respectively, for their options.
(2) These amounts consist of:
(a) our contributions to our ESOP in 1997 and 1996, respectively, in the
amounts of $18,571 and $17,192 for Mr. Nie, $18,614 and $17,192 for
Mr. Passaglia, $18,571 and $17,192 for Mr. Daiker, $18,614 and $17,192
for Mr. Barton, and $18,571 and $17,192 for Mr. Ulicny, respectively;
the amount of our contribution to our ESOP for 1998 has not been
determined;
(b) premiums for term life insurance and long-term disability insurance in
1998, 1997 and 1996, respectively, in the amounts of $13,276, $14,282
and $14,359 for Mr. Nie, $9,074, $10,519 and $11,185 for Mr.
Passaglia, $8,175, $8,437 and $8,321 for Mr. Daiker, $9,722, $10,715
and $11,908 for Mr. Barton, $9,988, $10,029 and $9,836 for Mr. Ulicny,
respectively;
(c) payments of benefits under non-qualified ESOP in 1996, in the amount
of $133,344 and $118,347 for Mr. Passaglia and Mr. Barton,
respectively;
(d) relocation assistance in 1996 in the amount of $5,228 for Mr. Daiker;
and
(e) $2,000 per named executive officer in 1998 for financial planning
services.
53
<PAGE>
Aggregated Option Exercises
The table below sets forth information concerning the exercise of stock
options during 1998 and the value of unexercised stock options at the end of
1998 for our Chief Executive Officer and each of our other four most highly
compensated executive officers. There was no public trading market for our
common stock as of October 29, 1998 and December 27, 1998. Therefore, the
values in the table below have been calculated on the basis of the per share
consideration paid in connection with the Fenway acquisition less the
applicable exercise price. The number of options shown as exercised reflects
options to purchase common stock of Simmons Holdings that were redeemed for
cash in connection with the Fenway acquisition. The number of options shown as
unexercised reflects options to purchase common stock of Simmons Holdings
retained in connection with the Fenway acquisition.
Aggregated Option Exercises in
Fiscal 1998 and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-
Options at Money Options
Fiscal Year End (#) at Fiscal Year End ($)
---------------------- -----------------------
Number of
Shares
Exercised
Underlying Value
Name Options (#) Realized ($) Exercisable Exercisable
- ---- ------------ ------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Zenon S. Nie............ 1,128,911 $4,552,716 752,608 $ 3,035,146
Martin R. Passaglia..... 34,429 132,251 51,642 198,371
Jonathan C. Daiker...... 40,479 163,572 121,439 490,724
Robert K. Barton........ 29,086 112,251 54,017 208,467
Joseph Ulicny........... 17,649 66,727 26,473 100,088
</TABLE>
Retirement Plans
We maintain several single employer retirement plans including a single
employer defined benefit plan and two single employer defined contribution
plans, the Simmons ESOP and a 401(k) Plan, which are intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986. We also participate
in a number of multi-employer pension plans, from which we have no present
intention to withdraw. In the aggregate, these plans cover substantially all
permanent employees.
Simmons 401(k) Plan. The Simmons 401(k) Plan, formed in 1987, contains a
cash or deferred arrangement under Section 401(k) of the Internal Revenue Code.
Employees with 12 weeks of employment who have reached age 21 are permitted to
participate in the plan. Generally employees covered by collective bargaining
agreements are not permitted to participate in the plan, unless the collective
bargaining agreement expressly provides for participation.
Presently, approximately 500 employees participate in this plan.
Participants direct the investment of their account balances. Eligible
employees may defer the receipt of up to 6% of compensation on a pre-tax basis,
subject to various limitations. Participants are fully vested in their
contributions at all times. Other than the pre-tax deferrals mentioned above,
we did not make any contributions to the 401(k) plan during the 1998 plan year.
Simmons ESOP. The Simmons ESOP, formed in 1989, 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 Internal Revenue
Code. Assets of the Simmons ESOP are held in a trust for which State Street
Bank & Trust Company serves as trustee. The Simmons ESOP covers otherwise
eligible employees of Simmons who are 21 or older and who have completed at
least one year of service for Simmons. Generally, employees covered by
collective bargaining agreements are not permitted to participate, unless the
collective bargaining
54
<PAGE>
agreement expressly provides for participation. As of March 27, 1999,
approximately 1,700 of our current and former employees were participants in
the Simmons ESOP.
The Simmons ESOP provides benefits to each participating employee based on
the value of the 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.
The Simmons ESOP is a leveraged ESOP. Leveraged ESOPs differ from other
defined contribution employee pension benefit plans in that they can 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, Simmons'
stock acquired by the Simmons ESOP is held by the ESOP trustee in a suspense
account. In connection with the establishment of the Simmons ESOP in 1989, the
Simmons ESOP borrowed funds from us for the purpose of acquiring Simmons'
stock. As of December 26, 1998, the borrowed amount outstanding was
approximately $39.4 million. As of December 27, 1997, the Simmons ESOP was
indebted to us in the approximate principal amount of $51.2 million. Prior to
March 22, 1996, the date of the Investcorp acquisition, the Simmons ESOP held
11,671,663 shares of our common stock. On the closing of the Investcorp
acquisition, the Simmons ESOP sold 6,001,257 shares, representing all shares
previously allocated to participants' ESOP accounts, to Simmons Holdings for
approximately $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 Investcorp acquisition, the
remaining 5,670,406 shares, representing all unallocated shares held in the
suspense account, were converted into our Series A preferred stock. Prior to
the Fenway acquisition, if converted into common stock of Simmons or capital
stock of Simmons Holdings, this Series A preferred stock would have represented
direct or indirect ownership of 15.1% of our common stock, after giving effect
to such conversion, exclusive of outstanding stock options.
On July 22, 1998, we entered into the ESOP Stock Sale and Exchange Agreement
with Simmons Holdings, the ESOP trustee and REM Acquisition, Inc., a transitory
merger corporation set up for the Fenway acquisition. Pursuant to this
agreement, immediately prior to the Fenway acquisition, REM purchased all of
our Series A preferred shares held by the Simmons ESOP that had been allocated
to plan participants as of such date for an aggregate purchase price of
approximately $15.4 million. These shares were cancelled in connection with the
Fenway acquisition. In addition, immediately prior to the Fenway acquisition,
the Simmons ESOP exchanged its remaining outstanding shares of our Series A
preferred stock for 3,482,036 shares of common stock of Simmons Holdings. The
Simmons ESOP received a fairness opinion from its financial advisor to the
effect that the $15.4 million consideration received for our shares under the
ESOP agreement was fair to the Simmons ESOP from a financial point of view.
We will make annual cash contributions to the Simmons ESOP in an amount up
to 25% of eligible participant compensation, subject to limitations and
conditions. The Simmons ESOP will then use this cash to repay the internal loan
to us. As a result, there is no cash cost to us associated with the
contributions to the Simmons ESOP. As the internal loan is repaid, a portion
of, the shares of Simmons Holdings held by the Simmons ESOP 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. When
the internal loan is repaid in full in approximately three years, all shares of
Simmons Holdings held by the Simmons ESOP immediately after the Fenway
acquisition will have been allocated to plan participants.
With limited exceptions, such as an exception required by law permitting
retirement age individuals with at least 10 years of plan participation to
liquidate over a six-year period those 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 at age 65, early retirement at age 55 with at
least 10 years of service, or on account of permanent disability or death,
distribution generally is made during the plan year following the plan year in
which such
55
<PAGE>
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. A participant entitled to
a distribution is entitled under law to have our 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 us to purchase such shares at fair market
value over an approximately two year period.
Defined Benefit Plan. We also sponsor 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
specific collective bargaining agreements, and has approximately 120
participants. The monthly benefit for these participants upon normal retirement
is generally determined as the sum of:
(1) 0.75% of monthly earnings as of January 1, 1963 multiplied by
specified credited service as of May 1, 1963;
(2) 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
(3) 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 employees who are represented by IAM Local 315 in
New Jersey and UFWA Local 262 in California. This plan is fully funded and will
incur no additional liability. None of the named executive officers benefits
under the plan.
Nonqualified Employee Stock Ownership Plan. In 1989, we instituted a
nonqualified plan to provide benefits to eligible employees similar to those
benefits provided under the Simmons ESOP, described above. This plan covers
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 1042 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 us, retirement, death or
permanent disability. The nonqualified plan provides for bookkeeping entries to
be provided on account of each designated employee, to be credited with the
shares of stock which would have been allocated to the designated employee'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. We charged approximately
$184,000 in 1998 and $64,000 in 1997. The accrued benefits under the
nonqualified plan were $373,000 at December 26, 1998 and $189,000 December 27,
1997 and are included in other long term liabilities in the accompanying
balance sheets. We have continued the nonqualified plan after the consummation
of the Fenway acquisition.
Retiree Health Coverage. We provide health care and life insurance benefits
to eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or non-union employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20,000 lifetime maximum benefit for
participants age 65 and over. We also provide life insurance to all retirees
who retired before 1979. These plans are unfunded.
56
<PAGE>
Employment Arrangements
Zenon Nie, Chairman of the Board of Directors and Chief Executive Officer,
and we have entered into a three-year employment agreement that renews
automatically on a daily basis, subject to termination upon three years'
notice. Pursuant to his employment agreement, Mr. Nie is entitled to receive:
(1) a base salary, currently $600,000 per year, subject to further
increases approved by our Board of Directors;
(2) an annual cash bonus based upon our achievement of our annual
financial plan approved by the Board of Directors and to participate in all
of our other compensation and employee benefit programs; and
(3) specified fringe benefits, including reimbursement of country club
dues and provision of an automobile.
If we terminate Mr. Nie's employment other than for death, disability or
cause, Mr. Nie will be entitled to:
(1) payment of his base salary then in effect for three years following
the date of termination;
(2) payment of an annualized bonus equal to a percentage of his base
salary then in effect based upon our performance for a period of one year
following the date of termination; and
(3) participate in health and welfare benefit programs for three years
following the date of termination.
Mr. Nie is entitled to receive an additional bonus from us based upon our
future performance. If any payments by us to Mr. Nie constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code, we must reimburse Mr. Nie for any resulting excise tax liability plus
any income tax liability related to such reimbursement.
The following named executive officers entered into employment agreements
with us, which commenced on June 29, 1998:
. Jonathan Daiker, Executive Vice President--Finance and Administration
and Chief Financial Officer;
. Martin Passaglia, Senior Executive Vice President;
. Joseph Ulicny, Executive Vice President--Market Development; and
. Robert Barton, Senior Vice President--Human Resources.
The employment agreements for Messrs. Daiker, Passaglia and Barton
initially run for two years and automatically extend one year on a daily basis
beginning on the first anniversary of the commencement of the employment term,
subject to termination upon one year's notice. Mr. Ulicny's agreement
initially runs for one year, automatically extending for one year on a daily
basis, subject to termination upon one year's notice. These agreements
currently provide the following base annual salaries, subject to further
increases approved by our Board of Directors:
<TABLE>
<CAPTION>
Executive Annual Base Salaries
--------- --------------------
<S> <C>
Mr. Daiker........................................... $236,000
Mr. Passaglia........................................ $267,500
Mr. Ulicny........................................... $197,000
Mr. Barton........................................... $209,000
</TABLE>
Each of these executives is eligible to receive an annual cash bonus based
upon achievement of our annual financial plan approved by the Board of
Directors and to participate in all of our other compensation and fringe
benefit programs. If we terminate any of these executives without cause, such
executive shall be entitled to
57
<PAGE>
payment of his base salary, an annualized bonus equal to 42.5% of his base
salary then in effect and participation in health and welfare benefit programs
for:
(1) in the cases of Messrs. Daiker, Passaglia and Barton, the longer of
(a) the remainder of the initial two year employment term; or
(b) one year; and
(2) in the case of Mr. Ulicny, one year.
Portions of bonuses paid in connection with the Fenway acquisition are
subject to repayment if the executive officer terminates his employment in the
two year period ending October 28, 2000.
Management Stock Incentive Plan
Simmons Holdings has also adopted a management stock incentive plan to
provide incentives to our employees and directors and to the employees and
directors of Simmons Holdings by granting them awards tied to the common stock
of Simmons Holdings. This incentive plan is administered by the compensation
committee of the Board of Directors of Simmons Holdings, which has broad
authority in administering and interpreting the incentive 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. Options granted under the incentive plan may be
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code or options not intended to so qualify. An award granted
under the incentive plan to an employee may include a provision terminating the
award upon termination of employment under some circumstances or accelerating
the receipt of benefits upon the occurrence of specified events, including, at
the discretion of the compensation committee of the Board of Directors of
Simmons Holdings, any change of control of Simmons.
Upon the closing of the Fenway acquisition, there were outstanding under the
incentive plan options to purchase an aggregate of 1,639,077 shares of Simmons
Holdings common stock issued to 47 individuals with a weighted average exercise
price of $2.825 per share. All such options are exercisable in full
immediately.
In connection with the Fenway acquisition, management received cash for
shares of stock owned by them and also received with respect to outstanding
options, an amount equal to the difference between the per share merger
consideration and the exercise price per share.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
After the consummation of the Fenway acquisition on October 29, 1998, we had
one class of issued and outstanding common stock and Simmons Holdings owned all
of it.
After the consummation of the Fenway acquisition, Simmons Holdings had
25,343,075.80 shares of issued and outstanding common stock. The following
table describes the beneficial ownership of each class of issued and
outstanding equity securities of Simmons Holdings by each of our directors and
executive officers, our directors and executive officers as a group and each
person who beneficially owns more than 5% of the outstanding shares of any
class of equity securities of Simmons Holdings as of May 31, 1999. As used in
this table, beneficial ownership has the meaning set forth in Rule 13d-3(d)(1)
of the Exchange Act.
Fenway Partners Capital Fund, L.P. and Fenway Partners Capital Fund II, L.P.
together hold substantially all of the voting interests of Fenway Investment
LLC, and may therefore be deemed to have the power to vote or dispose of the
shares of common stock held directly by Fenway Investment LLC. Additionally,
the general partners of Fenway Partners Capital Fund and Fenway Partners
Capital Fund II, Fenway Partners, L.P. and Fenway Partners II, LLC,
respectively, may also be deemed to own beneficially these Fenway funds'
holdings. Fenway Partners Management, Inc. is the general partner of Fenway
Partners, L.P. and may also be deemed to own beneficially the holdings of
Fenway Partners Capital Fund. Fenway Partners, Inc. provides investment
advisory services to the Fenway funds and may be deemed to beneficially own the
shares held by the Fenway funds. Messrs. Lamm, Dresdale, Geisser and Meredith
are managing directors of Fenway Partners, Inc., limited partners of Fenway
Partners, L.P., and members of Fenway Partners II, LLC, and accordingly may be
deemed to own beneficially our shares of common stock held by Fenway
Investments LLC. All of such persons and entities disclaim beneficial ownership
of any shares in which they do not have pecuniary interests. The table below
does not include 2,104,713.22 shares of common stock that may be acquired upon
the exercise of the warrants placed in escrow pursuant to the securities
purchase agreement.
The discussion above and the table below do not include 379,119.07 shares of
Class B common stock, representing all of the issued and outstanding shares of
Class B common stock, held by Fenway Partners, Inc., of which Messrs. Lamm,
Dresdale, Geisser and Meredith may be deemed to have beneficial ownership.
Messrs. Lamm, Dresdale, Geisser and Meredith disclaim beneficial ownership of
any such shares of common stock or Class B common stock, in which they do not
have pecuniary interests.
<TABLE>
<CAPTION>
Number
Number of Shares of Shares Underlying Total
(excluding Options/ Exercisable Options/ Total Ownership
Name Warrants) Warrants Shares Percentage
---- ------------------ -------------------- ------------- ----------
<S> <C> <C> <C> <C>
Fenway Investment LLC... 19,030,131.18 601,346.63 19,631,477.81 75.67%
c/o Fenway Partners,
Inc
152 West 57th Street
New York, NY 10019
Simmons ESOP shares not
allocated to any
participant account.... 3,482,036.00 -- 3,482,036.00 13.74%
c/o State Street Bank &
Trust Company
225 Franklin Street
Boston, MA 02110
SH Investment Limited, a
Cayman Islands
corporation............ 1,336,997.62 -- 1,336,997.62 5.28%
West Wind Building;
P.O. Box 1111
Harbour Drive; Grand
Cayman, Cayman Islands
BWI(a)
Zenon S. Nie............ 280,000.00 752,608.00 1,032,608.00 3.96%
Martin R. Passaglia..... 171,458.00 51,642.00 223,100.00 *
Jonathan C. Daiker...... 40,622.00 121,439.00 162,061.00 *
Robert K. Barton........ 140,181.00 54,017.00 194,198.00 *
Joseph Ulicny........... 75,688.00 26,473.00 102,161.00 *
Peter Lamm.............. 19,030,131.18 601,346.63 19,631,477.81 75.67%
Richard C. Dresdale..... 19,030,131.18 601,346.63 19,631,477.81 75.67%
Andrea Geisser.......... 19,030,131.18 601,346.63 19,631,477.81 75.67%
Gregory P. Meredith..... 19,030,131.18 601,346.63 19,631,477.81 75.67%
Mark R. Genender........ 19,030,131.18 601,346.63 19,631,477.81 75.67%
All directors and
executive officers as a
group (9 persons)...... 19,738,080.18 1,607,525.63 21,345,605.81 79.20%
</TABLE>
- --------
* Less than 1%.
(a) SH Investment Limited holds shares retained by the Investcorp group. Based
on information provided to us, we believe that SH Investment Limited is
controlled by members of the Investcorp group.
59
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Subscription Agreements
Pursuant to the subscription agreements entered into in connection with the
Fenway acquisition, Fenway Investment LLC purchased 19,030,131.18 shares of
common stock of Simmons Holdings for $128.1 million. Under the subscription
agreement with Fenway Investment LLC, Simmons Holdings agreed to indemnify and
pay various expenses of Fenway Investment LLC and its affiliates and their
advisors and consultants.
For more information about the Fenway acquisition, see "The Transactions
and the Original Offering".
Stockholders Agreement
In connection with the Fenway acquisition, we entered into a stockholders
agreement with Simmons Holdings, Fenway Investment LLC, the Simmons ESOP, and
the Investcorp group. In addition, we entered into a stockholders agreement
with Fenway Investment LLC, Simmons Holdings and members of management. The
stockholders agreements provide, among other things, that in the event that
Fenway Investment LLC transfers to a non-affiliate sufficient common stock of
Simmons Holdings that reduces its ownership percentage below 75% of the shares
it acquired in the Fenway acquisition, the Simmons ESOP, the Investcorp group
and the members of management may participate in the transfer in proportion to
their holdings, referred to as tag-along rights. If Fenway Investment LLC
sells at least 80% of the shares it acquired in the Fenway acquisition, it may
require the Simmons ESOP, the Investcorp group and the members of management
to participate in the transfer in proportion to their holdings, referred to as
a drag-along right. In addition, the stockholders agreement with management
provides, among other things, that:
. except under specific conditions, members of management may not transfer
their shares of common stock of Simmons Holdings; and
. upon termination of employment of a member of management, Simmons
Holdings and Fenway Investment LLC may purchase the shares of common
stock owned by such employee and such employee may require Simmons
Holdings to purchase such shares.
Fenway Advisory Agreement
We, Simmons Holdings and Fenway Partners entered into an advisory agreement
effective upon consummation of the Fenway acquisition pursuant to which Fenway
Partners agreed to provide strategic advisory services to Simmons Holdings and
us. In exchange for such services, Simmons Holdings and we agreed to pay
Fenway Partners the following:
. annual management fees of 0.25% of net sales for the prior fiscal year;
. fees in connection with the consummation of any acquisition transactions
for Fenway Partners' assistance in negotiating such transactions; and
. fees and expenses, including legal and accounting fees and any out-of-
pocket expenses incurred by Fenway Partners in connection with providing
services to Simmons Holdings and us.
The annual management fees are subject to increase in the event of
acquisitions. Simmons Holdings and we also agreed to indemnify Fenway Partners
under specific circumstances. In addition, pursuant to the advisory agreement,
upon the consummation of the merger, Fenway Partners received $5.1 million and
approximately 379,000 shares of Simmons Holdings' Class B common stock.
Fenway Partners currently owns all of the issued and outstanding Class B
common stock. In general, Class B common stock has the same rights and
privileges as Simmons Holdings' common stock except that currently Class B
common stock currently has lower proportional voting rights and distribution
rights. In the future, these voting rights and distribution rights may become
identical to those rights of the common stock.
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OTHER INDEBTEDNESS
As part of the merger, we entered into a new senior credit agreement and a
securities purchase agreement to provide financing for the Fenway acquisition
and working capital.
New Senior Credit Agreement
On October 29, 1998, we entered into a new senior credit agreement
comprising a term loan facility and a revolving credit facility with
institutional lenders and affiliates of the initial purchasers of the notes,
including:
. Goldman Sachs Credit Partners L.P., an affiliate of Goldman Sachs, as
joint lead arranger, syndication agent and lender;
.Warburg Dillon Read, as joint lead arranger;
.UBS A.G., an affiliate of Warburg Dillon Read, as administrative agent and
lender;
.Fleet National Bank, an affiliate of Fleet Securities, as co-agent and
lender; and
.U.S. Bank N.A., an affiliate of U.S. Bancorp Libra, as co-agent and lender.
Our new senior credit agreement provides for borrowings of up to $270.0
million, consisting of:
.the Tranche A term loan of up to $70.0 million;
.the Tranche B term loan of up to $70.0 million;
.the Tranche C term loan of up to $50.0 million; and
. a revolving credit facility of up to $80.0 million in revolving credit
loans, letters of credit and swing line loans.
Our new senior credit agreement is:
. guaranteed by Simmons Holdings, one of our present domestic subsidiaries,
all of our future material domestic subsidiaries except in specific
circumstances and all of our future foreign subsidiaries, to the extent
that no material adverse tax consequence would result from such
guarantee; and
. secured by substantially all of our assets as well as the assets of
Simmons Holdings and our subsidiary guarantor.
The Tranche A term loan matures in quarterly installments from December 1999
until final payment in October 2004. The Tranche B term loan matures in
quarterly installments from December 1998 until final payment in October 2005.
The Tranche C term loan matures in quarterly installments from December 1998
until final payment in October 2006.
Our revolving credit facility is available until the earliest to occur of:
(1) October 29, 2004;
(2) the date the revolving loan commitments of the lenders under our
new senior credit agreement are permanently reduced to zero under specific
circumstances; and
(3) the date the revolving loan commitments are terminated due to an
event of default under our new senior credit agreement.
Borrowings under our new senior credit agreement, except for swing line
loans, bear interest at one of two floating rates: the base rate or the
adjusted Eurodollar rate plus the applicable margin. Swing line loans under our
revolving credit facility bear interest at the base rate.
The base rate is the applicable margin plus the higher of :
(1) the applicable prime lending rate of UBS; and
(2) the Federal Reserve reported average overnight federal funds rate
plus 0.5%.
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The adjusted Eurodollar rate is described in our new senior credit
agreement.
The applicable margin for borrowings under our new senior credit agreement
is as follows:
<TABLE>
<CAPTION>
Base Rate Adjusted Eurodollar Rate
--------- ------------------------
<S> <C> <C>
Tranche A term loan.......................... 1.75% 2.75%
Tranche B term loan.......................... 2.25% 3.25%
Tranche C term loan.......................... 2.50% 3.50%
Revolving credit facility loans.............. 1.75% 2.75%
</TABLE>
The applicable margins for our Tranche A term loan and our revolving credit
facility loans could be reduced to 1.00% and 2.00%, respectively, as a result
of changes in a leverage ratio maintained by us.
Our new senior credit agreement requires us to maintain financial ratios,
including:
.fixed-charge coverage;
.cash interest coverage; and
.leverage ratios.
Our new senior credit agreement also contains covenants which, among other
things, limit:
.capital expenditures;
.the incurrence of additional indebtedness;
.investments, dividends;
.transactions with affiliates;
.asset sales;
.transactions with affiliates;
.mergers and consolidations;
.acquisitions;
.prepayments of other indebtedness including the notes and the exchange
notes; and
.liens and encumbrances and other matters customarily restricted in such
agreements.
Our new senior credit agreement contains customary events of default,
including:
.payment defaults;
.breaches of representations and warranties and covenants;
.defaults under other agreements and indebtedness;
.ERISA matters;
.a change of control of Simmons Holdings; and
.Simmons Holdings ceasing to own 100% of our outstanding capital stock.
Our new senior credit agreement requires that certain amounts must be used
to prepay, and/or to reduce commitments under our new senior credit agreement,
including:
. subject to exceptions, 100% or, if we satisfy specified debt to equity
ratios, 75% of the net proceeds of any sale or issuance of equity;
. 100% of the net proceeds from any incurrence of indebtedness after the
closing of the Fenway acquisition by us or any of our subsidiaries,
except for proceeds of up to $125.0 million from the original offering
and subject to other exceptions;
. 100% of the net after tax proceeds of any sale or other disposition by us
or any of our subsidiaries of any assets, including casualties or
condemnations, except for the sale of inventory in the ordinary course of
business and subject to other exceptions;
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. 75% or, if we satisfy specific debt to equity ratios, 50% of Consolidated
Excess Cash Flow, as defined in our new senior credit agreement for each
year commencing with the year ending in December 1999; and
. 100% of any surplus assets, net of transaction costs and taxes, returned
to us or any of our subsidiaries from a pension plan of ours or any of
our subsidiaries.
In general, the mandatory prepayments described above will be applied first,
to prepay our term loan facility, and then, to prepay and/or permanently reduce
commitments under our revolving credit facility.
We are required to pay to the lenders under our new senior credit agreement
a commitment fee, payable in arrears on a quarterly basis and upon the maturity
or termination of our revolving credit facility, equal to 0.50% per annum times
the daily average unused portion of our revolving credit facility. We are also
required to pay to the lenders a quarterly letter of credit fee with respect to
each letter of credit outstanding equal to the applicable margin for Eurodollar
rate loans under our revolving credit facility times the daily amount available
for drawing on such letter of credit, as well as a fronting fee payable to the
issuing bank for its own account of the greater of $500 and 0.25% of the
average daily amount available to be drawn under all letters of credit issued.
In connection with the original offering, our new senior credit agreement
was amended to:
.allow for the issuance of the notes and the exchange notes;
. require prepayment of amounts outstanding under our new senior credit
agreement to the extent the net proceeds of the original offering
exceeded $125.0 million; and
. provide that voluntary and mandatory prepayments from the net proceeds of
the original offering were applied in forward order of maturity.
As of March 27, 1999, we had no borrowings under our revolving credit
facility, and approximately $166.0 million of borrowings under our term loan
facility.
Securities Purchase Agreement
In connection with the Fenway acquisition, we and Simmons Holdings entered
into a securities purchase agreement with Fenway Investment LLC. Pursuant to
the securities purchase agreement, we issued junior subordinated notes in the
aggregate principal amount of $30.0 million and Simmons Holdings issued junior
subordinated notes in the aggregate principal amount of $10.0 million. On March
16, 1999, with proceeds from the original offering, we repaid the $30.0 million
junior subordinated notes issued by us as well as approximately $1.1 million of
accrued interest.
The maturity date of the junior subordinated notes issued by Simmons
Holdings is October 29, 2011. These notes initially bore interest at 15.0%
through December 30, 1998, which rate increases by 0.5% for every three-month
period thereafter up to a maximum rate of 17.5%. Interest on these notes is
payable in kind by capitalizing such interest through September, 2010.
Manufacturing Facility Loans
We financed the construction costs of our Janesville, Wisconsin and Shawnee,
Kansas facilities with industrial revenue bonds issued by the cities of
Janesville, Wisconsin and Shawnee, Kansas. Each city loaned us the proceeds
from its respective bond issuance. In return, we agreed to pay to each city
amounts sufficient to pay debt service on the bonds. The Janesville bonds, with
a principal amount of $9.7 million, bear interest at a fixed rate of 7.0% and
mature in 2017. The Shawnee bonds, with a principal amount of $5.0 million,
bear interest at a variable rate and mature in 2016.
In December 1997, Simmons Caribbean Bedding Inc., our wholly owned
subsidiary, entered into a loan facility in the amount of $3.2 million. As of
December 26, 1998, approximately $3.2 million was drawn against the loan
facility and is accruing interest at a fluctuating rate equal to 200 basis
points over the London Interbank Offered Rate, adjusted every 90 days.
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DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of several terms used in this description under
the subheading "Definitions". In this description, the word "Simmons" refers
only to Simmons Company and not to any of its Subsidiaries or Simmons Holdings.
Simmons will issue the exchange notes under the indenture between itself and
SunTrust Bank, Atlanta, as trustee. The terms of the exchange notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the notes except that:
(1) the exchange notes will bear a Series B designation;
(2) the exchange notes have been registered under the Securities Act
and, therefore, will generally not bear legends restricting their transfer;
and
(3) the holders of the exchange notes will not be entitled to rights
under the registration rights agreement dated as of March 16, 1999 by and
among, us, Goldman Sachs, Fleet Securities, U.S. Bancorp and Warburg Dillon
Reed, including the provision providing for liquidated damages relating to
the timing of the exchange notes.
The exchange notes will evidence the same debt as the notes and will be
entitled to the benefits of the indenture. The exchange notes will be pari
passu with the notes if all of such notes are not exchanged pursuant to the
exchange offer.
The following description is a summary of the material provisions of the
indenture, which is filed as an exhibit to the registration statement of which
this prospectus forms a part. It does not restate the agreement in its
entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the exchange notes. Copies of
the indenture are available as set forth below under the subheading "Additional
Information". Except as the context otherwise requires, references to the notes
shall include the exchange notes.
Brief Description of the Exchange Notes and the Guarantees
The Exchange Notes
The exchange notes:
. are general unsecured obligations of Simmons;
. are subordinated in right of payment to all current and future Senior Debt
of Simmons; and
. are senior in right of payment to any future subordinated Indebtedness of
Simmons.
The Guarantees
The exchange notes initially will not be guaranteed by any of our
subsidiaries.
As a result, the exchange notes will be effectively subordinated to all
indebtedness and other liabilities, including trade payables, of our
subsidiaries. As of the date of the indenture, we will have a single operating
subsidiary, located in Puerto Rico. This subsidiary accounted for less than
1.4% of our consolidated net sales for the year ended December 26, 1998 and
approximately 2.0% of our consolidated assets as of December 26, 1998. In the
event of a bankruptcy, liquidation or reorganization of any non-guarantor
subsidiary, the non-guarantor subsidiaries will pay the holders of their debt
and their trade creditors before they will be able to distribute any of their
assets to us.
Upon completion of the original offering and application of the proceeds as
intended, we had indebtedness senior to the notes aggregating $184.5 million
comprised of total Senior Debt of approximately $181.3 million, excluding
unused commitments under our new senior credit agreement of $76.5 million, and
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$3.2 million of indebtedness of our sole operating Subsidiary. As indicated
above and as discussed in detail below under the subheading "Subordination",
payments on the exchange notes will be subordinated to the payment of Senior
Debt. The indenture will permit us to incur additional Senior Debt in the
future. Although the indenture contains restrictions on the amount of
additional Senior Debt that we may incur, the amount of Senior Debt could be
substantial.
As of the date of the indenture, all of our subsidiaries were "Restricted
Subsidiaries". However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries", we will be permitted to designate some of our subsidiaries as
"Unrestricted Subsidiaries". Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture.
Principal, Maturity and Interest
Simmons will issue exchange notes with a maximum aggregate principal of
$150.0 million in the exchange offer. Simmons may issue up to $50.0 million of
additional notes (the "Additional Notes") from time to time after the exchange
offer. Any offering of Additional Notes is subject to the covenant described
below under the caption "Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock". The exchange notes and any Additional Notes subsequently
issued under the indenture would be treated as a single class for all purposes
under the indenture, including, without limitation, waivers, amendments,
redemptions and offers to purchase. Simmons will issue exchange notes in
denominations of $1,000 and integral multiples of $1,000. The exchange notes
will mature on March 15, 2009.
Interest on the exchange notes will accrue at the rate of 10 1/4% per annum
and will be payable semi-annually in cash in arrears on March 15 and September
15, commencing on September 15, 1999. Simmons will make each interest payment
to the holders of record of the exchange notes on the immediately preceding
March 1 and September 1.
Additional Notes may be issued from time to time after the date of the
exchange offer, subject to the provisions of the indenture, including those
described under the subheading "Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock". The exchange notes and any Additional Notes
subsequently issued under the indenture would be treated as a single class for
all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase.
Interest on the exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payment on the Exchange Notes
If a holder has given wire transfer instructions to Simmons, Simmons will
make all principal, premium and interest payments on those exchange notes in
accordance with those instructions. All other payments on the exchange notes
will be made at the office or agency of the Paying Agent and Registrar within
the City and State of New York unless Simmons elects to make interest payments
by check mailed to the holders at their addresses set forth in the register of
holders.
Paying Agent and Registrar for the Exchange Notes
The Trustee will initially act as Paying Agent and Registrar. Simmons may
change the Paying Agent or Registrar without prior notice to the holders of the
exchange notes, and Simmons or any of its Subsidiaries may act as Paying Agent
or Registrar.
Transfer and Exchange
A holder may transfer or exchange exchange notes in accordance with the
indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents
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<PAGE>
and Simmons may require a holder to pay any taxes and fees required by law or
permitted by the indenture. Simmons is not required to transfer or exchange
any exchange note selected for redemption. Also, Simmons is not required to
transfer or exchange any exchange note for a period of 15 days before a
selection of exchange notes to be redeemed.
The registered holder of an exchange note will be treated as the owner of
it for all purposes.
Subordination
The payment of principal, premium, if any, and interest on the exchange
notes will be subordinated to the prior payment in full in cash of all Senior
Debt of Simmons.
The holders of Senior Debt will be entitled to receive payment in full of
all obligations due in respect of such Senior Debt, including interest after
the commencement of the proceedings described below at the rate specified in
the applicable Senior Debt, before the holders of exchange notes will be
entitled to receive any payment with respect to the exchange notes, except
that holders of exchange notes may receive and retain Permitted Junior
Securities and payments made from the trust described under the subheading "--
Legal Defeasance and Covenant Defeasance", in the event of any distribution to
creditors of Simmons:
(1) in a liquidation or dissolution of Simmons;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Simmons or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the assets and liabilities of Simmons.
Simmons also may not make any payment in respect of the exchange notes,
except in Permitted Junior Securities or from the trust described under the
subheading "--Legal Defeasance and Covenant Defeasance", if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from Simmons or the holders of any Designated Senior
Debt.
Payments on the exchange notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest, if any,
on the exchange notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 180 days.
Simmons must promptly notify holders of Senior Debt if payment of the
exchange notes is accelerated because of an Event of Default.
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As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or insolvency of Simmons, holders of the exchange
notes may recover less ratably than creditors of Simmons who are holders of
Senior Debt. See "Risk Factors--Subordination".
Optional Redemption
At any time prior to March 15, 2002, Simmons may on any one or more
occasions redeem up to 35% of the aggregate principal amount of the exchange
notes ever issued under the indenture at a redemption price of 110.25% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the redemption date, with the net cash proceeds of any Public Equity Offering;
provided that
(1) at least 65% of the exchange notes ever issued remain outstanding
immediately after the occurrence of such redemption excluding any exchange
notes held by Simmons and its Subsidiaries; and
(2) the notice of redemption with respect to such redemption shall be
mailed at least 30 days but not more than 60 days after the date of the
closing of any such Public Equity Offering.
Except pursuant to the preceding paragraph, the exchange notes will not be
redeemable at Simmons' option prior to March 15, 2004.
After March 15, 2004, Simmons may redeem all or a part of the exchange notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices,
expressed as percentages of principal amount, set forth below plus accrued and
unpaid interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on March 15 of the years indicated
below:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
---- ----------------
<S> <C>
2004.................................................... 105.125%
2005.................................................... 103.417%
2006.................................................... 101.708%
2007 and thereafter..................................... 100.000%
</TABLE>
Mandatory Redemption
Simmons is not required to make mandatory redemption or sinking fund
payments with respect to the exchange notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of exchange notes will have the
right to require Simmons to repurchase all or any part equal to $1,000 or an
integral multiple thereof of that holder's exchange notes pursuant to the
Change of Control Offer described below. In the Change of Control Offer,
Simmons will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of exchange notes repurchased plus accrued and
unpaid interest thereon, if any, to the date of purchase. Within ten days
following any Change of Control, the Company will mail a notice to each holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase exchange notes on the Change of Control
Payment Date specified in such notice, pursuant to the procedures required by
the indenture and described in such notice. Simmons will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the exchange notes as a result
of a Change of Control.
On the Change of Control Payment Date, Simmons will, to the extent lawful:
(1) accept for payment all exchange notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
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(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all exchange notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the exchange notes
so accepted together with an Officers' Certificate stating the aggregate
principal amount of exchange notes or portions thereof being purchased by
Simmons.
The Paying Agent will promptly mail to each holder of exchange notes so
tendered the Change of Control Payment for such exchange notes, and the Trustee
will promptly authenticate and mail, or cause to be transferred by book entry,
to each holder a new exchange note equal in principal amount to any unpurchased
portion of the exchange notes surrendered, if any; provided that each such new
exchange note will be in a principal amount of $1,000 or an integral multiple
thereof.
Prior to complying with the provisions of this "Change of Control" covenant,
but in any event within 90 days following a Change of Control, Simmons will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of exchange notes required by this covenant. Simmons will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require Simmons to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the exchange notes to require
that Simmons repurchase or redeem the exchange notes in the event of a
takeover, recapitalization or similar transaction.
Simmons' outstanding Senior Debt currently prohibits Simmons from purchasing
any exchange notes, and also provides that some change of control events with
respect to Simmons would constitute a default under the agreements governing
the Senior Debt. Any future credit agreements or other agreements relating to
Senior Debt to which Simmons becomes a party may contain similar restrictions
and provisions. In the event a Change of Control occurs at a time when Simmons
is prohibited from purchasing exchange notes, Simmons could seek the consent of
its senior lenders to the purchase of exchange notes or could attempt to
refinance the borrowings that contain such prohibition. If Simmons does not
obtain such a consent or repay such borrowings, Simmons will remain prohibited
from purchasing exchange notes. In such case, Simmons' failure to purchase
tendered exchange notes would constitute an Event of Default under the
indenture which would, in turn, constitute a default under such Senior Debt. In
such circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of exchange notes.
Simmons will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Simmons and purchases
all exchange notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Simmons and its Subsidiaries taken as a whole. Although there
is a limited body of case law interpreting the phrase "substantially all",
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of exchange notes to require Simmons to
repurchase such exchange notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Simmons and
its Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
Simmons will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) Simmons, or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of; and
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(2) such fair market value is determined by Simmons' Board of Directors
and evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by Simmons or
such Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash or Cash Equivalents:
(a) any liabilities, as shown on Simmons' or such Restricted
Subsidiary's most recent balance sheet, of Simmons or any Restricted
Subsidiary, other than contingent liabilities and liabilities that are
by their terms subordinated to the exchange notes or any guarantee
thereof, that are assumed by the transferee of any such assets pursuant
to a customary novation agreement that releases Simmons or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Simmons
or any such Restricted Subsidiary from such transferee that are subject
to ordinary settlement periods, contemporaneously converted by Simmons
or such Restricted Subsidiary into cash or Cash Equivalents, to the
extent of the cash or Cash Equivalents received.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Simmons may apply such Net Proceeds at its option:
(1) to repay Senior Debt and effect a corresponding reduction if such
Senior Debt is a revolving credit borrowing;
(2) to acquire all or more than half of the assets of another Permitted
Business;
(3) to acquire Capital Stock of a Permitted Business; provided that
after any such acquisition of Capital Stock such Permitted Business is or
becomes a Restricted Subsidiary;
(4) to make a capital expenditure; or
(5) to acquire other long-term assets that are used or useful in a
Permitted Business (such long-term assets being referred to herein as
"Additional Assets").
Pending the final application of any such Net Proceeds, Simmons or such
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds". When the
aggregate amount of Excess Proceeds exceeds $10.0 million, Simmons will make an
offer to all holders of exchange notes and all holders of other Indebtedness
that is pari passu with the exchange notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets (an "Asset Sale Offer") to purchase the
maximum principal amount of exchange notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of purchase, and
will be payable in cash. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, Simmons may use such Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
exchange notes and such other pari passu Indebtedness tendered into such Asset
Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the
exchange notes and such other pari passu Indebtedness to be purchased on a pro
rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Notwithstanding the three immediately preceding paragraphs, Simmons and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent:
(1) at least 75% of the consideration for such Asset Sale constitutes
Additional Assets, cash and/or Cash Equivalents; and
(2) such Asset Sale is for fair market value, as determined in good
faith by Simmons' Board of Directors; and
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(3) any consideration not constituting Additional Assets received by
Simmons or any of its Restricted Subsidiaries in connection with any Asset
Sale permitted to be consummated under this paragraph are treated as Net
Proceeds from an Asset Sale and applied in accordance with the provisions
of the immediately preceding paragraph.
Selection and Notice
If less than all of the exchange notes are to be redeemed at any time, the
Trustee will select exchange notes for redemption as follows:
(1) if the exchange notes are listed, in compliance with the
requirements of the principal national securities exchange on which the
exchange notes are listed; or
(2) if the exchange notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate.
No exchange notes of $1,000 in principal amount or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of exchange
notes to be redeemed at its registered address. Notices of redemption may not
be conditional.
If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that exchange note shall state the portion of the
principal amount thereof to be redeemed. A new exchange note in principal
amount equal to the unredeemed portion of the original exchange note will be
issued in the name of the holder thereof upon cancellation of the original
exchange note. Exchange notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to
accrue on exchange notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
Simmons will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Simmons' or any of its Restricted Subsidiaries'
Equity Interests, including, without limitation, any payment in connection
with any merger or consolidation involving Simmons or any of its Restricted
Subsidiaries, or to the direct or indirect holders of Simmons' or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such,
other than dividends or distributions payable in Equity Interests, other
than Disqualified Stock, of Simmons or to Simmons or a Restricted
Subsidiary of Simmons;
(2) purchase, redeem or otherwise acquire or retire for value,
including, without limitation, in connection with any merger or
consolidation involving Simmons, any Equity Interests of Simmons or any
direct or indirect parent of Simmons;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the exchange notes, except a payment of interest or
principal at Stated Maturity; or
(4) make any Restricted Investment (all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(2) Simmons would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have
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been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the subheading "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Simmons and its Restricted Subsidiaries
after the date of the indenture, excluding Restricted Payments permitted by
clauses (2), (3), (4), (6), (7), (8), (9) and (10) of the next succeeding
paragraph, is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Simmons for the period,
taken as one accounting period, from the beginning of the first fiscal
quarter commencing after the date of the indenture to the end of
Simmons' most recently ended fiscal month for which internal financial
statements are available at the time of such Restricted Payment or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit, plus
(b) 100% of the aggregate net cash proceeds received by Simmons
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Simmons, other
than Disqualified Stock, or from the issue or sale of Disqualified
Stock or debt securities of Simmons that have been converted into or
exchanged for such Equity Interests, other than Equity Interests or
Disqualified Stock or convertible debt securities sold to a Subsidiary
of Simmons, plus
(c) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, 50% of the net cash proceeds to Simmons and its
Restricted Subsidiaries from the sale or liquidation of such Restricted
Investment less the cost of disposition, if any, plus
(d) an amount equal to the fair market value of all Restricted
Investments made since the date of the indenture in any Unrestricted
Subsidiary that is thereafter redesignated as a Restricted Subsidiary,
such amount not to exceed the amount of Restricted Investments
previously made by Simmons or any Restricted Subsidiary in such
Unrestricted Subsidiary that were treated as Restricted Payments since
the date of the indenture.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of Simmons
in exchange for, or out of the net cash proceeds to Simmons from the
substantially concurrent sale, other than to a Subsidiary of Simmons, of,
other Equity Interests of Simmons, other than any Disqualified Stock, or a
contribution to the common equity capital of Simmons, other than from a
Subsidiary of Simmons; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3) (b) of
the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) the payments and applications of the proceeds to be received by
Simmons from the issuance of the Notes in connection with the original
offering;
(5) the payment of any dividend by a Restricted Subsidiary of Simmons to
the holders of its Equity Interests on a pro rata basis;
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(6) payments to Holdings for the purpose of permitting, and in an amount
equal to the amount required to permit, Holdings to redeem or repurchase
Holdings' common equity or options in respect thereof, in each case in
connection with the repurchase provisions of employee stock option or stock
purchase agreements, the Stockholders Agreements or other agreements
relating to the compensation of management employees; provided that all
such repurchases or redemptions pursuant to this clause (6) shall not
exceed $2.5 million per annum plus the amount of any proceeds to Simmons
from:
(a) sales of Capital Stock of Holdings to management employees
subsequent to the date of the indenture to the extent contributed to
Simmons as common equity capital; provided that the amount of any such
net cash proceeds that are utilized for any such redemption or
repurchase shall be excluded from clause (3) (b) of the preceding
paragraph; and
(b) any "key-man" life insurance policies that are used to make any
such redemptions or repurchases; provided, further, that the
cancellation of Indebtedness owing to Holdings from members of
management of Simmons or any of its Restricted Subsidiaries in
connection with a repurchase of Capital Stock of Holdings will not be
deemed to constitute a Restricted Payment under the indenture;
provided that any amounts that are not used for repurchases and redemptions
in any year may be carried forward to subsequent years;
(7) the making of distributions, loans or advances to Holdings in an
amount not to exceed $850,000 per annum in order to permit Holdings to pay
the ordinary operating expenses of Holdings, including without limitation,
directors' fees, indemnification obligations, professional fees and
expenses;
(8) payments to Holdings in respect of:
(a) federal income taxes for the tax periods for which a federal
consolidated return is filed by Holdings for a consolidated group of
which Holdings is the parent and Simmons and its Subsidiaries are
members, in an amount not to exceed the hypothetical federal income
taxes that Simmons would have paid if Simmons and its Restricted
Subsidiaries filed a separate consolidated return with Simmons as the
parent, taking into account carryovers and carrybacks of tax
attributes, including net operating losses, that would have been
allowed if such separate consolidated return had been filed; and
(b) state income tax for the tax periods for which a state combined
return is filed by Holdings for a combined group of which Holdings is
the parent and Simmons and its Subsidiaries are members, in an amount
not to exceed the hypothetical state income taxes that Simmons would
have paid if Simmons and its Restricted Subsidiaries had filed a
separate combined return taking into account carryovers and carrybacks
of tax attributes, including net operating losses, that would have been
allowed if such separate combined return had been filed; provided,
however, that in no event shall any such tax payment pursuant to this
clause (7) exceed the amount of federal or state income tax, as the
case may be, that is, at the time Simmons makes such tax payments,
actually due and payable by Holdings to the relevant taxing authorities
or to become due and payable within 30 days of such payment by Simmons;
(9) distributions to Holdings to fund the Transactions;
(10) payments to Holdings to fund the payment of or payment by Simmons
of dividends, loans, distributions or annual contributions calculated in
accordance with the requirements of Section 415 of the Internal Revenue
Code to the Simmons ESOP in amounts equal to amounts expended by Holdings
to repurchase shares of its Capital Stock from deceased or retired
employees in accordance with the terms of the Simmons ESOP as in effect on
the date of the indenture and from employees whose employment with Holdings
or any of its Subsidiaries has terminated for any reason, in each case
contemplated by this clause (10) only to the extent mandatorily required by
the Simmons ESOP as in effect on the date of the indenture, the Internal
Revenue Code or ERISA; and, provided, further, that in each such case
Holdings or
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Simmons has deferred making any cash payments in respect of such repurchase
obligations to the maximum extent possible under the Simmons ESOP as in
effect on the date of the indenture or as modified from time to time to
comply with law;
(11) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof;
(12) the payments pursuant to the Fenway Agreement as in effect on the
date of the indenture; and
(13) if the Company would be permitted to incur at least $1.00 of
additional Indebtedness, other than Permitted Debt, in compliance with the
covenant described below under the subheading "--Incurrence of Indebtedness
and Issuance of Preferred Stock", other Restricted Payments in an aggregate
amount not to exceed $5.0 million since the date of the indenture.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Simmons or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment.
Incurrence of Indebtedness and Issuance of Preferred Stock
Simmons will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness, including Acquired Debt, and that
Simmons will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that Simmons or any of its Restricted Subsidiaries may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for Simmons' most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a pro forma basis, including a pro forma application of the
net proceeds therefrom, as if the additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not prohibit
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the notes originally issued under the indenture, the exchange notes
issued in exchange therefor and any Guarantees of any notes or exchange
notes;
(2) Indebtedness of Simmons, and Guarantees thereof by any of the
Company's Restricted Subsidiaries, incurred pursuant to one or more Credit
Facilities in an aggregate principal amount at any time outstanding, with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of Simmons and its Subsidiaries thereunder, not
to exceed $290.0 million less:
(a) the aggregate amount of Indebtedness of Securitization Entities
at the time outstanding less
(b) the amount of all optional or mandatory principal payments
actually made by Simmons or any of its Restricted Subsidiaries since the
date of the indenture in respect of term loans under Credit Facilities,
excluding any such payments to the extent refinanced at the time of
payment under a Credit Facility, and
(c) further reduced by any repayments since the date of the indenture
of revolving credit borrowings under Credit Facilities that are
accompanied by a corresponding commitment reduction thereunder;
(3) other Indebtedness of Simmons and its Subsidiaries outstanding on
the date of the indenture for so long as such Indebtedness remains
outstanding;
(4) Interest Swap Obligations of Simmons covering Indebtedness of
Simmons; provided that any Indebtedness to which any such Interest Swap
Obligations correspond is otherwise permitted to be incurred under the
indenture; and provided, further, that such Interest Swap Obligations are
entered into, in the judgment of Simmons, to protect Simmons from
fluctuation in interest rates on its outstanding Indebtedness;
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(5) Indebtedness of Simmons under Currency Agreements;
(6) the incurrence by Simmons or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Simmons and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Simmons is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the notes and the exchange
notes; and
(b)(1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Simmons or a Restricted Subsidiary thereof and
(2) any sale or other transfer of any such Indebtedness to a Person
that is not either Simmons or a Restricted Subsidiary of Simmons shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by Simmons or such Restricted Subsidiary, as the case may
be, that was not permitted by this clause (6);
(7) the guarantees by Simmons or any of its Restricted Subsidiaries of
each other's Indebtedness; provided that such Indebtedness is permitted to
be incurred under the indenture;
(8) Indebtedness, including Capitalized Lease Obligations, incurred by
Simmons or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property, real or personal, or equipment, whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets, in an aggregate principal amount not to exceed $15.0
million at any one time outstanding, including any Permitted Refinancing
Indebtedness with respect thereto, which amount may, but need not, be
incurred in whole or in part under the New Senior Credit Agreement;
(9) Indebtedness incurred by Simmons or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(10) obligations in respect of performance and surety bonds and
completion guarantees provided by Simmons or any of its Restricted
Subsidiaries in the ordinary course of business;
(11) the incurrence by Simmons or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness, other than
intercompany Indebtedness, that was permitted by the indenture to be
incurred under the first paragraph hereof or clauses (1), (3), (8), (14)
and (15) of this paragraph or this clause (11) or the first paragraph of
this covenant;
(12) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with respect
to Simmons and its other Restricted Subsidiaries, except for Standard
Securitization Undertakings;
(13) the incurrence by Simmons' Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of Simmons that was not permitted by this clause (13);
(14) the incurrence of Indebtedness by foreign Restricted Subsidiaries
of Simmons in an aggregate principal amount not to exceed $20.0 million at
any one time outstanding;
(15) the incurrence of up to $25.0 million in aggregate principal amount
of Indebtedness by Simmons or a Restricted Subsidiary of Simmons on or
prior to September 30, 2000, the net proceeds of which are applied to a
concurrent acquisition of a Permitted Business or that is incurred as a
result of the assumption of Indebtedness of a Permitted Business at the
time of the acquisition thereof, provided
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that in each case, the pro forma Fixed Charge Coverage Ratio of Simmons for
the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the consummation
of such acquisition is higher than the actual historical Fixed Charge
Coverage Ratio of Simmons for such four-quarter period; and
(16) the incurrence by Simmons or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount, or accreted
value, as applicable, at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (16), not to exceed $20.0
million.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (16) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, Simmons shall, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
this covenant.
Accrual of interest costs or fees, accretion or amortization of original
issue discount costs or fees, the payment of interest on any Indebtedness in
the form of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the same
class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included in
Fixed Charges of Simmons as accrued. Indebtedness under Credit Facilities
outstanding on the date on which the exchange notes are first issued and
authenticated under the indenture will be deemed to have been incurred on such
date in reliance on the exception provided by clause (2) of the definition of
Permitted Debt.
No Senior Subordinated Debt
Simmons will not incur, create, issue, assume, Guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Debt and senior in any respect in right of payment to the
exchange notes. No Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of any Guarantor and senior in any respect
in right of payment to the Guarantees of the exchange notes.
Liens
Simmons will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
Simmons will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or consensual restriction on the ability
of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Simmons or any of its Restricted Subsidiaries or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to Simmons or any of its Restricted Subsidiaries;
(2) make loans or advances to Simmons or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Simmons or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
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(2) the New Senior Credit Agreement as in effect as of the date of the
indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are not
materially more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the New
Senior Credit Agreement as in effect on the date of the indenture;
(3) the indenture and the exchange notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
or assets acquired by Simmons or any of its Restricted Subsidiaries as in
effect at the time of such acquisition except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
indenture to be incurred;
(6) customary non-assignment provisions in leases, contracts and
licenses entered into in the ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) of the preceding paragraph on the property so acquired;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
subheading "--Liens" that limit the right of Simmons or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(13) Indebtedness or other contractual requirements of a Securitization
Entity in connection with a Qualified Securitization Transaction; provided
that such restrictions apply only to such Securitization Entity;
(14) any agreement or instrument governing Indebtedness, whether or not
outstanding, of foreign Restricted Subsidiaries of Simmons if it
constitutes Permitted Debt incurred pursuant to clause (14) under the
subheading "--Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(15) any amendments to the above agreements, if such amendments are not
materially more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the
agreements being amended.
Merger, Consolidation, or Sale of Assets
Simmons may not, directly or indirectly:
(1) consolidate or merge with or into, whether or not Simmons is the
surviving corporation); or
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(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person;
unless:
(1) either:
(a) Simmons is the surviving corporation; or
(b) the Person formed by or surviving any such consolidation or
merger, if other than Simmons, or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger,
if other than Simmons, or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Simmons under the registration rights agreement, the
notes, the exchange notes and the indenture pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) except in the case of a merger of Simmons with or into a Wholly
Owned Restricted Subsidiary of Simmons, the Company or the Person formed by
or surviving any such consolidation or merger, if other than Simmons, or to
which such sale, assignment, transfer, conveyance or other disposition
shall have been made will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of Simmons
immediately preceding the transaction; and
(5) except in the case of a merger of Simmons with or into a Wholly
Owned Restricted Subsidiary of Simmons, either:
(a) Simmons or the Person formed by or surviving any such
consolidation or merger, if other than Simmons, or to which such sale,
assignment, transfer, conveyance or other disposition will, immediately
after such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the subheading "--Incurrence of Indebtedness and
Issuance of Preferred Stock" or
(b) in the case of a merger in which Simmons is the surviving
corporation, Simmons shall, immediately after such transaction after
giving pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable four-
quarter period, be permitted to incur at least $1.00 of additional
Indebtedness, including Permitted Debt, pursuant to the covenant
described under the subheading "--Incurrence of Indebtedness and
Issuance of Preferred Stock".
In addition, Simmons may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant will not be
applicable to a sale, assignment, transfer, conveyance or other disposition of
assets between or among Simmons and any of the Restricted Subsidiaries.
Transactions with Affiliates
Simmons will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Simmons or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Simmons or such Restricted
Subsidiary with an unrelated Person; and
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(2) Simmons delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.5 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$7.5 million, an opinion that such Affiliate Transaction is not
materially less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arms-length
basis from a Person that is not an Affiliate of Simmons or such
Restricted Subsidiary issued by an accounting, appraisal or investment
banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Simmons or any of its
Restricted Subsidiaries in the ordinary course of business of Simmons or
such Restricted Subsidiary;
(2) transactions between or among Simmons and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees and compensation;
(4) any sale or other issuance of Equity Interests, other than
Disqualified Stock, of Simmons;
(5) Restricted Payments that are permitted by the provisions of the
indenture described above under the subheading "--Restricted Payments";
(6) the performance of Simmons' or any Subsidiary's obligations under
the Simmons ESOP as in effect on the date of the indenture;
(7) the performance of Simmons' or any Subsidiary's obligations under
the Fenway Agreement as the same is in effect on the date of the indenture;
(8) reasonable and customary costs and expenses incident to a public
offering of Equity Securities of Holdings to the extent that the proceeds
therefrom are intended to be contributed to Simmons as common equity
capital;
(9) Qualified Securitization Transaction;
(10) the performance of Simmons' or any Subsidiary's obligations under
the Transaction Documents as the same are in effect on the date of the
indenture;
(11) the making of loans to employees or consultants to the extent that
the same constitute Permitted Investments; and
(12) the granting of customary registration rights and/or put or call
options pursuant to the Stockholders Agreements or any similar agreement.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Simmons and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be an Investment made as of the time
of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of the covenant described above under the
subheading "--Restricted Payments" or Permitted Investments, as applicable. All
such outstanding Investments will be valued at their fair market value at the
time of such designation. That designation will only
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be permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if such redesignation would not cause a Default.
Limitations on Issuances of Guarantees of Indebtedness
If Simmons acquires or creates a Restricted Subsidiary that is a Significant
Subsidiary of Simmons, or if any Restricted Subsidiary of Simmons becomes a
Significant Subsidiary of Simmons, then such Significant Subsidiary shall
execute and deliver a supplemental indenture to the indenture providing for the
Guarantee of the payment of the notes and the exchange notes by such
Significant Subsidiary, which Guarantee shall be senior to or pari passu with
all other Indebtedness of such Significant Subsidiary, other than Senior Debt,
and shall be subordinated to all Senior Debt of such Significant Subsidiary to
the same extent as the notes and the exchange notes are subordinated to Senior
Debt.
Notwithstanding the preceding paragraph, any such Guarantee by a Significant
Subsidiary of the notes and the exchange notes shall provide by its terms that
it shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of Simmons, of all
of Simmons' stock in, or all or substantially all the assets of, such
Significant Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of the indenture. The form of such Guarantee
will be attached as an exhibit to the indenture.
Conduct of Business
Simmons will not, and will not permit any of its Restricted Subsidiaries to,
engage in any businesses a majority of whose revenues are not derived from the
same or reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which Simmons and its Restricted
Subsidiaries are engaged on the date of the indenture.
Reports
Whether or not required by the Commission, so long as any exchange notes are
outstanding, Simmons will furnish to the holders of exchange notes, within the
time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Simmons were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the consolidated financial statements included in the
annual information only, a report thereon by our independent accountants;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Simmons were required to file such reports.
If Simmons has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Simmons and
its Restricted Subsidiaries separate from the financial condition and results
of operations of the Unrestricted Subsidiaries of Simmons.
In addition, whether or not required by the Commission, Simmons will file a
copy of all such information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations, unless the Commission will
not accept such a filing, and make such information available to securities
analysts and prospective investors upon request.
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Simmons and the Guarantors have also agreed that, for so long as any
exchange notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
exchange notes, whether or not prohibited by the subordination provisions
of the indenture;
(2) default in payment when due of the principal of or premium, if any,
on the notes or the exchange notes, whether or not prohibited by the
subordination provisions of the indenture;
(3) failure by Simmons or any of its Restricted Subsidiaries to comply
with the provisions described under the subheadings "--Change of Control",
"--Asset Sales", "--Restricted Payments" or "--Incurrence of Indebtedness
and Issuance of Preferred Stock" and the continuance of such failure after
the receipt by Simmons of written notice from the Trustee or the holders of
at least 25% in aggregate principal amount of the exchange notes, including
Additional Notes, if any, then outstanding of such default;
(4) failure by Simmons or any of its Subsidiaries for 60 days after
written notice is given to Simmons by the Trustee or the holders of at
least 25% in aggregate principal amount of the notes and the exchange
notes, including Additional Notes, if any, then outstanding to comply with
any of its other agreements in the indenture or the notes and the exchange
notes and the continuance of such failure for a period of 60 days after the
receipt by Simmons of written notice from the Trustee or the holders of at
least 25% in aggregate principal amount of the notes and the exchange notes
then outstanding of such default;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Simmons or any of its Subsidiaries, or
the payment of which is guaranteed by Simmons or any of its Subsidiaries,
whether such Indebtedness or guarantee now exists, or is created after the
date of the indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness if such payment default is not cured
or waived within 10 Business Days of the occurrence thereof (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or
more;
(6) failure by Simmons or any of its Subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Guarantee; and
(8) some events of bankruptcy or insolvency with respect to Simmons or
any of its Subsidiaries.
In the case of an Event of Default arising from some events of bankruptcy or
insolvency, with respect to Simmons, any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding notes and exchange notes will become due and payable without
further action or notice. If any Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in principal amount of the notes and
exchange notes then outstanding, including any Additional Notes, if any, may
declare all the notes and exchange notes to be due and payable immediately.
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Holders of the exchange notes may not enforce the indenture or the exchange
notes except as provided in the indenture. Subject to limitations, holders of a
majority in principal amount of the then outstanding notes and exchange notes
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the notes and exchange notes notice of any continuing
Default or Event of Default, except a Default or Event of Default relating to
the payment of principal or interest, if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the notes and
exchange notes then outstanding by notice to the Trustee may on behalf of the
holders of all of the notes and exchange notes waive any existing Default or
Event of Default and its consequences under the indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the notes and exchange notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Simmons with the
intention of avoiding payment of the premium that Simmons would have had to pay
if Simmons then had elected to redeem the exchange notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the exchange notes. If an Event of Default occurs
prior to March 15, 2004 by reason of any willful action or inaction taken or
not taken by or on behalf of Simmons with the intention of avoiding the
prohibition on redemption of the exchange notes prior to March 15, 2004, then
the premium specified in the indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the exchange
notes.
Simmons is required to deliver to the Trustee annually a statement regarding
compliance with the indenture, and Simmons is required upon becoming aware of
any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Simmons, as
such, shall have any liability for any obligations of Simmons under the
exchange notes or the indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of exchange notes by
accepting an exchange note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the exchange notes.
The waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
Simmons may, at its option and at any time, elect to have all of its
obligations discharged with respect the exchange notes ("Legal Defeasance")
except for:
(1) the rights of holders of outstanding exchange notes to receive
payments in respect of the principal of, premium, if any, and interest on,
the exchange notes when such payments are due from the trust referred to
below;
(2) Simmons' obligations with respect to such exchange notes concerning
issuing temporary exchange notes, registration of exchange notes,
mutilated, destroyed, lost or stolen exchange notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and Simmons' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Simmons may, at its option and at any time, elect to have the
obligations of Simmons released with respect to several covenants that are
described in the indenture ("Covenant Defeasance") and thereafter
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any omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the exchange notes. In the event Covenant
Defeasance occurs, some events, not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events, described under "Events of
Default" will no longer constitute an Event of Default with respect to the
exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the exchange notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest, if any, on all outstanding exchange notes on the
stated maturity or on the applicable redemption date, as the case may be,
and Simmons must specify whether such exchange notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, Simmons shall have delivered to the
Trustee an Opinion of Counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since the
date of the indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the holders of the outstanding
exchange notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to such Trustee confirming that the holders of the outstanding
exchange notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of such deposit, other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit; or
(b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, including the indenture and the New Senior Credit
Agreement, but other than a default resulting from the borrowing of funds
to be applied to such deposit, to which Simmons or any of its Subsidiaries
is a party or by which Simmons or any of its Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an Opinion of Counsel
to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) Simmons must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by Simmons with the intent of
preferring the holders of the exchange notes over the other creditors of
Simmons with the intent of defeating, hindering, delaying or defrauding
creditors of Simmons or others; and
(8) Simmons must deliver to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
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Amendment, Supplement and Waiver
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any exchange notes held by a non-consenting holder:
(1) reduce the principal amount of exchange notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any exchange
note or alter the provisions with respect to the time and amount of
redemption of the exchange notes, other than provisions relating to the
covenants described above under the subheading "--Repurchase at the Option
of Holders";
(3) reduce the rate of or change the time for payment of interest on any
exchange note;
(4) waive a Default or Event of Default in the payment of principal of,
premium, if any, or interest, if any, on the exchange notes, except a
rescission of acceleration of the exchange notes by the holders of at least
a majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration;
(5) make any exchange note payable in money other than that stated in
the exchange notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of exchange notes to
receive payments of principal of or premium, if any, or interest on the
exchange notes;
(7) waive a redemption payment with respect to any exchange note, other
than a payment required by one of the covenants described above under the
subheading "--Repurchase at the Option of Holders"; or
(8) make any change in the foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of the indenture relating to
subordination that adversely affects the rights of the holders of the notes and
exchange notes will require the consent of the holders of at least 75% in
aggregate principal amount of the notes and exchange notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes or
exchange notes, Simmons and the Trustee may amend or supplement the indenture
or the notes or exchange notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes or exchange notes in addition to
or in place of certificated notes or exchange notes;
(3) to provide for the assumption of Simmons' obligations to holders of
notes or exchange notes in the case of a merger or consolidation or sale of
all or substantially all of Simmons' assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or exchange notes or that does not
adversely affect the legal rights under the indenture of any such holder;
or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Except as provided in the prior paragraphs, the indenture and the notes and
exchange notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the notes and exchange notes then
outstanding, including, without limitation, consents obtained in connection
with a purchase of, or tender offer for, exchange notes, and any existing
default or compliance with any provision of the indenture or the notes and
exchange notes may be waived with the consent of the holders of a majority in
principal amount of the then outstanding notes and exchange notes, including,
without limitation, consents obtained in connection with a purchase of, or
tender offer for notes and exchange notes.
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Concerning the Trustee
If the Trustee become a creditor of Simmons, the indenture limits its right
to obtain payment of claims in some cases, or to realize on some property
received in respect of any such claim as security or otherwise. The Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest the Trustee must eliminate such conflict within 90 days,
apply to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
and exchange notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes and exchange notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Additional Information
Anyone who receives this prospectus may obtain copies of the indenture,
without charge, by writing to Simmons Company, One Concourse Parkway, Atlanta,
Georgia 30328, Attention: Treasurer.
Book-Entry, Delivery and Form
The Certificates representing the exchange notes will be issued in fully
registered form, without coupons. Except as described below, the exchange notes
will be deposited with, or on behalf of, The Depository Trust Company ("DTC"),
in New York, New York, and registered in the name of DTC or its nominee in the
form of one or more global certificates (the "Global Notes") or will remain in
the custody of the Trustee pursuant to a FAST Balance Certificate Agreement
between DTC and the Trustee.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to DTC or another nominee of DTC or to a successor of DTC or
its nominee. Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes (as defined below). See "--Exchange of
Book-Entry Notes for Certificated Notes." In addition, transfers of beneficial
interests in the Global Notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants, including, if
applicable, those of Euroclear and Cedel, which rules and procedures may change
from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the settlement system of DTC and are subject to
changes by them from time to time. Simmons takes no responsibility for these
operations and procedures and urges investors to contact the system or its
participants directly to discuss these matters.
DTC has advised Simmons that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and other
organizations. Access to DTC's system is also available to other entities such
as
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banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised Simmons that, pursuant to procedures established by it:
(a) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Trustee with portions of the principal
amount of the Global Notes; and
(b) ownership of such interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC with respect to the Participants or by the
Participants and the Indirect Participants with respect to other owners of
beneficial interest in the Global Notes.
All interests in a Global Note may be subject to the procedures and
requirements of DTC. The laws of some states require that some persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Note to such persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and some
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have exchange notes registered in their names, will not receive physical
delivery of exchange notes in certificated form and will not be considered the
registered owners or "Holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, premium and interest, if any, on a
Global Note registered in the name of DTC or its nominee will be payable to DTC
in its capacity as the registered holder under the indenture. Under the terms
of the indenture, Simmons and the Trustee will treat the persons in whose names
the exchange notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither Simmons, the Trustee nor any agent
of Simmons or the Trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised Simmons that its current practice, upon receipt of any
payment in respect of securities such as the exchange notes, including
principal and interest, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interest in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of exchange
notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or Simmons. Neither Simmons
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the exchange notes, and Simmons and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interest in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available
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funds, subject in all cases to the rules and procedures of DTC and its
Participants. See "--Same Day Settlement and Payment".
Subject to the transfer restrictions set forth under "Notice to Investors",
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds.
DTC has advised Simmons that it will take any action permitted to be taken
by a holder of notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the exchange notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the exchange notes, DTC reserves
the right to exchange the Global Notes for legended exchange notes in
certificated form, and to distribute such notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Participants in DTC it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither Simmons nor the Trustee nor
any of their respective agents will have any responsibility for the performance
by DTC or its respective participants or indirect participants of their
respective obligations under the rules and procedures governing its operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
(1) DTC:
(a) notifies Simmons that it is unwilling or unable to continue as
depositary for the Global Notes and Simmons thereupon fails to appoint
a successor depositary; or
(b) has ceased to be a clearing agency registered under the Exchange
Act;
(2) Simmons, at its option, notifies the Trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the exchange notes. In addition, beneficial
interests in a Global Note may be exchanged for Certificated Notes upon
request but only upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests
therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC, in accordance with its
customary procedures, and will bear the applicable restrictive legend
referred to in "Notice to Investors", unless Simmons determines otherwise
in compliance with applicable law.
Exchange of Certificated Notes for Book-Entry Notes
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate in the form provided in the indenture to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes. See "Notice to Investors".
Same Day Settlement and Payment
Payments in respect of the exchange notes represented by the Global Notes,
including principal, premium, if any, and interest, if any, will be made by
wire transfer of immediately available funds to the accounts specified by the
Global Note holder. With respect to Certificated Notes, Simmons will make all
payments of
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principal, premium, if any, and interest, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each such holder's
registered address. The exchange notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in the
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such exchange notes will, therefore, be required by the
DTC to be settled in immediately available funds. Simmons expects that
secondary trading in any Certificated Notes will also be settled in
immediately available funds.
Certain Definitions
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Additional Assets" has the meaning assigned to such term in the second
paragraph of the covenant described above under the subheading "Repurchase at
the Option of Holders--Asset Sales".
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business consistent
with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Simmons and its
Restricted Subsidiaries taken as a whole will be governed by the provisions
of the indenture described above under the subheading "--Change of Control"
and/or the provisions described above under the subheading "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issue or sale by Simmons or any of its Restricted Subsidiaries
of Equity Interests of any of Simmons' Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that:
(a) involves assets having a fair market value of less than $1.0
million; or
(b) results in net proceeds to Simmons and its Restricted
Subsidiaries of less than $1.0 million;
(2) a transfer of assets between or among Simmons and its Wholly Owned
Restricted Subsidiaries;
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(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to Simmons or to another Wholly Owned Restricted Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described
above under the subheading "--Restricted Payments";
(5) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(6) sales of accounts receivable, equipment and related assets,
including contract rights, of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof;
(7) the licensing of intellectual property in the ordinary course of
business; and
(8) the disposal or replacement of obsolete, surplus or worn-out
equipment in the ordinary course of business.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire,
whether such right is currently excercisable or is exercisable only upon the
occurrence of a subsequent condition.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, capital stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case with any lender party to the New Senior Credit Agreement or with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition; and
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(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Simmons and its
Restricted Subsidiaries taken as a whole to any "person" (as such term is
used in Section 13(d)(3) of the Exchange Act) other than the Principals or
any of their Related Parties;
(2) the adoption of a plan by the stockholders thereof for the
liquidation or dissolution of Simmons or Holdings;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals, their Related Parties or, prior
to the establishment of a Public Market, a Permitted Group, becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the Voting
Stock of Holdings or Simmons (measured by voting power rather than number
of shares);
(4) the first day on which a majority of the members of the Board of
Directors of Holdings or Simmons are not Continuing Directors; or
(5) the first day on which Holdings ceases to own 100% of the
outstanding Equity Interests of Simmons (other than as a result of a merger
of Simmons and Holdings permitted by the indenture).
"Common Equity Documents" means the Recapitalization Agreement, the
Certificate of Merger and each other document executed in connection with the
Common Equity Financing.
"Common Equity Financing" means the issuance by Holdings or the retention by
existing stockholders of Holdings of not less than $177.0 million of common
equity in connection with the Merger, which equity shall consist of:
(1) the contribution by Fenway of not less than $128.1 million in cash to
Holdings,
(2) the retention by the Management Investors of shares (or options to
acquire shares) of common stock of Holdings with an estimated value of
approximately $16.5 million,
(3) the conversion by the Simmons ESOP of its 3,413,672 shares of Simmons'
Series A Preferred Stock which is not allocated to the accounts of ESOP
participants into approximately 3,482,036 shares of Holdings' Class C
Common Stock which will be converted in the Merger into 3,482,036
shares of unallocated common stock of Holdings and the retention of
such unallocated shares with an estimated value of $23.4 million and
(4) the retention by certain affiliates of or entities organized by
Investcorp of approximately 1,336,998 shares of common stock of
Holdings with an estimated value of $9.0 million.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss, plus any net loss
realized in connection with an Asset Sale (without regard to the $1.0
million size limitation set forth in the definition of "Asset Sale"), to
the extent such losses were deducted in computing such Consolidated Net
Income; plus
(2) provision for taxes of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was deducted in
computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment
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obligations, the interest component of all payments associated with Capital
Lease Obligations commissions, discounts and other fees and charges
incurred in respect of revolving credit facilities and letter of credit or
bankers' acceptance financings, and net payments, if any, pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(4) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon, to the extent that
any such expense was deducted in computing such Consolidated Net Income;
plus
(5) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses and charges
(excluding any such non-cash expense and charge to the extent that it
represents an accrual of or reserve for cash expenses in any future period
or amortization of a prepaid cash expense that was paid in a prior period)
of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses and
charges were deducted in computing such Consolidated Net Income; plus
(6) nonrecurring expenses occurring prior to the date of the indenture;
plus
(7) nonrecurring compensation payments occurring, or committed to, on or
prior to the date of the indenture but only to the extent such payments are
disclosed under the subheading "Management" or "Certain Relationships and
Related Transactions" in this prospectus; plus
(8) bad debts charges relating to the bankruptcies of Montgomery Ward &
Co. and Levitz Furniture Inc.; plus
(9) nonrecurring expenses occurring on or prior to December 31, 1999
relating to Simmons' SWIFT and UNITE productivity initiatives and other
strategic management initiatives, in an aggregate amount not to exceed $2.0
million since the date of the indenture; plus
(10) the amortization of the prepaid fees paid to Investcorp
International Inc. prior to the date of the indenture; minus
(11) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
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(5) the Net Income (or loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to Simmons or one of its Subsidiaries;
and
(6) nonrecurring payments or charges relating to the Transactions or the
original offering occurring, or committed to, on or prior to the date of
the indenture.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock; less
(3) accumulated deficit; and
(4) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Subsidiaries (except, in each case, Permitted
Investments).
All of the foregoing amounts are to be determined in accordance with GAAP.
"Continuing Directors" means as of any date of determination, any member of
the Board of Directors of Simmons who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was designated or nominated for election or elected to such Board of
Directors by any of the Principals or with the approval of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to Simmons, one or more debt
facilities (including, without limitation, the New Senior Credit Agreement) or
commercial paper facilities, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under the indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (2) of
the definition of Permitted Debt.
"Currency Agreements" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Simmons
or any Restricted Subsidiary of Simmons against fluctuations in currency
values.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the New Senior Credit Agreement;
and
(2) any other Senior Debt permitted under the indenture the original
principal amount of which is $10.0 million or more and that has been
designated by Simmons as "Designated Senior Debt".
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that
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is 91 days after the date on which the exchange notes mature; provided,
however, that any Capital Stock that would constitute Disqualified Stock
solely because the holders thereof have the right to require Simmons to
repurchase such Capital Stock upon the occurrence of a Change of Control or an
Asset Sale shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that Simmons may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the subheading "--Certain
Covenants--Restricted Payments".
"Domestic Subsidiary" means with respect to Simmons , any Subsidiary of
Simmons that:
(1) was formed under the laws of the United States of America; or
(2) that guarantees or otherwise becomes obligated with respect to any
Indebtedness of Simmons.
"ESOP Stock Sale Agreement" means that certain ESOP Stock Sale and Exchange
Agreement dated as of July 22, 1998 (as amended by Amendment No. 1 thereto,
dated as of September 25, 1998) by and among Holdings, Simmons, Merger Corp.
and State Street Bank & Trust Company, solely in its capacity as trustee of
the ESOP trust, as in effect on the Closing Date.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Simmons and its Subsidiaries
(other than Indebtedness under the New Senior Credit Agreement) in existence
on the date of the indenture, until such amounts are repaid.
"Existing Notes" means the 10.75% Senior Subordinated Notes due 2006 of
Simmons.
"Fenway" means:
(1) Fenway Partners Capital Fund, L.P., a Delaware limited partnership;
(2) Fenway Partners Capital Fund II, L.P., a Delaware limited
partnership; and
(3) so long as it is controlled and more than 50% owned by one or more
of the entities described in clauses (1) and (2), Simmons Holdings LLC, a
Delaware limited liability company.
"Fenway Agreement" means that certain Advisory Agreement dated as of
October 29, 1998 by and among Fenway Partners, Inc., Simmons and Holdings as
in effect on the date of the indenture.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
revolving credit facilities and letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations, but
excluding the amortization of deferred financing costs); plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) all dividend payments, whether or not in cash, on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other
than dividend payments on Equity Interests payable solely in Equity
Interests of Simmons or a Guarantor (other than Disqualified Stock) or to
Simmons or a Restricted Subsidiary of Simmons.
For purposes of the preceding, total interest expense shall be determined
after giving effect to any net payments made or received by Simmons and its
Subsidiaries with respect to Interest Swap Obligations.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the referent
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems, repays, repurchases, defeases or otherwise discharges any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or
redemption, repayment, repurchase, defeasance or other discharge of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, unless otherwise specified in a particular provision of the
indenture, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by Simmons or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall
be calculated (including any pro forma expense and cost reductions and
related adjustments to the extent that the same are consistent with
Regulation S-X under the Act, except in the case of clause (15) of
Permitted Debt and except in the case of the covenant described above under
the subheading "Merger, Consolidation, or Sale of Assets") and without
giving effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income; and
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
For purposes of this definition, whenever pro forma effect is to be given to
any acquisition, the amount of Consolidated Cash Flow relating thereto and the
amount of Fixed Charges associated with any Indebtedness incurred in connection
therewith shall be determined in good faith by a responsible financial or
accounting officer of Simmons in a manner that is consistent with this
definition.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each Subsidiary of Simmons that executes a Guarantee in
accordance with the provisions of the indenture, and their respective
successors and assigns except those released in accordance with the terms of
the indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
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(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Holdings" means Simmons Holdings, Inc., a Delaware corporation, and
Simmons' direct parent.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property or any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable;
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Industrial Revenue Bonds" means:
(1) $9.7 million of 7.0% industrial revenue bonds maturing in 2017 that
Simmons issued to finance the construction of its Janesville, Wisconsin
facility; and
(2) $5.0 million of variable rate industrial revenue bonds maturing in
2016 that Simmons issued to finance the construction of its Shawnee, Kansas
facility.
"Interest Swap Obligations" means the obligations of any Person, pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Persons calculated
by applying a fixed or a floating rate of interest on the same notional amount.
"Investcorp" means INVESTCORP S.A.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel, relocation and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If Simmons or any Subsidiary of Simmons sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of Simmons such that,
after giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of Simmons,
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Simmons shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the subheading "--
Restricted Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Investors" means the management officers and employees of
Simmons and its Subsidiaries identified as management investors in the
Recapitalization Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with:
(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions, and without regard to the
$1.0 million size limitation set forth in the definition of "Asset
Sale") or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss); and
(3) non-cash compensation charges, including, any such non-cash charges
arising from existing stock options resulting from any merger,
recapitalization or other acquisition or disposition.
"Net Proceeds" means the aggregate cash proceeds received by Simmons or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale) and any cash payments received
by way of deferred payments as and when received, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Senior Debt under a Credit Facility) secured by a Lien on the asset
or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Senior Credit Agreement" means that certain senior secured credit
agreement, dated October 29, 1998, consisting of a $270.0 senior secured bank
financing including:
(1) an $80.0 million six-year revolver,
(2) a $70.0 million six-year term loan A,
(3) a $70.0 million seven-year term loan B and
(4) a $50.0 million eight-year term loan C;
entered into by Simmons, Goldman Sachs Credit Partners L.P., as joint lead
arranger, syndication agent and lender, and Warburg Dillon Read LLC, as joint
lead arranger, UBS AG, Stamford Branch, as administrative agent and lender, and
the other institutions party thereto from time to time, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case, as amended, modified, supplemented,
renewed, refunded, replaced, extended, restructured or refinanced from time to
time.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Simmons nor any of its Restricted Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise),
or
(c) constitutes the lender; and
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of Simmons or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of Simmons or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business (including stock or assets) that
derives a majority of its revenues from the manufacture, distribution and sale
of mattresses, foundation and other bedding products and activities that are
reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which Simmons and its Restricted
Subsidiaries are engaged on the date of the indenture.
"Permitted Debt" has the meaning assigned to such term in the second
paragraph of the covenant described above under the subheading "Certain
Covenants--Incurrence of indebtedness and Issuance of Preferred Stock".
"Permitted Group" means any group of investors that is deemed to be a
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) by
virtue of the Stockholders Agreements, as the same may be amended, modified or
supplemented from time to time, provided that no single Person (together with
its Affiliates), other than the Principals and their Related Parties, is the
Beneficial Owner (with such beneficial ownership determined without regard to
the Stockholders Agreements, as the same may be amended, modified or
supplemented from time to time), directly or indirectly, of
(a) more than 40% of the Voting Stock of Simmons that is
"beneficially owned" (as defined above) by such group of investors and
(b) more of the Voting Stock of Simmons than is at the time
"beneficially owned" (as defined above) by the Principals and their
Related Parties in the aggregate (Voting Stock, in each case, measured
by voting power rather than number of shares).
"Permitted Investments" means:
(1) any Investment in Simmons or in a Restricted Subsidiary of Simmons
that is a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by Simmons or any Restricted Subsidiary of Simmons
that is a Guarantor in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Simmons; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Simmons or a Restricted Subsidiary of Simmons that is
a Guarantor;
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(4) any Investment in a Restricted Subsidiary that is not a Guarantor;
provided that the aggregate fair market value of such Investment, when
taken together with the fair market value of all other Investments made
pursuant to this clause (4) that are at that time outstanding, shall not
exceed 10% of Total Assets at the time of such Investment (with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value);
(5) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the subheading "--
Repurchase at the Option of Holders--Asset Sales";
(6) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Simmons;
(7) any Investment by Simmons or a Subsidiary of Simmons in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest;
(8) any Investment existing on the date of the indenture;
(9) loans and advances to employees and officers in the ordinary course
of business not to exceed $5.0 million at any one time outstanding;
(10) Currency Agreements and Interest Swap Obligations;
(11) accounts receivable incurred in the ordinary course of business,
(12) Investments in securities of trade creditors or customers received
pursuant to a plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditor or customer;
(13) guarantees otherwise permitted under the indenture;
(14) Investments the payment of which consists exclusively of Equity
Interests other than Disqualified Stock; and
(15) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (15) that
are at that time outstanding, not to exceed $10.0 million at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
"Permitted Junior Securities" means:
(1) Equity Interests in Simmons, Holdings or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the
same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to the indenture.
"Permitted Liens" means:
(1) Liens securing Senior Debt that was permitted by the terms of the
indenture to be incurred;
(2) Liens in favor of Simmons;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Simmons or any Subsidiary of
Simmons; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Simmons;
(4) Liens on property existing at the time of acquisition thereof by
Simmons or any Subsidiary of Simmons, provided that such Liens were in
existence prior to the contemplation of such acquisition;
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(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Senior Debt of Simmons that was permitted to be
incurred by the indenture;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens incurred in the ordinary course of business of Simmons or any
Subsidiary of Simmons with respect to obligations that do not exceed $5.0
million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by Simmons or such Subsidiary;
(10) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries;
(11) Liens securing the Industrial Revenue Bonds;
(12) Liens on goods (and the proceeds thereof) and documents of title
and the property covered thereby securing Indebtedness in respect of
commercial letters of credit; and
(13) leases or subleases to third parties.
"Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of Simmons or any of its Restricted Subsidiaries issued in exchange for,
or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness or Disqualified Stock of Simmons or any of
its Restricted Subsidiaries (other than intercompany Indebtedness); provided
that:
(1) the principal amount (or accreted value or liquidation value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value or liquidation value, if
applicable), plus accrued interest on, the Indebtedness or Disqualified
Stock so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses, costs or premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness or Disqualified Stock being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness or Disqualified Stock being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Notes, such Permitted Refinancing Indebtedness has
a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Notes on terms at least as
favorable to the holders of Notes as those contained in the documentation
governing the Indebtedness or Disqualified Stock being extended,
refinanced, renewed, replaced, defeased or refunded;
(4) such Indebtedness or Disqualified Stock is incurred or issued either
by Simmons or by the Restricted Subsidiary who is the obligor on the
Indebtedness (or issuer of the Disqualified Stock) being extended,
refinanced, renewed, replaced, defeased or refunded; and
(5) if the Indebtedness or Disqualified Stock being extended,
refinanced, renewed, replaced, defeased or refunded provided for payment or
accrual of interest or dividends on a non-cash basis, then such
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Indebtedness or Disqualified Stock contains provisions allowing for the
payment or accrual of interest and dividends on comparable terms.
"Principals" means (a) Fenway and (b) any other Person that owns more than
10% of the Equity Interests of Holdings as of the date of the indenture.
"Public Equity Offering" means any underwritten public offering of Qualified
Capital Stock of Holdings or Simmons; provided that, in the event of any such
public equity offering by Holdings, Holdings contributes to the common equity
capital of Simmons (other than as Disqualified Stock) the portion of the net
cash proceeds of such public equity offering necessary to pay the aggregate
redemption price (plus accrued interest to the redemption date) of the exchange
notes to be redeemed pursuant to the provisions of the second paragraph under
the subheading "Optional Redemption" with respect to the exchange notes.
A "Public Market" shall be deemed to exist if:
(1) a Public Equity Offering has been consummated; and
(2) at least 35% of the total issued and outstanding Common Stock of
Simmons or Holdings (as applicable) immediately prior to the consummation
of such Public Equity Offering has been distributed by means of an
effective registration statement under the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which Simmons or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (a) a Securitization Entity (in the
case of a transfer by Simmons or any of its Restricted Subsidiaries) and (b)
any other Person (in case of a transfer by a Securitization Entity), or may
grant a security interest in, any accounts receivable or equipment (whether now
existing or arising or acquired in the future) of Simmons or any of its
Restricted Subsidiaries, and any assets related thereto including, without
limitation, all collateral securing such accounts receivable and equipment, all
contracts and contract rights and all Guarantees or other obligations in
respect such accounts receivable and equipment, proceeds of such accounts
receivable and equipment and other assets (including contract rights) which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable and equipment.
"Recapitalization Agreement" means that certain Agreement and Plan of Merger
dated as of July 16, 1998, by and among Holdings, Simmons and Merger Corp., as
amended by Amendment No. 1 dated as of September 22, 1998, and as amended by
Amendment No. 2 dated as of October 26, 1998.
"Related Party" means:
(1) any controlling stockholder of any of the Principals, any entity
that is more than 50% owned by any one or more Principals or their Related
Parties; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a 51% or more controlling interest of which consist of the
Principals and/or such other Persons referred to in the immediately
preceding clause (1); or
(3) any Person who, directly or indirectly, controls through a
management agreement or a general partner or is under common control with
any of the Principals; or
(4) any trust, partnership, corporation or other entity, the
benefactors, stockholders, partners or owners of which consist of Persons
referred to in clause (3).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"Securitization Entity" means a Wholly Owned Subsidiary of Simmons (or
another Person in which Simmons or any Subsidiary of Simmons makes an
Investment and to which Simmons or any Subsidiary of Simmons transfers
accounts receivable or equipment and related assets) that engages in no
activities other than in connection with the financing of accounts receivable
or equipment and that is designated by the Board of Directors of Simmons (as
provided below) as a Securitization Entity:
(1) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which
(a) is guaranteed by Simmons or any Restricted Subsidiary of Simmons
(excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness)) pursuant to Standard Securitization
Undertakings,
(b) is recourse to or obligates Simmons or any Restricted Subsidiary
of Simmons in any way other than pursuant to Standard Securitization
Undertakings or
(c) subjects any property or asset of Simmons or any Restricted
Subsidiary of Simmons, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings,
(2) with which neither Simmons nor any Restricted Subsidiary of Simmons
has any material contract, agreement, arrangement or understanding other
than on terms no less favorable to Simmons or such Restricted Subsidiary
than those that might be obtained at the time from Persons that are not
Affiliates of Simmons, other than fees payable in the ordinary course of
business in connection with servicing receivables of such entity, and
(3) to which neither Simmons nor any Restricted Subsidiary of Simmons
has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating
results.
Any such designation by the Board of Directors of Simmons shall be evidenced
to the Trustee by filing with the Trustee a resolution of the Board of
Directors of Simmons giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Senior Credit Documents" means the New Senior Credit Agreement, the
guaranties thereunder, any pledge and security agreement, any mortgage and
each other document executed in connection with the issuance of the bank
financing thereunder as each such document may be amended, restated,
supplemented or otherwise modified from time to time.
"Senior Debt" means:
(1) all Indebtedness of Simmons or any Guarantor outstanding on the date
of the indenture under Credit Facilities or thereafter incurred under
Credit Facilities, and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of Simmons or any Guarantor permitted to be
incurred under the terms of the indenture, unless the instrument governing
such Indebtedness expressly provides that it is on a parity with or
subordinated in right of payment to the notes or any Guarantee thereof; and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any Indebtedness represented by Capital Stock;
(2) any liability for federal, state, local or other taxes owed or owing
by Simmons;
(3) any Indebtedness of Simmons to any of its Subsidiaries or other
Affiliates;
(4) any trade payables including any Guarantees thereof or instruments
evidencing such liabilities;
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(5) any Indebtedness that is incurred in violation of the indenture;
(6) the Existing Notes; or
(7) the Industrial Revenue Bonds.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Simmons ESOP" means the Simmons Company Employee Stock Ownership Plan, as
form time to time amended, supplemented or otherwise modified, and a trust
forming a part thereof and its successors.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Simmons or any Subsidiary of Simmons
that are reasonably customary in an accounts receivable or equipment
transactions.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders Agreements" means those certain Stockholders Agreements
(1) by and among Holdings, Fenway and ESOP, Investcorp and the other
Persons listed therein and Simmons and
(2) by and among Holdings, the Management Investors and the other
Persons listed therein, each as in effect on the date of the indenture.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Transaction Documents" means the Senior Credit Documents, the Common Equity
Documents, the Stockholders Agreements, the ESOP Stock Sale Agreement, the
Recapitalization Agreement, the Fenway Agreement and all documents relating to
any of the foregoing.
"Total Assets" means the consolidated assets of Simmons and its Restricted
Subsidiaries calculated in accordance with GAAP.
"Unrestricted Subsidiary" means any Subsidiary of Simmons that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Simmons or any Restricted Subsidiary of Simmons unless
the terms of any such agreement, contract, arrangement or
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understanding are no less favorable to Simmons or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of Simmons;
(3) is a Person with respect to which neither Simmons nor any of its
Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Simmons or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Simmons or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of Simmons or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of Simmons as an Unrestricted Subsidiary by
the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the subheading "Covenants--Designation of Restricted and
Unrestricted Subsidiaries". If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of Simmons as of such date (and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described under
the subheading "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock", Simmons shall be in default of such covenant). The Board of
Directors of Simmons may at any time designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of Simmons of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if
(1) such Indebtedness is permitted under the covenant described under
the subheading "Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock", calculated on a pro forma basis as if such designation
had occurred at the beginning of the four-quarter reference period,
(2) no Default or Event of Default would be in existence following such
designation and
(3) if any such Subsidiary is a Domestic Subsidiary,
it shall execute a supplemental indenture to become a Guarantor with respect to
the Notes.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing;
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
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"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We originally sold the notes to Goldman Sachs, Warburg Dillon Read, Fleet
Securities and U.S. Bancorp Libra pursuant to the Purchase Agreement dated
March 10, 1999. The initial purchasers subsequently resold the notes to
qualified institutional buyers in reliance on Rule 144A under the Securities
Act and to a limited number of persons outside the United States under
Regulation S. As a condition to the purchase agreement, we entered into a
registration rights agreement with the initial purchasers in which we agreed
to:
(1) file a registration statement registering the exchange notes with
the Commission within 105 days after the original issuance of the notes;
(2) use our best efforts to have the registration statement relating to
the exchange notes declared effective by the Commission within 165 days
after the original issuance of the notes;
(3) unless applicable law or Commission policy would not permit the
exchange offer, commence the exchange offer and use our best efforts to
issue exchange notes in exchange for all notes tendered prior to the
expiration date and in no event later than 30 business days after the date
on which the Commission declares the registration statement relating to the
exchange notes effective; and
(4) if obligated to file a shelf registration statement, use our best
efforts to file the shelf registration statement with the Commission within
45 days after such filing obligation arises, to cause the shelf
registration statement to be declared effective by the Commission within 90
days after such obligation arises and to use our best efforts to keep
effective the shelf registration statement for at least two years after the
original issuance of the notes or such shorter period that will terminate
when all securities covered by the shelf registration statement have been
sold pursuant to the shelf registration statement.
We have agreed to keep the exchange offer open for not less than 20 business
days after the date on which the Commission declares the registration statement
relating to the exchange notes effective, or longer if required by applicable
law. The registration rights agreement also requires us to include in the
prospectus for the exchange offer specific information necessary to allow
broker-dealers who hold notes, other than notes purchased directly from us or
an affiliate of us, to exchange such notes pursuant to the exchange offer and
to satisfy the prospectus delivery requirements in connection with resales of
the exchange notes received by such broker-dealers in the exchange offer.
This prospectus covers the offer and sale of the exchange notes pursuant to
the exchange offer and the resale of exchange notes received in the exchange
offer by any broker-dealer who held notes, other than notes purchased directly
from us or one of our affiliates.
For each note surrendered to us pursuant to the exchange offer, the holder
of such note will receive an exchange note having a principal amount equal to
that of the surrendered note. Interest on each exchange note will accrue from
the date of issuance of such exchange note. The holders of notes that are
accepted for exchange will receive, in cash, accrued interest on such notes to,
but not including, the issuance date of the exchange notes. We will pay such
interest with the first interest payment on the exchange notes. Interest on the
notes accepted for exchange will cease to accrue upon issuance of the exchange
notes.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, we believe the exchange notes would
in general be freely tradeable after the exchange offer without further
registration under the Securities Act. If our belief is inaccurate, holders who
transfer exchange notes in violation of the prospectus delivery provisions of
the Securities Act and without an exemption from registration may incur
liability under the Securities Act. We do not assume or indemnify holders
against such liability.
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Any purchaser of the notes who is either an "affiliate" of us, a broker-
dealer who purchased notes directly from us or an affiliate of us for resale,
or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
(1) will not be able to rely on the interpretation of the staff of the
Commission;
(2) will not be able to tender its notes in the exchange offer; and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer
of the notes, unless such sale or transfer is made pursuant to all
exemption from such requirements.
We have agreed to file with the Commission a shelf registration statement to
cover resales of the notes by holders who satisfy specific conditions relating
to the provision of information in connection with the shelf registration
statement if:
(1) we are not required to file the registration statement for the
exchange offer or permitted to consummate the exchange offer because we are
not permitted by applicable law or Commission policy; or
(2) any holder of Transfer Restricted Securities notifies us prior to
the 20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Commission policy from participating
in such offer;
(b) that it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the registration statement relating to the
exchange offer is not appropriate or available for such resales; or
(c) that it is a broker-dealer that purchased notes directly from us
or an affiliate of us for resale.
For purposes of the foregoing and below, "Transfer Restricted Securities"
means each note until the earliest to occur of:
(1) the date on which a person other than a broker-dealer for an
exchange note has exchanged such note;
(2) following the exchange by a broker-dealer in the exchange offer of a
note for an exchange note, the date on which such exchange note is sold to
a purchaser who receives from such broker-dealer before the date of such
sale a copy of the prospectus contained in the registration statement
relating to the exchange offer;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement; or
(4) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act.
We will pay liquidated damages to each holder of notes if:
(1) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing;
(2) any of such registration statements is not declared effective by the
Commission on or before the date specified for such effectiveness (the
"Effectiveness Deadline");
(3) we fail to consummate the exchange offer within 30 business days
after the registration statement relating to the exchange offer is first
declared effective by the Commission; or
(4) the shelf registration statement or the registration statement
relating to the exchange offer is declared effective but thereafter ceases
to be effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the registration rights
agreement without being
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succeeded immediately by a post-effective amendment to such registration
statement that cures such failure and is itself declared effective by the
Commission (each such event referred to in clauses (1) through (4) above a
"Registration Default").
The amount of liquidated damages will be $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by each holder, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default. The amount of liquidated damages will increase by
$.05 per week per $1,000 principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages for all
Registration Defaults of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities provided that we shall in no event be required to pay
liquidated damages for more than one Registration Default on the notes at any
time. We will pay all accrued liquidated damages on each interest payment date
in the manner provided for the payment of interest in the indenture. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
As contemplated by the aforementioned no-action letters and the registration
rights agreement, each holder tendering notes in the exchange offer is required
to represent to us in the letter of transmittal, that, among things:
(1) the person receiving the exchange notes pursuant to the exchange
offer, whether or not such person is the holder, is receiving them in the
ordinary course of business;
(2) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
exchange notes and that each such holder that is not a broker-dealer is not
engaged in, and does not intend to engage in, a distribution of exchange
notes;
(3) neither the holder nor any such other person is an "affiliate" of us
within the meaning of Rule 405 under the Securities Act;
(4) the holder acknowledges and agrees that:
(a) any person participating in the exchange offer for the purpose
of distributing the exchange notes must comply with the registration
and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction with respect to the
exchange notes acquired by such person and cannot rely on the position
of the staff of the Commission set forth in no-action letters that are
discussed above and under the heading "--Purpose and Effect of the
exchange offer," and
(b) any broker-dealer that receives exchange notes for its own
account in exchange for notes pursuant to the exchange offer must
deliver a prospectus in connection with any resale of such exchange
notes, but by so acknowledging, the holder shall not be deemed to admit
that, by delivering a prospectus, it is an "underwriter" within the
meaning of the Securities Act; and
(5) the holder understands that a secondary resale transaction described
in clause (4)(a) above should be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508 of Regulation S-K of the Commission.
Although a broker-dealer may be an "underwriter" within the meaning of the
Securities Act, the letter of transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes received in exchange
for notes.
The Commission has taken the position that participating broker-dealers may
fulfill their prospectus delivery requirements with respect to the exchange
notes, other than a resale of an unsold allotment from the original sale of the
notes, with a prospectus contained in the registration statement relating to
the exchange offer. Under the registration rights agreement, we are required to
allow broker-dealers to use the prospectus contained in the registration
statement relating to the exchange offer in connection with the resale of such
exchange notes.
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We will, in the event of the filing of a shelf registration statement,
provide to each holder of notes eligible to participate in such shelf
registration statement copies of the prospectus which is a part of the shelf
registration statement, notify each such holder when the shelf registration
statement for the notes has become effective and take other actions as are
required to permit resales of the notes. A holder of notes that sells such
notes pursuant to the shelf registration statement generally will be required
to be named as a selling securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement which are
applicable to such a holder, including indemnification obligations. In
addition, each such holder will be required to deliver information to be used
in connection with the shelf registration statement and to provide comments on
the shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the
shelf registration statement and to benefit from the provisions regarding
liquidated damages.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and the accompanying letter of transmittal, we will accept all notes validly
tendered prior to 5:00 p.m., New York City time, on the expiration date. We
will issue $1,000 principal amount of exchange notes in exchange for each
$1,000 principal amount of outstanding notes accepted in the exchange offer.
Holders may tender some or all of their notes pursuant to the exchange offer in
integral multiples of $1,000.
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the notes except for the following:
(1) the exchange notes bear a Series B designation and different CUSIP
number from the notes;
(2) the exchange notes have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer; and
(3) the holders of the exchange notes will not be entitled to rights
under the registration rights agreement, including the provisions providing
for liquidated damages in circumstances relating to the timing of the
exchange offer, all of which rights will terminate when the exchange offer
is terminated.
The exchange notes will evidence the same debt as the notes and will be
entitled to the benefits of the indenture. As of the date of this prospectus,
$150.0 million aggregate principal amount of the notes is outstanding. Solely
for reasons of administration and no other reason, we have fixed the close of
business on , 1999 as the record date for the exchange offer for purposes
of determining the persons to whom this prospectus and the letter of
transmittal will be mailed initially. Only a registered holder of notes, or
such holder's legal representative or attorney-in-fact, as reflected on the
records of the Trustee under the indenture may participate in the exchange
offer. There will be no fixed record date, however, for determining registered
holders of the notes entitled to participate in the exchange offer.
The holders of notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the indenture. We intend to conduct
the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission.
We shall be deemed to have accepted validly tendered notes when, as and if
the holder of such note has given oral or written notice thereof to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the exchange notes from us.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
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Those holders who tender notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of notes. We will
pay all charges and expenses, other than applicable taxes, in connection with
the exchange offer. See "--Fees and Expenses."
Expiration Dates; Extensions; Amendments
The "expiration date" shall be 5:00 p.m., New York City time, on ,
1999 unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date shall be the latest date to which the exchange offer
is extended. Notwithstanding the foregoing, we will not extend the expiration
date beyond , 1999.
We have no current plans to extend the exchange offer. In order to extend
the expiration date, we will notify the exchange agent of any extension by oral
or written notice and will make a public announcement of such extension, in
each case prior to 9:00 a.m., New York City time, no later than the next
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion, to
(1) delay accepting any notes;
(2) extend the exchange offer; or
(3) terminate the exchange offer
if any of the conditions set forth below under "--Conditions of the Exchange
Offer" shall not have been satisfied, in each case by giving oral or written
notice of such delay, extension or termination to the exchange agent, and to
amend the terms of the exchange offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement of such event. If we amend the exchange
offer in a manner determined by us to constitute a material change, we will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the notes and the exchange offer
will be extended for a period of five to ten business days, as required by law,
depending upon the significance of the amendment and the manner of disclosure
to the registered holders, assuming the exchange offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, termination or amendment of the exchange
offer, we shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement other than by making a timely release
to the Dow Jones News Service.
Interest on the Exchange Notes
The exchange notes will bear interest from their date of issuance. Interest
is payable semiannually on March 15 and September 15 of each year commencing on
September 15, 1999, at the rate of 10 1/4% per annum. The holders of notes that
are accepted for exchange will receive, in cash, accrued interest on such notes
to, but not including, the issuance date of the exchange notes. Such interest
will be paid with the first interest payment on the exchange notes.
Consequently, holders who exchange their notes for exchange notes will receive
the same interest payment on September 15, 1999 which is the first interest
payment date with respect to the notes that they would have received had they
not accepted the exchange offer. Interest on the notes accepted for exchange
will cease to accrue upon issuance of the exchange notes.
Procedures for Tendering
Only a registered holder of notes may tender such notes in the exchange
offer. To effectively tender in the exchange offer, a holder must complete,
sign and date a copy or facsimile of the letter of transmittal, have the
signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver such letter of
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transmittal or such facsimile, together with the notes and any other required
documents, to the exchange agent at the address set forth below under "exchange
agent" for receipt prior to 5:00 p.m., New York City time, on the expiration
date. Delivery of the notes also may be made by book-entry transfer in
accordance with the procedures described below. If you are effecting delivery
by book-entry transfer,
(1) confirmation of such book-entry transfer must be received by the
exchange agent prior to the expiration date; and
(2) you must transmit to the exchange agent on or prior to the
expiration date a computer-generated message transmitted by means of the
Automated Tender Offer Program System of the Depository Trust Company in
which you acknowledge and agree to be bound by the terms of the letter of
transmittal and which, when received by the exchange agent, forms a part of
the confirmation of book-entry transfer.
By executing the letter of transmittal or effecting delivery by book-entry
transfer, each holder is making to us those representations set forth under the
heading "--Resale of the Exchange Notes."
The tender by a holder of notes will constitute an agreement between such
holder and us in accordance with the terms and subject to the conditions set
forth herein and in the letter of transmittal.
The method of delivery of the notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and sole risk
of the holder. As an alternative to delivery by mail, holders may wish to
consider overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure delivery to the exchange agent before the
expiration date. No letters of transmittal or notes should be sent to us.
Holders may request that their respective brokers, dealers, commercial banks,
trust companies or nominees effect the above transactions for such holders.
Only a registered holder of notes may tender such notes in connection with
the exchange offer. The term "holder" with respect to the exchange offer means
any person in whose name notes are registered on our books or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose notes are held of record by DTC who desires to deliver such
notes by book-entry transfer at DTC.
If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender, you should
promptly contact the person in whose name the notes are registered and instruct
such registered holder to tender on your behalf. If a beneficial owner wishes
to tender on his or her own behalf, the holder must, prior to completing and
executing the letter of transmittal and delivering the notes, either make
appropriate arrangements to register ownership of the notes in his or her name
or to obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (defined below) unless
the notes tendered are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on
the letter of transmittal; or
(2) for the account of an Eligible Institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed, such guarantee must be by a participant in a
recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the letter of transmittal is signed by a person other than the registered
holder of any notes listed therein, such notes must be endorsed or accompanied
by a properly completed bond powers, signed by such registered holder as such
registered holder's name appears on such notes with the signature thereon
guaranteed by an Eligible Institution.
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If the letter of transmittal or any notes or bond powers 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 submit with the letter of
transmittal evidence satisfactory to so act.
We understand that the exchange agent will make a request, promptly after
the date of this prospectus, to establish accounts with respect to the notes at
the book-entry transfer facility of DTC for the purpose of facilitating this
exchange offer, and subject to the establishment of these accounts, any
financial institution that is a participant in the book-entry transfer facility
system may make book-entry delivery of notes by causing the transfer of such
notes into the exchange agent's account with respect to the notes in accordance
with DTC's procedures for such transfer. Although delivery of the notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, unless the holder complies with the procedures
described in the following paragraph or the guaranteed delivery procedures
described below, an appropriate letter of transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
exchange agent at its address set forth below before the expiration date. The
delivery of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the Automated Tender Offer Program ("ATOP") of DTC. Accordingly,
DTC participants may electronically transmit their acceptance of the exchange
offer by causing DTC to transfer notes to the exchange agent in accordance with
the procedures for transfer established under ATOP. DTC will then send an
Agent's Message to the exchange agent. The term "Agent's Message" means a
message transmitted by DTC, which when received by the exchange agent forms
part of the confirmation of a book-entry transfer, and which states that DTC
has received an express acknowledgment from the participant in DTC tendering
notes which are the subject of such book-entry confirmation that such
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce such agreement against such participant. In
the case of an Agent's Message relating to guaranteed delivery, the term means
a message transmitted by DTC and received by the exchange agent which states
that DTC has received an express acknowledgment from the participant in DTC
tendering notes that such participant has received and agrees to be bound by
the Notice of Guaranteed Delivery.
All questions as to the validity, form, eligibility and time of receipt,
acceptance and withdrawal of the tendered notes will be determined by us in our
sole discretion, which determinations will be final and binding. We reserve the
absolute right to reject any and all notes not validly tendered or any notes
the acceptance of which would, in the opinion of our counsel, be unlawful. We
also reserve the absolute right to waive any defects, irregularities or
conditions of tender as to particular notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of notes must be cured
within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to the tender of notes, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any notes
received by the exchange agent that are not validly tendered and as to which
the defects or irregularities have not been cured or waived, or if notes are
submitted in a principal amount greater than the principal amount of notes
being tendered by such tendering holder, such unaccepted or non-exchanged notes
will be returned by the exchange agent to the tendering holders (or, in the
case of 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 unaccepted or non-exchanged notes will be
credited to an account maintained with such book-entry transfer facility),
unless otherwise provided in the letter of transmittal designated for such
notes, as soon as practicable following the expiration date.
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Guaranteed Delivery Procedures
Those holders who wish to tender their notes and
(1) whose notes are not immediately available; or
(2) who cannot deliver their notes, the letter of transmittal or any
other required documents to the exchange agent before the expiration date;
or
(3) who cannot complete the procedures for book-entry transfer before
the expiration date;
may effect a tender if:
(1) the tender is made through all Eligible Institution;
(2) before the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery setting
forth the name and address of the holder, the certificate number or numbers
of such notes and the principal amount of notes tendered, stating that the
tender is being made thereby, and guaranteeing that, within five business
days after the expiration date, either:
(a) a copy or facsimile of the letter of transmittal, or facsimile
thereof, together with the certificate(s) representing the notes and any
other documents required by the letter of transmittal, will be deposited
by the Eligible Institution with the exchange agent, or
(b) that a confirmation of book-entry transfer of such notes into the
exchange agent's account at DTC,
will be delivered to the exchange agent; and
(3) either:
(a) a copy or facsimile of such properly completed and executed
letter of transmittal together with the certificate(s) representing all
tendered notes in proper form for transfer and all other documents
required by the letter of transmittal, or
(b) if applicable, confirmation of a book-entry transfer into the
exchange agent's account at DTC, are actually received by the exchange
agent within five business days after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the expiration date.
To validly withdraw a tender of notes in the exchange offer, the exchange
agent must receive a telegram, telex, letter or facsimile transmission notice
of withdrawal at its address set forth herein prior to 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
(1) specify the name of the person having deposited the notes to be
withdrawn (the "Depositor");
(2) identify the notes to be withdrawn, including the certificate number
or numbers and the aggregate principal amount of such notes or, in the case
of notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfers sufficient to permit the Trustee with respect to the notes to
register the transfer of such notes into the name of the person withdrawing
the tender; and
(4) specify the name in which any such notes are to be registered, if
different from that of the Depositor.
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All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us, and our determination shall
be final and binding on all parties. Any notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no
exchange notes will be issued in exchange for withdrawn notes unless those
notes so withdrawn are validly retendered. Any notes which have been tendered
but which are not accepted for exchange because of the rejection of the tender
due to uncured defects or the prior termination of the exchange offer, or
which have been validly withdrawn, will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn notes may
be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the expiration date.
Conditions of the Exchange Offer
The offer is subject to the condition that the exchange offer, or the
making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in policy of the Commission such that in the reasonable opinion of
counsel to us there is a substantial question whether the exchange offer is
permitted by applicable federal law, we have agreed to seek a no-action letter
or other favorable decision from the Commission allowing us to consummate the
exchange offer.
If we determine that the exchange offer is not permitted by applicable
federal law, it may terminate the exchange offer. In connection with such
termination we may:
(1) refuse to accept any notes and return any notes that have been
tendered by the holders thereof;
(2) extend the exchange offer and retain all notes tendered prior to the
expiration date, subject to the rights of such holders of tendered notes to
withdraw their tendered notes; or
(3) waive such termination event with respect to the exchange offer and
accept all properly tendered notes that have not been properly withdrawn.
If such waiver constitutes a material change in the exchange offer, we will
disclose such change by means of a supplement to this prospectus that will be
distributed to each registered holder of notes, and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver, if the exchange offer would otherwise expire
during such period.
Exchange Agent
SunTrust Bank, Atlanta, the Trustee under the indenture, has been appointed
as exchange agent for the exchange offer. Questions and requests for
assistance, requests for additional copies of this prospectus or the letter of
transmittal and requests for the Notice of Guaranteed Delivery should be
directed to the exchange agent addressed as follows:
By Registered or Certified Mail or Hand Delivery:
SunTrust Bank, Atlanta
25 Park Place
24th Floor
Atlanta, GA 30303-2900
Attention: Olga Warren
Facsimile Transmission: (404) 588-7335
Confirm by Telephone: (404) 588-7067
Any requests or deliveries to all address or facsimile number other than as
set forth above will not constitute a valid delivery.
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Fees and Expenses
The expenses of soliciting tenders will be borne by us. The principal
solicitation for lenders is being made by mail. Additional solicitations,
however, may be made by our officers and regular employees and our affiliates
in person, by telegraph or telephone.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will pay the exchange agent,
however, reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer.
We will pay the cash expenses incurred in connection with the exchange
offer. Such expenses include fees and expenses of the exchange agent and the
Trustee, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
notes pursuant to the exchange offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the notes pursuant to the exchange
offer, then 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 with the letter of transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the notes,
which is face value, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. The costs of the exchange offer will be amortized over the term of
the exchange notes.
Consequences of Failure to Exchange
The notes that are not exchanged for exchange notes pursuant to the exchange
offer will remain transfer restricted securities. Accordingly, such notes may
be resold only as follows:
(1) to us, upon redemption thereof or otherwise;
(2) (a) so long as the notes are eligible for resale pursuant to Rule
144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in a transaction meeting the requirements of Rule
144A,
(b) in accordance with Rule 144 under the Securities Act, or
(c) pursuant to another exemption from the registration requirements
of the Securities Act and based upon an opinion of counsel reasonably
acceptable to us;
(3) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act.
Persons who acquire the exchange notes are responsible for compliance with
the state securities or blue sky laws regarding resales. We assume no
responsibility for compliance with these requirements.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Scope of Discussion
This general discussion of some United States federal income and estate tax
consequences applies to you if you acquired notes at original issue for cash
and you exchange those notes for exchange notes in the exchange offer. This
discussion only applies to you if you hold the exchange notes as a "capital
asset," generally, for investment, under Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"). This summary, however, does not
consider state, local or foreign tax laws. In addition, it does not include
all of the rules which may affect the United States tax treatment of your
investment in the exchange notes. For example, special rules not discussed
here may apply to you if you are:
. a broker-dealer, a dealer in securities or a financial institution;
. an S corporation;
. an insurance company;
. a tax-exempt organization;
. subject to the alternative minimum tax provisions of the Internal Revenue
Code;
. holding the exchange notes as part of a hedge, straddle or other risk
reduction or constructive sale transaction; or
. a nonresident alien or foreign corporation subject to net-basis United
States federal income tax on income or gain derived from an exchange note
because such income or gain is effectively connected with the conduct of
a United States trade or business.
This discussion only represents our best attempt to describe some federal
income tax consequences that may apply to you based on current United States
federal tax law. This discussion may in the end inaccurately describe the
federal income tax consequences which are applicable to you because the law
may change, possibly retroactively, and because the Internal Revenue Service
("IRS") or any court may disagree with this discussion.
This summary may not cover your particular circumstances because it does
not consider foreign, state or local tax rules, disregards some federal tax
rules, and does not describe future changes in federal tax rules. Please
consult your tax advisor rather than relying on this general description.
United States Holders
If you are a "United States Holder," as defined below, this section applies
to you. Otherwise, the next section, "Non-United States Holders," applies to
you.
Definition of United States Holder. You are a "United States Holder" if you
hold notes and you are:
. a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test under Section 7701(b) of the Internal Revenue
Code;
. a corporation or partnership created or organized in the United States or
under the laws of the United States or of any political subdivision;
. an estate the income of which is subject to United States federal income
tax regardless of its source; or
. a trust, if
(a) a United States court can exercise primary supervision over the
administration of the trust and one or more United States persons can
control all substantial decisions of the trust, or
(b) the trust was in existence on August 20, 1996 and has properly
elected to continue to be treated as a United States person.
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Taxation of Stated Interest. You generally must pay federal income tax on
the interest on the exchange notes:
. when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
. when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
Redemption and Repurchase Rights. As described elsewhere in this prospectus,
we may under some circumstances be required to repurchase the exchange notes
and we have the option to redeem some or all of the exchange notes at some
times under some circumstances.
Based on our current expectations, the chance that we will repurchase or
redeem the exchange notes is remote. Accordingly, we intend to take the
position that the payments contingent on the repurchase or redemption of the
exchange notes do not, as of the issue date, cause the exchange notes to have
original issue discount ("OID") and do not affect the yield to maturity or the
maturity date of the exchange notes. You may not take a contrary position
unless you disclose your contrary position in the proper manner to the IRS.
You should consult your tax adviser with respect to the contingent payments
described above. If, contrary to our expectations, we repurchase or redeem the
notes, or if the IRS takes the position that the contingent payments described
were not remote as of the issue date, you may have to redetermine the amount
and timing of interest income you must include in taxable income.
Sale or Other Taxable Disposition of the Exchange Notes. You must recognize
taxable gain or loss on the sale, exchange, redemption, retirement or other
taxable disposition of an exchange note. The amount of your gain or loss equals
the difference between the amount you receive for the exchange note in cash or
other property valued at fair market value, minus the amount attributable to
accrued interest on the exchange note, minus your adjusted tax basis in the
exchange note. Your initial tax basis in an exchange note equals the price you
paid for the note which you exchanged for the exchange note.
Your gain or loss will generally be a long-term capital gain or loss if your
holding period in the exchange note is more than one year. Otherwise, it will
be a short-term capital gain or loss. Payments attributable to accrued interest
which you have not yet included in income will be taxed as ordinary interest
income.
Receipt of Exchange Notes. Because the economic terms of the exchange notes
and the notes are identical, your exchange of notes for exchange notes under
the exchange offer will not constitute a taxable exchange of the notes. Even if
you received exchange notes in exchange for notes on which additional interest
was paid because of a registration default, the exchange should not be taxable
because the exchange would occur by operation of the notes' original terms. As
a result:
. you should not recognize taxable gain or loss when you receive exchange
notes in exchange for notes;
. your holding period in the exchange notes should include your holding
period in the notes; and
. your basis in the exchange notes should equal your basis in the notes.
Backup Withholding. You may be subject to a 31% backup withholding tax when
you receive interest payments on the exchange note or proceeds upon the sale or
other disposition of an exchange note. Some holders, including, among others,
corporations and some tax-exempt organizations, are generally not subject to
backup withholding. In addition, the 31% backup withholding tax will not apply
to you if you provide your taxpayer identification number ("TIN") in the
prescribed manner unless:
. the IRS notifies us or our agent that the TIN you provided is incorrect;
. you fail to report interest and dividend payments that you receive on
your tax return and the IRS notifies us or our agent that withholding is
required; or
. you fail to certify under penalties of perjury that you are not subject
to backup withholding.
115
<PAGE>
If the 31% backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide the relevant information to the IRS.
Non-United States Holders
Definition of Non-United States Holder. A "Non-United States Holder" is any
person other than a United States Holder. If you are subject to United States
federal income tax on a net basis on income or gain with respect to an exchange
note because such income or gain is effectively connected with the conduct of a
United States trade or business, this disclosure does not cover the United
States federal tax rules that apply to you.
Interest.
Portfolio Interest Exemption. You will generally not have to pay United
States federal income tax on interest or OID on the exchange notes, if any,
paid on the exchange notes because of the "portfolio interest exemption" if
either:
. you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us
or our paying agent on a properly executed IRS Form W-8 or a suitable
substitute form signed under penalties of perjury; or
. a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the exchange note on your behalf, certifies to us or our agent
under penalties of perjury that it has received IRS Form W-8 or a
suitable substitute from you or from another qualifying financial
institution intermediary, and provides a copy to us or our agent.
You will not, however, qualify for the portfolio interest exemption
described above if:
. you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
. you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Internal
Revenue Code, or
. you are a bank receiving interest described in Section 881(c)(3)(A) of
the Internal Revenue Code.
Withholding Tax if the Interest Is Not Portfolio Interest. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to 30% withholding tax on interest payments made on the
exchange notes. However, you may be able to claim the benefit of a reduced
withholding tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted under current
regulations on Form 1001. Successor forms will require additional information,
as discussed below. See "Non-United States Holders--New Withholding
Regulations."
Reporting. We may report annually to the IRS and to you the amount of
interest paid to, and the tax withheld, if any, with respect to you.
Sale or Other Disposition of the Exchange Notes. You generally will not be
subject to United States federal income tax or withholding tax on gain
recognized on a sale, exchange, redemption, retirement, or other disposition of
an exchange note. You may, however, be subject to tax on such gain if:
. you are an individual who was present in the United States for 183 days
or more in the taxable year of the disposition, in which case you may
have to pay a United States federal income tax of 30% or a reduced treaty
rate on such gain, and you may also be subject to withholding tax; or
. you are an individual who is a former citizen or resident of the United
States, your loss of citizenship or residency occurred within the last
ten years and, if you are a former resident, on or after
February 6, 1995, and it had as one of its principal purposes the
avoidance of United States tax, in
116
<PAGE>
which case you may be taxed on the net gain derived from the sale under
the graduated United States federal income tax rates that are applicable
to United States citizens and resident aliens, and you may be subject to
withholding.
Even if you are an individual described in one of the two paragraphs above,
you should not recognize gain subject to United States federal income tax as a
result of exchanging notes for exchange notes under the exchange offer. See the
more complete discussion above under "United States Holders--Receipt of
Exchange Notes."
United States Federal Estate Taxes. If you qualify for the portfolio
interest exemption under the rules described above when you die, the exchange
notes will not be included in your estate for United States federal estate tax
purposes.
Back-up Withholding and Information Reporting.
Payments from United States Office. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, there is a possibility that you will be subject to
both backup withholding at a rate of 31% and information reporting.
With respect to interest payments made on the exchange note, however, back-
up withholding and information reporting will not apply if you certify,
generally on a Form W-8 or substitute form, that you are not a United States
person in the manner described above. See "Non-United States Holders--
Interest."
Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of an exchange note, back-up withholding or
information reporting generally will not apply if you properly provide,
generally on Form W-8 or a substitute form, a statement that you are an "exempt
foreign person" for purposes of the broker reporting rules, and other required
information. If you are not subject to United States federal income or
withholding tax on the sale or other disposition of an exchange note, as
described above under the heading "Non-United States Holders--Sale or Other
Disposition of Exchange Notes," you generally will qualify as an "exempt
foreign person" for purposes of the broker reporting rules.
Payments from Foreign Office. If payments of principal and interest are made
to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of
the sale of an exchange note through a foreign office of a "broker," as defined
in the pertinent United States Treasury Regulations, you generally will not be
subject to backup withholding or information reporting. You will, however, be
subject to backup withholding and information reporting if the foreign
custodian, nominee, agent or broker has actual knowledge or reason to know that
the payee is a United States person. You will also be subject to information
reporting, but not backup withholding, if the payment is made by a foreign
office of a custodian, nominee, agent or broker that is a United States person
or a controlled foreign corporation for United States federal income tax
purposes, or that derives 50% or more of its gross income from the conduct of a
United States trade or business for a specified three year period, unless the
broker has in its records documentary evidence that you are a Non-United States
Holder and other conditions are met.
Refunds. Any amounts withheld under the backup withholding rules may be
refunded or credited against your federal income tax liability, provided that
you furnish the required information to the IRS.
New Withholding Regulations. New regulations relating to withholding tax on
income paid to foreign persons (the "New Withholding Regulations") will
generally be effective for payments made after December 31, 1999, subject to
applicable transition rules. The New Withholding Regulations modify and, in
general, unify the way in which you establish your status as a non-United
States "beneficial owner" eligible for withholding exemptions, including the
portfolio interest exemption, a reduced treaty rate or an exemption from backup
withholding. For example, the New Withholding Regulations will require new
forms, which you
117
<PAGE>
generally will have to provide earlier than you would have had to provide
replacements for expiring existing forms.
The New Withholding Regulations clarify withholding agents' reliance
standards. They also require additional certifications for claiming treaty
benefits. For example, you may be required to provide a TIN, and you may have
to certify that you "derive" the income with respect to which the treaty
benefit is claimed within the meaning of applicable regulations. The New
Withholding Regulations also provide somewhat different procedures for foreign
intermediaries and flow-through entities, such as foreign partnerships, to
claim the benefit of applicable exemptions on behalf of non-United States
beneficial owners for which or for whom they receive payments. The New
Withholding Regulations also amend the foreign broker office definition as it
applies to partnerships.
The New Withholding Regulations are complex and this summary does not
completely describe them. Please consult your tax advisor to determine how the
New Withholding Regulations will affect your particular circumstances.
118
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer in exchange for Notes which such broker-dealer acquired
as a result of market-making or other trading activities must acknowledge that
it will deliver a prospectus in connection with any resale of such exchange
notes. Any such broker-dealer may use this prospectus, as we may amend or
supplement it from time to time, in connection with resales of exchange notes
received in exchange for notes. For a period of one year after we complete the
exchange offer, we will promptly send additional copies of this prospectus and
any amendment or supplement to this prospectus to any broker-dealer that
requests such documents in the letter of transmittal. All resales must be made
in compliance with state securities or blue sky laws. We assume no
responsibility with regard to compliance with these requirements.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Broker-dealers may sell exchange notes received for their own
account pursuant to the exchange offer from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any broker-
dealer that resells the exchange notes that it received for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have been advised by the initial purchasers of the notes that following
completion of this exchange offer they intend to make a market in the exchange
notes. Such entities, however, are under no obligation to do so and any market
activities with respect to the exchange notes may be discontinued at any time.
119
<PAGE>
LEGAL MATTERS
Legal matters in connection with the exchange notes will be passed upon for
Simmons by Jones, Day, Reavis & Pogue, Atlanta, Georgia.
EXPERTS
The consolidated balance sheets as of December 26, 1998 and December 27,
1997 and the consolidated statements of operations, common stockholders equity
(deficit), and cash flows for the years ended December 26, 1998, December 27,
1997, the period from March 22, 1996 to December 28, 1996 and from December 31,
1995 through March 21, 1996, included in this prospectus, have been included
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4 under the Securities Act
with the Securities and Exchange Commission with respect to the exchange notes.
This prospectus, which forms a part of the registration statement, does not
contain all of the information included in the registration statement. We
omitted parts of this registration statement in accordance with the rules and
regulations of the Commission. For further information about us and the
exchange notes, we refer you to the registration statement. You should be aware
that none of the statements in this prospectus as to the contents of any
agreement or other document filed as an exhibit to the registration statement
are necessarily complete. We refer you to the copy of such documents filed as
exhibits to the registration statement.
We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934. We have
agreed that for so long as any of the exchange notes remain outstanding, we
will furnish to the holders of the exchange notes and, if permitted, will file
with the Commission, within the time periods specified in the rules and
regulations of the Commission:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if we were required to file such forms, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the consolidated financial statements included in the
annual information only, a report thereon by our independent accountants;
and
(ii) all reports that would be required to be filed with the Commission
on Form 8-K if we were required to file such reports in each case.
Any reports or documents we file with the Commission, including the
registration statement, may be inspected and copied at the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661. Copies of such reports or
other documents may be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a web site that contains reports and other
information that is filed through the Commission's Electronic Data Gathering
Analysis and Retrieval System. The web site can be accessed at
http://www.sec.gov.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. We will
provide without charge to each person to whom a copy of this prospectus is
delivered, upon written or oral request of any such person, a copy of any and
all of such information. Requests for such copies should be directed to the
Treasurer, Simmons Company, One Concourse Parkway, Atlanta, Georgia 30328
(Telephone Number (770) 512-7700). You should request any such information at
least five days in advance of the date on which you expect to make your
decision with respect to the exchange offer. In any event, you must request
such information prior to , 1999.
120
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets as of December 26, 1998 and December 27,
1997................................................................... F-3
Consolidated Statements of Operations for the year ended December 26,
1998, the year ended December 27, 1997, the period from March 22, 1996
through December 28, 1996 (Successor Periods) and the period from
December 31, 1995 through March 21, 1996 (Predecessor Period).......... F-4
Consolidated Statements of Common Stockholders' Equity for the year
ended December 26, 1998, the year ended December 27, 1997, the period
from March 22, 1996 through December 28, 1996 (Successor Periods) and
the period from December 31, 1995 through March 21, 1996
(Predecessor Period)................................................... F-5
Consolidated Statements of Cash Flows for the year ended December 26,
1998, the year ended December 27, 1997, the period from March 22, 1996
through December 28, 1996 (Successor Periods) and the period from
December 31, 1995 through March 21, 1996 (Predecessor Period) ......... F-6
Notes to Consolidated Financial Statements.............................. F-7
Condensed Consolidated Balance Sheet (Unaudited) as of March 27, 1999... F-24
Condensed Consolidated Statements of Operations (Unaudited) for the
quarters ended March 27, 1999 and March 28, 1998, respectively......... F-25
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
quarters ended March 27, 1999 and March 28, 1998, respectively......... F-26
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Simmons Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, common stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the
financial position of Simmons Company (the "Company") at December 26, 1998 and
December 27, 1997, and the results of its operations and its cash flows for
the years ended December 28, 1998 and December 27, 1997, the period from March
22, 1996 through December 28, 1996 and the period from December 31, 1995
through March 21, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1, the parent of Simmons Company entered into a
recapitalization on October 29, 1998.
PricewaterhouseCoopers LLP
Atlanta, Georgia
February 24, 1999
F-2
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 6,004 $ 9,108
Accounts receivable, less allowance for doubtful
accounts of $4,177 and $3,938.................. 71,354 65,488
Inventories..................................... 20,462 19,970
Deferred income taxes........................... 7,440 3,229
Other current assets............................ 14,792 13,808
-------- --------
Total current assets.......................... 120,052 111,603
Property, plant and equipment, net................ 54,153 47,564
Patents, net of accumulated amortization of $7,666
and $4,870....................................... 9,366 12,162
Goodwill, net of accumulated amortization of
$13,290 and $8,457............................... 180,017 184,850
Deferred income taxes............................. 17,704 8,453
Other assets...................................... 18,769 10,493
-------- --------
$400,061 $375,125
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 29,950 $ 27,847
Accrued wages and benefits...................... 5,323 8,830
Accrued advertising and incentives.............. 15,321 15,457
Accrued interest................................ 3,260 3,793
Other accrued expenses.......................... 13,627 9,435
Current maturities of long-term obligations..... 1,832 10,873
-------- --------
Total current liabilities..................... 69,313 76,235
Noncurrent liabilities:
Long-term obligations........................... 311,637 173,570
Postretirement benefit obligations other than
pensions....................................... 7,702 7,612
Other........................................... 11,626 13,864
-------- --------
Total liabilities............................. 400,278 271,281
-------- --------
Commitments and contingencies
Redeemable Series A Preferred Stock under ESOP,
net of related unearned compensation of $17,122.. -- 11,230
Redemption Obligation--ESOP, net of related
unearned compensation of $11,400................. 12,084 --
Common stockholders' equity (deficit):
Common stock, $.01 par value; 50,000,000 shares
authorized, 31,964,452 shares issued and
outstanding.................................... 320 320
Additional paid-in capital...................... -- 84,680
Retained earnings (accumulated deficit)......... (12,535) 7,674
Accumulated other comprehensive income (loss)... (86) (55)
Treasury stock, 974 shares in 1997 at cost...... -- (5)
-------- --------
Total common stockholders' equity (deficit)... (12,301) 92,614
-------- --------
$400,061 $375,125
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Successor Predecessor
--------------------------------------- ------------
Period from Period from
March 22, December 31,
Year ended Year ended 1996 through 1995 through
December 26, December 27, December 28, March 21,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................ $ 600,773 $550,085 $423,870 $106,431
Costs and expenses:
Cost of products sold.. 348,842 319,074 254,127 66,630
Selling, general and
administrative........ 202,213 183,556 135,762 35,846
ESOP expense........... 6,453 6,230 3,797 1,203
Amortization of
intangibles........... 7,629 7,679 5,650 1,324
--------- -------- -------- --------
565,137 516,539 399,336 105,003
--------- -------- -------- --------
Income from
operations.......... 35,636 33,546 24,534 1,428
Interest expense, net.... 22,454 19,088 15,277 1,489
Other expense, net....... 17,544 1,571 1,557 96
--------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item...... (4,362) 12,887 7,700 (157)
Provision (benefit) for
income taxes............ (345) 6,525 4,682 282
--------- -------- -------- --------
Income (loss) before
extraordinary item.. (4,017) 6,362 3,018 (439)
Extraordinary loss from
early extinguishment of
debt, net of income tax
benefit of $7,079 and
$1,137.................. 15,002 -- 1,706 --
--------- -------- -------- --------
Net income (loss)........ $ (19,019) $ 6,362 $ 1,312 $ (439)
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Retained Accumulated Total Common
Additional Unearned Earnings Other Stockholders'
Common Common Paid-In Compensation (Accumulated Comprehensive Treasury Equity
Shares Stock Capital Under ESOP Deficit) Income Stock (Deficit)
---------- ------ ---------- ------------ ------------ ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor
December 30, 1995....... 36,311,967 $363 $176,501 $(47,531) $(78,894) $(288) $(5,779) $ 44,372
ESOP share
allocations........... -- -- (2,298) 3,501 -- -- -- 1,203
Income tax benefit on
ESOP.................. -- -- 896 -- -- -- -- 896
Net loss............... -- -- -- -- (439) -- -- (439)
Other comprehensive
income:
Change in foreign
currency translation.. -- -- -- -- -- 9 -- 9
Purchase of treasury
stock................. -- -- -- -- -- -- (660) (660)
---------- ---- -------- -------- -------- ----- ------- --------
March 21, 1996.......... 36,311,967 $363 $175,099 $(44,030) $(79,333) $(279) $(6,439) $ 45,381
========== ==== ======== ======== ======== ===== ======= ========
Successor
March 22, 1996 (reflects
the new basis of
31,964,452 common
shares in connection
with the Investcorp
Acquisition)........... 31,964,452 $320 $ 84,680 $ -- $ -- $ (2) $ -- $ 84,998
Net income............. -- -- -- -- 1,312 -- -- 1,312
Other comprehensive
income (loss):
Change in foreign
currency translation.. -- -- -- -- -- (19) -- (19)
---------- ---- -------- -------- -------- ----- ------- --------
December 28, 1996....... 31,964,452 320 84,680 -- 1,312 (21) -- 86,291
Net income............. -- -- -- -- 6,362 -- -- 6,362
Other comprehensive
income (loss):
Change in foreign
currency translation.. -- -- -- -- -- (34) -- (34)
Purchase of treasury
stock................. -- -- -- -- -- -- (5) (5)
---------- ---- -------- -------- -------- ----- ------- --------
December 27, 1997....... 31,964,452 320 84,680 -- 7,674 (55) (5) 92,614
Net loss............... -- -- -- -- (19,019) -- -- (19,019)
Other comprehensive
income (loss):
Change in foreign
currency translation.. -- -- -- -- -- (31) -- (31)
Purchase of treasury
stock................. -- -- -- -- -- -- (55) (55)
Excess of ESOP expense
at fair market value
over cost............. -- -- 731 -- -- -- -- 731
Increase in ESOP
Redemption Obligation
based on fair market
value................. -- -- (10,582) -- -- -- -- (10,582)
Distribution to
Holdings.............. -- -- (74,829) -- (1,190) -- 60 (75,959)
---------- ---- -------- -------- -------- ----- ------- --------
December 26, 1998....... 31,964,452 $320 $ -- $ -- $(12,535) $ (86) $ -- $(12,301)
========== ==== ======== ======== ======== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------------------- ------------
Period from Period from
March 22, December 31,
Year ended Year ended 1996 through 1995 through
December 26, December 27, December 28, March 21,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)....... $ (19,019) $ 6,362 $ 1,312 $ (439)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 16,593 13,549 9,118 2,198
ESOP expense........... 6,453 6,230 3,797 1,203
Non-cash portion of
extraordinary loss.... (921) -- 1,706 --
Gain from sale of
investment............ -- -- (4,011) --
Provision for bad
debts................. 75 2,750 1,273 566
Provision for deferred
income taxes.......... (1,902) 6,226 4,420 282
Other, net............. 1,072 613 46 472
Net changes in operating
assets and liabilities:
Accounts receivable.... (10,335) (1,604) (17,288) (1,732)
Inventories............ (492) (1,137) (769) 1,229
Other assets........... (5,208) (5,235) (3,724) (531)
Accounts payable....... 2,103 3,047 9,117 (7,250)
Accrued liabilities.... (2,427) 1,500 (11,443) 6,341
--------- -------- --------- ------
Cash provided by (used
in) operating
activities............. (14,008) 32,301 (6,446) 2,339
--------- -------- --------- ------
Cash flows from
investing activities:
Purchases of property,
plant and equipment,
net................... (15,553) (15,355) (13,546) (1,567)
Proceeds from sale of
investment............ -- -- 4,700 --
Payment to the seller
for the acquisition... -- -- (151,625) --
Payments to option
holders............... -- -- (6,950) --
Payments of acquisition
costs................. -- -- (16,040) --
--------- -------- --------- ------
Net cash used in
investing activities... (15,553) (15,355) (183,461) (1,567)
--------- -------- --------- ------
Cash flows from
financing activities:
Distribution to
Holdings.............. (75,959) -- -- --
Distribution to
Holdings for purchase
of ESOP shares........ (15,450) -- -- --
Proceeds of New Credit
Facility.............. 200,000 -- -- --
Payments on New Credit
Facility.............. (10,000) -- -- --
Proceeds of Senior
Bridge Loans.......... 75,000 -- -- --
Proceeds of Junior
Simmons Notes......... 30,000 -- -- --
Payment of 10.75%
Senior Sub Notes...... (100,000) -- -- --
Proceeds of other
Successor long-term
borrowings............ 33,871 34,329 317,700 --
Payments on other
Successor long-term
borrowings............ (99,845) (46,701) (131,473) --
Proceeds from
Predecessor revolving
line of credit and
long-term borrowings.. -- -- -- 3,334
Payments on Predecessor
debt.................. -- -- (76,134) (3,490)
Payments of financing
costs................. (11,074) -- (9,744) --
Proceeds from issuance
of Successor common
stock................. -- -- 85,000 --
Treasury stock
purchases............. (55) (5) -- (660)
--------- -------- --------- ------
Net cash provided by
(used in) financing
activities............. 26,488 (12,377) 185,349 (816)
--------- -------- --------- ------
Net effect of exchange
rate changes on cash... (31) (34) (19) 9
--------- -------- --------- ------
Increase (decrease) in
cash and cash
equivalents............ (3,104) 4,535 (4,577) (35)
Cash and cash
equivalents, beginning
of period.............. 9,108 4,573 9,150 9,185
--------- -------- --------- ------
Cash and cash
equivalents, end of
period................. $ 6,004 $ 9,108 $ 4,573 $9,150
========= ======== ========= ======
Supplemental cash flow
information:
Cash paid for
interest.............. $ 19,517 $ 17,526 $ 11,798 $ 803
========= ======== ========= ======
Cash paid for income
taxes................. $ 322 $ 60 $ 93 $2,315
========= ======== ========= ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
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 sells
bedding products to certain institutional customers, such as schools and
government entities, and to the lodging industry and licenses its patents and
trademarks to various domestic and foreign manufacturers.
The Transactions
On July 16, 1998, the Company's parent, Simmons Holdings, Inc. ("Holdings")
entered into a recapitalization agreement with the Company and REM Acquisition,
Inc., a transitory Delaware merger corporation ("REM"), sponsored by Fenway
Partners, Inc., ("Fenway"). Pursuant to the agreement on October 29, 1998 REM
merged with and into Holdings (the "Recapitalization"), with Holdings being the
surviving corporation. The Recapitalization resulted in certain stockholders of
Holdings who are affiliates of or investors arranged by INVESTCORP S.A.
("Investcorp") receiving an aggregate amount of cash equal to approximately
$193.4 million, and certain stockholders of Holdings who are members of
management of the Company receiving an aggregate amount of cash equal to
approximately $14.0 million. Investcorp retained shares of common stock of
Holdings with an estimated fair value of $9.0 million and management retained
shares of stock and options to purchase stock of Holdings with an estimated
fair value of $16.5 million. As part of the Recapitalization, REM purchased the
outstanding shares of Series A Preferred Stock of the Company (the "Series A
Preferred Stock") owned by the Simmons Employee Stock Ownership Plan (the
"ESOP") that had been allocated to its participants for an aggregate purchase
price of $15.4 million, and the ESOP exchanged its remaining outstanding shares
of Series A Preferred Stock for shares of common stock of Holdings. The Series
A Preferred Stock purchased by REM was cancelled in connection with the
Transactions, as defined below. The ESOP retained shares of stock of Holdings
with an estimated fair value of $23.4 million.
Financing for the Recapitalization, the related transactions, and the fees
and expenses incurred therewith, was provided by (i) the Company's borrowings
under a new $270.0 million senior credit facility (the "New Senior Credit
Facility") which refinanced the majority of the Company's existing senior and
subordinated obligations, (ii) the Company's borrowings of $75.0 million Senior
Subordinated Bridge Loans (the "Senior Bridge Loans"), (iii) the Company's
borrowings of $30.0 million under the Junior Subordinated Notes (the "Junior
Simmons Notes") issued to an affiliate of Fenway, (iv) Holdings' borrowings of
$10.0 million under the Junior PIK Notes issued to an affiliate of Fenway, and
(v) $177.0 million of capital provided by Fenway, affiliates of Investcorp,
management and certain other investors of Holdings.
The Recapitalization, the refinancing under the New Senior Credit Facility,
the Senior Bridge Loans financing and the Junior Simmons Notes financing are
collectively referred to herein as the "Transactions". As a result of the
Recapitalization and related transactions, Fenway Investment LLC, an entity
controlled by funds managed by Fenway, acquired 75.1% of the outstanding voting
shares of Holdings, and management, the ESOP and Investcorp retained
approximately 5.9%, 13.7% and 5.3%, respectively, of the outstanding shares of
Holdings. The Company has accounted for the Transactions as a leveraged
recapitalization, whereby the historical bases of the assets and liabilities of
the Company have been maintained.
F-7
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
The Investcorp Acquisition
On March 22, 1996, Holdings acquired 100% of the outstanding common stock of
the Company (the "Investcorp Acquisition"). Holdings was formed to consummate
the Investcorp Acquisition on behalf of affiliates of Investcorp, management
and certain other investors. For purposes of identification and description,
Simmons Company is referred to as the "Predecessor" for the period prior to the
Investcorp Acquisition, the "Successor" for the period subsequent to the
Investcorp Acquisition, and the "Company" for both periods. For purposes of
financial reporting, the period from December 31, 1995 through March 21, 1996
is referred to as "Predecessor '96" and the period from March 22, 1996 through
December 28, 1996 is referred to as "Successor '96".
The purchase price for the Investcorp Acquisition was approximately $269.6
million (including approximately $94.6 million in refinancing or assumption of
existing indebtedness, purchase of certain stock options, and the payments of
fees and expenses) which was allocated to the assets and liabilities of the
Company based upon their estimated fair market value at the date of the
Investcorp Acquisition, under the purchase method of accounting. The financing
for the Investcorp Acquisition (including the refinancing of outstanding debt)
was provided by (i) borrowings under a new $115.0 million Senior Credit
Facility, which refinanced the Company's existing senior and subordinated
loans, (ii) the $100.0 million proceeds under a new Subordinated Loan Facility,
and (iii) $85.0 million of capital provided by affiliates of Investcorp,
management and certain other investors from Holdings.
As part of the Investcorp Acquisition, the ESOP sold 6,001,257 shares of the
Company's common stock (representing all of the allocated shares) to Holdings.
The remaining 5,670,406 shares of common stock of the Company (unallocated
shares) were converted into 5,670,406 shares of Series A Preferred Stock.
On April 18, 1996, the Company issued $100.0 million in 10.75% Senior
Subordinated Notes, pursuant to an offering (the "Offering") (See Note 8). The
proceeds of the offering were used to retire loans under the Subordinated Loan
Facility mentioned above.
The following condensed pro forma disclosures for net sales and net income
are adjusted to give effect to (i) the Investcorp Acquisition and (ii) the
Offering of the Notes and the application of the net proceeds therefrom to
repay the Subordinated Loan Facility (collectively, the "Investcorp
Transactions"). This pro forma disclosure assumes that the Investcorp
Transactions were consummated as of December 31, 1995 and does not purport to
be indicative of the results that would actually have been obtained if the
Investcorp Transactions had occurred on the date indicated or of the results
that may be obtained in the future.
<TABLE>
<CAPTION>
Unaudited
Combined
1996
---------
<S> <C> <C>
Pro Forma (in thousands):
Net sales................................................ $530,301
========
Net income............................................... $4,657
========
</TABLE>
F-8
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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.
Use of Estimates and Reclassifications
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. Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform with the current presentation.
Fiscal Year
The Company operates on a 52/53 week fiscal year ending on the last Saturday
in December. Fiscal years 1998, 1997 and 1996 (Successor '96 and Predecessor
'96, combined) comprised 52 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
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
Computers and software........................................ 3- 7 years
</TABLE>
Whenever events or changes in circumstances indicate that the carrying value
may not be recoverable, management assesses whether there has been a permanent
impairment in the value of long-lived assets by comparing anticipated
undiscounted future cash flows from operating activities with the carrying
value of the long-lived asset. 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. If a
permanent impairment is deemed to exist, management would record an impairment
charge equal to the excess of the carrying value over discounted cash flows.
F-9
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Patents and Goodwill
For all periods, the cost of patents acquired are being amortized using the
straight-line method over the estimated remaining economic lives of the
respective patents, principally over seven years. Amortization expense was
approximately $2,796, $2,799, $2,072 and $438 for 1998, 1997, Successor '96 and
Predecessor '96, respectively.
Goodwill is being amortized on a straight-line basis, over the estimated
periods benefited (principally 40 years). Amortization expense was $4,833,
$4,880, $3,578 and $886 for 1998, 1997, Successor '96 and Predecessor '96,
respectively.
Whenever events or changes in circumstances indicate that the carrying value
may not be recoverable, management assesses whether there has been a permanent
impairment in the value of intangible assets by comparing anticipated
undiscounted future cash flows from operating activities with the carrying
value of the intangible asset. 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. If a
permanent impairment is deemed to exist, management would record an impairment
change equal to the excess of the carrying value over discounted cash flows.
Revenue Recognition
The Company recognizes revenue at the time the product is shipped to the
customer.
ESOP Expense
The Company follows the provisions of Statement of Position No. 93-6 of the
American Institute of Certified Public Accountants, "Employers' Accounting for
Employee Stock Ownership Plans", whereby ESOP expense is recognized as an
amount equal to the fair market value of the shares commited to be released to
participants' accounts. The unearned compensation balance continues to be
amortized using the shares allocated method (i.e., at cost). The difference in
these two amounts, if any, is recorded as an adjustment to additional paid-in
capital.
Other Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards
for the reporting and display of comprehensive income and its components in the
financial statements. Prior periods have been reclassified to reflect the
adoption of this standard. The adoption of SFAS No. 130 has no material impact
on the Company's results of operations, financial position or cash flows.
Comprehensive income equals net income plus other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses which are
reflected in stockholders' equity but excluded from net income. The component
comprising other comprehensive income is foreign currency translation
adjustment.
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 $1,112, $1,185, $862 and $270 for 1998, 1997, Successor '96 and
Predecessor '96, respectively, and are included in cost of products sold in the
accompanying consolidated statements of operations.
F-10
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Advertising Costs
The Company records the cost of advertising as an expense when incurred.
Advertising expense was $61,869, $54,802, $43,652 and $9,861 for 1998, 1997,
Successor '96 and Predecessor '96, respectively, and is included as a component
of selling, general and administrative expenses in the accompanying
consolidated statements of operations.
Significant Concentrations of Risk
The Company manufactures and markets sleep products, including mattresses
and box springs 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 21% of total sales for each
of 1998, 1997 and Successor '96 and Predecessor '96, combined. Accounts
receivable from one customer was approximately 7% and 9% of total accounts
receivable at December 26, 1998 and December 27, 1997, respectively. Sales to
Heilig Meyers entities represented approximately 11.8% and 10.7% of net sales
for 1998 and 1997, respectively. Sales to no one customer represented more than
10% of net sales for Successor '96 and Predecessor '96, combined.
Purchases of raw materials from one vendor represented approximately 23%,
24% and 23% of cost of products sold for 1998, 1997 and Successor '96 and
Predecessor '96, combined, 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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments including those embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Financial statements for prior periods need not be restated. The Company
is currently reviewing the provisions of SFAS No. 133 and does not believe that
the financial statements will be materially impacted by the adoption of this
pronouncement.
3. Employee Stock Ownership Plan
The Company is structured so that the employees of the Company have a
beneficial ownership of the stock of Holdings or, prior to the Transactions, of
the Company through their participation in the ESOP.
The Company makes annual contributions to the Simmons ESOP in an amount up
to 25% of eligible participant compensation, subject to certain limitations and
conditions. The Simmons ESOP then uses all such contributions to repay the
internal ESOP Loan. As a result, there is no cash cost associated with the
contributions to the Simmons ESOP.
On October 29, 1998, REM purchased 2,295,110 shares of the Company's Series
A Preferred Stock from the ESOP, representing all the shares held by the ESOP
that had been allocated to plan participants as of such date for an aggregate
purchase price of approximately $15.4 million, which amount was reinvested, at
the
F-11
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
direction of the participants, into diversified investments in the respective
accounts of such participants in the ESOP. The Series A Preferred Stock
purchased by REM was cancelled in connection with the Transactions. Immediately
prior to the Recapitalization, the ESOP exchanged its remaining outstanding
shares of Series A Preferred Stock for 3,482,036 shares of common stock of
Holdings.
In connection with the Investcorp Acquisition, the ESOP sold 6,001,257
shares of common stock of the Company to Holdings (representing all the shares
held by the ESOP that had been allocated to plan participants as of such date)
for $31.2 million in the aggregate, which amount was reinvested, at the
direction of the participants, into diversified investments in the respective
accounts of such participants in the ESOP. Each of the remaining 5,670,406
shares of common stock of the Company was converted into one share of Series A
Preferred Stock. As stated above, all outstanding shares of the Series A
Preferred Stock were exchanged for shares of common stock of Holdings in
connection with the Transactions.
The ESOP pledged all of its shares of Holdings common stock or, prior to the
Transactions, the Company's common stock as collateral for the internal ESOP
loans from the Company. These shares are held by State Street Bank and Trust
Company, the ESOP trustee, in a suspense account and are released to the ESOP
participants' accounts based on debt service. In 1997, 1,096,000 shares were
released to participant's accounts for the 1996 ESOP allocation. In 1998,
1,160,734 shares were released to participant's accounts for the 1997 ESOP
allocation. As of December 26, 1998, 1,140,000 shares of Holdings common stock
have been committed to be released. The remaining unallocated shares of
Holdings common stock held in the ESOP had an estimated fair value of
approximately $15,765 ($6.7315 per share) at December 26, 1998.
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 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 60% 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 or Holdings is obligated to
repurchase participant shares which have been distributed under the terms of
the ESOP, as long as the shares are not publicly traded or if the shares are
subject to trading limitations. The Company repurchased approximately 18,452
shares from ESOP participants in 1996 (prior to the Investcorp Acquisition) at
a price of $4.50 per share, 974 shares from ESOP participants in 1997 at a
price of $5.00 per share and 5,711 shares from ESOP participants in 1998 (prior
to the Transactions) at a price of $5.00 per share. These shares are reflected
as treasury stock in the common stockholders' equity section of the balance
sheet for periods prior to the Transactions.
Because of the Company's or Holdings' 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 consolidated balance sheets as Redeemable Series A Preferred Stock
under ESOP as of December 27, 1997 and as Redemption Obligation under ESOP as
of December 26, 1998. Additionally, pursuant to generally accepted accounting
principles, the Company has classified a proportional amount of unearned
compensation under ESOP in the same manner.
F-12
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
4. Accounts Receivable
Accounts receivable consisted of the following at December 26, 1998 and
December 27, 1997:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Accounts receivable........................... $79,628 $73,239
Allowance for doubtful accounts............... (4,177) (3,938)
Allowance for cash discounts and other........ (4,097) (3,813)
------- -------
$71,354 $65,488
======= =======
</TABLE>
5. Inventories
Inventories consisted of the following at December 26, 1998 and December
27, 1997:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials................................... $12,823 $12,209
Work-in-progress................................ 1,376 1,531
Finished goods.................................. 6,263 6,230
------- -------
$20,462 $19,970
======= =======
</TABLE>
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 26,
1998 and December 27, 1997:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Land, buildings and improvements.............. $16,343 $11,945
Machinery and equipment....................... 46,050 39,309
Construction in progress...................... 7,336 3,713
------- -------
69,729 54,967
Less accumulated depreciation................. (15,576) (7,403)
------- -------
$54,153 $47,564
======= =======
</TABLE>
Depreciation expense for 1998, 1997, Successor '96 and Predecessor '96 was
$8,964, $5,870, $3,468 and $874, respectively.
7. Other Assets
Other assets consisted of the following at December 26, 1998 and December
27, 1997:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Long-term notes receivable.................... $ 6,594 $ 2,200
Debt issuance costs, net of accumulated
amortization of $177 and $1,165,
respectively................................. 11,405 7,259
Other......................................... 770 1,034
------- -------
$18,769 $10,493
======= =======
</TABLE>
F-13
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Debt issuance costs are amortized using the effective interest method.
Amortization of $777, $613, $521 and $84 for 1998, 1997, Successor '96 and
Predecessor '96, respectively, is included as a component of interest expense
in the accompanying consolidated statements of operations.
8. Long-Term Obligations
Long-term obligations consisted of the following at December 26, 1998 and
December 27, 1997:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Senior loans:
Tranche A Term Loan....................... $ 70,000 $ --
Tranche B Term Loan....................... 70,000 --
Tranche C Term Loan....................... 50,000 --
Previous Credit Agreement................. -- 67,700
Industrial Revenue Bonds, 7.00%, due 2017... 9,700 9,700
Industrial Revenue Bonds, 3.90%, due 2016... 5,000 5,000
Banco Santander loan........................ 3,164 1,329
Senior Bridge Loans......................... 75,000 --
Junior Simmons Notes........................ 30,000 --
10.75% Series A Senior Subordinated Notes
due 2006................................... -- 100,000
Other, including capital lease obligations.. 605 714
-------- --------
313,469 184,443
Less current portion........................ (1,832) (10,873)
-------- --------
$311,637 $173,570
======== ========
</TABLE>
In connection with the Transactions, the Company entered into the New Senior
Credit Facility. The New Senior Credit Facility is collateralized by
substantially all of the Company's assets and provides for loans of up to
$270.0 million, consisting of (i) the Tranche A Term Loan of up to $70.0
million in term loans, (ii) the Tranche B Term Loan of up to $70.0 million in
term loans, (iii) the Tranche C Term Loan of up to $50.0 million in term loans,
and (iv) the Revolving Loan of up to $80.0 million in revolving credit loans,
letters of credit and swing line loans. The Company distributed a portion of
the proceeds of the Term Loan Facility and the Company's initial borrowings
under the Revolving Credit Facility to Holdings to provide a portion of the
funds necessary to consummate the Transactions.
The Tranche A Term Loan matures in quarterly installments from December 1999
until final payment in October 2004. The Tranche B Term Loan matures in
quarterly installments from December 1998 until final payment in October 2005.
The Tranche C Term Loan matures in quarterly installments from December 1998
until final payment in October 2006. The Revolving Loan matures on October
2004.
The interest rates applicable to the loans under the New Senior Credit
Facility are based upon a Base Rate or Eurodollar Rate (as defined), plus their
respective margin. The Applicable Margin for Base Rate Loans for the Tranche B
and Tranche C Loans is 2.25% and 2.50%, respectively. The Applicable Margin for
Eurodollar Loans for the Tranche B and Tranche C Loans is 3.25% and 3.50%,
respectively. For the Tranche A Loans and
F-14
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
loans under the Revolving Credit Facility, the Applicable Margin for Base Rate
Loans and Eurodollar Loans is initially 1.75% and 2.75%, respectively, subject
to reduction according to a pricing grid based upon the Leverage Ratio (as
defined).
The interest rates per annum in effect at December 26, 1998 for the Tranche
A Term Loan, Tranche B Term Loan and Tranche C Term Loan were 7.75%, 8.25% and
8.50%, respectively.
At December 26, 1998, the amount under the Revolving Credit Facility that
was available to be drawn was approximately $76.5 million, after giving effect
to $3.5 million that was reserved for the Company's reimbursement obligations
with respect to outstanding letters of credit. The remaining availability under
the Revolving Credit Facility may be utilized to meet the Company's current
working capital requirements, including issuance of stand-by and trade letters
of credit. The Company also may utilize the remaining availability under the
Revolving Credit Facility to fund acquisitions and capital expenditures.
The New Senior Credit Facility requires the Company to maintain certain
financial ratios including fixed-charge, cash interest coverage and leverage
ratios. The New Senior Credit Facility also contains covenants which, among
other things, limit capital expenditures, the incurrence of additional
indebtedness, investments, dividends, transactions with affiliates, asset
sales, mergers and consolidations, prepayments of other indebtedness, liens and
encumbrances and other matters customarily restricted in such agreements. As of
December 26, 1998, the Company was in compliance with respect to all covenants
under the New Senior Credit Facility.
In connection with the Transactions, the Company entered into a bridge loan
agreement (the "Senior Bridge Loan Agreement"). The Senior Bridge Loan
Agreement provided for $75.0 million in aggregate principal amount of the
Senior Bridge Loans. If the Senior Bridge Loans are not repaid in full by
October 29, 1999, the outstanding principal balance of the Senior Bridge Loans
may be converted into term loans due October 29, 2008. Once converted, the
lenders may elect to exchange all or any portion of the term loans for exchange
notes which are required to be registered under the Securities Act. The Senior
Bridge Loans bear interest at 9.6%, which rate increases by 1.0% on January 27,
1999 and increases by 0.5% for every three-month period thereafter up to a
maximum rate of 15.0%.
In connection with the Transactions, the Company issued the Junior Simmons
Notes to Fenway in the aggregate principal amount of $30.0 million. The
maturity date of the Simmons Junior Notes is October 29, 2010. The Junior
Simmons Notes bear interest at 13.0% through December 30, 1998, which rate
increases by 0.5% for every three-month period thereafter up to a maximum rate
of 16.0%. Such interest is to be paid upon maturity. If certain financial
conditions are met, up to 7.0% of the interest of the Junior Simmons Notes may
be payable in cash while the Senior Bridge Loans are outstanding, which cash
interest may increase to 12.0% once the Senior Bridge Loans have been repaid.
No such conditions have been met as of December 26, 1998.
Concurrently with the consummation of the Transactions, the Company called
the Previously Existing Notes for redemption and paid $115.9 million of the
proceeds ($100.0 million of principal and a $15.9 million redemption premium
(See Note 10)) to satisfy and discharge the Company's obligations thereunder.
In November 1998, Simmons Caribbean Bedding, Inc., a wholly owned subsidiary
of the Company, entered into a permanent loan facility with Banco Santander in
the amount of $3.2 million accruing interest at a fluctuating rate based on the
London Interbank Offered Rate (or LIBOR), which was 7.1% as of December 26,
1998.
F-15
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Future maturities of long-term obligations as of December 26, 1998 are as
follows:
<TABLE>
<S> <C>
1999................................ $ 1,832
2000................................ 11,842
2001................................ 11,853
2002................................ 16,865
2003................................ 16,779
Thereafter.......................... 254,298
--------
$313,469
========
</TABLE>
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.
The fair value of long-term debt approximates the carrying value at December
26, 1998.
9. Other Expense, Net
Other expense, net is comprised of the following:
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------------- -----------
Period from Period from
March 22, December
1996 31, 1995
Year ended Year ended through through
December 26, December 27, December March 21,
1998 1997 28, 1996 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Recapitalization/Acquisition
related:
Management compensation...... $14,223 -- $3,735 --
Other
recapitalization/acquisition
related expenses............ 1,012 -- 648 --
Management advisory fee........ 1,074 $1,000 833 --
Gain on sale of investment..... -- -- (4,011) --
Other non-operating expenses... 1,235 571 352 $96
------- ------ ------ ---
$17,544 $1,571 $1,557 $96
======= ====== ====== ===
</TABLE>
The gain on sale of investment was related to the Company's minority
interests in Simmons Asia, Ltd. (10.0%), Simmons Bedding & Furniture (HK) Ltd.
(8.1%) and Simmons Company, Ltd. (6.8%).
10. Extraordinary Items
In October 1998, the Company recorded a $15,002 charge, net of income tax
benefit of $7,079 representing the remaining unamortized debt issuance costs
related to long-term obligations repaid as a result of the refinancing of
certain debt in connection with the recapitalization of $4,184 (net of income
tax benefit
of $1,974) and the redemption premium obligation of $10,818 (net of income tax
benefit of $5,105) related to the early redemption of the Company's then
outstanding 10.75% Senior Subordinated Notes due 2006.
In April 1996, the Company recorded a $1,706 charge, net of income tax
benefit of $1,137 representing the remaining unamortized debt issuance costs
related to long-term obligations repaid as a result of the refinancing of
certain Investcorp Acquisition debt.
F-16
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
11. Leases
The Company leases certain facilities and equipment under operating leases.
Rent expense was $12,705, $11,258, $9,709 and $2,388 for 1998, 1997, Successor
'96 and Predecessor '96, 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 26, 1998:
<TABLE>
<S> <C>
1999................................. $11,061
2000................................. 9,775
2001................................. 9,370
2002................................. 9,119
2003................................. 6,520
Thereafter........................... 15,158
-------
$61,003
=======
</TABLE>
12. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock incentive plans. Under APB
25, because the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. The Company has adopted the disclosure-only provisions of Financial
Accounting Standards Board Statement No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123").
At the time of the Investcorp Acquisition, the board of directors
established a Management Stock Incentive Plan (the "1996 Plan"), which provided
for the granting of nonqualified options for Class C common stock of Holdings
to members of management and certain key employees. The options outstanding
under the 1996 Plan were granted at prices which equate to or were above the
market value of the Class C stock on the date of grant.
In connection with the Investcorp Acquisition, the Company entered into an
agreement with Holdings whereby 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. All references to stock options under the 1996 Plan
pertain to the Holdings options which have been attributed to the Company for
disclosure purposes. Information relating to stock options during 1998, 1997
and 1996 is as follows:
F-17
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
---------- --------
<S> <C> <C>
Shares under option at December 28, 1996................ 3,158,330 $2.73
Granted................................................. 50,000 $2.95
Forfeited............................................... (39,728) $2.66
---------- -----
Shares under option at December 27, 1997................ 3,168,602 $2.73
Granted................................................. 59,000 $5.15
Forfeited............................................... (17,062) $2.66
Canceled................................................ (1,571,463) $2.72
---------- -----
Shares under option at December 26, 1998................ 1,639,077 $2.83
========== =====
Shares exercisable at December 28, 1996................. 0 $2.66
========== =====
Shares exercisable at December 27, 1997................. 574,369 $2.66
========== =====
Shares exercisable at December 26, 1998................. 1,639,077 $2.83
========== =====
</TABLE>
All outstanding options were nonqualified options. No compensation expense
related to stock option grants was recorded in 1998, 1997 or 1996 as the option
exercise prices were equal to fair market value on the date of grant.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for the employee stock options
under the fair value method under that Statement. The fair value for these
options was estimated at the date of grant using the minimum present value
method with the following weighted average assumptions for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 5.47% 6.08% 6.32%
Expected life..................................... 7 years 7 years 7 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' expected life. The Company's
pro forma net earnings were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
Net earnings (loss)--as reported................ $(19,019) $6,362 $1,312
Net earnings (loss)--proforma................... (20,309) 6,133 1,155
Weighted average fair value of options granted
during the year................................ 1.60 1.00 0.93
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts.
As a result of the Transactions, the vesting of the issued and outstanding
stock options under the 1996 plan was accelerated. At the time of the
Transaction option holders under the 1996 plan elected to cancel a portion of
their options. For option shares canceled, each holder received reasonable
compensation for the
F-18
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
options, which was equal to the spread between the Recapitalization price of
$6.7315 and the respective per share exercise price for the canceled options.
The remaining option shares are fully vested and are exercisable at their
respective issuance price (ranging from $2.66 to $5.15). No additional option
shares have been granted post-Transactions.
13. Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Successor Predecessor
----------------------------------- -----------
Period from Period from
March 22, December
Year 1996 31, 1995
Year ended ended through through
December 26, December December 28, March 21,
1998 27, 1997 1996 1996
------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
Current tax provision:
Federal....................... $ 657 -- -- --
State......................... 600 -- -- --
Foreign....................... 300 $ 299 $ 262 --
------- ------ ------ -----
1,557 299 262 --
------- ------ ------ -----
Deferred tax provision:
Federal....................... (1,530) 5,230 3,627 $ 231
State......................... (372) 996 793 51
------- ------ ------ -----
(1,902) 6,226 4,420 282
------- ------ ------ -----
$ (345) $6,525 $4,682 $ 282
======= ====== ====== =====
</TABLE>
The reconciliation of the statutory federal income tax rate to the effective
income tax rate for 1998, 1997, Successor '96 and Predecessor '96 provision for
income taxes is as follows:
<TABLE>
<CAPTION>
Successor Predecessor
--------------------------------------- -----------
Period from Period from
March 22, December
1996 31, 1995
Year ended Year ended through through
December 26, December 27, December 28, March 21,
1998 1997 1996 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income taxes at federal
statutory rate.......... $(1,483) $4,382 $2,618 $(53)
State income taxes, net
of federal benefit...... (218) 657 556 (18)
Goodwill amortization.... 1,643 1,393 1,216 301
Other, net............... (287) 93 292 52
------- ------ ------ ----
$ (345) $6,525 $4,682 $282
======= ====== ====== ====
</TABLE>
In addition, the Company recorded a deferred tax benefit of $7,079 and
$1,137 for 1998 and Successor '96, respectively, associated with the
extraordinary item.
F-19
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Components of the net deferred income tax asset (liability) at December 26,
1998 and December 27, 1997 are as follows:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Current deferred income taxes:
Accounts receivable and inventory reserves....... $ 3,757 $ 3,646
Accrued liabilities not currently deductible..... 8,253 9,002
Net operating loss carryforwards................. -- 82
Prepaids and other assets, not currently
taxable......................................... (4,570) (9,501)
------- -------
7,440 3,229
Noncurrent deferred income taxes:
Property basis differences....................... (7,382) (2,896)
Patents basis differences........................ (3,222) (4,214)
ESOP liability basis differences................. 6,247 8,710
Net operating loss carryforwards................. 19,610 2,638
Valuation allowance.............................. (3,999) (2,638)
Other noncurrent accrued liabilities, not
currently deductible............................ 6,450 6,853
------- -------
17,704 8,453
------- -------
Net deferred tax asset........................... $25,144 $11,682
======= =======
</TABLE>
At December 26, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $50,281, all of which are limited
to utilization under the Internal Revenue Code. Due to such limitations, the
Company believes it is more likely than not that it will not realize the full
benefit of the loss carryforwards and has provided a valuation allowance of
approximately $3,999 to reserve such amounts as of December 26, 1998. These
carryforwards expire through 2018. Undistributed earnings to be permanently
reinvested by the international subsidiaries totaled approximately $2,360 at
December 26, 1998. Because these earnings are to be permanently reinvested, no
U.S. deferred income tax has been recorded for them.
14. Retirement Plans
The Company has a defined contribution pension plan (a 401(K) plan) for
substantially all employees other than employees subject to collective
bargaining agreements. Eligible participants may make limited contributions to
the defined contribution plan; however, no employer contributions are allowed.
Certain union employees participate in multi-employer pension plans
sponsored by their respective unions. Amounts charged to pension cost,
representing the Company's required contributions to these plans for 1998, 1997
and Successor '96 and Predecessor '96, combined, were $1,633, $1,439 and
$1,495, respectively.
The Company had accrued $2,653 and $2,679 at December 26, 1998 and December
27, 1997, respectively, for a supplemental executive retirement plan for a
former executive. Such amounts are included in postretirement benefit
obligations other than pensions in the accompanying consolidated balance
sheets.
The Company also has an unfunded nonqualified employee stock ownership plan
to provide benefits to certain employees who were not eligible to participate
in the ESOP. Benefits are to be paid in cash and are computed based on the
value of shares the participants would have received had they participated in
the ESOP.
F-20
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Participants are entitled to receive accrued benefits upon termination of
employment with the Company, retirement, death, or permanent disability.
Benefits vest based on the provisions of the ESOP. The Company charged
approximately $184, $64 and $128 to expense for 1998, 1997 and Successor '96
and Predecessor '96, combined, respectively. The accrued benefits under the
nonqualified plan were $373 and $189 at December 26, 1998 and December 27,
1997, respectively, and are included in other long-term liabilities in the
accompanying consolidated balance sheets. Vested interests of current
participants in the plan were distributed upon consummation of the Investcorp
Acquisition.
The Company provides certain health care and life insurance benefits to
eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or nonunion employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20 lifetime maximum benefit for
participants age 65 and over. The Company also provides life insurance to all
retirees who retired before 1979. These plans are unfunded.
The Company accrues the cost of providing postretirement benefits, including
medical and life insurance coverage, during the active service period of the
employee.
F-21
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
The following table presents a reconciliation of the plan's status at
December 26, 1998 and December 27, 1997:
<TABLE>
<CAPTION>
December December
26, 1998 27, 1997
-------- --------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation, beginning of year.................. $ 5,138 $ 5,551
Service cost........................................... 205 187
Interest cost.......................................... 347 338
Benefits paid.......................................... (93) (386)
Actuarial (gain)/loss.................................. (131) (552)
------- -------
Benefit obligation, end of year........................ $ 5,466 $ 5,138
======= =======
Change in Plan Assets:
Fair value of assets, beginning of year................ $ -- $ --
Employer contributions................................. 93 386
Benefits paid.......................................... (93) (386)
------- -------
Fair value of assets, end of year...................... $ -- $ --
======= =======
Reconciliation of Accrued Benefit Cost:
Funded status.......................................... $(5,466) $(5,138)
Unrecognized prior service cost........................ (213) (243)
Unrecognized net gain.................................. (867) (748)
------- -------
Accrued benefit cost, end of year...................... $(6,546) $(6,129)
======= =======
Weighted-Average Assumptions:
Discount rate, December 31............................. 6.75% 7.00%
Components of Net Periodic Benefit Cost:
Service cost........................................... $205 $187
Interest cost.......................................... 347 338
Amortization of:
Prior service cost................................... (30) (30)
Gain................................................. (12) (22)
------- -------
Net periodic benefit cost.............................. $510 $473
======= =======
</TABLE>
A 10.0% annual rate of increase in the cost of health care benefits was
assumed for 1998; the rate was assumed to decrease 0.5% per year until 5.0% is
reached. A 1.0% change in assumed health care cost trend rates would have the
following effects:
<TABLE>
<CAPTION>
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Effect on Total of
Service and Interest
Cost Components........ $ 83 $ (70)
Effect on Benefit
Obligation............. $552 $(496)
</TABLE>
F-22
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
15. Contingencies
From time to time, the Company has been involved in various legal
proceedings. Management believes that all 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 a material
adverse effect on the financial condition or results of operations of the
Company.
16. Related Party Transactions
The Company, Holdings and Fenway entered into a management agreement (the
"Fenway Advisory Agreement") effective upon consummation of the Transactions
pursuant to which Fenway agreed to provide strategic advisory services to the
Company. In exchange for such services, the Company agreed to pay Fenway (i)
annual management fees of 0.25% of net sales for the prior fiscal year, (ii)
fees in connection with the consummation of any acquisition transactions for
Fenway's assistance in negotiating such transactions and (iii) certain fees and
expenses, including legal and accounting fees and any out-of-pocket expenses
incurred by Fenway in connection with providing services to the Company.
In connection with the Investcorp Acquisition, the Company entered into an
agreement for management advisory and consulting services (the "Investcorp
Management Agreement") with Investcorp International Inc. ("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 Investcorp Acquisition, the
Company paid International $3.0 million for the first three years of the term
of the Investcorp Management Agreement in accordance with its terms. In
connection with the Transactions, this agreement was terminated.
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 $850 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 $2.0 million per year permitted
under the New Senior Credit Facility; and registration expenses incurred by
Holdings incident to a registration of any capital stock of Holdings under the
Securities Act.
F-23
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 27, 1999
(in thousands, except share amounts)
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 8,706
Accounts receivable, less allowance for doubtful accounts of
$4,577 ..................................................... 75,545
Inventories.................................................. 21,130
Deferred income taxes........................................ 10,886
Other current assets........................................ 15,304
--------
Total current assets........................................ 131,571
--------
Property, plant and equipment, net............................ 55,037
Patents, net of accumulated amortization of $8,364............ 8,668
Goodwill, net of accumulated amortization of $14,498.......... 178,809
Deferred income taxes......................................... 16,899
Other assets.................................................. 20,060
--------
$409,044
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 16,282
Accrued advertising and incentives........................... 20,109
Accrued wages and benefits................................... 7,243
Other accrued expenses....................................... 16,784
Current maturities of long-term obligations.................. 532
--------
Total current liabilities................................... 60,950
--------
Noncurrent liabilities:
Long-term obligations........................................ 333,908
Other noncurrent liabilities................................. 19,244
--------
Total liabilities........................................... 414,102
--------
Commitments and contingencies
Redemption Obligation--ESOP, net of related unearned
compensation of $10,095...................................... 13,389
Common stockholders' deficit:
Common stock, $0.1 par value; 50,000,000 shares authorized,
31,964,452 shares issued and outstanding.................... 320
Accumulated deficit.......................................... (18,701)
Accumulated other comprehensive loss......................... (66)
--------
Total common stockholders' deficit.......................... (18,447)
--------
$409,044
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 27, March 28,
1999 1998
--------- ---------
<S> <C> <C>
Net sales.................................................. $146,348 $139,392
Costs and expenses:
Cost of products sold.................................... 85,586 83,435
Selling, general and administrative...................... 55,192 51,068
ESOP expense............................................. 1,792 1,475
Amortization of intangibles.............................. 1,906 1,908
-------- --------
144,476 137,886
-------- --------
Income from operations................................. 1,872 1,506
Interest expense, net...................................... 7,941 4,643
Other expense, net......................................... 521 408
-------- --------
Loss before income taxes and extraordinary item.......... (6,590) (3,545)
Benefit for income taxes................................... (2,110) (1,719)
-------- --------
Loss before extraordinary time........................... (4,480) (1,826)
Extraordinary loss from early extinguishment of debt, net
of income
tax benefit of $1,095..................................... 2,173 --
-------- --------
Net loss................................................... (6,653) (1,826)
Other comprehensive income:
Foreign currency translation adjustment.................. 20 4
-------- --------
Comprehensive loss......................................... $ (6,633) $ (1,822)
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 27, March 28,
1999 1998
--------- ---------
<S> <C> <C>
Net cash used in operating activities....................... $(11,736) $(1,755)
-------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment, net............ (1,374) (3,755)
-------- -------
Net cash used in investing activities..................... (1,374) (3,755)
-------- -------
Cash flows from financing activities:
Proceeds of 10.25% Senior Subordinated Notes due 2009...... 150,000 --
Payments on Senior Bridge Loans............................ (75,000) --
Payments on Junior Simmons Notes........................... (30,391) --
Proceeds of long-term borrowings........................... -- 9,204
Payments on long-term borrowings........................... (24,029) (4,008)
Payments of financing costs................................ (4,788) --
Treasury stock purchases................................... -- (1)
-------- -------
Net cash provided by financing activities................. 15,792 5,195
-------- -------
Net effect of exchange rate changes on cash................. 20 4
-------- -------
Change in cash and cash equivalents......................... 2,702 (311)
Cash and cash equivalents, beginning of period.............. 6,004 9,108
-------- -------
Cash and cash equivalents, end of period.................... $ 8,706 $ 8,797
======== =======
Supplemental cash flow information:
Depreciation............................................... $ 2,490 $ 2,195
======== =======
</TABLE>
F-26
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
For purposes of this report the "Company" refers to Simmons Company and
Subsidiaries, collectively. The Condensed Consolidated Financial Statements of
the Company have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (the "SEC"). The accompanying unaudited
condensed consolidated financial statements contain all adjustments, which, in
the opinion of management, are necessary to present fairly the financial
position of the Company at March 27, 1999, and its results of operations and
cash flows for the periods presented herein. All adjustments in the periods
presented herein are normal and recurring in nature unless otherwise disclosed.
These condensed consolidated financial statements should be read in conjunction
with the year-end consolidated financial statements and accompanying notes
included elsewhere herein. Operating results for the period ended March 27,
1999, are not necessarily indicative of future results that may be expected for
the year ending December 25, 1999.
2.Inventories
Inventories consisted of the following at March 27, 1999 (in thousands):
<TABLE>
<S> <C>
Raw materials..................................................... $13,947
Work in progress.................................................. 1,304
Finished goods.................................................... 5,879
-------
$21,130
=======
</TABLE>
3.Long-term Obligations
Long-term obligations consisted of the following at March 27, 1999 (in
thousands):
<TABLE>
<S> <C>
New Senior Credit Agreement:
Tranche A Term Loan............................................ $ 48,607
Tranche B Term Loan............................................ 68,657
Tranche C Term Loan............................................ 48,764
Industrial Revenue Bonds, 7.00%, due 2017....................... 9,700
Industrial Revenue Bonds, 3.20%, due 2016....................... 5,000
Banco Santander Loan............................................ 3,129
10.25% Senior Subordinated Notes due 2009....................... 150,000
Other, including capital lease obligations...................... 583
--------
334,440
Less current portion............................................ (532)
--------
$333,908
========
</TABLE>
The New Senior Credit Agreement provides for loans of up to $270.0 million,
consisting of the Term Loan Facility of $190.0 million and the Revolving Loan
Facility of $80.0 million. We distributed a portion of the proceeds of the Term
Loan Facility and our initial borrowings under the Revolving Credit Facility to
Simmons Holdings to provide a portion of the funds necessary to consummate a
recapitalization agreement (as amended to date, the "Merger Agreement") with
Simmons Holdings and REM Acquisition, Inc., a transitory Delaware merger
corporation ("REM") sponsored by Fenway. The Merger Agreement provided for REM
to merge with and into Simmons Holdings, with Simmons Holdings being the
surviving corporation. Following the prepayments made from the proceeds of a
private offering of 10.25% Series B Senior Subordinated Notes due 2009, the
Term Loan Facility was reduced to approximately $166.0 million and such
facility will require no principal amortization payments in 1999. Our
indebtedness under the New Senior Credit Agreement bears
F-27
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
interest at a floating rate, is guaranteed by Simmons Holdings and one of our
current domestic subsidiaries and is collateralized by substantially all of our
assets.
The interest rates per annum in effect at March 27, 1999 for the Tranche A
term, Tranche B term and Tranche C term loans were 7.73%, 8.24% and 8.49%,
respectively.
At March 27, 1999, the amount under the Revolving Credit Facility that was
available to be drawn was approximately $79.4 million, after giving effect to
$0.6 million that was reserved for our reimbursement obligations with respect
to outstanding letters of credit.
On March 16, 1999, we completed a refinancing, which consisted of the sale
of $150.0 million of 10.25% Senior Subordinated Notes due 2009 (the "Notes")
pursuant to a private offering. We used the net proceeds from this offering to:
(1) repay the indebtedness under the Senior Bridge Financing and the Junior
Simmons Notes and accrued interest;
(2) repay the amounts outstanding under the Revolving Credit Facility and
accrued interest; and
(3) prepay a portion of the amounts outstanding under the Term Loan
Facility and accrued interest.
In November 1998, Simmons Caribbean Bedding, Inc., our wholly owned
subsidiary, entered into a permanent loan facility with Banco Santander in the
amount of $3.2 million accruing interest at a fluctuating rate based on the
London Interbank Offered Rate (or LIBOR) plus an applicable margin; the
interest rate was 7.0% as of March 27, 1999.
Future maturities of long-term obligations as of March 27, 1999 are as
follows:
<TABLE>
<S> <C>
1999............................................................. $ 532
2000............................................................. 799
2001............................................................. 3,974
2002............................................................. 16,865
2003............................................................. 18,008
Thereafter....................................................... 294,262
--------
$334,440
========
</TABLE>
4.Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments including those embedded in other contracts by
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Financial statements for prior periods need not be restated. We are
currently reviewing the provisions of SFAS No. 133 and we do not believe that
the financial statements will be materially impacted by the adoption of this
pronouncement.
5.Contingencies
Serta filed an action against us in 1998 alleging that some Simmons
products--including those sold in connection with the trademarks Connoisseur(R)
collection, Crescendo(TM), and some World Class Beautyrest(R) and Back Care(R)
Ultimate models--infringe their U.S. patent and that our use of the term
"Crescendo" infringes
F-28
<PAGE>
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
their alleged common-law trademark, "Crescendo". We have denied the material
allegations of the complaint. We also have asserted affirmative defense and/or
counterclaims against Serta alleging non-infringement, invalidity and
unenforceability of the patent-in-suit, and alleging infringement by Serta of
our rights in the term "Crescendo" in various geographic areas to the extent
usage of the term by both Serta and us would be confusingly similar. Serta
requested the Patent and Trademark Office, the PTO, to reexamine the patent-in-
suit. Pending the outcome of the reexamination, and by agreement of the
parties, the pending lawsuit was stayed. In April 1999, the PTO reinstated
Serta's patent and the stay in the action was lifted. While we deny that Serta
is entitled to any relief and intend to defend the action vigorously, we cannot
assure you that we will prevail in this action.
6.Subsequent Event
On April 21, 1999, we filed a registration statement on Form S-4 to issue
10.25% Series B Senior Subordinated Notes due 2009 (the "New Notes") pursuant
to an exchange offer whereby holders of the Notes have the opportunity to
receive New Notes which will be registered under the Securities Act of 1933,
but are otherwise identical to the Notes.
F-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only upon the information contained in this prospectus. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
Simmons Company
Exchange Offer
$150,000,000
Series B Senior Subordinated
Notes due 2009
10 1/4%
----------------
[LOGO OF SIMMONS(TM) FPO COLOR]
----------------
April , 1999
Until , 1999, all dealers effecting transactions in the Notes or the
Exchange Notes, whether or not participating in the Exchange Offer, may be
required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. 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
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.
Our Certificate of Incorporation and Bylaws each include indemnification
provisions that mirror the language of the statute. In addition, our Bylaws
provide that, subject to any limitation in the Certificate of Incorporation, we
may indemnify a director or officer to the fullest extent permitted by law,
including, without limitation, DGCL (S)145. Consequently, any of our directors
or officers or any person serving at our request in those capacities will be
fully indemnified against such judgments, penalties, fines, settlements and
reasonable expenses actually incurred, except if : (1) he 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, he 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 us unless and only to the extent
that the Court of Chancery or the court in which the action was brought
determines that, despite the adjudication of liability but in view of all of
the circumstances of the case, he was fairly and reasonably entitled to
indemnity for the expenses which the court deems proper.
Our Certificate of Incorporation also contain a provision eliminating
liability to us or our shareholders for monetary damages from breach of
fiduciary duty as a director. The inclusion of these indemnification provisions
in our Certificate of Incorporation and Bylaws is intended to enable us to
attract qualified persons to serve as directors and officers who might
otherwise be reluctant to serve.
II-1
<PAGE>
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
*2.1 Agreement and Plan of Merger (the "Merger Agreement") dated July 16,
1998 by and among Simmons Company (the "Company"), Simmons Holdings,
Inc. ("Simmons Holdings") and REM.
*2.2 Amendment No. 1 to Merger Agreement dated as of September 22, 1998.
*2.3 Amendment No. 2 to Merger Agreement dated as of October 26, 1998.
*3.1 Certificate of Incorporation of the Company.
*3.2 By-laws of the Company.
*4.1 Indenture between the Company and SunTrust Bank, Atlanta, as
Trustee, dated as of March 16, 1999.
*4.2 Registration Rights Agreement between the Company and Goldman, Sachs
& Co. dated March 16, 1999.
*4.3 Form of Letter of Transmittal.
*4.4 Form of Notice of Guaranteed Delivery.
*4.5 Exchange Agent Agreement.
5 Form of Opinion of Jones, Day, Reavis & Pogue.
*10.1 ESOP Stock Sale and Exchange Agreement (the "ESOP Purchase
Agreement") dated as of July 22, 1998 by and among Simmons Holdings,
the Company, State Street Bank & Trust Company ("State Street"),
solely in its capacity as trustee of the Simmons ESOP and REM.
*10.2 Amendment No. 1 to ESOP Purchase Agreement dated as of September 25,
1998.
*10.3 1998 Stockholders' Agreement (the "1998 Stockholders' Agreement")
dated as of October 29, 1998 among Simmons Holdings, the Company,
Simmons Holdings, LLC ("Fenway Investment LLC"), Investcorp, and
State Street, solely as trustee of the Simmons ESOP.
*10.4 Joinder to 1998 Stockholders' Agreement dated as of October 29, 1998
by SH Investment Limited.
*10.5 1998 Stockholders' Agreement dated as of October 29, 1998 by and
among Simmons Holdings, Fenway Investment LLC and the Management
Investors listed therein.
*10.6 Credit and Guaranty Agreement (the "Credit and Guaranty Agreement")
dated as of October 29, 1998, among the Company, Simmons Holdings
and Certain Subsidiaries of the Company, as Guarantors, the
financial institutions listed therein, as Lenders, Goldman Sachs
Credit Partners L.P., as a Joint Lead Arranger and as Syndication
Agent, Warburg Dillon Read LLC as a Joint Lead Arranger, and UBS
A.G., Stamford Branch, as Administrative Agent.
*10.7 First Amendment to Credit and Guaranty Agreement dated as of March
1, 1999.
*10.8 Advisory Agreement dated as of October 29, 1998 by and between
Simmons Holdings, the Company and Fenway Partners, Inc.
*10.9 Simmons 1996 Management Stock Incentive Plan.
*10.10 Form of Stock Option Agreement.
*10.11 Form of Management Bonus Agreement.
*10.12 Labor Agreement between the Company and The United Steel Workers,
Local No. 425 for all employees at the Jacksonville, Florida plant
of the Company excluding executives, sales employees, office
workers, supervisors, inspectors, departmental coordinators or
persons in any way identified with management for the period from
October 16, 1997 to October 15, 2001.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
*10.13 Labor Agreement between the Company and The United Steel Workers,
Local No. 422 for all production and maintenance employees at the
Dallas, Texas plant of the Company excluding supervisors, foremen,
factory clerks, office employees, time keepers, watchmen or persons
in any way identified with management for the period from October
16, 1997 to October 15, 2001.
*10.14 Labor Agreement between the Company and The United Steel Workers,
Local No. 2401 for all production at the Atlanta, Georgia plant of
the Company excluding office workers, supervisors, foremen,
inspectors, watchmen, plant guards, departmental coordinators,
carload checkers or persons in any way identified with management
for the period from October 16, 1997 to October 15, 2001.
*10.15 Labor Agreement between the Company and The United Steel Workers,
Local No. 173 for all employees at the Shawnee, Kansas plant of the
Company excluding executives, sales employees, office workers,
supervisors, foremen, time keepers, mechanics or machinist for the
period from April 23, 1997 to April 22, 1999.
*10.16 Labor Agreement between the Company and The United Steel Workers,
Local No. 515U for all employees at the Los Angeles, California
plant of the Company excluding executives, sales employees, office
workers, and supervisors for the period from October 16, 1997 to
October 15, 2001.
*10.17 Labor Agreement between the Company and The United Steel Workers,
Local No. 420 for employees at the Piscataway, New Jersey plant of
the Company excluding watchmen, office janitors, maintenance
department employees, truck drivers, tool makers, machinists,
supervisors, porters, matrons, main office, clerical, and
maintenance helpers for the period of October 16, 1997 to October
15, 2001.
*10.18 Labor Agreement between the Company and The United Steel Workers,
Local No. 424 for all production employees at the Columbus, Ohio
plant of the Company excluding executives, sales employees, office
workers, timekeepers, watchmen, office janitors, maintenance
department employees, truck drivers, foremen, supervisors, private
chauffeurs, main office, clerical, and engine room and power plant
employees for the period from October 16, 1997 to October 15, 2001.
*10.19 Lease Agreement Concourse at Landmark Center between Concourse I,
Ltd., as Landlord, and the Company, as Tenant, dated February 7,
1992.
*10.20 Lease between Beaver Ruin Business Center-Phase V between St. Paul
Properties, Inc., as Landlord, and the Company, as Tenant, dated
October 19, 1994, as amended by Addendum to Lease, dated September
1, 1995.
*10.21 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, Series
A.
*10.22 Loan Agreement between the City of Shawnee and the Company relating
to the Indenture of Trust between City of Shawnee, Kansas and State
Street Bank and Trust Company of Missouri, N.A., as Trustee, dated
December 1, 1996 relating to $5,000,000 Private Activity Revenue
Bonds, Series 1996.
10.23 Loan Agreement dated December 12, 1997 between Simmons Caribbean
Bedding, Inc. and Banco Santander Puerto Rico.
*10.24 Securities Purchase Agreement, dated as of October 29, 1998 among
the Company, Simmons Holdings and the Purchasers listed on Schedule
I attached thereto.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
*10.25 Warrant to purchase 601,346.63 shares of common stock of Simmons
Holdings.
*10.26 Warrant to purchase 2,104,713.22 shares of common stock of Simmons
Holdings dated October 29, 1998.
*10.27 Escrow Agreement dated as of October 29, 1998 by and among Simmons
Holdings, the Company, Fenway Investment LLC and Ropes & Gray, as
Escrow agent.
10.28 Employment Agreement between the Company and Zenon S. Nie, dated as
of November 25, 1993, as amended.
10.29 Employment Agreement between the Company and Martin R. Passaglia,
dated as of June 29, 1998, as amended.
10.30 Employment Agreement between the Company and Jonathan C. Daiker,
dated as of June 29, 1998, as amended.
10.31 Employment Agreement between the Company and Robert K. Barton, dated
as of June 29, 1998, as amended.
10.32 Employment Agreement between the Company and Joseph Ulicny, dated as
of June 29, 1998, as amended.
10.33 Purchase Agreement dated as of March 10, 1999 among the Company,
Goldman, Sachs & Co., Warburg Dillon Read LLC, Fleet Securities,
Inc. and US Bancorp Libra.
*21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
+24 Power of Attorney.
*25 Statement of Eligibility of Trustee.
27 Financial Data Schedule.
</TABLE>
- --------
*Previously filed
**To be filed by amendment.
+Filed herewith and reflecting the addition of a new director.
ITEM 22. UNDERTAKINGS
(1) The Company undertakes:
(a) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(x) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(y) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered, if the total
dollar value of securities offered would not exceed that which was
registered, and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(z) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
II-4
<PAGE>
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(c) 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.
(2) The undersigned registrant undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, and where applicable, each filing of employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934, that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant 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 of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities, other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding, is asserted by that director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(4) The undersigned registrant undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this registration statement, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of this registration
statement through the date of responding to the request.
(5) The undersigned registrant undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Simmons Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the eleventh day of June, 1999.
Simmons Company
By: /s/ Jonathan C. Daiker
-------------------------------
Name: Jonathan C. Daiker
Title: Executive Vice
President--Finance
and Administration
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the eleventh day of June, 1999.
<TABLE>
<S> <C>
Signature Title
/s/ Zenon S. Nie* Chairman of the Board of Directors
- ------------------------------------- and Chief Executive Officer and
Zenon S. Nie President (principal executive
officer)
/s/ Jonathan C. Daiker Executive Vice President--Finance
- ------------------------------------- and Administration Chief Financial
Jonathan C. Daiker Officer and Director (principal
financial and accounting officer)
/s/ Martin R. Passaglia* Senior Executive Vice President,
- ------------------------------------- Secretary and Director
Martin R. Passaglia
/s/ Peter Lamm* Director
- -------------------------------------
Peter Lamm
/s/ Richard C. Dresdale* Director
- -------------------------------------
Richard C. Dresdale
/s/ Andrea Geisser* Director
- -------------------------------------
Andrea Geisser
/s/ Gregory P. Meredith* Director
- -------------------------------------
Gregory P. Meredith
/s/ Mark R. Genender* Director
- -------------------------------------
Mark R. Genender
/s/ Jonathan C. Daiker
- -------------------------------------
Jonathan C. Daiker
Attorney-in-fact*
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
*2.1 Agreement and Plan of Merger (the "Merger Agreement") dated July 16,
1998 by and among the Company, Simmons Holdings and REM.
*2.2 Amendment No. 1 to Merger Agreement dated as of September 22, 1998.
*2.3 Amendment No. 2 to Merger Agreement dated as of October 26, 1998.
*3.1 Certificate of Incorporation of the Company.
*3.2 By-laws of the Company.
*4.1 Indenture between the Company and SunTrust Bank, Atlanta, as
Trustee, dated as of March 16, 1999.
*4.2 Registration Rights Agreement between the Company and Goldman, Sachs
& Co. dated March 16, 1999.
*4.3 Form of Letter of Transmittal.
*4.4 Form of Notice of Guaranteed Delivery.
*4.5 Exchange Agent Agreement.
5 Form of Opinion of Jones, Day, Reavis & Pogue.
*10.1 ESOP Stock Sale and Exchange Agreement (the "ESOP Purchase
Agreement") dated as of July 22, 1998 by and among Simmons Holdings,
the Company, State Street Bank & Trust Company ("State Street"),
solely in its capacity as trustee of the Simmons ESOP and REM.
*10.2 Amendment No. 1 to ESOP Purchase Agreement dated as of September 25,
1998.
*10.3 1998 Stockholders' Agreement (the "1998 Stockholders' Agreement")
dated as of October 29, 1998 among Simmons Holdings, the Company,
Fenway Investment LLC, Investcorp, and State Street, solely as
trustee of the Simmons ESOP.
*10.4 Joinder to 1998 Stockholders' Agreement dated as of October 29, 1998
by SH Investment Limited.
*10.5 1998 Stockholders' Agreement dated as of October 29, 1998 by and
among Simmons Holdings, Fenway Investment, LLC and the Management
Investors listed therein.
*10.6 Credit and Guaranty Agreement (the "Credit and Guaranty Agreement")
dated as of October 29, 1998, among the Company, Simmons Holdings
and Certain Subsidiaries of the Company, as Guarantors, the
financial institutions listed therein, as Lenders, Goldman Sachs
Credit Partners L.P., as a Joint Lead Arranger and as Syndication
Agent, Warburg Dillon Read LLC as a Joint Lead Arranger, and UBS
A.G., Stamford Branch, as Administrative Agent.
*10.7 First Amendment to Credit and Guaranty Agreement dated as of March
1, 1999.
*10.8 Advisory Agreement dated as of October 29, 1998 by and between
Simmons Holdings, the Company and Fenway Partners, Inc.
*10.9 Simmons 1996 Management Stock Incentive Plan.
*10.10 Form of Stock Option Agreement.
*10.11 Form of Management Bonus Agreement.
*10.12 Labor Agreement between the Company and The United Steel Workers,
Local No. 425 for all employees at the Jacksonville, Florida plant
of the Company excluding executives, sales employees, office
workers, supervisors, inspectors, departmental coordinators or
persons in any way identified with management for the period from
October 16, 1997 to October 15, 2001.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
*10.13 Labor Agreement between the Company and The United Steel Workers,
Local No. 422 for all production and maintenance employees at the
Dallas, Texas plant of the Company excluding supervisors, foremen,
factory clerks, office employees, time keepers, watchmen or persons
in any way identified with management for the period from October
16, 1997 to October 15, 2001.
*10.14 Labor Agreement between the Company and The United Steel Workers,
Local No. 2401 for all production at the Atlanta, Georgia plant of
the Company excluding office workers, supervisors, foremen,
inspectors, watchmen, plant guards, departmental coordinators,
carload checkers or persons in any way identified with management
for the period from October 16, 1997 to October 15, 2001.
*10.15 Labor Agreement between the Company and The United Steel Workers,
Local No. 173 for all employees at the Shawnee, Kansas plant of the
Company excluding executives, sales employees, office workers,
supervisors, foremen, time keepers, mechanics or machinist for the
period from April 23, 1997 to April 22, 1999.
*10.16 Labor Agreement between the Company and The United Steel Workers,
Local No. 515U for all employees at the Los Angeles, California
plant of the Company excluding executives, sales employees, office
workers, and supervisors for the period from October 16, 1997 to
October 15, 2001.
*10.17 Labor Agreement between the Company and The United Steel Workers,
Local No. 420 for employees at the Piscataway, New Jersey plant of
the Company excluding watchmen, office janitors, maintenance
department employees, truck drivers, tool makers, machinists,
supervisors, porters, matrons, main office, clerical, and
maintenance helpers for the period of October 16, 1997 to October
15, 2001.
*10.18 Labor Agreement between the Company and The United Steel Workers,
Local No. 424 for all production employees at the Columbus, Ohio
plant of the Company excluding executives, sales employees, office
workers, timekeepers, watchmen, office janitors, maintenance
department employees, truck drivers, foremen, supervisors, private
chauffeurs, main office, clerical, and engine room and power plant
employees for the period from October 16, 1997 to October 15, 2001.
*10.19 Lease Agreement Concourse at Landmark Center between Concourse I,
Ltd., as Landlord, and the Company, as Tenant, dated February 7,
1992.
*10.20 Lease between Beaver Ruin Business Center-Phase V between St. Paul
Properties, Inc., as Landlord, and the Company, as Tenant, dated
October 19, 1994, as amended by Addendum to Lease, dated September
1, 1995.
*10.21 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, Series
A.
*10.22 Loan Agreement between the City of Shawnee and the Company relating
to the Indenture of Trust between City of Shawnee, Kansas and State
Street Bank and Trust Company of Missouri, N.A., as Trustee, dated
December 1, 1996 relating to $5,000,000 Private Activity Revenue
Bonds, Series 1996.
10.23 Loan Agreement dated December 12, 1997 between Simmons Caribbean
Bedding, Inc. and Banco Santander Puerto Rico.
*10.24 Securities Purchase Agreement, dated as of October 29, 1998 among
the Company, Simmons Holdings and the Purchasers listed on Schedule
I attached thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
*10.25 Warrant to purchase 601,346.63 shares of common stock of Simmons
Holdings.
*10.26 Warrant to purchase 2,104,713.22 shares of common stock of Simmons
Holdings dated October 29, 1998.
*10.27 Escrow Agreement dated as of October 29, 1998 by and among Simmons
Holdings, the Company, Fenway Investment LLC and Ropes & Gray, as
Escrow agent.
10.28 Employment Agreement between the Company and Zenon S. Nie, dated as
of November 25, 1993, as amended.
10.29 Employment Agreement between the Company and Martin R. Passaglia,
dated as of June 29, 1998, as amended.
10.30 Employment Agreement between the Company and Jonathan C. Daiker,
dated as of June 29, 1998, as amended.
10.31 Employment Agreement between the Company and Robert K. Barton, dated
as of June 29, 1998, as amended.
10.32 Employment Agreement between the Company and Joseph Ulicny, dated as
of June 29, 1998, as amended.
10.33 Purchase Agreement dated as of March 10, 1999 among the Company,
Goldman, Sachs & Co., Warburg Dillon Read LLC, Fleet Securities,
Inc. and U.S. Bancorp Libra.
*21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
+24 Power of Attorney.
*25 Statement of Eligibility of Trustee.
27 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by Amendment.
+ Filed herewith and reflecting the addition of a new director.
<PAGE> 1
Exhibit 10.23
LOAN AGREEMENT
executed by and between
SIMMONS CARIBBEAN BEDDING, INC.
&
BANCO SANTANDER PUERTO RICO
December 12, 1997
GONZALEZ OLIVER, CORREA CALZADA,
COLLAZO SALAZAR, HERRERO & JIMENEZ
<PAGE> 2
LOAN AGREEMENT
--------------
THIS AGREEMENT, made on the 12th day of December , 1997, by and
between SIMMONS CARIBBEAN BEDDING, INC. (hereinafter referred to as the
"BORROWER" or "Borrower") a corporation organized under the laws of the
Commonwealth of Puerto Rico, herein represented by its President and General
Manager Mister Hector M. Osorio, of legal age, married, executive and resident
of Guaynabo, Puerto Rico; and BANCO SANTANDER PUERTO RICO (hereinafter referred
to as the "LENDER" or "Lender"), a banking corporation organized and existing
under the laws of the Commonwealth of Puerto Rico, represented herein by its
Authorized Agents Ariel Lebron Lebron and Myrna Diaz Marrero both of legal age,
married and resident of Trujillo Alto and San Juan, Puerto Rico respectively.
W I T N E S S E T H:
WHEREAS, the BORROWER is the owner and holder of fee simple title to
the property described in Exhibit "A" attached hereto and made a part hereof by
reference and hereinafter referred to as the "SECURITY" or "Security", and
WHEREAS, the BORROWER has applied to the LENDER for a loan (hereinafter
referred to as "the LOAN" or "Loan"), of THREE MILLION TWO HUNDRED THOUSAND
DOLLARS ($3,200,000.00) for a term ending Fifteen (15) months from date, with
interest on its daily outstanding balance at a fluctuating annual rate equal to
Two Hundred (200) basis points over the London Interbank Offered Rate (LIBOR),
adjusted every Ninety (90) days, to partially finance the cost of
<PAGE> 3
construction and development of a commercial building to be used by Borrower as
a warehouse and office building (hereinafter referred to as the "BUILDING" or
"Building"), with an area of approximately 50,000 square feet, and Sixty Six
(66) parking spaces, to be constructed in a parcel of land located at Las Cuevas
Industrial Park, Trujillo Alto, Puerto Rico, more fully described in Exhibit "A"
attached hereto and made part hereof, and to partially finance the acquisition
of machinery and equipment to be installed in the "BUILDING". Such machinery and
equipment shall be hereinafter referred to as the "EQUIPMENT" or Equipment".
The estimated cost of the BUILDING, the EQUIPMENT, and related expenses
for the construction of the building according to BORROWER'S figures, is the
amount of THREE MILLION EIGHT HUNDRED SEVENTY THOUSAND DOLLARS ($3,870,000.00)
of which amount Lender will provide in accordance with the terms of this Loan
Agreement the amount of THREE MILLION TWO HUNDRED THOUSAND DOLLARS
($3,200,000.00), and Borrower will provide from its own funds the difference
necessary to complete the improvements in the security.
WHEREAS, the LOAN shall be advanced as hereinafter provided and said
advances shall be guaranteed by a Mortgage Promissory Note (hereinafter referred
to as the "MORTGAGE NOTE" or "Mortgage Note"), in the amount of THREE MILLION
TWO HUNDRED THOUSAND DOLLARS ($3,200,000.00), payable to Lender on Demand.
WHEREAS, the abovementioned Mortgage Note shall be secured by a first
mortgage (hereinafter referred to as the "MORTGAGE" or "Mortgage") on the
SECURITY, and
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WHEREAS, each loan advanced hereunder shall be evidenced by an
Acknowledgment Note (hereinafter the "ACKNOWLEDGMENT NOTE") or "Acknowledgment
Note"), to be issued by BORROWER to the order of LENDER, payable on demand, with
interest payable monthly at the same annual rate as the interest on the LOAN,
each in a principal amount equal to the amount of the LOAN advance it evidences,
in the form attached hereto and made a part hereof as Exhibit "G", with blanks
duly filled.
WHEREAS, the BORROWER has represented to the LENDER that the SECURITY
is to be improved in the manner set forth in certain documents heretofore made
available to the LENDER by the BORROWER as described on Exhibit "B" attached
hereto; and
WHEREAS, the BORROWER has represented to the LENDER that the LOAN funds
are to be used solely for the purposes set forth herein and for no other
purposes.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, it is stipulated as follows:
1. MORTGAGE NOTE: The LENDER shall make to the BORROWER and the BORROWER
shall accept from the LENDER a LOAN in the amount of THREE MILLION TWO
HUNDRED THOUSAND DOLLARS ($3,200,000.00), which LOAN shall be evidenced
by the BORROWER'S Acknowledgement Notes, as set forth hereinbefore, and
shall be guaranteed by the Mortgage Note and Mortgage, as hereinbefore
provided, which Mortgage Note and Mortgage are to be simultaneously
executed with this LOAN Agreement. LENDER and BORROWER have agreed to
consider this LOAN as an interim construction loan and LENDER has also
agreed to convert the LOAN into a permanent loan upon completion of the
Building and the
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improvements and installation of the EQUIPMENT in accordance with the
Plans and Specifications submitted to LENDER by BORROWER, provided such
satisfactory completion of the construction of the BUILDING and the
installation of the EQUIPMENT occurs within 450 days from the date of
this Agreement and provided the BORROWER is not then in material
default hereunder. At such time as the interim construction loan is
converted into the permanent loan that the Mortgage Note shall no
longer be payable on demand but that the permanent loan will mature
FIFTEEN (15) years after its conversion to a permanent loan, will earn
interest at the same annual rate as the interim construction loan,
payable monthly, and its principal shall be payable as set forth
hereinafter and that the Lender agrees to deliver to Borrower a letter
at the time of conversion acknowledging that the Mortage Note is no
longer payable on demand.
2. SECURITY: The LOAN shall be secured by a Mortgage Note, which shall be
secured by the Mortgage. The lien of the Mortgage shall be subject only
to those encumbrances, limitations, restrictions, or easements which
may be approved in writing by counsel designated by the LENDER. SIMMONS
COMPANY, the Parent Company of Borrower (hereinafter called the
"GUARANTOR"), shall guarantee the payment in full of the principal
amount of the loan, plus interest and any other sums due under the
terms of the Loan, Mortgage Note or Loan Agreement. Said guaranty shall
continue until the Mortgage Note has been paid in full and the Mortgage
has been satisfied of record.
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3. DISBURSEMENT OF LOAN FUNDS: Upon presentation for recordation of the
Mortgage and delivery to the LENDER of the Mortgage Note, and upon
compliance by Borrower with all other requirements specified by the
LENDER as set forth in this Agreement, the LENDER shall disburse the
LOAN funds to the BORROWER at such times and in such amounts as set
forth in the Disbursement Schedule attached hereto and made a part
hereof as Exhibit "C". Prior to each disbursement of LOAN funds
hereunder, BORROWER shall deliver to LENDER its Acknowledgment Note in
a principal amount equal to the amount of such disbursement.
The BORROWER shall, as a condition precedent to being entitled to
receive each LOAN advance hereunder, provide the LENDER, or its designee, with
such certificates of progress of construction of the BUILDING and/or acquisition
or installation of EQUIPMENT as the LENDER may require, describing the nature
and extent of all work done and/or EQUIPMENT acquired or installed, indicating
the stage to which construction has progressed, and certifying that all work has
been done and materials and EQUIPMENT have been installed in compliance with
plans and specifications. The BORROWER shall furnish proof as to payment of
construction bills and subcontracts, and provide lien waivers, inspection
reports, architects' and/or engineer's certificates of on-site and off-site
improvements, invoices, and such other proof as the LENDER may reasonably
require to establish the progress of construction of the BUILDING and of
acquisition and/or installation of EQUIPMENT. Lender acknowledges that the
Parent Company of Borrower, Simmons Company, has heretofore advanced to Borrower
the amounts shown on Exhibit "C -1" for certain design and construction costs
(the "Parent
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Company Advance") and that the Parent Company Advance shall be disbursed to
Borrower from the Loan funds from the initial or first disbursement request from
Borrower. The LENDER may require, prior to any LOAN disbursement hereunder,
statements from the general contractor or contractors and from any
subcontractors and/or materialmen and/or suppliers to whom payments are due, or
will become due, covering (i) all work done or to be done, together with waivers
of lien covering all work and materials and/or Equipment for which payments have
been made prior to the closing of the LOAN, (ii) the current status of accounts
of contractors, sub-contractors, materialmen, and laborers furnishing labor,
materials or services in the improvements of the Security, in the construction
of the BUILDING and in the supply and installation of the EQUIPMENT, and (iii)
compliance with all applicable laws. The BORROWER shall furnish insurance
policy(ies), with premiums prepaid, from such company(ies), in such form(s) and
amount(s), and with such coverage and for such terms as may be satisfactory to
the LENDER, insuring all improvements on the SECURITY or related thereto,
including the BUILDING and EQUIPMENT, against loss or damage by fire or other
casualty, and with extended coverage for such other hazards as may reasonably be
required by the LENDER. Said policy(ies) shall contain a "Mortgagee's Loss
Payable" clause(s) providing for payment to the LENDER to the extent of its
interest in the event of loss, said policy(ies) may, during construction, be in
"Builder's Risk" form, so far as the same relates to the improvements erected or
to be erected on the SECURITY. In the event any of said policy(ies) is (are)
cancelled, BORROWER shall notify LENDER in writing within five (5) days of
receipt of notice of such cancellation.
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The LENDER shall not be obligated to make disbursements hereunder until
the BORROWER delivers to the LENDER the required requisitions, certifications
and other documents.
All requests for LOAN advances hereunder shall be submitted to the
LENDER in the form specified in Exhibit "D" attached hereto and made a part
hereof, with all blanks duly filled.
Each such request shall be submitted with sufficient time prior to the
date upon which the BORROWER requests that a LOAN advance be made hereunder, to
enable the LENDER to process such request. Loan funds shall be characterized as
disbursed to the BORROWER when disbursed by the LENDER, as herein before
provided.
The Borrower understands and acknowledges that inspections of the
Project are to be conducted by an inspector designated by the Lender and all
Request for Payment shall be approved by said Inspector. Lender will designate a
qualified engineer to inspect and approve all certifications for work performed
related to the construction and development work. The expenses of such inspector
shall be paid by Borrower, said expenses to be reasonable within the costs
charged by other engineers for the same or similar services.
From each amount approved for payment, there shall be withheld and
retained by the Lender a sum equivalent to ten percent (10%) of the gross
amount, and the amount so withheld and retained, hereinafter called "retainage",
will be subordinated by BORROWER, contractors and sub-contractors until the Loan
is converted to a permanent loan and until LENDER approve such retainage
disbursement.
The BORROWER shall advance in cash or its equivalent any sums not
provided in Exhibit "C", to pay premiums on casualty and title
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<PAGE> 9
insurance, taxes and assessments, recording expenses and filing fees or such
other sums as LENDER may judge to be necessary for the protection and
preservation of the Security, the BUILDING and the EQUIPMENT, and for the
payment of premiums for any insurance required by the LENDER during the life of
this LOAN, before and after its eventual conversion into a permanent LOAN. In
the event BORROWER does not make timely payment of any of the aforesaid sums and
if LENDER so elects, then LENDER may make such payments at BORROWER's expense or
deduct them from the loan funds, if available.
4. CONSTRUCTION WORK:
a. CONSTRUCTION WORK CRITERIA: The construction of the BUILDING
and the supply and installation of the EQUIPMENT shall be in
accordance with the proposed plans and specifications
submitted as the basis for this LOAN, which plans and
specifications were prepared by Ivan A. HERNANDEZ & ASSOC.,
Architects and Engineers, copies of which are attached hereto
as Exhibits H & I, and such construction, upply, and
installation shall comply with all restrictions, conditions,
ordinances, codes, regulations and laws of governmental
departments and agencies having direction or jurisdiction over
or an interest in the SECURITY, its improvements, the BUILDING
and the EQUIPMENT. No extra work nor changes in plans and
specifications shall be authorized by the BORROWER without the
written consent of the LENDER, which consent shall not be
unreasonably withheld, delayed or conditioned. If Lender's
consent is given to any such extra work or change in plans and
specifications,
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the BORROWER shall immediately deposit the amount of the cost
thereof with the LENDER, such deposit to be disbursed by the
LENDER upon completion of such extras or changes. Copies of
such plans and specification are attached hereto and made
parts hereof as Exhibits "H" and "I", respectively.
b. COMMENCEMENT AND CONTINUITY OF WORK:
Construction work on the SECURITY shall commence within
FIFTEEN (15) business days from the date of this Agreement
and shall be carried on diligently and with dispatch until
completed. All construction work must be completed within four
hundred fifty (450) calendar days from the date of this
Agreement.
c. PROGRESS REPORTS: Upon request by the LENDER, the BORROWER
shall deliver to the LENDER a report of the progress of the
contemplated improvements to the SECURITY, the construction of
the BUILDING and the supply and installation of the EQUIPMENT,
the aforesaid costs compared to estimates, and/or contracts,
and any other data and information concerning the SECURITY as
may be reasonably required by the LENDER. Such reports shall
be required on a monthly basis unless circumstances dictate
more frequent reports.
5. DEFICIENCY IN FUNDS: If and whenever the LENDER shall determine and
notify the BORROWER that the amount of monies remaining undisbursed is
less than the amount required fully to complete and pay for the
improvements, the construction of the BUILDING and the acquisition and
installation of the EQUIPMENT
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contemplated under this LOAN AGREEMENT, and the LENDER shall demand
that the BORROWER deposit with the LENDER an amount equal to such
deficiency as determined by the LENDER, then and in that event the
BORROWER shall comply with such demand within thirty (30) business days
from the date thereof. The judgment and determination of the LENDER
under this paragraph shall be final and conclusive.
6. PRESENTATIONS AND WARRANTIES OF THE BORROWER:
The BORROWER makes the following warranties and representations:
a. CORRECTNESS OF DOCUMENTS: The documents furnished in support
of the LOAN and listed in Exhibit "B" are true and correct and
accurately set out the facts contained therein in all material
respects.
b. FINANCIAL STATEMENTS AND CONDITION OF BORROWER: The financial
statements provided in support of the LOAN request and
referred to in Exhibit "B" were prepared in accordance with
generally accepted accounting principles and are correct and
complete in all material respects, and fairly present the
financial position of the person(s) or entity which each
purports to reflect, and the financial positions so reflected
have not suffered any material adverse changes to this date.
c. ABSENCE OF PROCEEDINGS AND ACTIONS: There are no actions,
suits or proceedings pending, or to the knowledge of the
BORROWER, threatened against or affecting the BORROWER, except
as set forth in Exhibit "E" hereto.
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d. BORROWER'S POWERS AND STATUS OF AUTHORITY:
Attached hereto is Exhibit "F" which is hereby incorporated by
reference as if fully set forth at length herein.
e. ABSENCE OF JUDGMENTS AND/OR AWARDS AND/OR ORDERS: There are no
outstanding and unpaid judgments or arbitration awards against
the BORROWER except as are set forth in Exhibit "E" attached
hereto. The BORROWER has not received any written notice that
it is in default with respect to any valid regulation, order,
writ, or decree of any court or governmental or municipal
department, commission, board, bureau, agency or
instrumentality pertaining to the Security, the Building or
the Equipment.
f. NON-DEFAULT OF THE BORROWER CONTRACTUALLY:
The BORROWER is not in default in any material respect under
any agreement or instrument to which it is a party or by which
it may be bound. The execution and delivery of this Agreement,
the Acknowledgment Notes, the Mortgage Note, and the Mortgage,
and the consummation of the other transactions contemplated by
this Agreement do not conflict with or result in breach of any
valid regulation, order, writ, injunction or decree of any
court or governmental or municipal instrumentality or in the
breach of or default under any indenture, contract, agreement
or other instrument to which the BORROWER is a party or by
which it is bound. The execution and delivery of this
Agreement, and of the Mortgage, and the issuance of the
Acknowledgment Notes, the Mortgage Note, and Mortgage will not
result in the
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creation or imposition of, or be any cause for imposing, any
lien, charge or encumbrance of any nature whatsoever upon any
of the SECURITY, the BUILDING, the EQUIPMENT, or other assets
of the BORROWER other than those created, imposed or required
by this Agreement or the Mortgage.
g. MARKETABLE TITLE IN BORROWER WITHOUT LIENS: The BORROWER has,
and at all times will have, good and marketable title in fee
simple to the SECURITY. The SECURITY is subject to no liens,
charges or encumbrances except as shown on the title policy of
Borrower obtained at the time Borrower acquired the Security,
or as approved in writing by Counsel designated by LENDER.
h. NON-COMMENCEMENT OF WORK. There is no visible commencement of
operations incident to the proposed improvements on the
SECURITY, or if commencement in any form has begun, the legal
effect of any liens will be negated by title insurance or by
surety bond.
i. USE OF PROCEEDS: The proceeds of this LOAN will be used solely
for the purposes specified herein and in the supporting
documents to each LOAN request hereunder.
j. REQUIRED APPROVALS: That the BORROWER has received and there
are in effect all required approvals for the uninterrupted
development and construction of the work subject of this
Agreement.
7. INTEREST ON LOAN FUNDS: Although the Acknowledgement Notes evidencing
the disbursements of the LENDER to the BORROWER hereunder may provide
that they shall bear interest at
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an specific rate therein, the parties herein agree that said
Acknowledgment Note(s) and the LOAN shall bear interest at all times at
the fluctuating annual rate set forth in this Agreement until full
payment thereof.
8. INSURANCE POLICIES AND CERTIFICATES: BORROWER shall furnish
certificates from the insurance carrier(s) for the general contractor
or contractors, and for the BORROWER, evidencing Workmen's Compensation
Insurance in such from and amount as may be required by law, and public
liability insurance (including contractual liability) is to be carried
during the full course of construction work of the Building and
installation of the Equipment, naming the LENDER as an additional
insured, and with minimum limits of coverage for death of or injury to
persons of not less than ONE MILLION DOLLARS ($1,000,000) and for
damage to property of not less than ONE MILLION DOLLARS ($1,000,000)
unless otherwise specified by LENDER.
9. SURVEY: A survey of the subject SECURITY has been furnished to the
LENDER by BORROWER. Such survey was prepared by a surveyor licensed in
the Commonwealth of Puerto Rico, reflects any encroachments, easements
and rights-of-way affecting the Security, and includes a certification
from said surveyor as to the precise acreage contained in the SECURITY
and the legal description thereof.
10. REMOVAL OF LIENS: The BORROWER and/or GUARANTOR specifically agree to
have any liens other than those approved by Lender, which may be filed
against the SECURITY released or bonded within thirty (30) calendar
days from the date the
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BORROWER receives notice of the same, time being of the essence.
Notwithstanding the obligations hereinbefore stated, Borrower will have
the right to contest any lien on the SECURITY.
11. PAYMENT OF TAXES: The BORROWER and/or GUARANTOR agree to promptly pay
and discharge any taxes, assessments or indebtedness upon the SECURITY,
the BUILDING and/or the EQUIPMENT which may become due or payable
during the existence of this LOAN. At least ten (10) days before any
related delinquency, the BORROWER shall furnish to the LENDER evidence
satisfactory to the LENDER that such taxes and assessments have been
paid after five (5) days prior written notice to Borrower. The LENDER
may pay such sums as may become due out of undisbursed LOAN proceeds in
the event BORROWER fails to promptly pay as aforesaid. Notwithstanding
the obligations hereinbefore stated, Borrower will have the right to
contest any taxes, assessment or indebtedness on the SECURITY.
12. ACCESS TO THE BORROWER'S BOOKS AND RECORDS: The LENDER, or its agents
shall, during normal business hours, have reasonable access to the
records, accounting books, contracts, sub-contracts, bills and
statements of the BORROWER, including any supporting or related
vouchers, bills, or other instruments, and shall have the right to make
copies of the same, but only to the extent such records, accounting
books, contracts, sub-contracts, bills, statements, vouchers or other
instruments relate to the Security, the Building and/or the Equipment.
If the LENDER so requires, the records, books, vouchers, or other
instruments shall be made available to an accountant of the LENDER's
choice for
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audit, examination, inspection, and photocopying or other type of
duplication, such audit to be done at the BORROWER's office. Lender
agrees to keep all information obtained during such audit, examination
and/or inspection confidential and shall not disclose the same to any
third party without the prior written consent of Borrower.
13. FINANCIAL STATEMENTS: The BORROWER shall furnish to the LENDER a signed
semi-annual unaudited statement of financial condition and profit and
loss statement, and an annual financial condition statement, including
profit and loss, audited by an independent certified public accountant
acceptable to the LENDER. The semi-annual statements shall be
delivered by the BORROWER to the LENDER within thirty (30) days after
close of the fiscal period and the annual audited statements within
ninety (90) days after close of the BORROWER'S fiscal year.
14. EVENTS OF DEFAULT: The happening of any one or more of the following
events shall constitute a default by BORROWER under this LOAN
Agreement, the Acknowledgement Notes, the Mortgage Note, and the
Mortgage:
a. NON-PAYMENT OF INTEREST: The BORROWER shall fail to make the
interest payments on the due dates.
b. Non-payment of Principal: The BORROWER shall fail to make any
required repayment of principal, or any portion thereof, on
the due date.
c. BREACH OF CONDITION, ETC.: If the BORROWER violates any term
or condition contained in this Agreement, and/or the
Acknowledgment Note(s), and/or the Mortgage Note, and/or
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the Mortgage or if the LENDER determines, in its sole
judgment, that the BORROWER and/or GUARANTOR misrepresented
facts in any material respect contained in any document
submitted in support of this LOAN.
d. BANKRUPTCY OR INSOLVENCY: Any action in bankruptcy,
receivership, or reorganization filed by or against the
BORROWER and/or any GUARANTOR; any assignment for the benefit
of creditors made by the BORROWER; any judgment or proceeding
entered or brought against the BORROWER and/or any GUARANTOR
or affecting the subject premises; the insolvency of the
BORROWER and/or any GUARANTOR. Borrower will have a sixty (60)
day period to cure any involuntary bankruptcy filing against
Borrower.
e. LIENS OR FORECLOSURES: The institution of foreclosure action
against the SECURITY, and/or the Building and/or the
Equipment, or the filing of a valid lien, other than liens
approved by Lender or permitted hereunder, against the
SECURITY, and/or the BUILDING, and/or the EQUIPMENT, which is
not removed of record, bonded or dismissed within thirty (30)
days after the BORROWER receives notice of such filing.
f. SUBSTANTIAL DISCONTINUANCE OF CONSTRUCTION OF BUILDING OR OF
INSTALLATION OF EQUIPMENT: The substantial discontinuance of
construction, development or installation work for a period of
thirty (30) calendar days which discontinuance is, in the sole
determination of the LENDER, without cause.
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g. TRANSFER OF SECURITY: The sale, assignment, pledge, transfer,
hypothecation or other disposition of the SECURITY, the
BUILDING and/or the EQUIPMENT by the BORROWER to some other
person or entity without the written consent of the LENDER,
other than the transfer to any affiliate, subsidiary or other
entity in common control with Borrower so long as the same
assumes the obligations of Borrower under these loan
documents.
h. ABILITY OF THE BORROWER TO PERFORM: The sale assignment,
pledge, transfer, hypothecation, or other disposition by
BORROWER of any proprietary or beneficial interest in the
Security, the Building and/or the Equipment, if in the
LENDER's reasonable judgment such sale, assignment, pledge,
transfer, hypothecation, other disposition, or change
materially and adversely affects the ability of the BORROWER
to perform in accordance with the terms of this Agreement.
i. IMPAIRMENT OF SECURITY: Any condition or situation which, in
the reasonable determination of the LENDER, constitutes a
danger or material impairment of the SECURITY and/or the
BUILDING, and/or the EQUIPMENT and such condition or situation
is not remedied within thirty (30) days after written notice
to the BORROWER to remedy such condition or situation, or
action has not been commenced to remedy such condition or
situation where it is not possible to fully remedy such
condition or situation within thirty (30) calendar days. The
LENDER agrees that it will not exercise this right in an
unreasonable manner.
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j. NON-COMPLETION: Subject to force majeure, if by the 450th
calendar day after the date of this Agreement, the BUILDING
and/or the improvements to the SECURITY are not completed
and/or the EQUIPMENT, or any part thereof is not acquired by
BORROWER and, if applicable, installed in the BUILDING.
15. LENDER's REMEDIES: Upon the occurrence of any event of default
hereunder, LENDER shall have the absolute right to refuse to disburse
any LOAN funds provided in Exhibit "C" hereto, and should said default
not be remedied by the BORROWER within thirty (30) days after notice
thereof to the BORROWER by the LENDER, then the LENDER shall have the
absolute right, at its option and election to:
a. CANCELLATION: Cancel this Agreement by written notice to the
BORROWER;
b. SPECIFIC PERFORMANCE: Institute appropriate proceedings to
specifically enforce performance hereof;
c. WITHHOLD ADVANCES: Withhold further LOAN advances hereunder;
d. TAKING OF POSSESSION: Take immediate possession of the
SECURITY, the BUILDING and the EQUIPMENT encumbered by the
Mortgage, as well as other property to which title is held by
the BORROWER which may be necessary or convenient to fully
complete all on-site and off-site improvement's construction
and installations contemplated to be developed and/or
constructed and/or installed under this Agreement.
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e. RECEIVERSHIP: Appoint a Receiver, as matter of strict right
without regard to the solvency of the BORROWER, for the
purpose of preserving the SECURITY, the BUILDING and the
EQUIPMENT, preventing waste, and to protect all rights
accruing to the LENDER by virtue of this Agreement, and of the
Mortgage and/or the Mortgage Note and/or the Acknowledgment
Note executed in connection with this Agreement, and expressly
to make any and all further improvements, construction and
installations, whether on-site or off-site, as may be
determined by the LENDER for the purpose of completing the
improvements, the construction of the BUILDING and the
acquisition and installation of the EQUIPMENT in accordance
with this Agreement. All expenses incurred in connection with
the appointment of said Receiver, or in protecting,
preserving, or improving the subject SECURITY, BUILDING and
EQUIPMENT, shall be chargeable against the BORROWER and shall
be enforced as a lien against the SECURITY, the BUILDING and
the EQUIPMENT.
f. ACCELERATION: Accelerate maturity of said Mortgage, Mortgage
Note and Acknowledgment Note(s) and demand payment of the
principal sums due thereunder, with interest, advances, and
costs, and in default of said payment or any part thereof, to
foreclosure and enforce collection of such payment by
foreclosure and/or other appropriate action in any court of
competent jurisdiction.
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<PAGE> 21
The said remedies and rights of the LENDER shall be cumulative
and not exclusive. The LENDER shall be privileged and shall have the
absolute right to resort to any one or more, or all of said remedies,
neither to the limited exclusion of the other. In the event of any such
default or breach of this Agreement, the Acknowledgment Note(s),
Mortgage Note, or Mortgage by the BORROWER, the LENDER shall have the
absolute right to refuse to disburse the balance of the LOAN funds, as
aforesaid, and no other party, whether contractor, materialmen,
laborer, sub-contractor, or supplier, shall have any interest in the
LOAN funds so applied and shall not have any right to garnish, require,
or compel payment hereof towards discharge or satisfaction of any claim
or lien which they or any of them have or may have for work performed
or materials or EQUIPMENT supplied for the development and/or
construction work of the BUILDING and/or acquisition and/or
installation of the EQUIPMENT. Any additional funds advanced by the
LENDER to complete development and/or construction of the BUILDING
and/or acquisition and/or installation of the EQUIPMENT shall be
secured by the lien of the Mortgage, and shall be considered a part of
the LOAN as though initially included therein.
16. WAIVER OF DEFAULTS: The waiver by the LENDER of any breach or breaches
hereof shall not be deemed, nor shall the same constitute, a waiver of
any subsequent breach or breaches on the part of the BORROWER.
17. LENDER's RIGHT TO APPEAR IN LITIGATION: The LENDER shall have the right
to commence, to appear in, or to defend any action or proceeding
purporting to affect the rights or duties of the parties
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hereunder and in connection therewith pay out of said LOAN funds all
necessary expenses, employ counsel and pay his reasonable fees, all of
which the BORROWER agrees to repay to the LENDER upon demand.
18. THIS AGREEMENT PART OF ACKNOWLEDGEMENT NOTES: The Acknowledgment Notes
provided for herein shall specifically incorporate this Agreement by
reference and in the event that the Acknowledgement Notes, and/or the
Mortgage Note, and/or the Mortgage are duly assigned, this Agreement
shall be considered assigned in like manner.
19. EXCLUSIVENESS OF AGREEMENT: This Agreement is made for the sole
protection of the BORROWER, GUARANTOR, and the LENDER, its successors
and assigns, and no other person shall have any right of action
hereunder.
20. CONDEMNATION: The BORROWER, for the BORROWER and the BORROWER's heirs,
executors, administrators, successors and assigns, does hereby assign
unto the LENDER, its successors and assigns, any and all awards hereto
made and hereafter to be made by any Federal, State or Municipal
authorities to the present and all subsequent owners of the SECURITY,
the BUILDING and/or the EQUIPMENT, and the LENDER, for itself, its
successors and assigns (at its or their option) is hereby authorized,
directed and empowered to collect and receive the proceeds of any such
award and awards from the authorities making the same and to give
proper receipts and acquittances therefor, and to apply the same toward
the payment of the amount owing on account of the LOAN and/or the
Mortgage Note, the Acknowledgment Note(s) and/or the Mortgage.
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The BORROWER and the GUARANTOR heirs, executors, administrators,
successors and assigns, hereby covenants and agrees to and with the
LENDER, its successors and assigns, upon request; to make, execute and
deliver any and all assignments and other instruments sufficient for
the purpose of assigning the aforesaid award or awards to the holder(s)
of the Mortgage Note, the Acknowledgment Note(s), and the Mortgage,
free, clear and discharged of any and all encumbrances of any kind or
nature whatsoever.
21. DEFINITIONS: Wherever used herein, the following words are considered
in the context of these definitions:
a. MORTGAGE: The Mortgage, Deed of Trust, Deed to Secure Debt, or
such other security instrument or instruments issued by
BORROWER used to establish the first lien upon the SECURITY
and the BUILDING and to secure the Mortgage Note.
b. MORTGAGE NOTE: The demand mortgage promissory note issued by
BORROWER in the principal amount of THREE MILLION TWO HUNDRED
THOUSAND DOLLARS ($3,200,000.00) secured by the Mortgage.
c. ACKNOWLEDGEMENT NOTE: The acknowledgement note or other notes
or evidence(s) of the indebtedness created by the LOAN, issued
by BORROWER to the order of LENDER, payable on demand.
d. LOAN: The LOAN which is the subject matter of this Agreement
and the other documents to which this Agreement refers.
22
<PAGE> 24
e. LENDER: The named party to this Agreement, and any subsequent
owner and holder of the rights and obligations established
under this Agreement, the Acknowledgement Notes, the Mortgage
Note, and the Mortgage.
f. BORROWER: The named BORROWER in this Agreement, and any
successor in interest to the BORROWER permitted by the LENDER
as hereinbefore stated.
g. GUARANTOR: The name GUARANTOR in this Agreement, and any
successor in interest to the GUARANTOR.
h. SECURITY: The real and/or personal properties described in
Exhibit "A" upon which the Mortgage attaches, and all its
improvements.
i. LIBOR RATE: The rate of interest for offered quotations for
ninety (90) day deposits of United States Dollars in the
London Interbank Market, at 9:00 a.m. Eastern Standard Time on
such Pricing Date, as published by Telerate Systems, Inc.
currently on page 4833 of the financial information reporting
services furnished electronically by Telerate Systems, Inc. If
on a Pricing Date the Bank cannot determine the LIBOR Rate on
the basis of the foregoing procedure, the Bank shall utilize
the LIBOR Rate for the prior business day as set forth above.
j. PRIME OR BASE RATE: The annual interest rate, computed on a
360-days basis, charged by Citibank, N. A. or Chase Manhattan
Bank, N.A., at its main office in the Borough of Manhattan,
City of New York, whichever is lower, on
23
<PAGE> 25
90 days unsecured commercial loans to its corporate borrowers
with the best credit rating.
k. REQUEST FOR PAYMENT: As indicated in Exhibit "D" attached
hereto and made part hereof.
22. NOTICE TO PARTIES: All notices provided for herein shall be by
certified mail addressed to the appropriate party at the address
designated for such party underneath its signature, at the bottom of
this Agreement, or such other address as the party who is to receive
such notice may designate in writing. Notice shall be completed by
depositing the same in a letter box or other means provided by the
United States Post Office for the posting of mail addressed to the
party with the proper amount of postage affixed thereto. Actual receipt
of notices shall not be required to effect notice hereunder.
23. LOAN FUNDS: The LENDER shall not be required to segregate the LOAN
funds or to earmark such funds in any manner. The sole obligation of
the LENDER shall be to disburse the funds as set forth herein, provided
there exists no default under this Agreement, the LOAN, the Mortgage
Note, the Acknowledgment Note(s), or the Mortgage at the time of each
request for LOAN advances hereunder.
24. UNLIMITED ACCESS TO PROPERTY: The LENDER and its agents shall at all
times during the development and/or construction of the BUILDING and/or
acquisition and/or installation of the EQUIPMENT have the right of
entry and free access to the property which constitutes the SECURITY
and to the BUILDING and the EQUIPMENT and the right to inspect all work
done, labor
24
<PAGE> 26
performed, materials furnished and Equipment installed on or about the
SECURITY.
25. NON-ASSIGNABLE BY BORROWER: The BORROWER shall not assign this
Agreement or any part of any advance to be made hereunder, nor convey,
nor encumber the SECURITY, the BUILDING or the EQUIPMENT by mortgage or
other liens without the written consent of the LENDER, except
assignments to a subsidiary or affiliate under common control of
Borrower. Any assignment, conveyance or encumbrance without such
consent of the LENDER shall constitute an immediate default under this
Agreement, the Acknowledgment Note(s), the Mortgage Note, and the
Mortgage.
26. NO AGENCY RELATIONSHIP: The BORROWER understands and agrees that the
LENDER is not the agent or representative of the BORROWER, and this
Agreement shall not be construed to make the LENDER liable to
materialmen, suppliers, contractors, craftsmen, laborers or others for
goods or services delivered to the SECURITY or to the BORROWER or
services performed by them upon said premises, or for the BORROWER, or
for debts or claims accruing to said parties against the BORROWER, and
it is distinctly understood and agreed that there is no contractual
relation, either expressed or implied, between the LENDER and any
materialmen, suppliers, subcontractors, craftsmen, laborers, or any
other person supplying any work, labor, goods, equipment, or materials
in the improvement of the SECURITY, the construction of the BUILDING
and/or the supply and/or installation of the EQUIPMENT.
27. TITLE INSURANCE: The LENDER will procure, at BORROWER'S expense, a
title insurance policy in the ALTA form, to be issued by
25
<PAGE> 27
a title insurance company acceptable to Lender through an authorized
agent acceptable to Lender and its legal counsel. The title policy is
to be issued without exceptions, except for customary standard
exceptions and those exceptions which are acceptable to Counsel for the
LENDER, insuring the LENDER's Mortgage as a valid and paramount lien
upon the SECURITY and the BUILDING and insuring against loss or change
in priority as a result of filing of any lien or special assessment for
material or work under construction or completed.
Designation by the OWNER of the title insurer shall be subject to the
LENDER's approval of the financial ability of said insurer to pay the
face amount of the aforesaid policy and all of its other policies
insuring the LENDER in the event of loss.
Prior to making any disbursement under the LOAN, the LENDER shall
receive evidence, satisfactory to it, that the title insurance company
is prepared to issue its title insurance binder, in ALTA form, covering
the date of the disbursement and insuring the Mortgage, as of said
date, as a first, valid and subsisting lien on the subject premises,
free and clear of any and all liens, except those approved by Lender or
permitted hereunder, and subject only to such exception as the LENDER
may approve.
28. MISCELLANEOUS PROVISIONS: All inspections and other services rendered
by the LENDER or its agent, whether or not paid for by the BORROWER or
its successors in title, shall be rendered solely for the protection
and the benefit of the LENDER; and the BORROWER shall not be entitled
to claim any loss or damage against the
26
<PAGE> 28
LENDER or its agent or employees for failure to properly discharge
their duties to the LENDER.
This Agreement, the Mortgage Note, the Acknowledgment Note(s), and the
Mortgage, are or will be executed and delivered in the Commonwealth of
Puerto Rico, and the Laws of the Commonwealth of Puerto Rico shall
govern in the interpretation, enforcement, and all other aspects of the
obligations and duties created under this Agreement.
Nothing contained in this Agreement, the Mortgage Note, the
Acknowledgment Note(s), and the Mortgage shall impose upon the LENDER
any obligation to see to the proper application of advances under the
LOAN. No provision of this Agreement shall be amended, waived or
modified except by an instrument in writing signed by the parties
hereto.
The Borrower shall protect, indemnify and save harmless the Lender from
and against all liabilities, obligations, damages, penalties, claims,
causes of action, costs, charges and expenses (including without
limiting the generality of the foregoing, court costs, reasonable
attorneys' and consultants' fees, environmental cleanup costs, natural
resources damages, fines, penalties and damages to persons, personal
property, real property and business enterprises, including any and all
past, present and future claims and liability arising out of or
relating to the environmental condition of the Security, the
existence of any environmental hazard on the Security and any release
or threat of release of any Hazardous Substance (as hereinafter
defined) of any kind in, on, under or from the Security at any time,
regardless of whether caused by or within the control
27
<PAGE> 29
of the Borrower which may be imposed upon or incurred by or asserted
against the Lender by reason of (i) any accident, injury or damage to
any person or property occurring on or about the Security or any part
thereof, (ii) any use, non-use or condition of the Security or any part
thereof, (iii) any failure on the part of the Borrower to perform or
comply with any of the provisions hereof, or (iv) any necessity to
defend any of the rights, title or interest conveyed or created by this
Contract, except to the extent any of the foregoing results from the
gross negligence and/or willful misconduct of Lender. Any amounts
payable to the Lender under this paragraph which are not paid within
ten (10) days after written demand therefor by the Lender shall bear
interest from the date of such demand until full payment thereof at a
fluctuating annual rate (computed on the basis of a
three-hundred-sixty-day (360-day) year and the actual number of days
elapsed) equal to four percent (4%) over and above the Prime Rate, such
fluctuating rate to change simultaneously with the changes in such
Prime Rate, and such amounts, together with such interest, shall be
deemed to be indebtedness secured by this Agreement. In no event shall
the interest rate to be charged hereunder exceed the maximum
permissible legal rate. In case any action, suit or proceeding is
brought against the Lender by reason of any such occurrence, the
Borrower upon request by the Lender, will at the Borrower's expenses
resist and defend such action, suit or proceeding or cause the same to
be resisted or defended, either by counsel designated by the Borrower
and approved by the Lender or, where such occurrence is covered by
liability insurance, by counsel designated
28
<PAGE> 30
by the insurer. Notwithstanding anything to the contrary in this
Agreement, the provisions of this indemnity and all other
representations, warranties and covenants contained in this Agreement
shall survive the payment and satisfaction or termination of this
Agreement. As used in this Agreement the term Hazardous Substance has
the following meaning:
HAZARDOUS SUBSTANCE: (i) any "hazardous substance", "pollutant" or
"contaminant" as said terms are defined in clauses fourteen (14) and
thirty-three (33) of Section one hundred one (101) of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) [Title
Forty-Two (42) United States Code (U.S.C.) Section nine thousand six
hundred one (9,601), clauses fourteen (14) and thirty-three (33)], or
Title Forty (40) Code of Federal Regulations (C.F.R.) Part three
hundred two (302), as said act and regulation may be amended from time
to time; (ii) any "hazardous waste" as said term is defined in the
Puerto Rico Environmental Quality Board Regulation for the Control of
Hazardous and Non-Hazardous Solid Wastes, as said regulation may be
amended from time to time; (iii) any toxic or hazardous substance,
material or waste (whether solid, liquid or gaseous) (iv) any substance
containing "petroleum", as that term is defined in Section nine
thousand one (9001), clause eight (8) of the Resource Conservation and
Recovery Act (RCRA), as amended (Title Forty-Two (42) U.S.C. Section
six thousand nine hundred ninety-one (6,991), clause eight (8)], or
Title Forty (40) C.F.R. Part two hundred eighty point one (280.1)], as
said act and regulation may be amended from time to time or (v) any
other substance for
29
<PAGE> 31
which any governmental entity now or hereafter requires special
handling in its collection, storage, treatment or disposal.
All covenants, agreements, representations and warranties made herein
and in documents delivered in support of the LOAN request shall be deemed to
have been material and relied on by the LENDER and shall survive the execution
and delivery to the LENDER of the Acknowledgment Note(s) and disbursements
thereunder. Such documents are identified in Exhibit "B".
All sections and descriptive headings are inserted for convenience
only, and shall not affect any construction or interpretation hereof.
Unenforceability for any reason of any provision of this Agreement
shall not limit or impair the operation or validity of any other provision of
this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be an original, but such counterparts
shall together constitute one and the same instrument.
This Agreement makes no provision for advances with respect to
materials on site. Nevertheless, Lender, at its option, will make advances
and/or loans for materials on site if requested by Borrower, for no more than
Fifty Thousand Dollars ($50,000.00), and providing further that said amount
shall be a part of the maximum amounts outstanding hereinbefore specified for
development and/or construction. Any and all such materials on site shall be
properly kept at a safe place separate and aside from any and all other
materials, and shall be duly identified as required by Lender; in form and
manner acceptable to the Lender and its counsel.
29. COMMITMENT FEE: BORROWER shall pay to LENDER a commitment fee of
SIXTEEN THOUSAND DOLLARS ($16,000.00)
30
<PAGE> 32
for the granting of the interim and permanent loan, of which amount
BORROWER has already paid to LENDER the amount of Eight Thousand
Dollars ($8,000.00) and the remaining amount shall be paid to LENDER
simultaneously with the execution of this Agreement.
30. LONG TERM FINANCING: Provided that if by the 450th calendar day after
the date of this Agreement, (i) there is no default by BORROWER that
remains uncured under this Agreement, the Mortgage, the Mortgage Note
and/or the Acknowledgement Notes; (ii) the Building has then been
constructed and finished substantially in accordance with the plans and
specifications; (iii) all the Equipment has then been acquired by the
BORROWER and, when applicable, installed in the Building; (iv) The
Administration of Regulations and Permits ("ARPE") of the Commonwealth
of Puerto Rico has then issued a Use Permit (the "Use Permit") for the
Building; then and if the aforesaid conditions are met, LENDER
irrevocably covenants and agrees that it will convert the LOAN into a
permanent loan for the SECURITY, the Building and the Equipment. The
LOAN (a) shall then continue to be secured as provided hereinbefore and
as provided in the Mortgage, the Acknowledgment Notes and the Mortgage
Note; (b) shall bear interest at a fluctuating annual rate equivalent
to TWO HUNDRED (200) basis points over LIBOR; and (c) shall mature and
be payable as set forth in paragraph 31 of this Agreement.
31. MATURITY AND FORM OF PAYMENT OF PRINCIPAL OF AND INTEREST ON THE LOAN:
A. PERMANENT FINANCING PERIOD: If the BORROWER complies with
31
<PAGE> 33
all conditions required under this Agreement for the
conversion of the LOAN into a permanent financing as set forth
in paragraph 30 of this Agreement, then, and in such event,
the LOAN will be payable as follows, except if accelerated by
LENDER as a result of any default(s) by BORROWER hereunder not
cured within the period permitted hereunder in this Agreement.
1) One Hundred Eighty (180) consecutive monthly installments
of $17,778.00 each for principal, plus interest, beginning
thirty (30) days after conversion of the interim loan into a
permanent loan.
If the improvements are completed before the date hereinbefore
indicated, the monthly payments of principal and interest will start
thirty (30) days after the Use Permit is issued by ARPE. All payments
made by Borrower to be credited to the permanent loan will be applied
first to interest and thereafter they will be applied to reduce the
outstanding principal balance.
32. COMMISSION FEE TO LENDER FOR CONVERSION TO PERMANENT FINANCING: The
commission fee for the conversion of the Interim Loan into a Permanent
Loan will be paid by Borrower to Lender as indicated in Paragraph 29 of
this Loan Agreement.
33. PREPAYMENT: This Loan may be prepaid in whole or in part before
maturity subject to ---at Lender's option--- the prepayment fee
hereinafter specified.
(i) If the payment is made within the first year from the conversion of
the interim loan into a permanent loan, the prepayment fee will
32
<PAGE> 34
be equal to Three Percent (3%) of the outstanding balance of the Loan;
(ii) If the payment is made after the first (1st) anniversary of said
conversion but before the third (3rd) anniversary, the prepayment fee
will be Two Percent (2%) of the outstanding balance;
(iii) If the payment is made after the third (3rd) anniversary of said
conversion but before the fifth (5th) anniversary, the prepayment fee
will be one percent (1 %) of the outstanding balance.
Notwithstanding the aforegoing, Borrower may prepay the outstanding
balance due under the loan without any prepayment penalty provided that
the funds used therefore have not been obtained by Borrower from the
refinancing of the properties given as security for the Loan with
another financial institution.
34. BONDED CONTRACTORS: All development and construction work to be
financed with the proceeds of the LOAN shall be done by independent
third party contractors acceptable to Lender under contracts which
shall be bonded as to payment and performance by corporate surety
acceptable to Lender. Copies of the contracts shall be furnished to the
LENDER when executed together with copy(ies) of the applicable bond(s)
showing the LENDER as a joint obligee thereunder.
35. ASSIGNMENT: It is understood and agreed that in the event that the
LENDER, on account of a default by BORROWER, or by Agreement with
BORROWER, becomes the owner of the SECURITY, and/or the Building,
and/or the Equipment, then and in such event, any and all approvals,
plans and specifications, servitudes and in general everything required
in connection with the
33
<PAGE> 35
SECURITY, the Building and the Equipment, including but not limited to
lease contracts, if any, covering the SECURITY and/or the Building
and/or the Equipment and/or parts thereof, shall be of the exclusive
ownership of the LENDER, with full authority and power to make
whatsoever changes or amendments LENDER may deem advisable in
connection therewith, and whoever contracts with the BORROWER shall
have no right of any kind whatsoever to claim or allege against the
LENDER in connection with any of the documents, instruments, approvals
or otherwise covered by such assignment which is given as an integral
part of the collateral or security of the LENDER.
36. SIGN ON THE PREMISES: During the construction period and until the
Building is occupied, a sign shall be posted on the premises indicating
that Banco Santander Puerto Rico is providing the interim and permanent
financing for the project. The sign will be furnished by Borrower, at
Borrower's expense. In any publicity or advertising of this project,
regardless of the media, mention also shall be made that Banco
Santander is providing the financing for the Building.
37. OTHER CONDITIONS OF LENDING:
a. Borrower will maintain its deposit accounts with Lender.
b. [text represented as strike through]
c. Borrower will not dispose of its current assets without the
prior written approval of Lender.
34
<PAGE> 36
d. The Loan will not exceed Eighty Percent (80%) of the appraised
value of the Property.
e. The Parent Company will retain 100% percent of the stocks of
Simmons Caribbean Bedding, Inc.
f. [text represented as strike through]
Anyone of the following persons are authorized to request payment of
certifications for works performed and to sign any and all documents, checks,
drafts, contracts, releases and any other document related to this Loan Program:
Name Signature
- ---------- ----------
Jonathan C. Daiker /s/ Jonathan C. Daiker
-----------------------
Roger W. Franklin /s/ Roger W. Franklin
-----------------------
Hector M. Osorio /s/ Hector M. Osorio
-----------------------
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed the day and year first above written.
BANCO STANDER PUERTO SIMMONS CARIBBEAN BEDDING,
RICO INC.
/s/ /s/ Hector M. Osorio
- -------------------------- ---------------------------------
/s/ Hector M. Osorio, President
/s/
- --------------------------
Address: Address:
P.0. Box 362589 One Concourse Parkway
San Juan, P.R. 00936-2589 Suite 600
Atlanta, GA 30328
Affidavit Number 25,159 (copy)
--------
Subscribed and acknowledged to before me by Mister Hector M.
Osorio, as President and General Manager of Simmons Caribbean
35
<PAGE> 37
Bedding, Inc., of legal age, married, executive and resident of Guaynabo Puerto
Rico; and by Ariel Lebron Lebron and Myrna Diaz Marrero
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
as Authorized Agents of Banco Santander Puerto Rico, of the personal
circumstances above stated, personally known to me, at San Juan, Puerto Rico,
this 12th day of December , 1997.
MANUEL CORREA CALZADA
NOTARY PUBLIC
<PAGE> 38
EXHIBIT "A"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER PUERTO RICO and
SIMMONS CARIBBEAN BEDDING, INC., dated December 12, 1997.
URBANA: Parcela deterreno radicada en el Barrio Las Cuevas de Trujillo
Alto, Puerto Rico, identificada como solar Numero Seis (6) del Parque
Industrial Las Cuevas, con una cabida superficial de Diez Mil
Seiscientos Ochenta y Siete punto Setenta (10687.70) metros cuadrados,
equivalentes a dos cuerdas con setecientos diecinueve (2.719)
cienmilesimas de otra, en lindes por el Norte, con el solar numero
Cinco (5) y con el area de viraje de la Calle "C" de la misma area
industrial; por el Sur, con la Calle "A" del Parque Industrial; por el
Este, con el area de uso publico del area industrial, solar Diecisiete
(17) y con el area de viraje de la Calle "A" de la misma area
industrial; y por el Oeste, con la Calle "C" de la misma area
industrial.
The above described property was segregated from a property formed by
the grouping of certain properties as it appears from Deed Number
Twenty (20), executed on December Four (4), Nineteen Hundred Ninety Two
(1992), before Notary Edgardo L. Martinez, pending recordation. The
properties that were grouped are the following: Properties Number Six
Thousand Four Hundred Thirty Six (6,436), Property Number Eleven
Thousand Seven Hundred Seventy Eight (11,778) and Four Thousand Three
(4003), recorded at Pages Eighty Two (82), Seventy Eight (78) and One
Hundred Twenty Nine (129) of Volumes One Hundred Twenty Eight (128),
Two Hundred Thirty Eight (238) and Ninety (80) of Trujillo Alto,
respectively.
<PAGE> 39
EXHIBIT "B"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER PUERTO RICO and
SIMMONS CARIBBEAN BEDDING, INC., dated December 12, 1997.
The following items were furnished by or on behalf of Borrower to
support the Loan, which is the subject of this Agreement. Lender, in agreeing to
make this Loan has relied upon said items and any material misrepresentation
shall be considered a default in the Loan.
1. Financial Statements of Borrower as of
_________,199__.
2. Corporate Resolution of Borrower.
3. Statement of property taxes.
4. Appraisal
5. ARPE Approval
6. Final Construction Plans and Specifications.
7. Survey of Property.
8. Construction Contract.
9. Construction Permit.
10. Subordination of the Parent Company of all outstanding loans of
Borrower with the Parent Company.
<PAGE> 40
EXHIBIT "C"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER PUERTO RICO and
SIMMONS CARIBBEAN BEDDING, INC., dated December 12, 1997.
PAYMENT BREAKDOWN SCHEDULE
Reserve for construction $2,977,916.00
Reserve for payment of appraisal
report 4,500.00
Reserve for payment of legal
fees, Internal Revenue Stamps,
recording fees and title policy 41 ,872.00
* Reserve for payment of interest
during construction 45,000.00
Reserve for payment of Bank
inspector 5,200.00
Reserve for contingencies 32,512.00
Reserve for payment of commitment
fee 8,000.00
Reserve for payment of bonds and
insurance premiums 25,000.00
Reserve for payment of consultant
expenses 60,000.00
-------------
TOTAL ............................ $3,200,000.00
=============
Of the Loan Amount, the sum of TWO MILLION NINE HUNDRED SEVENTY SEVEN
THOUSAND NINE HUNDRED SIXTEEN DOLLARS ($2,977,916.00) is reserved for the
construction as required by all governmental authorities of a commercial
building of approximately 50,000 square feet and 66 parking spaces, as indicated
in the Plans and Specifications submitted to Lender by Borrower.
<PAGE> 41
Exhibit C
Page two
The Borrower shall request disbursement by supplying to the Lender a
Request in the form attached to Exhibit "D", which shall be completed and
certified as indicated therein, together with a promissory note to the order of
Banco Santander Puerto Rico indicating the amount to be disbursed properly
signed by an authorized agent of the Borrower as identified in Exhibit "G"
attached herein.
From each amount approved for payment, there shall be withheld and
retained by the Lender a sum equivalent to ten percent (10%) of the gross
amount, and the amount so withheld and retained, hereinafter called "retainage",
will be subordinated by BORROWER, contractors and sub-contractors until the Loan
is converted to a permanent loan and until LENDER approve such retainage
disbursement.
In the event that any one of the budgeted amounts indicated herein
exceeds its actual cost, the budgeted amount and the total amount of the
loan will be adjusted accordingly.
All closing costs to be disbursed at closing directly to Gonzalez
Oliver, Correa Calzada, Collazo Salazar, Herrero & Jimenez.
- --------------
* During the term of this loan, provided there is no default under this Contract
that accelerates the due date of this Loan, Lender will charge this reserve each
month the interest payment due as indicated in the Loan Agreement.
<PAGE> 42
EXHIBIT "C-1"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER PUERTO RICO and
SIMMONS CARIBBEAN BEDDING, INC., dated December 12, 1997.
Please refer to attached statement.
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit C-1
-----------
Simmons Company
Advances to SCBI for New Facility
Reference Design Construction
Number Fee Cost Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract amount $141,130.00 $2,836,786.00 $2,977,916.00
Amounts advanced to SCBI:
For Ivan Hernandez $34,860.00
144 $26,965.00
159 $28,975.00
182 $17,065.00
212 $9,285.00
For Caribbean Industrial Construction 1 $134,964.00
2 $72,418.50
3 $177,933.60
4 $592,256.70
--------------------------------------------------------
Total advances to SCBI $117,150:00 $977,572.80 $1,094,722.80
Balance remaining $23,980.00 $1,859,213.20 $1,883,193.20
Advances exclude amounts for initial land purchase.
</TABLE>
CIC.wk4 A 09-Dec-97
<PAGE> 44
EXHIBIT "D"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER PUERTO RICO and
SIMMONS CARIBBEAN BEDDING, INC., dated December 12, 1997.
Please refer to attached request.
<PAGE> 45
Exhibit
CONTINUATION SHEET AIA DOCUMENT G702A PAGE OF PAGES
- --------------------------------------------------------------------------------
<TABLE>
AIA Document G702, APPLICATION AND CERTIFICATE FOR PAYMENT, containing APPLICATION NUMBER:
CONTRACTOR'S signed Certification is attached.
In tabulations below, amounts are stated to the nearest dollar.
Use Column 1 on contracts where variable retainage for line items may apply. ARCHITECT'S PROJECT NO.
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WORK COMPLETED
ITEM DESCRIPTION SCHEDULED Previous This STORES TOTAL COMPLETED BALANCED RETAINAGE
No. OF WORK VALUE Application Application MATERIALS AND STORED TO DATE TO FINISH
A B C D E F G(D+E+F) % H(C-G) I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB TOTAL OR TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 46
Exhibit D to Loan Agreement executed
by and between Banco Santander Puerto
Rico and
<TABLE>
<CAPTION>
APPLICATION AND CERTIFICATE FOR PAYMENT AIA DOCUMENT G702 PAGE ONE OF PAGES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PROJECT: ARCHITECT:
(name, address) ARCHITECT'S PROJECT NO:
CONTRACTOR:
TO (Owner) CONTRACT FOR:
APPLICATION DATE: APPLICATION NO:
ATTN: PERIOD FROM: TO:
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE ORDER SUMMARY Application is made for Payment, as shown below, in connection with the
- --------------------------------------------------- Contract. Continuation Sheet, AIA Document G702A, is attached.
Change Orders approved ADDITIONS $ DEDUCTIONS $
in previous months by The present status of the account for this Contract is as follows:
Owner-
TOTAL
=================================================== ORIGINAL CONTRACT SUM...................................$_______________
Subsequent Change Orders
- ------------------------
Number Approved
(date) Net change by Change Orders............................$_______________
- ---------------------------------------------------
CONTRACT SUM TO DATE....................................$_______________
------------------------------------------------------------------------
TOTAL COMPLETED & STORED TO DATE........................$_______________
(Column G on G702A)
===================================================
TOTALS RETAINAGE____________%..................................$_______________
Net change by Change Orders $_____________________ or as noted in Column I on G702A
- ---------------------------------------------------
TOTAL EARNED LESS RETAINAGE.............................$________________
State of: County of:
The undersigned Contractor certifies that the Work LESS PREVIOUS CERTIFICATES FOR PAYMENT..................$________________
covered by this Application for Payment has been
completed in accordance with the Contract Documents,
that all amounts have been paid by him for Work for
which previous Certificates for Payment were issued CURRENT PAYMENT DUE.....................................$________________
and payments received from the Owner, and that the
current payment shown herein is now due. ------------------------------------------------------------------------
Contractor: Subscribed and sworn to before me this day of ,19
Notary Public:
My Commission expires:
By: Date:
==============================================================================================================================
In accordance with the Contract and this Application for Payment the Contractor is entitled to [ ] OWNER
payment in the amount shown above. [ ] ARCHITECT
[ ] CONTRACTOR
Architect: [ ]
[ ]
By:
This Certificate is not negotiable. It is payable only to the payee named herein and its issuance, payment and acceptance are
without prejudice to any rights of the Owner or Contractor under their Contract.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 47
EXHIBIT "E"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER PUERTO RICO and
SIMMONS CARIBBEAN BEDDING, INC., dated December 12, 1997.
The following is a complete list of all outstanding and unpaid judgment
and/or arbitration awards against the Borrower.
NONE
<PAGE> 48
EXHIBIT "F"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER
PUERTO RICO and SIMMONS CARIBBEAN BEDDING, INC., dated
December 12, 1997.
See attached Corporate Resolution of Borrower.
<PAGE> 49
EXHIBIT "G"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER
PUERTO RICO and SIMMONS CARIBBEAN BEDDING, INC., dated
December 12, 1997.
ACKNOWLEDGEMENT NOTE
VALUE: DUE DATE: ON DEMAND
FOR VALUE RECEIVED, the undersigned jointly and severally promises to
pay to the order of Banco Santander Puerto Rico, on demand, the principal sum of
plus interest until full payment hereof, at a fluctuating annual rate equivalent
to Two Hundred (200) basis points over the London Interbank Offered Rate
(LIBOR), adjusted every Ninety (90) days. Principal will be paid on demand and
interest will be payable monthly in arrears.
In case judicial proceedings be filed by the holder for the collection
of any sum under this Promissory Note, undersigned hereby expressly submit to
the jurisdiction and venue of the Courts of Puerto Rico or the United States
sitting in the City of San Juan, Puerto Rico, which may have competent
jurisdiction by virtue of the subject matter and/or amount in controversy and we
expressly agree to pay all costs, expenses and disbursements, including
attorneys fees, incurred by holder in the collection of this obligation in a
liquidated sum equal to Ten Percent (10%) of the principal amount of this
Promissory Note even in, but not limited to the case where proceedings are
carried by default or in bankruptcy, and said sums to be due, and owing by the
mere filing, through or by an attorney, of the proof of claim in bankruptcy,
complaint or any other judicial claim, or placing in the hans of an attorney for
collection. Upon non compliance with any of the above or non-payment of any
installment of principal and/or interest when due, any obligations subscribed by
us in favor or in possession of the holder of this Promissory Note, shall, at
the option of the holder and without notice or demand, become immediately due
and payable together with interest, collection charges and attorney's fees. The
makers, endorsers, and all parties to this Promissory Note hereby waive
presentment for payment, demand, protest, notice of dishonor hereof, and further
hereby waive all benefit of valuation, appraisement, and exemption laws. The
holder may extend the time of payment of this Promissory Note, postpone the
enforcement hereof, grant any other indulgence and add or release any party
primarily or secondarily liable hereon without affecting or diminishing the
holder's right of recourse against the makers, endorsers and all parties to this
Promissory Note which right is hereby expressly reserved.
This Note is one of a series of notes of like tenor issued pursuant to
and entitled to the benefits and security provided for by a Loan Agreement dated
,1997, between SIMMONS CARIBBEAN BEDDING, INC. (Borrower) and BANCO
SANTANDER PUERTO RICO (Lender) a Puerto Rico banking corporation, and the sum
constitutes a portion of the principal of the Mortgage Note(s) identified in the
Loan Agreement which guarantees all such advances.
This Note is subject to acceleration as provided in said Loan
Agreement.
<PAGE> 50
Exhibit G
Page two
This Note is issued and accepted as acknowledgement of
Certification Number _______, but not in payment of same.
San Juan, Puerto Rico, this
SIMMONS CARIBBEAN BEDDING,
INC.
__________________________
<PAGE> 51
EXHIBIT "H"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER
PUERTO RICO, and SIMMONS CARIBBEAN BEDDING, INC., dated
December 12, 1997.
Please refer to attached Plans.
<PAGE> 52
EXHIBIT "I"
TO LOAN AGREEMENT executed by and between BANCO SANTANDER
PUERTO RICO and SIMMONS CARIBBEAN BEDDING, INC., dated
December 12, 1997.
Please refer to attached Specifications.
<PAGE> 53
DEED NUMBER: SIXTY SEVEN (67)
DEED OF MORTGAGE
In San Juan, Puerto Rico this twelfth (12th) day of December, Nineteen
Hundred Ninety Seven
BEFORE ME
MANUEL CORREA CALZADA
Attorney at Law and Notary Public for Puerto Rico, with offices and residence
in San Juan, Puerto Rico.
APPEAR
AS THE FIRST PART: SIMMONS CARIBBEAN BEDDING, INC. (Employer's Identification
Number 66-0431881), a corporation organized and existing under the laws of the
Commonwealth of Puerto Rico, herein represented by its President and General
Manager Mister Hector M. Osorio, of legal age, married and resident of Guaynabo
, Puerto Rico, who represents and assures that he has been duly authorized to
appear herein on behalf of Mortgagor.
AS THE SECOND PART: BANCO SANTANDER PUERTO RICO (Employer Identification
Number 66-0312389), a banking corporation duly organized under the laws of the
Commonwealth of Puerto Rico, represented herein by its Authorized Agents Ariel
Lebron and Myrna Diaz Marrero both of legal age, married and resident of
Trujillo Alto and San Juan, Puerto Rico respectively
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<PAGE> 54
duly authorized by Banco Santander Puerto Rico to appear herein on its behalf.
The appearing parties assure me that they are in the full enjoyment and
exercise of their civil rights, nothing to the contrary being known to me, and
being in my judgement legally competent to execute this instrument, they freely
and voluntarily__________________________________________.
STATE
FIRST: That Mortgagor is the owner of record, with valid, good, legal,
recordable, insurable and marketable fee simple title ("pleno dominio") of the
property (at times hereinafter referred to as the "property" or "the mortgaged
property") described in paragraph TWENTY SEVENTH of this deed.
SECOND: On this date the Mortgagor has issued a mortgage note in the
principal amount of THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000.00)
(hereinafter called the "Mortgage Note"), bearing interest at the rate
hereinafter indicated in Paragraph TWENTY SIXTH , until full and complete
payment of same, with principal and interest payable to the order of Banco
Santander Puerto Rico on demand, in lawful money of the United States of
America, at such place as the owner and/or holder of the aforesaid Mortgage Note
may from time to time in writing specify, which Mortgage Note is literally
transcribed in Paragraph TWENTY SIXTH of this deed.
2
<PAGE> 55
THIRD: In order to guarantee and secure (i) the full and complete payment of
the principal and interest of the Mortgage Note; (ii) the performance of each of
the terms therein and herein contained; (iii) an additional credit in an amount
corresponding to five annual interest payment to secure interest in addition to
those secured by law; (iv) an additional credit in the amount of THREE HUNDRED
TWENTY THOUSAND DOLLARS ($320,000.00) to cover the costs and expenses (including
attorney's fees) incurred by the owner and/or holder of the Mortgage Note in the
event that said owner and/or holder shall take recourse to the courts or any
other governmental agency in order to collect all or any part of the principal
thereof or any interest thereon (by foreclosure or other proceedings or action
including proceedings under the Bankruptcy Act); (v) an additional credit in the
amount of THREE HUNDRED TWENTY THOUSAND DOLLARS ($320,000.00) to cover any
amounts that may be paid or advanced by the owner and/or holder of the Mortgage
Note, together with interest thereon; and (vi) the full and punctual performance
and compliance by the Mortgagor of all its obligations of any nature whatsoever
to the owner and/or holder of the Mortgage Note, Mortgagor hereby constitutes
and creates a VOLUNTARY FIRST MORTGAGE (hereinafter referred to as the
"Mortgage"), in favor of the owner and/or holder of the Mortgage Note
(hereinafter also called "Mortgagee"),
3
<PAGE> 56
encumbering the following properties (hereinafter also called the "Mortgaged
Property".
(a) the properties mentioned and described in Paragraphs FIRST and TWENTY
SEVENTH respectively of this deed;
(b) All of the buildings, structures, improvements and facilities now or
hereafter located thereon;
(c) All of the rights of way or use, easements, servitudes, licenses,
tenements, hereditaments and other appurtenances now or hereafter belonging or
appertaining to the properties mentioned in this Paragraph THIRD of this deed;
(d) all renewals and replacements of, substitutions for and additions to the
property described in Articles (a) and (b) above, and all other property, real
or personal, or mixed, now owned or hereafter acquired by Mortgagor and enjoyed
in common with or in any way appertaining to such property described in Articles
(a) and (b) above (other than the inventory, machinery and other equipment of
Mortgagor that is not a fixture to the real property), as well as all lands
which may be consolidated or grouped with the other property(ies) mentioned in
this paragraph THIRD of this deed;
(e) all awards, compensations, and payment in respect of any taking by
condemnation or eminent domain or any of the foregoing; and
(f) all rents, earnings, revenues, issues and profits of all the foregoing.
4
<PAGE> 57
FOURTH: The Mortgagor represents and warrants to the Mortgagee as follows:
(a) That the Mortgaged Property is free and clear of all liens, restrictions
or encumbrances whatsoever, except for those matters shown on the loan and the
insurance policy obtained by Mortgagee in connection to the loan evidenced by
the Mortgage Note;
(b) That it has good right and lawful authority to convey, mortgage and
pledge the Mortgaged Property in the manner and form hereby conveyed, mortgaged
and pledged;
(c) That all taxes and assessments that are presently due and payable on the
Mortgaged Property have been fully paid and satisfied and that said Mortgaged
Property is free from unpaid taxes and assessments;
(d) That it will warrant and defend said Mortgaged Property against all and
every person or persons claiming the same or any part thereof.
FIFTH: Mortgagor will promptly pay the principal of and accrued interest on
the Mortgage Note on demand by its owner and/or holder, except as otherwise
provided in the Loan Agreement of even date herewith, and will maintain its
existence and the lien of the Mortgage as a valid, direct first and senior
mortgage lien of record on the Mortgaged Property and every part thereof,
whether now owned or hereafter acquired, subject to no prior or equal lien,
charge or encumbrance.
5
<PAGE> 58
SIXTH: Subject to ARTICLE NINTH relating to contests, Mortgagor will pay and
discharge any and all imposition(s) within such time as the same shall be
payable without penalty, fine or interest and will furnish to Mortgagee from
time to time, upon request, official receipts or other satisfactory proof
evidencing such payment(s).
SEVENTH: Subject to Paragraph NINTH relating to contests, Mortgagor at its
expense will promptly comply with all legal requirements and insurance
requirements, whether or not compliance therewith shall require structural
changes in the Mortgaged Property, and will procure, maintain and comply with
all permits, licenses and other authorizations required for any use of the
Mortgaged Property or any part thereof then being made and for the proper
erection, installation, operation and maintenance of the Mortgaged Property or
any part thereof and will comply with any instruments of record affecting the
Mortgaged Property or any part thereof at the time in force.
EIGHTH: Subject to Paragraph NINTH relating to contests, Mortgagor will not
create or permit to be created or to remain, and will discharge, any mortgage
lien, encumbrance, or charge upon the Mortgaged Property, or any part thereof,
other than (a) this Mortgage, (b) mortgages junior in lien or subordinated to
this Mortgage, as may be approved in writing by the owner and/or holder of the
Mortgage Note,
6
<PAGE> 59
(C) mechanics', laborers', materialmen, suppliers', or vendors' liens not filed
for record for charges not delinquent, incident to then current construction of
improvements on the Mortgaged Property; (d) easements or reservations with
respect to the Mortgaged Property for rights of way for electric transmission
and distribution lines, telephone and telegraph lines, fuel, water, sewage and
drainage pipelines and channels and all other similar purposes, provided that
such easements and reservations do not, either in any case or in the aggregate,
materially interfere with the occupancy or use of the Mortgaged Property, and
(e) any restrictive covenants which may be required by any governmental
authority, agency or entity having jurisdiction, in connection with any
improvements and/or construction that Mortgagor might do or cause to be done on
the Mortgaged Property, with the prior written approval of the owner and/or
holder of the Mortgage Note.
NINTH: Mortgagor, at its expense, may contest in good faith, after prior
written notice to Mortgagee, by appropriate proceedings promptly initiated and
conducted with due diligence, the amount and/or validity and/or application, in
whole or in part, of any imposition and/or legal requirement or of any lien,
encumbrance, charge or claim upon the Mortgaged Property or the application of
any instrument of record referred to in Paragraph SEVENTH of this deed and may
defer payment thereof, provided that (a) in the case of any such
7
<PAGE> 60
unpaid imposition, lien, encumbrance, charge or claim, such proceedings shall
suspend the collection thereof from Mortgagor or the Mortgaged Property, (b)
neither the Mortgaged Property nor any part thereof or interest thereon would be
in danger of being sold, forfeited, or lost, (c) in the case of a legal
requirement, neither Mortgagor nor Mortgagee would be subject to civil or
criminal liability for failure to comply therewith; (d) Mortgagor shall have
furnished such security, if any, as may be required in the proceedings or as may
be reasonably requested by Mortgagee, and (e) Mortgagor shall pay the amount
thereof finally determined and shall hold Mortgagee harmless of and from any
loss by reason of deferment.
TENTH: The Mortgagee agrees to execute at Mortgagor's expense, all deeds
which shall be required for the creation of restrictive covenants and easements
and for the conveyance of part of the Mortgaged Property for public use as
required by the Planning Board and/or the Permits and Regulations Administration
of the Commonwealth of Puerto Rico in connection with the development by
Mortgagor of any housing or other type of project in the Mortgaged Property
provided, however, that no such development may be commenced without the prior
written approval of the Mortgagee and that such deeds shall be in form and
substance satisfactory to the Mortgagee.
ELEVENTH: Nothing contained in this Mortgage shall constitute any consent or
request by Mortgagee,
8
<PAGE> 61
expressed or implied, for the performance of any labor or services, or the
furnishing of any materials or other property in respect of the Mortgaged
Property or any part thereof, nor as giving Mortgagor any right, power of
authority to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Mortgagee in respect thereof or any claim
that any lien based on the performance of such labor or services, or the
furnishing of any such materials or other property is or may be prior to the
lien of this Mortgage.
TWELFTH: The Mortgagor shall protect, indemnify and save harmless the
Mortgagee from and against all liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses (including without
limiting the generality of the foregoing, court costs, attorneys' and
consultants' fees, environmental cleanup costs, natural resources damages,
fines, penalties and damages to persons, personal property, real property and
business enterprises, including any and all past, present and future claims and
liability arising out of or relating to the environmental condition of the
Mortgaged Property, the existence of any environmental hazard on the Mortgaged
Property and any release or threat of release of any Hazardous Substance (as
hereinafter defined) of any kind in, on, under or from the Mortgaged Property at
any time, regardless of whether caused by or within the control
9
<PAGE> 62
of the Mortgagor which may be imposed upon or incurred by or asserted against
the Mortgagee by reason of (i) any accident, injury or damage to any person or
property occurring on or about the Mortgaged Property or any part thereof, (ii)
any use, non-use or condition of the Mortgaged Property or any part thereof,
(iii) any failure on the part of the Mortgagor to perform or comply with any of
the provisions hereof, or (iv) any necessity to defend any of the rights, title
or interest conveyed or created by this Mortgage, except to the extent any of
the foregoing results from the gross negligence or willful misconduct of lender
or its agents, employees or contractors. Any amounts payable to the Mortgagee
under this paragraph which are not paid within ten (10) days after written
demand therefor by the Mortgagee shall bear interest from the date of such
demand until full payment thereof at a fluctuating annual rate (computed on the
basis of three-hundred-sixty-day (360-day) year and the actual number of days
elapsed) equal to four percent (4%) over and above the "prime rate" publicly
announced by Citibank, N.A. in New York, New York, as its reference, base or
prime rate (herein the "prime rate" such fluctuating rate to change
simultaneously with the changes in the prime rate, and such amounts, together
with such interest, shall be deemed to be indebtedness secured by this Mortgage.
In no event shall the interest rate to be charged hereunder exceed the maximum
permissible legal rate. In case any action, suit or
10
<PAGE> 63
proceeding is brought against the Mortgagee by reason of any such occurrence,
the Mortgagor upon request by the Mortgagee, will at the Mortgagor's expenses
resist and defend such action, suit or proceeding or cause the same to be
resisted or defended, either by counsel designated by the Mortgagor and
reasonably approved by the Mortgagee or, where such occurrence is covered by
liability insurance, by counsel designated by the insurer. Notwithstanding
anything to the contrary in this Mortgage, the provisions of this indemnity and
all other representations, warranties and covenants contained in this Deed shall
survive the payment and satisfaction or termination of this Mortgage. As used in
this Mortgage the term Hazardous Substance has the following meaning:
HAZARDOUS SUBSTANCE: (i) any "hazardous substance", "pollutant" or
"contaminant" as said terms are defined in clauses fourteen (14) and
thirty-three (33) of Section one hundred one (101) of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) [ Title
Forty-Two (42) United States Code (U.S.C.) Section nine thousand six hundred one
(9,601), clauses fourteen (14) and thirty-three (33)], or Title Forty (40) Code
of Federal Regulations (C.F.R.) Part three hundred two (302), as said act and
regulation may be amended from time to time; (ii) any "hazardous waste" as said
term is defined in the Puerto Rico Environmental Quality Board Regulation for
the Control of Hazardous and Non-Hazardous Solid Wastes,
11
<PAGE> 64
as said regulation may be amended from time to time; (iii) any toxic or
hazardous substance, material or waste (whether solid, liquid or gaseous); (iv)
any substance containing "petroleum", as that term is defined in Section nine
thousand one (9001), clause eight (8) of the Resource Conservation and Recovery
Act (RCRA), as amended [Title Forty-Two (42) U.S.C. Section six thousand nine
hundred ninety-one (6,991), clause eight (8)], or Title Forty (40) C.F.R. Part
two hundred eighty point one (280.1)], as said act and regulation may be amended
from time to time; or (v) any other substance for which any governmental entity
now or hereafter requires special handling in its collection, storage, treatment
or disposal.
THIRTEENTH: In the event of Taking(s) of all or any part of the Mortgaged
Property, Mortgagee shall be entitled to receive all awards and payments on
account of such Taking(s). Subject to such provision, Mortgagor hereby
irrevocably authorizes and empowers Mortgagee in the name of Mortgagor or
otherwise by Mortgagors' claim to collect any such award(s) or payment(s) and to
collect, issue receipt for and retain the same. Mortgagor will pay all costs and
expenses (including without limitation, attorney's fees and expenses) of
Mortgagee in connection with any such Taking(s) and seeking, obtaining and
receiving any award or payment in respect therefor.
In the event of any Taking of the fee or of a perpetual easement upon the
Mortgaged Property, or in the event
12
<PAGE> 65
of a Taking of such a substantial part of the Mortgaged Property that, in the
good faith judgment of Mortgagor of which written notice must be given to
Mortgagee within twenty five (25) days after such Taking, the remaining part of
the Mortgaged Property is insufficient for the use for which the Mortgaged
Property is being used or developed, (such Taking being hereinafter called a
"Total Taking") all awards and payments collected by Mortgagee after the payment
of costs and expenses (including without limitation, attorney's fees and
expenses incurred in the seeking, obtaining and receiving thereof, shall be
applied by Mortgagee to the payment of any notes or obligations of Mortgagor
evidenced by the Mortgage Note or for which the Mortgage Note is assigned or
pledged as security.
In the event of any Taking of the Mortgaged Property other than a Total
Taking, Mortgagor shall, at its expense and whether or not the awards and
payments on accounts of such Taking shall be sufficient for the purpose,
promptly effect the restoration of the Mortgaged Property to as nearly as
possible its value, condition and character immediately prior to such Taking,
except for any reduction in land area caused thereby. All awards and payments
collected by Mortgagee on account of any such Taking, after the payment of costs
and expenses (including without limitation attorney's fees and expenses)
incurred in the seeking, obtaining and receiving thereof; shall be held by
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<PAGE> 66
Mortgagee and applied and paid over toward the cost of such restoration.
FOURTEENTH: In case Mortgagor shall fail to pay any principal of or accrued
interest on the Mortgage Note on demand by its owner and/or holder within ten
(10) days after written notice from Mortgagee or shall fail duly and punctually
to perform any of the other terms of the Mortgage Note or this Mortgage or of
any obligation which the Mortgage Note and this Mortgage secure within thirty
(30) days after written notice from Mortgagee, then at any time thereafter
Mortgagee may, at its election:
(a) proceed to enforce the payment of the Mortgage Note and/or to foreclosure
of the lien of this Mortgage as against all or any part of the Mortgaged
Property (by summary proceedings or otherwise) and to have the same sold under
the judgment or decree of a court of competent jurisdiction, or;
(b) enter upon and take possession of the Mortgaged Property or any part
thereof by force, summary proceedings, ejectment or otherwise and remove
Mortgagor and all other persons and any and all properties therefrom, and may
hold, operate and manage the same and receive all earnings, income, rents,
issues, and proceeds, accruing with respect thereto or any part thereof. In
connection with any of the foregoing, Mortgagee shall, as a matter of right and
without regard to the solvency of the Mortgagor or the adequacy of the security
for the
14
<PAGE> 67
indebtedness from Mortgagor to Mortgagee, be entitled to the appointment of a
receiver for all or any part of the Mortgaged Property, whether such
receivership be incidental to a proposed sale of the Mortgaged Property or
otherwise, and Mortgagor hereby consents to the appointment of such a receiver
and will not oppose any such appointment.
FIFTEENTH: The proceeds of any foreclosure sale hereunder of the Mortgaged
Property or any part thereof, and the proceeds of any possession, holding,
operating and management of the Mortgaged Property or any part thereof by
Mortgagee or a receiver hereunder, shall be applied to pay:
First: All reasonable and actual costs and expenses (including without
limitation, attorney's fees and expenses) of such sale or the entering upon,
taking of possession or holding, operating and managing the Mortgaged Property,
as the case may be, and any taxes, assessments or other charges prior to the
lien of this Mortgage that Mortgagee may consider it necessary or desirable to
pay;
Second: All amounts of interest and principal due and unpaid on all
indebtedness and/or obligations of Mortgagor secured by this Mortgage, other
than the Mortgage Note;
Third: All amounts of interest and principal at the time due and payable on
the Mortgage Note; and
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<PAGE> 68
Fourth: The balance, if any, to Mortgagor.
SIXTEENTH: Each right, power or remedy of Mortgagee provided for in this
Mortgage shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Mortgage or now or hereafter
existing at law or in equity or by statute or otherwise, and the exercise or
beginning of the exercise by Mortgagee of any one or more of the rights, powers
or remedies provided for in this Mortgage or now or hereafter existing at law or
in equity or by statute or otherwise shall not preclude the simultaneous or
later exercise by Mortgagee of any or all such other rights, powers or remedies.
All rights, powers and remedies provided herein may be exercised only to the
extent that the exercise thereof does not violate any applicable provisions of
law, and are intended to be limited to the extent necessary so that they will
not render this Mortgage invalid, unenforceable or not entitled to be recorded,
registered or filed under the provisions of any applicable law. If any
provision(s) of this Mortgage shall be determined to be invalid, illegal or
unenforceable, the validity of other provisions of this Mortgage shall in no
way be affected by such determination.
SEVENTEENTH: No failure by Mortgagee to insist upon the strict performance of
any term hereof or to exercise any right, power or remedy consequent upon a
breach hereof, shall constitute a waiver of any such term
16
<PAGE> 69
or of any such breach. No waiver of any breach shall affect or alter this
Mortgage, which shall continue in full force and effect with respect to any
other then existing or subsequent breach of any nature whatsoever under this
Mortgage and/or the Mortgage Note.
EIGHTEENTH: If Mortgagor shall fail to make any payment or perform any act
required to be made or performed hereunder beyond the expiration of any
applicable notice and cure periods, Mortgagee, without further notice to or
demand upon Mortgagor, and without waiving or releasing any obligation or
default of Mortgagor, may (but shall be under no obligation to) at any time
thereafter make such payment or perform such act for the account and at the
expense of Mortgagor, and may enter upon the Mortgaged Property for such purpose
and take all such action as it may consider necessary or appropriate for such
purpose. All sums so paid by Mortgagee and all reasonable and actual costs and
expenses (including without limitation, attorney's fees and expenses) so
incurred, together with interest at the rate hereinafter set forth in Paragraph
TWENTY SIXTH of this deed, from the date of payment or incurring until the date
of reimbursement to Mortgagee, shall constitute additional indebtedness secured
by this Mortgage and shall be paid by Mortgagor to Mortgagee on demand.
NINETEENTH: At the written request of Mortgagee, Mortgagor at its expense
will execute, acknowledge and
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<PAGE> 70
deliver all such instruments, including but not limited to additional and/or
aclaratory deeds, substitute notes, explanatory documents and/or any other
document(s) or instrument(s) which might be reasonably necessary, and take all
such actions as may be reasonably required and/or as Mortgagee may from time to
time request for (a) the better assuring to Mortgagee of the validity and
enforceability of the property rights hereby mortgaged and assigned or intended
so to be, and (b) to cause the Mortgage to be properly recorded without defects,
as a first lien of record encumbering the Mortgaged Property, in the appropriate
Section of the Registry of Property of Puerto Rico, with all stamps duly paid
and, in the event Mortgagor fails to pay any amount(s) required to comply with
its obligations under this paragraph NINETEENTH, Mortgagee may (but shall not be
obligated to) without notice to Mortgagor make any such payment(s), which would
then be guaranteed and secured by the Mortgage. Without notice to or consent of
Mortgagor, and without impairment of the lien and rights under this Mortgage,
Mortgagee may take (but Mortgagor shall not be obligated to furnish) from
Mortgagor or from any other person or persons, additional security for the
Mortgage Note. Neither the giving of this Mortgage nor the acceptance of any
such additional security shall prevent Mortgagee from resorting first to such
additional security, or first to the security created by this Mortgage, in
18
<PAGE> 71
either case without affecting Mortgagee's lien and rights under this Mortgage.
TWENTIETH: In compliance with Article ONE HUNDRED SEVENTY NINE (179) of the
Mortgage Law of Puerto Rico, as amended, and only for the purpose of determining
the minimum allowable bid on the first auction in the event of foreclosure of
the Mortgage, Mortgagor hereby declares and agrees that the value of the
Mortgaged Property is THREE MILLION TWO HUNDRED THOUSAND DOLLARS
($3,200,000.00).
TWENTY FIRST: The Mortgagor warrants that it will cause the Mortgage created
by this deed to be recorded in due course as a first mortgage encumbering the
hereinabove described Mortgaged Property in the appropriate Section of the
Registry of the Property of Puerto Rico and, in connection with such obligation,
to comply with the provisions of Paragraph NINETEENTH of this deed.
TWENTY SECOND: All notices to and demands and requests upon Mortgagor under
this Mortgage shall be in writing and shall be deemed to have been properly
given or made if sent by United States registered or certified mail, postage
prepaid, addressed to Mortgagor at such place as Mortgagor may have notified
Mortgagee in writing.
TWENTY THIRD: The Mortgagor will cause the buildings on the premises and the
fixtures and all articles of personal property which are included in the
Mortgaged Property covered by this Mortgage to be insured against
19
<PAGE> 72
loss by fire, casualty and other hazards specified by the Mortgagee and against
loss by such other hazards as may be reasonably required by the Mortgagee for
the benefit of the Mortgagee. Such insurance shall be written by such companies,
in such amounts and in forms satisfactory to the Mortgagee, and the Mortgagor
will deliver the certificates of insurance evidencing such insurance to the
Mortgagee and will reimburse the Mortgagee for any premiums paid for insurance
procured by the Mortgagee or deemed necessary by it in the event that after
written notice from Mortgagee, Mortgagor fails to obtain such insurance within
thirty (30) days.
TWENTY FOURTH: As used in this Mortgage, the following terms have the
following respective meanings:
Imposition(s): All real estate and other taxes or assessments (including
without limitation), all assessments for public improvements or benefits,
whether or not commenced or completed prior to the date hereof or during the
remaining in force hereof, water, sewer, or other rents, rates and charges,
excises, levies, license fees, permit fees, inspection fees and other,
authorization fees and other charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforseen, of every character
(including all penalties or interests thereon), which at any time may be
assessed, levied, confirmed or imposed on or in respect of, or be or become a
lien upon
20
<PAGE> 73
(a) the Mortgaged Property or any part thereof or any rents, issues, income,
profits, or earnings therefrom, or any estate right or interest therein, or (b)
any occupancy, use or possession of or sales from the Mortgaged Property or any
part thereof.
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, direction and requirement of all governments, departments,
commissions, boards, courts, authorities, agencies, officials and/or officers
having jurisdiction over the Mortgaged Property, Mortgagor or any tenant
occupying all or any part of the Mortgaged Property, whether foreseen or
unforeseen, ordinary or extraordinary, which now or at any time thereafter may
be applicable to the Mortgaged Property or any part thereof, or any of the
streets, roads, alleys, passageways, sidewalks, curbs, malls, gutters, vaults,
or vault spaces adjoining the Mortgaged Property or any part thereof, or any use
or condition of the Mortgaged Property or any part thereof.
Mortgage: This instrument, as the same may be supplemented and amended from
time to time.
Mortgage Note(s): As defined in Paragraph SECOND of this deed.
Mortgagee: Banco Santander Puerto Rico, or the holder and/or owner (whether
by way of pledge, endorsement,
21
<PAGE> 74
assignment for security or otherwise) of the Mortgage Note.
Mortgagor: SIMMONS CARIBBEAN BEDDING, INC.
Mortgaged Property: As defined in Paragraph FIRST, THIRD AND TWENTY SEVENTH
of this deed.
Taking: A taking of all or part of the Mortgaged Property as a result of or
in lieu, or in anticipation of the exercise of the rights of condemnation or
eminent domain, or a change of grade adversely affecting the Mortgaged Property.
Total Taking: As defined in Paragraph THIRTEENTH of this deed.
TWENTY FIFTH: Miscellaneous: All of the terms of this Mortgage shall apply to
and be binding upon the successors and assigns of Mortgagor or subsequent each
successor or assign and shall inure to the benefit of the owner and/or holder
from time to time of the Mortgage Note. Neither this Mortgage nor any term
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the holder and/or owner of the Mortgage Note,
notice of which must be written as a legend in the Mortgage Note. All of the
costs, expenses, notarial and recordation fees and/or stamps related to the
execution of the Mortgage Note, to the execution and recordation of this
Mortgage and to any action of Mortgagor and/or Mortgagee required in this deed
shall be for the account of and payable by Mortgagor.
22
<PAGE> 75
TWENTY SIXTH: The Mortgage Note referred to in Paragraph SECOND hereof,
literally transcribed reads as follows:
MORTGAGE NOTE
FOR: $3,200,000.00 MATURITY: ON DEMAND
FOR VALUE RECEIVED, SIMMONS CARIBBEAN BEDDING, INC., a Puerto Rico
corporation ("Borrower"), promises to pay to the order of Banco Santander Puerto
Rico, on demand, at such place as the holder of this Mortgage Note may specify
in writing from time to time, in lawful money of the United States of America,
the principal sum of THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000.00),
together with interest thereon from the date of this Mortgage Note until full
payment hereof, payable on the first day of each and every month following the
date hereof, at a fluctuating annual rate equivalent to Two Hundred (200) basis
points over the London Interbank Offered Rate (LIBOR), adjusted every Ninety
(90) days.
In case the owner and/or holder of this Mortgage Note shall take recourse to
foreclosure or other judicial proceedings, including any proceedings under the
Bankruptcy Act, for the collection of all or any part of the principal hereunder
or any interest thereon, the Borrower hereby agrees to pay an additional amount
equal to ten percent (10%) of the principal of this Mortgage Note, as liquidated
amount, without necessity of further liquidation or approval by the Court, to
cover costs and expenses (including attorney's fees and expenses) of such
foreclosure or judicial proceedings.
The undersigned hereby waives presentment, protest, demand and notice of
nonpayment.
This Note is guaranteed and secured by a First Mortgage upon certain
Mortgaged Property constituted as per Deed Number--67-- of this date before the
subscribing Notary.
In San Juan, Puerto Rico, this 12th day of December, 1997.
SIMMONS CARIBBEAN BEDDING, INC.
By: (Signed) Hector M. Osoria
President and General Manager
23
<PAGE> 76
Affidavit No. 25,160 Subscribed and acknowledged to before me by Mister Hector
M. Osorio, as President and General Manager of Simmons Caribbean Bedding, Inc.,
of legal age, married, executive and resident of Guaynabo Puerto Rico,
personally known to me, at San Juan, Puerto Rico, this 12th day of December,
1997.
(SIGNED) MANUEL CORREA CALZADA
Notary Public."
There appears the seal of the Notary.
TWENTY SEVENTH: The Mortgaged Property referred to in Paragraphs FIRST and
THIRD of this deed, is described in the Spanish language as follows:
URBANA: Parcela de terreno radicada en el Barrio Las Cuevas de Trujillo Alto,
Puerto Rico, identificada como solar Numero Seis (6) del Parque Industrial Las
Cuevas, con una cabida superficial de Diez Mil Seiscientos Ochenta y Siete punto
Setenta (10687.70) metros cuadrados, equivalentes a dos cuerdas con setecientos
diecinueve (2.719) cienmilesimas de otra, en lindes por el Norte, con el solar
numero Cinco (5) y con el area de viraje de la Calle "C" de la misma area
industrial; por el Sur, con la Calle "A" del Parque Industrial; por el Este, con
el area de uso publico del area industrial, solar Diecisiete (17) y con el area
de viraje de la Calle "A" de la misma area industrial; y por el Oeste, con la
Calle "C" de la misma area industrial.
The above described property was segregated from a property formed by the
grouping of certain properties as it appears from Deed Number Twenty (20),
executed on December Four (4), Nineteen Hundred Ninety Two (1992), before Notary
Edgardo L. Martinez, pending recordation. The properties that were grouped are
the following: Properties Number Six Thousand Four Hundred Thirty Six (6,436),
Property Number Eleven Thousand Seven Hundred Seventy Eight (11,778) and Four
Thousand Three (4003), recorded at Pages Eighty Two (82), Seventy Eight (78) and
One Hundred Twenty Nine (129) of Volumes One Hundred Twenty Eight (128), Two
Hundred Thirty Eight (238) and Ninety (80) of Trujillo Alto, respectively.
Mortgagor acquired the above described property as it appears from Deed
Number Fourteen (14), executed at San Juan, Puerto Rico, on the second (2nd) day
of June, Nineteen Hundred Ninety Seven (1997), before Notary Edgardo L. Martinez
Nazario, pending recordation.
24
<PAGE> 77
TWENTY EIGHTH: It is understood and agreed that in the event that the
Mortgagee, on account of a default by Mortgagor, or by Agreement with Mortgagor,
becomes the owner of the Mortgaged Property, then and in such event, any and all
approvals, plans and specifications, servitudes, lease contracts, and in general
everything required and or related to development, use and disposition of the
Mortgaged Property, shall be of the exclusive ownership of the Mortgagee, with
full authority and power to make whatsoever changes or amendments Mortgagee may
deem advisable in connection therewith, and whoever contracts with the Mortgagor
shall have no right of any kind whatsoever to claim or allege against the
Mortgagee in connection with any of the documents, instruments, approvals or
otherwise, which documents are given as an integral part of the collateral
security of the Mortgage.
The appearing parties ratify, confirm and accept this Mortgage because the
same has been drawn in accordance with their instructions.
I, the Notary Public, do hereby CERTIFY that this document was read by the
appearing parties, that I, the Notary, and the said appearing parties can read
and understand the English language, that I, the Notary, advised the appearing
parties of the legal effects of this document, that the said parties signed this
Mortgage, that the said appearing parties initialed every page
25
<PAGE> 78
hereof in my presence and that the said appearing parties waived their right to
request the presence of witnesses of which right I appraised them.
And I, the Notary, do hereby also certify as to my personal knowledge of the
appearing parties and as to their personal circumstances, in accordance with
their statements, as well as to all other things herein contained.
FIRMADO: HECTOR M. OSORIO, ARIEL LEBRON LEBRON Y MYRNA DIAZ MARRERO
26
<PAGE> 79
MORTGAGE NOTE
FOR: $3,200,000.00 MATURITY: ON DEMAND
FOR VALUE RECEIVED, SIMMONS CARIBBEAN BEDDING, INC., a Puerto Rico
corporation ("Borrower"), promises to pay to the order of Banco Santander Puerto
Rico, on demand, at such place as the holder of this Mortgage Note may specify
in writing from time to time, in lawful money of the United States of America,
the principal sum of THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000.00),
together with interest thereon from the date of this Mortgage Note until full
payment hereof, payable on the first day of each and every month following the
date hereof, at a fluctuating annual rate equal to Two Hundred (200) basis
points over the London Interbank Offered Rate (LIBOR), adjusted every Ninety
(90) days.
In case the owner and/or holder of this Mortgage Note shall take
recourse to foreclosure or other judicial proceedings, including any proceedings
under the Bankruptcy Act, for the collection of all or any part of the principal
hereunder or any interest thereon, the Borrower hereby agrees to pay an
additional amount equal to ten percent (10%) of the principal of this Mortgage
Note, as liquidated amount, without necessity of further liquidation or approval
by the Court, to cover costs and expenses (including attorney's fees and
expenses) of such foreclosure or judicial proceedings.
The undersigned hereby waives presentment, protest, demand and notice
of nonpayment.
This Note is guaranteed and secured by a First Mortgage upon certain
Mortgaged Property constituted as per Deed Number -67- of this date before the
subscribing Notary.
In San Juan, Puerto Rico, this 12th day of December, 1997
SIMMONS CARIBBEAN BEDDING, INC.
/s/ Hector M. Osorio
-------------------------------
Hector M. Osorio
President and General Manager
Affidavit No. 25,160
-------
Subscribed and acknowledged to before me by Mister Hector M. Osorio, as
President and General Manager of Simmons Caribbean Bedding, Inc., of legal age,
married, executive and resident of Guaynabo, Puerto Rico, personally known to me
at San Juan, Puerto Rico, this 12th day of December, 1997.
[SEAL]
/s/ Manuel Correa Calzada
-------------------------------
Notary Public
<PAGE> 80
IVAN A. HERNANDEZ & ASSOC.
ARCHITECTS AND ENGINEERS
December 12, 1997
Banco Santander Puerto Rico
San Juan, Puerto Rico
Gentlemen:
The undersigned acknowledges and consents to the use, at no cost to
you, of all plans, specifications, drawings, renderings, and models by you or
your successors or assignees, if necessary, for the development and construction
of a commercial building at Las Cuevas Ward, Trujillo Alto, Puerto Rico. (Case
Number 97-19-A-977-OPA) which were prepared by us for Simmons Caribbean Bedding,
Inc.
You should have all the rights of Simmons Caribbean Bedding, Inc. in
said plans, drawings, renderings and models and without limiting the generality
of the foregoing, may use such material to complete the project to which they
pertain.
Very truly yours,
/s/ Ivan A. Hernandez
-----------------------------
Arch. Ivan A. Hernandez, AIA
Lic. 8391
Assignment of the Borrower:
All rights, title and interest of Simmons Caribbean Bedding, Inc,. on the above
referred plans, drawings, renderings and models are also hereby assigned to
Banco Santander Puerto Rico by Simmons Caribbean Bedding. Inc.
SIMMONS CARIBBEAN BEDDING, INC.
By: Hector M. Osorio
-----------------------------
Hector M. Osorio
President and General Manager
<PAGE> 81
,1997
Banco Santander Puerto Rico
San Juan, Puerto Rico
Re: Borrower: Simmons Caribbean
Bedding, Inc.
Loan amount: $3,200,000,000
Project: Warehouse and Office
Building at Las Cuevas
Ward, Trujillo Alto, P.R.
Gentlemen:
We are the contractor in the above project.
In consideration of your making the loan to Simmons Caribbean Bedding,
Inc. (hereinafter referred to as the Borrower) to finance said construction, we
agree that in the event of default by Borrower, under any of the loan documents,
we shall, if requested by you or your assignee within a period of Ninety (90)
days after default, continue performance in your behalf under the existing
agreement with Borrower in accordance with the terms thereof, provided we shall
be reimbursed in accordance with said Agreement for all work, labor, and
materials rendered.
We further agree that we shall not perform work pursuant to any change
order which will result in a change of the contract price unless we shall have
received your written approval of such change order. In the event such approval
is not obtained, our agreement with the Borrower to continue performance
thereunder for your benefit shall be deemed not to have been modified by such
change order.
We further agree that from each amount approved for payment, you will
disburse to Borrower 90% of the work certified and approved for payment. The
remaining 10% is hereby subordinated by us to any amounts due by Borrower to you
under the Loan until the Loan is converted to a permanent loan and until you
approve such disbursement.
The officer executing this instrument on behalf of the undersigned
hereby personally certifies that the undersigned has full authority to perform
all of its obligations under the aforementioned agreement in accordance with the
terms thereof.
Very truly yours,
CARIBBEAN INDUSTRIAL CONSTRUCTION, S.P.
/S/ Gustano A. Hermida
------------------------
Gustano A. Hermida
<PAGE> 82
SIMMONS COMPANY
December 12, 1997
Banco Santander Puerto Rico
G.P.O. Box 362589
San Juan, Puerto Rico 00936
Gentlemen:
The undersigned refers to the Loan Agreement of December 12 , 1997 (the
"Loan Agreement") between Banco Santander Puerto Rico (hereinafter referred to
as the "Bank") and Simmons Caribbean Bedding, Inc., a corporation organized and
existing under the laws of the Commonwealth of Puerto Rico (hereinafter referred
to as the "Borrower"), whereby the Bank has agreed to make loans, advances and
provide credit to the Borrower for a maximum amount of U.S. THREE MILLION TWO
HUNDRED THOUSAND DOLLARS ($3,200,000.00).
To induce the Bank, at its option, from time to time, to make loans or
advances at the request and/or for the account of the Borrower, the undersigned
hereby guarantees jointly and severally with the Borrower the punctual payment,
at maturity to you, of each and all loans, advances, and other obligations
herein referred to, and also all other indebtedness which is now, or may
hereinafter become due and owing by Borrower under the Loan Agreement ("the
indebtedness") including any and all instruments hereinbefore mentioned,
together with any and all reasonable and actual expenses which might be actually
incurred by the Bank in collecting all or any of indebtedness and/or enforcing
any rights hereto, provided, however, that the total liability of the
undersigned hereunder ("the guaranteed liabilities") shall not exceed the amount
of U.S. THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000.00) in lawful
money of the United States of America, plus such interest as might be accrued
<PAGE> 83
2
thereunder under the Loan Agreement, either before or after maturity date and
such expenses as might be incurred by the Bank as referred to above. The
undersigned hereby waives notice of acceptance of this guaranty and also
presentment, demand, protest, and notice of dishonor for non-acceptance, or
non-payment of any and all instruments herein before referred to and likewise
waives demand for non-payment and notice of non-payment of any and all the
indebtedness, provided that a written statement of a Manager or Acting Manager
of a branch of the Bank at which an account of the Borrower is kept or of a
General Manager of the Bank as to the amount remaining unpaid to the Bank at any
time by the Borrower shall, if agreed to by the Borrower, be conclusive evidence
and shall, in any event be prima facie evidence against the undersigned as to
the amount remaining unpaid to the Bank at such time by the Borrower.
The undersigned hereby consents and agrees that the Bank may at any
time, or from time to time, in your discretion, extend or change the time of
payment, and/or the manner, place or terms of payments of all or any
indebtedness, or any part or parts thereof
or of any renewal or renewals thereof.
No delay on your part in exercising or enforcing any rights or lien
hereunder or in taking any action to collect or enforce any of the indebtedness
or other obligation hereby guaranteed, shall operate as a waiver of any such
rights or prejudice in any manner the right of the Bank hereunder, as against
the undersigned.
In case of insolvency or bankruptcy in the affairs of the Borrower, or
of the undersigned, or in case a petition in bankruptcy or for the appointment
of a receiver should be filed in any court by or against the Borrower or by or
against the undersigned, or application should be made for the attachment of any
properties, then all of the indebtedness shall be deemed for the purpose of this
guaranty immediately due and payable, and the responsibility of the undersigned
in this document shall be demandable, all without demand or notice.
<PAGE> 84
3
This guaranty shall remain valid and in full force and effect with
respect to all indebtedness incurred by Borrower, plus interest at the rate
provided for in the Loan Agreement on all amounts due until total payment of
same, and the aforesaid expenses incurred
by the Bank in collecting such Indebtedness.
This guaranty shall be binding upon the undersigned as soon as any loan
or advance is made by the Bank under the Loan Agreement in reliance upon this
guaranty, the undersigned hereby consenting and agreeing that all loans which
the Bank may hereafter make, shall be deemed to be made at the request of the
undersigned and in reliance upon this guaranty, it being understood that, until
such time as all obligations to the Bank of the Borrower shall have been paid in
full, the undersigned agree that it will not exercise any rights to proceed
against the Borrower, either under section 1742 of the Civil Code of Puerto
Rico (1930 ed.) or otherwise, nor shall assert against you or Borrower,
judicially or otherwise, any claim or right to be subrogated with respect to any
amounts which may have been paid to the Bank by the undersigned, under the
provisions of this guaranty, it being the intention of the undersigned, that,
irrespective of the amounts which may at any time be owing to the Bank by the
Borrower the obligations of the undersigned hereunder, up to the limit above
stated, shall not be diminished until such time as the Bank shall have been paid
in full for all loans or advances made by the Bank under the Loan Agreement.
The undersigned, a corporation organized under the laws of Delaware,
United States of America, represents that it expects to derive advantages from
the financial accommodations given by the Bank to Borrower.
The undersigned expressly waives and renounces any and all rights that
undersigned may have to claim jointly and/or severally against Borrower for any
payments made to the Bank by undersigned under the provisions of this Guaranty.
<PAGE> 85
4
Intending to be legally bound, this Letter of Guaranty is executed as
of this December 12, 1997, at
SIMMONS COMPANY
By: /s/ Roger Franklin
-----------------------
Vice President-Finance, Treasurer
Affidavit No. 25,161
-------
Acknowledged and subscribed to before me by Mister Roger W. Franklin,
as Vice-President Finance and Treasurer of Simmons Company, of legal age,
married, executive and resident of the State of Georgia, temporarily in San
Juan, Puerto Rico, personally known to me, at San Juan, Puerto Rico, this 12th
day of December, 1997.
/s/
--------------------------
[SEAL] NOTARY PUBLIC
<PAGE> 86
CERTIFICATE OF CORPORATE RESOLUTION
The undersigned, Assistant Secretary of Equus Management Company, a
Delaware corporation (the "Corporation"), does hereby certify that at a Meeting
of the Board of Directors of the Corporation duly held on the 9th day of
December, 1997 the following resolution were unanimiously approved and adopted:
"RESOLVED: that Gretchen Gronau, acting in her capacity as Vice
President of the Corporation, as general managing partner of Equus
Gaming Company L.P. ("Equus"), as managing partner of Housing
Development Associates S.E. ("HDA") is hereby authorized and directed
to execute in the name and on behalf of HDA all the necessary documents
and agreements in connection with a ONE MILLION DOLLARS ($1 000,000.00)
loan from Banco Santander Puerto Rico under the terms and conditions
setforth in the letter dated December 4,1997, included herewith as
Exhibit A, and
FURTHER RESOLVED, that such Officer, is also hereby authorized and
directed to execute in the name and on behalf of HDA the necessary
documents to grant Banco Santander the assignment of certain funds to
be received from its subsidiary Equus Gaming de Panama, S.A. in excess
of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00), and
FURTHER RESOLVED, that such Officer, acting in her capacity as Vice
President of the Corporation, as general managing partner of Equus, is
also hereby authorized and directed to execute in the name and on
behalf of Equus the necessary documents to grant Banco Santander the
guaranty of ONE MILLION DOLLARS ($1,000,000.00) under the loan with HDA
and the assignment of quarterly cash distributions from HDA, up to
$250,000 per quarter.
Said Resolution has not been modified or rescinded and is in full
effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Corporation in San Juan, Puerto Rico, this 11th day of December, 1997.
[SEAL] EQUUS MANAGEMENT COMPANY
By: /s/
------------------------
Assistant Secretary
<PAGE> 87
CERTIFICATE OF CORPORATE RESOLUTION
The undersigned, Assistant Secretary of Equus Entertainment
Corporation, a Puerto Rico corporation (the "Corporation"), does hereby certify
that at a Meeting of the Board of Directors of the Corporation duly held on the
9th day of December, 1997 the following resolution was unanimiously approved and
adopted:
"RESOLVED: that Gretchen Gronau, acting in her capacity as Vice
President of the Corporation, is hereby authorized and directed to
execute in the name and on behalf of the Corporation the necessary
documents to grant Banco Santander the guaranty of ONE MILLION DOLLARS
($1,000,000.00) under a loan with Housing Development Associates S.E.
("HDA") and the assignment of quarterly cash distributions from HDA, up
to $250,000 per quarter.
Said Resolution has not been modified or rescinded and is in full
effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation in San Juan, Puerto Rico, this 11 h day of December, 1997.
EQUUS ENTERTAINMENT COMPANY
By:/s/
-----------------------
Assistant Secretary
<PAGE> 88
CERTIFICATE OF RESOLUTION
-------------------------
I, Roger W. Franklin Assistant Secretary of SIMMONS CARIBBEAN BEDDING,
INC., a corporation organized and existing under the Laws of the Commonwealth of
Puerto Rico, do hereby CERTIFY:
That the Board of Directors of said corporation duly adopted on
December 9, 1997, the following Resolution by unanimous written consent of all
Directors, and that said Resolution as of the date of this Certificate Continue
in full force and effect and has not been altered, amended or revoked.
"BE IT RESOLVED: that Mr. Hector M. Osorio is hereby authorized and
directed, on behalf of this Corporation, to obtain from Banco Santander
Puerto Rico an interim construction loan in the principal amount of
Three Million Two Hundred Thousand Dollars ($3,200,000.00), which loan
will be converted into a Permanent Loan for a period of Fifteen (15)
years under the terms and conditions that he deems proper.
In connection thereof, and in order to accomplish the stated purpose,
the aforementioned officer is authorized to execute loan agreements,
promissory notes, deeds of mortgages, deeds of purchases, cancellation
of mortgages, contracts of pledge, loan documents, and any other
document evidencing said loan or related therewith, in a firm as such
officer shall approve, with his execution thereof to be conclusive
evidence of such approval."
IN WITNESS WHEREOF, I sign this document this 12 day of December, 1997.
/s/
--------------------------
Assistant Secretary
Affidavit No. 25,162
---------
Sworn and subscribed to before me by: Mister Roger W. Franklin, as Assistant
Secretary of Simmons Caribbean Bedding,
Inc. of legal age, married executive and
- ------------------------------ resident of the State of Georgia,
[SEAL] Notary Public temporarily in San Juan, Puerto Rico,
personally known to me at San Juan,
Puerto Rico, this 12th day of December,
1997.
<PAGE> 89
CERTIFICATE OF RESOLUTION
I, John P. Peterken, Assistant Secretary of SIMMONS COMPANY, a
corporation organized and existing under the Laws of Delaware, United States of
America, do hereby CERTIFY:
That at a meeting of the Board of Directors of said corporation duly
convened and held on March 25, 1997, at which a quorum was present and voting at
all times, the following Resolution was duly adopted by the unanimous vote of
all Directors, and that said Resolution as of the date of this Certificate
continue in full force and effect and has not been altered, amended or revoked.
Resolved, that the purchase of land and the construction of a
manufacturing facility in Trujillo Alto, Puerto Rico by Simmons Caribbean
Bedding Inc. (SCBI) (a wholly owned subsidiary of Simmons Company (the Company),
and SCBI's borrowing of sufficient long term funds to complete such facilities
in Puerto Rico on the general terms and conditions as presented to the Board,
for a total cost not to exceed $4 million (collectively the Puerto Rico
Project), is hereby authorized and approved; and that the Executive Vice
President and Chief Financial Officer and the Vice President-Finance, Treasurer
and Assistant Secretary (the Authorized Officers) of the Company be, and each of
them hereby is, authorized and directed, in the name and on behalf of the
Company and SCBI under their corporate seal or otherwise, to execute and deliver
such agreements, instruments, documents, powers of attorney or certificates in
connection therewith or contemplated thereby with such amendments, changes,
additions and deletions as any of them, with the advice of the Company's
counsel, may deem to be in the best interest of, and approved on behalf of the
Company, such approval to be conclusively evidenced by the signature of the
Authorized Officers thereon, and to take any and all further actions, in the
name and on behalf of the Company or SCBI, as may be necessary or desirable to
consummate the transactions contemplated;
Further Resolved, that the Authorized Officers be, and each of them
hereby is, authorized to execute and deliver in the name and on behalf of the
Company or SCBI under its corporate seal or otherwise, all other agreements,
instruments and documents necessary or desirable to reflect the consummation of
the transactions contemplated by the Puerto Rico Project and to do and perform
any and all such further acts and deeds and to pay all such expenses as they or
any of them deem necessary or advisable to carry out the foregoing resolutions
and the transactions contemplated thereby; and
<PAGE> 90
FURTHER RESOLVED, that any and all actions heretofore or hereafter
taken by any Authorized Officer of the Company with respect to or in
contemplation of the Puerto Rico Project are hereby ratified and
approved.
I DO HEREBY CERTIFY, that Mr. Roger W. Franklin is presently a duly
elected or designated Vice President-Finance, Treasurer of this
Corporation.
IN WITNESS WHEREOF, I sign this document and affixed the Seal of this
Corporation, at Atlanta Ga, this 10th day of December, 1997
/s/ ILLEGIBLE
---------------------------------
ASSISTANT SECRETARY
<PAGE> 91
ACTUALIZACION DE ESTUD
CASO: SIMMONS CARIBBEAN (COMPANIA DE FOMENTO INDUSTRIAL)
CASO NUMERO: 1222.6270
FINCAS NUMEROS 6436, 11778 y 4003 INSCRITAS A LOS FOLIOS 82,78 y 129 TOMOS 128,
238 y 90 DE TRUJILLO ALTO SECCION CUARTA DE SAN--
JUAN----------------------------------------------------------------------------
FUERON AGRUPADAS CON UNA CABIDA DE 48.42 CUERDAS DICHA AGRUPA-
CION AL ASIENTO 87 DIARIO 96 (VEA ESTUDIO ORIGINAL)
POSTERIOR AL ESTUDIO ORIGINAL Y CON FECHA 6 DE NOVIEMBRE 1997 Y
AL ASIENTO 17 DIARIO 155 SE PRESENTO ESCRITURA # 14 OTORGADA EN
SAN JUAN 2 JUN10 1997 ANTE NOTARIO EDGARDO R. MARTINEZ NAZARIO-
(SEGREGACION Y COMPRAVENTA)-----------------------------------------------------
SEGREGA Y VENDE....... THE PUERTO RICO INDUSTRIAL DEVELOPMENT----
COMPANY EL SOLAR # 6 DEL PARQUE INDUSTRIAL
LAS CUEVAS (VEA DESCRIPCION MAS ADELANTE)
COMPRA................ SIMMONS CARIBBEAN BEDDING INC. REPRESENTADA
POR HECTOR OSORIO MAYOR EDAD CASADO CON----
LYDIA LARTIGUE ENRIQUEZ (NO SE ACOMPANA LA
ACREDITACION DE LAS FACULTADES PARA REPRE-
SENTAR A LA COMPRADORA)
PRECIO................ $ 447,250.00
DESCRIPCION:
URBANA" PARCELA DE TERRENO RADICADA EN EL BARRIO LAS CUEVAS DE TRUJILLO ALTO
PUERTO RICO IDENTIFICADA COMO SOLAR NUMERO 6 DEL PARQUE INDUSTRIAL LAS CUEVAS
CON UNA CABIDA SUPERFICIAL DE __ 10,687.70 METROS CUADRADOS EQUIVALENTES A 2.719
CUERDAS Y EN --- LINDES POR EL NORTE CON EL SOLAR NUMERO 5 Y CON EL AREA DE
VIRAJE DE LA CALLE C DE LA MISMA AREA INDUSTRIAL; POR EL SUR CON LA ---- CALLE A
DEL PARQUE INDUSTRIAL; POR EL ESTE CON EL AREA DE USO --- PUBLICO DEL AREA
INDUSTRIAL, SOLAR 17 Y CON EL AREA DE VIRAJE DE LA CALLE A DE LA MISMA AREA
INDUSTRIAL Y POR EL OESTE CON LA CALLE C DE LA MISMA AREA INDUSTRIAL.-----------
SE ACOMPANA CERTIFICACION DE ARPE Y PLANO APROBANDO EL PROYECTO 96-19-B-210 CGT
BAJO AFF. 3392 DEL 24 ABRIL 1997 ANTE NOTARIA OLGA IRIS MARCANO BENITEZ Y ACTA
DE ACLARACION # 15 OTORGADA SAN JUAN 3 JUN10 1997 ANTE NOTARIO EDGARDO L.
MARTINEZ NAZARIO ACLARANDO--- EL REMANENTE DESPUES DE LA SEGREGACION Y QUEDA LA
FINCA PRINCIPAL CON CABIDA DE 40.921 CDAS EQUIVALENTES A 159,634.2308 M/C-------
NOTA: LA SEGREGACION QUEDA CON LAS CONDICIONES DE VENTA QUE SURGE DE LA CITADA
ESCRITURA # 14 Y ENTRE ELLAS NO PODRA VENDER, ARRENDAR CEDER 0 TRASPASAR LA
PROPIEDAD AL E.L.A DE P.R. POR UN TERMINO DE 10 ANOS. NI PODRA VENDER, HIPOTECAR
0 ARRENDAR SIN CONSENTIMIENTO ESCRITO DE LA COMPANIA.
RESTO ESTUDIO ORIGINAL QUEDA TAL COMO SE HICIERA ORIGINALMENTE,
FUERON BUSCADOS LIBROS DE EMBARGOS HASTA FOLIO 59 # 26., FEDERALES HASTA
FOLIO(53 A-) DIGO 108 A-3 Y SENTENCIA FOLIO 53 # 145 Y LA BITACORA # 13 HASTA
ASIENTO 264 DIARIO 157----------------------------------------------------------
9 de diciembre 1997
/s/ C. Arroyo
C. Arroyo
<PAGE> 92
ESTUDIO DE TITULO
CASO: SIMMONS CARIBBEAN ( C0MPANIA DE FOMENTO INDUSTRIAL DE P.R.)
CASO NUMERO: 1222.6270
FINCAS NUMERO 6436, 11,778 y 4003 INSCRITAS A LOS FOLIOS 82, 78 y 129
TOMOS 128, 238 y 90 DE TRUJILLO ALTO SECCION CUARTA DE SAN JUAN-----------------
DESCRIPCION:
RUSTICA: PORCION DE TERRENO SITADA EN EL BARRIO DENOMINADO-- LAS CUEVAS
DEL TERMINO MUNICIPAL DE TRUJILLO ALTO COMPUESTA-- DE 5.00 CUERDAS
EQUIVALENTES A 1 HECTAREA, 96 AREAS, 51 CENTI- AREAS Y 59 MILIAREAS y
EN LINDES POR EL NORTE Y OESTE CON UN- CAMINO VECINAL QUE LO SEPARA DE
TERRENOS DE DIAZLITE INC. Y - LINDES POR EL SUR Y ESTE CON LA FINCA
PRINCIPAL DE LA CUAL--- ESTA SE SEGREGA PROPIEDAD DE FAUSTINO
BETANCOURT.------------------------------------------------------------
ESTA ES FINCA 6436 AL FOLIO 82 TOMO 128 TRUJILLO ALTO------------------
ORIGEN:
SE SEGREGA DE LA FINCA 1803 AL FOLIO 250 y 181 TOMOS 27 y 29-
RUSTICA: PORCION DE TERRENO SITUADA EN EL BARRIO DENOMINADO LAS CUEVAS
DEL TERMINO MUNICIPAL DE TRUJILLO ALTO COMPUESTO- DE 8.08 CUERDAS
EQUIVALENTES A 31,757.5445 METROS CUADRADOS- y EN LINDES POR EL NORTE
CON TERRENOS PROPIEDAD DE ANTONIO R. DIAZ; POR EL SUR CON EL RIO GRANDE
DE LOIZA, POR EL ESTE CON TERRENOS PROPIEDAD DE METROPOL DEVELOPMENT
CORP. Y ANTONIO R. DIAZ Y POR EL OESTE CON TERRENOS DE DIAZLITE INC.---
ESTA ES FINCA 11,778 INSC RITA AL FOLIO 78 TOMO 238 T. ALTO.
SE SEGREGA DE LA FINCA 46 AL FOLIO 154 TOMO 50 DE TRUJILLO-- ALTO.
RUSTICA: SITUADO EN EL BARRIO CUEVAS DE TRUJILLO ALTO CON UN AREA
SUPERFICIAL DE 35.35 CUERDAS EQUIVALENTES A 13 HECTAREAS 89 AREAS, 64
CENTIAREAS Y 79 MILIAREAS Y EN LINDES POR EL --- NORTE CON CAMINO
MUNICIPAL QUE SEPARA DE DANIEL VAZQUEZ, JOSE FERNANDEZ Y TERRENOS DE
HIPOLITO O'FARRIL; POR EL SUR CON EL CAMINO VECINAL TERRENOS DE
FRANCISCO BETANCOURT Y RIO GRANDE DE LOIZA; POR EL ESTE CON TERRENOS DE
EMILIO TORRES E HIPOLITO O'FARRIL Y POR EL OESTE CON CAMINO MUNICIPAL
SEPARADO DE ---- DANIEL VELAZQUEZ Y JOSE FERNANDEZ Y CAMINO VECINAL QUE
COMIENZA CON EL CAMINO MUNICIPAL Y TRANSCURRE AL SURESTE Y TERRENOS DE
FAUSTINO BETANCOURT.
ESTA ES LA FINCA 4003 AL FOLIO 129 TOMO 90 DEL TOMO TRUJILLO ALTO.-----
ESTA TIENE LAS SIGUIENTES EDIFICACIONES: EDIFICIO DE ALMACEN- DE
MATERIA PRIMA, DE ARMAZON DE ACERO CON TECHO DE DUROTEX Y PISO DE
TIERRA. CASETA PARA OFICINA Y SHOP DE CONCRETO DE--- CASETA DE SWITCHES
Y EDIFICIO DE CONCRETO PARA COMEDOR. EN-- ESTAS EDIFICACIONES Y EN EL
INMUEBLE ANTES DESCRITO TENIAN SUS PROPIETARIOS FABRICAS PARA LA
MANUFACTURA DE AGREGADOS LIVIANOS Y MAQUINARIAS.
ADEMAS SE DESCRIBEN LAS SIGUIENTES EDIFICACIONES: UNA CHIMENEA DE
LADRILLOS, EDIFICACION DE ACERO CON TECHO Y PAREDES DE DUROTEX LAS
PAREDES Y EL TECHO HAN SIDO VANDALIZADOS, EDIFICIO DE ACERO CON PAREDES
Y TECHO DE DUROTEX, ESTRUCTURA DE ACERO PARA CONDUC- TORES EN CORREA
(CONVEYORS), RAW CLAY FEEDLER, ESTRUCTURA DE --- ACERO QUE SOPORTA A LA
PARTE SUPERIOR UN CONDUCTOR DE CORREA --- (BELT CONVEYOR) LA CUAL
CONTIENE UN EQUIPO ADHERIDO A LA MISMA CONOCIDO COMO "APRON FEEDER",
SEIS AROS DE ACERO QUE FORMAN PARTE DEL HORNO ROTATIVO CCN
REVESTIMIENTO INTERIOR DE BARRO REFRACTARIO UTILIZADO PARA EL
COCIMIENTO DE LOS AGREGADOS LIVIANOS.----------------------------------
ESTA SE FORMA POR AGRUPACION FINCAS 2493 y 1802 INSCRITAS A FOLIOS 170
v to. 247 DE LOS TOMOS 57 y 27 DE TRUJILLO ALTO.-----------------------
sigue......
<PAGE> 93
PAGINA # 2: CASO: 1222.6270 (SIMMONS CARIBEAN)
TODOS LAS FINCAS CONSTA INSCRITAS A FAVOR DE COMPANIA DE FOMENTO
INDUSTRIAL DE PUERTO RICO-------------------------------------------------------
ADQUIERE LAS DOS PRIMERAS 6436 y 11778 POR CESION DE ANTONIO R.- DIAZ -SOLTERO
CON VALOR DE $ 175,000.00 y $ 121,000.00 RESPECTIVA- MENTE SEGUN ESCRITURA # 4
OTORGADA SAN JUAN 26 DE MARZO 1975 ANTE NOTARIO GILBERTO ALFARO BERRIOS
INSCRITAS AL FOLIO 82 v to. 78 DE LOS TOMOS 128 y 238 DE TRUJILLO ALTO POR LAS
INSCRIPCIONES 2 y -- ULTIMAS Y PRIMERA Y UNICA.---------------------------------
LA FINCA 4003 LA ADQUIERE POR(AGRUPACION) DIGO POR COMPRA A DIAZ- LITE INC. POR
EL PRECIO DE $ 1,299,000.00 MEDIANTE ESCRITURA # 3 -- OTORGADA SAN JUAN 26 MARZO
1975 ANTE NOTARIO GILBERTO ALFARO BERRIOS POR INSCRIPCION 6a AL FOLIO 135 TOMO
90 TRUJILLO ALTO.---------------------------------------------------------------
Y LAS EDIFICACIONES LAS ADQUIERE POR COMPRA EN PUBLICA SUBASTA POR PRECIO DE $
1,000.00 MEDIANTE ESCRITURA # 6 OTORGADA SAN JUAN 21 DE NOVIEMBRE DE 1984 ANTE
NOTARIO RAMON SIACA POUPART POR INSCRIPCION 8va ULTIMA AL FOLIO 85 VTO. TOMO 284
TRUJILLO ALTO.------------------------------------------------------------------
CARGAS Y GRAVAMENES:
FINCA 6436: SERVIDUMBRE DE PASO, ARRENDAMIENTO VENCIDO (SOBRE UNA PARCELA DE
1000 CUERDA) A FAVOR DE MANUEL QUINONES CASADO CON --- CARMEN RIVERA Y DE MANUEL
PEREZ CASDO CON GUILLERMINA RODRIGUEZ POR EL TERMINO DE 7 ANOS CON UN CANON DE
$45.00 MENSUALES. TAMBIEN SE LE CONCEDE A LOS ARRENDATARIOS EL DERECHO DE
EXTRACCION DE GRAVA ARENA SEGUN ESCRITURA # 9 OTORGADA SAN JUAN 11 DE ENERO DE
1955 ANTE NOTARIO VICENTE HITA JR. SEGUN INSCRIPCION 4a. AL FOLIO 180 TOMO 29 DE
TRUJILLO ALTO. (FUE POR SU PROCEDENCIA FINCA 1803)------------------------------
FINCA: 11,778: LIBRE DE CARGAS
FINCA: 4003: POR SU PROCEDENCIA: SERVIDUMBRE DE PASO A FAVOR DE CENTRAL
VICTORIA INC.
POR SI: HIPOTECA GARANTIZANDO PAGARE A FAVOR DE GOVERMENT--
DEVELOPMENT BANK FOR P.R. POR LA SUMA DE $ 200,000.00 INTERESES AL 6% Y
VENCE 1 DE FEBRERO 1979 SEGUN LA--- ESCRITURA # 56 OTORGADA SAN JUAN 7
FEBRERO 1964 ANTE NOTARIO JORGE M. MORALES POR INSCRIPCION I AL FOLIO--
129 TOMO 90 TRUJILLO ALTO.
CANCELACION DE HIPOTECA ARRIBA RELACIONADA PRESENTADA AL ASIENTO 86 DIARIO 96
(VEA MAS ADELANTE)--------------------------------------------------------------
LAS FINCAS CITADAS SE AGRUPAN CON CABIDA DE 48.42 CDAS. VEA PRESENTA- CION
ASIENTO 87 DIARIO 96.-----------------------------------------------------------
BITACORA:
ASIENTO 86 DIARIO 96 Y CON FECHA 8 DE MAYO DE 1995 SE PRESENTO --- INSTANCIA
SUSCRITA 28 DICIEMBRE 1992, POR ANTONIO MALDONADO LOPEZ --- PRESIDENTE Y GERENTE
GENERAL DE LA COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO MEDIANTE LA CUAL SE
SOLICITA LA CANCELACION DE HIPOTECA DE $ 200,000.00 (QUE GRAVA LA FINCA 4003) Y
POR HABERLO ORDENADO EL-- TRIBUNAL SUPERIOR DE P.R. SALA DE SAN JUAN EN
SENTENCIA CON FECHA 6 OCTUBRE 1992 CASO CIVIL # KCD-91-0703(803) "PAGARE
EXTRAVIADO"---------------------------------------------------------------------
ASIENTO 87 DIARIO 96 Y CON FECHA 8 MAYO 1995 SE PRESENTO ESCRITURA -- # 20
OTORGADA SAN JUAN 4 DICIEMBRE 1992 ANTE NOTARIO EDGARDO L. --- MARTINEZ ROSARIO
(AGRUPACION)--------------------------------------------------------------------
COMPA RECE: COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO Y COMO --- DUENOS DE
LAS FINCAS 6436, 11778 y 4003 AGRUPA LAS MISMAS CON UN VALOR DE $ 1,600,000.00 y
SE DESCRIBE ASI:----------------------------------------------------------------
RUSTICA: PREDIO DE TERRENO LOCALIZADO EN EL BARRIO LAS CUEVAS DE ---- TRUJILLO
ALTO PUERTO RICO CON UN AREA SUPERFICIAL DE 48.42 CUERDAS --- EQUIVALENTES A
190,349.059 METROS CUADRADOS Y EN LINDES POR EL NORTE-- CON CAMINO MUNICIPAL
ANTES CARRETERA ESTATAL NUMERO 8860 AHORA CON---- PROPIEDAD DE HIPOLITO O'FARRIL
Y CON TERRENOS PROPIEDAD DE ANTONIO R. DIAZ; POR EL SUR CON TERRENOS PROPIEDAD
DE FAUSTINO BETANCOURT POMALES Y CON EL RIO GRANDE DE LOIZA Y POR EL ESTE CON
TERRENOS PROPIEDAD DE
sigue.....
<PAGE> 94
PAGINA # 3: CASO: 1222.6270 (SIMMONS CARIBEAN)
DE METROPOL DEVELOPMENT CORPORATION Y TERRENOS PROPIEDAD DE ANTONIO R. DIAZ Y
POR EL OESTE CON CAMINO MUNICIPAL ANTES CARRETERA ESTATAL NUMERO 8860 AHORA.----
SE ACOMPANA ESCRITURA DE ACTA ACLARATORIA # 6 OTORGADA SAN JUAN 27 DE FEBRERO
1997 ANTE NOTARIO EDGARDO L. MARTINEZ MEDIANTE LA CUAL-- LA COMPANIA DE FOMENTO
INDUSTRIAL DE PUERTO RICO ACLARA QUE LA --- - CABIDA CORRECTA ES 48.11 CUERDAS
EQUIVALENTES A 189,111.92 METROS-- CUADRADOS Y NO LA QUE SE EXPRESA EN EL
DOCUMENTO DE AGRUPACION ANTES RELACIONADA.--------------------------------------
ASIENTO 359 DIARIO 84 Y CON FECHA 11 DE AGOSTO 1994 SE PRESENTO LA
ESCRITURA #11 OTORGADA SAN JUAN 5 AGOSTO 1994 ANTE NOTARIO EDGARDO
L. MARTINEZ NAZARIO (SEGREGACION Y COMPRAVENTA)---------------------------------
VENDE....... COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO SEGREGA
DE LA PARCELA AGRUPADA SOLAR #7 (VEA DESCRIPCION MAS ADELANTE)
COMPRA...... INTER AMERICAN INDUSTRIAL DEVELOPMENT INC.
PRECIO...... $ 309,709.93
RUSTICA: SOLAR NUMERO 7 LOCALIZADO EN EL AREA INDUSTRIAL LAS ---- CUEVAS EN EL
BARRIO LAS CUEVAS DEL TERMINO MUNICIPAL DE TRUJILLO--- ALTO PUERTO RICO CON UNA
CABIDA SUPERFICIAL DE 9385.832 METROS ---- CUADRADOS EQUIVALENTES A 2.388
CUERDAS Y EN LINDES POR EL NORTE CON EL SOLAR NUMERO 3; POR EL SUR CON LA CALLE
N; POR EL ESTE CON CALLE C Y POR EL OESTE CON EL SOLAR NUMERO 8."---------------
SE EXPRESA EN EL DOCUMENTO QUE LA SEGREGACION FUE APROBADA MEDIANTE RESOLUCION
DE ARPE FECHA 14 JULIO 1992 PROYECTO # 92-19-A-263 CGT LA CUAL SE ACOMPANA------
DESPUES DE LA SEGREGACION QUEDA REMANENTE DE 46.032 CDAS. EQUIVALEN- TES A
179,725.360 M/C-----------------------------------------------------------------
SE ACOMPANA:
1. ESCRITURA # 5 DE ACTA ACLARATORIA OTORGADA SAN JUAN 27 FEBRERO DE 1997 ANTE
EDGARDO L. MARTINEZ NAZARIO MEDIANTE LA CUAL SE ACLARA CABIDA DE REMANENTE.
2. ESCRITURA # 20 DE ACTA DE RECTIFICACION OTORGADA SAN JUAN 7 DE MARZO 1997
ANTE NOTARIO MANUEL L. CORREA MARQUEZ MEDIANTE LA CUAL SE VUELVE ACLARAR LA
CABIDA DEL REMANENTE Y DEBE LEERSE-- 48.11 CDAS. EQUIVALENTES A 189,111.192
M/C------------------------------------------------------------------------
3. SE ACOMPANA RESOLUCION CORPORATIVA DE LA CORPORACION ADQUIRIEN- TE
AUTORIZANDO A OTORGAR ACTA DE RECTIFICACION.-------------------------------
ASIENTO 320 DIARIO 84 Y CON FECHA 10 DE AGOSTO 1994 SE PRESENTO LA ESCRITURA # 6
OTORGADA SAN JUAN 5 AGOSTO 1994 ANTE NOTARIO NOEL -- GONZALEZ MIRANDA MEDIANTE
LA CUAL INTER-AMERICAN INDUSTRIAL DEVELOPMENT INC. CONSTITUYE HIPOTECA SOBRE
SOLAR # 7 ARRIBA SEGREGADO-- GARANTIZANDO PAGARE PORTADOR $ 1,830,000.00
INTERESES 1% SOBRE EL PREFERENCIAL PREVALECIENTE EN CITIBANK DE N.Y. VENCE A LA
PRESENTA- CION.-----------------------------------------------------------------
ASIENTO 276 DIARIO 139 Y CON FECHA 7 MAYO 1997 SE PRESENTO ESCRITURA # 7
OTORGADA SAN JUAN 7 MARZO 1997 ANTE NOTARIO EDGARDO L. MARTINEZ NAZARIO
(SEGREGACION Y COMPRA)
VENDE.......... LA COMPANIA DE FOMENTO INDUSTRIAL DE P.R. Y DE LA AGRUPACION
SEGREGA EL SOLAR # 8 (VEA DESCRIPCION MAS ADELANTE) Y LO VENDE
A:
COMPRA......... INTER AMERICAN INDUSTRIAL DEVELOPMENT CORP. REPRE PRESENTADA
POR MANUEL QIUNTANA PUENTE MAYOR EDAD, CASADO CON CARMEN RITA
SOLER GARCIA SEGUN RESOLUCION 5 MARZO 1997 AFF.14258 NOTARIO
MANUEL L.---- CORREA MARQUEZ (SE ACOMPANA )
SIGUE......
<PAGE> 95
PAGINA # 4: CASO: 1222.6270 (SIMMONS CARIBEAN)
PRECIO........... $ 319,621.00
"RUSTICA" PREDIO DE TERRENO SOLAR NUMERO 8 LOCALIZADO EN EL AREA
INDUSTRIAL LAS CUEVAS EN EL BARRIO CUEVAS TERMINO MUNICIPAL DE TRUJILLO
ALTO PUERTO RICO Y EN LINDES POR NORTE CON LOS SOLARES 2 Y 3 DE LA
MISMA AREA INDUSTRIAL; POR EL SUR--- CON LA CALLE A DE LA MISMA AREA
INDUSTRIAL; POR EL ESTE CON EL SOLAR NUMERO 7 DE LA MISMA AREA
INDUSTRIAL Y POR EL OESTE CON LA CALLE B DE LA MISMA AREA INDUSTRIAL.
TIENE CABIDA DE 9403.4292 METROS CUADRADOS EQUIVALENTES A 2.392
CUERDAS.
QUEDANDO REMANENTE DE 43.330 CDAS.-------------------------------------
SE ACOMPANA ACTA NOTARIAL # 20 OTORGADA SAN JUAN 22 DE AGOSTO 1997 ANTE
NOTARIO EDGARDO L. MARTINEZ NAZARIO ACLARANDO EL -- REMANENTE.
ASIENTO 277 DIARIO 139 Y CON FECHA 7 MAYO 1997 SE PRESENTO LA ESCRITURA
# 19 OTORGADA SAN JUAN 7 MARZO 1997 NOTARIO MANUEL CORREA MARQUEZ
HIPOTECA SOBRE EL S LAR SEGREGADO # 8 GARANTI- ZANDO PAGARE A LA ORDEN
BANCO SANTANDER P.R. POR LA SUMA DE-- $ 250,000.00 INTERESES
PREFERENCIAL FLUCTANTE CITIBANK N.Y 0 THE CHASE MANHATTAN BANK VENCE A
LA PRESENTACION. CONSTITUIDA POR INTER AMERICAN INDUSTRIAL DEVELOPMENT
INC.-------------------------------------------------------------------
SE ACOMPANA ACTA ACLARATORIA # 8 OTORGADA SAN JUAN 7 MARZO 1997 NOTARIO
EDGARDO L. MARTINEZ NAZARIO EN LA QUE SE ACLARA- QUE EN LA ESCRITURA DE
SEGREGACION Y COMPRA SE AUTORIZA A LA COMPRADORA CONSTITUIR HIPOTECA AL
BANCO SANTANDER P.R.
ASIENTO 91 DIARIO 152 Y CON FECHA 7 DE OCTUBRE 1997 SE PRESENTO
ESCRITURA # 21 OTORGADA SAN JUAN 27 DE AGOSTO 1997 ANTE NOTARIO EDGARDO
L. MARTINEZ (SEGREGACION Y COMPRA)
VENDE....... P.R. INDUSTRIAL DEVELOPMENT CO. SOLAR # 5 (VEA DESCRIPCION
MAS ADELANTE)
COMPRA...... CARIBBEAN PAPER CO. INC. REPRESENTADA POR ADRIAN SILVA
REOLLANO MAYOR EDAD CASADO CON GAIL SILVA FACULTADES SEGUN
RESOLUCION CON FECHA 4 JUNIO DE 1996 AFF 2869 NOTARIO JOSE
VLADIMIR DIAZ TEJERA (SE ACOMPANA)
PRECIO...... $ 443,090.00
SE ACOMPANA RESOLUCION ARRIBA CITADA Y SE AUTORIZA A LA COMPRA- DORA
CONSTITUIR HIPOTECA BANCO POPULAR $ 1,944.800
RUSTICA; PRECIO DE TERRENO SOLAR NUMERO 5 LOCALIZADO EN EL --- AREA
INDUSTRIAL LAS CUEVAS DE TRUJILLO ALTO PUERTO RICO CON UNA CABIDA
SUPERFICIAL DE 13,032.036 METROS CUADRADOS EQUIVALENTE A 3.316 CUERDAS
Y EN LINDES POR EL NORTE CON EL SOLAR 4 DE LA AREA INDUSTRIAL Y CON EL
AREA DE VIRAJE DE LA CALLE C DE LA MISMA AREA INDUSTRIAL; POR EL SUR
CON EL SOLAR NUMERO 17, AREA DE USO PUBLI- CO DE LA MISMA AREA
INDUSTRIAL; POR EL ESTE CON TERRENOS DEL E.L.A Y POR EL OESTE CON EL
SOLAR NUMERO 6 DE LA MISMA AREA INDUSTRIAL.
QUEDA REMANENTE DE 37.605 CDAS EQUIVALENTES A 146,602.1948 M/C.
ASIENTO 92 ASIENTO 152 Y CON FECHA 7 OCTUBRE 1997 SE PRESENTO LA
ESCRITURA # 379 OTORGADA SAN JUAN 27 DE AGOSTO 1997 ANTE NOTARIO JOSE
DAVID MEDINA RIVERA HIPOTECA GARANTIZANDO PAGARE A LA ORDEN BANCO
POPULAR DE P.R. POR $ 1,944.800 INTERESES 1 1/2% SOBRE EL PREFERENCIAL
FLUCTANTE THE WALL STREET JOURNAL Y FUE CONSTITUIDA POR CARIBBEAN PAPER
CO. INC. REPRESENTADA POR ADRIAN SILVA RIOLLANO Y SE ACOMPANA
RESOLUCION PARA SUS FACULTADES.
LEA..... TODAS LAS SEGREGACION TIENE CONDICIONES DE VENTA Y ENTRE ELLAS --- LA
COMPRADORA NO PODRA VENDER ARRENDAR, ENAJENAR NI HIPOTECAR SIN
CONSENTIMIENTO ESCRITO DE LA COMPANIA DE FOMENTO DURANTE TERMINO DE 10
ANOS.
TODAS LAS SEGREGACIONES POR SU PROCEDENCIA QUEDAN AFECTAS A SERVI-
DUMBRE A FAVOR CENTRAL VICTORIA INC. Y AL ARRENDAMIENTO VENCIDO PERO NO
CANCELADO ANTES RELACIONADO.
<PAGE> 96
PAGINA# 5: CASO: 1222.6270 (SIMMONS CARIBEAN)
OBSERVACION: SEGUN BUSQUEDA BITACORA NO CONSTA NADA PRESENTADO
PARA SIMMONS CARIBBEAN.------------------------------------------
FUERON REVISADOS LIBROS DE EMBARGOS HASTA FOLIO 59 # 237; FEDERALES HASTA
ASIENTO 105 A-2 Y SENTENCIA HASTA FOLIO 50 # 136 Y LA BITACORA # 13 DE T.ALTO
HASTA ASIENTO 286 DIARIO 153.
NOTA: PARTE DE ESTA BITACORA FUE PASADA
28 de octubre 1997
/s/ C. Arroyo
C. Arroyo
<PAGE> 97
ESTUDIO DE TITULO
ACTUALIZACION
CASO: COMPANIA DE FOMENTO INDUSTRIAL
RE : #1222.6270 / Simmons Caribbean Bedding Inc. - Parcela de 8.42 cuerdas.
FINCA #4003, inscrita al folio 129 del tomo 90 de Trujillo Alto, inscripcion la.
Seccion IV de San Juan.
DESCRIPCION: Tomada de la inscripcion la.
RUSTICA: Situada en el Barrio Las Cuevas de Trujillo Alto, con un area
superficial de 35.35 cuerdas, equivalentes a 13 hectareas, 89 areas, 64
centiareas y 79 miliareas, en lindes en la actualidad con camino municipal que
separa de Daniel Vazquez, de Jose Fernandez y terrenos de Hipolito O'Farril.
SUR, con camino vecinal, terrenos de Faustino Betancourt y Rio Grande de Loiza.
ESTE, con terrenos de Emilio Torres e Hipolito O'Farril. OESTE, con camino
municipal separado de Daniel Velazquez y Jose Fernandez y camino vecinal que
comienza en el camino municipal y transcurre al Sureste y terrenos de Faustino
Betancout.
OBSERVACION: No se expresa colindancia Norte.
EDIFICACIONES: Edificio de almacen de materia prima, de armazon de acero con
techo de durotex y piso de tierra. Caseta para oficina y shop de concreto,
caseta de switches y edificio de concreto para comedor. En estas edificaciones y
en el inmueble antes descrito tenian sus propietarios fabricas para la
manufactura de agregados livianos y maquinarias, etc.
Por la inscripcion 7ma., subsiguiente se describen las siguientes edificaciones:
a) Una chimenea de ladrillos.
b) Edificacion de acero con techo y paredes de durotex. Las paredes y el techo
han sido vandalizados.
c) Edificio de acero con paredes y techo de durotex.
d) Estructura de acero para conductores en correa (conveyors).
e) "Raw-Clay Feeder".
f) Estructura de acero que soporta a la parte superior un conductor de correa
(belt conveyor) la cual contiene un equipo adherido a la misma conocido como
"apron Feeder".
g) Seis aros de acero que forman parte del horno rotativo con revestimiento
interior de barro refractario utilizado para el cocimiento de los agregados
livianos.
ORIGEN: Se forma por agrupacion de las fincas:
1- #2493, inscrita al folio 170 vto. del tomo 57 de Trujillo Alto.
2- # 1802, inscrita al folio 247 del tomo 27 de Trujillo Alto.
PROPIETARIO REGISTRAL: COMPANIA DE FOMENTO INDUSTRIAL, quien
adquirio de la siguiente forma:
a) El terreno: por compra a Diazlite Inc., por el precio de $1,299,000.00,
mediante la cual escritura #3, otorgada en San Juan, el 26 de marzo de 1975,
ante Gilberto Alfaro Berrios, inscrita al folio l 35 del tomo 90 de Trujillo
Alto, inscripcion 6ta.
b) Y las edificaciones (relacionadas en la inscripcion 7ma.) por compra en
publica subasta, por el precio de $ 1,000.00. Segun la escritura #6, otorgada en
Carolina, el 21 de noviembre de 1984, ante Ramon Siaca Poupart, inscrita al
folio 85 vto. del tomo 284 de Trujillo Alto, inscripcion 8va. y Ultima.
CARGAS Y GRAVAMENES:
E Por su procedencia:
Servidumbre de paso a favor de la finca propiedad de Central Victoria Inc.
<PAGE> 98
Pag.#2
Finca #4003 de Trujillo Alto
Por si:
1- HIIPOTECA: Por la suma de $200,000.00, con intereses al 6% anual y al 7% en
caso de incumplimiento, en garantia de un pagare a favor de Government
Development Bank for Puerto Rico, o a su orden, que vence el lro. de febrero de
1979. Segun la escritura #56, otorgada en San Juan el 7 de febrero de 1964, ante
Jorge M. Morales, inscrita al folio 129 del tomo 90 de Trujillo Alto,
inscripcion lra.
BITACORA:
ASIENTO 86 DIARIO 96, DE FECHA 8 DE MAYO DE 1995: PRESENTADA Y PENDIENTE DE
DESPACHO: Instancia suscrita el dia 28 de diciembre de 1992, por Antonio
Maldonado Lopez, Presidente y Gerente General de la Compania de Fomento
Industrial de Puerto Rico, mediante la cual se solicita la cancelacion de la
hipoteca por la suma de $200,000.00 que grava esta finca por haberlo ordenado el
Tribunal Superior de San Juan, segun Sentencia de fecha 6 de octubre de 1992,
dada en el Caso Civil KCD-91-0703 (808) sobre Cancelacion de Pagare Extraviado.
Se acompana copia certificada de la sentencia, copia certificada de affidavit de
El Nuevo Dia "sobre publicacion de Edictos".
ASIENTO 87 DIARIO 96, DE FECHA 8 DE MAYO DE 1995: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #20 de Agrupacion, otorgada en San Juan, el 4 de diciembre
de 1992, ante Edgardo L. Martinez Rosario, mediante la cual Compania de Fomento
Industrial de Puerto Rico como duena de las fincas #11778, #6436 y #4003 de
Trujillo Alto, agrupa las mismas con un valor de $ 1,600,000.00, describiendose
la finca agrupada de la siguiente forma:
RUSTICA: Predio de terreno localizado en el Barrio Las Cuevas de Trujillo Alto,
Puerto Rico, con un area superficial de (cuarenta y ocho punto cuarenta y TRES
(48.42) cuerdas equivalentes a 190,349.059 metros cuadrados. Esta en lindes por
el NORTE, con camino municipal, antes Carretera Estatal #8860 ahora con
propiedad de Hipolito OFarril y con terrenos propiedad de Antonio R. Diaz, por
el SUR, con terrenos propiedad de Faustino Betancourt Pomales y con el Rio
Grande de Loiza, por el ESTE, con terrenos propiedad de Metropol Development
Corporation y terrenos propiedad de Antonio R. Diaz y por el OESTE, con camino
municipal antes, Carretera Estatal #8860, ahora.
NOTA: Se adjunta escritura de Acta Aclaratoria #6, otorgada en San Juan, el 27
de febrero de 1997, ante Edgardo L. Martinez mediante la cual Compania de
Fomento Industrial de Puerto Rico, expone y aclara que la cabida correcta es
48.11 cuerdas equivalentes a 189,111.92 metros cuadrados y no la que se expresa
en el documento de agrupacion antes relacionado.
ASIENTO 359 DIARIO 84, DE FECHA 11 DE AGOSTO DE 1994: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura # 11, de Segregacion y Compraventa, otorgada en San Juan, el
5 de agosto de 1994, ante Edgardo L. Martinez Nazario, mediante la la cual la
Compania de Fomento Industrial de Puerto Rico, como duena de la finca agrupada
con cabida superficial de 48.42 CUERDAS, segrega y vende a favor de
Inter-American Industrial Development Inc., por el precio de $309,709.93 el
siguiente solar:
RUSTICA: Parcela radicada en el Barrio Las Cuevas del Termino Municipal de
Trujillo Alto, con una cabida superficial de 9385.832 metros cuadrados,
equivalentes a 2.388 cuerdas, en lindes por el NORTE, con el solar #3. SUR, con
la Calle N. ESTE, Calle C y por el OESTE, con el solar #8
Segun expresa el documento dicha segregacion fue aprobada mediante Resolucion de
ARPE de fecha 14 de julio de 1992, Proyecto #92-19-A-263 CGT, la cual se adjunta
a la escritura.
Que despues de efectuada la citada segregacion la finca principal queda con un
remanente de 46.032 cuerdas, equivalentes a 180,963.227 metros cuadrados.
<PAGE> 99
Pagina #3
Finca: #4003 de Trujillo Alto
Son condiciones de esta Compraventa que la compradora y/o entidades subsidiarias
y/o afiliadas utilizaran la propiedad para fines de manufactura y distribucion y
para aquellos otros usos relacionados a su operacion que apruebe la Junta de
Planificacion por un termino de 10 anos a partir del otorgamiento de esta
escritura. No se podra vender, arrendar, ceder o traspasar la propiedad al
Estado Libre Asociado de Puerto Rico por un termino de 10 anos sin el
consentimiento de la Compania. Tampoco podra vender, arrendar o hipotecar por el
citado termino sin el consentimiento escrito de la Compania.
OBSERVACION: Segun la Resolucion de ARPE que se adjunta se autoriza la
segregacion de los solares 7 y 8 con cabida superficial de 9385.832 metros
cuadrados y 9,403.429 metros cuadrados.
NOTA:
Tambien se acompanan las siguientes escrituras.
a) Escritura #5 de Acta Aclaratoria, otorgada en San Juan, el 27 de febrero de
1997, ante Edgardo L. Martinez Nazario mediante la cual la Compania de Fomento
Industrial de Puerto Rico, aclara la escritura #11, relacionada en este asiento
en
cuanto a la cabida de la finca
principal y la cual debe leer: 48.11 cuerdas equivalentes al
89,111.192 metros cuadrados.
Que una vez segregado el SOLAR #7 el remanente de la finca principal debe leer:
46.032 cuerdas equivalentes al 79,725.360 metros cuadrados.
b) Escritura #20 de Acta de Rectificacion. otorgada en San Juan, el 7 de marzo
de 1997, ante Manuel L. Correa Marquez, mediante la cual se aclara la escritura
#6 de hipoteca (ver asiento 320 diario 84) en cuanto a la cabida de la finca
principal de donde se segrego el solar que se hipoteca, cuya finca se expresa
debe leer 48.11 CUERDAS equivalentes a 189,111.192 metros cuadrados.
Se acompana Resolucion Corporativa de la Corporacion adquiriente
autorizando a otorgar esta Acta de Rectificacion.
ASIENTO 320 DIARIO 84, DE FECHA 10 DE AGOSTO DE 1994: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #6, otorgada en San Juan, el 5 de agosto de 1994, ante Noel
Gonzalez Miranda, mediante la cual Inter-American Industrial Development Inc.
como duena del solar #7 del Parque Industrial Las Cuevas, segregado de las
fincas # 11778. #6436 y #4003 agrupadas, constituye hipoteca sobre dicho solar
por la suma de $1,830,000.00, con intereses al 1% anual, sobre el interes
preferencial prevaleciente en el Citibank, N.A. de New York, en garantia de un
pagare a favor del Portador, que vence en la Presentacion.
NOTA I: Se acompana Resolucion Corporativa de la citada corporacion autorizando
la Compraventa e Hipoteca del citado solar.
NOTA II: Favor Referirse al Acta Aclaratoria que se ha unido al documento
relacionado en el asiento anterior.
OBSERVACION: Lo anterior no comprende una calificacion de estos documentos ni
presupone que los mismos seran inscritos.
REVISADOS: Embargos por Contribuciones, Embargos Federales, Sentencias y
Bitacora hasta el Asiento 42 del Diario 149.
San Juan, Puerto Rico, a 4 de septiembre de 1997.
JUSTO GARCIA INIGUEZ, INC. JGI/mvd Cotejado por 4003.S4T
<PAGE> 100
ESTUDIO DE TITULO
ACTUALIZACION
CASO: COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO
RE : # 1222.6270 / Simmons Caribbean Bedding Inc. - Parcela de 48.42 cuerdas.
FINCA #11778, inscrita al folio 78 del tomo 238 de Trujillo Alto, inscripcion
la. Seccion IV de San Juan.
DESCRIPCION:
RUSTICA: Porcion de terreno situada en el Barrio denominado Las Cuevas del
Termino Municipal de Trujillo Alto, compuesto de 8.08 cuerdas, equivalentes a
31,757.5445 metros cuadrados, en lindes por el NORTE, terrenos propiedad de
Antonio R. Diaz. SUR, con el Rio Grande de Loiza. ESTE, con terrenos propiedad
de Metropol Development Corp. y Antonio R. Diaz. OESTE, con terrenos de Diazlite
Inc.
ORIGEN: Se segrega de la finca #46, inscrita al folio 154 del tomo 50 de
Trujillo Alto.
PROPIETARIO REGISTRAL: COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO, quien
adquirio por cesion a su favor por Antonio R. Diaz, mayor de edad, soltero, en
pago de deuda. Se valora esta finca en $121,000.00. Segun consta de la escritura
#4, otorgada en San Juan, el 26 de marzo de 1975, ante Gilberto Alfaro Berrios,
inscrita al folio 78 del tomo 238 de Trujillo Alto, inscripcion lra. y Unica.
CARGAS Y GRAVAMENES:
Por su procedencia: LIBRE.
Por si: LIBRE.
BITACORA:
ASIENTO 87 DIARIO 96, DE FECHA 8 DE MAYO DE 1995: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #20 de Agrupacion, otorgada en San Juan, el 4 de diciembre
de 1992, ante Edgardo L. Martinez Rosario, mediante la cual Compania de Fomento
Industrial de Puerto Rico como duena de las fincas # l 1778, #6436 y #4003 de
Trujillo Alto, agrupa las mismas con un valor de $ 1,600,000.00, describiendose
la finca agrupada de la siguiente forma:
RUSTICA: Predio de terreno localizado en el Barrio Las Cuevas de Trujillo Alto,
Puerto Rico, con un area superficial de cuarenta y ocho punto cuarenta y TRES
(48.42) cuerdas, equivalentes a 190,349.059 metros cuadrados. Esta en lindes por
el NORTE, con camino municipal, antes Carretera Estatal #8860 ahora con
propiedad de Hipolito O'Farril y con terrenos propiedad de Antonio R. Diaz, por
el SUR, con terrenos propiedad de Faustino Betancourt Pomales y con el Rio
Grande de Loiza, por el ESTE, con terrenos propiedad de Metropol Development
Corporation y terrenos propiedad de Antonio R. Diaz y por el OESTE, con camino
municipal antes, Carretera Estatal #8860, ahora.
NOTA: Se adjunta escritura de Acta Aclaratoria #6, otorgada en San Juan, el 27
de febrero de 1997, ante Edgardo L. Martinez mediante la cual Compania de
Fomento Industrial de Puerto Rico, expone y aclara que la cabida correcta es
48.11 cuerdas equivalentes a 189,111.92 metros cuadrados y no la que se expresa
en el documento de agrupacion antes relacionado.
ASIENTO 359 DIARIO 84, DE FECHA 11 DE AGOSTO DE 1994: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura # 11, de Segregacion y Compraventa, otorgada en San Juan, el
5 de agosto de 1994, ante L. Martinez Nazario, mediante la la cual la Compania
de Fomento Industrial de Puerto Edgardo como duena de la finca agrupada con
cabida superficial de 48.42 cuerdas, segrega y vende a favor de Inter-American
Industrial Development Inc., por el precio de $309,709.93 el siguiente solar:
RUSTICA: Parcela radicada en el Barrio Las Cuevas del Termino Municipal de
Trujillo Alto, con una cabida superficial de 9385.832 metros cuadrados,
equivalentes a 2.388 cuerdas, en lindes por el NORTE, con el solar #3. SUR, con
la Calle N. ESTE, Calle C y por el OESTE, con el solar #8.
<PAGE> 101
Pag.#2
Finca #11778 de Trujillo Alto
Segun expresa el documento dicha segregacion fue aprobada mediante Resolucion de
ARPE de fecha 14 de julio de 1992, Proyecto #92-19-A-263 CGT, la cual se adjunta
a la escritura.
Que despues de efectuada la citada segregacion la finca principal queda con un
remanente de 46.032 CUERDAS, equivalentes a 180,963.227 metros cuadrados.
Son condiciones de esta Compraventa que la compradora y/o entidades subsidiarias
y/o afiliadas . utilizaran la propiedad para fines de manufactura y distribucion
y para aquellos otros usos relacionados a su operacion que apruebe la Junta de
Planificacion por un termino de 10 anos a partir del otorgamiento de esta
escritura. No se podra vender, arrendar, ceder o traspasar la propiedad al
Estado Libre Asociado de Puerto Rico por un termino de 10 anos sin el
consentimiento de la Compania. Tampoco podra vender, arrendar o hipotecar por el
citado termino sin el consentimiento escrito de la Compania.
OBSERVACION: Segun la Resolucion de ARPE que se adjunta se autoriza la
segregacion de los solares 7 y 8 con cabida superficial de 9385.832 metros
cuadrados y 9,403.429 metros cuadrados.
NOTA: Tambien se acompanan las siguientes escrituras.
a) Escritura #5 de Acta Aclaratoria, otorgada en San Juan, el 27 de febrero de
1997, ante Edgardo L. Martinez Nazario mediante la cual la Compania de Fomento
Industrial de Puerto Rico, aclara la escritura # 11, relacionada en este asiento
en cuanto a la cabida de la finca principal y la cual debe leer: 48.11 cuerdas
equivalentes a 189,111.192 metros cuadrados.
Que una vez segregado el SOLAR #7 el remanente de la finca principal debe leer:
46.032 cuerdas equivalentes a 179,725.360 metros cuadrados.
b) Escritura #20 de Acta de Rectificacion, otorgada en San Juan, el 7 de marzo
de 1997, ante Manuel L. Correa Marquez, mediante la cual se aclara la escritura
#6 de hipoteca (ver asiento 320 diario 84) en cuanto a la cabida de la finca
principal de donde se segrego el solar que se hipoteca, cuya finca se expresa
debe leer 48.11 CUERDAS equivalentes a 189,111.192 metros cuadrados.
ASIENTO 320 DIARIO 84, DE FECHA 10 DE AGOSTO DE 1994: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #6, otorgada en San Juan, el 5 de agosto de 1994, ante Noel
Gonzalez Miranda, mediante la cual Inter-American Industrial Development Inc.
como duena del solar #7 del Parque Industrial Las Cuevas, segregado de las
fincas # 11778. #6436 y #4003 agrupadas, constituye hipoteca sobre dicho solar
por la suma de $ 1,830,000.00, con intereses al 1% anual, sobre el interes
preferencial prevaleciente en el Citibank, N.A. de New York, en garantia de un
pagare a favor del Portador, que vence en la Presentacion.
NOTA I: Se acompana Resolucion Corporativa de la citada corporacion autorizando
la Compraventa e Hipoteca del citado solar.
NOTA II: Favor Referirse al Acta Aclaratoria que se ha unido al documento
relacionado en el asiento anterior.
OBSERVACION: Lo anterior no comprende una calificacion de estos documentos ni
presupone que los mismos seran inscritos.
REVISADOS. Embargos por Contribuciones, Embargos Federales, Sentencias y
Bitacora hasta el Asiento 42 del Diario 149.
San Juan Puerto Rico, a 4 de septiembre de 1997.
JUSTO GARCIA INIGUEZ, INC.
JGI/mvd
Cotejado por: 11778.S4T
<PAGE> 102
ESTUDIO DE TITULO
ACTUALIZACION
CASO: COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO
RE : #1222.6270. / Simmons Caribbean Bedding Inc.- Parcela de 48.42 cuerdas.
FINCA #6436, inscrita al folio 82 del tomo 128 de Trujillo Alto, inscripcion la.
Seccion IV de San Juan.
DESCRIPCION:
RUSTICA: Porcion de terreno situada en el Barrio denominado Las Cuevas del
Termino Municipal de Trujillo Alto, compuesto de 5.00 cuerdas, equivalentes a l
hectarea, 96 areas, 51 centiareas y 59 miliareas, en lindes por el NORTE y
OESTE, con un camino vencinal que lo separa de terrenos propiedad de Diazlite,
Inc. SUR y ESTE, con la finca principal de la cual esta se segrega, propiedad de
Faustino Betaacourt.
ORIGEN: Se segrega de la finca #1803, inscrita a los folios 250 y
181 vto. de los tomos 27 y 29
de Trujillo Alto.
PROPIETARIO REGISTRAL: COMPANIA DE FOMENTO INDUSTRIAL DE PUERTO RICO, quien
adquirio por cesion a su favor por Antonio R. Diaz, mayor de edad, soltero, en
pago de deuda. Se valora esta finca en $175,000.00. Segun consta de la escritura
#4, otorgada en San Juan, el 26 de marzo de 1975, ante Gilberto Alfaro Berrios,
inscrita al folio 82 vto. del tomo 128 de Trujillo Alto, inscripcion 2da. y
Ultima.
CARGAS Y GRAVAMENES:
Por su procedencia:
1 - Servidumbre de paso.
2 - Arrendamiento: (Sobre parcela de una cuerda) a favor de Manuel Quinones
casado con Carmen Rivera y de Manuel Perez casado con Guillermina Rodriguez, por
el termino de 7 anos con un canon de $45.00 mensuales. Tambien se les concede a
los arrendatarios el derecho de extraccion de grava arena sobre la finca
principal por el termino del arrendamiento. Segun la escritura #9, otorgada en
San Juan, el 11 de enero de 1955, ante Vicente Hita, Jr., inscrita al folio 180
vto. del tomo 29 de Trujillo Alto, inscripcion 4ta. finca #1803, de la cual se
segrega la finca objeto de este Informe.
Por si: LIBRE.
BITACORA:
ASIENTO 87 DIARIO 96, DE FECHA 8 DE MAYO DE 1995: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #20 de Agrupacion, otorgada en San Juan, el 4 de diciembre
de 1992, ante Edgardo L. Martinez Rosario, mediante la cual Compania de Fomento
Industrial de Puerto Rico como duena de las fincas #11778, #6436 y #4003 de
Trujillo Alto, agrupa las mismas con un valor de $1,600,000.00, describiendose
la finca agrupada de la siguiente forma:
RUSTICA: Predio de terreno localizado en el Barrio Las Cuevas de Trujillo Alto,
Puerto Rico, con un area superficial de cuarenta y ocho punto cuarenta y TRES
(48.42) cuerdas, equivalentes a 190,349.059 metros cuadrados. Esta en lindes por
el NORTE, con camino municipal, antes Carretera Estatal #8860 ahora con
propiedad de Hipolito O'Farril y con terrenos propiedad de Antonio R. Diaz, por
el SUR, con terrenos propiedad de Faustino Betancourt Pomales y con el Rio
Grande de Loiza, por el ESTE, con terrenos propiedad de Metropol Development
Corporation y terrenos propiedad de Antonio R. Diaz y por el OESTE, con camino
municipal : antes, Carretera Estatal # 8860, ahora.
NOTA: Se adjunta escritura de Acta Aclaratoria #6, otorgada en San Juan, el 27
de febrero de 1997, ante Edgardo L. Martinez mediante la cual Compania de
Fomento Industrial de Puerto
<PAGE> 103
Pag.#2
Finca #6436 de Trujillo Alto
Rico, expone y aclara que la cabida correcta es 48.11 cuerdas equivalentes a
189,111.92 metros cuadrados y no la que se expresa en el documento de agrupacion
antes relacionado.
ASIENTO 359 DIARIO 84. DE FECHA 11 DE AGOSTO DE 1994: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #11, de Segregacion y Compraventa, otorgada en San Juan, el
5 de agosto de 1994, ante Edgardo L. Martinez Nazario, mediante la la cual la
Compania de Fomento Industrial de Puerto Rico, como duena de la finca agrupada
con cabida superficial de 48.42 CUERDAS, segrega y vende a favor de
Inter-American Industrial Development Inc., por el precio de $309,709.93 el
siguiente solar:
RUSTICA: Parcela radicada en el Barrio Las Cuevas del Termino Municipal de
Trujillo Alto, con una cabida superficial de 93 85.832 metros cuadrados,
equivalentes a 2.3 88 CUERDAS, en lindes por el NORTE, con el solar #3. SUR, con
la Calle N. ESTE, Calle C y por el OESTE, con el solar #8.
Segun expresa el documento dicha segregacion fue aprobada mediante Resolucion de
ARPE de fecha 14 de julio de 1992, Proyecto #92-19-A-263 CGT, la cual se adjunta
a la escritura.
Que despues de efectuada la citada segregacion la finca principal queda con un
remanente de 46.032 CUERDAS equivalentes a 180,963.227 metros cuadrados.
Son condiciones de esta Compraventa que la compradora y/o entidades subsidiarias
y/o afiliadas utilizaran la propiedad para fines de manufactura y distribucion y
para aquellos otros usos relacionados a su operacion que apruebe la Junta de
Planificacion por un termino de 10 anos a partir del otorgamiento de esta
escritura. No se podra vender, arrendar, ceder o traspasar la propiedad al
Estado Libre Asociado de Puerto Rico por un termino de 10 anos sin el
consentimiento de la Compania. Tampoco podra vender, arrendar o hipotecar por el
citado termino sin el consentimiento escrito de la Compania.
OBSERVACION: Segun la Resolucion de ARPE que se adjunta se autoriza la
segregacion de los solares 7 y 8 con cabida superficial de 9385.832 metros
cuadrados y 9,403.429 metros cuadrados.
NOTA:
Tambien se acompanan las siguientes escrituras.
a) Escritura #5 de Acta Aclaratoria, otorgada en San Juan, el 27 de febrero de
1997, ante Edgardo L. Martinez Nazario mediante la cual la Compania de Fomento
Industrial de Puerto Rico, aclara la escritura #11, relacionada en este asiento
en cuanto a la cabida de la finca principal y la cual debe leer: 48.11 cuerdas
equivalentes a 189,111.192 metros cuadrados.
Que una vez segregado el SOLAR #7 el remanente de la finca principal debe leer:
46.032 cuerdas equivalentes a 179,725.360 metros cuadrados.
b) Escritura #20 de Acta de Rectificacion, otorgada en San Juan, el 7 de marzo
de 1997, ante Manuel L. Correa Marquez, mediante la cual se aclara la escritura
#6 de hipoteca (ver asiento 320 diario 84) en cuanto a la cabida de la finca
principal de donde se segregO el solar que se hipoteca, cuya finca se expresa
debe leer 48.11 CUERDAS equivalentes a 189,111.192 metros cuadrados.
Se acompana Resolucion Corporativa de la Corporacion adquiriente autorizando a
otorgar esta Acta de Rectificacion.
ASIENTO 320 DIARIO 84, DE FECHA 10 DE AGOSTO DE 1994: PRESENTADA Y PENDIENTE DE
DESPACHO: Escritura #6, otorgada en San Juan, el 5 de agosto de 1994, ante Noel
Gonzalez Miranda, mediante la cual Inter-American Industrial Development Inc.
como duena del solar #7 del Parque Industrial Las Cuevas, segregado de las
fincas #11778, #643 6 y #4003 agrupadas,
<PAGE> 104
Pagina #3
Finca #6436 de Trujillo Alto
constituye hipoteca sobre dicho solar por la suma de $1,830,000.00, con
intereses al 1% anual, sobre el interes preferencial prevaleciente en el
Citibank, N.A. de New York, en garantia de un pagare a favor del Portador, que
vence en la Presentacion.
NOTA I: Se acompana Resolucion Corporativa de la citada corporacion autorizando
la Compraventa e Hipoteca del citado solar.
NOTA II: Favor Referirse al Acta Aclaratoria que se ha unido al documento
relacionado en el asiento anterior.
OBSERVACION: Lo anterior no comprende una calificacion de estos documentos ni
presupone que los mismos seran inscritos.
REVISADOS:Embargos por ontribuciones, Embargos Federales, Sentencias y Bitucora
hasta el Asiento 42 del Diario 149.
San Juan, Puerto Rico a 4 de septiembre de 1997.
JUSTO GARCIA INIGUEZ INC.
JGI/m
Cotejado
6436.S4T
<PAGE> 105
LAW OFFICES
GONZALEZ OLIVER, CORREA CALZADA, COLLAZO SALAZAR, HERRERO & JIMENEZ
POST OFFICE BOX 11550
SAN JUAN, PUERTO RICO 00922- 1550
TELEPHONE (809) 793-5000
BANCO SANTANDER PUERTO RICO BLDG.
1508 F. D. ROOSEVELT AVENUE
SAN JUAN, PUERTO RICO
CABLE ADDRESS "COCOHER"
FAX NO. 793-5007
12 de diciembre de 1997
Banco Santander Puerto Rico
Prestamos Construccion
SIMMONS CARIBBEAN BEDDING, INC.
INVOICE NO. 982 (1)
================================================================================
DATE Por servicios profesionales prestados
al cliente de referencia, relacionados
con el Contrato de Prestaino de
Construccion , incluyendo preparacion,
redaccion y otorgamiento de extenso
Contrato de Prestamo, escritura de
hipoteca, reuniones, llamadas telefonicas,
revision de documentos y otros servicios
necesarios
Honorarios $18,500.00
Sellos y Comprobantes Hipoteca
por $3,200,000 (Orig. $3,521.00;
Copia $1,760.50; Reg. $12,760.50) 18,042.00
Estudios de Titulo y Revisiones 150.00
Poliza de Titulo 4,975.00
Presentacion y Retiro 40.00
Minuta de Presentacion 15.00
Estudio Corporativo 50.00
<PAGE> 106
IN ACCOUNT WITH
LAW OFFICES
GONZALEZ OLIVER, CORREA CALZADA, COLLAZO SALAZAR, HERRERO & JIMENEZ
POST OFFICE BOX 11550
SAN JUAN, PUERTO RICO 00922-1550
TELEPHONE (809) 793-5000
BANCO SANTANDER PUERTO RICO BLDG.
1508 F. D. ROOSEVELT AVENUE
SAN JUAN, PUERTO RICO
CABLE ADDRESS "COCOHER"
FAX NO. 793-5007
RE: Simmons Caribbean Bedding, Inc.
INVOICE NO. 982 (1)
================================================================================
DATE Gastos miscelaneos que incluyen
fotocopias, sellos correo,
envio facsimiles, mensajero 100.00
----------
TOTAL...........................$41,872.00
==========
ACR75B/A:SIMMONS.FAC
<PAGE> 1
Exhibit 10.28
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Simmons Company, a Delaware corporation (the
"Company") and Zenon S. Nie (the "Executive"), dated as of the 15th day of
November, 1993.
1. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the date hereof and ending on the third anniversary of such
date (the "Employment Period"); provided, however, that unless previously
terminated, the Employment Period shall be automatically extended so as to
terminate three years from each ensuing day, unless the Company shall give
notice to the Executive that the Employment Period shall not be so extended, in
which event the Employment Period shall terminate on the third anniversary of
such notice.
2. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) Commencing on the
date hereof and for the remainder of the Employment Period, the Executive shall
be Chief Executive Officer of the Company and shall have such duties,
responsibilities, and authority as shall be consistent therewith. Commencing on
January 1, 1994, the Executive shall be Chairman of the Board of Directors of
the Company. From and after the date hereof, the Executive shall serve on the
Company's Board of Directors.
(ii) During the Employment Period, and excluding any periods of
vacation, permitted leaves of absence and sick leave to which the Executive is
entitled, the Executive agrees to devote full attention and time, effort and
skill, to the business and affairs of the Company and to use the Executive's
best efforts to perform faithfully and efficiently such responsibilities, except
that Executive shall have the right to make passive investments in businesses or
entities not related to, and which do not directly or indirectly compete with,
the business of the Company and its subsidiaries
(b) COMPENSATION (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary") of
$375,000. The Annual Base Salary shall be paid in accordance with the Company's
normal payroll practices. During the Employment Period, the Annual Base Salary
shall be reviewed (for purposes of increases only) by the Board of Directors
from time to time as they determine. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under this
Agreement.
<PAGE> 2
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") based on the Company's achievement of its
annual financial plan approved by the Board of Directors as follows :
<TABLE>
<CAPTION>
% of Plan Bonus as % of Salary
--------- --------------------
<S> <C>
Less than 90 0
at least 90 but less than 100 37.5
at least 100 but less than 110 50
at least 110 but less than 120 75
120 or more 100
</TABLE>
To the extent that the percentage of plan achieved falls between the
amounts described above, the bonus as a percentage of salary shall be equitably
pro rated. Notwithstanding the foregoing, the Executive shall be entitled to a
bonus with respect to 1993 of $30,000 and a minimum bonus with respect to 1994
of 37.5% of his Annual Base Salary. Each such Annual Bonus shall be paid in
accordance with the Company's normal payroll practices, but in no event later
than April 1 of the respective years.
(iii) STOCK OPTIONS. The Executive shall be granted on the date hereof
a nonqualified stock option to acquire 350,000 shares of the Company's common
stock at a price of $2.75 per share and will be granted no later than April 30,
1994 an additional option to acquire 350,000 shares at a price equal to the fair
market value of the Company's Common Stock on December 31, 1993 as determined by
Houlihan, Lokey, Howard & Zukin (together, the "Options") . The Options shall
vest and become exercisable with respect to 20% of the shares subject to the
Options upon grant, and with an additional 20% vesting on each anniversary of
the date of grant. In the event of a Change of Control (as defined below) , all
Options will vest immediately. For purposes of this Agreement, a "Change of
Control" means either (i) a sale of all of the stock or substantially all of the
assets of the Company whether by merger or otherwise, or (ii) a transaction
following which Merrill Lynch Capital Partners, Inc. and its affiliates cease to
be in the aggregate the largest stockholders of the Company other than the
Simmons Company Employee Stock Ownership Plan. The Options shall be evidenced by
one or more option agreements in substantially the form attached hereto as
EXHIBIT A.
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<PAGE> 3
(iv) SAVINGS AND RETIREMENT PLANS. During the Employment Period, the
Executive shall be eligible to participate in all savings and retirement plans,
practices, policies and programs applicable generally to other peer executives
of the Company.
(v) WELFARE BENEFIT PLANS. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company (including, without
limitation, and where applicable, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company. The Company shall provide the Executive
with term life insurance in an amount equal to four times his Annual Base
Salary.
(vi) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable business expenses
incurred on behalf of the Company by the Executive, which expenses shall be ac-
counted for and evidenced in accordance with the Company's normal policies.
(vii) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to payment of dining and country club dues and membership
fees, and an automobile of his choice and payment of related expenses.
(viii) VACATION. During the Employment Period, the Executive shall be
entitled to four weeks of paid vacation .
3. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 8(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive
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<PAGE> 4
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative .
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the continued failure of the Executive to perform substantially the
Executive's duties with the Company, after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in felonious illegal conduct
or gross misconduct or other conduct materially injurious to the Company, or
(iii) a material breach of this Agreement; which is not cured by the
Executive within a reasonable period after the Company has provided him with
notice of such breach .
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties materially
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 2(a) of this Agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an action not taken in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any material failure by the Company to comply with any of the
provisions of Section 2(b) of this Agreement, other than a failure not occurring
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) any material breach of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall
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<PAGE> 5
be communicated by Notice of Termination to the other party hereto given in
accordance with Section 8(b) of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice)
. The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER
THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive the aggregate of the
following amounts:
A. within 30 days after the Date of Termination, the sum of (1) the
Executive's Annual Base Salary through the Date of Termination to the
extent not theretofore paid, (2) a pro rata Annual Bonus for the year
in which the Date of Termination occurs based on the Company's
annualized actual performance, (3) any compensation previously
deferred by the Executive (together with any accrued interest or
earnings thereon) to the extent not theretofore paid and (4) any
expenses for dining and country club
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<PAGE> 6
dues and membership fees described in Section 2(b) (vii) that have been
incurred before the Date of Termination and cannot be eliminated by
resignation promptly following the Date of Termination (the sum , of
the amounts described in clauses (1), (2), (3) and (4) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. Executive's Annual Base Salary for three years after the Date of
Termination payable when Annual Base Salary would have been paid if the
Executive were still employed by the Company;
(ii) all Options shall become immediately exer-
cisable and vested;
(iii) for three years after the Executive's Date of Termination, the
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section 2(b) (v)
of this Agreement if the Executive's employment had not been terminated;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion provided that the total cost of
such services shall not exceed fifteen percent of the Annual Base Salary as in
effect immediately before the Date of Termination;
(v) until the later of (A) the third anniversary of the Date of
Termination or the expiration of the lease of the automobile provided pursuant
to Section 2(b) (vii) or (B) the 180th day after the Date of Termination, the
Company shall continue to provide such automobile and pay the related expenses;
and
(vi) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is entitled to receive under any
plan, program, policy or practice or contract or agreement of the Company (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
-6-
<PAGE> 7
this Agreement, other than for (i) payment of Accrued Obligations, (ii) the
timely payment or provision of Other Benefits and (iii) for six (6) months after
the Executive's death, the continuation of benefits to the Executive's family at
least equal to those which would have been provided to them in accordance with
the plans, programs, practices and policies described in Section 2(b) (v) of
this Agreement if the Executive's employment had not been terminated. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) DISABILITY, If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations, (ii) the timely payment or pro- vision of Other
Benefits, and (iii) to the extent not provided through Other Benefits, cash
disability benefits from the Disability Effective Date through the date on which
the Executive would attain the age of 65 equal, on an annualized basis, to
66-2/3 percent of the Executive's Annual Base Salary as in effect immediately
before the Disability Effective Date. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
(d) CAUSE; OTHER THAN FOR GOOD REASON, If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, together with any accrued interest or earnings thereon, and (z) Other
Benefits, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. Upon a termination of the Executive's employment for Cause by
the Company or by the Executive without Good Reason, the Executive shall forfeit
all Options that are not vested on the Date of Termination.
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company and for which the Executive
may
-7-
<PAGE> 8
qualify. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
6. CONFIDENTIAL INFORMATION AND NONCOMPETITION
(a) The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company is confidential and is a unique and valuable asset of the
Company. Access to and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement. The Executive will
not during the Employment Period, except to the extent reasonably necessary in
the performance of the duties under this Agreement, or after the Employment
Period, give to any person, firm, association, corporation or governmental
agency any information concerning the affairs, business, clients, customers or
other relationships of the Company except (i) as required by law, (ii) if and to
the extent reasonable or necessary (including to employees and agents of the
Company), to perform his duties hereunder, and (iii) in the event such
information becomes publicly available other than as a result of Executive's
breach of this Section 6 (a). The Executive will not make use of this type of
information for his own purposes or for the benefit of an y person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda and other information or materials relating to the business of the
Company (whether created by the Executive or otherwise coming into his
possession) are confidential and will remain the property of the Company.
(b) The Executive agrees that during the Employment Period and (i) in
the case of a termination of the Executive's employment for Cause, for the
period of twelve (12) months following the Date of Termination and (ii) in the
case of any other termination of the Executive's employment with the Company,
for the period of thirty-six months following such termination (the
"Noncompetition Period"), he will not engage in any activity that is competitive
in any material respect with the business conducted by, or that would have an
adverse impact on the business or prospects of, the Company or, to the extent
that any affiliate or associate of the Company is engaged in the business of the
Company, the business or prospects of any affiliate or associate of the Company.
Such prohibited activity shall include, but not be limited to, any management,
ownership or distribution
-8-
<PAGE> 9
activity connected with or related to any business engaged in by the Company.
The Executive will not, during such period, solicit any members of the
then-current customers or suppliers of the Company. During the Noncompetition
Period, the Executive shall not, and shall cause any person or entity with which
he is affiliated not to, solicit or induce, or attempt to solicit or induce, any
employee of the Company or any of its subsidiaries to leave the employment of
the Company or of any of its subsidiaries to work for the Executive or any
person or entity with which he is affiliated. During the Noncompetition Period,
the Executive shall not, and shall cause any person or entity with which he is
affiliated not to, solicit or induce, or attempt to solicit or induce, any
person who was employed by the Company or any of its subsidiaries on a full-time
basis during the 90 days immediately prior to the termination of the Executive's
employment to accept employment with the Executive or with any person or entity
with which he is affiliated.
(c) The Company's obligations under the terms of this Agreement will
cease upon any violation of the provisions of this Section 6 by the Executive.
(d) The parties desire that the provisions of this Section 6 be
enforced to the fullest extent permissible under the laws and public policies
applied in the jurisdictions in which enforcement is sought. If any portion of
this Section 6 is judged to be invalid or unenforceable, this Section 6 will be
deemed to be amended to the extent necessary to ensure that this Section 6 will
be enforceable to the maximum extent permissible under applicable law.
7. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
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<PAGE> 10
assumes and agrees to perform this Agreement by operation of law, or otherwise.
8. MISCELLANEOUS. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------
Zenon S. Nie
8490 Sentinae Chase Drive
Roswell, Georgia 30076
If to the Company:
------------------
Simmons Company
One Concourse Parkway
Suite 600
Atlanta, Georgia 30328
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or
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<PAGE> 11
any other provision of this Agreement or the failure to assert any right the
Executive or the Company may have hereunder shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) The Company agrees to reimburse the Executive for all reasonable
legal fees incurred by him in the negotiation and preparation of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ZENON S. NIE
/s/ Zenon S. Nie
--------------------
SIMMONS COMPANY
By /s/ R.K. Barton
--------------------
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<PAGE> 12
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
--------------------
This AMENDMENT NO. 1 dated as of October 5, 1995, to that certain
Employment Agreement by and between Simmons Company, a Delaware corporation (the
"Company") and Zenon S. Nie (the "Executive"), dated as of the 15th day of
November, 1993 (the "Agreement") .
The Agreement is hereby amended to the extent set forth below. All
other provisions of the Agreement shall remain in full force and effect.
A. "3. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY" is hereby
amended in its entirety to read as follows:
"The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that a Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
Disability set forth below) , it may give to the Executive written
notice in accordance with Section 8(b) of this Agreement of its
intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date" ) , provided that, within
the 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the inability of
the Executive to perform as an executive officer on a part-time or
full-time basis for 180 days within any twelve (12) month period as
a result of mental or physical illness or due to an accident or
accidents, and which incapacity is determined by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative."
B. A new subsection 2(c) is hereby added to "Section 2. TERMS OF
EMPLOYMENT" to read in its entirety as follows:
(c) RELOCATION. The Executive shall not be required to relocate more
than seventy-five (75) miles from the Atlanta, Georgia metropolitan
area; provided, however,
<PAGE> 13
that the Executive shall be required to travel as the reasonable
needs of the business requires.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Amendment to be executed in its name on its behalf, all as of the
day and year first above written .
ZENON S. NIE
/s/ Zenon S. Nie
--------------------
SIMMONS COMPANY
By: /s/ Ken Barton
------------------
<PAGE> 14
AMENDMENT NO. 2
TO
EMPLOYMENT AGREEMENT
This Amendment No. 2 dated as of June 29, 1998 (this "Amendment"), to
the Employment Agreement by and between Simmons Company, a Delaware corporation
(the "Company), and Zenon S. Nie (the "Executive") dated as of the 15th day of
November, 1993, as amended by Amendment No. 1 dated as of October 5, 1995 (the
"Agreement").
The Agreement is hereby amended to the extent set forth below, such
amendments to be effective solely upon the later to occur of(i) an "Approved
Sale" (as defined in that certain Stock Option Agreement dated as of March 22,
1996, between Simmons Holdings, Inc., a Delaware corporation, and the Executive)
and (ii) the affirmative vote of persons owning, prior to the occurrence of such
Approved Sale, more than 75% of the voting power of all outstanding stock of the
Company. All other provisions of the Agreement shall remain in full force and
effect.
A. Section 1 is hereby amended to read in its entirety as
follows:
"The Company hereby agrees to continue the Executive in its employ, and
the Executive agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement, for a period (the "Period of Employment")
which commences on the date hereof (the "Effective Date") and continues for
three years following the Effective Date; provided, however, that the Period of
Employment shall, from and after the Effective Date, be automatically extended
so as to terminate three years from each ensuing day, unless the Company shall
give notice to the Executive that the Period of Employment shall not be so
extended, in which event the Period of Employment shall terminate on the third
anniversary of such notice. Notwithstanding the foregoing, the Period of
Employment is subject to earlier termination as provided herein."
B. Section 2(a)(ii) is hereby amended by adding the following paragraph
directly below the existing paragraph:
"Nothing in this Agreement shall preclude the Executive from devoting
reasonable periods of time to charitable and community activities (including
serving on charitable organization boards or similar bodies) or the management
of the Executive's investment assets, provided such activities do not interfere
with the performance by the Executive of the Executive's duties hereunder.
Furthermore, service by the Executive on the boards of directors of up to two
noncompeting companies shall not be deemed to be a violation of this Agreement,
provided such service does not interfere with the performance of the Executive's
duties hereunder."
C. Section 2(b)(i) is hereby amended by adding the following sentence
to the end of such section:
"The Annual Base Salary in effect as the date hereof is $575,000."
D. Section 2(b)(ii) is hereby amended to read in its entirety as
follows:
"(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded for each fiscal year ending during the Employment Period, an
Annual Bonus (the "Annual
<PAGE> 15
Bonus") based on the Company's achievement of its annual financial plan approved
by the Board of Directors as follows:
<TABLE>
<CAPTION>
ANNUAL BONUS AS %
% OF PLAN OF ANNUAL BASE SALARY
--------- ---------------------
<S> <C>
Less than 90.0% 0%
90.0% 60.0%
100.0% 80.0%
Increment for each percentage point over 100% 7.5%
</TABLE>
To the extent that the percentage of plan achieved falls between the
amounts described above, the bonus as a percentage of salary shall be equitably
pro rated. Each such Annual Bonus shall be paid in accordance with the Company's
normal payroll practices, but in no event later than April 1 of the year
following that in which it is earned."
E. Section 2(vi) is hereby amended by adding the following at the end
of such section:
"Notwithstanding anything to the contrary contained herein, Executive
shall be entitled to reimbursement of all such reasonable expenses incurred as
of the date of Executive's termination pursuant to Section 3 below.
F. Section 3(b) is hereby amended by adding the following at the end of
such section:
"The failure of the Company's actual operating results to meet or
exceed the financial plan as approved by the Board of Directors shall not
constitute "Cause" for purposes of this Agreement, PROVIDED that such failure or
lack thereof shall not mean that Executive's employment hereunder cannot be
terminated for "Cause", as defined in this Agreement, due to other facts and
circumstances."
G. Section 3(c)(i) is hereby amended by adding the following words
directly after the words "receipt of notice thereof given by the Executive":
"; provided, however the parties agree that "Good Reason" will not be
deemed to have occurred merely because the Company becomes a subsidiary or
division of another entity following an "Approved Sale", provided that the
Executive continues to serve as the Chief Executive Officer of such subsidiary
or division and such subsidiary or division is comparable in size to the
organization consisting of the Company and its subsidiaries."
H. Section 4(a)(i)(A)(2) is hereby amended to read in its entirety as
follows:
"a pro rata Annual Bonus for the number of days having elapsed, as of
the Date of Termination, in the year in which the Date of Termination occurs
based on the Company's actual performance compared to its annual financial plan
approved by the Board of Directors over the number of full calendar months
elapsed as of the Date of Termination, calculated as follows:
2
<PAGE> 16
<TABLE>
<CAPTION>
ANNUAL BONUS AS %
% OF PLAN OF ANNUAL BASE SALARY
--------- ---------------------
<S> <C>
Less than 90.0% 0%
90.0% - 102.5% 80.0%
Greater than 102.5% 80.0% PLUS 7.5% for each percentage point
over 100% of Plan
</TABLE>
, PROVIDED that in determining actual performance compared to plan, a period of
not less than three full calendar months shall be used, such that if the Date of
Termination falls within the first quarter of any fiscal year, such three full
calendar months shall include the necessary number of the immediately preceding
full months from the prior fiscal year,"
I. Section 4(a)(i)(A)(4) shall be amended by adding the following words
immediately after the words "any expenses":
"or obligations";
J. Section 4(a)(i)(B) is hereby amended in its entirety to read as
follows:
"For a period of three years following the Date of Termination,
Executive's Annual Base Salary as in effect immediately before the Date of
Termination."
K. A new section 4(a)(i)(C) is hereby added to read in its entirety as
follows:
"For a period of one year following the Date of Termination, an Annual
Bonus in the amount of 80% of the Executive's Annual Base Salary as in effect
immediately before the Date of
Termination."
L. Section 4(a)(vi) is hereby amended by adding the following words
directly after the words "hereinafter referred to as the "Other Benefits")":
"PROVIDED, HOWEVER, that except as provided in Sections 4(a)(i)(A)(4)
and 4(a)(v), the Executive shall not be entitled, after the Date of Termination,
to those fringe benefits to be provided to the Executive during the Employment
Term pursuant to Section 2(b)(vii); and"
M. A new Section 4(a)(vii) is hereby added to read in its entirety as
follows:
"(vi) in lieu of the payments described in Sections 4(a)(i)(B) and (C)
hereof, unless Executive expressly requests in writing within five business days
after the Date of Termination to receive the installment payment procedure set
forth in Sections 4(a)(i)(B) and (C), the Company shall pay the total of the
Executive's Annual Base Salary payments and Annual Bonus payments described in
Sections 4(a)(i)(B) and (C) in a single sum within thirty (30) days following
the Date of Termination."
3
<PAGE> 17
N. A new section 4(e) is hereby added to read in its entirety as
follows:
"(e) SECTION 280G PROTECTION.
(i) If, on the Date of Termination, the Company (and every member
of the "affiliated group" within the meaning of Section 280G(d)(5) of the
Internal Revenue Code of 1986, as amended (the "Code") of which the Company is a
member) is an entity as to which no stock was readily tradable on an established
securities market (within the meaning of Section 280G(b)(5)(A)(ii)(I) of the
Code), the Company shall make a cash payment to the Executive at the time set
forth below equal to the amount of excise taxes (the "Excise Tax Gross-up
Payment") which Executive is required to pay pursuant to Section 4999 of the
Code as a result of any payments made by or on behalf of the Company or any
successor thereto being treated as an "excess parachute payment" within the
meaning of Section 280G(b) of the Code. In addition to the foregoing, the cash
payment due to the Executive under this Section 4(e) shall be increased by the
aggregate amount, computed at the highest applicable marginal tax rate, of
federal, state and local income, Medicare and excise taxes for which the
Executive will be liable on account of such cash payments to be made under this
Section 4(e), such that the Executive will receive the Excise Tax Gross-up
Payment net of all income, Medicare and excise taxes imposed on the Executive as
a result of his receipt of such Excise Tax Gross-up Payment. The computation of
this payment shall be determined, at the expense of the Company, by an
independent accounting, actuarial or consulting firm to be mutually agreed upon
by the Company and the Executive.
(ii) Payment of the Excise Tax Gross-up Payment shall be made at
such time as the Company shall determine, in its sole discretion, but in no
event later than the date which is five (5) business days prior to the due date,
without regard to any extension, for filing the Executive's federal income tax
return for the calendar year which includes the date as of which the
aforementioned "excess parachute payments" are determined. Notwithstanding the
foregoing, there shall be no duplication of payments by the Company under this
Section 4(e) in respect of excise taxes under Section 4999 of the Code to the
extent that the Company is making cash payments in respect of such excise taxes
under any other arrangement with the Executive. In the event that the Executive
is liable for excise taxes under Section 4999 of the Code as a result of
payments made by the Company or any successor thereto which exceed the amount of
excise, income and Medicare taxes used in computing the Executive's payment
under this Section 4(e), the Company or its successor shall indemnify the
Executive for such additional excise taxes, income taxes, Medicare taxes,
interest and penalties on a net, after-tax basis.
0. Section 6(b) is hereby amended by deleting the first two sentences
of such section and adding the following:
"The Executive agrees that during the Payment Period, he will not be a
proprietor, director, officer, employee, five percent or greater stockholder,
consultant or partner (or the equivalent thereof) in any business engaged to a
material extent in the manufacture or sale of (i) mattresses or box springs or
(ii) any other products which constitute more than ten percent of the Company's
revenues at the time that it is in competition with the Company in any market."
P. Section 6(b) is hereby further amended by adding the following at
the end of such section:
4
<PAGE> 18
"The Executive understands that the foregoing restrictions may limit
the Executive's ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Executive will receive
sufficiently higher remuneration and other benefits from the Company hereunder
than the Executive would otherwise receive to justify such restriction. The
Executive acknowledges that the Executive understands the effect of the
provisions of this Section 6(b), that the Executive has had reasonable time to
consider the effect of these provisions, and that the Executive was encouraged
to and had an opportunity to consult an attorney with respect to these
provisions.
Q. A new section 8(g) is hereby added to read in its entirety as
follows:
"(g) The Company agrees to reimburse the Executive for all reasonable
attorney fees and expenses incurred by the Executive to enforce the provisions
of this Agreement if Executive's claims are successful; provided, however, that
if the Executive's claims are not successful, the Company shall only reimburse
25% of such reasonable attorney fees and expenses."
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Amendment to be executed in its name on its behalf, all as of the
day and year first above written.
ZENON S. NIE
/s/ Zenon S. Nie
-----------------
SIMMONS COMPANY
/s/ R.K. Barton
------------------
By:
Title: Sr. VP H.R.
5
<PAGE> 1
Exhibit 10.29
EMPLOYMENT AGREEMENT
This Agreement dated as of June 29, 1998 by and between Simmons
Company, a Delaware corporation (the "Company"), and Martin R. Passaglia (the
"Executive").
The Board of Directors of the Company has determined that it would be
in the best interest of the Company and its stockholders to retain the services
of the Executive for the period and upon the terms provided in this Agreement.
The Executive is willing to serve in the employ of the Company on a full time
basis for said period and upon such other terms and conditions as provided in
this Agreement.
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I.
EMPLOYMENT
----------
The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company, for the Period of Employment (as defined below) and
upon the other terms and conditions provided in this Agreement.
SECTION II.
POSITION AND RESPONSIBILITIES
-----------------------------
During the Period of Employment, the Executive agrees to serve as
Senior Executive Vice President of the Company.
SECTION III.
TERMS AND DUTIES
----------------
A. Period of Employment
--------------------
The period of the Executive's employment under this Agreement (the
"Period of Employment") will commence upon a Change of Control (the "Effective
Date") and shall continue for two years following the Effective Date; provided,
however, that the Period of Employment shall, from and after the first
anniversary date of the Effective Date, be automatically extended so as to
terminate one year from each ensuing day, unless the Company shall give notice
to the Executive that the Period of Employment shall not be so extended, in
which event the Period of Employment shall terminate on the later of the second
anniversary of the Effective Date or the first anniversary of such notice.
Notwithstanding the foregoing, the Period of Employment is subject to earlier
termination as provided herein. A "Change of Control" is defined to have
occurred when (i) the Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization
<PAGE> 2
less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such transaction are
held in the aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors of the Company ("Voting Stock") of the Company immediately prior to
such transaction; (ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer; and (iii) any person who is not a
stockholder of the Company on the Effective Date shall own (together with all
shares of Company stock owned by any person acting in concert with such person)
more than 50% of the Voting Stock of the Company.
B. Duties
------
During the Period of Employment and except for illness, incapacity or
any reasonable vacation periods in any calendar year, the Executive shall devote
all of his business time, attention and skill exclusively to the business and
affairs of the Company and its subsidiaries. The Executive will not engage in
any other business activity and will perform faithfully the duties which may be
assigned to him from time to time by the Company. Nothing in this Agreement
shall preclude the Executive from devoting reasonable periods of time required
for:
(i) Serving, with prior approval of the Board of Directors of the
Company, as a Director or member of a committee or organization involving no
actual or potential conflict of interest with the Company.
(ii) Delivering lectures and fulfilling speaking engagements.
(iii) Engaging in charitable and community activities.
(iv) Investing his personal assets in businesses in such form or manner
that will not violate this Agreement or require services on the part of the
Executive in the operation or affairs of the companies in which those
investments are made.
The activities referred to in Subsections (i), (ii), (iii) and
(iv) above will be allowed as long as they do not materially affect or interfere
with the performance of the Executive's duties and obligations to the Company.
SECTION IV.
COMPENSATION
------------
For all services rendered by the Executive in any capacity, including
without limitation services as an employee, officer, director or committee
member, the Executive shall be compensated during the Period of Employment as
follows:
2
<PAGE> 3
A. Base Salary
-----------
The Company shall pay the Executive a fixed base salary at the rate of
not less than $267,500 per year (the "Base Salary"), subject to annual increases
to be effective on January 1 of each year as the Compensation Committee of the
Board of Directors or the Board of Directors of the Company deems appropriate in
accordance with the Company's customary procedures regarding the salaries of
senior officers. Annual increases in Base Salary once granted shall not be
subject to revocation. Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than monthly.
B. Annual Bonus
------------
In addition to Base Salary, the Executive shall be awarded for each
fiscal year ending during the Employment Period, an Annual Bonus (the "Annual
Bonus") based on the Company's achievement of its annual financial plan approved
by the Board of Directors as follows:
<TABLE>
<CAPTION>
% OF PLAN ANNUAL BONUS AS % OF BASE SALARY
<S> <C>
Less than 90.0% 0%
90.0% 30.0%
100.0% 42.5%
Increment for each percentage 5.0%
point over 100%
</TABLE>
To the extent that the percentage of plan achieved falls between the
amounts described above, the bonus as a percentage of salary shall be equitably
pro rated. Each such Annual Bonus shall be paid in accordance with the Company's
normal payroll practices, but in no event later than April 1 of the year
following that in which it is earned.
C. Additional Benefits
-------------------
In addition, the Executive will be entitled to participate in all
compensation or employee benefit plans or programs of the Company for senior
officers, as in effect from time to time, and to receive all benefits for which
senior officers are from time to time eligible thereunder. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions, as in effect from time
to time. Nothing in this Agreement will preclude the Company from amending or
terminating any of such plans or programs.
3
<PAGE> 4
SECTION V.
BUSINESS EXPENSES
-----------------
The Company will reimburse the Executive for all reasonable travel,
entertainment, business and other expenses incurred by the Executive in
connection with the performance of his duties and obligations under this
Agreement. Notwithstanding anything to the contrary contained herein, Executive
shall be entitled to reimbursement of all such reasonable expenses incurred as
of the date of Executive's termination pursuant to Sections VI, VII or VIII
below.
SECTION VI.
DISABILITY
----------
A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability.
However, in the event the Executive is disabled for a continuous period of six
(6) months or more, the Company may terminate the employment of the Executive
and make payments to the Executive under the terms of any long-term disability
plan of the Company under which he then participates. In addition, the Executive
will also be entitled to any benefits provided in the event of disability under
any disability policy of the Company in effect on the date hereof. In such
event, the Company will have no other obligations hereunder to the Executive
other than to pay earned but unpaid Base Salary and Annual Bonus (which would be
payable on a pro-rated basis for the year in which the disability occurred).
B. During the period the Executive is receiving such disability
payments, either regular compensation or disability insurance, and as long as he
is physically and mentally able to do so, the Executive will furnish information
and assistance to the Company as reasonably requested from time to time. Any
reasonable out-of-pocket cost incurred by Executive in furnishing such
information or rendering such assistance shall be reimbursed to the Executive by
the Company. If the Company fails to make a payment or provide a benefit
required as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
SECTION VII.
DEATH
-----
In the event of the death of the Executive during the Period of
Employment, the Company's obligations under this Agreement shall cease as of the
date of death, except for earned but unpaid Base Salary and Annual Bonus which
will be paid on a pro-rated basis for that year.
4
<PAGE> 5
SECTION VIII.
EFFECT OF TERMINATION OF EMPLOYMENT
OTHER THAN DEATH OR DISABILITY
------------------------------
A. If the Executive's employment terminates due to a Without Cause
Termination (as defined below), the Company will pay the Executive, within 30
days of the date of termination, the sum of the unpaid portion of Executive's
Base Salary through the date of termination plus a pro rata Annual Bonus for the
year in which the date of termination occurs based on the Company's actual
performance compared to its annual financial plan approved by the Board of
Directors over the number of full calendar months elapsed as of the date of
termination; provided that in determining actual performance compared to plan
not less than three full calendar months shall be used, and therefore, if the
date of termination falls within the first quarter of any fiscal year, such full
calendar months shall include the necessary number of the immediately preceding
full months from the prior fiscal year. In addition, until the later of (i) the
second anniversary of the Effective Date, or (ii) the first anniversary of the
date of such termination (such period is hereinafter referred to as the "Payment
Period"), Executive's Annual Base Salary (plus a pro rata portion thereof if the
Payment Period is greater than one year) as in effect immediately before the
date of termination plus an Annual Bonus in the amount of 42.5% of the
Executive's Annual Base Salary (plus a pro rata portion thereof if the Payment
Period is greater than one year) as in effect immediately before the date of
termination. These payments will be payable at the times at which the
Executive's Base Salary and Annual Bonus would otherwise be payable hereunder.
The Executive shall be entitled to a continuation of any health and welfare
benefits contemplated by Section IV C during the Payment Period. During the
Payment Period, the Company shall provide out-placement services to the
Executive in an amount equal to up to 15% of the Executive's Base Salary but not
to exceed $20,000. The Company shall have no other obligations to the Executive.
If, after the termination of the Executive's employment due to a
Without Cause Termination, the Executive is employed (whether as a full-time
employee, a consultant or otherwise) with any other company, the benefits
resulting from such other employment or consulting position shall be deemed
primary coverages for the purposes of coordination of benefits.
B. If the Executive's employment terminates due to a Termination for
Cause (as defined below), earned but unpaid Base Salary will be paid on a lump
sum basis for the year in which the termination occurs. Earned but unpaid Annual
Bonus for any prior years shall be payable in full, but no other payments will
be made or benefits provided by the Company and the Company shall have no other
obligations to the Executive.
C. If the Executive's employment terminates by reason of retirement at
age 65, or earlier with the consent of the Board of Directors of the Company, he
shall be entitled to all earned but unpaid Base Salary and earned but unpaid
Annual Bonus and retirement benefits pursuant to the retirement plan or plans,
if any, in which the Executive then participates, but no other payments will be
made or benefits provided by the Company hereunder. Such Annual Bonus shall be
paid to Executive in accordance with the terms of Section IV(B) herein no later
than April 1 of the year following such retirement, and shall be (i) pro-rated
for that portion of the
5
<PAGE> 6
year in which Executive's retirement occurs through the date of termination and
(ii) calculated on the basis of the Company's actual performance for such year.
D. Upon termination of the Executive's employment other than for
reasons due to death, disability, retirement or a Without Cause Termination, the
Period of Employment and the Company's obligations under this Agreement will
cease as of the date of the termination.
For purposes of this Agreement the following terms have the following
meanings:
(i) "Termination for Cause" means termination of the Executive's
employment by the Company by written notice to the Executive specifying the
event relied upon for such termination, due to (a) the Executive's willful
failure to perform the duties of his employment in any material respect, which
willful failure is not remedied within thirty (30) days after receipt of written
notice from the Company, (b) malfeasance or gross negligence in the performance
of the Executive's duties of employment, which malfeasance or gross negligence
is not remedied within thirty (30) days after receipt of written notice from the
Company, (c) the Executive's conviction of a felony under the laws of the United
States or any state thereof (whether or not in connection with his employment),
or (d) the Executive's disclosure of confidential information respecting the
Company's business to any individual or entity which is not in the performance
of the duties of his employment.
(ii) "Without Cause Termination" means (a) termination of the
Executive's employment by the Company for any reason other than due to death,
retirement, disability, expiration of the Period of Employment, or Termination
for Cause or (b) termination of the Executive's employment with the Company by
the Executive following (1) removal or failure to reappoint the Executive, as
Senior Executive Vice President of the Company (by reason other than death,
retirement, disability or Termination for Cause), or any material breach by the
Company of its obligations contained in this Agreement; (2) a material change
imposed by the Company in the functions, duties or responsibilities assigned to
the Executive which would reduce the ranking or level, dignity, responsibility,
importance or scope of the Executive's current position in the Company, provided
no such change shall result merely because the Company becomes a subsidiary of
another entity following a Change of Control; (3) a reduction by the Company of
more than 10% in the Executive's Base Salary as in effect on the date hereof or
as the same may be increased from time to time, or a reduction by more than 50%
of the Executive's Annual Bonus (as compared to the Annual Bonus for the prior
year), except for across-the-board salary or Annual Bonus reductions similarly
affecting all executives of the Company; provided, however, that in no event
shall the Executive's Base Salary be reduced below the amount in effect on the
Effective Date without the Executive's consent; or (4) the Company's requiring
the Executive to relocate more than seventy-five (75) miles from the Executive's
current offices except for reasonably required travel in connection with the
Company's business.
6
<PAGE> 7
SECTION IX.
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
----------------------------------
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with any
claims or legal actions in which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company is confidential and is a unique and valuable asset of the
Company. Access to and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement. The Executive will
not during the Period of Employment, except to the extent reasonably necessary
in the performance of the duties under this Agreement, or for thirty-six (36)
months after the Period of Employment, give to any person, firm, association,
corporation or governmental agency any information concerning the affairs,
business, clients, customers or other relationships of the Company except as
required by law. The Executive will not make use of this type of information for
his own purposes or for the benefit of any person or organization other than the
Company. The Executive will also use his best efforts to prevent the disclosure
of this information by others. All records, memoranda, and other information or
materials relating to the business of the Company (whether created by the
Executive or otherwise coming into his possession) are confidential and will
remain the property of the Company.
C. During the Period of Employment and upon a Termination for Cause for
a twenty-four (24) month period thereafter, the Executive will not use his
status with the Company to obtain loans, goods or services from another
organization on terms that would not be available to him in the absence of his
relationship to the Company.
D. The Executive agrees that during the Payment Period he will not be a
proprietor, director, officer, employee, five percent or greater stockholder,
consultant or partner (or the equivalent thereof) in any business engaged to a
material extent in the manufacture or sale of (x) mattresses or box springs or
(y) any other products which constitute more than ten percent of the Company's
revenues at the time that it is in competition with the Company in any market.
The Executive further agrees that, during such period, he will not make any
statements or perform any acts intended to advance the interest of any existing
or prospective competitors of the Company in any way that will injure the
interest of the Company. The Executive will not, during such period, solicit any
members of the then current customers or suppliers of the Company or discuss
with any employee of the Company information or operation of any business
intended to compete with the Company. During such period, the Executive shall
not, and shall cause any person or entity with which he is affiliated not to,
solicit or induce, or attempt to solicit or induce, any employee of the Company
or any of its subsidiaries to leave the employment of the Company or of any of
its subsidiaries to work for the Executive or any person or entity with which he
is affiliated. During such period, the Executive shall not, and shall cause any
person or entity with which he is affiliated not to, solicit or induce, or
attempt to solicit or induce, any person who was employed
7
<PAGE> 8
by the Company or any of its subsidiaries on a full-time basis during the ninety
(90) days immediately prior to the termination of the Executive's employment to
accept employment with the Executive or with any person or entity with which he
is affiliated.
E. The Company's obligations under the terms of this Agreement will
cease upon any violation of the provisions of this Section IX by the Executive.
F. The parties desire that the provisions of this Section IX be
enforced to the fullest extent permissible under the laws and public policies
applied in the jurisdictions in which enforcement is sought. If any portion of
this Section IX is judged to be invalid or unenforceable, this Section IX will
be deemed to be amended to the extent necessary to ensure that this Section IX
will be enforceable to the maximum extent permissible under applicable law.
G. The Executive understands that the foregoing restrictions may limit
the Executive's ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Executive will receive
sufficiently higher remuneration and other benefits from the Company hereunder
than the Executive would otherwise receive to justify such restrictions. The
Executive acknowledges that the Executive understands the effect of the
provisions of this Section IX, that the Executive has had reasonable time to
consider the effect of these provisions, and that the Executive was encouraged
to and had an opportunity to consult an attorney with respect to these
provisions.
SECTION X.
INDEMNIFICATION, LITIGATION
---------------------------
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and bylaws of the Company, whichever affords the
greater protection to the Executive. The Executive will be entitled to any
insurance policies the Company may elect to maintain generally for the benefit
of its officers and directors against all costs, charges and expenses incurred
in connection with any action, suit or proceeding to which he may be made a
party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this Agreement
and the enforcement of the rights under this Agreement, the Company shall
reimburse the Executive for all costs and expenses related to the litigation or
proceeding including attorney's fees and expenses, providing that the litigation
or proceeding results in either settlement requiring the Company to make a
payment to the Executive or judgment in favor of the Executive.
8
<PAGE> 9
SECTION XI.
WITHHOLDING TAXES
-----------------
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that are required to be
withheld pursuant to any applicable law or governmental regulation.
SECTION XII.
EFFECT ON PRIOR AGREEMENTS
--------------------------
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and, effective immediately
prior to the first Change of Control to occur after the date hereof, supersedes
any prior Employment Agreement or Change in Control Agreement between the
Company or its affiliates and predecessors and the Executive (whether or not in
writing).
SECTION XIII.
CONSOLIDATION, MERGER, OR SALE OF ASSETS
----------------------------------------
Nothing in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all of its assets
to another corporation which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger or sale
of assets, the term "the Company" as used will mean such other corporation and
this Agreement shall continue in full force and effect.
SECTION XIV.
MODIFICATION
------------
This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived except in writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.
SECTION XV.
GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
9
<PAGE> 10
SECTION XVI.
EFFECTIVENESS
-------------
This Agreement shall become effective on the Effective Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
SIMMONS COMPANY
/s/ R. K. Barton
-------------------------
By: R. K. Barton
Title: SR. VP HR
/s/ Martin R. Passaglia
-------------------------
Martin R. Passaglia
10
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (this "AMENDMENT") to that certain Employment Agreement
dated as of June 29, 1998 (the "EMPLOYMENT AGREEMENT"; terms used and not
defined herein shall have the meanings ascribed to such terms in the Employment
Agreement) by and between the Executive and the Company is entered into as of
this ___ day of July, 1998 by and between Martin R. Passaglia (the "Executive")
and Simmons Company, a Delaware corporation (the "Company").
The Agreement is hereby amended to the extent set forth below, such
amendment to be effective upon the execution hereof by the Company and the
Executive. All other provisions of the Employment Agreement shall remain in full
force and effect.
The definition of "Change of Control" as set forth in Section III(A) of
the Employment Agreement is hereby amended to read in its entirety as follows:
"A "Change of Control" is defined to have occurred when (i)
either the Company or Simmons Holdings, Inc., a Delaware corporation
("Holdings") is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the election
of directors of the Company or Holdings, as the case may be ("Voting
Stock"), immediately prior to such transaction; (ii) either Holdings or
the Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person and less than
a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of
Holdings or the Company, as the case may be, immediately prior to such
sale or transfer; and (iii) any person who is not a stockholder of
Holdings or the Company, as the case may be, on the Effective Date
shall own (together with all shares of Holdings or Company stock, as
the case may be, owned by any person acting in concert with such
person) more than 50% of the Voting Stock of Holdings or the Company,
as the case may be.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of the day and date first above written.
SIMMONS COMPANY, a Delaware
corporation
By: /s/ Ken Barton
-------------------------
Name: Ken Barton
Title: Sr. VP HR
/s/ Martin R. Passaglia
-------------------------
MARTIN R. PASSAGLIA
<PAGE> 1
Exhibit 10.30
EMPLOYMENT AGREEMENT
This Agreement dated as of June 29, 1998 by and between Simmons
Company, a Delaware corporation (the "Company"), and Jonathan C. Daiker (the
"Executive").
The Board of Directors of the Company has determined that it would be
in the best interest of the Company and its stockholders to retain the services
of the Executive for the period and upon the terms provided in this Agreement.
The Executive is willing to serve in the employ of the Company on a full time
basis for said period and upon such other terms and conditions as provided in
this Agreement.
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I.
EMPLOYMENT
----------
The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company, for the Period of Employment (as defined below) and
upon the other terms and conditions provided in this Agreement.
SECTION II.
POSITION AND RESPONSIBILITIES
-----------------------------
During the Period of Employment, the Executive agrees to serve as
Executive Vice President and Chief Financial Officer of the Company.
SECTION III.
TERMS AND DUTIES
----------------
A. PERIOD OF EMPLOYMENT
The period of the Executive's employment under this Agreement (the
"Period of Employment") will commence upon a Change of Control (the "Effective
Date") and shall continue for two years following the Effective Date; provided,
however, that the Period of Employment shall, from and after the first
anniversary date of the Effective Date, be automatically extended so as to
terminate one year from each ensuing day, unless the Company shall give notice
to the Executive that the Period of Employment shall not be so extended, in
which event the Period of Employment shall terminate on the later of the second
anniversary of the Effective Date or the first anniversary of such notice.
Notwithstanding the foregoing, the Period of Employment is subject to earlier
termination as provided herein. A "Change of Control" is defined to have
occurred when (i) the Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization
<PAGE> 2
less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such transaction are
held in the aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors of the Company ("Voting Stock") of the Company immediately prior to
such transaction; (ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer; and (iii) any person who is not a
stockholder of the Company on the Effective Date shall own (together with all
shares of Company stock owned by any person acting in concert with such person)
more than 50% of the Voting Stock of the Company.
B. DUTIES
During the Period of Employment and except for illness, incapacity or
any reasonable vacation periods in any calendar year, the Executive shall devote
all of his business time, attention and skill exclusively to the business and
affairs of the Company and its subsidiaries. The Executive will not engage in
any other business activity and will perform faithfully the duties which may be
assigned to him from time to time by the Company. Nothing in this Agreement
shall preclude the Executive from devoting reasonable periods of time required
for:
(i) Serving, with prior approval of the Board of Directors of the
Company, as a Director or member of a committee or organization involving no
actual or potential conflict of interest with the Company.
(ii) Delivering lectures and fulfilling speaking engagements.
(iii) Engaging in charitable and community activities.
(iv) Investing his personal assets in businesses in such form or manner
that will not violate this Agreement or require services on the part of the
Executive in the operation or affairs of the companies in which those
investments are made.
The activities referred to in Subsections (i), (ii), (iii) and (iv)
above will be allowed as long as they do not materially affect or interfere with
the performance of the Executive's duties and obligations to the Company.
SECTION IV.
COMPENSATION
------------
For all services rendered by the Executive in any capacity, including
without limitation services as an employee, officer, director or committee
member, the Executive shall be compensated during the Period of Employment as
follows:
2
<PAGE> 3
A. BASE SALARY
The Company shall pay the Executive a fixed base salary at the rate of
not less than $225,000 per year (the "Base Salary"), subject to annual increases
to be effective on January 1 of each year as the Compensation Committee of the
Board of Directors or the Board of Directors of the Company deems appropriate in
accordance with the Company's customary procedures regarding the salaries of
senior officers. Annual increases in Base Salary once granted shall not be
subject to revocation. Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than monthly.
B. ANNUAL BONUS
In addition to Base Salary, the Executive shall be awarded for each
fiscal year ending during the Employment Period, an Annual Bonus (the "Annual
Bonus") based on the Company's achievement of its annual financial plan approved
by the Board of Directors as follows:
<TABLE>
<CAPTION>
% OF PLAN ANNUAL BONUS AS % OF BASE SALARY
<S> <C>
Less than 90.0% 0%
90.0% 30.0%
100.0% 42.5%
Increment for each percentage 5.0%
point over 100%
</TABLE>
To the extent that the percentage of plan achieved falls between the
amounts described above, the bonus as a percentage of salary shall be equitably
pro rated. Each such Annual Bonus shall be paid in accordance with the Company's
normal payroll practices, but in no event later than April 1 of the year
following that in which it is earned.
C. ADDITIONAL BENEFITS
In addition, the Executive will be entitled to participate in all
compensation or employee benefit plans or programs of the Company for senior
officers, as in effect from time to time, and to receive all benefits for which
senior officers are from time to time eligible thereunder. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions, as in effect from time
to time. Nothing in this Agreement will preclude the Company from amending or
terminating any of such plans or programs.
3
<PAGE> 4
SECTION V.
BUSINESS EXPENSES
-----------------
The Company will reimburse the Executive for all reasonable travel,
entertainment, business and other expenses incurred by the Executive in
connection with the performance of his duties and obligations under this
Agreement. Notwithstanding anything to the contrary contained herein, Executive
shall be entitled to reimbursement of all such reasonable expenses incurred as
of the date of Executive's termination pursuant to Sections VI, VII or VIII
below.
SECTION VI.
DISABILITY
----------
A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability.
However, in the event the Executive is disabled for a continuous period of six
(6) months or more, the Company may terminate the employment of the Executive
and make payments to the Executive under the terms of any long-term disability
plan of the Company under which he then participates. In addition, the Executive
will also be entitled to any benefits provided in the event of disability under
any disability policy of the Company in effect on the date hereof In such event,
the Company will have no other obligations hereunder to the Executive other than
to pay earned but unpaid Base Salary and Annual Bonus (which would be payable on
a pro-rated basis for the year in which the disability occurred).
B. During the period the Executive is receiving such disability
payments, either regular compensation or disability insurance, and as long as he
is physically and mentally able to do so, the Executive will furnish information
and assistance to the Company as reasonably requested from time to time. Any
reasonable out-of-pocket cost incurred by Executive in furnishing such
information or rendering such assistance shall be reimbursed to the Executive by
the Company. If the Company fails to make a payment or provide a benefit
required as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
SECTION VII.
DEATH
-----
In the event of the death of the Executive during the Period of
Employment, the Company's obligations under this Agreement shall cease as of the
date of death, except for earned but unpaid Base Salary and Annual Bonus which
will be paid on a pro-rated basis for that year.
4
<PAGE> 5
SECTION VIII.
EFFECT OF TERMINATION OF EMPLOYMENT
OTHER THAN DEATH OR DISABILITY
------------------------------
A. If the Executive's employment terminates due to a Without Cause
Termination (as defined below), the Company will pay the Executive, within 30
days of the date of termination, the sum of the unpaid portion of Executive's
Base Salary through the date of termination plus a pro rata Annual Bonus for the
year in which the date of termination occurs based on the Company's actual
performance compared to its annual financial plan approved by the Board of
Directors over the number of full calendar months elapsed as of the date of
termination; provided that in determining actual performance compared to plan
not less than three full calendar months shall be used, and therefore, if the
date of termination falls within the first quarter of any fiscal year, such full
calendar months shall include the necessary number of the immediately preceding
full months from the prior fiscal year. In addition, until the later of (i) the
second anniversary of the Effective Date, or (ii) the first anniversary of the
date of such termination (such period is hereinafter referred to as the "Payment
Period"), Executive's Annual Base Salary (plus a pro rata portion thereof if the
Payment Period is greater than one year) as in effect immediately before the
date of termination plus an Annual Bonus in the amount of 42.5% of the
Executive's Annual Base Salary (plus a pro rata portion thereof if the Payment
Period is greater than one year) as in effect immediately before the date of
termination. These payments will be payable at the times at which the
Executive's Base Salary and Annual Bonus would otherwise be payable hereunder.
The Executive shall be entitled to a continuation of any health and welfare
benefits contemplated by Section IV C during the Payment Period. During the
Payment Period, the Company shall provide out-placement services to the
Executive in an amount equal to up to 15% of the Executive's Base Salary but not
to exceed $20,000. The Company shall have no other obligations to the Executive.
If, after the termination of the Executive's employment due to a
Without Cause Termination, the Executive is employed (whether as a full-time
employee, a consultant or otherwise) with any other company, the benefits
resulting from such other employment or consulting position shall be deemed
primary coverages for the purposes of coordination of benefits.
B. If the Executive's employment terminates due to a Termination for
Cause (as defined below), earned but unpaid Base Salary will be paid on a lump
sum basis for the year in which the termination occurs. Earned but unpaid Annual
Bonus for any prior years shall be payable in full, but no other payments will
be made or benefits provided by the Company and the Company shall have no other
obligations to the Executive.
C. If the Executive's employment terminates by reason of retirement at
age 65, or earlier with the consent of the Board of Directors of the Company, he
shall be entitled to all earned but unpaid Base Salary and earned but unpaid
Annual Bonus and retirement benefits pursuant to the retirement plan or plans,
if any, in which the Executive then participates, but no other payments will be
made or benefits provided by the Company hereunder. Such Annual Bonus shall be
paid to Executive in accordance with the terms of Section IV(B) herein no later
than April 1 of the year following such retirement, and shall be (i) pro-rated
for that portion of the
5
<PAGE> 6
year in which Executive's retirement occurs through the date of termination and
(ii) calculated on the basis of the Company's actual performance for such year.
D. Upon termination of the Executive's employment other than for
reasons due to death, disability, retirement or a Without Cause Termination, the
Period of Employment and the Company's obligations under this Agreement will
cease as of the date of the termination.
For purposes of this Agreement the following terms have the following
meanings:
(i) "Termination for Cause" means termination of the Executive's
employment by the Company by written notice to the Executive specifying the
event relied upon for such termination, due to (a) the Executive's willful
failure to perform the duties of his employment in any material respect, which
willful failure is not remedied within thirty (30) days after receipt of written
notice from the Company, (b) malfeasance or gross negligence in the performance
of the Executive's duties of employment, which malfeasance or gross negligence
is not remedied within thirty (30) days after receipt of written notice from the
Company, (c) the Executive's conviction of a felony under the laws of the United
States or any state thereof (whether or not in connection with his employment),
or (d) the Executive's disclosure of confidential information respecting the
Company's business to any individual or entity which is not in the performance
of the duties of his employment.
(ii) "Without Cause Termination" means (a) termination of the
Executive's employment by the Company for any reason other than due to death,
retirement, disability, expiration of the Period of Employment, or Termination
for Cause or (b) termination of the Executive's employment with the Company by
the Executive following (1) removal or failure to reappoint the Executive, as
Executive Vice President and Chief Financial Officer of the Company (by reason
other than death, retirement, disability or Termination for Cause), or any
material breach by the Company of its obligations contained in this Agreement;
(2) a material change imposed by the Company in the functions, duties or
responsibilities assigned to the Executive which would reduce the ranking or
level, dignity, responsibility, importance or scope of the Executive's current
position in the Company, provided no such change shall result merely because the
Company becomes a subsidiary of another entity following a Change of Control;
(3) a reduction by the Company of more than 10% in the Executive's Base Salary
as in effect on the date hereof or as the same may be increased from time to
time, or a reduction by more than 50% of the Executive's Annual Bonus (as
compared to the Annual Bonus for the prior year), except for across-the-board
salary or Annual Bonus reductions similarly affecting all executives of the
Company; provided, however, that in no event shall the Executive's Base Salary
be reduced below the amount in effect on the Effective Date without the
Executive's consent; or (4) the Company's requiring the Executive to relocate
more than seventy-five (75) miles from the Executive's current offices except
for reasonably required travel in connection with the Company's business.
6
<PAGE> 7
SECTION IX.
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
----------------------------------
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with any
claims or legal actions in which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company is confidential and is a unique and valuable asset of the
Company. Access to and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement. The Executive will
not during the Period of Employment, except to the extent reasonably necessary
in the performance of the duties under this Agreement, or for thirty-six (36)
months after the Period of Employment, give to any person, firm, association,
corporation or governmental agency any information concerning the affairs,
business, clients, customers or other relationships of the Company except as
required by law. The Executive will not make use of this type of information for
his own purposes or for the benefit of any person or organization other than the
Company. The Executive will also use his best efforts to prevent the disclosure
of this information by others. All records, memoranda, and other information or
materials relating to the business of the Company (whether created by the
Executive or otherwise coming into his possession) are confidential and will
remain the property of the Company.
C. During the Period of Employment and upon a Termination for Cause for
a twenty-four (24) month period thereafter, the Executive will not use his
status with the Company to obtain loans, goods or services from another
organization on terms that would not be available to him in the absence of his
relationship to the Company.
D. The Executive agrees that during the Payment Period he will not be a
proprietor, director, officer, employee, five percent or greater stockholder,
consultant or partner (or the equivalent thereof) in any business engaged to a
material extent in the manufacture or sale of (x) mattresses or box springs or
(y) any other products which constitute more than ten percent of the Company's
revenues at the time that it is in competition with the Company in any market.
The Executive further agrees that, during such period, he will not make any
statements or perform any acts intended to advance the interest of any existing
or prospective competitors of the Company in any way that will injure the
interest of the Company. The Executive will not, during such period, solicit any
members of the then current customers or suppliers of the Company or discuss
with any employee of the Company information or operation of any business
intended to compete with the Company. During such period, the Executive shall
not, and shall cause any person or entity with which he is affiliated not to,
solicit or induce, or attempt to solicit or induce, any employee of the Company
or any of its subsidiaries to leave the employment of the Company or of any of
its subsidiaries to work for the Executive or any person or entity with which he
is affiliated. During such period, the Executive shall not, and shall cause any
person or entity with which he is affiliated not to, solicit or induce, or
attempt to solicit or induce, any person who was employed
7
<PAGE> 8
by the Company or any of its subsidiaries on a full-time basis during the ninety
(90) days immediately prior to the termination of the Executive's employment to
accept employment with the Executive or with any person or entity with which he
is affiliated.
E. The Company's obligations under the terms of this Agreement will
cease upon any violation of the provisions of this Section IX by the Executive.
F. The parties desire that the provisions of this Section IX be
enforced to the fullest extent permissible under the laws and public policies
applied in the jurisdictions in which enforcement is sought. If any portion of
this Section IX is judged to be invalid or unenforceable, this Section IX will
be deemed to be amended to the extent necessary to ensure that this Section IX
will be enforceable to the maximum extent permissible under applicable law.
G. The Executive understands that the foregoing restrictions may limit
the Executive's ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Executive will receive
sufficiently higher remuneration and other benefits from the Company hereunder
than the Executive would otherwise receive to justify such restrictions. The
Executive acknowledges that the Executive understands the effect of the
provisions of this Section IX, that the Executive has had reasonable time to
consider the effect of these provisions, and that the Executive was encouraged
to and had an opportunity to consult an attorney with respect to these
provisions.
SECTION X.
INDEMNIFICATION, LITIGATION
---------------------------
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and bylaws of the Company, whichever affords the
greater protection to the Executive. The Executive will be entitled to any
insurance policies the Company may elect to maintain generally for the benefit
of its officers and directors against all costs, charges and expenses incurred
in connection with any action, suit or proceeding to which he may be made a
party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this Agreement
and the enforcement of the rights under this Agreement, the Company shall
reimburse the Executive for all costs and expenses related to the litigation or
proceeding including attorney's fees and expenses, providing that the litigation
or proceeding results in either settlement requiring the Company to make a
payment to the Executive or judgment in favor of the Executive.
8
<PAGE> 9
SECTION XI.
WITHHOLDING TAXES
-----------------
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that are required to be
withheld pursuant to any applicable law or governmental regulation.
SECTION XII.
EFFECT ON PRIOR AGREEMENTS
--------------------------
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and, effective
immediately prior to the first Change of Control to occur after the date hereof,
supersedes any prior Employment Agreement or Change in Control Agreement between
the Company or its affiliates and predecessors and the Executive (whether or not
in writing).
SECTION XIII.
CONSOLIDATION, MERGER, OR SALE OF ASSETS
----------------------------------------
Nothing in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all of its assets
to another corporation which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger or sale
of assets, the term "the Company" as used will mean such other corporation and
this Agreement shall continue in full force and effect.
SECTION XIV.
MODIFICATION
------------
This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived except in writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.
SECTION XV.
GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
9
<PAGE> 10
SECTION XVI.
EFFECTIVENESS
-------------
This Agreement shall become effective on the Effective Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
SIMMONS COMPANY
/s/ R.K. Barton
-------------------------------------
By: R.K. Barton
Title: Sr. VP HR
/s/ Jonathan C. Daiker
-------------------------------------
Jonathan C. Daiker
10
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (this "AMENDMENT") to that certain Employment Agreement
dated as of June 29, 1998 (the "EMPLOYMENT AGREEMENT"; terms used and not
defined herein shall have the meanings ascribed to such terms in the Employment
Agreement) by and between the Executive and the Company is entered into as of
this ___ day of July, 1998 by and between Jonathan C. Daiker (the "Executive")
and Simmons Company, a Delaware corporation (the "Company").
The Agreement is hereby amended to the extent set forth below, such
amendment to be effective upon the execution hereof by the Company and the
Executive. All other provisions of the Employment Agreement shall remain in full
force and effect.
The definition of "Change of Control" as set forth in Section III(A) of
the Employment Agreement is hereby amended to read in its entirety as follows:
"A "Change of Control" is defined to have occurred when (i)
either the Company or Simmons Holdings, Inc., a Delaware corporation
("Holdings") is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the election
of directors of the Company or Holdings, as the case may be ("Voting
Stock"), immediately prior to such transaction; (ii) either Holdings or
the Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person and less than
a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of
Holdings or the Company, as the case may be, immediately prior to such
sale or transfer; and (iii) any person who is not a stockholder of
Holdings or the Company, as the case may be, on the Effective Date
shall own (together with all shares of Holdings or Company stock, as
the case may be, owned by any person acting in concert with such
person) more than 50% of the Voting Stock of Holdings or the Company,
as the case may be.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of the day and date first above written.
SIMMONS COMPANY, a Delaware
corporation
By: /s/ Ken Barton
-------------------------------------
Name: Ken Barton
Title: Sr. VP HR
/s/ J.C. Daiker
-------------------------------------
JONATHAN C. DAIKER
<PAGE> 1
Exhibit 10.31
EMPLOYMENT AGREEMENT
This Agreement dated as of June 29, 1998 by and between Simmons
Company, a Delaware corporation (the "Company"), and Robert K. Barton (the
"Executive").
The Board of Directors of the Company has determined that it would be
in the best interest of the Company and its stockholders to retain the services
of the Executive for the period and upon the terms provided in this Agreement.
The Executive is willing to serve in the employ of the Company on a full time
basis for said period and upon such other terms and conditions as provided in
this Agreement.
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I.
EMPLOYMENT
----------
The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company, for the Period of Employment (as defined below) and
upon the other terms and conditions provided in this Agreement.
SECTION II.
POSITION AND RESPONSIBILITIES
-----------------------------
During the Period of Employment, the Executive agrees to serve as
Senior Vice President - Human Resources of the Company.
SECTION III.
TERMS AND DUTIES
----------------
A. PERIOD OF EMPLOYMENT
The period of the Executive's employment under this Agreement (the
"Period of Employment") will commence upon a Change of Control (the "Effective
Date") and shall continue for two years following the Effective Date; provided,
however, that the Period of Employment shall, from and after the first
anniversary date of the Effective Date, be automatically extended so as to
terminate one year from each ensuing day, unless the Company shall give notice
to the Executive that the Period of Employment shall not be so extended, in
which event the Period of Employment shall terminate on the later of the second
anniversary of the Effective Date or the first anniversary of such notice.
Notwithstanding the foregoing, the Period of Employment is subject to earlier
termination as provided herein. A "Change of Control" is defined to have
occurred when (i) the Company is merged or consolidated or reorganized into or
with another
<PAGE> 2
corporation or other legal person, and as a result of such merger, consolidation
or reorganization less than a majority of the combined voting power of the
then-outstanding securities of such corporation or person immediately after such
transaction are held in the aggregate by the holders of the combined voting
power of the then-outstanding securities entitled to vote generally in the
election of directors of the Company ("Voting Stock") of the Company immediately
prior to such transaction; (ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer; and (iii) any person who is not a
stockholder of the Company on the Effective Date shall own (together with all
shares of Company stock owned by any person acting in concert with such person)
more than 50% of the Voting Stock of the Company.
B. DUTIES
During the Period of Employment and except for illness, incapacity or
any reasonable vacation periods in any calendar year, the Executive shall devote
all of his business time, attention and skill exclusively to the business and
affairs of the Company and its subsidiaries. The Executive will not engage in
any other business activity and will perform faithfully the duties which may be
assigned to him from time to time by the Company. Nothing in this Agreement
shall preclude the Executive from devoting reasonable periods of time required
for:
(i) Serving, with prior approval of the Board of Directors of the
Company, as a Director or member of a committee or organization involving no
actual or potential conflict of interest with the Company.
(ii) Delivering lectures and fulfilling speaking engagements.
(iii) Engaging in charitable and community activities.
(iv) Investing his personal assets in businesses in such form or
manner that will not violate this Agreement or require services on the part of
the Executive in the operation or affairs of the companies in which those
investments are made.
The activities referred to in Subsections (i), (ii), (iii) and (iv)
above will be allowed as long as they do not materially affect or interfere with
the performance of the Executive's duties and obligations to the Company.
SECTION IV.
COMPENSATION
------------
For all services rendered by the Executive in any capacity, including
without limitation services as an employee, officer, director or committee
member, the Executive shall be compensated during the Period of Employment as
follows:
2
<PAGE> 3
A. BASE SALARY
The Company shall pay the Executive a fixed base salary at the rate of
not less than $200,000 per year (the "Base Salary"), subject to annual increases
to be effective on January 1 of each year as the Compensation Committee of the
Board of Directors or the Board of Directors of the Company deems appropriate in
accordance with the Company's customary procedures regarding the salaries of
senior officers. Annual increases in Base Salary once granted shall not be
subject to revocation. Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than monthly.
B. ANNUAL BONUS
In addition to Base Salary, the Executive shall be awarded for each
fiscal year ending during the Employment Period, an Annual Bonus (the "Annual
Bonus") based on the Company's achievement of its annual financial plan approved
by the Board of Directors as follows:
% OF PLAN ANNUAL BONUS AS % OF BASE SALARY
Less than 90.0% 0%
90.0% 30.0%
100.0% 42.5%
Increment for each percentage 5.0%
point over 100%
To the extent that the percentage of plan achieved falls between the
amounts described above, the bonus as a percentage of salary shall be equitably
pro rated. Each such Annual Bonus shall be paid in accordance with the Company's
normal payroll practices, but in no event later than April 1 of the year
following that in which it is earned.
C. ADDITIONAL BENEFITS
In addition, the Executive will be entitled to participate in all
compensation or employee benefit plans or programs of the Company for senior
officers, as in effect from time to time, and to receive all benefits for which
senior officers are from time to time eligible thereunder. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions, as in effect from time
to time. Nothing in this Agreement will preclude the Company from amending or
terminating any of such plans or programs.
3
<PAGE> 4
SECTION V.
BUSINESS EXPENSES
-----------------
The Company will reimburse the Executive for all reasonable travel,
entertainment, business and other expenses incurred by the Executive in
connection with the performance of his duties and obligations under this
Agreement. Notwithstanding anything to the contrary contained herein, Executive
shall be entitled to reimbursement of all such reasonable expenses incurred as
of the date of Executive's termination pursuant to Sections VI, VII or VIII
below.
SECTION VI.
DISABILITY
----------
A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability.
However, in the event the Executive is disabled for a continuous period of six
(6) months or more, the Company may terminate the employment of the Executive
and make payments to the Executive under the terms of any long-term disability
plan of the Company under which he then participates. In addition, the Executive
will also be entitled to any benefits provided in the event of disability under
any disability policy of the Company in effect on the date hereof. In such
event, the Company will have no other obligations hereunder to the Executive
other than to pay earned but unpaid Base Salary and Annual Bonus (which would
be payable on a pro-rated basis for the year in which the disability occurred).
B. During the period the Executive is receiving such disability
payments, either regular compensation or disability insurance, and as long as he
is physically and mentally able to do so, the Executive will furnish information
and assistance to the Company as reasonably requested from time to time. Any
reasonable out-of-pocket cost incurred by Executive in furnishing such
information or rendering such assistance shall be reimbursed to the Executive by
the Company. If the Company fails to make a payment or provide a benefit
required as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
SECTION VII.
DEATH
-----
In the event of the death of the Executive during the Period of
Employment, the Company's obligations under this Agreement shall cease as of the
date of death, except for earned but unpaid Base Salary and Annual Bonus which
will be paid on a pro-rated basis for that year.
4
<PAGE> 5
SECTION VIII.
EFFECT OF TERMINATION OF EMPLOYMENT
OTHER THAN DEATH OR DISABILITY
------------------------------
A. If the Executive's employment terminates due to a Without Cause
Termination (as defined below), the Company will pay the Executive, within 30
days of the date of termination, the sum of the unpaid portion of Executive's
Base Salary through the date of termination plus a pro rata Annual Bonus for the
year in which the date of termination occurs based on the Company's actual
performance compared to its annual financial plan approved by the Board of
Directors over the number of full calendar months elapsed as of the date of
termination; provided that in determining actual performance compared to plan
not less than three full calendar months shall be used, and therefore, if the
date of termination falls within the first quarter of any fiscal year, such full
calendar months shall include the necessary number of the immediately preceding
full months from the prior fiscal year. In addition, until the later of (i) the
second anniversary of the Effective Date, or (ii) the first anniversary of the
date of such termination (such period is hereinafter referred to as the "Payment
Period"), Executive's Annual Base Salary (plus a pro rata portion thereof if the
Payment Period is greater than one year) as in effect immediately before the
date of termination plus an Annual Bonus in the amount of 42.5% of the
Executive's Annual Base Salary (plus a pro rata portion thereof if the Payment
Period is greater than one year) as in effect immediately before the date of
termination. These payments will be payable at the times at which the
Executive's Base Salary and Annual Bonus would otherwise be payable hereunder.
The Executive shall be entitled to a continuation of any health and welfare
benefits contemplated by Section IV C during the Payment Period. During the
Payment Period, the Company shall provide out-placement services to the
Executive in an amount equal to up to 15% of the Executive's Base Salary but not
to exceed $20,000. The Company shall have no other obligations to the Executive.
If, after the termination of the Executive's employment due to a
Without Cause Termination, the Executive is employed (whether as a full-time
employee, a consultant or otherwise) with any other company, the benefits
resulting from such other employment or consulting position shall be deemed
primary coverages for the purposes of coordination of benefits.
B. If the Executive's employment terminates due to a Termination for
Cause (as defined below), earned but unpaid Base Salary will be paid on a
lump sum basis for the year in which the termination occurs. Earned but unpaid
Annual Bonus for any prior years shall be payable in full, but no other
payments will be made or benefits provided by the Company and the Company shall
have no other obligations to the Executive.
C. If the Executive's employment terminates by reason of retirement at
age 65, or earlier with the consent of the Board of Directors of the Company, he
shall be entitled to all earned but unpaid Base Salary and earned but unpaid
Annual Bonus and retirement benefits pursuant to the retirement plan or plans,
if any, in which the Executive then participates, but no other payments will be
made or benefits provided by the Company hereunder. Such Annual Bonus shall be
paid to Executive in accordance with the terms of Section IV(B) herein no later
than April 1 of the year following such retirement, and shall be (i) pro-rated
for that portion of the
5
<PAGE> 6
year in which Executive's retirement occurs through the date of termination and
(ii) calculated on the basis of the Company's actual performance for such year.
D. Upon termination of the Executive's employment other than for
reasons due to death, disability, retirement or a Without Cause Termination, the
Period of Employment and the Company's obligations under this Agreement will
cease as of the date of the termination.
For purposes of this Agreement the following terms have the following
meanings:
(i) "Termination for Cause" means termination of the Executive's
employment by the Company by written notice to the Executive specifying the
event relied upon for such termination, due to (a) the Executive's willful
failure to perform the duties of his employment in any material respect, which
willful failure is not remedied within thirty (30) days after receipt of written
notice from the Company, (b) malfeasance or gross negligence in the performance
of the Executive's duties of employment, which malfeasance or gross negligence
is not remedied within thirty (30) days after receipt of written notice from the
Company, (c) the Executive's conviction of a felony under the laws of the United
States or any state thereof (whether or not in connection with his employment),
or (d) the Executive's disclosure of confidential information respecting the
Company's business to any individual or entity which is not in the performance
of the duties of his employment.
(ii) "Without Cause Termination" means (a) termination of the
Executive's employment by the Company for any reason other than due to death,
retirement, disability, expiration of the Period of Employment, or Termination
for Cause or (b) termination of the Executive's employment with the Company by
the Executive following (1) removal or failure to reappoint the Executive, as
Senior Vice President - Human Resources of the Company (by reason other than
death, retirement, disability or Termination for Cause), or any material breach
by the Company of its obligations contained in this Agreement; (2) a material
change imposed by the Company in the functions, duties or responsibilities
assigned to the Executive which would reduce the ranking or level, dignity,
responsibility, importance or scope of the Executive's current position in the
Company, provided no such change shall result merely because the Company becomes
a subsidiary of another entity following a Change of Control; (3) a reduction by
the Company of more than 10% in the Executive's Base Salary as in effect on the
date hereof or as the same may be increased from time to time, or a reduction by
more than 50% of the Executive's Annual Bonus (as compared to the Annual Bonus
for the prior year), except for across-the-board salary or Annual Bonus
reductions similarly affecting all executives of the Company; provided, however,
that in no event shall the Executive's Base Salary be reduced below the amount
in effect on the Effective Date without the Executive's consent; or (4) the
Company's requiring the Executive to relocate more than seventy-five (75) miles
from the Executive's current offices except for reasonably required travel in
connection with the Company's business.
6
<PAGE> 7
SECTION IX.
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
----------------------------------
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with any
claims or legal actions in which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company is confidential and is a unique and valuable asset of the
Company. Access to and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement. The Executive will
not during the Period of Employment, except to the extent reasonably necessary
in the performance of the duties under this Agreement, or for thirty-six (36)
months after the Period of Employment, give to any person, firm, association,
corporation or governmental agency any information concerning the affairs,
business, clients, customers or other relationships of the Company except as
required by law. The Executive will not make use of this type of information for
his own purposes or for the benefit of any person or organization other than the
Company. The Executive will also use his best efforts to prevent the disclosure
of this information by others. All records, memoranda, and other information or
materials relating to the business of the Company (whether created by the
Executive or otherwise coming into his possession) are confidential and will
remain the property of the Company.
C. During the Period of Employment and upon a Termination for Cause for
a twenty-four (24) month period thereafter, the Executive will not use his
status with the Company to obtain loans, goods or services from another
organization on terms that would not be available to him in the absence of his
relationship to the Company.
D. The Executive agrees that during the Payment Period he will not be a
proprietor, director, officer, employee, five percent or greater stockholder,
consultant or partner (or the equivalent thereof) in any business engaged to a
material extent in the manufacture or sale of (x) mattresses or box springs or
(y) any other products which constitute more than ten percent of the Company's
revenues at the time that it is in competition with the Company in any market.
The Executive further agrees that, during such period, he will not make any
statements or perform any acts intended to advance the interest of any existing
or prospective competitors of the Company in any way that will injure the
interest of the Company. The Executive will not, during such period, solicit any
members of the then current customers or suppliers of the Company or discuss
with any employee of the Company information or operation of any business
intended to compete with the Company. During such period, the Executive shall
not, and shall cause any person or entity with which he is affiliated not to,
solicit or induce, or attempt to solicit or induce, any employee of the Company
or any of its subsidiaries to leave the employment of the Company or of any of
its subsidiaries to work for the Executive or any person or entity with which he
is affiliated. During such period, the Executive shall not, and shall cause any
person or entity with which he is affiliated not to, solicit or induce, or
attempt to solicit or induce, any person who was employed
7
<PAGE> 8
by the Company or any of its subsidiaries on a full-time basis during the ninety
(90) days immediately prior to the termination of the Executive's employment to
accept employment with the Executive or with any person or entity with which he
is affiliated.
E. The Company's obligations under the terms of this Agreement will
cease upon any violation of the provisions of this Section IX by the Executive.
F. The parties desire that the provisions of this Section IX be
enforced to the fullest extent permissible under the laws and public policies
applied in the jurisdictions in which enforcement is sought. If any portion of
this Section IX is judged to be invalid or unenforceable, this Section IX will
be deemed to be amended to the extent necessary to ensure that this Section IX
will be enforceable to the maximum extent permissible under applicable law.
G. The Executive understands that the foregoing restrictions may limit
the Executive's ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Executive will receive
sufficiently higher remuneration and other benefits from the Company hereunder
than the Executive would otherwise receive to justify such restrictions. The
Executive acknowledges that the Executive understands the effect of the
provisions of this Section IX, that the Executive has had reasonable time to
consider the effect of these provisions, and that the Executive was encouraged
to and had an opportunity to consult an attorney with respect to these
provisions.
SECTION X.
INDEMNIFICATION, LITIGATION
---------------------------
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and bylaws of the Company, whichever affords the
greater protection to the Executive. The Executive will be entitled to any
insurance policies the Company may elect to maintain generally for the benefit
of its officers and directors against all costs, charges and expenses incurred
in connection with any action, suit or proceeding to which he may be made a
party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this Agreement
and the enforcement of the rights under this Agreement, the Company shall
reimburse the Executive for all costs and expenses related to the litigation or
proceeding including attorney's fees and expenses, providing that the litigation
or proceeding results in either settlement requiring the Company to make a
payment to the Executive or judgment in favor of the Executive.
8
<PAGE> 9
SECTION XI.
WITHHOLDING TAXES
-----------------
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that are required to be
withheld pursuant to any applicable law or governmental regulation.
SECTION XII.
EFFECT ON PRIOR AGREEMENTS
--------------------------
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and, effective immediately
prior to the first Change of Control to occur after the date hereof, supersedes
any prior Employment Agreement or Change in Control Agreement between the
Company or its affiliates and predecessors and the Executive (whether or not in
writing).
SECTION XIII.
CONSOLIDATION, MERGER, OR SALE OF ASSETS
----------------------------------------
Nothing in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all of its assets
to another corporation which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger or sale
of assets, the term "the Company" as used will mean such other corporation and
this Agreement shall continue in full force and effect.
SECTION XIV.
MODIFICATION
------------
This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived except in writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.
SECTION XV.
GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
9
<PAGE> 10
SECTION XVI.
EFFECTIVENESS
-------------
This Agreement shall become effective on the Effective Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
SIMMONS COMPANY
Zenon S. Nie
-----------------------
By: Zenon S. Nie
Title: Chairman and CEO
Robert K. Barton
-----------------------
Robert K. Barton
10
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (this "AMENDMENT") to that certain Employment Agreement
dated as of June 29, 1998 (the "EMPLOYMENT AGREEMENT"; terms used and not
defined herein shall have the meanings ascribed to such terms in the Employment
Agreement) by and between the Executive and the Company is entered into as of
this __ day of July, 1998 by and between Robert K. Barton (the "Executive") and
Simmons Company, a Delaware corporation (the "Company").
The Agreement is hereby amended to the extent set forth below, such
amendment to be effective upon the execution hereof by the Company and the
Executive. All other provisions of the Employment Agreement shall remain in full
force and effect.
The definition of "Change of Control" as set forth in Section III(A) of
the Employment Agreement is hereby amended to read in its entirety as follows:
"A "Change of Control" is defined to have occurred when (i)
either the Company or Simmons Holdings, Inc., a Delaware corporation
("Holdings") is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the election
of directors of the Company or Holdings, as the case may be ("Voting
Stock"), immediately prior to such transaction; (ii) either Holdings or
the Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person and less than
a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of
Holdings or the Company, as the case may be, immediately prior to such
sale or transfer; and (iii) any person who is not a stockholder of
Holdings or the Company, as the case may be, on the Effective Date
shall own (together with all shares of Holdings or Company stock, as
the case may be, owned by any person acting in concert with such
person) more than 50% of the Voting Stock of Holdings or the Company,
as the case may be.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of the day and date first above written.
SIMMONS COMPANY, a Delaware
corporation
By: /s/ Zenon S. Nie
------------------------
Name: Zenon S. Nie
Title: Chairman and CEO
/s/ Robert K. Barton
---------------------------
ROBERT K. BARTON
<PAGE> 1
Exhibit 10.32
EMPLOYMENT AGREEMENT
This Agreement dated as of June 29, 1998 by and between Simmons
Company, a Delaware corporation (the "Company"), and Joseph Ulicny (the
"Executive").
The Board of Directors of the Company has determined that it would be
in the best interest of the Company and its stockholders to retain the services
of the Executive for the period and upon the terms provided in this Agreement.
The Executive is willing to serve in the employ of the Company on a full time
basis for said period and upon such other terms and conditions as provided in
this Agreement.
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I.
EMPLOYMENT
----------
The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company, for the Period of Employment (as defined below) and
upon the other terms and conditions provided in this Agreement.
SECTION II.
POSITION AND RESPONSIBILITIES
-----------------------------
During the Period of Employment, the Executive agrees to serve as
Executive Vice President - Market Development of the Company.
SECTION III.
TERMS AND DUTIES
----------------
A. PERIOD OF EMPLOYMENT
The period of the Executive's employment under this Agreement (the
"Period of Employment") will commence upon a Change of Control (the "Effective
Date") and shall continue for one year following the Effective Date; provided,
however, that the Period of Employment shall, from and after the Effective Date,
be automatically extended so as to terminate one year from each ensuing day,
unless the Company shall give notice to the Executive that the Period of
Employment shall not be so extended, in which event the Period of Employment
shall terminate on the first anniversary of such notice. Notwithstanding the
foregoing, the Period of Employment is subject to earlier termination as
provided herein. A "Change of Control" is defined to have occurred when (i) the
Company is merged or consolidated or reorganized into or with another
corporation or other legal person, and as a result of such merger, consolidation
or reorganization less than a majority of the combined voting power of the
then-outstanding securities of such
<PAGE> 2
corporation or person immediately after such transaction are held in the
aggregate by the holders of the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors of the
Company ("Voting Stock") of the Company immediately prior to such transaction;
(ii) the Company sells or otherwise transfers all or substantially all of its
assets to any other corporation or other legal person and less than a majority
of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Voting Stock of the Company immediately prior to
such sale or transfer; and (iii) any person who is not a stockholder of the
Company on the Effective Date shall own (together with all shares of Company
stock owned by any person acting in concert with such person) more than 50% of
the Voting Stock of the Company.
B. DUTIES
During the Period of Employment and except for illness, incapacity or
any reasonable vacation periods in any calendar year, the Executive shall devote
all of his business time, attention and skill exclusively to the business and
affairs of the Company and its subsidiaries. The Executive will not engage in
any other business activity and will perform faithfully the duties which may be
assigned to him from time to time by the Company. Nothing in this Agreement
shall preclude the Executive from devoting reasonable periods of time required
for:
(i) Serving, with prior approval of the Board of Directors of the
Company, as a Director or member of a committee or organization involving no
actual or potential conflict of interest with the Company.
(ii) Delivering lectures and fulfilling speaking engagements.
(iii) Engaging in charitable and community activities.
(iv) Investing his personal assets in businesses in such form or manner
that will not violate this Agreement or require services on the part of the
Executive in the operation or affairs of the companies in which those
investments are made.
The activities referred to in Subsections (i), (ii), (iii) and (iv)
above will be allowed as long as they do not materially affect or interfere with
the performance of the Executive's duties and obligations to the Company.
SECTION IV.
COMPENSATION
------------
For all services rendered by the Executive in any capacity, including
without limitation services as an employee, officer, director or committee
member, the Executive shall be compensated during the Period of Employment as
follows:
2
<PAGE> 3
A. BASE SALARY
The Company shall pay the Executive a fixed base salary at the rate of
not less than $189,000 per year (the "Base Salary"), subject to annual increases
to be effective on January 1 of each year as the Compensation Committee of the
Board of Directors or the Board of Directors of the Company deems appropriate in
accordance with the Company's customary procedures regarding the salaries of
senior officers. Annual increases in Base Salary once granted shall not be
subject to revocation. Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than monthly.
B. ANNUAL BONUS
In addition to Base Salary, the Executive shall be awarded for each
fiscal year ending during the Employment Period, an Annual Bonus (the "Annual
Bonus") based on the Company's achievement of its annual financial plan approved
by the Board of Directors as follows:
% OF PLAN ANNUAL BONUS AS % OF BASE SALARY
Less than 90.0% 0%
90.0% 30.0%
100.0% 42.5%
Increment for each percentage 5.0%
point over 100%
To the extent that the percentage of plan achieved falls between the
amounts described above, the bonus as a percentage of salary shall be equitably
pro rated. Each such Annual Bonus shall be paid in accordance with the Company's
normal payroll practices, but in no event later than April 1 of the year
following that in which it is earned.
C. ADDITIONAL BENEFITS
In addition, the Executive will be entitled to participate in all
compensation or employee benefit plans or programs of the Company for senior
officers, as in effect from time to time, and to receive all benefits for which
senior officers are from time to time eligible thereunder. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions, as in effect from time
to time. Nothing in this Agreement will preclude the Company from amending or
terminating any of such plans or programs.
3
<PAGE> 4
SECTION V.
BUSINESS EXPENSES
-----------------
The Company will reimburse the Executive for all reasonable travel,
entertainment, business and other expenses incurred by the Executive in
connection with the performance of his duties and obligations under this
Agreement. Notwithstanding anything to the contrary contained herein, Executive
shall be entitled to reimbursement of all such reasonable expenses incurred as
of the date of Executive's termination pursuant to Section VI, VII or VIII
below.
SECTION VI.
DISABILITY
----------
A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability.
However, in the event the Executive is disabled for a continuous period of six
(6) months or more, the Company may terminate the employment of the Executive
and make payments to the Executive under the terms of any long-term disability
plan of the Company under which he then participates. In addition, the Executive
will also be entitled to any benefits provided in the event of disability under
any disability policy of the Company in effect on the date hereof In such event,
the Company will have no other obligations hereunder to the Executive other than
to pay earned but unpaid Base Salary and Annual Bonus (which would be payable on
a pro-rated basis for the year in which the disability occurred).
B. During the period the Executive is receiving such disability
payments, either regular compensation or disability insurance, and as long as he
is physically and mentally able to do so, the Executive will furnish information
and assistance to the Company as reasonably requested from time to time. Any
reasonable out-of-pocket cost incurred by Executive in furnishing such
information or rendering such assistance shall be reimbursed to the Executive by
the Company. If the Company fails to make a payment or provide a benefit
required as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
SECTION VII.
DEATH
-----
In the event of the death of the Executive during the Period of
Employment, the Company's obligations under this Agreement shall cease as of the
date of death, except for earned but unpaid Base Salary and Annual Bonus which
will be paid on a pro-rated basis for that year.
4
<PAGE> 5
SECTION VIII.
EFFECT OF TERMINATION OF EMPLOYMENT
OTHER THAN DEATH OR DISABILITY
------------------------------
A. If the Executive's employment terminates due to a Without Cause
Termination (as defined below), the Company will pay the Executive, within 30
days of the date of termination, the sum of the unpaid portion of Executive's
Base Salary through the date of termination plus a pro rata Annual Bonus for the
year in which the date of termination occurs based on the Company's actual
performance compared to its annual financial plan approved by the Board of
Directors over the number of full calendar months elapsed as of the date of
termination; provided that in determining actual performance compared to plan
not less than three full calendar months shall be used, and therefore, if the
date of termination falls within the first quarter of any fiscal year, such full
calendar months shall include the necessary number of the immediately preceding
full months from the prior fiscal year. In addition, until the first anniversary
of the date of such termination (such period is hereinafter referred to as the
"Payment Period"), Executive's Annual Base Salary (plus a pro rata portion
thereof if the Payment Period is greater than one year) as in effect immediately
before the date of termination plus an Annual Bonus in the amount of 42.5% of
the Executive's Annual Base Salary (plus a pro rata portion thereof if the
Payment Period is greater than one year) as in effect immediately before the
date of termination. These payments will be payable at the times at which the
Executive's Base Salary and Annual Bonus would otherwise be payable hereunder.
The Executive shall be entitled to a continuation of any health and welfare
benefits contemplated by Section IV C during the Payment Period. During the
Payment Period, the Company shall provide out-placement services to the
Executive in an amount equal to up to 15% of the Executive's Base Salary but not
to exceed $20,000. The Company shall have no other obligations to the Executive.
If, after the termination of the Executive's employment due to a
Without Cause Termination, the Executive is employed (whether as a full-time
employee, a consultant or otherwise) with any other company, the benefits
resulting from such other employment or consulting position shall be deemed
primary coverages for the purposes of coordination of benefits.
B. If the Executive's employment terminates due to a Termination for
Cause (as defined below), earned but unpaid Base Salary will be paid on a
lump sum basis for the year in which the termination occurs. Earned but unpaid
Annual Bonus for any prior years shall be payable in full, but no other payments
will be made or benefits provided by the Company and the Company shall have no
other obligations to the Executive.
C. If the Executive's employment terminates by reason of retirement at
age 65, or earlier with the consent of the Board of Directors of the Company, he
shall be entitled to all earned but unpaid Base Salary and eared but unpaid
Annual Bonus and retirement benefits pursuant to the retirement plan or plans,
if any, in which the Executive then participates, but no other payments will be
made or benefits provided by the Company hereunder. Such Annual Bonus shall be
paid to Executive in accordance with the terms of Section IV(B) herein no later
than April 1 of the year following such retirement, and shall be (i) pro-rated
for that portion of the
5
<PAGE> 6
year in which Executive's retirement occurs through the date of termination and
(ii) calculated on the basis of the Company's actual performance for such year.
D. Upon termination of the Executive's employment other than for
reasons due to death, disability, retirement or a Without Cause Termination, the
Period of Employment and the Company's obligations under this Agreement will
cease as of the date of the termination.
For purposes of this Agreement the following terms have the following
meanings:
(i) "Termination for Cause" means termination of the Executive's
employment by the Company by written notice to the Executive specifying the
event relied upon for such termination, due to (a) the Executive's willful
failure to perform the duties of his employment in any material respect, which
willful failure is not remedied within thirty (30) days after receipt of written
notice from the Company, (b) malfeasance or gross negligence in the performance
of the Executive's duties of employment, which malfeasance or gross negligence
is not remedied within thirty (30) days after receipt of written notice from the
Company, (c) the Executive's conviction of a felony under the laws of the United
States or any state thereof (whether or not in connection with his employment),
or (d) the Executive's disclosure of confidential information respecting the
Company's business to any individual or entity which is not in the performance
of the duties of his employment.
(ii) "Without Cause Termination" means (a) termination of the
Executive's employment by the Company for any reason other than due to death,
retirement, disability, expiration of the Period of Employment, or Termination
for Cause or (b) termination of the Executive's employment with the Company by
the Executive following (1) removal or failure to reappoint the Executive, as
Executive Vice President - Market Development of the Company (by reason other
than death, retirement, disability or Termination for Cause), or any material
breach by the Company of its obligations contained in this Agreement; (2) a
material change imposed by the Company in the functions, duties or
responsibilities assigned to the Executive which would reduce the ranking or
level, dignity, responsibility, importance or scope of the Executive's current
position in the Company, provided no such change shall result merely because the
Company becomes a subsidiary of another entity following a Change of Control;
(3) a reduction by the Company of more than 10% in the Executive's Base Salary
as in effect on the date hereof or as the same may be increased from time to
time, or a reduction by more than 50% of the Executive's Annual Bonus (as
compared to the Annual Bonus for the prior year), except for across-the-board
salary or Annual Bonus reductions similarly affecting all executives of the
Company; provided, however, that in no event shall the Executive's Base Salary
be reduced below the amount in effect on the Effective Date without the
Executive's consent; or (4) the Company's requiring the Executive to relocate
more than seventy-five (75) miles from the Executive's current offices except
for reasonably required travel in connection with the Company's business.
6
<PAGE> 7
SECTION IX.
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
----------------------------------
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with any
claims or legal actions in which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company is confidential and is a unique and valuable asset of the
Company. Access to and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement. The Executive will
not during the Period of Employment, except to the extent reasonably necessary
in the performance of the duties under this Agreement, or for thirty-six (36)
months after the Period of Employment, give to any person, firm, association,
corporation or governmental agency any information concerning the affairs,
business, clients, customers or other relationships of the Company except as
required by law. The Executive will not make use of this type of information for
his own purposes or for the benefit of any person or organization other than the
Company. The Executive will also use his best efforts to prevent the disclosure
of this information by others. All records, memoranda, and other information or
materials relating to the business of the Company (whether created by the
Executive or otherwise coming into his possession) are confidential and will
remain the property of the Company.
C. During the Period of Employment and upon a Termination for Cause for
a twenty-four (24) month period thereafter, the Executive will not use his
status with the Company to obtain loans, goods or services from another
organization on terms that would not be available to him in the absence of his
relationship to the Company.
D. The Executive agrees that for a period of twelve (12) months
following the last day of the Executive's employment with the Company, he will
not be a proprietor, director, officer, employee, five percent or greater
stockholder, consultant or partner (or the equivalent thereof) in any business
engaged to a material extent in the manufacture or sale of (i) mattresses or box
springs or (ii) any other products which constitute more than ten percent of the
Company's revenues at the time that is in competition with the Company in any
market. The Executive further agrees that, during such period, he will not make
any statements or perform any acts intended to advance the interest of any
existing or prospective competitors of the Company in any way that will injure
the interest of the Company. The Executive will not, during such period, solicit
any members of the then current customers or suppliers of the Company or discuss
with any employee of the Company information or operation of any business
intended to compete with the Company. During such period, the Executive shall
not, and shall cause any person or entity with which he is affiliated not to,
solicit or induce, or attempt to solicit or induce, any employee of the Company
or any of its subsidiaries to leave the employment of the Company or of any of
its subsidiaries to work for the Executive or any person or entity with which he
is affiliated. During such period, the Executive shall not, and shall cause any
person or entity with which he is
7
<PAGE> 8
affiliated not to, solicit or induce, or attempt to solicit or induce, any
person who was employed by the Company or any of its subsidiaries on a full-time
basis during the ninety (90) days immediately prior to the termination of the
Executive's employment to accept employment with the Executive or with any
person or entity with which he is affiliated.
E. The Company's obligations under the terms of this Agreement will
cease upon any violation of the provisions of this Section IX by the Executive.
F. The parties desire that the provisions of this Section IX be
enforced to the fullest extent permissible under the laws and public policies
applied in the jurisdictions in which enforcement is sought. If any portion of
this Section IX is judged to be invalid or unenforceable, this Section IX will
be deemed to be amended to the extent necessary to ensure that this Section IX
will be enforceable to the maximum extent permissible under applicable law.
G. The Executive understands that the foregoing restrictions may limit
the Executive's ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Executive will receive
sufficiently higher remuneration and other benefits from the Company hereunder
than the Executive would otherwise receive to justify such restrictions. The
Executive acknowledges that the Executive understands the effect of the
provisions of this Section IX, that the Executive has had reasonable time to
consider the effect of these provisions, and that the Executive was encouraged
to and had an opportunity to consult an attorney with respect to these
provisions.
SECTION X.
INDEMNIFICATION, LITIGATION
---------------------------
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and bylaws of the Company, whichever affords the
greater protection to the Executive. The Executive will be entitled to any
insurance policies the Company may elect to maintain generally for the benefit
of its officers and directors against all costs, charges and expenses incurred
in connection with any action, suit or proceeding to which he may be made a
party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this Agreement
and the enforcement of the rights under this Agreement, the Company shall
reimburse the Executive for all costs and expenses related to the litigation or
proceeding including attorney's fees and expenses, providing that the litigation
or proceeding results in either settlement requiring the Company to make a
payment to the Executive or judgment in favor of the Executive.
8
<PAGE> 9
SECTION XI.
WITHHOLDING TAXES
-----------------
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that are required to be
withheld pursuant to any applicable law or governmental regulation.
SECTION XII.
EFFECT ON PRIOR AGREEMENTS
--------------------------
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and, effective immediately
prior to the first Change of Control to occur after the date hereof, supersedes
any prior Employment Agreement or Change in Control Agreement between the
Company or its affiliates and predecessors and the Executive (whether or not in
writing).
SECTION XIII.
CONSOLIDATION, MERGER, OR SALE OF ASSETS
----------------------------------------
Nothing in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all of its assets
to another corporation which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger or sale
of assets, the term "the Company" as used will mean such other corporation and
this Agreement shall continue in full force and effect.
SECTION XIV.
MODIFICATION
------------
This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived except in writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.
SECTION XV.
GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
9
<PAGE> 10
SECTION XVI.
EFFECTIVENESS
-------------
This Agreement shall become effective on the Effective Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
SIMMONS COMPANY
/s/ R.K. Barton
----------------------------
By: R.K. Barton
Title: SR VP HR
/s/ Joseph Ulicny
-------------------------------
Joseph Ulicny
10
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (this "AMENDMENT") to that certain Employment Agreement
dated as of June 29, 1998 (the "EMPLOYMENT AGREEMENT"; terms used and not
defined herein shall have the meanings ascribed to such terms in the Employment
Agreement) by and between the Executive and the Company is entered into as of
this ___ day of July, 1998 by and between Joseph Ulicny (the "Executive") and
Simmons Company, a Delaware corporation (the "Company").
The Agreement is hereby amended to the extent set forth below, such
amendment to be effective upon the execution hereof by the Company and the
Executive. All other provisions of the Employment Agreement shall remain in full
force and effect.
The definition of "Change of Control" as set forth in Section III(A) of
the Employment Agreement is hereby amended to read in its entirety as follows:
"A "Change of Control" is defined to have occurred when (i)
either the Company or Simmons Holdings, Inc., a Delaware corporation
("Holdings") is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of the combined voting power of the
then-outstanding securities entitled to vote generally in the election
of directors of the Company or Holdings, as the case may be ("Voting
Stock"), immediately prior to such transaction; (ii) either Holdings or
the Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person and less than
a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of
Holdings or the Company, as the case may be, immediately prior to such
sale or transfer; and (iii) any person who is not a stockholder of
Holdings or the Company, as the case may be, on the Effective Date
shall own (together with all shares of Holdings or Company stock, as
the case may be, owned by any person acting in concert with such
person) more than 50% of the Voting Stock of Holdings or the Company,
as the case may be.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of the day and date first above written.
SIMMONS COMPANY, a Delaware
corporation
By: /s/ Ken Barton
-------------------------------
Name: Ken Barton
Title: SR VP HR
/s/ Joseph Ulicny
-------------------------------
Joseph Ulicny
<PAGE>
EXHIBIT 5
Form of Opinion
JONES, DAY, REAVIS & POGUE
3500 SunTrust Plaza
303 Peachtree Street, NE
Atlanta, Georgia 30308-3242
(404)521-3939
-------------, 1999
Simmons Company
One Concourse Parkway
Atlanta, Georgia 30328
Ladies and Gentlemen:
We are acting as counsel to Simmons Company (the "Company"), a
corporation organized under the laws of the State of Delaware, in connection
with (i) the offer to exchange (the "Senior Note Exchange Offer") $1,000
principal amount at maturity of the Company's 10 1/4% Senior Subordinated Notes
due 2009 (the "Exchange Notes") for each $1,000 principal amount at maturity of
the Company's outstanding 10 1/4% Senior Subordinated Notes due 2009 (the
"Private Notes") and (ii) the preparation of the prospectus (the "Prospectus")
contained in the registration statement on Form S-4 (the "Registration
Statement")(No. 333-76723) filed with the Securities and Exchange Commission by
the Company for the purpose of registering the Exchange Notes under the
Securities Act of 1933 (the "Act"). The Private Notes have been, and the
Exchange Notes will be, issued pursuant to an Indenture, dated as of March 16,
1999 (the "Indenture"), between the Company and SunTrust Bank, Atlanta, as
Trustee. Unless otherwise defined herein, terms defined in the Prospectus are
used herein as defined therein.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such corporate records, agreements, documents, and other
instruments and such certificates or comparable documents of public officials
and representatives of the Company and have made such other and further
investigations as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth. In such examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents.
Based on the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that when the Exchange Notes,
substantially in the form as set forth on an exhibit to the Indenture filed as
Exhibit 4.1 to the Registration Statement, have been duly executed by the
Company and authenticated by the Trustee in accordance with the Indenture and
<PAGE>
duly delivered in exchange for the Private Notes in accordance with the Senior
Note Exchange Offer in the manner described in the Registration Statement, the
Exchange Notes will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether considered
in a proceeding in equity or at law).
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement and to
the filing of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
<PAGE>
EXHIBIT 10.33
Simmons Company
$150,000,000, 10 1/4% Senior Subordinated Notes due 2009
Purchase Agreement
------------------
Goldman, Sachs & Co.,
Warburg Dillon Read LLC
Fleet Securities, Inc.
U.S. Bancorp Libra, a division of
U.S. Bancorp Investments, Inc.
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Simmons Company, a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Purchasers
named in Schedule I hereto (the "Purchasers") $150,000,000 in aggregate
principal amount of the 10 1/4% Senior Subordinated Notes due 2009 (the
"Securities"). The Company is a wholly-owned subsidiary of Simmons Holdings,
Inc., a Delaware corporation ("Parent"). When used herein, the term
"Subsidiaries" shall mean all subsidiaries of the Company existing as of the
date hereof.
1. The Company represents and warrants to, and agrees with, each of the
Purchasers that:
(a) A preliminary offering circular, dated February 26, 1999 (the
"Preliminary Offering Circular") and an offering circular, dated March
10, 1999 (the "Offering Circular") have been prepared in connection with
the offering of the Securities. Neither the Preliminary Offering
Circular nor the Offering Circular nor any amendments or supplements
thereto did, or will, as of their respective dates, contain an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a Purchaser through
Goldman, Sachs & Co. expressly for use therein;
(b) Neither the Company nor any of the Subsidiaries has sustained
since the date of the latest audited financial statements included in
the Offering Circular any loss or interference with its business from
fire, explosion, flood or other
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<PAGE>
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Offering Circular; and, since the
respective dates as of which information is given in the Offering
Circular, there has not been any change in the capital stock or long-
term debt of the Company or any of the Subsidiaries or any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and the Subsidiaries, taken as a whole, otherwise than as set
forth or contemplated in the Offering Circular;
(c) The Company and the Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Offering Circular or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries; and any real
property and buildings held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the Company and the Subsidiaries;
(d) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering
Circular, including the issuance of the Securities as contemplated in
the Offering Circular and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification,
except where the failure to so qualify would not have a Material Adverse
Effect (as defined below);
(e) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Circular, and all of the issued
shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable, and are
owned of record by Parent;
(f) This Agreement has been duly authorized, executed and delivered
by the Company;
(g) The Securities have been duly authorized and, when issued and
delivered as contemplated by this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute valid
and legally binding obligations of the Company, entitled to the benefits
provided by the indenture to be dated as of March 16, 1999 (the
"Indenture") between the Company and Sun Trust Bank, Atlanta, as trustee
(the "Trustee"), under which they are to be issued, which will be
Page 2
<PAGE>
substantially in the form previously delivered to you; the Indenture has
been duly authorized and, when executed and delivered by the Company and
the Trustee, the Indenture will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and the Securities and the Indenture will
conform, in all material respects, to the descriptions thereof in the
Offering Circular and will be in substantially the form previously
delivered to you;
(h) The registration rights agreement (the "Registration Rights
Agreement") has been duly authorized by the Company, and when executed,
authenticated, issued and delivered by the Company, will constitute the
valid and legally binding obligation of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles. Pursuant to the Registration Rights Agreement, the Company
will agree to file with the Commission, under the circumstances set
forth therein, (i) a registration statement under the United States
Securities Act of 1933, as amended (the "Act") relating to another
series of debt securities of the Company with terms substantially
identical to the Securities (the "Exchange Securities") to be offered in
exchange for the Securities (the "Exchange Offer"), and (ii) to the
extent required by the Registration Rights Agreement, a shelf
registration statement pursuant to Rule 415 of the Act relating to the
resale by certain holders of the Securities, and in each case, to use
its best efforts to cause such registration statements to be declared
effective. The Exchange Securities have been duly authorized for
issuance by the Company, and when issued and authenticated in accordance
with the terms of the Indenture will be the valid and legally binding
obligations of the Company, entitled to the benefits provided by the
Indenture, enforceable in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles. The Registration Rights Agreement and the
Exchange Securities will conform, in all material respects, to the
descriptions thereof in the Offering Circular and will be in
substantially the form previously delivered to you;
(i) Neither the issuance or sale of the Securities nor the
application of the proceeds thereof by the Company as set forth in the
Offering Circular will violate Regulations T, U or X of the Board of
Governors of the Federal Reserve System or analogous foreign laws and
regulations;
(j) Prior to the date hereof, neither the Company nor any of its
affiliates has taken any action which is designed to or which has
constituted or which might have been expected to cause or result in
stabilization or manipulation of the price of any security of the
Company in connection with the offering of the Securities;
Page 3
<PAGE>
(k) The issue and sale of the Securities, the compliance by the
Company with all of the provisions of the Securities, the Indenture, the
Registration Rights Agreement and this Agreement, the consummation of
the transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions of,
or constitute a default under, (i) any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or
any of the Subsidiaries is bound or to which any of the property or
assets of the Company or any of the Subsidiaries is subject, or (ii) the
provisions of the Certificate of Incorporation or By-laws of the Company
or (iii) (assuming the accuracy of the representations and warranties of
the Purchasers contained herein) any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries or any of their
properties except in the case of the foregoing clauses (i) and (iii) for
such conflicts, breaches, violations and defaults as would not have a
Material Adverse Effect; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Securities or
the consummation by the Company of the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Indenture, except
for the filing of a registration statement by the Company with the
Commission pursuant to the Act pursuant to the Registration Rights
Agreement and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or "Blue Sky"
laws in connection with the purchase and distribution of the Securities
by the Purchasers;
(l) Neither the Company nor any of the Subsidiaries is in (i)
violation of its Certificate of Incorporation or By-laws or (ii) default
in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party
or by which it or any of its properties may be bound, except in the case
of clause (ii) for such defaults as would not have a Material Adverse
Effect;
(m) The statements set forth in the Offering Circular under the
captions "Description of Notes", "Other Indebtedness", "Certain
Relationships and Related Transactions" and "Certain United States
Federal Income Tax Considerations" insofar as they purport to constitute
a summary of certain of the terms of the Securities, the Indenture, the
Registration Rights Agreement and the New Senior Credit Agreement and
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair in all
material respects;
(n) Other than as set forth in the Offering Circular, there are no
legal or governmental proceedings pending to which the Company or any of
the Subsidiaries is a party or of which any property of the Company or
any of the Subsidiaries is the subject which, if determined adversely to
the Company or any of the Subsidiaries,
Page 4
<PAGE>
would individually or in the aggregate have a Material Averse Effect;
and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(o) When the Securities are issued and delivered pursuant to this
Agreement, the Securities will not be of the same class (within the
meaning of Rule 144A under the Act) as any security of the Company which
is listed on a national securities exchange registered under Section 6
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or quoted in a U.S. automated inter-dealer quotation system;
(p) The Company (A) is not and (after giving effect to the offering
and sale of the Securities and the application of net proceeds
therefrom) will not be an "investment company", or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company
Act") or (B) is not a "holding company", a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are defined
in the Public Utilities Holding Company Act of 1935, as amended (the
"Public Utilities Act") or is not a "public utility", as such term is
defined in the Federal Power Act, as amended (the "Federal Power Act");
(q) Neither the Company, nor any person acting on its behalf has
offered or sold the Securities by means of any general solicitation or
general advertising within the meaning of Rule 502(c) under the Act or,
with respect to Securities sold outside the United States to non-U.S.
persons (as defined in Rule 902 under the Act), by means of any directed
selling efforts within the meaning of Rule 902 under the Act and the
Company, any affiliate of the Company and any person acting on its
behalf has complied with and will implement the "offering restriction"
within the meaning of such Rule 902;
(r) Within the preceding six months, neither the Company nor any
other person acting on behalf of the Company has offered or sold to any
person any securities of the same or a similar class as the Securities,
other than Securities offered or sold to the Purchasers hereunder. The
Company will take reasonable precautions designed to insure that any
offer or sale, direct or indirect, in the United States or to any U.S.
person (as defined in Rule 902 under the Act) of any Securities or any
substantially similar security issued by the Company, within six months
subsequent to the date on which the distribution of the Securities has
been completed (as notified to the Company by Goldman, Sachs & Co.), is
made under restrictions and other circumstances reasonably designed not
to affect the status of the offer and sale of the Securities in the
United States and to U.S. persons contemplated by this Agreement as
transactions exempt from the registration provisions of the Act;
Page 5
<PAGE>
(s) PricewaterhouseCoopers LLP who have certified certain financial
statements of the Company and the Subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(t) The Company and each of the Subsidiaries has complied in all
respects with all laws, regulations and orders applicable to it or its
businesses the violation of which would have a material adverse effect
upon the business, properties, financial condition, earnings, or
prospects of the Company and its Subsidiaries, taken as a whole (a
"Material Adverse Effect");
(u) Neither the Company nor any of the Subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), any provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or any provision of the Foreign Corrupt
Practices Act or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not
have a Material Adverse Effect; The Company has reviewed the effect of
Environmental Laws and the disposal of hazardous or toxic substances,
wastes, pollutants and contaminants on the business, assets, operations
and properties of the Company and its Subsidiaries and has identified
and evaluated the associated costs and liabilities and on the basis of
such reviews, the Company has reasonably concluded that such associated
costs and liabilities would not have a Material Adverse Effect;
(v) Each of the Company and the Subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "Authorization") of, and has made all filings with
and notices to, all governmental or regulatory authorities and self-
regulatory organizations and all courts and other tribunals, including
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease, license and operate its respective properties
and to conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly or
in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the
Company and the Subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; and no
event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or
lapse of time or both, would result in any other impairment of the
rights of the holder of any such Authorization; and such Authorizations
contain no restrictions that are burdensome to the Company or any of the
Subsidiaries; except where such failure to be valid and in full force
and effect or to be in compliance, the
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occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a Material Adverse Effect;
and
(w) The Company and each of the Subsidiaries owns or possesses or
has the right to use the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
the "Intellectual Property") presently employed by it in connection
with, and material to, collectively or in the aggregate, the operation
of the businesses now operated by it, and, neither the Company nor any
of the Subsidiaries has received any notice of infringement of or
conflict with asserted rights of others with respect to the foregoing
which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each of the Purchasers, and each of the Purchasers
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of 10 1/4% of the principal amount thereof, plus accrued interest , if
any, from March 16, 1999 to the Time of Delivery hereunder, the principal amount
of Senior Subordinated Notes set forth opposite the name of such Purchaser in
Schedule I hereto.
3. Upon the authorization by you of the release of the Securities, the
several Purchasers propose to offer the Securities for sale upon the terms and
conditions set forth in this Agreement and the Offering Circular and each
Purchaser hereby represents and warrants to, and agrees with the Company that:
(a) It will offer and sell the Securities only to (i) persons who it
reasonably believes are "qualified institutional buyers" ("QIBs") within
the meaning of Rule 144A under the Act in transactions meeting the
requirements of Rule 144A or (ii) upon the terms and conditions set
forth in Annex I to this Agreement;
(b) It is an Institutional Accredited Investor; and
(c) Neither it nor any person acting on its behalf will offer or
sell the Securities by any form of general solicitation or general
advertising, including but not limited to the methods described in Rule
502(c) under the Act.
4. (a) The Securities to be purchased by each Purchaser hereunder will
be represented by one or more definitive global Securities in book-entry form
which will be deposited by or on behalf of the Company with The Depository Trust
Company ("DTC") or its designated custodian. The Company will deliver the
Securities to Goldman, Sachs & Co., for the account of each Purchaser, against
payment by or on behalf of such Purchaser of the purchase price therefor by wire
transfer of Federal (same day) funds to an account designated by the Company, by
causing DTC to credit the Securities to the account of Goldman, Sachs & Co. at
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DTC. The Company will cause the certificates representing the Securities to be
made available to Goldman, Sachs & Co. for checking at least twenty-four hours
prior to the Time of Delivery (as defined below) at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be 9:30 a.m., New York City time, on March 16, 1999
or such other time and date as Goldman, Sachs & Co. and the Company may agree
upon in writing. Such time and date are herein called the "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested
by the Purchasers pursuant to Section 7 hereof, will be delivered at
such time and date at the offices of Latham & Watkins 885 Third Avenue,
New York, New York 10022 (the "Closing Location"), and the Securities
will be delivered at the Designated Office, all at the Time of Delivery.
A meeting will be held at the Closing Location at 2:00 p.m., New York
City time, on the New York Business Day next preceding the Time of
Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for
review by the parties hereto. For the purposes of this Section 4, "New
York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to
close.
5. The Company agrees with each of the Purchasers:
(a) To prepare the Offering Circular in a form approved by you; to
make no amendment or any supplement to the Offering Circular which shall
be disapproved of by you promptly after reasonable notice thereof; and to
furnish you with copies thereof;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Securities, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) To furnish the Purchasers with copies of the Offering Circular
and each amendment or supplement thereto signed by an authorized officer
of the Company with the independent accountants' report(s) in the
Offering Circular, and any amendment or supplement containing amendments
to the financial statements covered by such report(s), signed by the
accountants, and additional copies thereof in such quantities as you may
from time to time reasonably request, and if, at any time prior to the
completion of the distribution of the Notes, any event shall have
occurred
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as a result of which the Offering Circular as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made
when such Offering Circular is delivered, not misleading, or, if for any
other reason it shall be necessary or desirable during such same period
to amend or supplement the Offering Circular, to notify you and upon your
request to prepare and furnish without charge to each Purchaser and to
any dealer in securities as many copies as you may from time to time
reasonably request of an amended Offering Circular or a supplement to the
Offering Circular which will correct such statement or omission or effect
such compliance;
(d) During the period beginning from the date hereof and continuing
until the date six months after the Time of Delivery, not to offer,
sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar
to the Securities;
(e) Not to be or become, at any time prior to the expiration of
three years after the Time of Delivery, an open-end investment company,
unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under
Section 8 of the Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, for the benefit of holders from time to time
of Securities, to furnish at its expense, upon request, to holders of
Securities and prospective purchasers of securities information (the
"Additional Issuer Information") satisfying the requirements of
subsection (d)(4)(i) of Rule 144A under the Act;
(g) If requested by you, to use its best efforts to cause such
Securities to be eligible for the PORTAL trading system of the National
Association of Securities Dealers, Inc.;
(h) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, stockholders'
equity and cash flows of the Company and its consolidated Subsidiaries
certified by independent public accountants) and, as soon as practicable
after the end of each of the first three quarters of each fiscal year
(beginning with the first fiscal quarter of the fiscal year ending
after the date of the Offering Circular), consolidated summary financial
information of the Company and the Subsidiaries for such quarter in
reasonable detail;
(i) During a period ending on the earlier of: (i) five years from
the date of the Offering Circular and (ii) the date on which none of the
Securities remain outstanding, to furnish to you copies of all reports
or other communications (financial or other) furnished to stockholders
of the Company, and to deliver to you as soon as they are available,
copies of any reports and financial statements
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furnished to or filed with the Commission or any securities exchange on
which the Securities or any class of securities of the Company is
listed;
(j) During the period of two years after the Time of Delivery, the
Company will not, and will not permit any of its "affiliates" (as
defined in Rule 144 under the Act) to, resell any of the Securities
which constitute "restricted securities" under Rule 144 that have been
reacquired by any of them;
(k) To comply with all of its agreements in the Registration Rights
Agreement;
(l) To comply with all of its agreements in the Indenture; and
(m) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Offering Circular under the caption "Use of Proceeds".
6. The Company covenants and agrees with the several Purchasers that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the issue of the Securities and all other expenses in connection
with the preparation, printing and filing of the Preliminary Offering Circular
and the Offering Circular and any amendments and supplements thereto and the
mailing and delivering of copies thereof to the Purchasers and dealers; (ii) the
cost of copying or producing any Agreement among Purchasers, this Agreement, the
Registration Rights Agreement, the Indenture, the Blue Sky and Legal Investment
Memoranda, closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Securities; (iii) all expenses in connection with the qualification of the
Securities for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the fees and disbursements of counsel for the
Purchasers in connection with such qualification and in connection with the
"Blue Sky" and legal investment surveys; (iv) any fees charged by securities
rating services for rating the Securities and the Exchange Securities; (v) the
cost of preparing the Securities and the Exchange Securities; (vi) the
reasonable fees and expenses of the Trustee and any agent of the Trustee and the
fees and disbursements of counsel for the Trustee in connection with the
Indenture, the Securities and the Exchange Securities; (vii) any cost incurred
in connection with the designation of the Securities and Exchange Securities for
trading in PORTAL; and (viii) all other costs and expenses incident to the
performance of their respective obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the Purchasers
will pay all of their own costs and expenses, including the fees of their
counsel, transfer taxes on resale of any of the Securities by them, and any
advertising expenses connected with any offers they may make.
7. The obligations of the Purchasers hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of the Time of Delivery,
true and correct, the condition that the
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Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) Latham & Watkins, counsel for the Purchasers, shall have
furnished to you such opinion or opinions, dated the Time of Delivery,
with respect to such matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(b) Ropes & Gray, counsel for the Company, shall have furnished to
you their written opinion, dated the Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered by the Company;
(ii) The Securities have been duly authorized executed and
delivered and (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and
delivery of the Securities by the Trustee in accordance with the
terms of the Senior Subordinated Note Indenture) constitute valid
and legally binding obligations of the Company, entitled to the
benefits provided by the Indenture and enforceable against the
Company in accordance with their terms, except as the enforcement
thereof may be limited by applicable bankruptcy, reorganization,
insolvency or other similar laws affecting creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(iii) The Indenture has been duly authorized, executed and
delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the Trustee) constitutes a valid
and legally binding instrument, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or
other similar laws affecting creditors' rights generally or by
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law);
(iv) The Registration Rights Agreement has been duly
authorized by the Company, and is the valid and legally binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or
other similar laws affecting creditors' rights generally or by
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and, as to rights of
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indemnification, to principles of public policy or federal or state
securities laws relating thereto;
(v) The Exchange Securities have been duly and validly
authorized for issuance by the Company, and when issued and
authenticated in accordance with the terms of the Indenture will be
the valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms and
entitled to the benefits of the Indenture, except as the enforcement
thereof may be limited by applicable bankruptcy, reorganization,
insolvency or other similar laws affecting creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(vi) To the knowledge of such counsel, no consent, approval,
authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the issue
and sale of the Securities or the consummation by the Company of the
transactions contemplated by this Agreement, the Registration Rights
Agreement or the Indenture, except, that such counsel need not
express any opinion in such paragraph as to federal or state
securities or Blue Sky laws;
(vii) The statements set forth in the Offering Circular under
the captions "The Transactions", "Other Indebtedness", "Description
of Notes" "Certain Relationships and Related Transactions" and
"Certain United States Federal Income Tax Considerations" insofar as
they purport to constitute a summary of the terms of the Securities,
the Indenture, the Registration Rights Agreement and the New Senior
Credit Agreement, are accurate summaries of such terms and such
provisions, respectively, in all material respects;
(viii) Assuming (a) the accuracy of the representations and
warranties of (1) the Company set forth in Section 1(j), (o), (q)
and (r) hereof and (2) the Purchasers set forth in Section 3 hereof,
(b) the due performance by the Company and the Purchasers of the
covenants and agreements of each of them set forth herein, (c)
compliance by the Purchasers with the offering, resale and transfer
procedures and restrictions described in Annex I hereof and in the
Offering Circular and (d) that the Purchasers (1) reasonably believe
that each of the purchasers to whom the Purchasers initially resell
the Securities pursuant to Rule 144A is at the time of such resale a
"qualified institutional buyer" as such term is defined in Rule 144A
and (2) have not engaged in any general solicitation or directed
selling efforts in the United States with respect to the sale of the
Securities, the offer, sale and delivery of the Securities to the
Purchasers, and the initial resales by the Purchasers in the manner
contemplated by the Purchase Agreement and the Offering Circular, do
not require registration under the Act, and the Indenture is not
required to be qualified under the Trust Indenture Act of 1939, as
amended (it being
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understood that we express no opinion in this paragraph as to any
reoffer or resale of any Securities initially sold by the
Purchasers);
(ix) The Offering Circular, as of its date, and each amendment
or supplement thereto, as of its date, contains the information
specified in Rule 144A(d)(4) under the Act;
(x) Neither the issuance or sale of the Securities nor the
application of the proceeds thereof by the Company as set forth in
the Offering Circular will violate Regulations T, U or X of the
Board of Governors of the Federal Reserve System or analogous
foreign laws and regulations; and
(xi) The Company (A) is not and (after giving effect to the
offering and sale of the Securities and the application of net
proceeds therefrom) will not be an "investment company", or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act or (B) is not a "holding
company", a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utilities
Act or is not a "public utility", as such term is defined in the
Federal Power Act.
Such counsel has no reason to believe that (A) the Offering Circular,
as of its date, and any amendment or supplement thereto, as of its date, contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or (B) the Offering Circular, as
amended or supplemented as of the Time of Delivery (other than the financial
statements, including the notes and schedules thereto, and financial data set
forth or referred to in the Offering Circular, as to which such counsel
expresses no opinion), contains any untrue statement of material fact or omits
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(c) Jones, Day, Reavis & Pogue, counsel for the Company, shall have
furnished to you their written opinion, dated the Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
state of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the Offering
Circular, including the issuance of the Securities as contemplated
in the Offering Circular;
(ii) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Offering Circular, and all of the
issued shares of capital stock of the Company have been duly and
validly authorized and
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issued and are fully paid and non-assessable, and are owned of
record by Parent;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction listed on an exhibit to the
opinion of such counsel in which it owns or leases properties or
conducts any business so as to require such qualification, (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that
such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(iv) To the best of such counsel's knowledge and other than as
set forth in the Offering Circular, after making inquiry of officers
of the Company but without investigation of governmental records or
court dockets or making any other independent investigation, there
are no legal or governmental proceedings pending to which the
Company is a party or of which any property of the Company is the
subject which, would place in question the legality, validity or
enforceability of the transactions contemplated in the Offering
Circular; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others (such counsel's knowledge being
limited to the individual attorneys who have given substantive
attention to such counsel's representation of the Company); and
(v) The issue and sale of the Securities, the execution and
delivery of this Agreement, the Indenture and the Registration
Rights Agreement, the performance by the Company of its obligations
hereunder and thereunder will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, (A) any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel and listed on an exhibit to the opinion of such counsel to
which the Company is a party or by which the Company is bound or to
which any of the property or assets of the Company is subject, (B)
the Certificate of Incorporation or By-laws of the Company or (C)
any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
any of their properties, except in the case of clauses (A) and (C),
for such conflicts, breaches, violations or defaults as would not
have a Material Adverse Effect (such counsel being entitled to rely
in respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such
certificate);
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(d) On the date of the Offering Circular prior to the execution of
this Agreement and also at the Time of Delivery, PricewaterhouseCoopers,
LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory
to you;
(e) On the date of the Offering Circular prior to the execution of
this Agreement and also at the Time of Delivery, Arthur Andersen shall
have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you;
(f) (i) Neither the Company nor any of the Subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Offering Circular any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Offering Circular, and (ii) since the respective dates as of which
information is given in the Offering Circular there shall not have been
any change in the capital stock or long-term debt of the Company or any
of the Subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and the Subsidiaries, otherwise than as set forth or
contemplated in the Offering Circular, the effect of which, in any such
case described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the offering or the delivery of the
Securities on the terms and in the manner contemplated in this Agreement
and in the Offering Circular;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its
rating of any of the Company's debt securities;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities declared by either Federal
or New York; (iii) the outbreak or escalation of hostilities involving
the United States or the declaration by the United States of a national
emergency or war, if the effect of any such event specified in this
clause (iii) in the judgment of the Purchasers makes it impracticable or
inadvisable to proceed with the offering or the delivery of the
Securities on the terms and in the manner contemplated in the Offering
Circular; or (iv) the occurrence of any material adverse change in the
existing financial, political or economic conditions in the United
States or elsewhere, which, in the judgment of the Purchasers, would
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materially and adversely affect the financial markets or the markets for
the Securities or other debt securities;
(i) The Securities have been designated for trading on PORTAL;
(j) The Company shall have furnished or caused to be furnished to
you at the Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder to
be performed at or prior to such Time of Delivery, as to the matters set
forth in the first paragraph of this Section 7 and subsections (f) and
(g) of this Section 7 and as to such other matters as you may reasonably
request;
(k) The Company shall have entered into the Registration Rights
Agreement and you shall have received executed counterparts thereof;
(l) The Company shall have entered into the Indenture and you shall
have received executed counterparts thereof;
(m) The Company shall have repaid all borrowings under the Bridge
Notes to West Street Fund I, L.L.C. and UBS A.G., Stamford Branch; and
(n) The Company shall have repaid all borrowings under the Junior
Subordinated Notes to the holders thereof.
8. (a) The Company will indemnify and hold harmless each Purchaser against
any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Offering Circular or the Offering Circular, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary to make the
statements therein not misleading, and will reimburse each Purchaser for
any legal or other expenses reasonably incurred by such Purchaser in
connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Offering Circular or the Offering Circular or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Purchaser through Goldman,
Sachs & Co. expressly for use therein.
(b) Each Purchaser will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or
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actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
any Preliminary Offering Circular or the Offering Circular, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Offering Circular or the Offering Circular or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Purchaser through Goldman,
Sachs & Co. expressly for use therein; and will reimburse the Company
for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such action or claim as
such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission by the indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise than under such subsection. In
case any such action shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party),
and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party under such subsection for
any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry
of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or claim
and (ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act, by or on behalf of the indemnified
party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof)
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referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Purchasers on the other
from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice
required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and
the Purchasers on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities
(or actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Purchasers on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Purchasers, in each case as
set forth in the Offering Circular. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the Purchasers on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Purchasers agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation
(even if the Purchasers were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Purchaser
shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and
distributed to investors were offered to investors exceeds the amount of
any damages which such Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The Purchasers' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Purchaser within the meaning of the Act; and the
obligations of the Purchasers under this Section 8
Page 18
<PAGE>
shall be in addition to any liability which the respective Purchasers
may otherwise have and shall extend, upon the same terms and conditions,
to each officer and director of the Company and to each person, if any,
who controls the Company within the meaning of the Act.
9. (a) If any Purchaser shall default in its obligation to purchase the
Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase
such Securities on the terms contained herein. If within thirty-six
hours after such default by any Purchaser you do not arrange for the
purchase of such Securities, then the Company shall be entitled to a
further period of thirty-six hours within which to procure another party
or other parties reasonably satisfactory the non-defaulting Purchaser to
purchase such Securities on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so
arranged for the purchase of such Securities, or the Company notifies
you that it has so arranged for the purchase of such Securities, you or
the Company shall have the right to postpone the Time of Delivery for a
period of not more than seven days, in order to effect whatever changes
may thereby be made necessary in the Offering Circular, or in any other
documents or arrangements, and the Company agrees to prepare promptly
any amendments to the Offering Circular which in your opinion may
thereby be made necessary. The term "Purchaser" as used in this
Agreement shall include any person substituted under this Section with
like effect as if such person had originally been a party to this
Agreement with respect to such Securities.
(b) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate principal
amount of such Securities which remains unpurchased does not exceed one-
eleventh of the aggregate principal amount of all the Securities, then
the Company shall have the right to require each non-defaulting
Purchaser to purchase the principal amount of Securities which such
Purchaser agreed to purchase hereunder and, in addition, to require each
non-defaulting Purchaser to purchase its pro rata share (based on the
principal amount of Securities which such Purchaser agreed to purchase
hereunder) of the Securities of such defaulting Purchaser or Purchasers
for which such arrangements have not been made; but nothing herein shall
relieve a defaulting Purchaser from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate principal
amount of Securities which remains unpurchased exceeds one-eleventh of
the aggregate principal amount of all the Securities, or if the Company
shall not exercise the right described in subsection (b) above to
require non-defaulting Purchasers to purchase Securities of a defaulting
Purchaser or Purchasers, then this Agreement shall thereupon terminate,
without liability on the part of any non-defaulting Purchaser or the
Company, except for the
Page 19
<PAGE>
expenses to be borne by the Company and the Purchasers as provided in
Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting
Purchaser from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Purchasers, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Purchaser or any controlling person of any Purchaser, or the Company, or
any officer or director or controlling person of the Company and shall survive
delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Purchaser except as
provided in Sections 6 and 8 hereof; but if for any other reason the Securities
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Purchasers through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Purchasers in making preparations for the purchase,
sale and delivery of the Securities, but the Company shall then be under no
further liability to any Purchaser except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Purchasers, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Purchaser made or given
by you.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, telex or
facsimile transmission to you in care of Goldman, Sachs & Co., 85 Broad Street,
New York, New York 10004, Attention: Registration Department; and if to the
Company shall be delivered or sent by mail, telex or facsimile transmission to
the address of the Company set forth in the Offering Circular, Attention:
Secretary; provided, however, that any notice to a Purchaser pursuant to Section
8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission
to such Purchaser at its address set forth in its Purchasers' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Purchasers, the Company and, to the extent provided in Sections
8 and 10 hereof, the officers and directors of the Company and each person who
controls the Company or any Purchaser, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Purchaser shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement.
Page 20
<PAGE>
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us ten counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
[Purchase Agreement Signature Page(s) Follow]
Page 21
<PAGE>
Very truly yours,
SIMMONS COMPANY
By:/s/ J.C. Daiker
Name: Jonathan C. Daiker
Title: Executive Vice-President
Chief Financial Officer
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
FLEET SECURITIES, INC.
U.S. BANCORP LIBRA, A DIVISION OF
U.S. BANCORP INVESTMENTS, INC.
WARBURG DILLON READ LLC
By:/s/ Goldman, Sachs & Co.
(Goldman, Sachs & Co.)
On behalf of the Purchasers
Purchase Agreement Signature Page
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount of Senior
Subordinated Notes to be
Purchaser Purchased
- ---------------------------------------------------------------------------
<S> <C>
Goldman, Sachs & Co........................................................ $ 75,000,000
-----------------------------------
Warburg Dillon Read LLC.................................................... 45,000,000
-----------------------------------
Fleet Securities, Inc...................................................... 15,000,000
-----------------------------------
U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc............ 15,000,000
-----------------------------------
Total................................................................. $150,000,000
===================================
</TABLE>
Schedule I Page 1
<PAGE>
ANNEX I
The Securities have not been and will not be registered under the Act and
may not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Regulation S under the Act or
pursuant to an exemption from the registration requirements of the Act. Each
Purchaser represents that it has offered and sold the Securities, and will offer
and sell the Securities (i) as part of their distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering and
the Time of Delivery, only in accordance with Rule 903 of Regulation S or Rule
144A or pursuant to Paragraph 2 of this Annex I under the Act. Accordingly,
each Purchaser agrees that neither it, its affiliates nor any persons acting on
its or their behalf has engaged or will engage in any directed selling efforts
with respect to the Securities, and it and they have complied and will comply
with the offering restrictions requirement of Regulation S. Each Purchaser
agrees that, at or prior to confirmation of sale of Securities (other than a
sale pursuant to Rule 144A) or pursuant to Paragraph 2 of this Annex I, it will
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases Securities from it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered and
sold within the United States or to, or for the account or benefit of,
U.S. persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days after the later of the commencement of the
offering and the closing date, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Act. Terms used above
have the meaning given to them by Regulation S."
Terms used in this paragraph have the meanings given to them by Regulation S.
(1) Notwithstanding the foregoing, Securities in registered form may be
offered, sold and delivered by the Purchasers in the United States and to U.S.
persons pursuant to Section 3 of this Agreement without delivery of the written
statement required by paragraph (1) above.
(2) Each Purchaser further represents and agrees that (i) it has not
offered or sold and prior to the date six months after the date of issue of the
Securities will not offer or sell any Securities to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (b) it
has complied, and will comply, with all applicable provisions of the Financial
Services Act of 1986 of Great Britain with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom,
and (c) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance of
the Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Annex I Page 1
<PAGE>
Order 1996 of Great Britain or is a person to whom the document may otherwise
lawfully be issued or passed on.
(3) Each Purchaser agrees that it will not offer, sell or deliver any of
the Securities in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Securities in such jurisdictions. Each Purchaser
understands that no action has been taken to permit a public offering in any
jurisdiction outside the United States where action would be required for such
purpose. Each Purchaser agrees not to cause any advertisement of the Securities
to be published in any newspaper or periodical or posted in any public place and
not to issue any circular relating to the Securities, except in any such case
with Goldman, Sachs & Co.'s express written consent and then only at its own
risk and expense.
Annex I Page 2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(Registration No. 333-76723) of our report dated February 24, 1999, on our
audits of the financial statements and financial schedules of Simmons Company.
We also consent to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
June 11, 1999
<PAGE>
Exhibit 24
----------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that we, the undersigned officers and directors
of Simmons Company, hereby severally constitute and appoint Zenon S. Nie,
Jonathan C. Daiker and Roger W. Franklin and each of them singly, our true and
lawful attorneys-in-fact and agents, with full power of substitution and
revocation, with full power to them and each of them to sign for us, and in our
names in the capacities indicated below, any and all amendments, including post-
effective amendments and supplements, to the registration statement on Form S-4
of Simmons Company's 10 1/4% Senior Subordinated Notes, and to file the same,
with all exhibits thereto, and other documents in connection therewith, and
generally to do all such things in our names and on our behalf in the capacities
indicated below to enable Simmons Company to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any substitute or substitutes thereof, may
lawfully do or cause to be done by virtue hereof, and further ratifying and
confirming our signatures as they may be signed by said attorneys-in-fact and
agents to all amendments to said registration statement.
Witness our hands and common seal on the respective dates set forth below.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Zenon S. Nie Chairman of the Board April 8, 1999
- ------------------------------------- of Directors,
ZENON S. NIE Chief Executive Officer
and President
/s/ Jonathan C. Daiker Executive Vice President - April 8, 1999
- ------------------------------------ Finance and Administration,
JONATHAN C. DAIKER Chief Financial Officer and
Director
/s/ Martin R. Passaglia Senior Executive Vice President, April 8, 1999
- ----------------------------------- Secretary and Director
MARTIN R. PASSAGLIA
/s/ Peter Lamm Director April 12, 1999
- --------------------------------------
PETER LAMM
/s/ Richard C. Dresdale Director April 12, 1999
- -----------------------------------
RICHARD C. DRESDALE
/s/ Andrea Geisser Director April 12, 1999
- ------------------------------------
ANDREA GEISSER
/s/ Gregory P. Meredith Director April 12, 1999
- ---------------------------------
GREGORY P. MEREDITH
/s/ Mark R. Genender Director June 9, 1999
- ---------------------------------
MARK R. GENENDER
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William L. Ayers, IV Executive Vice President - April 8, 1999
- ---------------------------------- Marketing and Sales
WILLIAM L. AYERS, IV
/s/ Joseph Ulchiny Executive Vice President - April 8, 1999
- ----------------------------------- Market Development
JOSEPH ULICNY
/s/ Robert K. Barton Senior Vice President - April 12, 1999
- ----------------------------------- Human Resources
ROBERT K. BARTON
/s/ Leo T. Brennan Vice President - Materials April 12, 1999
- ----------------------------------- Management
LEO T. BRENNAN
/s/ Roger W. Franklin Vice President - Finance and April 8, 1999
- --------------------------------- Treasurer
ROGER W. FRANKLIN
/s/ James P. Maher Divisional President April 8, 1999
- -----------------------------------
JAMES P. MAHER
/s/ Cleve B. Murphy Divisional President April 8, 1999
- ---------------------------------
CLEVE B. MURPHY
/s/ Gary G. Pleasant Divisional President April 8, 1999
- -----------------------------------
GARY G. PLEASANT
</TABLE>
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-27-1999
<CASH> 8,706
<SECURITIES> 0
<RECEIVABLES> 80,122
<ALLOWANCES> 4,577
<INVENTORY> 21,130
<CURRENT-ASSETS> 131,571
<PP&E> 71,103
<DEPRECIATION> 17,796
<TOTAL-ASSETS> 409,044
<CURRENT-LIABILITIES> 60,950
<BONDS> 333,908
0
0
<COMMON> 320
<OTHER-SE> (18,767)
<TOTAL-LIABILITY-AND-EQUITY> 409,044
<SALES> 146,348
<TOTAL-REVENUES> 146,348
<CGS> 85,586
<TOTAL-COSTS> 85,586
<OTHER-EXPENSES> 55,192
<LOSS-PROVISION> 649
<INTEREST-EXPENSE> 7,941
<INCOME-PRETAX> (6,590)
<INCOME-TAX> (2,110)
<INCOME-CONTINUING> (4,480)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,173
<CHANGES> 0
<NET-INCOME> (6,653)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
